Interlude - Arbitrators on procedure in investment disputes

Time spent on consent is never wasted

Consent in commercial arbitration will normally be expressed by an arbitration clause in a contract or a separate arbitration agreement outside the contract. Consent in investment arbitration may be expressed by a state in a BIT or in a multilateral treaty such as the Energy Treaty Charter or unilaterally in a specific domestic law regarding the protection of foreign investment by substantive provisions and by the submission to arbitration.

While these submissions to arbitration seem clear in the abstract, their application in a particular case often leads to difficulties and disputes either as to the validity of the consent and even more so regarding the extent of the consent to a party or a relevant issue in the dispute at hand.

In the case management by the arbitral tribunal, one has to be first aware that consent must be given utmost importance from the very beginning of the procedure because, unless consent is established, the procedure cannot go on due to lack of jurisdiction of the tribunal and the investment of time and costs involved cannot be justified.

This does not necessarily mean that a bifurcation of the procedure is appropriate whenever a respondent raises an alleged lack of consent because, in practice, such an objection is often raised without a sufficient showing of a factual or legal justification. On the other hand, in exceptional cases, the procedure may have to go beyond bifurcation between a hearing on jurisdiction and later one on the merits.

In the Philip Morris v. Australia case, which I chaired and which was administered by the PCA at The Hague, for the first time in my many years of arbitral practice, it was agreed by the parties, and our tribunal agreed as well, that not only two rounds of submissions would address the need of bifurcation, but that even a separate hearing was organised specifically dealing with the question of whether bifurcation was appropriate. The tribunal decided in favour of bifurcation, and then, after further rounds of submissions by the parties on jurisdiction, a further hearing on jurisdiction was held. However, the obvious considerable delay and additional costs of such a procedure were due to the high political profile and relevance of the dispute for both Australia and for Philip Morris.

– Karl-Heinz Böckstiegel, independent arbitrator (retired)

Better bifurcation

Whether to request the bifurcation, or trifurcation, of proceedings is a question that any claimant party should weigh carefully at the outset of an investment case.

Tribunals will generally consider granting such applications when convinced that a bifurcation will enhance the efficiency of the proceedings, having assessed whether bifurcation is likely to produce duplication in the taking of evidence and the likely gain or loss of time in each procedural scenario. But saving time may not be the only factor that the tribunal may consider in deciding to bifurcate.

Allowing more time and attention to be given to quantum questions may, for example, be a good reason to tackle liability and damages in separate phases. This may be especially true in investment cases, in which matters of valuation are of particular importance and complexity. Another advantage may be to allow the parties to settle their dispute after the liability decision.

Applications to bifurcate are almost systematically made at the outset of the case, and seek to have jurisdictional objections addressed in a separate phase. These applications are increasingly lengthy, may be time-consuming, and are not always successful.

Agreeing between the parties at the outset on bifurcation can certainly contribute to the efficiency of the proceedings. Likewise, treating competence and liability in one single phase and reserving damages for a separate phase may in some cases be preferable than having an initial jurisdictional phase followed by liability and quantum together.

– Alexis Mourre, MGC Arbitration

The reality of transparency

It is now standard practice in investor–state arbitration that transparency features on the agenda for the first session. Should the existence of the arbitration be published? Should the hearing be accessible to the public? Should submissions and exhibits be posted publicly? Witness statements and expert reports? And if so, what are the exceptions? Answers to these questions almost always depend on the agreement of the parties.

ICSID and UNCITRAL Arbitration Rules contain some provisions, but here again most of these refer back to the parties’ consent. The forthcoming amendment of the ICSID Rules is somewhat more detailed (Chapter X). Some treaties with ISDS provisions contain specific provisions on transparency (e.g., USMCA).

We now know that the award in ICSID arbitration is not confidential and need not wait for leakage to the press by the winning party (or its counsel). According to the ad hoc annulment Committee in Sodexo v. Hungary, ‘the ICSID Convention and the ICSID Arbitration Rules do not impose a duty of confidentiality on the parties with respect to the awards’ (PO3, ¶ 13).

The Mauritius Convention of 2014 is rarely applicable as it is ratified by nine states only. This is also the case for the UNCITRAL Rules of Transparency of 2014. These rules apply to an arbitration initiated under the UNCITRAL Arbitration Rules pursuant to an ISDS treaty concluded on or after 1 April 2014. It is notable that these two instruments contain provisions on public access that are broader than public access to court proceedings in many countries (the United States is an exception).

In practice, agreement and consent by parties to transparency of the arbitration in investor–state arbitration varies. In a number of cases, the investor and the state agree to full or limited transparency. In other cases, they agree to complete confidentiality and privacy. In yet other cases, either the investor or the state is opposed to transparency. Most investment arbitrators consider it their duty to encourage transparency. They are disappointed to see that the same actors who vaunt transparency in public forums, object to transparency in actual arbitrations (‘This case is special’).

There are other disappointments, too. Take the case where the arbitrators have been able to persuade the parties that the hearing should be accessible to the public in a room adjacent to the hearing room. At the conclusion of the hearing, the tribunal secretary informs them that there were merely two persons present – the parents of one of the associates on the claimant’s team!

A matter that has not received much attention is the cost of transparency. Few seem to realise that it takes time to draft confidentiality orders, to consider and decide on confidential and protected information (including redactions), and to prepare for a public hearing. Public hearings also require more personnel (technicians) and expensive special equipment (in particular for delayed transmission). The parties ultimately bear these costs.

– Albert Jan van den Berg, Hanotiau & van den Berg

Cultural factors are less important than they used to be – but don’t forget them

When, so many years ago, I started arbitral work, it was considerably more difficult and complicated to agree on the major issues of the procedure for a given case. Domestic arbitration, in particular, had long traditions in a number of jurisdictions, and these procedures had developed in very different ways. Commodity or maritime arbitration as well as ‘normal’ commercial arbitration, for example, differed considerably between these categories and between various countries, such as England, the US and Germany. And both counsel and arbitrators entering an international commercial arbitration would, to a great extent, rely on their home experiences, which made agreements on common denominators often difficult.

Today, at least in international arbitration, we have a different situation. The globalisation of international commerce and investment has also spread the use of arbitration all over the world. On one hand, this brings a growing number of players into the field who are not familiar with international arbitration. On the other hand, the enterprises, states, law firms and arbitrators gather common experiences. Further, global instruments such as the IBA Rules and Guidelines, as well as their continuing cooperation in a growing number of cases, facilitate a harmonisation of many aspects of the procedure in practice.

But still, we have to realise that differences in the legal culture of the parties, of their counsel and of the arbitrators, have to be taken into account in shaping the procedure. Otherwise, surprises, misunderstandings and resulting conflicts in the management of the case are inevitable.

In recent years, I find these differences to have become less relevant because common, or at least very similar, applications have developed in the practice of international arbitration. They include, in particular, a full written procedure including memorials on all aspects of the case, written witness statements and expert reports provided by the parties, some kind of document disclosure procedures if necessary, and cross-examination at the hearing.

However, as soon as a party is not represented by experienced counsel, or a private or state party is represented by in-house lawyers, or a member of the tribunal is less familiar with modern arbitration practice, the tribunal will have to make special efforts to assure that neither party is surprised or at a disadvantage in the arbitral procedure.

– Karl-Heinz Böckstiegel, independent arbitrator (retired)

How I ran the tribunal

In cases I chaired, I would start early in the procedure the elaboration of what I call the tribunal working paper, which summarises the major procedural and substantive aspects of the case and contentions of the parties, all this of course without any pre-judgment. This tribunal working paper is distributed to my co-arbitrators and regularly updated as the procedure goes on, at the latest right after the hearing and possible post-hearing briefs. It then provides the starting point for well-informed deliberations of the tribunal and usually allows a speedy process until the award. But of course, depending on the complexity of the case and possible dissents in the tribunal, it may still not always be possible to issue the award very quickly.

– Karl-Heinz Böckstiegel, independent arbitrator (retired)

The value of a schedule of references

All parties to an investment treaty case have an interest in facilitating the delivery of the award within a reasonable time. The usual tribunal consists of three members and one tribunal secretary. That team has to organise, understand and assess the work of up to two dozen lawyers, representing the investors and the state, together with a number of highly qualified experts. Memorials, evidence, expert reports and pre- and post-hearing submissions are usually voluminous. The tribunal needs assistance to navigate the material.

My practice is to require a schedule of references. This document consists of line items identifying the issues in the case at a level of generality in terms of topics. The columns of the schedule have headings referring to all sources of material on each topic: each pleading, witness statements, expert reports, submissions. The references in each box must be comprehensive.

A list of issues should be identified early in the process, and the first draft of the schedule of references should be prepared before the hearing. It is updated after the post-hearing submissions. If properly prepared, the tribunal is able to use the schedule as a complete guide for purposes of writing the award. The schedule also reduces the possibility of relevant material being overlooked.

The first time I required such a schedule in an investment treaty case, I was told: ‘The silks love it and the juniors hate it.’ So be it.

– James Spigelman QC, One Essex Court

Use a common document platform

‘For a tribunal the benefits are extraordinary’

Counsel, especially those practising from large, multinational law firms, rely on their own document management platforms to organise their cases. No doubt such platforms, being known quantities, are easy to use by those familiar with them (i.e., other members of the firm). But there is not an arbitrator I know who has not been confounded repeatedly by his or her inability to open, download or otherwise gain access to the memorials, exhibits and statements that are said to reside in a multiple-encrypted zip-folder, box or some other file compression software served up by a party as an attachment to an email from counsel.

The problem is compounded by different parties using different systems and then by changing the designation of exhibits for the agreed hearing bundle. The expensive time wasted by arbitrators in trying to access the file is enormous. Worse, arbitrators (many of whom who do not have IT specialists at hand) have to store, organise and manage enormous volumes of materials on their own. This is not their highest and best use. It is only sensible for the parties to do their utmost to help them.

The solution is for parties and tribunals to discuss and agree the use of a common document management platform as soon as the case begins. Such platforms (Opus 2 being the current best-of-breed) will organise and keep the case record updated as well as provide secure access to counsel and tribunal members throughout the case.

For a tribunal, the benefits are extraordinary. They include proper document management, the ability to mark-up (and then to find again) pleadings, statements, reports and exhibits, 24-hour access from anywhere in the world, a ready-made hearing bundle, a document presentation tool for use at the hearing and the ability to go as paperless as is suitable for each user. Obviously, there is a cost for the use of such platforms, but in terms of cost-benefit, there is no contest.

– J William Rowley QC, Twenty Essex

Disability – a modest proposal

Ever wondered whether any of the participants in an international arbitration has a disability? I confess – with a few exceptions, I hadn’t. Until, that is, a biking accident where I fractured my femur. For many weeks I was confined to a wheelchair. That way of living is definitely different.

In my arbitration practice, the first lesson I learned was to be open about it with my co-arbitrators and the parties. I told them that I had to stretch from time to time and that occasionally a nurse would pop up in the background. I am grateful that, without exception, all were very accommodating. I am lucky that I can now walk and bike again. But the experience taught me that the disabilities of others are unfortunately not temporary.

There are various forms of disability. The World Health Organization created the International Classification of Functioning, Disability and Health in 2001. They include mobility and physical impairments, vision disability and hearing disability. There is also a broad category of invisible disabilities (e.g., diabetes, prostate issues).

I think that most, if not all, of these forms of disability can be accommodated in the practice of international arbitration. It includes the temporary disability (if it may be called that) of a witness in the happy circumstance of being pregnant. More challenging are disabilities such as narcolepsy (a chronic neurological disorder that affects the brain’s ability to control sleep–wake cycles).

In any event, in my view, the key is creating awareness and being transparent about disabilities in arbitration. I recommend to include in the agenda for the first session and the pre-hearing conference the following line item:

Disability inclusion

Whether there are any disability considerations among the parties, witnesses or other participants which need to be taken into account in establishing the arbitral procedure, including the hearing.

– Albert Jan van den Berg, Hanotiau & van den Berg

The award will be largely written by the time post-hearing briefs arrive

(Or why there is no substitute for closing arguments)

There is no substitute for closing arguments.

Nowadays, counsel often ask for longer-than-needed openings, and plan to use the balance (of the hearing week) on cross-examinations. The possibility of doing an oral closing is seen as merely that – a possibility if time allows – with the offer of post-hearing briefs increasingly being seen as a good alternative.

But they are not. There is also no substitute for closing arguments. This is because there is no better way for counsel to engage with the tribunal on open issues. Closings provide the ideal forum to answer the arbitrators’ questions and to tie a party’s case to the evidence as it developed over the hearing. Good counsel will sacrifice set-piece openings and unnecessary cross-examination to maximise the benefit of engaging with the tribunal’s question during closing submissions.

As a rule of thumb, for a one-week hearing, try always to reserve the Friday (all or half of it) for oral closings. Prepare and hand out a written, point-form slide deck, in which all essential points are summarised. In an electronic version of the deck, include hyperlinks to relevant transcript passages, exhibits, witness statements, expert reports and authorities. And at the beginning of the week, ask the tribunal to identify later in the week particular points or questions it would like to see dealt with in closings (most tribunals, without having been asked, will have told the parties where they want help from the parties in their closings). Finally, time the length of your closing in the knowledge that a tribunal is bound to ask questions and to test you. If your time allotment is three hours, make sure that it takes you no more than two to cover your deck. This will leave you the extra hour that you will need to respond to and engage with the tribunal.

Post-hearing briefs are rarely a good alternative. Almost every tribunal will have its initial deliberation immediately after the oral hearing (often they will have exchanged preliminary views in the process of identifying questions they wish counsel to deal with). And the best chairperson will have reserved time to tackle the award immediately after the hearing. This means that the award will often largely be written by the time post-hearing briefs arrive. And the reality is that they seldom sway a tribunal from the initial views it has reached at the close of the hearing.

– J William Rowley QC, Twenty Essex