2018 has been a tumultuous year in the world of arbitration. The European Court of Justice (ECJ) has dealt a blow to European investment arbitration, trade policy under Donald Trump’s administration has rattled investors the world over, long-standing legal sagas have continued, and developments in arbitral rules and legislation have seen a continued focus on transparency, diversity and third party funding.
We summarise the major stories of 2018 and do our best to read the tea leaves to divine what arbitration practitioners can expect next year.
One step forward, two steps back for ISDS
The uncontested winner for most discussed story of the year was the ECJ’s Achmea judgment, wherein the ECJ found that the arbitration clause in the Netherlands-Slovakia bilateral investment treaty (BIT) undermined the autonomy of EU law and was therefore incompatible with the European legal order. In so doing, the ECJ called into question the validity of the investor-state dispute settlement (ISDS) provisions in all intra-EU BITs, leading to no shortage of ink being spilled on the question of what Achmea means for intra-European and multilateral investment treaties, most notably the Energy Charter Treaty (ECT). Shortly after the decision was handed down by the ECJ, the Dutch government terminated all of its BITs with other EU states. In the same vein, Hungary has sought revision of two ICSID awards on the basis of the incompatibility of intra-EU BITs and a Swedish court has stayed enforcement of two awards pending the outcome of Achmea based set-aside applications. These developments have led prominent arbitrators to resign from ICSID panels hearing cases that raise questions of the effect of Achmea, preferring to focus on related counsel work.
The EU’s push to do away with traditional investment arbitrations in favour of a standing investment court rolls on. The Netherlands’ revised model BIT provides for the arbitration of investment disputes under the ICSID or UNCITRAL rules. However, these provisions cease to apply if the contracting parties enter into an agreement providing for a multilateral investment court, reflecting the European Commission’s push which has seen success in Comprehensive Economic and Trade Agreement (CETA) and the EU-Singapore, EU-Mexico and EU-Vietnam free trade agreements. An UNCITRAL working group has been working towards putting proposals for an investment court into fruition and the European Commission recently gave the go-ahead for negotiations on the establishment of the investment court to begin. On 26 June 2018, the ECJ heard arguments on the compatibility of the proposed investment court system with EU law at the request of Belgium. 12 member states intervened in the proceedings, all but one (Slovenia) saying that CETA’s ISDS provisions were fully compatible with EU law.
While the EU pushes for its investment court system, ISDS has not been popular in some other venues; a number of new bilateral and multilateral agreements have come into force this year containing more limited provision for ISDS than may have been the case some years ago. Canada withdrew entirely from ISDS under the United States-Mexico-Canada Agreement (USMCA). USMCA places a 30-month local remedies requirement before ISDS between the US and Mexico. Canada-Mexico ISDS will be possible under the new and improved Comprehensive and Progressive Agreement for Trans-Pacific Partnership Agreement (CPTPP), which was signed by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam in March 2018. Notably, New Zealand expressly excluded ISDS provisions or provided for it on a limited or staged basis under this agreement.
Continuation of long-standing disputes
The Hague Court of Appeal issued an interim decision in the long-running Yukos saga, dismissing most of the procedural objections raised by the former shareholders looking to reinstate their US $50 billion award. Ukraine was ordered to pay Russian energy company PAO Taftneft US $112 million for having breached the fair and equitable treatment (FET) standard imported into the Russia-Ukraine BIT. Ecuador was controversially found liable for a denial of justice under the USA-Ecuador BIT for facilitating the issuance of a court judgment against Chevron procured through procedural and judicial fraud.
The ongoing Micula saga, which involves claims against Romania for breach of the FET standard under the Sweden-Romania BIT, ticks on. The English Court of Appeal upheld the decision to stay the award obtained by the claimants, pending a decision by the ECJ on the claimant’s application to annul a European Commission decision that the implementation of the award would constitute impermissible state aid. This case is significant for the discussion of the inter-relationship between the UK’s obligations under the ICSID Convention and its duties under EU law. More to come on this one in 2019.
Institutional developments/legislative changes
Third party funding has remained in the spotlight, with the HKIAC Administered Arbitration Rules 2018 providing that a funded party must give written notice of the funding and the identity of the funder to all parties, the tribunal, HKIAC and the emergency arbitrator (if applicable). The Singapore Ministry of Law has also now completed a public consultation on the new third party funding framework, which came into force on 1 March 2017.
Surprising no one, transparency remained a hot issue in 2018. To get the ball rolling, the SCC began providing reasons for its decisions on challenges to arbitrators as of 1 January 2018. The ICDR launched its Administrative Review Council, a decision-making body on disputes such as the place of arbitration, the number of arbitrators, challenges to arbitrators and whether the administrative requirements to initiate an arbitration under different arbitral rules have been met. The Union Cabinet of India approved its new Arbitration and Conciliation (Amendment) Bill 2018 providing for, amongst other things, the creation of the Arbitration Council of India, an independent body with the role of grading arbitral institutions and accrediting arbitrators. Institutions have reported an uptick in arbitrator challenges, potentially resulting from heightened concern over transparency.
ICSID is revising its rules for the fourth time, with the aim of modernising its process and becoming more user-friendly, faster and most cost-effective. A number of significant changes are proposed, including an expedited procedure, permission for bifurcation, a new process for challenging arbitrators, a requirement to disclose third party funding and encouragement for tribunals to make interim costs orders so as to render the parties more cost conscious.
Diversity has remained an important topic, with the Equal Representation in Arbitration Pledge reaching a milestone 3,000 signatories in November and the ICC announcing that, as of 1 July 2018, its court will be composed of an equal number of female and male arbitrators and appointing women as nine out of the 17 vice-presidents of the new Bureau of the Court.
No surprises here: the fallout from Achmea will continue to dominate headlines as various states seek to take advantage of the decision to resist claims and enforcement. At the same time, the European Commission can be relied upon to push ahead with its drive to set up an investment court.
The biggest story in London is likely to be hearings before the UK Supreme Court over whether an arbitrator should have disclosed his involvement in overlapping insurance cases relating to the Deepwater Horizon disaster in the Gulf of Mexico. Interventions are expected from a number of arbitral institutions.
China’s belt and road initiative was a hot topic this year and is likely to continue to be in the headlines in 2019. Hong Kong has announced plans to open an international dispute resolution centre, which will include panels of experts to offer solutions that accommodate the various cultures involved in the initiative. A set of bespoke Belt and Road dispute resolution rules may be produced as part of this plan. The HKIAC and ICC commissions will continue to track and address issues arising out of the initiative and China is likely to keep expanding its commercial court system with the aim of addressing the related disputes.
The consultation period for the ICCA, New York City Bar Association and CPR Institute Working Group’s draft Cybersecurity Protocol for International Arbitration closes on 31 December 2018. This and other developments are likely to continue to keep cybersecurity as an issue. Transparency is also likely to continue to be important, particularly in relation to costs. The results of the ICC Court and the University of Miami School of Law’s collaboration on costs are also expected soon.
All told, arbitration practitioners can expect another year full of bumps and surprises to keep it all interesting.