Header graphic for print

ARBlog

International Arbitration News, Trends and Cases

Construction arbitration: How to use innovation to increase efficiency

Karl Pörnbacher, head of the Hogan Lovells International Arbitration team in Germany, delivered the keynote speech at Vienna Arbitration Days 2021, which was held remotely on 12 February and focused on innovation and constants within construction arbitration. Read on to discover the key takeaways from Karl’s speech.

Constants of construction arbitrations include, notably, their complexity and the continued criticism of being too expensive and slow. When it comes to innovations, the construction industry should consider increasing the use of dispute avoidance mechanisms and how to manage arbitration proceedings more effectively, including the use of new technologies and increased digitalization that arose from the COVID-19 pandemic.

Continue Reading

Halliburton v Chubb: UK Supreme Court clarifies the position on arbitrators’ duties of impartiality and disclosure in London-seated arbitrations

A version of this post was originally published on Practical Law Arbitration blog and is reproduced with the permission of Thomson Reuters.

In Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48, the UK Supreme Court dismissed Halliburton’s appeal concerning its application to remove an arbitrator for apparent bias on the facts. However, it also emphasised the importance of arbitrator impartiality in London-seated arbitrations.

The judgment raises legal questions which are of general importance in arbitration. In particular, it addresses the circumstances in which an arbitrator may appear to be biased and, the related issue of when an arbitrator must disclose circumstances which may give rise to justifiable doubts about his or her impartiality.

Lord Hodge delivered the leading judgment (with whom Lord Reed, Lady Black and Lord Lloyd-Jones agreed). Lady Arden agreed with the outcome but some of her reasoning differed. In reaching its decision, the UK Supreme Court received interventions from a number of interested parties, including the ICC, LCIA, Chartered Institute of Arbitrators, LMAA and GAFTA.

Continue Reading

Enka v Chubb: Supreme Court decision promotes certainty and enforceability

This post was originally published on Practical Law Arbitration blog and is reproduced with the permission of Thomson Reuters.

The Supreme Court’s much-anticipated judgment in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb addresses the correct approach under English law to determining the governing law of an arbitration agreement. The judgment seeks to promote certainty and enforceability of arbitration agreements, by providing that:

  • The parties’ choice of law in the governing law clause should generally also be interpreted as an express choice of law governing their arbitration agreement.
  • Parties should generally, as a matter of implied choice, be taken to have chosen a system of law to govern their arbitration agreement under which it would be valid.
  • In the absence of any express or implied choice by the parties, the governing law of an arbitration agreement will generally be that of the seat of the arbitration.

The court’s judgment also reaffirms that, where English law is the law of the seat, the English courts generally have jurisdiction to grant anti-suit injunctions to restrain breaches of the arbitration agreement, even where that agreement is not itself governed by English law.

Continue Reading

Revised LCIA Arbitration Rules 2020 to take effect 1 October 2020

The LCIA Arbitration Rules 2020 (the 2020 Rules) will take effect on 1 October 2020, replacing the existing LCIA Arbitration Rules 2014 (the 2014 Rules). The 2020 Rules incorporate a number of important updates that facilitate flexibility and efficiency in the arbitration process. In particular, the 2020 Rules reflect the LCIA’s recognition of the increasing role that technology plays in arbitration, a trend accelerated by the recent COVID-19 pandemic.

We have summarized the key updates below with links to the LCIA announcement and the complete 2020 Rules.

For our word-by-word comparison of the 2020 Rules and the 2014 Rules, click here.

Continue Reading

Paris Arbitration Week recap: Claims in climate change

Lucas Aubry and Amy Crowe

On 8 July 2020, as part of the Paris Arbitration Week, Hogan Lovells hosted a webinar titled “Claims in Climate Change“, a topic which has attracted much attention and debate in the arbitration community over the past twenty years. The panel discussion, moderated by Laurent Gouiffès, partner in Hogan Lovells’ Paris international arbitration team, was divided into three parts focussing on: (i) climate change issues in international commercial arbitration; (ii) the issues which may arise in the context of investment arbitration; and (iii) the rise of climate change litigation in France and the potential impact on arbitration.

A recording of the webinar can be found here.

Continue Reading

Does an arbitration agreement protect a debtor from the threat of liquidation?

Collaboratively authored by:

Hogan Lovells

Shardul Amarchand Mangaldas & Co

5 Fifteen Barristers

In several Commonwealth jurisdictions, the corporate legislation allows creditors to petition a court to order the winding up of a debtor in circumstances where that debtor is unable to pay its debts as they fall due. Such legislation generally presumes that the debtor is insolvent if it has failed to comply with a statutory notice requiring the debtor to pay a certain debt within a given period of time (a statutory demand). Where the debtor disputes that debt, the court ordinarily determines whether that dispute is genuine; that is, whether the debtor has a substantial and bona fide defence to the creditor’s claim. If the dispute is genuine, the court sets aside the winding up petition. The purpose of the exercise is to ensure that a statutory demand or winding up petition is not defeated by a debtor’s spurious or frivolous defences.

The question arises, however, whether the court is precluded from proceeding with that determination where the alleged dispute is governed by an arbitration agreement. The judgments recently delivered in different Commonwealth jurisdictions show that the matter is far from being settled. Even where courts in different jurisdictions have reached the same conclusion, their reasoning differed to some extent. This article, which is co-authored by arbitration practitioners from different jurisdictions, considers the approach taken by the courts in some parts of the Commonwealth, as well as the practical commercial implications of the current case law.

Continue Reading

No “Second bite at the cherry”: English court prevents party raising NY Convention defences to enforcement already decided in other jurisdictions

Originally posted on the Kluwer Arbitration Blog

The recent English High Court decision in Carpatsky Petroleum Corporation v PJSC Ukrnafta [2020] EWHC 769 (Comm) provides useful guidance on the English courts’ approach to determining whether a party is entitled to resist the enforcement of an award on one of the grounds set out in s. 103(2) of the Arbitration Act 1996 (which implements the grounds for refusal of recognition and enforcement of awards set out in Article V of the 1958 New York Convention), in circumstances where similar issues have already been addressed, or should reasonably have been addressed, in earlier proceedings in other jurisdictions relating to the recognition or enforcement of the award.

Continue Reading

COVID-19 – Implications for the Indo-German supply chains

India’s biggest export markets are the US and the EU. In particular Germany and India have an extensive trade history with bilateral trade amounting to Euros 21.9 billion in 2017-2018. Key sectors include IT, automotive, and especially pharma. Germany is one of the main buyers of Indian generics in the EU. Due to the outbreak of the COVID-19 pandemic, India has restricted the export of essential drugs in early March 2020, leading to supply chain disruptions which might also affect Germany in the long-term.

Given the close economic ties and the current supply chain disruptions which might lead to disputes, it has become crucial for a lot of German companies to closely follow the further developments in India and to carefully evaluate the effect of the COVID-19 pandemic on their supply contracts with Indian companies.

Continue Reading

The USMCA enters into force: a glimpse into its investment chapter

On July 1, 2020, the United States-Mexico-Canada Agreement (USMCA) entered into force, and replaced the North America Free Trade Agreement (NAFTA).

USMCA contains an investment chapter: Chapter 14. Like NAFTA, USMCA encompasses substantive protections as well as mechanisms to settle disputes arising out of violations of such investment protections. Chapter 14 does not apply to measures covered by Chapter 17 – Financial Services. Some of Chapter 14’s highlights include the following:

Chapter 14 applies only to the U.S. and Mexico

Although USMCA appears as a tri-partite treaty, Chapter 14 applies only to the U.S. and Mexico. In other words, Chapter 14 only protects Mexican nationals that invest in the U.S. and U.S. nationals investing in Mexico. However, existing investments in Canada and investments made by Canadian investors will be protected under the existing NAFTA regime for three (3) years after the USMCA goes into effect. Additionally, Mexico and Canada have concluded the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Thus, Mexican and Canadian investors/investments will benefit from the investment protections and dispute settlement mechanisms established in the CPTPP.

Two protection schemes

Chapter 14 protects investments as follows:

  • General Investments. Protected investors will benefit from the following substantive protections, regardless of the sector: (i) National Treatment1 (post-established investment), (ii) Most Favored Nation (post-established investment), and (iii) Direct Expropriation. The USMCA does not protect pre-established investment activities.
  • Covered Government Contracts. Investors that have a written agreement in a covered sector will benefit from the protections of the General Investments, plus: (i) Minimum Standard of Treatment, (ii) Transfers, (iii) Performance Requirements, (iv) Senior Management and Boards of Directors, and (v) Indirect Expropriation (even though the term “tantamount to expropriation” has been removed). Covered sectors include oil and gas production, telecommunications, transportation, certain infrastructure, and power generation.

Exhaustion of local remedies and statute of limitation

In sharp contrast to NAFTA, USMCA Chapter 14 expressly requires claimants to exhaust local remedies prior to initiating arbitration, except when “recourse to domestic remedies was obviously futile or manifestly ineffective.” Chapter 14 also requires claimants to obtain a final decision from respondent’s court of last resort or that thirty (30) months have elapsed from the date claimant initiated local proceedings.

Each system of protection grants different time limits for the submission of disputes to arbitration. In relation to General Investments, claimants should submit disputes to arbitration no more than four (4) years from the date on which claimant learned of the breach. With respect to Covered Government Contracts, no claims shall be submitted to arbitration if less than six (6) months have elapsed from the events giving rise to the claim and more than three (3) years have elapsed from the date on which the claimant learned of the breach.

Legacy Investment claims

Under USMCA, Annex 14-C, investments made during NAFTA’s life and those that remain when USMCA goes into effect will be protected under NAFTA for three (3) years after NAFTA’s end. Arbitrations that started under the provisions of NAFTA 1994 will continue and remain unaffected when the above term expires.

Changing of hats discussion

During the UNCITRAL thirty-fifth session, States expressed in the Report of Working Group III concerns regarding the conflict of interest created by some arbitrators acting with “triple” or even “quadruple” hatting. The USMCA, Annex 14-D, Article 6, provides that arbitrators need to comply with the IBA Guidelines on Conflicts of Interest and they must refrain from “changing hats;” that is, arbitrators cannot act as counsel, appointed expert, or witness in a pending arbitration under this Chapter. Further, challenges to arbitrators will be governed by the procedure set in the UNCITRAL Arbitration Rules.

No preamble

It is important to note that the USMCA does not contain a Preamble, like other recent FTAs involving the U.S., stating that the protections provided to foreign investors in the USMCA shall be no more substantial than those provided under U.S. or domestic law.

* * *

Other departures from the NAFTA text deserve some comment, but at this stage the main differences are pointed out above. We will be following up on this matter as it will have a huge impact on future investment proceedings. For more information, please contact one of our team members.

Force majeure claims in future waves of COVID-19: four key actions

As countries emerge from lockdown, talk turns to The Return of COVID-19. Here’s how to succeed in future force majeure claims and stop your projects becoming what sounds like a second-rate horror movie:

1. Decide COVID-19’s status as a force majeure event

Is a subsequent COVID-19 wave a new event or a continuation of the first?

The World Health Organisation still says COVID-19 is a pandemic. This might mean it’s a single continuing event. However, the project may be getting back to normal when it feels the impact. Read your contract and consider how the right to relief is defined. For example, the 2010 FIDIC Pink Book (but not the 1999 and 2017 Red, Yellow and Silver Books or the 2008 Gold Book) refers to performance of substantial obligations being prevented. This suggests a subsequent wave is likely to be a fresh event. Best practice is to send a new notice when you’re aware of the further impact of a subsequent wave.

2. Identify the event actually affecting performance

Is a subsequent wave not the event disrupting performance at all?

If the pandemic is the cause, then its impact depends where the project, labour force and supply chain are located. During the first wave, strategies differed across jurisdictions and there remains little consensus on the best approach. Some sites were allowed to continue to operate; others were closed and workers quarantined. Responses to subsequent waves are unlikely to be more coherent.

Alternatively, is the new event that is actually causing delay not the virus itself but the reintroduction of government restrictions (perhaps after a local outbreak in a workers’ dormitory) which require physical distancing and self-isolation, workplace closures or the suspension of transport links which usually provide free passage for people and materials?

Being clear which of these two broad categories of causal event you’re relying on means you can establish:

– the performance of which contractual obligations are affected by the event and the extent they are being prevented, hindered or delayed. Many contracts demand this level of substantiation. A by-product is a more tailored set of detailed records, which you must maintain to prove causation;

– when the event starts and stops affecting performance. Note that the end of one event as restrictions are lifted may herald the beginning of another notifiable event (such as the imposition of safe working rules when activity resumes). In your notice of an event ending, reserve your rights should it reoccur following subsequent waves (for example, the reinstatement of previously-issued stringent measures); and

– whether you have a claim at all – the contract wording is critical here: remember that the event may have made the project slow down and cost more, but not necessarily impossible; some contracts and jurisdictions require that the event be the sole cause of delayed performance to allow relief.

3. Work together to introduce precautions now

Although COVID-19 and related causes should meet stipulations in signed contracts that the event was unforeseeable, claims in subsequent waves will have a better chance of success where project participants can show they have learned lessons from previous waves. Underprepared employers and contractors may be seen not to have reasonably mitigated the impact of measures likely to be re-imposed in the near future in light of the disease’s ongoing presence. Many are encountering cross-border supply chain difficulties. Those higher up the chain may have little sympathy with contractors who have run into problems as a result of “just in time” arrangements.

Review working practices, which may involve thinking about dividing teams, providing personal protective equipment, and introducing hygiene products and sanitation facilities, temperature checking, control of access, and safe eating and sleeping accommodation. This exercise is fact sensitive and depends on the contract.

The gap between previous and subsequent waves is also significant. Employers can’t expect contractors to have done as much to avoid the effects of a second wave if it occurs weeks rather than months after the first. For example, masks may currently be hard to secure at short notice for certain site locations.

Project participants must communicate openly now and raise issues early as they decide what precautions are needed. Can you keep projects on track by performing contractual obligations unaffected by the event? Engage with supply chains to understand their contingency planning. This requires many organisations to bolster crisis management procedures and teams perhaps on a scale never seen before so that all options and alternative claims (maybe for disruption or changes in law) can be considered properly.

Whether there is positive collaboration or not, every party must comprehensively document how they carefully contemplated each option (such as alternative supplies and work forces) and why one was implemented over others. For example, local materials could be ruled out if they don’t comply with the contractually specified quality.

4. Realise solutions won’t be straightforward

Timely and accurate notices, honest communication and extensive records will improve your position, but parties will differ in how they view subsequent waves. Take whatever action you can now, but remember claims will play out against the backdrop of broader, unresolved factors like the pandemic’s course, the status of regulations and guidance, and policy decisions about the burden the private sector should bear.

STOP PRESS… ADJUDICATION STRENGTHENED

The UK Supreme Court has upheld the right to launch a statutory adjudication of a dispute under a construction contract at any time, even if the claiming party is insolvent. In Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25, the Court unanimously held that the insolvency set-off rule does not conflict with statutory adjudication – an adjudicator still has jurisdiction and the adjudication is not futile. This case significantly helps the construction supply chain during a period when cash flow is essential, whether or not insolvency is on the horizon, and should be persuasive in upholding similar regimes elsewhere.