INTERNATIONAL ARBITRATION
LEGEND HAS IT THAT KING SOLOMON PRESIDED OVER THE FIRST EVER ARBITRATION; HOW FAR HAVE WE COME OVER THE LAST 3,000 YEARS?
THIS ISSUE
MESSAGE FROM THE EDITOR
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IN CONVERSATION WITH
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LOUK AS MISTELIS Queen Mary University of London NASSIB ZIADÉ Bahrain Chamber for Dispute Resolution MICHAEL PRYLES Singapore International Arbitration Centre ADRIAN WINSTANLEY London Court of International Arbitration
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MARKET COMMENTARY
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ENFORCEMENT IN CHINA: What does Case Law demonstrate? BRITISH VIRGIN ISLANDS: Aviablearbitrationcentre? LCI A A N D IB A GU IDE L IN E S : Pushing the boundaries on conduct? SAUDI ARBITRATION LAW 2012: Thepositiveimpactprojected?
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TPPA: A change in policy for Australia?
LIBYA: A hospitable environment for arbitration?
POLITICAL RISK INSURANCE: Investmenttreatytribunals
NEWS IN BRIEF PEOPLE MOVES MARKET ACTIVITY
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NOTABLE CASES
FORTHCOMING EVENTS
INTERNATIONAL ARBITRATION 1/3LY
MESSAGE FROM THE EDITOR 01
MESSAGE FROM THE EDITOR I’m delighted to present the inaugural issue of Clyde & Co LLP’s International Arbitration 1/3LY. Three times a year, our specialists from around the globe will consult with industry leaders on issues of strategic importance to the global arbitration community; and explore emerging trends and developments through a series of articles providing diverse perspectives and analysis.
In this issue, we compare outlooks from three different arbitral centres: Adrian Winstanley OBE (out going Director General of the LCIA) provides the established centre view and comments on the LCIA’s expansion over the course of his tenure; Michael Pryles (President of the Court of Arbitration, SIAC) tells SIAC’s growth and transformation story; and Nassib Ziadé (Chief Executive Officer of the Bahrain Centre for Dispute Resolution) provides the perspective of a fledgling centre, looking to attract disputes and build its reputation. The growth of arbitration as a discipline is a recurring theme throughout this issue: Loukas Mistelis (Director of the School of International Arbitration at Queen Mary University of London) contemplates arbitration’s evolution from an elitist practice of the law to a user-orientated service. Furthermore, this theme is investigated by the authors of our articles who ruminate on the growth and development of arbitration in the diverse regional centres of Libya, Saudi Arabia, China and the British Virgin Islands. Reflecting on the contributions in this issue, it’s clear that while the practice of arbitration was cultivated by law firms initially; states now seek to expand arbitration as a means of attracting foreign investment to their shores. This trend is indicative of the enduring symbiotic relationship between international trade and arbitration.
These developments probe questions regarding arbitration’s future. Legend has it that three millennia ago, King Solomon presided over the first arbitration and 3,000 years later, the expression ‘splitting the baby’ is often used as a pejorative term for arbitral deliberations. Looking 15-20 years ahead, will arbitration be the standard dispute resolution method adopted by companies and states? And, if arbitration is set to become the norm, how should it respond to concerns surrounding costs, transparency and conflicts of interest, among others? Should arbitration be forced to adapt to the traditional ‘western’ democratic ideal of open justice? As several of our contributors remark within, arbitration is best suited to evolution, rather than revolution and so it seems that only time will tell. On behalf of Clyde & Co, I would like to thank Loukas Mistelis, Nassib Ziadé, Michael Pryles and Adrian Winstanley for contributing their expert opinions and fascinating insights. BEN KNOWLES, GLOBAL HEAD OF DISPUTE RESOLUTION AND INTERNATIONAL ARBITRATION, CLYDE & CO LLP
BEN KNOWLES AND LOUKAS MISTELIS EXCHANGE VIEWS ON THE INTERNATIONAL ARBITRATION PROCESS: FROM ITS ORIGINS AND DEVELOPMENT, TO THE PERKS AND PITFALLS OF CONTEMPORARY PRACTICE – INCLUDING USER, COUNSEL AND ARBITRATOR PERSPECTIVES. THEIR DISCUSSION SHEDS LIGHT ON THE IDIOSYNCRASIES OF ARBITRATORS, THE PECULIARITIES OF PANELS AND THE SECRETS OF THE DELIBERATION ROOM.
BEN KNOWLES
LOUKAS MISTELIS
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IN CONVERSATION WITH LOUKAS MISTELIS 03
IN CONVERSATION WITH LOUKAS MISTELIS QUEEN MARY UNIVERSITY OF LONDON Ben Knowles, Partner at Clyde & Co LLP, in conversation with Loukas Mistelis, Director of the School of International Arbitration at Queen Mary University of London
THE DEVELOPMENT OF ARBITRATION - IDEOLOGICAL, ORGANIC OR HAPHAZARD? BEN How did you develop an interest in international arbitration and become Director at Queen Mary University of London (QMUL)? LOUKAS Having studied conflict of laws and international business law, it was clear to me that jurisdictional conflicts were set and inflexible, but that arbitration was developing and offering a much more interesting area for study. About a month after I finished my doctorate, I saw an advertisement for my job at QMUL in the Economist; I applied, and the rest is history. Queen Mary, and London generally, offer a very international environment in which to operate, and I’ve been greatly assisted by colleagues in the School and its founder, Julian Lew. I believe QMUL was the first institution in the world to teach arbitration, and that it has become one of the best, and certainly one of the most prominent, places to study arbitration. BEN It’s true that arbitration is an interesting field, particularly its development as a legal practice because, unlike other areas, it’s been almost entirely driven by modern law firms. Over the years, I’ve seen three distinct approaches contribute to the way the arbitration market looks today. Certain European law firms created international arbitration as a ‘specialist capability’ to attract work: mainly those firms which couldn’t rely on a sizeable corporate client base to generate work of that nature. I’d be fascinated to know whether this was a strategic and deliberate tactic, or whether it was more a happy accident which then mushroomed!
Some international firms drove their arbitration practices off the back of their corporate client base and work. In fact, some of today’s ‘big names’ in arbitration successfully cultivated their reputation on this model. But we’re now seeing a trend toward individuals with established clients and contacts moving out of these powerhouses and into boutiques, taking both their reputations and work with them. It’ll be interesting to see how that plays out. The third method is the approach Clyde & Co adopted: a disputes-led offering with the onus on resolving disputes using whichever method is most efficient and effective for the client, rather than driving our own arbitration agenda. That said, it feels as though we’re entering another period of evolution within law firms. What’s your perspective on this? LOUKAS I think arbitration will continue to evolve, as it has over the last few decades. Since the New York Convention in 1958, arbitration has developed organically into a sophisticated, elitist practice of the law - I would call this the first golden period! Looking at the big picture, its growth in New York was driven by Central European migrants who set up law firms practising international arbitration in Manhattan. In fact, most of the first American textbooks on international arbitration were written by Germans. Across Europe, the development of arbitration in France, England and Switzerland was entirely ideological. It gained a reputation as a higher practice of law, and was associated with good lunches, posh dinners and nice venues, as well as having the luxury of spending time over the dispute. The New York Convention then came to reflect this cosmopolitanism, and the conception of arbitration as superior was supported and reinforced by the governing bodies, such as the International Court of Arbitration (ICC).
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INTERNATIONAL ARBITRATION 1/3LY
Then, from the 1980s and1990s, there was a democratisation of arbitration: it became less cosmopolitan and more of a tool. Arbitration became more accessible to people, some of whom hadn’t experienced it previously. I actually remember being involved in a particular dispute where there were constant objections raised and calls for strike out throughout the hearing, because the parties’ representatives weren’t accustomed to the process – the eminent tribunal was amused and a bit intimidated by this behaviour to say the least! And, for me, this serves as a reminder that arbitration is a service provided to the parties; not an expression of state authority. The development of arbitration as a service meant that more and more people came to arbitration – which I think is a good thing in the long run – but it has also been the cause for a massive learning curve, and has resulted in a lot of change in practice. ARBITRATION IN OPERATION: COMPETING INTERESTS AND EXPECTATIONS LOUKAS One of the main issues affecting the practice as a service, is the expectations of the parties. Generally, parties expect arbitrators to operate in the Swiss or French style, taking a managerial approach and focussing on getting the parties to where they think they ought to be. But, at the same time, the legal representation (and advocacy) in arbitration often follows a common law style. This throws up some issues around the distribution of power between the tribunal and the parties and counsel: the tribunal doesn’t own the dispute – one might view it as the captain of the vessel; the parties own the vessel but the captain can dictate the route. I personally think that the common law training of English lawyers means some aren’t well suited to practice as arbitrators. BEN Can I pick up on this comment? One of the things that I’ve observed over the last 20 years is an element of ‘international arbitration of the lowest common denominator’, in relation to those involved.
There was a period in the English High Court when, in my view, cases became too complicated, subtle and precedent based; making it impossible for a user to understand what the likely outcome might be. Conversely, in arbitration, there’s sometimes a risk of operating at the level of the least sophisticated member of the panel and this isn’t necessarily the ideal we should all be aiming for. What do you think about this, given your involvement on all sides? LOUKAS I think arbitration is dependent on confidence; of the parties in the tribunal and vice versa. That suggests that there’s an immediate advantage for a member of the ‘establishment’, because they have the respect that goes with reputation; whereas entirely new members have to build up that confidence on both sides of the equation. At the same time, there’s no equality of arms in arbitration – it’s not for the arbitrator to correct mistakes. After all, the arbitrators have a duty to make a decision. Parties are generally satisfied when arbitrators succeed in creating an efficient and fair process: they feel that they own the process, and that it’s developing based on their particular needs and interests, rather than in accordance with an objective standard. I think this is where counsel can create problems, because their expectations are often determined by what they’ve seen done before, and they, in turn, communicate these preconceptions to the parties. In this respect, counsel often shape the process of arbitration more than the arbitrators. So there are probably a lot of common elements between arbitrations under different institutional rules; although there are certainly varying levels of interaction between the parties and counsel, the tribunal and the institution. For example, while London Maritime Arbitration Association (LMAA) arbitrators have very little interaction with the parties until fairly late in the process (which is rather uncommon), the International Centre for Settlement of Investment Disputes (ICSID) and ICC have a lot of interaction; and commercial arbitration on average is somewhere in between. BEN Another issue that occurs to me is the problem of how to balance flexibility and the parties’ ownership of the process, with the requirement for an element of certainty around their legal rights. There’s a tension there which is difficult.
Relative certainty of outcome is one of the main elements distinguishing international arbitration from English law and the High Court. The precedent-based system of English common law gives clients a fairly certain idea as to the likely outcome of any dispute, which is particularly important in areas where contracts are very sophisticated. The system benefits both clients and lawyers because it allows them to come up with solutions to problems which they know give rise to a fairly predictable outcome, if litigated. International arbitration has many strong benefits but certainty of outcome is not one of them! On the plus side, it’s typically more flexible than court proceedings, as well as less formal and intimidating. For a party operating in a number of jurisdictions, the form of proceedings will feel fairly familiar wherever a dispute is being resolved. However, the lack of predictability can lead to tension for clients who might have arbitration clauses in some contracts and court clauses in other contracts. And sometimes there’s a level of sophistication in arbitration contracts which isn’t always appreciated by the arbitral tribunal. LOUKAS Well, arbitration is a legal process so it should be reasonably predictable! There shouldn’t be a lot of surprises, and the reasoning of the awards should be transparent. I always emphasise that the award should be written almost exclusively for the losing party, because there’s a need to explain why they lost and that each of their submissions was taken into account. The rationale of the award should be easy for somebody not present during the hearing to understand. BEN But there are many arbitrations now – particularly at the ICC – where the submissions of the claimant’s counsel and the respondent’s counsel seem to have been cut and pasted into the award. And then there are two or three paragraphs which say, “ergo... and we declare as follows...” LOUKAS It sounds as though you’re describing a certain practice that’s developing on the continent, as a consequence of the increased influence of tribunal secretaries. Increasingly, the first draft of the award is done with the participation of the tribunal secretary, many of whom are very talented but more likely to stick closely to the written submissions.
THE DEVELOPMENT OF ARBITRATION AS A SERVICE MEANT THAT MORE PEOPLE CAME TO ARBITRATION – WHICH HAS CAUSED A MASSIVE LEARNING CURVE AND RESULTED IN A LOT OF CHANGE IN PRACTICE.
I BELIEVE EVERY ARBITRATOR HAS TO JUSTIFY THEIR EXISTENCE BY CONTRIBUTING TO THE DEBATE AND CROSS EXAMINATION; BUT A QUIET ARBITRATOR ISN’T NECESSARILY INACTIVE.
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IN CONVERSATION WITH LOUKAS MISTELIS 07
That particular formula you mentioned resonates with a Germanic-style legal training, where you relay the arguments to see what is to be decided, and what is not to be decided. I don’t have a problem with this formula in itself, but I do if the tribunal doesn’t add enough independent reasoning; particularly if it fails to provide the intellectual input for which it is well paid. That’s why I object to the use of secretaries in writing awards as a matter of principle. At the same time, you have to paraphrase as much as possible when writing awards. I don’t see the value in awards running into hundreds of pages – it’s not helpful to the practice or the parties. What is important is the intellectual input of the tribunal in trying to identify the issue and resolve it: if that’s not prominent there’s potential for a negative effect on the system.
I’ve also seen the ‘less-active’ arbitrator who waits until the end of the hearing before beginning any deliberations in relation to the award. In other cases, there may be a fact-finding based discussion between the arbitrators which goes something like: ‘We’re going into the hearing, what are your expectations? What do you think is going to be a problem? How do you think the case will go at this stage?’ This can go on for an hour or two, followed by a short deliberation at the end of the hearing, and then the distribution of tasks. BEN And which approach would you consider to be ‘best practice’? LOUKAS In an ideal world, parties should receive the ‘hands-on’ chair because the chair is paid much more than the other arbitrators! While the normal division of labour among panel members and the allocation of arbitrator fees is along the lines of 40/30/30, with a good chair it will be 50/25/25. I’ve seen the ‘less active’ route working well if a lot of ground work has been done before the hearing but, unfortunately, that doesn’t tend to happen so it’s often ineffective. There are generally a lot of small details that contribute to the way tasks are distributed – language, for example. Often all members of the tribunal are operating in a second language, which may be another reason why written submissions are so heavily relied on to form part of the award. If one arbitrator has stronger writing skills in the relevant language, there’s nothing wrong with delegating more of the writing to that person. BEN Yes, but as a user you need to understand what the process is. So you need to know if you’re dealing with a situation where the chair is going to write the award, and is therefore the most important player. Essentially, you need to understand how the game is being played. In the UK, wingmen often write the award because they’re a particularly eminent barrister or former Judge, or may have a particular understanding of the type of dispute. The chair will still run the process, but one of the wingmen will do all the work.
From a user’s perspective, it’s helpful to understand how the tribunal is operating because that affects how you present the case and how you react to the arbitrators. LOUKAS Roles and responsibilities aren’t clear, even to the arbitrators themselves sometimes. I was in a tribunal a few years ago where one of the arbitrators was a bit of a show-off; he kept trying to explain things to the parties, and in the end he interfered too much and undermined the chair. I almost felt as though there were two chairs, so it must have been very confusing for the parties. On a different case, the chair was notoriously lazy – this did not go down very well with me and my colleague – but the parties wouldn’t have been aware of it. I’m sure we’ve all seen lots of stylistic differences amongst arbitrators. I’ve been in cases where chairs didn’t even like co-arbitrators asking questions, but that’s less common. I believe every arbitrator has to justify their existence by contributing to the debate and cross examination; but a quiet arbitrator isn’t necessarily inactive. Most importantly, I agree with you that the tribunal should be reasonably transparent in how it operates, so that parties can follow the process.
THE SECRETS OF THE DELIBERATION ROOM
BEN Can I ask you about the secrets of the arbitration deliberation room? We’re very familiar with the approach of having three arbitrators; whether they’re all of the same status, or a chair and two wingmen. In your experience, is there much difference in the roles of party appointed arbitrators as compared with the chair? Particularly how they interact with one another, and whether you think there’s ‘best practice’. Or does it depend on the personalities of the individuals? LOUKAS I’ve seen different styles... There’s the ‘hands-on’ chair who will do a full first draft on his or her own, to be circulated for considered deliberation. Sometimes, but not very often, the chair will go to a hearing with effectively three-quarters of the award written. The draft will contain points for deliberation, reasoning and – on occasions where it’s very clear – the outcome, or possible outcomes. This is fairly common practice among continental European arbitrators.
INTERNATIONAL ARBITRATION 1/3LY
EFFICIENCY IS ENTIRELY THE DOMAIN OF THE ARBITRATOR, AND NOT THE ROLE OF THE PARTIES, AND IS AN ISSUE THAT NEEDS TO BE ADDRESSED.
ROOM FOR IMPROVEMENT?
LOUKAS Going back to your question, in terms of what could be improved, I think one of the current problems is the limited pool of arbitrators: opening up this pool would make arbitration much more efficient, and much quicker. At the moment it’s not quick enough: some of the bigger cases take a very long time. For example, the time from the final hearing to the award can be unnecessarily lengthy. Efficiency is entirely the domain of the arbitrator (assuming counsel are co-operating), and not the role of the parties, and is an issue that needs to be addressed. But I don’t think arbitration’s too expensive as a result, and you certainly can’t compare the cost of litigation with the cost of arbitration. Plus, arbitration is entirely self-financed, and doesn’t rely on public resources. If you like, the courts are workhorses while arbitration is more akin to an expensive car – when you drive it, you drive it! BEN What you say about the cost of arbitration is interesting, because cost – particularly costs around the administrative process – is an issue. Having said that, I appreciate your point about the comparison with court systems being a false one. For clients used to accessing a court system which might be free, or at nominal cost, the amounts charged by some arbitral tribunals can be eye wateringly large. And, in circumstances where the recoverability of costs from a losing party is unpredictable, an entirely innocent party can be forced to run up huge expenses to defeat a spurious claim. Indeed, there’s a perception that the system has become bloated and risks killing the golden goose – true or otherwise!
BEN Moving on, what do you consider to be the most appealing aspect of international arbitration? And, secondly, is there anything in particular you’d like to change about international arbitration? LOUKAS I think the eclectic nature of arbitration is attractive. With a genuinely international dispute, where neither party will submit to the court of the other side, they have access to an arbitral system with lots of options. For example, with domestic courts – even if the parties like the system, but their normal lawyer isn’t locally qualified – it can be difficult and expensive to find local counsel. And working with local counsel from a distance makes things much more complicated. BEN I agree, and one of the real positives about international arbitration is that it gives both parties an opportunity to seek to resolve issues on an apparently level playing field. In contrast with court processes, detailed knowledge of procedure and precedent – or sophistication of lawyer – aren’t necessarily going to be decisive factors. In arbitration, there may be a dispute where a relatively unsophisticated client and law firm takes on a much more sophisticated opponent, yet the tribunal may still be able to reach an equitable result. However, the position could be very different in court, where a sophisticated client and legal team may be able to take advantage of the process and defeat a less sophisticated party on a technicality.
IN CONVERSATION WITH LOUKAS MISTELIS 09
WITH THANKS TO THE CONTRIBUTORS OF THIS EXCHANGE...
LOUKAS MISTELIS, QUEEN MARY UNIVERSITY OF LONDON
BEN KNOWLES, CLYDE & CO LLP
Ben is a member of the Management Board and has been the Global Head of Dispute Resolution and International Arbitration since 2013. Ben has extensive dispute resolution experience, especially in international arbitration, including at the ICC, LCIA, LME and LMMA. He has particular expertise in the upstream oil & gas and trade & commodities sectors. He led the substantial Clyde & Co team representing Yemen in the high profile multi-billion dollar arbitration against various US oil interests, which resulted in a landmark result in Yemen’s favour. Ben has successfully represented Yemen in a number of other cases. Ben is recognised as a leader in his field by the legal directories and was named a Reuters Super Lawyer in 2013, demonstrating excellence in the practice of law.
Loukas is Director of the School of International Arbitration at Queen Mary University and is an acknowledged authority on international dispute resolution. He has been listed as one of the ‘leading lights in international arbitration’ in the 45 under 45 – amongst the top 15 highlighted members of the list – and has also been listed in the Who’s Who of Commercial Arbitration since 2007. He has also been designated to the Panel of Arbitrators of ICSID. He studied law at Athens (LLB) Strasbourg (Certificate in International & Comparative Human Rights); Hanover (Magister Legum Europae and Dr. iuris) and Keio (Certificate in Japanese International Trade Law). A member of the Athens Bar (since 1993), Loukas has also participated in a number of expert groups, including for the UK Department of Trade and Industry, the International Chamber of Commerce, UNCITRAL and UNCTAD. His substantial arbitration experience covers ICC, ICSID, LCIA, UNCITRAL, SCC, Swiss Chambers and Moscow cases. Subject matters included foreign direct investment, sales contracts, distribution agreements, counter-trade, mining, share purchase agreements, media contracts, administration of natural resources, and oil and gas transactions. He is a widely published author with more than 13 books and 60 refereed journal articles.
ALEC EMMERSON, NASSIF BOUMALHAB AND NASSIB ZIADÉ CONVERSE ABOUT NASSIB’S PLANS FOR THE BCDR-AAA FOLLOWING HIS APPOINTMENT AS CEO IN OCTOBER 2013. NASSIB ALSO IMPARTS HIS VIEWS ON THE IMPORTANCE OF THE ROLE OF ETHICAL GUIDELINES
TO THE FUTURE OF ARBITRATION.
ALEC EMMERSON
NASSIF BOUMALHAB
NASSIB ZIADÉ
INTERNATIONAL ARBITRATION 1/3LY
IN CONVERSATION WITH NASSIB ZIADÉ 11
IN CONVERSATION WITH NASSIB ZIADÉ BAHRAIN CHAMBER FOR DISPUTE RESOLUTION
Alec Emmerson and Nassif BouMalhab, Consultant and Partner at Clyde & Co LLP, in conversation with Prof. Nassib Ziadé, Chief Executive Officer of the Bahrain Chamber for Dispute Resolution
BCDR-AAA: VISION, REPUTATION, EDUCATION AND CELEBRATION
ALEC That’s fantastic; there’s general agreement in the international arbitration community that judges in the Middle East would benefit from more education and training about arbitration, particularly around enforcement issues. NASSIB Yes, we’re considering providing continued professional education and training programmes for both judges and practitioners. We’re discussing creation of an institute, associated with BCDR, to provide education in the region on international arbitration, and international law more generally. The premise is that it would perform a function similar to that of the Paris-based International Academy for Arbitration Law (Arbitration Academy), or even The Hague Academy of International Law. These education initiatives are a demonstration of my deeply- held belief that if there are any future battles in the region, they will be legal in nature; so, we should strive to spread legal education, and let the rule of law determine the outcome. We’re also about to launch a specialised BCDR law journal, which will be published by Kluwer. Each issue will deal with one topic, and one topic only, so we can delve deeply into the chosen subject matter. The first issue is planned for early September and will cover the classic issue of ‘Recognition and enforcement of foreign arbitral awards in the Gulf region’. The topic for the second issue is less commonplace, entitled ‘Women’s voices in international arbitration’, and all contributions will be exclusively authored by women on issues of reform in arbitration. I’d also like to do an issue on conflicts, to coincide with the IBA’s completion of its review of its Guidelines on Conflicts of Interest in International Arbitration. Culturally, I also think it’s time to start honouring Arab practitioners who promote arbitration in the field; and BCDR’s first annual event will honour Dr. Ahmed El-Kosheri.
ALEC Congratulations on your relatively recent appointment as CEO of the Bahrain Chamber for Dispute Resolution (BCDR- AAA). Looking forward, what are your plans? NASSIB My first goal is to attract international arbitration and mediation cases under Section 2 of the BCDR’s constitutive legislation. BCDR can hear two types of arbitrations: those under Section 1 are statutory arbitrations – referred by the Bahraini Courts because the amount in dispute is over a half million Bahraini dinars (approximately USD 1.3 million); and those under Section 2 are contractual arbitrations between parties. We currently have over 100 cases registered under Section 1, and our aim is to continue improving their administration to bring them in line with international standards and best practices. Another objective is to continue promoting BCDR-AAA (both locally and internationally) through initiatives, such as international conferences on dispute settlement mechanisms in Bahrain. For example, in early March 2015, we’re co-hosting a conference in association with the International Federation of Commercial Arbitration Institutions (IFCAI). We also aim to enhance the reputation of BCDR-AAA as a centre of learning and education. Indeed, we recently [May 2014] co- hosted an event with the International Council for Commercial Arbitration (ICCA) that brought together Arab judges from 13 different countries to look at the way the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards is applied and implemented in the region.
THESE EDUCATION INITIATIVES ARE A DEMONSTRATION OF MY DEEPLY-HELD BELIEF THAT IF THERE ARE ANY FUTURE BATTLES IN THE REGION, THEY WILL BE LEGAL IN NATURE; WE SHOULD STRIVE TO SPREAD LEGAL EDUCATION, AND LET THE RULE OF LAW DETERMINE THE OUTCOME.
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IN CONVERSATION WITH NASSIB ZIADÉ 13
REFORM, ETHICS, DISCLOSURE AND SELF-REGULATION
ALEC Of course, he was also honoured at GAR Live in Paris earlier this year: he’s effectively the grandfather of arbitration in the Arab world, and a very impressive man. NASSIB Agreed! And it really is time to start honouring Arab practitioners in the Arab region, instead of waiting for institutions elsewhere to do so. Historically, the most renowned Arab practitioners were found and promoted by western arbitration institutions; now is the time for the Arab regional institutions to acknowledge and promote their good work also. A final goal is to continue strengthening the perception that BCDR-AAA is a truly independent body. In the last few months, I’ve finalised a co-operation agreement with the Permanent Court of Arbitration (PCA) so that hearings can be held in Bahrain, and at the Peace Palace in The Hague. My hope is t hat we’ll also start some joint education and training programmes with them. ARAB COUNTRIES DENOUNCING INTERNATIONAL LAWS AND OPTING OUT ALEC So, how do you see arbitration in the Arab world as it is now; and how you would like to see it move forward? NASSIB Well, many Arab countries have liberal arbitration legislations derived from French or Swiss law, or from the UNCITRAL Model Law on International Commercial Arbitration. I don’t see any of these countries, even those that have undergone regime change, altering these laws because their ultimate goal is to promote arbitration and the flow of investment into their countries. Although many Arab arbitration laws were enacted by old regimes, I think they’ll remain in place. I also don’t envisage any change in the work of regional arbitration institutions; in fact, I think the changes to date are likely to result in more commercial and investment arbitration cases.
I do, however, see future problems arising from the relationships between Arab countries and western arbitral institutions, such as the International Centre for Settlement of Investment Disputes (ICSID); especially since a number of countries are being sued because of changes made by their new regimes, leading to disputes between states and investors. Unless the situation is handled with great care, I can see developments similar to the ‘Latin American syndrome’ taking place: we could find Arab countries denouncing the Washington Convention, and opting out of ICSID, if they are dissatisfied with the process and its results, as Latin American countries have already done. ALEC Egypt’s had a number of ICSID cases started against it because the Morsi Government questioned the basis of past deals. Of course, we don’t know what’s going to happen with the current regime but it’ll be interesting to watch because many of those cases were brought about by Middle Eastern investors, rather than western investors – so there’s a fair amount of inter- Middle Eastern investment. Perhaps the end result may be that the current perception of ICSID, as a western institution with western values, will change if Middle Eastern investors are using it to sue Middle Eastern states. What’s your view on that? NASSIB ICSID has registered at least five cases brought by Arab investors against Arab states, on the basis of bilateral investment treaties. But it doesn’t change the fact that when a state loses a number of cases before a western arbitration institution, it starts questioning the institution’s neutrality – whether legitimate or otherwise. But there are some steps that might improve this situation. First: I think ICSID should be more attentive to the unique needs of the states undergoing important changes in procedural matters, particularly around the strictness of timelines. Secondly: in cases involving the region, western institutions should make efforts to appoint arbitrators familiar with Arab cultures and who know the region. Finally: and a topic close to my heart, is that I believe that it’s time for an institution like ICSID to start a process of reform, especially on issues of conflicts of interest.
ALEC Fully agree. In that respect, do you think distinctions should be drawn between international commercial arbitration and bilateral investment treaty or investor / state arbitration? Should different tests be applied? NASSIB There should definitely be different tests but the requirements for reform are similar. Based on my own experience, reform is one of the things that states always request because essentially they’re told “Look, we don’t trust your judicial system. We don’t want to go to your courts, come to arbitration”. So they go to arbitration, they see some problematic relationships with counsel and arbitrators, and their reaction is to say, “Look, you tell us that our courts have problems, but what about the lack of transparency and inclusiveness we’re witnessing there?”. A typical problem that continually arises in commercial cases is that legal counsel can sit together as counsel and arbitrator, and as co-arbitrators; although the cases are totally unrelated, there’s still a problem, both a question of appearance and one of substance. Sitting together as co-arbitrators increases exposure to insight which may, in turn, be used to counsel’s advantage in appearing before an arbitrator of whom they have a prior knowledge. There should be proper disclosure; and, on occasion, arbitrators should stand down. ALEC That’s a particularly salient example, because a lot of arbitration practitioners who act as party counsel are also arbitrators but don’t view it to be a problem, and may not even think to disclose it. I seem to spend half my life dealing with conflicts, and I’m conflicted in about two thirds of the arbitrations that people want to appoint me in... There are also plenty of other potential conflicts, in addition to those you mentioned. Although the current IBA Guidelines help, we all know they’re being revised.
14 IN CONVERSATION WITH NASSIB ZIADÉ
INTERNATIONAL ARBITRATION 1/3LY
NASSIB The IBA Guidelines are definitely helpful. Everyone says they’re not binding but we all look at them! However, the current Guidelines were mainly drafted by practitioners, so they reflect the best practices from a practitioner’s point of view; therefore they’re more enabling than restricting. While I agree that disclosure would be a good safeguard, there would still be cases where disclosure wasn’t enough. That’s why I believe institutions should enact guidelines but I’m aware that many colleagues disagree with me. ALEC Indeed, that’s quite a controversial view. So why do you think that the institutions need to be the policemen of ethical practices? NASSIB Someone needs to do it, and it can’t be the practitioners themselves! Systems don’t tend to self-regulate well; and we’re seeing an increasing number of anomalies and deviations, so I believe that the institutions should step in. They’re very well-placed to fulfil a regulatory role because they’re neutral, and can involve the practitioners and seek opinions with relative ease. They can also provide guidance and a sense of authority. ALEC But do you think that the institutions would be able to operate in a sufficiently coherent manner? If multiple institutions published their own guidelines or rules on ethics for arbitrators, there would be huge potential for discrepancies. NASSIB Well, similar institutions could collaborate. And even if every institution formulated its own ethical codes and rules, it would be no different from the current situation; in that almost every institution has its own, yet many draw heavily on the rules of other institutions. There are already lots of similarities, but also, conversely, lots of differences. Of course, institutions concentrating on investment arbitrations may require different rules from those focussing on commercial arbitrations, on account of the subject matter. ALEC And how would you persuade institutions that strongly disagree that they bear responsibility for policing this area?
NASSIB I can’t persuade them; I can only champion my views... A viable future lies only with arbitration institutions that successfully deliver the basic principles of controlling costs, maximising efficiency, achieving genuine diversity, and ensuring transparency, including in the handling of the appointments and challenges of arbitrators. More importantly, sustainability depends on being quick to respond effectively to the legitimacy crisis affecting international arbitration; as well as understanding that the system requires more than cosmetic changes when it comes to conflicts of interest. Institutions which enact these principles will thrive over and above others who fail to act. Institutions should begin by enacting internal codes of conduct applicable to their staff and practices, and then enacting external codes of conduct applicable to the arbitrators and counsel appearing before them. Only by doing this will arbitration institutions fulfil their missions and strengthen their legitimacy. The bottom line is that if they don’t do it, they will not have a viable future. NASSIF Speaking as a practitioner, I think you’re right. Ultimately, if the institutions don’t fill this void - or if some do and others don’t – practitioners will advise clients to adopt the rules of a centre which takes itself ‘more seriously’. TREADING THE FINE LINE BETWEEN TRANSPARENCY AND CONFIDENTIALITY NASSIB And to go back to what was said earlier, I don’t think the institutions have any choice in reform: those who aren’t convinced today will be proven wrong in five or ten years’ time. Practices that have been left unchanged for 25 or 50 years need to be challenged. It’s a different world now. Even in the field of commercial arbitration, I don’t believe confidentiality can, or should, be maintained. I understand the importance of confidentiality, particularly around publishing awards. However, I am
concerned that confidentiality can be used as a subterfuge to hide things; it’s important to know who has appointed whom, and the nature of the relationships that exist among the lawyers, arbitrators and the parties. I think these issues will come under increasing scrutiny in the next few years. ALEC There’s a real conflict between the need for transparency and confidentiality; the latter being one of the key attractions of commercial arbitration. It’s a question of where the line is drawn, but a lot of parties would be very unhappy having their names published. NASSIB The parties notwithstanding, there’s an altogether different problem. My guess is that if the names of counsel, arbitrators and parties were published, there would be some very unpleasant surprises! And my concern is that we should be careful to avoid using the word ‘confidential’ to hide things which may be unethical. The IBA Guidelines say that a party can’t appoint the same arbitrator more than a specified number of times; but if details are secret, how can you know what’s taking place? ALEC But that problem could also be dealt with through disclosure obligations contained in ethical codes and rules, as we discussed. Or by establishing a central registry to keep track of parties, counsel and arbitrator appointments. It could be administered by one of the institutions... NASSIF To add to the complexity, the problem is also different from the perspective of an administrator of a centre, as opposed to parties. Some information - party nomination for example - is visible to the centre but the problem lies in whether or not the centre can make use of that information. All these issues are arising because we have newcomers in the field contesting legitimacy. Not everything they say is right, but some of the questions they pose are highly valid and deserve to be addressed. And rather than being always on the defensive, why not move it forward?!? ALEC Do you think confidentiality poses greater issues at state level than in commercial arbitration?
THE CURRENT IBA GUIDELINES WERE MAINLY DRAFTED BY PRACTITIONERS SO THEY REFLECT THE BEST PRACTICES FROM A PRACTITIONER’S POINT OF VIEW; THEY’RE MORE ENABLING THAN RESTRICTING.
INTERNATIONAL ARBITRATION 1/3LY
PUBLIC SCRUTINY HAS INCREASED, AND DEMANDS FOR TRANSPARENCY ARE BECOMING MORE VOCAL AND WIDESPREAD.
NASSIB Definitely; it’s a much bigger problem in investment arbitration, because the issues and fact patterns in those cases tend to overlap more; plus, the global pool of arbitrators in that area is smaller than elsewhere. But almost everything in investment arbitration is public now. It’s more a question of whether commercial arbitration should remain totally confidential, become only partially secretive, or be gradually opened up for greater transparency. There is a view that commercial arbitrations should be completely public, like a court system, but I wouldn’t go that far.
NASSIF Speaking as a practitioner, I think you’re right. Ultimately, if the institutions don’t fill this void – or if some do and others don’t – practitioners will advise clients to adopt the rules of a centre which takes itself ‘more seriously’. NASSIB It’s an important issue. Introducing strong ethical guidelines will enhance transparency, and may even prevent unnecessary challenges. Adopting clear guidelines that everyone follows may mean the arbitration process can move forward more smoothly; which can only be a positive outcome. ALEC Another issue around transparency is that not all institutions publish the reasons, or disclose the rationale, for accepting or rejecting a challenge. Some institutions commission a well-known practitioner or arbitrator to write a report which goes to the relevant committee or court for consideration, and is usually adopted. That type of document could be made available without breaching confidentiality, if redacted. I’m of the view that challenged decisions should be published, even in a redacted form, so there’s a better understanding of what’s considered to be important within the decision-making process. Although there would be practical implications of producing that level of paperwork. NASSIB In ICSID, when one arbitrator is challenged the two unchallenged arbitrators typically decide; there’s a lot of criticism of this practice, precisely because there are no guidelines. And sometimes the unchallenged arbitrators who have the decision-making power have themselves been challenged in the past; and, in the absence of guidelines, all they have to go on is their own experience. ALEC And there’s clearly a potential conflict with two arbitrators deciding the challenge on the third person! NASSIB Many people say they’re not comfortable in that type of situation. But if they’re uncomfortable deciding whether a colleague is neutral enough, impartial enough, or independent enough to be on the panel, how can they decide much more difficult questions of substance?
NASSIF At the end of the day, any guidelines to decide whether or not a colleague is impartial would ultimately be applied to you in the same circumstances. And, taking the earlier example of the IBA Guidelines, I wonder whether that would lead to an expression of principles which would be more permissive than prohibitive. NASSIB If the guidelines were enacted by the institutions, they wouldn’t be more permissive than prohibitive! Again, my problem is how can arbitrators be comfortable in awarding millions of dollars as damages, if they feel uncomfortable deciding whether a co-arbitrator ought to be disqualified? Where’s the comfort in having a dissenting opinion against two colleagues? ALEC So, the essence of the issue is deciding what the applicable principles are; and it goes back to Nassib’s original point that there need to be rules. NASSIB Absolutely. If arbitration institutions are to flourish, modernisation is needed and regulation is key to that process.
ETHICAL GUIDELINES
ALEC Would you like to pick one last area of importance to discuss? NASSIB We’ve already touched on this and I firmly believe institutions should implement ethical guidelines for their staff and their own counsel; there’s not much awareness around this issue but it’s very important. Frankly, before the institutions start regulating the arbitration practitioners and counsel appearing before them, they should regulate their own staff. It’s a very small field and the staff of arbitration institutions often go on to work for law firms, and vice versa, so clear guidelines are needed to ensure the system isn’t manipulated, or taken advantage of, because of inside knowledge gained in a previous role. ALEC So do you have a plan to bring in such guidelines at BCDR-AAA? NASSIB Yes. I think that institutions should first enact internal codes of conduct, and then enact external codes of conduct applicable to the arbitrators and counsel appearing before them; by doing this, arbitration institutions will strengthen their legitimacy. And the bottom line is that if they don’t do it, they will not have a viable future.
IN CONVERSATION WITH NASSIB ZIADÉ 17
WITH THANKS TO THE CONTRIBUTORS OF THIS EXCHANGE...
ALEC EMMERSON, CLYDE & CO LLP
Alec moved into the disputes sector on joining Clyde & Co in 1977, having previously spent five years handling corporate insolvencies. He managed the Hong Kong office from 1984 onwards, acting on headline cases such as the Carrian fraud and many ‘phantom’ ship frauds. Alec also handled numerous arbitrations, investment dispute, disaster and commercial contract litigation, and most areas of insurance dispute resolution. He returned to London in 1996, and then moved to the Dubai office in 1999 as Head of the Dispute Resolution Group. In 2008, Alec retired from the partnership to work as an independent arbitrator, and remains with the firm as a consultant acting for clients in complex disputes (including ADCCAC, DIAC, DIFC-LCIA, ICC, LCIA, LMAA, SCMA & SIAC disputes). He sits as an arbitrator in a wide range of disputes under most of these institutions’ rules as well as in UNCITRAL and other ad hoc arbitrations. Alec has been listed as a leading individual in the International Who’s Who of Commercial Arbitration since 2009.
PROFESSOR NASSIB G. ZIADÉ, BAHRAIN CHAMBER FOR DISPUTE RESOLUTION Nassib is the Chief Executive Officer of the Bahrain Chamber for Dispute Resolution (BCDR-AAA). A dual Lebanese and Chilean national, Professor Ziadé has more than 15 years of executive management experience in the administration of international legal proceedings, as well as in the development of regional and international tribunals. He is an expert in private and public international law, international arbitration, international investment law, international administrative law, and the law of conflicts of interest. Between 2011 and 2013, he served as the Director of the Dubai International Arbitration Centre (DIAC). Between 2007 and 2011, he was the Deputy Secretary-General of the International Centre for Settlement of Investment Disputes (ICSID), and between April 2008 and June 2009 was also the Acting Secretary-General of ICSID. Nassib previously served as the Executive Secretary of the World Bank Administrative Tribunal from 1997 to 2007. In 1998, he was appointed as a member of the World Bank’s Grievance Process Review Committee, which reviewed and reformed the World Bank’s Internal Conflict Resolution System. In 2002, he advised the Government of Bahrain on the establishment of its Constitutional Court. Furthermore, he has also advised several international organizations on the establishment and functioning of their international administrative tribunals.
NASSIF BOUMALHAB, CLYDE & CO LLP
Nassif joined Clyde & Co in January 2009 and is based in the firm’s Dubai office. Prior to then, he was a barrister and solicitor practicing commercial litigation in a leading Canadian law firm. He advises on the legal aspects of commercial dispute resolution and has represented parties in court and arbitration proceedings since 2003. He has also been appointed by the Dubai International Arbitration Centre (DIAC) to sit as arbitrator in commercial disputes. His practice focuses on resolving Middle East disputes arising out of commercial fraud, commercial agreements and financial instruments. Nassif graduated from the University of Ottawa civil law programme with highest honours (summa cum laude) in 2001. In 2002, Nassif also earned a degree with honours in common law after completing the University of Ottawa’s National Programme. A Canadian national, Nassif is fluent in English and French, and is proficient in Arabic.
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