Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th – 16th April 2021

I.                 Executive Summary

The United Nations Commission on International Trade Law (“UNCITRAL” or “Commission”) Working Group III is currently working on a comprehensive reform of the system for investor-State dispute settlement (“ISDS”). Delegations have begun by identifying concerns related to the lack of consistency, coherence, predictability and correctness of arbitral decisions, arbitrators and decision makers, and cost and duration of ISDS and assessed that these problems and shortfalls warrant reform. The Working Group is now in the phase of developing concrete reform solutions to address these concerns. Ideally, these reform solutions should be applicable to the more than 3,000 existing international investment agreements (“IIAs”) through a multilateral instrument and be presented in a flexible manner to ensure that States can adopt them in accordance with their priorities.[2] The African perspective plays a vital role in this reform process. For many African countries the current ISDS system raises important questions and their contributions to the UNCITRAL reform deliberations ensure that their interests and experience are taken into account in the development of a reformed ISDS system for the 21st century.[3]  

II.               Background

ISDS provides a forum for foreign investors to bring claims against the host State to international arbitration tribunals. It was created with the aim of enhancing confidence in the stability of the investment environment primarily in developing countries.[4] More than 3,000 IIAs are in force today.[5] In parallel to the increase in the global web of treaties, the number of ISDS cases brought by foreign investors against States under these IIAs increased and passed the 1,000 mark in 2020.[6]

The UNCITRAL reform process was initiated in 2017 in order to address strong and growing criticism by its stakeholders but also the general public of the ISDS system as it has been set up and operating in the last 60 years. Given the increase in the number of ISDS cases, the fact that they are brought against public measures and involve compensation to foreign investors with public funds, the ISDS system has come under broader public scrutiny. Criticism has emerged in particular relating to the methods of appointing arbitrators, and the impact of such methods on arbitrators’ independence and impartiality, the lack of coherence of a system based on decisions made by tribunals constituted to hear a specific case (also referred to as “ad hoc” tribunals), and the lack of corrective mechanisms (i.e., the lack of appropriate control or appellate mechanisms), the length and costs of the proceedings and the lack of transparency.[7] A first wave of criticism against ISDS had emerged in Latin America based on the perception of bias against States and gave rise to measures by Venezuela, Bolivia and Ecuador to distance themselves from the ISDS system.[8] Criticism in Europe crystallized around the negotiation of the Transatlantic Trade and Investment Partnership Agreement (TTIP). High profile cases such as Phillip Morris v. Australia[9] and Phillip Morris v. Uruguay[10] have also put the topic on a political level in other regions. Reforming ISDS has become in the last decade a recurrent topic in international conferences and academic work,[11] further highlighting the fact that stakeholders in the system had long discarded criticism as factually incorrect but had underestimated the role of perception.

III.             Mandate

In July 2017, UNCITRAL entrusted its Working Group III with the possible reform of the ISDS system against the background of its global reach and its experience with the negotiation of legal instruments in the field of international arbitration. It was the prevailing view that UNCITRAL provides an appropriate multilateral forum to discuss relevant issues in an inclusive and transparent manner, where the interests of not only States but also of other stakeholders could be considered. It was recalled that UNCITRAL has successfully undertaken a first step towards reform of ISDS with the preparation of standards on transparency.[12]

In 2014, the Rules on Transparency in Treaty-based Investor-State Arbitration (2014) (Rules on Transparency), UNCITRAL’s first instrument applicable specifically to ISDS, came into effect.[13] These rules address the need “to take account of the public interest involved in such [ISDS] arbitrations”.[14] The rules apply to ISDS proceedings initiated under the UNCITRAL Arbitration Rules pursuant to an IIA concluded on or after 1 April 2014 unless the parties to the agreement have agreed otherwise. The rules also apply if the IIA was concluded before 1 April 2014 if its parties have agreed to their application.

UNCITRAL further prepared a convention designed to facilitate the application of the Transparency Rules to the 3,000 or more investment treaties concluded before its entry into force, the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (New York, 2014) (the "Mauritius Convention on Transparency") . In essence, the Mauritius Convention on Transparency introduces the substantive transparency standards embodied in the Transparency Rules into the fragmented treaty-by-treaty regime by way of a single multilateral instrument.

After the adoption of these texts, the question was raised whether the Mauritius Convention on Transparency could provide a useful model for possible further reforms in the field of ISDS. It was noted that the then current circumstances posed a number of challenges to ISDS and proposals for reforms had been formulated by a number of organizations.[15] In 2016, a research paper elaborated by the Geneva Center for International Dispute Settlement (CIDS) presented to UNCITRAL formed the basis for further consultations on whether to undertake work on ISDS reform.[16] The report proposed to follow an approach similar to the one pursued in respect of the Transparency Rules and the Mauritius Convention on Transparency, that would allow reform of a complex and atomized system by way of a single multilateral instrument.

The Commission entrusted Working Group III with a broad mandate to work on the possible reform of ISDS. It was emphasized that the Working Group would, in line with the UNCITRAL process, ensure that the deliberations would be Government-led, include the widest possible breadth of available expertise from all stakeholders, with high-level input from all Governments, be consensus-based and fully transparent.[17]

IV.            Process

1.      A government-led process

The Commission had noted that ISDS involves a number of policy issues and highlighted that Governments should have a leading role in the reform process. They should be represented by officials with adequate expertise and experience in negotiating investment treaties or investment chapters in free trade agreements and with exposure to claims related to ISDS.[18] The reform deliberations in Working Group III have benefitted from high level input from government representatives in the working group sessions as well as in the form of over 50 written submissions contributing to the Working Group’s deliberations.[19]

2.      And inclusive process

The Working Group sessions have benefitted from significant and increasing participation by States, including developing and least developed countries. The Working Group session in January 2020 in Vienna, for example, was attended by more than 400 delegates representing 106 States, and 66 international organizations and non-governmental organizations.[20]

Considerable efforts are being made by the UNCITRAL Secretariat to reach out to all regions and countries to raise awareness and build capacity within delegations to effectively participate in the ISDS reform process. Three inter-sessional regional meetings were organized with the support of the Secretariat and hosted by the Governments of the Republic of Korea, the Dominican Republic and Guinea.[21]  Moreover, Hong Kong SAR, China hosted a virtual pre-intersessional meeting.[22]

Prior to Working Group sessions, the Columbia Centre for Sustainable Investment (CCSI) and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), with the assistance of the UNCITRAL Secretariat, regularly conduct training and briefing sessions on ISDS topics being discussed in the Working Group sessions in order to allow delegations to participate fully and effectively in the deliberations. The European Union, Switzerland, Germany and France have provided financial support to facilitate participation by delegations from developing and least developed countries.

3.      Broad inputs from all stakeholders

The deliberations of the Working Group are based on a broad range of available expertise from different stakeholders. More than 66 international inter-governmental organizations and non-governmental organizations with a variety of industry and policy expertise have participated in the Working Group sessions as observers and have organized numerous side events during as well as in-between the Working Group sessions.[23] An Academic Forum on ISDS and a Practitioners Group have been set up early in the process as informal groups aimed at making constructive contributions to the ongoing discussions by providing information from their research and experience.[24]

The UNCITRAL Secretariat has prepared working papers on identified issues and reform options in preparation of the Working Group sessions with reference to a broad range of published information on the topics.[25] Further, the Secretariat has organized a series of informal webinars, in which state representatives and leading experts shed light on reform topics with the aim to brainstorm on the reform options on the agenda and to advance the discussions.[26]

4.      Consensus-based process

Legislative work by UNCITRAL and its working groups is generally based on consensus.[27] In accordance with UNCITRAL practice, consensus does not require unanimity, but is instead based on a widely prevailing majority and the absence of a formal objection that would trigger a request for a vote. While the adoption of an instrument or a text by consensus does not give it any binding nature and States remain free to decide whether they want to adopt or apply it, it was stated that efforts should be made to consider all possible options so as to achieve the broadest consensus.[28]

5.      Transparency

The reform process is being conducted in a fully transparent manner. Each step of the deliberations is documented in the Working Group and Commission reports. The reports as well as the notes by the Secretariat and submissions by States are publicly available on the UNCITRAL web page in all six UN languages.[29] Moreover, audio recordings of the sessions are available on the UNCITRAL web page.[30]

6.      Coordination with parallel ISDS reform developments

Besides the UNCITRAL ISDS reform process, reform developments are also taking place in other fora. ICSID is updating its rules through the Rules and Regulations Amendment process particularly addressing concerns relating to cost and duration of ISDS processes.[31] As the reform topics partially overlap, as does their respective membership, the Secretariats of UNCITRAL and ICSID are cooperating closely in order to work towards harmonized solutions and avoid a further fragmentation of the legal framework for ISDS. Reform items such as third-party funding and the establishment of an appeal mechanism will require close cooperation with the ICSID Secretariat in order to develop an effective and coherent reform package. The UNCITRAL reform process generally takes into account the implications of the ISDS reform for the application of existing arbitration rules and administering institutions.

The OECD is hosting a forum that also touches upon certain ISDS related topics – the Freedom of Investment process. The UNCITRAL Secretariat particularly took into consideration the OECD’s work on the topics of shareholder claims and reflective loss in its preparatory work.[32]

Other reform developments are taking place on the level of IIAs. Most of the IIAs signed in recent years contain reform elements including the approaches of no ISDS, a standing ISDS tribunal, limited ISDS and improved ISDS procedure.[33] These developments are monitored and supported by the  United Nations Conference on Trade and Development (UNCTAD), which assists policymakers, government officials and other IIA stakeholders to reform IIAs with a view to making them more conducive to sustainable development and inclusive growth.[34]

The Secretariat also monitors developments such as the negotiation of the investment protocol of the African Continental Free Trade Area (AfCFTA) and the related provisions on dispute settlement. Participation by the African Union Secretariat in Working Group III and outreach efforts are underway to avoid a further fragmentation of the system and a coherent delivery on ISDS reform.

Lastly, while it is the objective to develop reform options in a coherent and consistent manner, an additional layer of consistency needs also be addressed. It was noted that a reform of ISDS needs to ensure that ISDS does not undermine the obligations of States to take action under the Sustainable Development Goals and against climate change under the Paris Agreement.[35]

7.      Progress during COVID-19 pandemic

In order to maintain the momentum of the reform discussion and to ensure that the process remains inclusive and transparent during COVID-19 pandemic which brought about all sorts of restrictions and challenges, the Secretariat has put together a programme of virtual events and other inter-sessional activities open to all delegations and stakeholders. This programme included informal briefings for delegations, a series of webinars on the reform options on the agenda and the Virtual Panel Series “UNCITRAL Texts and COVID-19 Response and Recovery”.

In October 2020 and February 2021 Working Group III held hybrid sessions on a video-conferencing platform, with interpretation into all six UN languages and the possibility of physical participation in Vienna. While this format is not necessarily conducive to substantive negotiations and to consensus, it provides a useful tool for exchanges of views among delegations and give instructions to the Secretariat.

V.              Reform Solutions

The Working Group completed the first two phases of the reform agenda based on a broad consensus on identified concerns with regard to the current ISDS system and the desirability of reform and has started with the preliminary consideration of a number of reform solutions as part of phase three of its mandate.[36]

1.      Development of reform solutions

In its session in October 2019, the Working Group has started with the preliminary consideration of the identified reform options.[37] These discussions were based on the States’ submissions and the working papers prepared by the UNCITRAL Secretariat; they also take into consideration input from relevant observers. The Working Group has given concrete feedback and directions, based on the working papers and usually requested that the Secretariat proceeds with the development of draft provisions.

At this stage, and without prejudice to the decisions of the Working Group, it is possible to categorize the reform options into two broad categories or streams. A first category, that we could call, procedural reform options would include those reform options that typically feature in the investment chapters of the more modern free trade agreements and address the ISDS procedure with a view to correct lack of clarity, shortcomings in the procedure that have over the years shown to need addressing by the States. Most of these reform options have already been addressed in one way or the other in existing treaties but would benefit from being consistently generalized for all ISDS disputes.

Under this category or stream, the Working Group has identified the following reform options:

·        Strengthening ADR mechanisms, including recourse to investor-State mediation

·        Developing structures and policies to strengthen and operationalize dispute prevention

·        Develop new methods for selection and appointment of ISDS arbitrators

·        Develop a code of conduct for adjudicators in ISDS

·        ISDS procedural rules reforms (including procedure to address frivolous claims; multiple proceedings; reflective loss; counterclaims; security for costs; third party funding; treaty interpretation, calculation of damages)

A second category regroups reform options of more structural or institutional nature. There reform options consist on setting-up new mechanisms and new institutions such as:

·        The establishment of a multilateral advisory centre patterned on the WTO-ACWL to assist States in ISDS procedures

·        Establishment of an appellate mechanism or a second instance appellate court to hear appeals against arbitral awards or first instance court judgements.

·        The establishment of a permanent investment court comprising a first and a second instance standing body.

The Working Group has also started discussing the delivery mechanism for the entire reform of ISDS, through a Multilateral instrument to host and implement the reforms.[38]

2.      Implementation of the reform: a multilateral framework based on the Mauritius Convention on Transparency model?

Implementation is a key question and has been addressed in numerous submissions by States.[39] As discussed early in the process, a potential model is the Mauritius Convention on Transparency. Such mechanism for ISDS reform implementation could consist of a convention designed to facilitate the application of a reform to the roughly 3,000 investment treaties concluded before the entry into force of such reform. It could introduce changes into the fragmented treaty-by-treaty regime by way of a single multilateral instrument and would constitute the vehicle by which the various reform options are proposed to States for implementation.[40]

Submissions by States further suggest the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) as a model.[41] It is suggested that “blocks” of options could be considered as minimum standard and other blocks that States could opt-in or opt-out of.[42] A submission foresees the development of an instrument establishing a standing multilateral first instance and appellate court and an open approach to implement the reform option, allowing States to either use the standing mechanism as such, or limit its use, for instance, by applying it to State-to-State dispute settlement only, or by utilizing only the appellate mechanism.[43] Yet another submission proposes the elaboration of a “suite” approach, aimed at developing a menu of relevant solutions, of which States would incorporate one or more into their investment treaties, taking into account their own political and policy concerns and interests.[44]

It was also noted in the Working Group that a set of core provisions to which all States would sign on and a number of additional optional elements that could be opted in or out by any participating State would be a possible way forward but it still needs to find a way to balance flexibility for States with further fragmentation and inconsistency in the ISDS system.[45]

 

VI.            Spotlight on Role of and contributions by African States and experts

In accordance with its geographic representation, the 60 member States of UNCITRAL include 14 African States. Membership is currently held by Algeria, Burundi, Cameroon, Côte d’Ivoire, Ghana, Kenya, Lesotho, Libya, Mali, Mauritius, Nigeria, South Africa, Uganda and Zimbabwe. However, many more African States and observer organizations have actively participated in the Working Group III deliberations.

The Secretariat has received numerous written submissions from African States and experts on the reform solutions discussed in the Working Group.[46] Also, an inter-sessional regional meeting was hosted by the government of Guinea in Conakry in September 2019 to discuss issues related to ISDS reform and African experiences and priorities. This meeting was attended by government officials from 33 States.[47]

The Secretariat is in close contact with the Organization for the Harmonization of Business Law in Africa (OHADA) to coordinate work related to arbitration and mediation. Moreover, the Secretariat is making efforts to coordinate its work with the AfCFTA Secretariat, building on the close working relationship and collaboration, in particular with regard to transparency in ISDS, the operation of the UNCITRAL transparency registry as well as the work of Working Group III on ISDS reform. The Secretariat has organized webinars in French on the reform topics of a code of conduct, the selection and appointment of judges and the costs and financing of an advisory centre facilitating the participation by francophone African States. Moreover, the Organisation internationale de la Francophonie hosts pre-session consultations in French to discuss the work and progress of Working Group III, which were also attended by many francophone African States.

VII.          Conclusion

The Working Group has completed a first round of preliminary considerations of reform options, tasked the Secretariat with further extensive preparatory work and engaged actively in discussion on the structure and resources for future work. For several of the reform options on the agenda, draft provisions have been developed by the Secretariat to provide the Working Group with a solid basis for further deliberations. A work plan has been prepared aiming for a delivery of a complete reform of the ISDS system by 2024 and a final adoption by the Commission in 2025.

The Working Group continues to simultaneously discuss, elaborate and develop multiple reform solutions. It finds itself now at the juncture where it needs to allocate working group time to the development of streams of reform options, grouping them for more coherence into a first set of provisions to reform the dispute settlement provisions of existing and future IIAs or relevant rules and a second batch or stream on a reformed dispute system design with the establishment of standing bodies such as a first instance court, an appellate court or mechanism and an advisory centre on ISDS for developing countries. It will also start deliberating on the delivery mechanism for the overall reform process, through a multilateral convention that will host the entire reform.

Now that the development of reform options is well underway, it is even more important for States and stakeholders from the African region to be fully involved and to make their voices and priorities heard. While negotiating an investment chapter to the AfCFTA, it is also essential that the reform options being developed in UNCITRAL are reflected or further taken on-board, that coordination mechanisms are established to ensure that the first investment chapter to be developed after the reform of ISDS has begun completely reflects the current state of play and builds on it.

* Anna Joubin-Bret is the Secretary of the United Nations Commission of International Trade Law (UNCITRAL) and Director of the International Trade Law Division of the Office of Legal Affairs of the United Nations; Ms Joubin-Bret was assisted by David Probst, an Associate Expert in International Trade law at the UNCITRAL Secretariat; The views expressed in this article are those of the authors and do not necessarily represent those of the Organization.

[2] This contribution reports on an ongoing reform process, which continues to make progress. For the latest updates on UNCITRAL’s activities and the current status of the reform discussion, please visit the UNCITRAL Working Group III web page (https://uncitral.un.org/en/working_groups/3/investor-state) and follow our posts on twitter (@annajoubinbret) and LinkedIn (https://www.linkedin.com/company/uncitral/).

[3] The UNCTAD World Investment Report 2020 states that in 2019 “[a]s in previous years, the majority of new cases (80 per cent) were brought against developing countries and transition economies.”, available at https://unctad.org/system/files/official-document/wir2020_en.pdf (last accessed 9 April 2021).

[4] See also “Possible reform of investor-State dispute settlement (ISDS), Note by the Secretariat”, UNCITRAL, Working Group III, 34th Sess. (Vienna, 27 November-1 December 2017), UN Doc. A/CN.9/WG.III/WP.142 (18 September 2017) para. 6.

[5] “International Investment Agreements Navigator”, (United Nations Conference on Trade and Development, Investment Policy Hub), <https://investmentpolicy.unctad.org/international-investment-agreements> (last accessed 2 December 2020).

[6] “Investor-State Dispute Settlement Cases pass the 1,000 Mark: Cases and Outcomes in 2019”, UNCTAD IIA issues note, issue 2 (July 2020), <https://unctad.org/en/PublicationsLibrary/diaepcbinf2020d6.pdf> (last accessed 2 December 2020); Many more cases are brought under contracts and investment laws.

[7] See Gabrielle Kaufmann-Kohler and Michele Potestà (CIDS – Geneva Centre for International Dispute Settlement), “Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap” (3 June 2016), available from <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/cids_research_paper_mauritius.pdf>, para. 18-23; See also Anna Joubin-Bret and Jean E. Kalicki, “Introduction”, in Anna Joubin-Bret and Jean E. Kalicki, eds., Reshaping the Investor-State Dispute Settlement System, (Brill | Nijhoff 2015), pp. 1-17.

[8] Bolivia denounced the ICSID Convention in 2007 (See news release, Denunciation of ICSID Convention (16 May 2007), available from <https://icsid.worldbank.org/news-and-events/news-releases/denunciation-icsid-convention> (last accessed 2 December 2020)); Ecuador denounced the ICSID Convention in 2010 (See news release, Denunciation of the ICSID Convention by Ecuador (9 July 2009), available from <https://icsid.worldbank.org/news-and-events/news-releases/denunciation-icsid-convention-ecuador> (last accessed 2 December 2020)); Venezuela denounced the ICSID Convention in 2012 (See news release, Venezuela Submits a Notice under Article 71 of the ICSID Convention (26 January 2012), available from <https://icsid.worldbank.org/news-and-events/news-releases/venezuela-submits-notice-under-article-71-icsid-convention> (last accessed 2 December 2020)).

[9] Philip Morris Asia Limited v. The Commonwealth of Australia (PCA Case No. 2012-12), see UNCTAD Investment Dispute Settlement Navigator, <https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/421/philip-morris-v-australia> (last accessed 2 December 2020).

[10] Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay (ICSID Case No. ARB/10/7), see UNCTAD Investment Dispute Settlement Navigator, <https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/368/philip-morris-v-uruguay> (last accessed 2 December 2020).

[11] See for example Evolution and Adaption, The Future of International Arbitration, ICCA Congress Series no. 20 (2018); Anna Joubin-Bret and Jean E. Kalicki, eds., Reshaping the Investor-State Dispute Settlement System, (Brill | Nijhoff 2015); See also George A. Bermann, Reshaping the Investor-State Dispute Resolution System, ICSID Review - Foreign Investment Law Journal, Volume 31, Issue 1, Winter 2016, Pages 232–235, https://doi.org/10.1093/icsidreview/siv041 (last accessed 29 January 2021).

[12] “Report of the United Nations Commission on International Trade Law, Fiftieth session (3-21 July 2017)” General Assembly, 72nd Sess., UN Doc. A/72/17, para. 258.

[13] UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (effective date: 1 April 2014), text and additional resources available on the UNCITRAL web page at <https://uncitral.un.org/en/texts/arbitration/contractualtexts/transparency> (last accessed 4 December 2020).

[14] “Report of the United Nations Commission on International Trade Law”, 46th Sess. (8-26 July 2013) General Assembly, 68th Sess., UN Doc. A/68/17, Annex I, at C.

[15] “Report of the United Nations Commission on International Trade Law”, 48th Sess. (29 June-16 July 2015) General Assembly, 70th Sess., UN Doc. A/70/17, para. 268; See also “Settlement of commercial disputes: presentation of a research paper on the Mauritius Convention on Transparency in Treaty-based Investor-State Arbitration as a possible model for further reforms of investor-State dispute settlement, Note by the Secretariat” UNCITRAL, 49th Sess. (New York, 27 June-15 July 2016) UN Doc. A/CVN/9/890 (24 May 2016).

[16] Gabrielle Kaufmann-Kohler and Michele Potestà (CIDS – Geneva Centre for International Dispute Settlement), “Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap” (3 June 2016), available from <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/cids_research_paper_mauritius.pdf>, p. 93, 94.

[17] See also wording of the mandate in “Report of the United Nations Commission on International Trade Law”, 50th Sess. (3-21 July 2017) General Assembly, 72nd Sess. Supplement No. 17, UN Doc. A/72/17, para. 264.

[18] “Report of the United Nations Commission on International Trade Law”, 50th Sess. (3-21 July 2017) General Assembly, 72nd Sess. Supplement No. 17, UN Doc. A/72/17 (henceforth Commission Report 72), para. 250.

[19] Submissions by States and observer organizations are published on the UNCITRAL Working Group III web page at <https://uncitral.un.org/en/working_groups/3/investor-state> (last accessed 2 December 2020).  

[20] See “Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its resumed thirty-eighth session” (Vienna, 20–24 January 2020) UNCITRAL, 54th Sess., UN Doc. A/CN.9/1004/Add.1 (28 January 2020) (henceforth WGIII Report 1004/Add.1) p. 3; See also “UNCITRAL Working Group on investor-State dispute settlement (ISDS) continues work on reforms”, Press Release, UNIS Vienna, United Nations Information Service, (24 January 2020), available at <https://unis.unvienna.org/unis/en/pressrels/2020/unisl289.html> (last accessed 2 December 2020).

[21] First Inter-sessional Regional Meeting 10-12 September 2018, Incheon, Republic of Korea; Second Inter-sessional Regional Meeting, 13-14 February 2019, Santo Domingo, Dominican Republic; Third Inter-sessional Regional Meeting, 26 September 2019, Conakry, Guinea. 

[22] Virtual Pre-Intersessional Meeting on the Use of Mediation in ISDS, 9 November 2020.

[23] See WGIII Report 1004/Add.1, p. 3; See also “UNCITRAL Working Group on investor-State dispute settlement (ISDS) continues work on reforms”, Press Release, UNIS Vienna, United Nations Information Service, (24 January 2020), available at <https://unis.unvienna.org/unis/en/pressrels/2020/unisl289.html> (last accessed 2 December 2020).

[24] See “Report of the United Nations Commission on International Trade Law, 51st Sess. (25 June–13 July 2018) General Assembly 73rd Sess., UN Doc. A/73/17 (31 July 2018), para. 144; See also “Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-sixth session (Vienna, 29 October–2 November 2018)” UNCITRAL, 52nd Sess., UN Doc. A/CN.9/964 (6 November 2018) (henceforth WGIII Report 964) para. 15; Concept papers of the Academic Forum on ISDS can be accessed on the following dedicated web page: <https://www.jus.uio.no/pluricourts/english/projects/leginvest/academic-forum/>.

[25] Working Papers and additional resources can be accessed on the UNCITRAL Working Group III web page at <https://uncitral.un.org/en/working_groups/3/investor-state>.

[26] See the dedicated web page, Virtual Panel Series: UNCITRAL Texts and COVID-19 Response and Recovery - 8 to 9 and 13 to 16 July 2020 at <https://uncitral.un.org/en/COVID-19-panels>.

[27] Commission Report 72 , para. 259.

[28] Ibid.

[29] See UNCITRAL Working Group III web page at (<https://uncitral.un.org/en/working_groups/3/investor-state>) (last accessed 4 December 2020).

[30] Audio recordings of the Working Group III sessions can be accessed at <https://uncitral.un.org/en/audio>.

[31] For further information on the ICSID Rules and Regulations Amendment project see the ICSID web page at <https://icsid.worldbank.org/resources/rules-and-regulations/icsid-rules-and-regulations-amendment-working-papers> (last accessed 3 December 2020).

[32] See Secretariat Note 170.

[33] See ”Reforming Investment Dispute Settlement: A Stocktaking” UNCTAD (March 2019, Issue 1), available at <https://unctad.org/en/PublicationsLibrary/diaepcbinf2019d3_en.pdf> (last accessed 3 December 2020); In the (signed but not yet ratified) U.S.-Mexico-Canada Agreement (USMCA), Canada withdraws from the ISDS mechanism as it existed under NAFTA; Recently, 23 Member States of the European Union signed an agreement for the termination of intra-EU bilateral investment treaties as such.

[34] ”Reforming Investment Dispute Settlement: A Stocktaking” UNCTAD (March 2019, Issue 1), available at <https://unctad.org/en/PublicationsLibrary/diaepcbinf2019d3_en.pdf> (last accessed 3 December 2020).

[35] WGIII Report 1004, para. 99.

[36] The Working Group had identified a number of concerns related to the following three broad categories: the lack of consistency, coherence, predictability and correctness of arbitral decisions, arbitrators and decision makers, and cost and duration of ISDS. The Working Group had further agreed to discuss, elaborate and develop multiple potential reform solutions simultaneously.

[37] WGIII Report 1004, para. 25.

[38] See WGIII Report 1004, para. 17; WGIII Report 970, para. 39 and 40; This list of reform options was considered non-exhaustive and other concerns were not precluded from being identified and dealt with at a later stage of the deliberations.

[39] The Submissions that refer to the implementation of multiple reform options include the following: Submission by the European Union 159/Add.1; “Possible reform of investor-State dispute settlement (ISDS)

Submission from the Government of Colombia, Note by the Secretariat”, UNCITRAL Working Group III, 38th Sess. (Vienna, 14–18 October 2019) UN Doc. A/CN.9/WG.III/WP.173 (14 June 2019) (henceforth Submission by Colombia 173); and Submission by Ecuador 175; see also “Possible reform of investor-State dispute settlement (ISDS), Submission from the Governments of Chile, Israel, Japan, Mexico and Peru, Note by the Secretariat”, UNCITRAL Working Group III, 38th Sess. (Vienna, 14–18 October 2019) UN Doc. A/CN.9/WG.III/WP.182 (2 October 2019) (henceforth Submission by Chile, Israel, Japan, Mexico and Peru 182), suggesting implementation of reform options through a “suite” approach; See also Secretariat Note 194; WGIII Report 1004, paras. 101 and 104.

[40] Gabrielle Kaufmann-Kohler and Michele Potestà (CIDS – Geneva Centre for International Dispute Settlement), “Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap” (3 June 2016), available from <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/cids_research_paper_mauritius.pdf>, p. 93, 94.

[41] Submission by Colombia 173.

[42] Submission by Colombia 173, para. 29.

[43] Submission by the European Union 159/Add.1, paras. 35–37, 39.

[44] Submission by Chile, Israel, Japan, Mexico and Peru 182, p. 2 and Annex.

[45] Ibid., para. 108.

[46] See UNCITRAL Working Group III webpage, <https://uncitral.un.org/en/working_groups/3/investor-state> (last accessed 8 April 2021).  

[47] See Summary of the intersessional regional meeting on investor-State dispute settlement (ISDS) reform submitted by the Government of the Republic of Guinea, A/CN.9/WG.III/WP.183, available at <https://undocs.org/en/A/CN.9/WG.III/WP.183> (last accessed 7 April 2021).  

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th – 16th April 2021 

The Approach of Member States of the Southern African Development Community to Investor-State Dispute Resolution

Investor-state dispute settlement ("ISDS") has long been contentious within Southern Africa largely because of the South African government's policy position towards international investment arbitration. This policy position was primarily informed by the challenge to South Africa's black economic empowerment requirements in the mining and minerals sector of South Africa by foreign investors from Italy. This policy position also filtered into the multilateral relationship of South Africa with other Southern African Development Community ("SADC") member states, as can been seen with the adoption of the Amendments to Annex 1 (Cooperation in Investment) of the SADC Protocol on Finance and Investment ("Amended Investment Protocol") by SADC member states at the 36th SADC Summit in August 2016 which specifically omitted recourse by SADC investors to international investment arbitration against SADC member states. This decision effectively expunged ISDS as an option for SADC investors against member states for any alleged violations of the guarantees or commitments under the Amended Investment Protocol and restricted dispute resolution to inter-State dispute resolution.   

The prelude to the expungement of ISDS in SADC could perhaps be said to be the unanimous decision of the SADC Summit on 18 August 2014 to adopt a new Protocol on the SADC Tribunal which intended to restrict the SADC Tribunal’s jurisdiction to inter-State disputes and abolish its jurisdiction over cases brought by non-State parties. However, despite being signed by SADC member states the new Protocol on the SADC Tribunal has not yet entered into force. And as things currently stand it may never come into force due South Africa withdrawing its signature thereto pursuant to the judgement of its highest court (the Constitutional Court) in the case of Law Society of South Africa and Others v President of the Republic of South Africa and Others[1] which ordered the South African President to withdraw his signature from the new Protocol on the basis that South Africa's participation in the new Protocol constituted a violates the South African constitutional values. The consequence of the new Protocol not yet being enforced implies that the Tribunal Protocol remains valid, save for the fact that it remains inoperable. Although the SADC Tribunal was not specifically established for the resolution of investment disputes, history reflects that it was approached by SADC nationals for that purpose and also accepted that it had jurisdiction to entertain such cases.

With the SADC Tribunal being inoperable and the expungement of ISDS through the Amended Investment Protocol, it can be argued that ISDS in SADC is non-existent on a multilateral level in SADC. As there is clear intent by SADC member states that ISDS on a multilateral level be eliminated and that dispute resolution by investors with a member state be through such state's domestic courts or such other specific dispute resolution mechanism contemplated by such state's domestic laws (i.e., Investment Laws).  The other option for SADC investors is possibly diplomatic protection under customary international law. However, as history has also shown governments in the region are not always inclined to initiate an espousal claim against other member states pursuant to a request for diplomatic protection by its national. In the case of Van Zyl and Others v Government of Republic of South Africa and Others[2] South Africa declined to exercise diplomatic protection against Lesotho relating to a claim by a South African national that Lesotho expropriated its mining leases for diamonds in Lesotho.  The courts agreed with the South Africa government's refusal to exercise diplomatic protection amongst others on the basis that such a decision is discretionary and constitutes executive action under the South African Constitution.

The position with ISDS by SADC member states on a multilateral does not align to what has been done or is being done on a bilateral level by SADC member states. The bilateral position each member state may adopt is also reflected in the SADC Model Bilateral Investment Treaty ("SADC Model BIT") which provides for an election by each member state to either include ISDS or omit ISDS in its bilateral investment treaties ("BITs"). It must however be understood that the SADC Model BIT was developed as a consequence of the goal under the Annex 1 (Cooperation in Investment) of the SADC Protocol on Finance and Investment (prior to its amended by the Amended Investment Protocol) to promote harmonization of member states investment policies and laws in the region. The SADC Model BIT contains several innovative features which could be included in any new BIT with the option of ISDS such as counterclaims by the state, the participation of amicus curiae, consolidation of arbitrations and potential appeal mechanism etc. It also provides for more onerous substantive obligations on investors.

As far as I am aware there are no new BITs that any of SADC member states have negotiated or concluded with third party states that reflects any of the provisions proposed in the SADC Model BIT. Most of the BITs of SADC member states that are still enforce are old generation BITs which expressly incorporate ISDS. South Africa despite its policy position on ISDS is also still party to several BITs (some with fellow SADC members[3] and other African[4] states) that contain express ISDS provisions. From this it is also apparent that there was no outright abandonment of ISDS by South Africa on a bilateral level, but that the strategic nature of the relationship with a third party state would dictate whether ISDS is in or out. The South African policy position remains primarily geared towards resolving investment disputes with investors domestically, with a preference for mediation and alternatively court litigation or arbitration (commercial arbitration, whether international or domestic) to the extent that an underlying agreement provides therefor.   

With these developments on ISDS in the SADC region, the question then is whether this is not a clear sign of stagnation of ISDS on a multilateral level? And I must say that it appears to be so, even if one compares the developments with ISDS in SADC with other Regional Economic Communities (RECs) in Africa. In West Africa under the Economic Community of West African States (ECOWAS), the ECOWAS Court of Justice provides access to investors to resolve investment disputes. Under the Common Investment Agreement for Common Market for Eastern and Southern Africa (COMESA), which is not yet enforced, provision is made for investment disputes to be referred to the COMESA Court of Justice or a tribunal constituted under such Court. Several RECs in Africa have provisions for Intra-regional investors to access ISDS, even though through a regional Court.

The total expungement of ISDS on a multilateral level in SADC needs to be corrected. The perception by investors of domestic court systems is that the judiciary is not entirely independent and impartial. This perception is exacerbated when government or a government functionary is counterparty to a dispute with an investor. Whether there is any credence to this perception is difficult to ascertain, but it does raise legitimate concerns by investors and further highlights the need for an effective multilateral dispute resolution system in SADC for investment disputes. In addition to the comparison of the approach adopted in other African RECs with investment dispute resolution it is also important to consider how the European Union ("EU") has approached ISDS in recent years. The decision in Acheama[5] by the Court of Justice of the European Union ("CJEU") put the spotlight on intra-European investor-dispute resolution. The decision resulted in the resolution by the EU to “terminate all bilateral investment treaties concluded between them by means of a plurilateral treaty, or, where that is mutually recognised as more expedient, bilaterally" and consequently to remove the option of investor-state arbitration. The EU's policy is now to establish a permanent Multilateral Investment Court moving away from investor-state arbitration. By doing so the EU appears to recognize the fundamental rationale for the continued existence of an effective investment dispute resolution system on a multilateral level for investors in Europe[6]. It may not be investment arbitration, but a judicial system that is not perceived to be biased towards a particular state. The rationale behind a multilateral court system is premised on the same fundamentals as investor state arbitration, namely: the fear that national courts will be biased providing a so-called "home advantage" to the state to the disadvantage of non-nationals. The fear is predicated not purely on concerns about the independence and impartiality of the judiciary, but the judiciaries' expertise and skills to adjudicate specialised and complex investment disputes.

As can be seen with the Acheama matter the CJEU has begun to assert a role as the so-called protector of foreign investors within the EU. In SADC or on an African continental level there is no multilateral court system providing similar forms of recourse as the CJEU. It must be recognized by SADC and African states more broadly when we talk about investment protection, that establishing a multilateral court system for the resolution of investment disputes in the absence of investor state arbitration does not imply that the principles of "mutual trust" and "sincere cooperation" is being challenged.[7] But it recognizes that national justice system in Africa has not always provided satisfactory protection to investors.  It is not clear whether there are any real efforts by SADC member states to ensure the SADC Tribunal becomes operational again, in particular pursuant to judgement of both the South African Constitutional Court ordering the South African President to withdraw the signature of South Africa to the new Protocol for the Tribunal and the more recent judgement of the Tanzanian High Court added its voice of displeasure to the disbandment of the SADC Tribunal. In a judgement handed down in 2019 by the Tanzania High Court in the case of Tanganyika Law Society and Others v Ministry of Foreign Affairs and International Cooperation of the United Republic of Tanzania, the Tanzanian High Court[8] the court also held that:

"The suspension of the operations of the SADC Tribunal; and failure or refusal to appoint Judges contrary to the clear Treaty provisions, was inimical to the Rule of law as a foundational principle inherent to the legitimacy of the Community; and as expressly entrenched in the Treaty" 

Whatever the efforts are by SADC member states in either progressing the ratification of the new Protocol of the SADC Tribunal or considering how to deal with the decisions of both the South African and Tanzanian courts, there is a clear question mark over the SADC Tribunal's jurisdiction to adjudicate investment disputes independent from any other multilateral SADC investment instrument. Even if the SADC Tribunal becomes fully operational again it is imperative that the jurisdiction of the SADC Tribunal be clearly defined. One would probably argue (and correctly so) that by virtue of the Amended Investment Protocol ISDS has clearly be removed on a multilateral level and that any recourse to the SADC Tribunal (if operational again) by SADC investors must expressly be provided for in the Amended Investment Protocol and consequently the SADC Treaty and SADC Tribunal Protocol will need to reflect this.

The question whether the SADC Tribunal had jurisdiction to entertain human rights disputes and by implication also investment disputes has been raised by several academics. The decision by the SADC Tribunal in Mike Campbell (Pvt) Ltd and others v The Republic of Zimbabwe[9] case (“Campbell dispute”) which although premised on human rights abuses (i.e., unlawful expropriation of Zimbabwean white farmers on racial discriminatory grounds) were akin to investment disputes. The Campbell dispute was specifically referenced and discussed by the Singapore Court of Appeal in the matter of Swissbourgh Diamond Mines (Pty) Ltd v Kingdom of Lesotho[10] ("Swissbourgh") when it had to express a view on the nature and extent of the SADC Tribunal's jurisdiction to entertain investment dispute, in light of the Swissbourgh claim that Lesotho participated in the shuttering/disbandment of the SADC Tribunal leave Swissbourgh and others without effective legal recourse against Lesotho. In analysing the SADC Tribunal Protocol, the court expressed the view that articles 14 and 15 of the SADC Tribunal Protocol did not provide investors with a right to refer investment disputes to the SADC Tribunal. The court held that "This does not sit well with our finding that Arts 14 and 15 of the Tribunal Protocol do not, without more, give investors the right to refer a dispute to the SADC Tribunal. With respect, we doubt the correctness of those aspects of Campbell v Zimbabwe. Significantly, we note that this appears to be what led the SADC Summit to suspend the operation of the SADC Tribunal and to introduce changes to the Tribunal Protocol confining the SADC Tribunal’s jurisdiction to inter-State disputes: see [26] above.[11]" 

The finding of the Singapore Court of Appeal leads me to consider the rationale that underpin the conclusion that "that Arts 14 and 15 of the Tribunal Protocol do not, without more, give investors the right to refer a dispute to the SADC Tribunal". The constitutive instrument of SADC, the SADC Treaty which was signed on 17 August 1992 and entered into force on 30 September 1993. SADC was established with the objective of advancing economic development and integration, strengthening the social and cultural ties, and eradicating poverty and communicable diseases in the Southern African region. In pursuit of these objectives, article 9 of the SADC Treaty establishes several institutions including the SADC Tribunal. Article 16(1) of the SADC Treaty provides for the establishment of the SADC Tribunal “to ensure adherence to and the proper interpretation of the provision of the SADC Treaty and subsidiary instruments and to adjudicate upon such disputes as may be referred to it”, with article 32 containing a dispute settlement provision. Despite the SADC Treaty providing for the establishment of the SADC Tribunal it took several years for the member states to give effect thereto. On 7 August 2000, the SADC Member States entered into the Tribunal Protocol, which came into force on 14 August 2001. As envisaged under Art 16(2) of the SADC Treaty, the Tribunal Protocol governs matters relating to the SADC Tribunal such as its composition, powers, functions and procedures. Articles 14 and 15 of the Tribunal Protocol set out the basis and scope of the SADC Tribunal’s jurisdiction.

Lesotho in the Swissbourgh case contended that when one has regard to the provision of the SADC Treaty and the Tribunal Protocol, these instruments do not appear to confer upon investors any independent and enforceable right to refer an investment dispute to the SADC Tribunal. The court[12] found that the provision of the SADC Treaty and Tribunal Protocol is primarily concerned with the establishment of the SADC and its key organs and institutions, and that while article 32 of the SADC Treaty is a dispute resolution provision, it is only intended to provide for a mechanism for the resolution of inter-State disputes amongst the SADC member states. Thus, the court agreed with Lesotho's interpretation and also held that the SADC Treaty is not intended to accord any specific or enforceable rights to investors and reliance thereon to bring an investment protection claim is misconstrued. The court further aligned it with the interpretation of the government "that articles 14 and 15 of the Tribunal Protocol do not constitute an independent basis of jurisdiction for the SADC Tribunal to assume jurisdiction over a dispute given that they are functionally equivalent to articles 36(1) and 34(1) of the Statute of the International Court of Justice (26 June 1945) respectively, neither of which establishes an independent basis of consent for the submission of any independent dispute to the International Court of Justice (''the ICJ”)". The court stated "that the Tribunal Protocol are not jurisdiction-conferring provisions that establish any basis of consent by the SADC member states to the submission of particular investment disputes by private investors to the SADC Tribunal; indeed, a contrary conclusion would constitute a radical expansion of the jurisdiction of the SADC Tribunal which is unsupported by the text and surrounding context of the Tribunal Protocol".[13] The interpretation by the Singapore Court of Appeal in the Swissbourgh case that the SADC Treaty was not intended to accord any specific or enforceable rights to investor to bring investment protection claims to the SADC Tribunal appears to be correct. SADC member states can probably be comforted by this interpretation of the SADC Treaty by the Singapore Court of Appeal, as it also aligns to the SADC member states position that the SADC Tribunal was never meant to entertain, amongst others, investment disputes or human rights disputes directly from SADC nationals.

What we thus see is that ISDS broadly on a multilateral level appears to have stagnated in SADC as the Amended Investment Protocol specifically excludes access by investors to any form of ISDS and the SADC Tribunal (if it becomes functional without the ratification of the 2014 Protocol) will not without amendments to the SADC Treaty and the SADC Tribunal Protocol be able to assert a role as protector of intra-SADC investors within the SADC region similar to the CJEU. The hopes of SADC investors will now have to be placed on what will potentially be in the Investment Protocol to the Agreement establishing the African Continental Free Trade Area ("AfCFTA"). It is hoped that the Investment Protocol to the AfCFTA will provide Intra-Africa investors with effective recourse against states in the event of violations of substantive guarantees and commitments, independent from intra-State dispute resolution for trade in goods or service under the Protocol on the Rules and Procedures on the Settlement of Disputes of the AfCFTA.  However, if article 42 of the Draft Pan African Investment Code is considered as the base document to inform the content of the ISDS article of the Investment Protocol under the AfCFTA, we can probably expect a dispute resolution system that will not be uniform. This will potentially make the Investment Protocol under the AfCFTA an ineffective instrument for the promotion of investment intra-Africa and it will force African investors to rely on appropriate treaty structuring through BITs or investment agreement with host governments to derive investment protection and simultaneously benefit from the preferential terms under the AfCFTA.   

__________________________

* Partner at Cliffe Dekker Hofmeyr Inc

[1] Law Society of South Africa and Others v President of the Republic of South Africa and Others (CCT67/18) [2018] ZACC 51; 2019 (3) BCLR 329 (CC); 2019 (3) SA 30 (CC).

[2] 2005 (11) BCLR 1106 T: case relates to a request to the South African government to exercise diplomatic protection on behalf of its citizen (Van Zyl) in relation to an alleged expropriation of mining leases by Lesotho.

[3] South Africa/Mauritius BIT (enforce); South Africa/Zimbabwe BIT (enforce); South Africa/Mozambique (signed, but not enforce); South Africa//Madagascar (signed, but not enforce); South Africa/DRC (signed, but not enforce)

[4] South Africa/Nigeria (enforce); South Africa/Senegal (enforce); South Africa/Egypt (signed, but not enforce); South Africa/Ethiopia (signed, but not enforce)

[5] Slovak Republic v. Achmea B.V. (Case C-284/16)

[6] Investor-State Dispute Settlement using the ECOWAS Court of Justice – an Analysis and Proposals, Matthew Happold – ICSID Review, Vol.2 (2019), pp 496 - 518

[7] Ibid

[8] 2019 Case No. 23 of 2014 (Judgment delivered on 6 June 2019): https://www.tralac.org/documents/blogs/2907-tls-v-ministry-of-foreign-affairs-and-international-cooperation-ag-misc-civil-cause-no-23-of-2014-2019-judgment-4-june-2019/file.html

[9] Mike Campbell (Pvt) Ltd and others v The Republic of Zimbabwe [2008] SADCT 2; also William Michael Campbell and another v The Republic of Zimbabwe [2009] SADCT 1.

[10] Swissbourgh Diamond Mines (Pty) Ltd v Kingdom of Lesotho [2018] SGCA 81

[11] Ibid

[12] Ibid

[13] Ibid

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th – 16th April 2021

Executive Summary

Through the course of arbitral proceedings, practitioners can use an array of different technological tools to assist and facilitate their work. These range from tools to more efficiently sort documents through predictive coding, to artificial intelligence services which can predict costs and even outcomes of cases. New types of contracts such as smart contracts also utilize new types of arbitration proceedings such as Blockchain arbitration. 

Introduction

Modern technology has played and will continue to play a key role in the reform and innovation of the international arbitration practice. We have long grown accustomed to the ubiquitous use of e-mails, online legal research platforms and digital file storage. However, while modern technology has much more to offer, the arbitration community has historically been hesitant to explore and incorporate new technological developments into its daily practice.

This article follows up on the panel discussion during the African Arbitration Associations’ second Annual International Arbitration Conference (14 – 16 April 2021). It aims to provide a brief introduction on how technology is used in arbitration and give an outlook on technologies which may reform the international arbitration practice in the future.

Predictive Coding to Process Documents

At the outset of arbitral proceedings or prior to their initiation, parties may wish to use predictive coding to review large sets of documents and to determine the evidentiary base for their case.

The process of predictive coding starts by setting parameters and identifying documents which will form the sample set of documents to be reviewed. Each sample is coded as “relevant” or “not relevant” by a lawyer with good knowledge of the case, which in turn trains a predictive formula (algorithm). The algorithm is then applied to review the entire set of documents and can be further improved by human review of additional sample documents. The use of predictive coding aims to increase efficiency and achieve a higher level of consistency of relevant documents.[1]

Predictive coding is also used to identify documents during the document production phase to automate the process of identifying documents falling under the document production request. However, it may be disputed whether the use of predictive coding in this context is accurate enough to be appropriate. Therefore, the use of predictive coding should be disclosed to enable both the tribunal and the other party to ask questions to satisfy themselves that predictive coding was used in an appropriate manner. This can help avoid procedural irregularities which may give grounds for a challenge.[2]

The extent to which predictive coding is currently used in arbitration is unclear. As of 2018, only 5% of the respondents to the Queen Mary Survey on the Evolution of International Arbitration indicated that they frequently use artificial intelligence, including data analytics and technology-assisted document review.[3]

Artificial Intelligence to Predict the Outcome of a Case

Once parties have established the evidentiary base of their case (e.g. with the help of predictive coding), they may again turn to Artificial Intelligence (AI) tools to gauge their chances of success prior to filing the case.

At its core, AI is a branch of computer science focused on replicating or simulating human intelligence in machines in order for them to think like humans and mimic their actions.[4] Predictive analytics as an AI tool are increasingly used to predict the outcome of disputes. These tools are particularly attractive to litigation funders, which aim to achieve a competitive advantage in their risk assessment. One example for an AI tool used by litigation funders is Legalist, which claims to use data from millions of court records to support the case assessment.[5]

In the arbitration context, Arbilex, founded in 2018, uses AI and predictive analytics to assess the likelihood of success of arbitration cases, as well as the likely costs.[6] However, the data set of available court cases is generally significantly larger than for awards, which impacts the accuracy of these AI tools. It remains to be seen whether arbitral institutions will allow AI platforms access to their awards.[7]

While the prediction of the outcome of a case generated by AI can be appealing to funders and practitioners alike, one must carefully assess the risk of bias embedded in AI. Since AI software is trained on large-scale data, if such data includes racial biases, these are incorporated into the training data. For example, the US program COMPAS assesses the likelihood of recidivism in defendants who are up for parole. While the algorithm makes no reference to ethnicity or race, a study has shown that the COMPAS assessment is biased against African Americans.[8] Thus, if predictive analytics and AI are to be used more widespread in arbitration it is paramount that the arbitral community institutes safeguarding mechanisms and checks to minimize the impact of bias of AI technologies.[9]

Online Case Management Platforms

Once a party decides to proceed to arbitration, be it because AI tools predicted a high chance of success or at its own accord, the party will face different levels of digitalisation depending on the arbitral rules applicable to its case.

First, a party will need to determine whether an arbitration can be commenced by filing the claim electronically rather than in hardcopy. Many institutions have now switched written submissions and communications to be predominantly electronic. Arbitral institutions also differ in whether they (for internal purposes) use fully electronic case management systems such as the Vienna International Arbitral Centre (VIAC) and the Stockholm Chamber of Commerce (SCC). However, a more recent development and a step towards fully digitalizing the administrative aspects of arbitration is the adoption of online case management platforms to which also the arbitrators and parties have access. The SCC and VIAC now also provide such online case management platforms.[10]   

Chinese arbitral institutions such as Shenzhen Court of International Arbitration (SCIA) and Guangzhou Arbitration Commission (GZAC) have also invested in digital platforms, which not only allow for online filing and processing payments but also offers a remote hearing platform. As a special feature of these platforms, the voice-to-text technology automatically generates and displays a transcript of the hearing synchronously during the hearing.[11]

Remote Hearings

The travel restrictions and social distancing rules imposed in many countries in reaction to the COVID-19 pandemic triggered a re-evaluation in the arbitration community of remote arbitral hearings. Several other procedural aspects were already regularly conducted remotely, such as organisational conferences and submissions via e-mail, but most hearings were still held as physical in-person hearings.

In general, national arbitration laws rarely address the question whether hearings can be held remotely, even if one party objects. Many modern and flexible institutional rules either expressly or implicitly allow hearings to be conducted remotely, such as Vienna International Arbitral Centre (VIAC) and London Court of International Arbitration (LCIA). It is then within the discretion of the arbitrators to evaluate whether a remote hearing can safeguard the parties’ right to be heard and the right to fair and equal treatment.[12]

It is increasingly accepted among arbitration practitioners that an oral and synchronous exchange of arguments or evidence in a remote hearing can, in principle, satisfy a party’s right to a hearing.[13] Conversely, not holding the hearing remotely when one or more parties cannot attend in-person for an extended period of time may violate the parties’ right to a hearing and the arbitrators’ obligation to conduct the proceedings efficiently and expeditiously.[14]

Experience gained, especially over the last year, has shown that well-organised remote hearings which properly adhere to recommended protocols and guidelines can be an efficient and comparatively low-cost method of conducting arbitrations.[15]

The increased use of semi- and fully remote hearings, where appropriate, could remedy the growing criticism of arbitration as being too expensive and too long. Furthermore, the use of remote hearings can address concerns of the environmental impact of international arbitral proceedings and foster an increase in diversity of arbitrators.[16]

Blockchain Arbitration

A comparatively new technology used for online dispute resolution is so called blockchain or “on chain” arbitration which has been developed primarily for disputes arising out of smart contracts.

Blockchain is a specific type of database, which differs from a typical database in the way data is stored. It is an incorruptible digital ledger of transactions which can be programmed to record not only financial transactions but almost anything which is of value to be recorded. The data is not stored in a single location but spread across a network of millions of computers simultaneously.[17] Blockchain is mostly used in connection with cryptocurrencies such as Bitcoin, but have numerous other applications.[18]

Smart contracts have arisen from blockchain technology and, unlike regular contracts, are not written in a specific language such as English but completely in code. Based on blockchain technology, smart contracts are self-executing, and transactions are trackable and irreversible.[19]

To serve disputes arising from smart contracts, blockchain arbitration was developed. Blockchain arbitration is structured as an automatic dispute resolution system, which is combined into a digital asset system. Arbitrators are provided with the ability to implement decisions directly on the blockchain or within the system, without the need for a paper award. The UK Jurisdiction Taskforce recently published draft rules for such dispute resolution mechanisms, expressly aimed at resolving disputes arising from new technologies such as cryptoassets, - currencies, smart contracts etc.[20]

One example for a blockchain arbitration system is the online dispute resolution platform Kleros, which was founded in 2017.[21] Kleros is a decentralized arbitration process relying on crowdsourced adjudicators, or “jurors”, who are randomly assigned to a case. After assessing the evidence, jurors commit their vote to one of the contractually specified options. The option with the most votes is the winning one. Each juror who is coherent with the final decision will then be paid a specified fee while the arbitrable smart contract defines which party has to pay the arbitration fee.[22] Jurors are financially incentivised to decide coherently. However, since deciding “coherently” is defined as deciding in line with the majority, it can be debated whether this incentivises correct decisions or rather a bet on how the majority would rule even if this is contrary to the individual juror’s evaluation, which may be based on special expertise.

Conclusion

The COVID-19 pandemic has forced the arbitral world to reconsider its scepticism towards technology and adapt quickly in order to continue serving its clients and secure the continuation of pending and new arbitral proceedings. Most notably, many practitioners and arbitral institutions were forced to predominantly work remotely – often for the first time.

It remains to be seen whether the momentum gained from the pandemic with regard to some technologies – such as online hearing platforms – will increase the acceptance of other technologies as well.

___________________________ 

*Attorney at Law, Binder Grösswang

[1] Claire Morel de Westgaver & Olivia Turner, Artificial Intelligence, A Drive for Efficiency In International Arbitration – How Predictive Coding Can Change Document Production, Kluwer Arbitration Blog (Feb 23, 2020), http://arbitrationblog.kluwerarbitration.com/2020/02/23/artificial-intelligence-a-driver-for-efficiency-in-international-arbitration-how-predictive-coding-can-change-document-production/.

[2] Claire Morel de Westgaver & Olivia Turner, supra.

[3] 2018 International Arbitration Survey: The Evolution of International Arbitration, Queen Mary University of London, http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey---The-Evolution-of-International-Arbitration-(2).PDF.

[4] Jake Frankenfield, Artificial Intelligence (AI), Investopedia (Mar 8, 2021), https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp.

[5] https://www.legalist.com/philosophy.

[6] http://www.arbilex.co/welcome.

[7] Eric Chang, A Roundup of Tech and Dispute Resolution News, Kluwer Arbitration Blog (Apr 14, 2021), http://arbitrationblog.kluwerarbitration.com/2021/03/09/a-roundup-of-tech-and-dispute-resolution-news/..

[8] Id.

[9] Brand Rosen, Global Experts Keep it Real in Webinar Exploring Artificial Intelligence and its Role in Arbitrations and Legal Practice, Kluwer Arbitration Blog (Dec 12, 2020), http://arbitrationblog.kluwerarbitration.com/2020/12/12/global-experts-keep-it-real-in-webinar-exploring-artificial-intelligence-and-its-role-in-arbitrations-and-legal-practice/.

[10] Allison Goh, Digital Readiness Index for Arbitration Institutions: Challenges and Implications for Dispute Resolution under the Belt and Road Initiative, 38 J. Intl. Arb. 253, at 256-259 (2021).

[11] Id.

[12] Alice Fremuth-Wolf, Ingeborg Edel & Anna Förstel, How the COVID-19 pandemic may shape the future of international arbitral proceedings, IBA, Arbitration Committee Publications (Nov. 25, 2020), https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=A7F75D89-2CFD-4386-96B9-53341D0A55DA.

[13] Compare Maxi Scherer, Remote Hearings in International Arbitration: An Analytical Framework, 37 J. Intl. Arb. 407 (2020).

[14] Compare Kun Fan, The Impact of COVID-19 on the Administration of Justice, Kluwer Arbitration Blog (Jul 10, 2020),http://arbitrationblog.kluwerarbitration.com/2020/07/10/the-impact-of-covid-19-on-the-administration-of-justice.

[15] Id.

[16] Compare Lucy Greenwood & Kabir Duggal, The Green Pledge: No Talk, More Action, Kluwer Arbitration Blog (Mar 20, 2020), http://arbitrationblog.kluwerarbitration.com/2020/03/20/the-green-pledge-no-talk-more-action; Alice Fremuth-Wolf, Ingeborg Edel &Anna Förstel, supra.

[17] Derric Yeoh, Is Online Dispute Resolution The Future of Alternative Dispute Resolution?, Kluwer Arbitration Blog (Mar 29, 2018), http://arbitrationblog.kluwerarbitration.com/2018/03/29/online-dispute-resolution-future-alternative-dispute-resolution/.

[18] Luke Conway, Blockchain Explained, Investopedia (Nov 17, 2020), https://www.investopedia.com/terms/b/blockchain.asp.

[19] Jake Frankenfield, Smart Contracts, Investopedia (Mar 25, 2021), https://www.investopedia.com/terms/s/smart-contracts.asp.

[20] Eric Chang, supra.

[21] https.//kleros.io/.

[22] Clement Lesaege, Federico Ast & William George, Kleros, Short Paper v1.0.7, Sep. 2019, at 1 ff.

For a cross-border system of dispute resolution that frequently involves participants from different countries, the challenge posed by COVID-19 to international arbitration is grave. However, given that arbitration is a flexible and consensual process, it is well positioned to respond swiftly to these challenges. Indeed, in a short space of time there has been a significant and collaborative response from the international arbitration community, led by the major arbitral institutions, to find ways to maintain access to justice in a timely and efficient manner.

The primary reason for introducing arbitrations into the dispute resolution system was to lessen the burden on courts. International Arbitral Institutions have been established all over the world to aid and assist the parties in resolving their disputes. Especially in the current scenario, arbitration being a private process has an unarguable edge over the traditional litigation in courts. In order to function efficiently, the Arbitral Institutions have brought about certain changes in their operation amidst these trying times. Majority of these interim changes are buttressed by technology and the internet. Institutions have placed a never before reliance on Video Conferencing, e-filings, virtual hearings etc. But the question that arises is, would these changes suffice the need of the hour and most importantly the needs of the parties to the dispute?

Arbitral institutions are at the forefront of the international arbitration community’s response to COVID-19. Commendably, many institutions have largely remained fully operational while implementing remote working practices and virtual hearings. In April 2020, 13 arbitral institutions issued a joint statement “Collaboration is particularly important as each of our institutions looks to ensure that we make the best use of digital technologies for working remotely.” The statement calls for solidarity, cooperation and collaboration in response to COVID-19. The statement emphasized the joint ambition of the 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 ambition to see cases continue has led to a focus on the use of digital technologies, including virtual hearings. Online dispute resolution is not a new phenomenon. However, the global measures taken in response to COVID-19 have meant that the use of digital technologies to facilitate case preparation, management and hearings is no longer optional – particularly where parties are unwilling or unable to wait until the current crisis passes. This reality has prompted a number of institutions to issue specific guidance to parties and tribunals grappling with how to convert physical in-person hearings into a virtual environment.

When to use virtual hearings

A threshold question confronting parties and tribunals is whether a particular case is appropriate for virtual hearing. Clearly, the ability of all participants to access the necessary technology, software and equipment and a reliable high-quality internet connection is a prerequisite to a virtual hearing. Additionally, time zone differences may make it more difficult to convene a full day virtual hearing, so adjustments will need to be made to the hearing timetable.

Where time zone differences cannot be easily accommodated, parties and tribunals may consider an asynchronous virtual hearing as suggested by Michael Hwang S.C. during a recent SIAC webinar. This can be useful for oral openings / closings, or jurisdiction challenges, though unsuitable for cross-examination. For an asynchronous virtual hearing to take place, one party appears before the arbitral tribunal and makes its oral submissions, the recording and transcript of which will be uploaded to a secure online platform for the other party to review. The second party then appears before the tribunal and makes its oral submissions and the recording and transcript of which will be uploaded to the same platform. The parties will then convene with the tribunal for a final virtual hearing during which any outstanding issues are dealt with. This is a possible method of convening a virtual hearing while ensuring that parties have a reasonable opportunity to be heard.

NCIA Virtual Rules

The Nairobi Centre for International Arbitration (NCIA) has published a Guidance Note on Facilities Booking Conditions and Use during the COVID-19 Period. These notes provide guidance to parties, counsel, tribunals and users on possible measures to be considered in mitigating the adverse effects of the COVID-19 pandemic on arbitrations, mediations and meetings held at the NCIA facilities. The guidance note applies in addition to the extra steps the Centre has taken to streamline its internal processes in the wake of the COVID-19 pandemic. NCIA has also adopted the Nairobi Centre for International Arbitration (Virtual Hearings) Rules, 2020. Parties and the Arbitral Tribunal are required to agree in advance on the procedures, schedules and deadlines to be followed during the virtual hearings and also the virtual platform to be used during the hearings. Further, NCIA has adopted a Model Nairobi Centre for International Arbitration, Arbitration Clause (including Virtual Hearing Option) and Model Nairobi Centre or International Arbitration Virtual Hearing Agreement to be signed by parties in order to facilitate virtual hearings.

Conclusion

Prior to COVID-19, certain pre-hearing steps in the arbitral process—such as initial case management conferences and pre-hearing conferences with the tribunal—were often held by teleconference or videoconference, particularly when the parties and their counsel were in different jurisdictions. In addition, it was not unusual, pre-COVID-19, for certain witnesses to appear at hearings via video in instances where physical attendance was not possible due to health or visa issues, or other circumstances

What is new in the post-COVID-19 world is that parties, counsel and arbitrators are now accustomed to, and generally skilled at, using Zoom, Webex and other video platforms to conduct meetings, conferences and even hearings in a virtual format. By necessity, the “barriers to entry” for these technologies in the international arbitration world appear largely to have been overcome. Whereas, before COVID-19, there was often a resistance by some counsel and arbitrators to the use of videoconference technology—due to concerns about whether it would function properly and a general reluctance to spend the time necessary to learn how to use it—counsel and arbitrators have now been forced to adopt and become familiar with these technologies

The pandemic has changed the way in which international arbitrations are conducted in fundamental ways. By necessity, international arbitrations in the age of COVID-19 are being conducted entirely (or almost entirely) virtually. There is obviously no way to know with certainty what the future will bring, but a reflection on the ways in which international arbitration, and the arbitration community, already have changed in the age of COVID-19 permits some predictions.

Arbitrators and practitioners are already used to remote processes, and the Rules of various arbitral institutions give a wide discretion to tribunals as to the conduct of arbitrations. Additionally, most of the major international arbitration institutions have issued Guidelines on the conduct of remote proceedings. As to the future, it seems reasonably certain that more use will be made of virtual hearings, both purely virtual and hybrid.

________________________

*Sarah Mutheu, Senior Communication & Marketing Officer-NCIA

The social and economic impact of the 2019 novel coronavirus disease (COVID-19) outbreak will likely continue to have legal and access-to-justice implications for some time, giving rise to new disputes and delaying the progress of existing disputes before the courts. The depth of this crisis creates a need for parties and their legal representatives to consider focusing on rebuilding their business relationship, re-negotiating their existing contract, and finding alternative paths to resolving their conflicts, rather than insisting on strict enforcement of contractual terms. This may lead to more demand for arbitration, mediation, conciliation and other amicable methods of dispute resolution, as well as a combination of different dispute resolution processes.

The Coronavirus lockdown and social distancing measures which are in place in most countries around the world have affected our personal and working lives in one way or another and are exerting greater pressure on the arbitration community to find innovative ways to adapt through greater use of technology. In this regard, the Nairobi Center for International Arbitration (NCIA)  has made great strides and has applied a Business Continuity Plan  that gives priority to the safety and health of the NCIA staff and their families while servicing operations and containing the spread of the virus amid the pandemic. Measures in place include a minimal on-site function. In addition,  respective tribunals, arbitrators, mediators or adjudicators with ongoing cases have been urged to consider applicable provisions of the NCIA Arbitration Rules (NCIA Rules) and to engage parties for possible remote e-enabled procedures, enlargement or extensions of time.[1]  

Administration of Disputes

Notwithstanding the pandemic, the NCIA has continued to administer nineteen (19) disputes and has panel-listed an additional seventeen (17) arbitrators and mediators with multiple skills for conducting arbitrations and mediations under the NCIA’s Rules. Furthermore, the NCIA has, together with a network of China-Africa Joint Arbitration Centres (CAJAC), developed and finalized a Constitution and Rules for arbitration of disputes of Sino-African origin registered with any of CAJAC’s five affiliate centers; the centres are in Johannesburg, Shanghai, Beijing, Shenzhen and Nairobi. The CAJAC Constitution and Rules are up for adoption by CAJAC’s five affiliate centres and are destined to have a formidable impact on arbitration practices in the future.

Arbitration and Alternative Dispute Resolution Conferences & Events

On the national front, just before the world was hit by the Covid-19 storm, the NCIA held its 2nd International Arbitration and ADR Conference in March 2020 under the theme “Tracking Africa’s Arbitration and Alternative Dispute Resolution (ADR) Mechanisms: It is Business Unusual”. The conference brought together speakers and participants from across the globe with the aim of tracking the progress made in arbitration and use of ADR mechanisms in Africa. Shortly thereafter, in an effort to adapt to the new normal, the NCIA began a monthly webinar series that has seen growth and participation by attendees and panelists from around the globe.

Development of a National Alternative Dispute Resolution (ADR) Policy

The NCIA commenced the process of developing a National ADR Policy in conjunction with the Kenyan Judiciary and the International Development Law Organization (IDLO). To this end, a zero draft National ADR Policy was developed and deliberated on by over 600 stakeholders.[2]  The zero draft National Alternative Dispute Resolution Policy was refined with input from the forums to produce the National Alternative Dispute Resolution Policy which was thereafter subjected to a national validation forum with wide representation stakeholders.[3] The draft policy is currently before a National Steering Committee appointed by the Hon Attorney General to provide guidance and oversee the formulation of a national policy and institutional framework on ADR and propose appropriate reforms to the legal and institutional framework with a view to harmonizing the practices, standards of accreditation, training and provision of alternative dispute resolution services in Kenya.[4]   

International ranking

The 2020 Arbitration in Africa Survey Report of top African arbitral centres and seats ranked the NCIA among the top five best arbitral centres in Africa in regard to the quality of support facilities and administrative staff. The NCIA ranked 8th among the top ten arbitral centres in Africa based on the number of arbitration cases administered and Memorandums of Understanding (MoUs) concluded with other arbitration centres. The report also ranked NCIA among the top five arbitral centres in Africa that users indicated they would recommend.

Training

The NCIA has developed a training curriculum for both mediation and arbitration to increase capacity, skills and competences to mediators and arbitrators to enable them to provide a fair and efficient process. The calendar, which can be accessed by clicking here, highlights some of the courses offered at the NCIA.

Conclusion

The impact of COVID-19 is reaching far beyond what anyone has seen in recent years. Of paramount importance is the health and public safety impact the pandemic has had and will likely have in the future. Everyone has a duty to take recommended precautions to prevent the spread of the virus. As this duty also extends to those organizing and conducting arbitral proceedings, careful consideration of the impact of the virus on arbitration, and the measures which can be taken to halt its rapid spread, remain necessary. Going forward, we may see the drafting of notices, submissions, correspondence, pleadings, statements, and applications—which are traditionally document-only tasks being made electronic. Arbitral institutions may now deem it necessary to amend their rules and procedural regulations to align, complement and augment public health safety. It is now clear that any arbitration that is currently in progress will be impacted in some way by the Coronavirus pandemic. It is for disputing parties, their attorneys, and their respective arbitral tribunals to work together to sensibly try and identify and resolve those issues in an efficient and fair way that reflects the extraordinary situation the world finds itself in.

___________________________

§ Nairobi Center for International Arbitration; Co-operative Bank House, 8th Floor, Haile Selassie Avenue, Nairobi Kenya.  See:

[1] See, The Nairobi Center for International Arbitration (Arbitration) Rules 2015,  available here (accessed August 14, 2020).

[2] Alternative Dispute Resolution Policy (Zero Draft), available at here (accessed August 14, 2020).

[3] Alternative Dispute Resolution Policy (Draft), October 2019, available here (assessed August 14, 2020).

[4] See, The National Steering Committee for Formulation of the Alternative Dispute Resolution Policy—Appointment, The Kenya Gazette, Vol. CXXII —No. 21, 31st January, 2020, available here

On 3 June 2020, the Cairo Court of Appeal (the “Court”) ordered the annulment of the arbitral award in the case of Mohamed Abdulmohsen Al-Kharafi & Sons Co. v. Libya and others (“Al-Kharafi v. Libya”),[1] where the tribunal (the “Tribunal”) had granted Al-Kharafi nearly US$ 1 Billion in damages for Libya’s breach of its obligations to protect Al-Kharafi’s investments. The Court’s judgment left many arbitration practitioners wondering about the actual grounds of annulment and questioning whether such grounds are valid under Egypt’s Arbitration Law (the “Arbitration Law”).

The Facts:

In 2006, Al-Kharafi leased land (the “Land”) from the Libyan government to develop a tourism project in Libya to be executed within 7.5 years (the “Project”). Al-Kharafi would also benefit from usufructuary rights on the Project for 90 years starting from the day it receives the Land. Al-Kharafi was responsible for financing and operating the Project, which included a 5 Star Hotel, a shopping mall, apartment hotels, and restaurants.

The contract signed with Libya (the “Contract”) stipulated that the Libyan Government would give the Land to Al-Kharafi free of any liens, incumbrances, or any physical or legal obstacles that could preclude Al-Kharafi from benefiting from its 90-year investment.

The Court notes that, upon signing the Contract, Al-Kharafi was surprised to find that the Land was subject to legal and physical incumbrances that the Libyan authorities were unable to remove, which precluded Al-Kharafi from enjoying its quiet possession of the Land.

In January 2009, Libya offered Al-Kharafi alternative locations for the execution of the Project. Al-Kharafi refused the offer, insisted on implementing the Project according to the terms of the Contract (i.e., on the Land), and requested the Libyan authorities to remove the physical and legal impediments that prevented Al-Kharafi from enjoying its peaceful possession of the Land. The parties failed to reach an agreement.

In May 2010, and without any warning, the Libyan Minister of Economy cancelled the Project and revoked the investment license granted to Al-Kharafi. Al-Kharafi objected stating that Libya’s actions were abusive. It further emphasized that it was willing to perform its obligations under the Contract provided Libya remove the physical and legal obstacles so that Al-Kharafi may enjoy quiet possession of the Land.

Al-Kharafi argued that it incurred economic and moral damages as a result of Libya’s actions, which allegedly breach the Contract as well as domestic and international investment laws applicable in Libya (notably the Unified Agreement for the Investment of Arab Capital in the Arab States (1980)) (the “Arab Investment Treaty”)).

Following the constitution of Tribunal, the Parties reportedly agreed to subject their dispute to Libyan law.

On 22 March 2013, the Tribunal ruled that:

a.The Contract was not an administrative contract. Rather, it was a BOT contract subject to the rules applicable to civil contracts, including the Arab Investment Treaty;

b.Al-Kharafi exhausted all amicable means to resolve the dispute before initiating the arbitration;

c.Al-Kharafi’s inability to proceed with the Project was caused by Libya’s failure to deliver the Land free of any physical or legal incumbrances, and as a result;

d.Libya should not have rescinded the Contract or revoked the investment license.

e.The Tribunal found that Al-Kharafi’s investment was terminated in an abusive manner, triggering Libya’s responsibility for the pecuniary (including lost profit) and moral damages sustained by Al-Kharafi.

In the dispositive of the award, the Tribunal ordered that Al-Kharafi be awarded:

                        i.        US$ 30 Million in moral damages;

                       ii.        US$ 5 Million for losses and expenses actually incurred;

                      iii.        US$ 900 Million for lost profit; and

                     iv.        US$ 1,940,000 in arbitration fees and expenses.

(i.e., a total of US$ 936,940,000) in addition to 4% interest annual interest on the awarded amount. 

The Court’s analysis:

The Court did not summarize the parties’ arguments[2] but began its analysis by explaining that while an arbitral tribunal’s error in calculating damages is not subject to review by the Court of Appeal, arbitration may not operate in isolation from general legal principles. Therefore, in the Court’s opinion, if an arbitral tribunal exceeds or breaches fundamental principles of justice or “distances itself from the behavioral duties that [a tribunal] must uphold”, the award it renders must be annulled.

Guided by the foregoing, the Court found that proportionality between the awarded damages and the harm sustained by a claimant is a principle of public policy, whose breach empowers the Court to annul the award if the disproportionality between the harm and damages is found to be egregious, highly unjust, and unjustifiable.

The Court criticized the Tribunal’s reasoning by noting that it based its calculation of damages on theoretical assumptions and abstract principles that were not supported by the facts of the case. Furthermore, it found Al-Kharafi’s behavior vexatious, as it noted that at Al-Kharafi was initially willing to settle the dispute for approximately US$ 5 Million, yet kept increasing the amount it claimed throughout the proceedings until it exceeded US$ 2.05 Billion.

The Court was also concerned by the Tribunal’s suggestion that the “lost profit” portion of the damages sustained by Al-Kharafi exceeded US$ 2 Billion (even if Al-Kharafi claimed less than this amount as lost profit) before reducing the damages for lost profit to US$ 900 Million (plus interest). The Court explained that a distinction needed to be made between (i) damages for lost profit, which are a form of direct damages that will inevitably occur in the future; and (ii) compensation for lost opportunity (whose existence is uncertain in the future, thus requiring a conservative examination of the facts to determine if it warrants compensation for “lost hope”). The Court found that the Tribunal conflated both types of restitution and failed to approach the evidence with caution, leading the Tribunal to award Al-Kharafi “excessive” damages.

To reach this conclusion, the Court examined the expert evidence submitted by Al-Kharafi before holding that it was based on flawed assumptions, exaggerated the losses, and ignored the fact that the Project was never implemented. It was, what the Court coined, a “Project on paper”. The Court added that the foregoing, coupled with the political situation in Libya following the Contract’s execution (implicitly referring to the instability that led to the removal of Colonel Ghaddafi), proves that it was unrealistic for Al-Kharafi to expect to make any profit. In other words, the Court found that the revocation of the license protected Al-Kharafi’s investment from an ill-fated future in Libya!

Against this background, the Court concluded that the Tribunal erred in its reasoning and acted in an abusive and discriminatory manner that breached fundamental principles of law and justice which mandates that its award be annulled on public policy grounds.

Initial Thoughts:

This case raises several questions that should be addressed by the Egyptian Court of Cassation, ranging from potential errors of law, to defining the scope of public policy. For example, the Court appears to have applied principles of Egyptian law in matters of damages and compensation to a dispute subject to Libyan law when it examined the difference between inevitable lost profit and possible lost opportunity. Notwithstanding the substantial similarity between the Egyptian and Libyan legal systems, the Court effectively stated how it would approach the case on the merits if it were in the Tribunal’s shoes. Unless this approach can be linked to a ground of annulment, the Court would have exceeded its powers under Egypt’s Arbitration Law, even if its substantive analysis were correct. Moreover, the Court made certain statements that suggest that its analysis on damages may have been incorrect under Egyptian law as well. For instance, its affirmation that the deteriorating situation in Libya following Libya’s revocation of the Contract saved Al-Kharafi additional losses (since the Project would have stalled) is irrelevant to the calculation of lost profit under Egyptian law. What matters for the purpose of this exercise is what Al-Kharafi objectively expected to gain at the time it executed the Contract but for Libya’s subsequent breach.[3] The facts taking place following Libya’s reported breach should have no bearing on the damages owed to Al-Kharafi.

Notwithstanding the Court’s apparent ultra vires actions, its analysis appears to have been affected by two factors, namely (i) Al-Kharafi’s refusal to accept Libya’s offer to construct the Project on another land (i.e. its failure to mitigate its losses); and its (ii) alleged failure to take serious steps to implement the Project before the rescission of the Contract and revocation of the investment license. Put differently, it did not sit well with the Court that the Tribunal could award damages nearing US$ 1 Billion when Al-Kharafi’s actual damages were in the neighborhood of US$ 5 Million, and knowing that Al-Kharafi (i) failed to take serious steps to implement the Project; and (ii) refused offers to construct the Project on another land to mitigate its damages.

The Court held that the award of damages that are disproportionately higher than the harm incurred (or one that would certainly take place in the future) breaches public policy, which would justify annulment under Article 53(2) of the Arbitration Law and VI(2)(b) of the New York Convention. No precedent was relied on by the Court, leaving practitioners wondering whether this is an uncontested principle of Egyptian law. Assuming it is, reaching this conclusion would necessarily require a reassessment of the case on the merits to decide whether the Tribunal applied the test to determine damages correctly. The limits of this analysis have yet to be defined by precedent.

Equally unclear is the reason for the Court’s abstention from explaining what constitutes proportionate compensation that complies with Egyptian public policy, since doing so would have allowed the Court to enforce the part of the award that meets acceptable public policy limits. Partial annulment is exercised by Egyptian courts, as several awards were annulled “in part” on public policy grounds when tribunals awarded delay interest rates that exceeded the statutory cap. The Court missed the opportunity to set a precedent by seeking guidance from jurisprudence on what Egyptian law deems to amount to usura vorax.[4] However, unlike the reduction of awarded delay interest rates that are clearly stated in Egyptian legislation,[5] the determination of what represents proportionate compensation inevitably involves an analysis of the merits that may force the Court of Appeal to exceed its statutory powers. The Court of Cassation will need to answer this question by determining the limits of this examination; or even more, to confirm whether such an examination is permissible in the first place.

Conclusion:

The Cairo Court of Appeal was offered a golden opportunity to set a ground-breaking precedent that could have put an end to the longstanding Al-Kharafi v. Libya saga.  Instead, it raised important yet unarticulated legal questions to the dismay of arbitration practitioners. One hopes that the Egyptian Court of Cassation will clarify these questions by determining the scope of Egyptian public policy and the limits, if any, of a court’s involvement in the determination of damages, which is an issue that traditionally falls within the discretionary purview of an arbitral tribunal.

§ Partner, Shahid Law Firm, Cairo.

[1] Mohamed Abdulmohsen Al-Kharafi & Sons Co. v. Libya and others, award available athttps://www.italaw.com/cases/2185.

[2] The parties had exchanged swords before the Court of Appeal and Cassation on other grounds before the case made its way back to the Court for determination of the award’s compliance with Egyptian public policy.

[3] Court of Cassation, Case No. 45/36 JY, judgment dated 31 March 1970.

[4] Court of Cassation, Case No. 282/89 JY, judgment dated 9 January 2020.

[5] Egyptian Civil Code, Art. 227.

Katherine Simpson of Simpson Dispute Resolution in collaboration with Nancy M. Thevenin of  Thevenin Arbitration & ADR have created a list of arbitration professionals of African descent[1].

The  process of creating such a list began in February 2020 and was initially to comprise a list of African-American arbitrators, in response to their perceived absence on arbitration panels.  The project was later expanded to comprise individuals who were a "person of African descent" and "with an international ADR practice that touches or will touch the US."   

Requests for participation in the list were sent to various organisations and bodies, including the American Bar Association ("ABA"), Blacks of the American Society of International Law ("BASIL"), as well as different international dispute resolution email list-serves.  Peer recommendation or referral was also used and each nominee to the List prepared his or her own short "bio" for publication. Updating the list with more names is a continuous and ongoing process.

It is envisaged that the “New List” will make these professionals more visible and accessible to institutions and law firms seeking individuals of colour to appoint as arbitrators, mediators, potential hires, conference speakers, or co-authors.   

Many individuals on the list have an extensive international dispute resolution practice and are on the panels of several arbitral institutions. These individuals have been recognized for their dispute resolution experience in various jurisdictions including the United States.

With expertise in international arbitration ranging from labor and employment to tax and finance, the list is a reminder of the wealth of experience arbitrators of African descent can bring to international dispute resolution.  

_________________________________

*Funke Adekoya, SAN, Partner, ǼLEX

[1] A New List: Arbitrators of African Descent

 

Introduction

This article has the main purpose of giving a general overview of the legal framework for international arbitration in Angola. With this short study, we intend to give a general but precise view of how the international arbitration proceedings work in Angola.

Background

Angola is one of the fastest-growing economies in the world, being now positioned to become an active member of the global economic community, since it has a privileged geographic location on the coast of the Atlantic Ocean, and abundant natural and human resources.  Angola’s economic development policies are focused on private investment, so Angola is perfectly placed to provide interested investors with financial incentives that increase potential for return on capital. According to the World Bank statistics, Angola has made substantial economic and political progress since the end of the war in 2002. . In the last few years, Angola has been undertaking deep legal reforms in order to modernise its legal system so it can foster investment projects in the country. For instance, a reform to the Voluntary Arbitration Law is being studied, and in 2016 Angola ratified the New York Convention.  Given the evolving process of political and economic opening-up of Angola, it has become necessary to provide more security, certainty and juridical predictability in regard to the resolution of eventual conflicts arising from internal and external relations. According to the World Bank, foreign direct investments in Angola reached their peak in 2015 with US$9.2 billion, compared to US$1.7 billion in 2002 when the civil war ended.

Since Angola is experiencing exponential economic growth and an increase in international transactions and foreign direct investments involving Angola and/or Angolan parties, the practice of international arbitration in Angola is also growing.  Given the reforms of the last few years, it is expected that the use of arbitration for domestic cases with a foreign element will increase (i.e., where a party has foreign shareholders).  Also, there are an increasing number of arbitrations relating to Angolan parties where recognition and enforcement in Angola are important issues to consider, while an increasing number of investment arbitration cases relating to Angola or Angolan parties can be seen as well.

Currently, Arbitration in Angola is regulated by Law no. 16/03, of 25 July 2003, the “Voluntary Arbitration Law” (VAL). This law does not strictly follow the UNCITRAL Model Law (Model Law); however, it includes many solutions that are common to the ones found in that Model Law.  In contrast to the Model Law, we can point out the following aspects:

the VAL contains no provision on definitions;

• it does not provide for rules on interpretation;

• it adopts the disposable rights criteria regarding arbitrability;

• it does not address the issue of preliminary decisions;

• it does not distinguish between different types of awards; and

• it permits appeal on the merits in domestic arbitrations, unless the parties have agreed otherwise.

Regarding institutions and centers for arbitration, Decree no. 4/06, of 27 February 2006, has the purpose of promoting institutional arbitration in Angola, and deals with the licensing procedures for the incorporation of arbitration centres.  The Ministry of Justice is the entity empowered to authorise the incorporation of arbitration centres in Angola. To date, the Ministry of Justice has authorised the creation of the following arbitration centres:

• Harmonia – Centro Integrado de Estudos e Resolução de Conflitos;

• Arbitral Juris;

• CAAL – Centro Angolano de Arbitagem de Litígios;

• Centre of Mediation and Arbitration of Angola,

• CEFA’s Arbitration Centre;

• CREL – Centro de Resolução Extrajudicial de Litígios; and

• CAAIA - Centro de Arbitragem da Associação Industrial de Angola.

Arbitration is also foreseen in other legislation, namely the following:

• Private Investment Law (Law no. 14/15, of 11 August 2015);

• the Mobile Values Law (Law no. 22/15, of 31 August 2015);

• the Petroleum Activities Law (Law no. 10/04, of 12 November 2004); and

• the Public Procurement Law (Law no. 20/10, of 7 September 2010).

In 2016, Angola took another major step to improve participation in international arbitration, by signing the New York Convention on the Recognition of Foreign Arbitral Awards (New York Convention).  On 6 March 2017, Angola deposited its instrument of accession to the New York Convention with the UN Secretary General.  Under Article XII (2), the Convention entered into force in Angola on 4 June 2017, 90 days after the deposit of its instrument of accession. 

Presently, the majority of arbitration cases conducted in Angola are ad hoc. Normally, the Angolan state and companies in the public sector accept, without any complaints, the use of arbitration to resolve disputes with foreign investors.

Arbitration Agreement

According to Article 1 of the VAL, parties may opt to use arbitration for disputes regarding disposable rights (that being those rights that the parties can construct and extinguish by act of will and those which parties can renounce).  The VAL generally admits the arbitrability of disputes pertaining to disposable rights, provided that these disputes are not subject, by special law, to the exclusive jurisdiction of judicial courts or to mandatory arbitration. Regarding any disputes involving the state or other legal persons of public law, the VAL establishes that these entities may enter into arbitration agreements when the relevant dispute concerns a private law relationship, in administrative contracts or in other cases specifically provided by law (article 1 of the VAL). Only the disputes reserved by law to the State courts or to some other type of proceedings cannot be submitted to arbitration. Therefore, all commercial disputes can be subject to arbitration.

In order to resort to arbitration, the parties must establish an arbitration clause (in the contract or in the form of a separate agreement for future disputes arising from a defined legal relationship) or an arbitration agreement (signed by the parties to resolve an immediate dispute), which states that any dispute must be resolved using arbitration, instead of seeking judicial courts. To be valid and effective, an arbitration agreement must comply with several requirements.  The arbitration agreement will be void if:

• it is not made in writing;

• it goes against the provisions stated in article 1 of the VAL; or

• the object of the arbitration is not specified and there is no other way to specify it.

The VAL only includes rules on the expiration of the arbitration agreement, and does not include rules on the modification and revocation of the arbitration agreement. Thus, the arbitration agreement and the arbitration clause expire when:

• any of the arbitrators dies, is excused, becomes disabled for the exercise of the arbitration and is not replaced;

• a majority cannot be reached in the deliberations (in cases where the arbitration is collective); and

• the award is not rendered by the established deadlines.

However, according to section 4 of article 2 of the VAL, the arbitral clause or convention is not automatically void when the contract where it is inserted is void, if it is clear that the will of the parties is to have an arbitral clause or convention regardless of the validity of the contract.

Regarding the competence of the arbitral tribunal, article 31 states that the arbitral tribunal may decide on its own jurisdiction (the principle of competence-competence).  This decision can only be syndicated in impugnation or opposition to the execution of the arbitral award. This means that the award of the arbitral tribunal by which it rules on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement can only be appreciated by the judicial court after the arbitral tribunal has rendered the award. This legal provision gives a letter of law to the fundamental principle of arbitration, the principle of competence-competence: that the arbitral tribunal has full competence to resolve all questions raised in the arbitral proceedings relating to it, whether of a substantive nature relating to the merits of the case, or of a procedural nature. The principle of competence-competence preserves the autonomy of the arbitral tribunal in relation to the jurisdiction of the state courts.

Arbitration Procedure

The parties are free to agree on the procedural rules (directly or by reference to an institution). In the absence of agreement, the tribunal will have the power to determine those rules (article 16). The same reasoning applies to the place of arbitration (article 17). Arbitration begins when the request for submission of the dispute to arbitration is received by the Respondent – if nothing otherwise is stipulated by Agreement of the parties. This request for submission of the dispute to arbitration is generally named “notice to arbitration”. The notification can be made by any means, as long as it is possible to prove its receipt by the other party. The notification must contain:

• the identification of the parties;

• the indication that they wish to submit the conflict to arbitration;

• the indication of the Arbitration Agreement; and

• the subject of the conflict, if that isn’t already stated in the Arbitration Agreement.

Also, if the parties are due to nominate the arbitrators, the claimant must indicate the arbitrator chosen by them in the notice to arbitration, and must invite the other party to indicate their arbitrator. If the arbitration procedure is to be commanded by a single arbitrator, the notifying party must suggest an arbitrator, and invite the other party to accept that suggestion. However, the nomination can also be made by a third party. If that happens, the notifying party must also notify that third party to appoint and communicate the appointment of the arbitrator to both parties.

As stated previously, article 16 of the VAL states that the parties can agree about the rules of the arbitration. However, if those rules aren’t defined until the acceptance of the first arbitrator, the arbitrators must define the rules of the arbitration. The seat of the arbitration is also determined by agreement of the parties in the Arbitration Agreement or later. In common with the rules of arbitration, if the parties do not agree on the seat of the arbitration until the acceptance of the first arbitrator, the seat of arbitration must also be chosen by the arbitrators.

According to the VAL, and in line with most arbitration laws, the arbitration proceedings are subject to fundamental principles of due process, including the principle of equality of the parties and the adversarial principle (article 18 of the VAL). Indeed, the arbitration procedure must respect the following principles and rules:

• the principle of equal treatment of the parties;

• the right to response must be granted in all phases of the procedure; and

• both parties must be heard, orally or by writing, before the rendering of the award. 

These are the fundamental principles and rules that must be respected in any procedure.  The breach of these principles and rules may lead to the setting-aside of an award.

The VAL stipulates that parties to an arbitration must be represented by a constituted lawyer (i.e. an Angolan lawyer).  The National Council of the Angolan Bar Association decided on 31 March 2014 that only lawyers with valid registration may intervene as lawyers in arbitration proceedings.

According to article 24 of the VAL, in national arbitration, the arbitral court must decide in accordance with the national law, unless the parties establish that the conflict is to be solved by referring to equity. However, if the parties agree on the decision by the rules of equity, they automatically renounce the ability to appeal the award. On the other hand, in international arbitration, the parties are free to designate the applicable law, and may do so by referring to a specific national law or state legal system.  If the parties do not agree in this matter, the arbitral court must decide what substantive law to apply, resorting to the conflict rule which it considers applicable to the dispute.

Regarding the production of proof, in arbitration all means of proof allowed by law are accepted.  There is no specific rule in Angolan law establishing limits to the permissible scope of disclosure or discovery.  If the proof depends on a third party and that third party refuses to collaborate, the parties or the arbitral court can request the judicial court to carry out the procedure so that proof is produced.

The arbitration procedure ends when the award is deposited or after the award becomes definitive, if a withdrawal happens, since the withdrawal is free at any time of the procedure. If the arbitral award is not rendered within the applicable time limit or if for some reason the tribunal becomes incomplete and a new arbitrator is not appointed, the proceedings will not be dismissed, but the arbitral agreement itself will be deemed to have lost its validity - for that specific dispute - article 5 of the VAL.

The VAL allows the parties to agree on a time limit to render the award, but if nothing is said until the acceptance of the first arbitrator, the said time limit will be of six months and will only be extended by agreement of the parties (article 25 of the VAL).  Instead of agreeing on a specific limit, the parties may refer the dispute to institutional arbitration (providing that the rules of the institution contemplate the extension of the time limit to render the award). After all the diligence on the process is made, the arbitrators must decide and render an award, which is to be notified to the parties and deposited in the secretariat of the Provincial Court of the place of arbitration.

Arbitrators

An arbitral tribunal may be composed by a single arbitrator or several, but there must always be an odd number of arbitrators (article 6, paragraph 1, of the VAL).

Appointment

Arbitrators are appointed by the parties in the arbitration agreement or in posterior writing. However, the VAL establishes supplementary criteria to be used in the cases where the parties have not established the means of designating a single or several arbitrators. Indeed, if the parties do not agree on the designation of the arbitrators, or on the way they are to appoint the arbitrators, each of the parties appoints one arbitrator, and the arbitrators appoint the third arbitrator, which completes the composition of the arbitral court (article 8, paragraph 1 of the VAL). The VAL is silent as to the means of constituting an arbitral tribunal in the case of multiple parties.

Requirements

Arbitrators must be singular persons who have the full enjoyment and exercise of their civil capacity (article 9, paragraph 3 of the VAL). Arbitrators must be independent and impartial. Arbitrators are free to reject their designation but, once accepted, the excuse of functions is only admissible if it is justified by a supervening cause that makes it impossible for the arbitrator to exercise its functions.

Any person invited to exercise the functions of arbitrator has to reveal immediately all circumstances that may cause doubts about their impartiality and independence.  If any circumstance causes a founded doubt of the impartiality and independence of the arbitrator, they may be refused the right to arbitrate.  However, the party that appoints the arbitrator can only refuse the designation if the motive is subsequent to the appointment.

In the case of failure to appoint one arbitrator, and unless the parties have agreed on another appointing authority, the missing arbitrator will be nominated by the president of the local State Court (article 14 of the VAL).

Replacement

An arbitrator can be replaced in case of death, refusal, permanent disability for the performance of its duties, or if the appointment becomes void.  The motives for the replacement are very similar to the ones established by the UNCITRAL Law. They are contemplated in article 10 of the VAL. The VAL addresses the matter of challenging the arbitrator when there is reasonable doubt about his or her impartiality or independence, or when he or she manifestly does not possess the qualifications that were previously agreed upon by the parties (article 10, paragraph 2 of the VAL). If the arbitrators do not step down, the decision on this is made by the Tribunal, with appeal to the State Courts (article 10 of the VAL).

Interim Relief

Interim relief may be granted in arbitration, unless otherwise stated by the parties. Any of the parties may require that the court orders interim measures, related to the object of the conflict, namely the provision of guarantees that it considers necessary. Interim relief is stated in article 22 of the VAL, which is inspired by article 17 of the UNCITRAL Model Law. However, it does not specify what kind of measures are admitted. This does not prevent the parties from requesting from the court, in accordance with the Civil Procedure rules, any procedure they deem necessary to prevent or protect the injury of rights. It is essential that the petitioner alleges and proves two requirements: the periculum in mora and the fumus bonus iuris.

Arbitration Award

The VAL contains a considerable number of provisions regarding the award and its preparation (articles 24 to 33 of the VAL). 

Unless the parties agree otherwise, under article 25 of the VAL, the Arbitration Award must be rendered in the timeline of six months after the acceptance of the last arbitrator. Any extension to that timeline must be agreed by the parties and cannot be decided unilaterally by the arbitrators. There is also the possibility for the parties to agree that, if any instruction measure is necessary, the timeline can be suspended during that period of time for which the instruction is in course. The decision must be rendered with the presence of all of the arbitrators, by simple majority, except if the parties have stipulated a larger majority. The parties can also establish that, if the arbitrators cannot reach an agreement, the decision can be made by the president of the court.

Under article 27 of the VAL, the arbitration award must be made in writing and must contain the following information:

• the identification of the parties;

• reference to the Arbitration Agreement;

• the object of the conflict;

• the seat of arbitration;

• the location and date on which the award was rendered;

• the decision and justification for the decision;

• signature of the arbitrators; and

• indication of the expenses associated with the process and their distribution between the parties.

The statement of a decision given in accordance with the rules of equity is sufficient, with a statement of the facts that are considered proved.  If any arbitrator disagrees with the decision, the reasons for the disagreement must also be stated in the decision.

Under article 23 of the VAL, the fees and costs of the process and their division between the parties must be agreed by the parties, unless this decision results from regulations of arbitration chosen under article 16 of the VAL. The decision is to be notified to the parties, who can ask for the correction of material errors, obscurities or clarification of doubts, within 10 days. The court has 30 days to respond to such requests. Throughout the process, the parties can also reach an agreement regarding the subject of the conflict.  Under article 28 of the VAL, the agreement must be submitted to the court for homologation.

According to paragraph 4 of article 20 of the VAL, in the course of the process, the withdrawal by any of the parties is also admitted, as long as the opposing party agrees with it,.  The withdrawal must be homologated by the court.

Challenge of the Arbitration Award

For domestic arbitrations, the arbitration award can be challenged in two ways: annulment of the award and appeal of the award. Appeal can be waived by the parties, but not their right to request the award to be set aside.  Annulment of an award can occur in the following cases:

• when the conflict is not sought to be solved through arbitration;

• when the court that rendered the award is incompetent;

• when the arbitral agreement has expired;

• when the arbitral court has been irregularly constituted;

• when the decision doesn’t contain the justification;

• when the decision has violated the principles of equality of response and that fact has influenced the resolution of the conflict; when the court has decided on questions that were not to be decided or when it did not decide on questions that it should decide; or

• when the arbitral court, in cases where it decides through equity and custom, did not comply with the public order or with the Angolan legal order.

The arguments of incompetence of the court and irregularity of the constitution of the court can only be invoked if, during the process, the exception of incompetence of the court or irregularity of its constitution have been also invoked and the court declared itself competent to resolve the conflict, or if the irregularity had influence on the final decision.

If an award does not decide on a certain subject that was brought to the court’s attention, the omission can be admitted, if it is demonstrated that the lack of decision on a certain question or issue was determinative of the final decision.       

A request for annulment must be addressed to the Supreme Court and the deadline to submit the annulment is 20 days from the date of notification of the arbitral award.  The right to request the annulment of an award cannot be waived.

An award can be appealed in the same way that a judicial award can be appealed.  Appeal petition must be addressed to the Supreme Court and the deadline to submit the appeal is 15 days from the date of notification of the arbitral award.  There is a slight difference in the law when it comes to international and domestic arbitration. With international arbitration, the non-appeal principle (as stated in article 44 of the VAL) applies, except when the possibility of appeal is expressly agreed by the parties.  With domestic arbitration, the principle is of the admissibility of the appeal, except if the parties expressly renounce that right (as stated in article 36 of the VAL).

Enforcement of the Arbitration Award

National awards

Article 33 of the VAL states that the award has to be fulfilled in 30 days. If this does not happen, the non-lacking party may coercively execute/enforce the award. Awards rendered in Angola (i.e., awards rendered within domestic arbitrations and awards rendered in Angola, within international arbitrations) are enforceable exactly as if they were decisions rendered by a state court (article 37 of the VAL). If the deadline given by the court to voluntarily accomplish the award is over, or if such deadline isn’t fixed by the court, the interested party has 30 days after the notification of the award to enforce it before the Provincial Court, in the terms stated in the Angolan Civil Procedure Code.

The requirement for the enforcement must be accompanied by the arbitral award, its rectification or clarification, and the proof of notification and deposit of the award. The summoned party has the right to  oppose the enforcement of an arbitral award, stating one or more of the grounds mentioned in articles 813 and 814 of the Angolan Civil Procedure Code:[1]

• unenforceability of the award;

• falseness of the process or transfer or infidelity of the latter, when one or the other influences in terms of the enforcement;

• illegality of the claimant;

• illegality of the defendant;

• undue accumulation of executions;

• unlawful coalition of claimants;

• fault or nullity of the first summons to the action, when the defendant has not intervened in the proceedings;

• uncertainty, illiquidity or unenforceability of the obligation;

• res judicata prior to the sentence that is to be enforced;

• any fact that extinguishes or modifies the obligation, provided that it is after the close of the discussion in the declaration process, and is proved by a document.  The prescription of the right or obligation can be proven by any means; or

• any fundament that is sufficient to annul the award.

Opposition to enforcement of an award must be filed within eight days from the date the defendant is notified of the enforcement process.  The decision on the opposition to the enforcement is not appealable.

International awards

Angola has ratified the New York Convention via Resolution no. 38/2016, which was published in the Official Gazette of the State on 12 August 2016.  Angola made a reservation pursuant to which the New York Convention will only apply to the recognition and enforcement of awards issued in the territory of another contracting state.

Since Angola has ratified the New York Convention, article 1096 of the Angolan Civil Procedure Code – which states the requirements necessary to recognize an award in the Angolan judicial system - will no longer be applicable to arbitral awards. When the New York Convention is in force in Angola, its articles IV and V will be applicable.

To provide certainty that foreign arbitral awards are practically enforceable in the country, Angola may need to harmonise both the provisions of the VAL and the Angolan Civil Procedure Code with its obligations under the New York Convention.

Investment Arbitration

Investment arbitration is not specifically regulated under Angolan law. Therefore, unless more favourable rules have been adopted in international instruments, the VAL applies to investment arbitration.

The New Private Investment Law of Angola prescribes, under paragraph 2 of article 15, that conflicts and their interpretation can be resolved by arbitration[2]. This law also has the aim to foresee the main guarantees granted to foreign investors in the scope of public international law or established by the international jurisprudence of the most various arbitration institutions, namely:

• the Angolan State must ensure, irrespective of the origin of capital, fair, non-arbitrarily discriminatory and equitable treatment of incorporated companies and companies and the foreign investor’s assets;

• payment of a fair compensation, prompt and effective in the case of expropriation or requisition for weighty and justified reasons;

• protection of intellectual and industrial property rights;

• protection of acquired rights over possession;

• non-interference in the management of private companies, except in cases expressly provided for by law; and

• non-cancellation of licences without judicial or administrative proceedings.

Additionally, bilateral investment treaties (BITs) provide for the authorisation or consent of the Angolan State to arbitration in terms that allow the foreign investor immediate recourse to international arbitration, without the need to enter into any subsequent arbitration agreement. Some of the BITs involving Angola provide that an arbitral tribunal shall consist of three arbitrators, each party being responsible for choosing one arbitrator and the third arbitrator being the arbitrator-president chosen by agreement between the other two.  In the absence of an agreement for the choice of the third arbitrator, the latter, under the most diverse investment contracts, shall be appointed by one of the following entities:

1. the General Secretariat of the Paris International Chamber of Commerce (ICC);

2. a designation authority appointed by the Secretary General of the Permanent Court of Arbitration at The Hague, under the UNCITRAL Regulation; and

3. the President of the Provincial Court of Luanda, at the request of either party.

Some BITs involving Angola refer to the arbitration of disputes by the International Centre for the Settlement of Investment Disputes (ICSID), the Complementary Mechanism for the Administration of Conciliation, Arbitration and Inquiry Procedures (CIRDI), as well as for the Arbitral Tribunal of the International Chamber of Commerce (ICC), or even for an international arbitrator or tribunal to be designated by special agreement or established in accordance with the UNCITRAL Rules of Arbitration.

In summary, it can be said that Angola does indeed protect foreign investments through arbitration, namely in the private investment sector, and has taken steps to reduce bureaucracy and facilitate international arbitration and investment arbitration; namely and most importantly, by ratifying one of the most important arbitration conventions that was missing from the Angolan legal system, the New York Convention.

Third-party funding

No regulation on third-party funding of arbitration exists in Angola. Given the fact that there is no regulation on third-party funding, it would seem prudent for arbitration agreements to include certain provisions to ensure less uncertainty in potential claims, and in particular:

1)     the obligation to disclose the existence of funding agreements in the event of disputes, and the content to be disclosed; and

2)     acknowledgment by the parties that, as a security measure to avoid a potential annulment of the award or refusal of its recognition and enforcement under the 1958 New York Convention, the funder’s eventual uplift should not comprise any recovery of costs or indemnity due to the prevailing party in the arbitration or litigation.

Conclusion

In conclusion, one can say that Angola has travelled a long path in the arbitration journey, but a lot is yet to be done. We believe that since arbitration has a growing place in alternative dispute resolution, more and more steps will be made in the near future.

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* Founding Partner, N-Advogados & CM Advogados

** Head and Main Partner, N-Advogados & CM Advogados

*** Attorney, N-Advogados & CM Advogados

[1] Article 813 (reasons for opposition to the execution based on sentence): the opposition to the execution of a sentence can only have the following reasons: a) unenforceability of the title; b) falsity of the process or transfer, whenever it influences the terms of the execution; c) illegitimacy of the applicant or the defendant or tis representation; d) undue cumulation of executions or illegal coalition of applicants; e) fault or nullity of the first notification for the action, when the defendant didn’t intervene in the process; f) uncertainty, illiquidity or unenforceability of the obligation; g) res judicata prior to the sentence that is trying to be enforced; h) any extinctive or modifying fact of the obligation, since it is posterior to the closing of the discussion in  the declarative process and proven by document. The prescription of the right or obligation can be proven by any means.

Article 814 (execution based on an arbitral award): 1. There are reasons for the execution based on an arbitral award, not only the foreseen in the precedent article, but also those in which an annulment of the decision can be based. 2. The court rejects the request for execution when it recognizes that the dispute can’t be put to the arbitrators’ decision, for being submitted to special law, exclusively to judicial courts or to mandatory arbitration, or if the right is indisposable.

[2] Article 15, paragraph 2: Within the scope of the present law, the conflicts that eventually arise regarding disposable rights can be solved throughout the alternative means of dispute resolution, such as negotiation, conciliation and arbitration, since by special law they are not committed to judicial courts or to mandatory arbitration.

The recent promulgation of two new laws, the Consumer Protection Act [Chapter 14:44] and the Zimbabwe Investment and Development Agency Act [Chapter 14:37], represents far-reaching changes to domestic and international arbitration in Zimbabwe. This article addresses key elements of each law in turn.

The Consumer Protection Act [Chapter 14:44] and its impact on the Arbitration Act [Chapter 7:15]

On 10 December 2019, the Zimbabwe government promulgated the Consumer Protection Act [Chapter 14:44]. The Act seeks to:

(a)   protect the consumer of goods and services by ensuring a fair, efficient, sustainable and transparent marketplace for consumers and business;

(b)  provide for the establishment of the Consumer Protection Commission and its functions;

(c)   provide for the regulation of Consumer Advocacy Organisations

(d)  provide for alternative dispute resolution

(e)   repeal the Consumer Contracts Act [Chapter 8:03]

(f)   provide for matters connected therewith or incidental thereto

The repeal of the Consumer Contracts Act [Chapter 8:03] removes the prior prohibition of the arbitration of disputes between consumers and suppliers that had been established under the Arbitration Act [Chapter 7: 15]. Section 4 (2) of thelatter provides that the following matters shall not be capable of determination by arbitration:

(a)   an agreement that is contrary to public policy; or

(b)  a dispute which, in terms of any law, may not be determined by arbitration; or

(c)   a criminal case; or

(d)  a matrimonial cause or a matter relating to status, unless the High Court gives leave for it to be determined by arbitration; or

(e)   a matter concerning a consumer contract as defined in the Consumer Contracts Act [Chapter 8:03] unless the consumer has by separate agreement agreed thereto.

By repealing the Consumer Contracts Act [Chapter 8:03], the Consumer Protection Act [Chapter 14:44] impliedly amended Section 4 (2) (e) of the Arbitration Act [Chapter 7:15] by deleting the same. Consequently, disputes between consumers and suppliers or services providers are now arbitrable. Moreover, Section 60 (1) of the Consumer Protection Act [Chapter 14:44] expressly provides that the Arbitration Act [Chapter 7:15] shall apply to any such disputes that are referred to arbitration, while Section 60 (7) establishes that an arbitrator shall have the same powers as the court in hearing and resolving any such dispute.[1]

The Zimbabwe Investment and Development Agency Act [Chapter 14:37]

The Zimbabwe Investment and Development Agency Act was promulgated on 7 February 2020. Before its promulgation, the laws governing investment in Zimbabwe were disjointed and uncoordinated.

The Zimbabwe Investment Development Agency Act helps address the inconveniences suffered by investors as follows:

(a)   it repeals the Zimbabwe Investment Authority Act; the Special Economic Zones Act and the Joint Ventures Act

(b)  it replaces the aforesaid pieces of legislation with one piece of legislation, the Zimbabwe Investment and Development Agency Act.

(c)   It provides for the One Stop Investment Services Centre

(d)  It provides for the promotion, entry, protection and facilitation of investment

(e)   It provides for the establishment of the Zimbabwe Investment and Development Agency

New Investment Institutions

The functions of the Zimbabwe Investment and Development Agency are, inter alia:[2]

(a)   To promote, plan and implement investment promotion strategies for the purpose of encouraging investment by domestic and foreign investors

(b)  To promote the decentralisation of investment activities

(c)   To implement and coordinate investment programmes and investment related activities

(d)  To facilitate entry and implementation of investment projects

(e)   To assist investors in all appropriate investment related support that may be required

The One stop Investment Services Centre facilitates the prompt processing of investment enquiries through relevant desks. There are approximately fifteen desks from departments or ministries that process investment enquiries within the Centre. [3]

Dispute Settlement

The Zimbabwe Investment and Development Agency Act [Chapter 14:37] provides that every dispute concerning an investment within the scope of the Act shall be governed by and construed in accordance with the laws of Zimbabwe, including where applicable:

(a)   Domestic arbitration as provided in the Arbitration Act, 1996; or

(b)  Any other International arbitration referred to by mutual agreement of the parties.[4]

In the case of foreign investors, the dispute may also be submitted to dispute settlement mechanisms provided for in any treaty or agreements on the promotion and protection of investments between Zimbabwe and the country from which the foreign investor originates.[5]

Every investor is entitled to equal access to the law and the protection of investments.[6]

Registration Requirement for Bilateral Investment Agreement Protection

A foreigner who established his or her investment in Zimbabwe before 7 February 2020 and claims to be protected by a Bilateral Investment Protection and Promotion Agreement concluded before 7 February 2020 must register their investment with the Agency no later than twelve months after such date.[7]

A foreigner who establishes his or her investment in Zimbabwe after 7 February 2020 and claims to be protected by a Bilateral Investment Protection and Promotion Agreement concluded before or after 7 February 2020 must register their investment with the Agency no later than ninety (90) days after such date.[8]

An investor who fails to register the investment within the period specified under the Act shall be deemed to have waived the protection of the Bilateral Investment Protection and Protection Agreements in question, with the result that any dispute in relation thereto can only be settled by a domestic court or domestic arbitration.[9]

___________________________

* Partner, Kanokanga and Partners

[1] Section 60 (7) of the Consumer Protection Act [Chapter 14:44]

[2] Section 4 of the Zimbabwe Investment and Development Act [Chapter 14:37]

[3] Section 5 of the Zimbabwe Investment and Development Act [Chapter 14:37]

[4] Section 38 (1) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[5] Section 38 (2) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[6] Section 16 (2) (a) and (b) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[7] Section 38 (3) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[8] Section 38 (6) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[9] Section 38 (5) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

One of the reasons why Mauritius is considered as a pro-arbitration jurisdiction is because of its courts’ effective supervision of – but non-interference in – the arbitral process. Almost systematically, the Mauritius courts decline to hear a dispute when a defendant claims that it is governed by an arbitration clause. However, for understandable reasons, a party may consider that a particular dispute should not be determined by an arbitral tribunal, for example where it is contended that the arbitration agreement is not valid or the dispute in question is not arbitrable. From that perspective, there is a considerable risk that if an arbitral tribunal determines a dispute and the relevant courts subsequently annul the arbitral award or refuse to enforce it on the ground that the arbitral tribunal lacked jurisdiction to do so, the parties will already have incurred significant costs, wasted considerable time and disclosed confidential information and documents to each other in the arbitral process, which cannot be recovered. An attempt to mitigate such prejudice by asking the tribunal to determine its jurisdiction as a preliminary issue is often unsuccessful, especially when the tribunal considers that the jurisdiction or arbitrability issue is interlinked with the substantive issues in the case and that it is better to determine all issues together.

The sacrosanct principle on which the Mauritius courts consistently rely is that of competence-competence, i.e. it is for the arbitral tribunal to determine whether it has jurisdiction to determine a dispute. This principle was well established in the Mauritius caselaw even before it was expressly laid down in the International Arbitration Act. Of course, the arbitral tribunal’s decision is in principle subject to a subsequent review by the courts. The practical commercial difficulty of waiting for that review is self-evident and explained above.

There are nevertheless limits to the scope of application of the principle of competence-competence. In exceptional circumstances, parties can ask the court to intervene at the outset in order to restrain the opposing party from proceeding with an arbitration.

One such exception is found in section 5(1) of the International Arbitration Act, which provides that on the relevant application being made, the Court should refer the parties to arbitration “unless a party shows, on a prima facie basis, that there is a very strong probability that the arbitration agreement may be null and void, inoperative or incapable of being performed”. Commenting on this provision, in UBS AG v The Mauritius Commercial Bank Ltd [2016 SCJ 43] the Court held that “[t]he burden put in this way means that the hurdle has been set high since the objecting party has to satisfy, on a prima facie basis, the very high threshold imposed by the “very strong probability” standard”.

That said, it is not only in the circumstances of an application under section 5(1) of the International Arbitration Act that the courts may determine whether it is appropriate to restrain a party from referring a matter to arbitration. In that respect, the English Court of Appeal in Sabbagh v Khoury & Others [2019] EWCA Civ 1219 upheld the principle that the statutory power of an English court to grant an injunction – which may be exercised not only to protect legal and equitable rights but also to prohibit vexatious and oppressive conduct – can be exercised to restrain arbitral proceedings, even where the arbitration is seated abroad. In particular, the Court held that the principle enshrined in section 1(c) of the English Arbitration Act 1996 that a court should not intervene in arbitral proceedings except as provided in statute does not per se prohibit an anti-arbitration injunction but it “implies a need for caution, rather than an absolute prohibition”. Hence, the court’s power to grant such injunctive relief should only be exercised in exceptional circumstances, such as when the commencement or continuation of the arbitration proceedings would be oppressive and vexatious. Although the Court’s analysis is premised on an interpretation of the applicable English legislation, it is expected that the Supreme Court of Mauritius will at least take guidance from the principles developed therein, especially as the provision in section 1(c) of the English Arbitration Act 1996 is derived from article 5 of the UNCITRAL Model Law on International Commercial Arbitration, which is mirrored in the Mauritius International Arbitration Act.

Although it is not possible to identify exhaustively the “exceptional” circumstances in which an arbitration will or should be considered as oppressive and vexatious, in Sabbagh (supra), the English Court of Appeal considered that it was justified to grant an anti-arbitration injunction in respect of a claim which had been found, by virtue of an earlier determination of an English court, to be outside the scope of the arbitration agreement between the parties. Similarly, the English courts have previously restrained arbitration proceedings on the basis that it would be oppressive and vexatious for the party pursuing them to ignore an earlier determination that the arbitration agreement in question was invalid. However, the case for an anti-arbitration injunction may be made out even without a prior ruling on the scope or validity of the relevant arbitration agreement, for instance where such a determination is in the process of being made. In Minister of Finance v IPIC [2019] EWCA Civ 2080, the English Court of Appeal restrained arbitrations that had been commenced while court applications were on foot challenging a previous award under sections 67 and 68 of the English Arbitration Act 1996. Staying the court applications and allowing the arbitrations to continue – as the court of first instance had ruled – infringed the challenging parties' rights to invoke the supervisory jurisdiction of the court. The arbitrations were also vexatious[1] in that any decision by the arbitrators as to their own jurisdiction (under the doctrine of competence-competence) would be provisional only, as the court would need to make a final determination in response to the applications. The Court considered these circumstances exceptional and restrained the arbitrations accordingly.

So far, the Supreme Court of Mauritius has not made any pronouncement on the exceptional circumstances that may lead to an anti-arbitration injunction. To our knowledge, the Court has however had the opportunity to analyse the issue on at least two occasions. In an unreported matter earlier this year, the Judge in Chambers refused an ex parte application for an anti-arbitration injunction on the ground that in accordance with the competence-competence principle, the arbitral tribunal should first determine whether the dispute is arbitrable under Mauritius law; the Judge further refused to cause the matter to be called inter partes for submissions on the merits of the injunction application. Hence, in our view, the Judge’s dismissal of the anti-arbitration injunction by relying solely on the competence-competence concept shows a more, and in our view unduly, stringent application of that principle. A similar approach is observed in Flashbird Limited v Compagnie de Sécurité Privée et Industrielle SARL [2018 SCJ 402], where the Court was asked to either set aside an award issued in a MARC arbitration or stay the enforcement of that award pending the determination by an ICC tribunal as to whether the latter, as opposed to the MARC arbitrator, had jurisdiction to determine the dispute between the parties. Allowing the ICC tribunal to make that determination would arguably be consistent with the competence-competence principle (notwithstanding that it might also undermine the finality of the MARC award). However, while the Court declined to set aside the MARC award, it did not go on to consider the merits of the alternative application to stay the enforcement of the award (i.e. injunct the award creditor from enforcing it) on the basis of the competence-competence principle.

The purpose of this article is not to review the Mauritian decisions above. Suffice to say that they are missed opportunities to establish the position that would apply under Mauritius law as regards the exceptions to the competence-competence principle, irrespective of whether those exceptions would be successfully established in those cases. The courts’ pro-arbitration approach certainly benefits the development of Mauritius as a seat of arbitration, but they must also embrace the sophistication of the non-interventionist principle, which is not absolute.

___________________________________

*Barrister at 5 Fifteen Barristers, Mauritius

**Partner, Hogan Lovells

[1] While in Sabbagh the Court considered whether arbitration would be "vexatious and oppressive",  in Minister of Finance it considered whether arbitration would be "vexatious, oppressive or unconscionable".