2020 may have been many things, but it will not have been forgettable. While the biggest story in the world of arbitration was undoubtedly the impact of the COVID-19 pandemic, it did not stop major steps being taken to reform investor-state dispute settlement (ISDS), significant arbitration decisions being handed down by the English courts and arbitration practitioners having another busy year of bringing and defending claims.
Institutions, tribunals and practitioners adjust to post-COVID-19 world
Arbitration practitioners were no different from their clients and the wider world in needing to find ways to adapt to the pandemic world. This meant a major effort by arbitrators, institutions, judges, courts and lawyers to shift to a world of zoom witness interviews, electronic submissions and virtual hearings.
In April 2020, as much of Europe and the US were gripped by the pandemic and stuck in lockdown, a group of leading international arbitral institutions (including the ICC, SCC ICSID, ICDR, SIAC, HKIAC and LCIA) issued an unprecedented joint statement, noting their commitment to working together respond to the pandemic and reassuring many businesses that justice would continue, unabated.
Arbitral institutions and tribunals adapted their operations to address the inability of practitioners to travel and access their offices. Institutions promulgated new guidelines and protocols to help parties and tribunals continue their work, all whilst the offices of most institutions remained closed. For example, the ICC published a detailed guidance note on Mitigating the Effects of the COVID-19 Pandemic, which included detailed procedures to ensure efficiency of arbitral proceedings and extensive guidance for virtual hearings (including an annexed draft order). Updates from the ICC, SIAC and DIC also addressed the effect of the pandemic on parties’ and arbitrators’ ability to meet the time limits set out in their respective rules.
This new normal was reflected in the LCIA Rules 2020 with electronic submissions and communications becoming the default and tribunals granted express power to order virtual hearings. The new ICC Rules 2021 also focus on facilitating virtual hearings and shifting away from paper filings.
While virtual hearings were not unknown to arbitration practitioners prior to the pandemic, they were certainly the exception to the rule. The nearly overnight shift to completely virtual hearings created major hurdles. Institutions generally embraced the change, with many providing specific protocols to guide tribunals in determining whether to order a virtual hearing. For example, ICSID encouraged participants in pending arbitrations to discuss options for online hearings with the Secretariat and the SCC encouraged arbitral tribunals to “use alternative means such as audio and visual meeting facilities going forward”. As noted above, the ICC went even further by providing detailed guidance on virtual hearings.
While the shift to virtual hearings was generally welcomed (or at least accepted as a necessary evil), it has not been without its critics, including litigants who have (among other things) argued that depriving them of the right to an in-person hearing violated rights to due process and a fair hearing. These arguments have come before at least one high court; in July 2020, the Austrian Supreme Court rejected a complaint by a party who alleged that an arbitral tribunal had violated its right to due process by ordering a hearing be held by videoconference without that party’s consent. This was in spite of objections that the virtual hearing was unworkable as a result of significant time difference between the parties and unfair as it would engender a greater fear of witness tampering.
Advances in technology have made it easier and more effective to rely on virtual means of submissions. While the shift to a virtual world may have been brought about by the pandemic, these reforms are likely here to stay.
UNCITRAL reform of global ISDS continues at apace
The scheduled April 2020 New York meeting was rescheduled for October 2020 as a result of the pandemic. During this virtual meeting, WG III considered reforms in respect of:
- Dispute prevention and mitigation as well as other means of alternative dispute resolution.
- Reflective loss and shareholder claims.
- Multiple proceedings including counterclaims.
- Security for costs and means to address frivolous claims.
- Treaty interpretation by state parties.
- Multilateral instrument on ISDS reform.
In September 2020, WG III published updated working papers on an appellate mechanism, enforcement issues and the selection and appointment of ISDS tribunal members, which were open for comments until 15 December 2020. These papers will form part of the next meetings, scheduled for February 2021 in Vienna and November 2021 in New York.
Code of Conduct for ISDS adjudicators
In May 2020, the Secretariats of ICSID and UNCITRAL released a draft Code of Conduct for Adjudicators with comments due by 30 November 2020.
The draft code provides rules to ensure (among other things) that adjudicators (including arbitrators, members of ad hoc or annulment committees and judges on a permanent mechanism to settle ISDS disputes) remain independent and impartial at all times, avoid conflicts of interest by promptly and fully disclosing potential issues, and conduct claims with integrity, fairness and competence. The draft code leaves open the question of whether double-hatting (being appointed to two panels dealing with related issues, but different parties) will continue to be permitted, with the alternatives of prohibition and disclosure currently in square brackets.
It is expected that a revised draft will be tabled at the next meeting of the WG III in April 2021.
EU formalised termination of intra-EU BITs
More than two years after the European Court of Justice’s infamous decision in Slovak Republic v Achmea BV, which found that investor-state arbitration clauses in intra-EU BITs were incompatible with EU law, the EU finally took the step of formalising the termination of intra-EU BITs when EU member states signed a termination agreement in May 2020. That agreement came into force at the end of August 2020 following ratification by Denmark and Hungary.
The UK has pointedly declined to sign the termination agreement and take steps to terminate the BITs between it and EU members states. This led to the European Commission sending a formal notice to the UK followed by a “reasoned opinion”, which was accompanied by a threat that if the UK did not provide a satisfactory response by the end of the transition period (31 December 2020), the Commission may instigate infringement proceedings in the ECJ.
Big changes may be on the cards for the ECT
The process of modernising the Energy Charter Treaty (ECT) moved ahead in 2020, with negotiating rounds taking place in July, September and November. Talks focused on integrating work on ISDS reform taking place in other venues, including UNCITRAL and ICSID, and the EU’s proposals for a multilateral court system. The mandate for future negotiations was revisited at the Energy Charter Conference in December 2020 with the Modernisation Group meeting to set the agenda for the negotiations to be held in 2021.
In October 2020, the European Parliament adopted a negotiating mandate for upcoming talks on EU’s climate law, including that “the Union shall end protection of investments in fossil fuels in the context of the modernisation of the Energy Charter Treaty”, foreshadowing major changes (or at least major fights about major changes) to come.
Separately, while the impact of Achmea on investor claims under the ECT remains hotly disputed, the resolution of this issue moved ahead at a hearing before the ECJ in November 2020 during which the European Commission and a number of member states called on the court to rule on whether intra-EU investment arbitration under the ECT is compatible with EU law. This hearing came after the Paris Court of Appeal sought a preliminary ruling on the question and follows an opinion by the ECJ Advocate General Henrik in a separate case (Cases C‑798/18 and C‑799/18), in which he noted his view that the ECT is “entirely inapplicable” to intra-EU disputes.
Arbitration claims loom large in UK courts once again
2020 was a big year for arbitration in the UK courts, with the Supreme Court handing down no less than three major decisions.
First, on 19 February 2020, the Supreme Court delivered its judgment in Micula v Romania, which is the latest instalment in the long-running saga of the Micula’s multi-jurisdictional attempts to enforce a 2013 arbitral award, which was blocked by the European Commission on state aid grounds. In a unanimous ruling, the Supreme Court held that, while the English courts have the power to stay execution of ICSID awards, the stay in this case exceeded the proper limits of that power as the EU treaties did not displace the UK’s obligation to enforce awards under the ICSID Convention (which pre-dated the UK’s entry into the European Union).
Second, on 9 October 2020, the Supreme Court delivered its decision in the most watched case of the year: Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb. The case concerned the correct approach to determining the governing law of an arbitration agreement, a historically murky area. By a slim majority (3 to 2), the court held that in the absence of an express choice of law, an arbitration agreement will be governed by the law with which it was most closely connected and that where the parties had chosen a seat of arbitration, that would generally be the law of the seat, even if that differed from the law applicable to the parties’ substantive contractual obligations.
Third, on 27 November 2020, the Supreme Court issued its judgment in the most anticipated case in 2019: Halliburton Company v Chubb Bermuda Insurance Ltd, which addressed the perennially thorny question of when an arbitrator is required to disclose circumstances that may give rise to justifiable doubts as to his impartiality; in this case, in relation to their appointment in overlapping cases stemming from BP’s Deepwater Horizon disaster. The Supreme Court unanimously dismissed Halliburton’s appeal holding that as at the date of the hearing to remove the tribunal chair, the fair-minded and informed observer would not conclude that the fact that he had subsequently accepted appointments as the chair in two related arbitrations gave rise to justifiable doubts about his impartiality. This decision has led to some criticism from practitioners who see it as failing to place sufficient emphasis on the importance of full and frank disclosure by arbitrators of potential conflicts.
In addition to the marquee cases decided by the Supreme Court, arbitration-related cases took up a substantial amount of time in the lower courts.
Challenges to awards continued to have a difficult run with the High Court rejecting a joined appeal on a point of law and challenge for serious irregularity (sections 69 and 68, AA 1996) against a tribunal’s refusal to allow an amendment to a plead a new basis for the claim because the claimant had agreed that if it lost on the preliminary issue (which it did) that would be the end of the matter (Daewoo Shipbuilding and Marine Engineering Company Ltd v Songa Offshore Equinox Ltd).
Contrast to last year with no successful appeals, appellants succeeded in not one but two appeals under section 69 of the AA 1996. One of the claims was found by the court to have been time barred (the claimant had failed to submit all requisite documents within a 90-day contractual period) (Tricon Energy Ltd v MTM Trading LLC), while the other court held that the tribunal had erred in law by finding a contract repudiated, when there had been no repudiation (Alegrow SA v Yayla Agro Gida San ve Nak AS).
The High Court also:
- Set aside an award on the basis that the claimant was not properly a party to the arbitration agreement, providing a useful reminder of the ability to check the jurisdiction of a tribunal under section 67 of the AA 1996 in (MVV Environment Devonport Ltd v NTO Shipping GmbH & Co KG);
- Dismissed a very rare challenge to a tribunal’s use of the “slip rule” to clarify an award (Obrascon Huarte Lain SA v Qatar Foundation For Education, Science And Community Development).
- Confirmed that winding-up petitions issued in respect of disputed debt, which is subject to a binding arbitration agreement, will only be permitted to proceed in wholly exceptional circumstances (Telnic Ltd v Knipp Medien und Kommunikation GmbH).
- Issued two decisions on applications for an extension of time under section 12 of the AA 1996, granting the extension where the fault appeared to be with the defendant party (National Bank of Fujairah (Dubai Branch) v Times Trading Corp) and denying the fault lay with the claimant (Fimbank PLC v KCH Shipping Co Ltd).
A step forward for mass investment claims
Perhaps the most interesting individual decision of 2020 came from the ICSID tribunal hearing Theodoros Adamakopoulos and others v Republic of Cyprus, which has granted permission for nearly 1,000 mostly unrelated claimants to bring a single arbitration against the Republic of Cyprus under the Cyprus-Greece and Cyprus-Belgium/Luxembourg BITs. The tribunal’s decision is likely to encourage further mass claims. It held that, despite involving a very large number of claimants and falling under two separate treaties, the claims were still a single “dispute”, which was capable of fair administration under the ICSID framework. This decision marks the first step forward for mass investment treaty claims in several years, since the Abaclat, Ambiente and Alemann cases against Argentina were settled in 2015/16 and may well lead to more such claims coming forward.
Into the next decade
While the scientific miracle of multiple highly effective COVID-19 vaccines has raised hopes that we may avoid a global recession, it is unclear how quickly or successfully the vaccine will be rolled out and grim economic news across much of the world raises a serious spectre of a prolonged downturn. If the forecasted wave of COVID-19-related insolvencies comes to pass, we can expect to see many more cases on the interaction between insolvency and arbitration. Similarly, the massive wave of stimulus spending already rolled out is likely to give rise to claims by investors, as will the geopolitical instability that is likely to flow from the pandemic (not to mention the COVID-19-related force majeure and similar commercial claims that will be occupying tribunals for years to come).
At the same time, efforts at modernising ISDS are likely to continue apace with the EU’s multilateral investment court coming online, the blockbuster China-EU Comprehensive Agreement on Investment expected to be signed and ECT reform pushing ahead.
Closer to home, after what has felt like a lifetime, the “will they or won’t they” of the Brexit negotiations will soon be over, with either a deal agreed or a crash out on WTO terms. Whatever the outcome, practitioners and arbitration users will be spending much of 2021 considering the fallout, while the UK government will continue to chase new trade agreements with their own ISDS provisions.
Of course, no 2020 round-up would be complete without a remark on the end of the most unconventional presidency the US has seen, certainly in our lifetimes. While president-elect Biden has given mixed signals on China, he has strongly stated his desire to shift away from the protectionism that marked the Trump years and it is to be expected that the next four years will see a return of the US to the global trade stage.
All this while businesses, governments and the arbitration community continue to adjust to the post-coronavirus would.
Arbitration practitioners can look forward to another busy year. Who knows, the long delayed 2017 Dubai International Arbitration Centre rules may even finally come into force…