Arbitration Digest (January)
Russian Arbitration Center at the Russian Institute of Modern Arbitration has published the digest of arbitration news for the last month.
Case Law Developments
The Taiwanese company PharmaEssentia is trying to challenge an ICC award issued in a dispute with its Austrian counterparty. The dispute arose over a license agreement for the development and commercialization of a leukemia drug.
In October 2020, the ICC tribunal ruled in favor of the Austrian company AOP Orphan Pharmaceuticals, awarding it EUR 2 billion. The dispute resulted from PharmaEssentia’s attempt to terminate a license agreement, under which it undertook to provide to AOP Orphan Pharmaceuticals a substance for the drug for running clinical trials before releasing the drug into the market. In response, AOP Orphan Pharmaceuticals initiated an arbitration claiming damages for the uncertainty created and a delay of clinical trials.
PharmaEssentia is now challenging that decision before a Frankfurt court on several grounds, most of which are related to the fact that it was not given the opportunity to present its case when AOP Orphan Pharmaceuticals advanced a new argument on the eve of the last hearing.
Had the tribunal ruled in favor of PharmaEssentia, AOP Orphan Pharmaceuticals would have probably lost its licence to sell the drug, worth approximately EUR 1.3 billion. The decision of the Frankfurt court is expected soon.
The Court of Appeal in London has issued an injunction on expert services provided by Secretariat International UK Ltd in a specific ICC dispute (Secretariat Consulting PTE Ltd & Ors v A Company 2021 EWCA Civ 6).
Secretariat Consulting (a Singapore company) and Secretariat International UK belong to an international group that offers expert services in courts and arbitral proceedings.
Starting from 2019, Secretariat Consulting was providing expert services to a developer in a construction dispute brought before the ICC. Later that year, Secretariat International began rendering services for quantum calculation in another arbitration originating from the same project, but this time against the developer.
The Court analyzed the terms of the contract between Secretariat Consulting and the developer, whereby Secretariat Consulting guaranteed no conflict of interests. The Court concluded that the duty to avoid such a conflict covered not only Secretariat Consulting, but the entire group, including Secretariat International UK. At the same time, the Court did not find any fiduciary duties of Secretariat Consulting to the developer, opining that it was not the best way to describe the duties of an expert services provider. Thus, it was the conflict of interests that triggered the injunction.
On 13 January, Empresas Públicas de Medellín (EPM) announced that it filed a claim against the Spanish insurance company Mapfre with the Arbitration Court of the Medellín Chamber of Commerce (MCC) after the collapse of a hydroelectric dam that caused a severe flood.
The disaster occurred in the course of multi-billion construction of the Hidroituango hydroelectric dam: water burst into a blocked tunnel in the dam after a heavy rain and several landslides in 2018, causing a flood that destroyed houses, bridges and schools, leaving hundreds of people without a home.
EPM has also filed a USD 2.8 billion claim with the administrative court of Antioquia against the construction and audit companies behind the project – CCC Ituango, Generación Ituango, and Ingetec-Sedic. In the proceedings, EPM is claiming compensation of losses for the alleged mistakes that caused the dam’s collapse.
In turn, the CCC Ituango consortium initiated an MCC arbitration against EPM, intending to prove that it was not liable for the disaster. CCC Ituango is also claiming compensation of reputational and economic losses suffered due to EPM’s accusations.
A US court has upheld an award issued by the elected ICC Court President Claudia Salomon against the French cognac producer in a dispute that partially arose from failure to pay royalties to the US rapper Snoop Dogg.
In 2008, Cognac Ferrand granted the five-year exclusive right to import and sell certain products in the US to the drink’s importer Mystique Brands. Under the agreement, Mystique entered into a marketing contract with Calvin Broadus, also known as Snoop Dogg, undertaking to cover the rapper’s costs for promoting Cognac Ferrand products together with royalties on their sale.
In 2009, Cognac Ferrand terminated the contract invoking Mystique’s bankruptcy and inability to pay the amounts due to Snoop Dogg. Mystique commenced an ICDR arbitration, arguing that the contract was terminated unlawfully and claiming damages of USD 238.000. Cognac Ferrand responded with a counterclaim on the compensation of USD 4.5 million of losses.
The original proceedings where the arbitrator concluded that Mystique was undeniably insolvent, was later suspended as Mystique initiated bankruptcy. The proceedings resumed no earlier than 2017, with Claudia Salomon appointed as the new arbitrator. She found that Mystique had not breached its minimum-purchase obligations under the contract and dismissed the claim for Snoop Dogg’s royalties, since Cognac Ferrand presented no proof of losses or causation.
Cognac Ferrand tried to challenge the award, referring to Salomon’s failure to take into account the first partial award in the original proceedings. The court disagreed with Cognac Ferrand and concluded that Salomon could rule in favor of Mystique, since in the arbitration before her, Cognac Ferrand failed to prove its claims.
On 17 September 2020, the International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry rendered an award recovering USD 246.4 million of debt for the gas supplied in 2017 from Moldovagaz to Gazprom.
As of November 2020, the total debt owed by Moldovagaz to Gazprom amounted to USD 7.24 billion. The Republic’s President Maia Sandu, however, stated that Chisinau would not recognize its debt for the Russian gas supplied to Transnistria.
On 25 January 2021, RUSADA released an official statement, announcing that it was not going to challenge the Court of Arbitration for Sport’s award in the CAS 2020/O/6689 World Anti-Doping Agency v. Russian Anti-Doping Agency case in the interests of Russian athletes. The Agency pointed out that while it disagreed with the CAS’s conclusions regarding RUSADA, due to their lack of reasoning and unfairness, it welcomed the Court’s decision shortened the duration of the ban for Russian athletes. Enclosed to the statement is a detailed commentary on separate findings of the CAS award.
The CAS award in question was delivered on 17 December 2020. The CAS mitigated the punishment for Russian athletes, reducing the ban on competing under the national flag from four to two years.
A Paris court upheld a USD 646 million award against a company owned by Angolan billionaire Isabel dos Santos, ruling that the ICC could appoint five arbitrators to consider the dispute, and dismissed allegations of bias against two arbitrators.
The arbitration clause provided for each party to appoint an arbitrator, with the presiding arbitrator to be chosen by the parties’ appointees. The Claimant argued that due to the fact that there were three respondents in the case, constitution of the arbitral tribunal in that matter would contradict the principle of equality (égalité), mandatory rule of French arbitration law.
Despite the objections of the respondents, ICC agreed with the Claimant’s position and appointed the whole tribunal.
Eventually, the Court of Appeal determined that ICC, as an institution administering the arbitration, was entitled under French law to resolve this dispute in accordance with its rules and the principle of the equality of the parties.
The Singapore Court of Appeal has dismissed an appeal against the decision of the High Court on the annulment of an award for violation of the principles of natural justice (CBP v CBS 2020 SGHC 23). The Court held that the arbitrator could not examine the dispute based only on documents and without the consent of the parties.
The dispute arose from contracts for the supply of coal between a Singapore supplier and an Indian buyer. The seller assigned debts to the bank which eventually never received the money from the buyer. The contract contained an arbitration clause on the referral of disputes to the Singapore Chamber of Maritime Arbitration (SCMA). The arbitral tribunal suggested the parties to agree whether to hold oral hearing or, if they failed to do so, suggested issuing an award based on provided documents in accordance with the arbitration rules.
The buyer insisted to hold oral hearing and to call for seven witnesses. The bank, in turn, argued that there was no need for a hearing, since the issues in the case concerned solely the interpretation of the contract and the buyer failed to provide any reason why the buyer needed to present the witnesses.
The tribunal decided that absent an agreement between the parties to continue the proceedings based only on the documents available, the hearing would be held, but without the witnesses, since the buyer failed to demonstrate the material value of such testimony.
The arbitrator’s award on the merits was subsequently set aside by the High Court of Singapore on the ground that the parties were not given the opportunity to fully present their case. The Court of Appeal held that the arbitrator had no right to choose the type of hearing or impose a requirement for the buyer to prove the material value of witness testimony.
A Swiss court has set aside a CAS award against a Chinese swimmer, that imposed an eight-year doping ban (CAS 2019/A/6148 WADA v. Sun Yang & FINA). The court found that the presiding arbitrator Franco Frattini aggressively criticized Chinese dog meat eating practices in Twitter.
The court concluded that “repeated use of violent expressions” and references to skin color while criticizing dog slaughter gave rise to “objectively justified” doubts about arbitrator’s impartiality. According to the court, Frattini could “defend his convictions on social networks” but it must be with the “restraint required of judges.”
The court remitted the case to the CAS to be heard again by a new tribunal.
CAS partially upheld appeals lodged by Mariyam Mohamed, a football official from the Maldives, against the Asian Football Confederation (AFC), filed due to the results of elections for seats on the FIFA council.
Initially, Mohamed filed a formal complaint with the AFC alleging undue influence by Olympic Council of Asia president Sheikh Ahmad al-Fahad al-Sabah that had previously been a member of FIFA’s ruling council but resigned after he was accused of bribing Asian soccer officials.
Although CAS did not uphold Mohamed’s requests to annul the election results, the tribunal determined that the elections had breached the prohibition against gender discrimination, enshrined in the FIFA and AFC Statutes, and were influenced by a third party.
Paulo Dybala, known as “La Hoya” (“pearl”), is one of the most famous Argentine footballers that was awarded the title of the most valuable player in the Italian football league.
In 2017, the footballer terminated the contract with his agent, who helped Paulo to move to Juventus, and a 10-year image rights contract with Star Image, that controlled over the use of Paulo’s name, image, signature and any other personal characteristics. One of the co-owner of Star Image was Paulo’s former agent.
In 2019, Star Image filed for arbitration in ICC for unlawful unilateral termination of the contract, seeking around EUR 35 million in damages. Due to rumors about this dispute, two potential transfers of the football player to famous football clubs (Tottenham and Manchester United) have been disrupted. As a result, in November, Dybala entered into a settlement agreement with Star Image. Details of the settlement and the identity of another Star Image co-owner remain undisclosed.
Investment Arbitration News
Huawei has filed a notice of arbitration under the China-Sweden bilateral investment treaty for violation of fair and equitable treatment. It was triggered by a statement of the Swedish authority on a ban of access to 5G for ZTE – China’s telecommunications giant – in view of allegations by the US that Huawei products endangered state cybersecurity.
Huawei tried to challenge the ban in court, but, having won in the first instance, lost at the appeal stage. On 5 January, Huawei applied to the Sweden’s Supreme Administrative Court. The company denies that it presents even the smallest threat for Sweden’s cybersecurity and believes the access ban to the Swedish market to be unfair and unacceptable.
An ICSID tribunal has ruled that a Kosovan minister may participate in a claim against his government as any other businessman legitimately operating through a foreign company.
The dispute arose from a project of reconstruction of a 500-room grand hotel in Kosovo. Mabco, owned by Behgjet Pacolli, who was a Foreign Minister by the date of applying to ISCID , claimed that it had invested over EUR 4 million into the construction and was promised a 40% stake in the hotel. However, during the privatization, the Kosovo Government demanded bribes to register shares and later revoked all privatized shares, thus returning the hotel.
The claim was filed under a bilateral investment treaty between Kosovo and Switzerland. During the arbitration, the Republic of Kosovo tried to prove that Mabco had not invested into the project and any attempts at obtaining investments were undertaken by Pacolli personally. According to the state, being a member of the Government, he had access to confidential information and could take part in key decisions.
The tribunal applied the prima facie test to conclude that Mabco claimed a share in the hotel and that claim constituted an investment. In the tribunal’s opinion, Behgjet Pacolli was acting as his company’s representative and was entitled to the same protection as any other businessman in the same circumstances. Furthermore, Kosovo could take measures to exclude Pacolli from any governmental debates related to the dispute. The tribunal stressed that the fact that Mabco filed an ICSID claim evidenced that Pacolli had no material influence on the Government.
An ICSID tribunal has dismissed a USD 354 million claim brought against Chile by Colombian investors in a dispute resulting from amendments made to concession agreements in 2012. The amendments changed the system of remuneration of the companies in charge of creating the urban bus system, while imposing higher fines against them for late or infrequent services and made them partially responsible for combatting bus fare evasion.
The investors claimed that the Republic of Chile failed to create necessary conditions for the profitable functioning of companies and discriminated them by setting up routes for Chilean competitors, and hence claimed compensation of losses of USD 339 million, as well as USD 15 million as compensation of moral harm.
Although the tribunal agreed that Chile had not met the investors’ legitimate expectations as regards the bus network, including in terms of control of fare evasion and protection of vehicles from vandalism, it still dismissed the expropriation claim, since there was no causal link between the alleged violations by the state and the occurring harm. As a result, the investors were ordered to pay Chile a compensation of the costs incurred during the arbitration.
The dispute relates to the former Cairn’s subsidiary – Cairn India, established in 2006 after discovering oil in a region of the Thar Desert in Rajasthan. Six years later Cairn sold the majority of shares to the London-based company Vedanta Resources, retaining only 10 % stake for itself, valued USD 1 billion.
Upon the amendments to the Indian Income Tax act, that allowed retrospective taxation of cross-border transactions, the Indian authorities made the tax demand for USD 1,4 billion, that subsequently grew to USD 5 billion considering the interest and penalties.
As a result, Cairn filed a claim to the PCA (Cairn Energy PLC and Cairn UK Holdings Limited (CUHL) v. Government of India, PCA Case No. 2016-7). The arbitral tribunal found that retrospective tax assessment was “grossly unfair”, obliged India to pay damages of USD 1,2 billion plus interest for lost profit Cairn would have gained from the Cairn India sale, as well as ordered the extinguishment of the tax assessment itself.
It is not the first time India has been found liable over its retrospective tax: earlier Vodafone has prevailed in a similar PCA case.
Two French airport operators, France’s Vinci Airports and state-owned Groupe ADP, intend to file a claim to ICSID because their billion-dollar concession for Santiago’s international airport was severely disrupted by measures taken in response to the COVID-19 pandemic.
Due to the pandemic, the airport’s profit had dropped 90 % and the companies asked Chile’s Ministry of Public Works for financial aid and an extension to the concession. Chile’s minister of public works Alfredo Moreno refused the request, arguing that the state itself had suffered significant losses.
The companies decided that it violates BIT’s provisions on fair and equitable treatment, national treatment and protection against expropriation, as Chili is not is not taking sufficient measures to combat pandemic.
The PCA tribunal has issued an order in the dispute between the Nord Stream 2 operator and the European Union (Nord Stream 2 AG v. the European Union, PCA Case No. 2020-07), where it examined the EU’s request for a preliminary consideration of the tribunal’s jurisdiction. In its request, the EU argued that Directive (EU) 2019/692 (the third gas directive) as such did not impose obligations on the claimant but require member states to amend their laws; moreover, states enjoyed a wide discretion in matters of implementing the Directive’s provisions. For that reason, the respondent did not believe that it had violated the Energy Charter Treaty. The respondent also referred to the proceedings before the General Court of the European Union between the same parties, on the same grounds and for the same purpose, hence submitting that the arbitration was to be terminated.
The tribunal dismissed these arguments, since the issue of whether the claimant’s rights under the Directive were violated was too complex and required a more thorough examination, impossible within bifurcation. The tribunal equally rejected the parallel proceedings objection, ruling that the related arguments would in any event be considered on the merits stage.
Hearings are scheduled to take place 28 March – 8 April 2022.
On 1 January 2021, Chapter 12 of the Swiss Private International Law Act that governs the rules applicable to international arbitration, entered into force. The amendments include an express acknowledgement of the possibility of incorporation of an arbitration clause into the articles of association of corporations and trust deeds or testamentary dispositions; indicating a specific procedure for the appointment of the arbitral tribunal absent an agreement between the parties, as well as the challenge of arbitrators; a provision on the estoppel for objections against procedural violations at a later stage if they were not raised immediately; separate provisions on the assistance by state courts, etc.
Furthermore, in the setting aside procedure parties will now be able to file written applications with the Swiss Federal Supreme Court in English.
Interstate arbitration based on the Trade and Cooperation Agreement between the European Union and the United Kingdom that took effect from 1 January 2021 has become an alternative to the Court of Justice of the EU whose judgments will no longer be binding for the UK. The Agreement that the parties reached four years after the UK vote on its withdrawal from the EU (Brexit) and two weeks prior to the expiry of the Withdrawal Agreement sets forth the ground rules for a new UK-EU partnership.
Interstate arbitration as a new mechanism for the resolution of UK-EU disputes includes the following four principal stages: 1) consultations & arbitration, 2) compliance, and 3) review.
Upon entry into force of the EU-UK Withdrawal Agreement, information has been published on the list of 25 arbitrators chosen to hear disputes related to the UK’s withdrawal from the EU, in line with the procedure set forth in Article 171 of the Agreement and Annex IX thereto.
The tribunals to examine such disputes will be composed of 5 arbitrators from the approved list, where the EU and the UK each will elect two arbitrators, who shall then agree on the presiding arbitrator. If the arbitrators fail to reach an agreement, the presiding arbitrator shall be appointed by the Secretary-General of the Permanent Court of Arbitration in the Hague.
New Book Published on “The Law and Policy of New Eurasian Regionalization: Economic Integration, Trade, and Investment in the Post-Soviet and Greater Eurasian Space”
Brill | Nijhoff has published “The Law and Policy of New Eurasian Regionalization: Economic Integration, Trade, and Investment in the Post-Soviet and Greater Eurasian Space,” a book based on international, transnational, and comparative legal studies. The book reflects insights of the leading international scholars and practitioners in economics, institutional theory, area studies, international relations, global political economy, political science, and sociology.
One of the sections “Effectiveness of International Arbitration: Are There Real Barriers to Recognition and Enforcement of Arbitral Awards in Russia?” was authored by Valeria Butyrina, legal counsel at the Russian Arbitration Center.
The International Chamber of Commerce (ICC) has published a report on “Accuracy of Fact Witness Memory in International Arbitration,” the first report to be prepared by an arbitral institution. The report contains psychological scientific analysis of human memory in the context of witness testimony. It offers guidance to arbitrators and counsels on issues of optimization of work with witness testimony that, as evidence, may often play a key role in many arbitrations. The principal aim of the report is to increase, as much as possible, the probative value of witness testimony in arbitration based on the knowledge of psychological aspects of witness memory.
Events on Alternative Dispute Resolution
Winter Academy on International Arbitration “Beyond the Imaginable Borders: Transformation of Arbitration”
On January 11-16, 2021, the Russian Institute of Modern Arbitration held the Winter Academy on International Arbitration “Beyond the Imaginable Borders: Transformation of Arbitration” supported by Ivanyan & Partners and Petrol Chilikov Law Firms.
During the week, participants attended courses on the most acute topics in the field of arbitration such as due process, confidentiality and cyber risks, arbitration of climate change and renewable energy disputes, peculiarities of construction and oil & gas arbitration, cultural and procedural differences, cross-examination in international arbitration.
The speakers of the Academy were recognized Russian and international experts in the field of arbitration: Andrey Panov (Allen & Overy), Daria Zhdan-Pushkina (Redstone Chambers), Timothy G. Nelson (Skadden, Arps, Slate, Meagher & Flom LLP), Melissa Magliana (Lalive), Luke Pardey (CMS), Peter J. Pettibone (Independent Arbitrator and Mediator), Anna Grischenkova (KIAP), Wendy Miles QC (Twenty Essex), Laurence Ponty (Archipel), Baiju Vasani (Ivanyan & Partners), Professor Loukas Mistelis (Queen Mary University of London), Professor Franco Ferrari (NYU) and Alice Fremuth-Wolf (VIAC).
On February 19-21, 2021, the V FIAMC Moscow Pre-Moot will take place via Zoom giving the teams an opportunity to sharpen their oral presentations and legal arguments before the FIAMC Globals. The FIAMC online Conference will take place on February, 19. During the Conference the acknowledged specialists and experienced arbitration practitioners will discuss topical and hotly debated issues concerning international investment law. Among speakers of the Conference are the leading experts, including Christoph Schreuer (Zeiler Floyd Zadkovich), Catherine Titi (French National Centre for Scientific), Peter Tzeng (Foley Hoag LLP), Olga Hamama (V29 Legal), Joe Tirado (Garrigues UK LLP), Legum Barton (Dentons Europe LLP).
The working language of the Conference and pre-moot is English.
Should you be interested to arbitrate, kindly fill the form accessible via the link.
Registration for the conference is available via the link.
On March 13-14, 2021, the XII Moscow Vis Pre-Moot timed to coincide with the XXVIII Annual Willem C. Vis International Commercial Arbitration Moot will be held.
The Pre-Moot will welcome 52 teams from Russia, UK, Germany, Italy, France, Switzerland, Czech Republic, Turkey, India, Malaysia, Guatemala, China, Indonesia, Bosnia and Herzegovina and many others.
On March 12, a traditional online Moscow Pre-Moot Conference will take place. The event includes a workshop and two sessions attended by the Russian and international arbitration specialists. Register via the link.
On February 9, 2021, the webinar organized by LexisNexis together with the Russian Arbitration Center will take place. The speakers – Yulia Mullina (Executive Administrator, RAC) and Marat Almaganbetov (LexisNexis Business Development Director for Russia and Eastern Europe) – will discuss the following issues:
• How did the architecture of dispute resolution changed owing to COVID? • What are the pros and cons of different types of resolution taking into account pandemic’s restrictions? • How to draft an arbitration (prorogation) agreement to avoid unnecessary difficulties? • What should be taken into account while participating in virtual hearings and producing evidence? • What IT tools are used for drawing up contracts efficiently in current COVID-19 conditions?
On January 27, ICC Russia and the ICC held an online seminar to discuss the changes to the ICC Rules of Arbitration that took effect on January 1, 2021. The speakers considered the main changes and their possible impact on arbitration proceedings and discussed the new trends in international arbitration.
Sternford Moyo (Chairman and Senior Partner at Scanlen & Holderness) has become the new President of the International Bar Association. Mr Moyo is the first IBA President of African descent in the history organisation.
Also, as of January 1, 2021, Ann Ryan Robertson (C.Arb, FCIArb, International Partner at Locke Lord) started to perform functions of the President of CIArb.
The Russian Institute of Modern Arbitration (RIMA) has signed a Memorandum of Understanding (MOU) with the Thailand Arbitration Center (THAC).
Under the MOU the two institutions agreed to cooperate in the development and popularization of arbitration as a preferred method for resolving international disputes, increasing the alternative dispute resolution awareness. THAC and RIMA will seek to co-organize conferences, seminars, workshops, training programmes or other events on international arbitration in Thailand and Russia.
The MOU was signed by Mr Pasit Asawawattanaporn, Managing Director of THAC, and Ms Yulia Mullina, General Director of RIMA.
Milan Investment Arbitration Week will take place from February 15 to 20, 2021.
Renowned Italian and foreign experts from academia, lawyers and representatives of arbitration institutions will examine, from different angles, some of the most topical topics related to investment arbitration.
In addition, the week will include two legal moots: II Milan Investment Arbitration Pre-Moot and Construction Arbitration Moot. Participation is free of charge.
On 5 December 2020, Young ICCA held a webinar on the conduct of cross-examination in the context of the 2020 Casablanca Arbitration day. Over 95 participants from all over the globe attended the event. Among the speakers of the event: Susan Kimani (Co-Registrar at the Mauritius International Arbitration Centre and Legal Counsel at the Permanent Court of Arbitration), Jacob Grierson (Partner, ASAFO & Co, Paris), Filipa Cansado Carvalho (Independent Arbitrator, Lisbon) and Jalal El Ahdab (Partner, Bird & Bird, Paris). The part of the workshop was dedicated to cross-examination sessions based on a mock case concerning dispute arising out of a share purchase agreement.
The broadcast of the event is available here.
On January 27, an online interuniversity conference "New Challenges and Opportunities for Private Law" was held. The conference was organized by CIS Arbitration Forum and MGIMO-Tashkent. The conference was dedicated to main processes and trends occurring during the pandemic, as well as opportunities to deal with them from the point of private law. Besides, the speakers discussed the issues of cooperation between the Russian Federation and Republic of Uzbekistan in the field of international trade, finance and private law.
The ICC’s Institute of World Business Law Offers EUR 10 Thousand for an Outstanding Legal Work in Arbitration
The ICC Institute Prize award, launched by the Institute of World Business Law, is aimed to encourage studies facilitating understanding and development of international commercial law. The Institute Prize is open to anyone aged 40 or under, who submits a thesis or essay in French or English (minimum of 150 pages) on international commercial law, including arbitration.
This year Vienna Arbitration Days will be held online on February 12, 2020. The main topic of the conference will be “Construction Arbitration: Innovation and Constants”. Additionally, the most acute issues, connected with the pandemic (e.g. suspension of arbitration), will be discussed.
The program of the events is available here. Participation is free of charge.