The ongoing tragedy of the global pandemic was without a doubt the main story of 2021. While the latter half of 2020 was marked by a rush by practitioners, arbitrators and arbitral institutions to adapt to the world of remote working with travel and in-person hearings no longer possible, 2021 saw the fruits of that labour with practitioners making use of new institutional rules, better technology and an increased acceptance of digital communication.
While offices remained empty in much of the world, arbitration practitioners settled into home workspaces for an incredibly busy year, with arbitral institutions setting records for cases registered while courts and tribunals remained extremely busy, with 2021 being marked by major decisions handed down in Europe and the UK, ISDS reform progressing at pace and major commercial disputes continuing to make headlines. This post highlights the major stories and key themes of a year that will not soon be forgotten.
Despite pandemic woes, 2020 set records for arbitrations filed
As arbitral institutions reported their statistics for 2020 in early 2021, it became clear that in the first year of the COVID-19 pandemic arbitration practitioners were keeping busy. Many arbitral institutions registered more new cases than any previous year, including ICSID (58), LCIA (444), SIAC (1080) and DIS (162). While 2021 statistics will not be available until next year, anecdotally, arbitration practitioners have had another very busy year with many notable filings including the first BIT claim filed against Japan and the first raft of arbitrations over COVID-19 related restrictions.
Climate change continues to be top of the agenda
While practitioners and arbitrators have seen their own carbon footprints shrink as the pandemic grounded planes and pushed us to adopt digital ways of working, the urgency of the climate emergency and the response to it has become a major topic in arbitration, driving ECT reform (see below) and giving rise to new disputes. One example being the Netherlands’ first ever ICSID claim brought by a German coal power company in relation to a 2019 law requiring the phase-out of coal power in the Netherlands by 2030.
To mark Earth Day, the Campaign for Greener Arbitration launched six Green Protocols aimed at arbitral proceedings, law firms, chambers and legal service providers working in arbitration, arbitrators, arbitral institutions, arbitration conferences and arbitral hearing venues. Having released draft protocols for public consultation and launched them at various global events, the working group, in conjunction with newly formed regional sub-committees, will spend the next year working with participants to implement the protocols.
Achmea extended to Energy Charter claims and ad-hoc arbitrations
In Komstroy v Republic of Moldova, the European Court of Justice (ECJ) finally confirmed that arbitrations brought by EU investors against another Member State pursuant to the Energy Charter Treaty (ECT) are incompatible with EU law. Komstoy answers a question that has lingered since the Achmea decision, albeit the writing was somewhat on the wall following the European Commission’s determination that Achmea applied to ECT claims.
While commentators and at least one tribunal have noted that the Achmea aspect of the judgment is technically obiter dicta as the ECJ proceedings were between non-EU parties (namely Moldova and Ukrainian company Komstroy) the decision is a clear and an unequivocal indication of the court’s view which is all but certain to be confirmed in future cases.
Komstoy will not necessarily stop all existing intra-EU ECT arbitrations in their tracks. Those pending before ICSID, which is in principle not affected by EU law, will be entitled to continue. There has already been one ICSID Tribunal panel which has refused to reconsider its jurisdiction to hear an intra-EU ECT claim. Intra-EU ECT arbitrations seated in the EU are a different story. Such arbitrations are likely to be subject to swift dismissal or annulment. Even arbitrations not directly affected (for example those proceeding under ICSID) may still see quick settlements as investors consider their odds of enforcing outside of the EU.
Also worth noting on the Achmea front is Raiffeisen v Croatia, in which the German Supreme Court refused to hear an appeal of a ruling barring an Austrian bank from pursuing an intra-EU BIT arbitration against Croatia, marking the first time an EU member state court of final appeal has affirmed the conclusion that the principles of EU law enunciated by the ECJ in Achmea apply beyond the Achmea litigation itself.
EU law precludes attachment of sanctioned assets
Given the increasingly prominent role of economic sanctions as a tool not just to target terrorists and other individual bad actors but also to punish and deter bad behaviour by state actors, arbitration practitioners should pay special attention to the ECJ’s judgment in Mohamed Abdulmohsen Al‐Kharafi and Sons v the Libyan Investment Authority which held that EU law precludes the attachment of assets that have been frozen as a result of international sanctions.
The ECJ concluded that EU regulations must be interpreted as precluding “protective measures” against funds and economic resources frozen due to sanctions without prior authorisation from a competent national authority. This is the case even where the attachment does not remove the assets from the debtor’s possession.
ECT reform moves ahead as the EU pushes for a fossil fuel free future
The process of modernising the Energy Charter Treaty moved ahead in 2021 with six rounds of negotiations held between March and December. Talks covered a broad range of areas, from defining investment protection to updating the treaty’s dispute resolution provisions, dealing with frivolous claims, third party funding and transparency. The modernisation group reported making good progress on some topics whilst others were held over for further discussion.
Looming large over the discussion was the EU’s push for a ten year phase-out of fossil fuel protection. A number of Member States, including France and Spain, have said that the EU should leave the ECT unless it can be aligned with Europe’s climate goals and adopt the phase out.
Talks are set to resume early next year with 2022 looking to be a make or break year for the ECT.
Equal Representation in Arbitration Pledge receives five year scorecard
May 2021 marked five years since the release of the Equal Representation in Arbitration Pledge which has amassed the support of over 4,670 signatories from over 110 countries, including over 850 organisations.
In the five years since the Pledge was released, the representation of women in arbitration has increased steadily. In the five years since signing the equal representation pledge, the number of parties appointing women arbitrators to ICC arbitrations rose from 11% to 16%, the number of women ICC arbitral chairs nominated by co-arbitrators rose from 13% to 28% and confirmation of women ICC arbitrators rose from 23% to 37%. The LCIA also reported a substantial increase in arbitrator appointments rising from 15.8% in 2015 to 33% in 2020.
While these are real improvements, there is still significant work to be done and the Pledge looks likely to continue to be relevant for years to come.
Governing Law at the UK Supreme Court for the second consecutive year
In Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait), the Supreme Court refused to enforce an ICC award against a Kuwaiti food company after finding that English law governed the arbitration agreement on the basis of an express choice of governing law for the contract, despite the choice of Paris as the arbitral seat and despite it being said that the French courts, where an application to enforce is pending, were likely to reach the opposite conclusion.
The Supreme Court found that while it was desirable that conflict of laws rules in the New York Convention be given a uniform meaning, there was “nothing approaching a consensus” among national courts and jurists and in the absence of such an international consensus, the English courts “must form their own view based on first principles”. While in Enka the contract contained no express choice of governing law for the contract or the arbitration agreement and the law of the seat was therefore held to apply, the Supreme Court found that the express choice of English law in the contract was sufficient to find that the parties had intended that English law should apply to the arbitration agreement as well.
JCPC provides guidance on “substantial injustice”
In RAV Bahamas Ltd and another v Therapy Beach Club, the Judicial Committee of the Privy Council upheld a successful challenge on the basis of serious irregularity to an award issued in the Bahamas, marking the first time the UK’s highest judges have considered the substantial injustice standard since the House of Lords’ 2006 decision in Lesotho Highlands, and has done so in legislation mirroring section 68 of the Arbitration Act 1996.
The JCPC’s decision does not diminish the high hurdle that parties must overcome to challenge an award for serious irregularity. However, the decision does establish that in some cases, the nature of the irregularity will indicate that substantial injustice has been done (“some irregularities may be so serious that substantial injustice is ‘inherently likely’”) and clarifies that, while good practice, it is not a requirement that there be a separate and express allegation, consideration and finding of substantial injustice.
RAV Bahamas was not the only JCPC decision in 2021 dealing with arbitration. In December 2021, in Flashbird Ltd v Compagnie de Securite Privee et Industrielle SARL (Mauritius), the JCPC upheld an arbitral award despite a seemingly pathological clause which had named two arbitral institutions, on the basis that the appellant could not show that it had suffered any prejudice.
Emirate of Dubai ousts LCIA from joint venture
One of the more surprising stories of the year, was the rather abrupt defenestration of the LCIA in Dubai, when the Emirate unexpectedly handed down a decree abolishing the DIFC-LCIA Arbitration Centre’s administering body, the DIFC Arbitration Institute (DAI), with the apparent intention of concentrating international arbitration in the previously little known Dubai International Arbitration Centre (DIAC). The DIFC-LCIA Arbitration Centre has been operating in its present configuration since 2015 and is said to have been administering around 140 active cases at the time of the decree. While the DIAC has been around since 2004, it has not updated its rules since 2007 and is not known to have administered many cases in recent years.
The LCIA has said that it is in discussion with the authorities in Dubai over the handling of ongoing cases after Dubai issued a statement proposing they be handled by the LCIA on a “secondment” basis (followed some hours later by a statement by the LCIA, making clear that no proposals had been agreed). While not entirely clear what will happen with ongoing cases, one imagines that drafters will be wary of providing for a Dubai arbitral institution at this juncture.
Asia continues to advance towards being favoured jurisdiction
The annual Queen Mary arbitration survey reflected Asia’s continuing growth, with Singapore tying London for the first time as the most commonly cited preferred seat, with both being chosen by 54% of participants. Hong Kong was close behind at 50%, with Paris in fourth (35%) and Geneva a distant fifth (13%). It is the first time Singapore has been rated as top seat in the survey, having been third in 2018 and fourth in 2015. This reflects a substantial shift from 2018, when London was far ahead of Singapore (64% to 39%) and Paris was a comfortable second (53%) with Hong Kong in fourth lagging at 28%.
The growth of Singapore and Hong Kong as preferred seats is reflected in record numbers of cases reported by arbitral institutions. In 2020, SIAC saw its caseload surpass the 1,000-case threshold for the first time, recording a record 1,080 new case filings; a 125% increase on the 479 cases filed in 2019 and surpassing the ICC’s 946 new cases. HKIAC also recorded the highest number of filings in over a decade with greater sums in dispute than any year since HKIAC began to publish such information in 2011. On this front, it is also worth noting that CIETAC (China International Economic and Trade Arbitration Commission) has continued its warp speed growth, from 1,060 cases in 2012 to 3,615 last year.
IBA updates evidence rules
New provisions on virtual hearings, illegally obtained evidence, undue influence on witnesses testifying remotely, oral evidence of fact witnesses and party appointed experts, document production and the authority of tribunal-appointed experts to request information are the most notable updates to the IBA Rules on taking evidence published in February 2021. Despite being the first update in more than a decade and only the second since the rules were first published in 1999, the 2021 update is more evolution than revolution with tweaks to existing rules and updates to address the shift to virtual hearings, rather than a wholesale rewrite.
And there was a Brexit deal
After years of Brexit uncertainty, a deal was struck. Admittedly, with a few big question marks. The UK now sits outside of the European regime, for example with regard to the recognition of judgments and jurisdiction. On this topic, the UK’s outside status was punctuated when, in May 2021, the European Commission recommended that the UK’s application to accede to the Lugano Convention should be refused and, in July 2021, when it lodged a note verbale with the Swiss Federal Council as Depositary of the Lugano Convention that it was not in a position to consent to the UK’s accession. Practitioners and arbitration users have spent much of 2021 considering the fallout from Brexit, whilst the UK government has continued to chase new trade agreements.
Two steps back for the Yukos Shareholders
No annual review would be complete without an update on the long running saga of the Yukos shareholders’ efforts to enforce the largest arbitration award ever made. 2021 didn’t start off well for the shareholders with a London court rejecting their application to lift a stay of enforcement of the $50 billion award until the Dutch Supreme Court rules on the state’s set aside bid. The shareholders’ efforts ran into more serious difficulties in November 2021, when the Dutch Supreme Court kicked the award back to the trial court to consider the Russian Federation’s argument that the shareholders committed fraud in the arbitral proceedings, having found the argument to have been wrongly dismissed on procedural grounds. On the bright side, the Supreme Court rejected Russia’s other grounds for appeal, which at least narrows the litigation as it spends the next few years working its way back to the Dutch Supreme Court.
So what will 2022 have in store?
2021 set records for new cases filed, but 2022 looks set to be even busier as the record-breaking pace of deals in 2021 gives way to a wave of disputes.
Efforts at modernising ISDS are likely to continue apace with the EU’s multilateral investment court coming online. 2022 may see changes at ICSID, with long discussed rule changes expected to be enacted and UNCITRAL’s proposals to reform ISDS funding moving ahead. Big steps forward are also expected in Europe with CETA, and its investment court, poised to take effect after ratification by the 27 Member States and a decision finally expected on the massive ‘oven-ready’ China-EU Comprehensive Agreement on Investment, following the European Parliament opting to suspend ratification in May 2021.
Looking across the pond, the US Supreme Court will finally settle whether the 1782 jurisdiction permits discovery to be ordered in aide of private commercial arbitral tribunals, with three cases to be briefed on the topic.
And just as much of the world thought it was moving carefully past the COVID-19 pandemic, a new highly contagious strain reversed months of cautious re-openings. While it is impossible to know whether we will still be working from our kitchen tables next year, we can safely say that arbitration practitioners can look forward to another busy year.