Jurisdiction in International Arbitration

International arbitration is, by its very nature, multi-jurisdictional. The international element could come from the parties being located in different jurisdictions, or perhaps having elected to refer disputes to a forum connected to a jurisdiction common to one, all or none of them. There are many factors that play into this decision. For example, one party may want ‘home court’ advantage, or be concerned as to the limit of remedies available in the jurisdiction where the underlying work is taking place. Another party may be more familiar with dispute resolution within a specific jurisdiction, or have easier access to resources if a dispute is determined in a certain place. The overlay to this is the governing law agreed between the parties – it is not unusual for an arbitration tribunal in one jurisdiction to determine a claim governed by the laws of another jurisdiction. The governing law and jurisdiction can be entirely unrelated to the location of the subject matter of the contract.

To read the full text of this post by Duane Morris attorney Chris Recker, please visit the Duane Morris International Arbitration Blog.

February 21, 2023February 21, 2023 by Oliver Kent

Jurisdictional challenges and arbitration clauses – that old chestnut! – The UK perspective

By Oliver Kent

Picture this. You are a Director at a substantial widget manufacturing company. One of your key materials suppliers, with whom you’ve had a relationship for many years, is causing you grief. There have been a number of complaints from customers in recent times about a decline in widget quality, which appear to be the fault of your supplier. However, you’re behind on your payments to the supplier and they are starting to threaten supply, with disastrous effects for the company. A dispute is brewing.

You have been involved with litigation before and have experience of court proceedings. However, when you check with your legal team about next steps, you learn that your agreement with the supplier contains a clause which appears to indicate that all disputes must be referred to arbitration. The clause is perhaps not drafted with the certainty it should and could have been, and it is not clear the extent to which it is enforceable. The issue usually is framed on the basis of whether there is a valid and enforceable agreement to refer disputes to arbitration.

There are also commercial considerations that may be relevant. Is it preferable to litigate in the domestic courts or arbitrate? This may be a commercial call, just as much as a legal one. This blog shares some of the practical considerations around these issues.
Continue reading “Jurisdictional challenges and arbitration clauses – that old chestnut! – The UK perspective”

February 9, 2023February 10, 2023 by Duane Morris

Queen Mary University of London Survey – Future of International Energy Arbitration

Queen Mary University of London has undertaken a major International Arbitration Survey, focusing on the energy sector entitled “Future of International Energy Arbitration, Survey Report 2022”. This was led by Professor Loukas Mistelis FCArb^[1] and his team. The Survey was based on feedback from over 900 respondents from a diverse range of jurisdictions, end users, leading practitioners, arbitrators and experts, as well as arbitral and academic institutions.

To read the full text of this post by Duane Morris partner Vijay Bange, please visit the Duane Morris International Arbitration Blog.

January 17, 2022November 8, 2022 by Vijay K. Bange

Revenge of the Energy Charter Treaty!

The ongoing fall out from the Achmea Decision

At the end of last year we wrote an article about the impact and uncertainty caused by the Achmea case on investor state dispute settlement provisions contained in intra-EU Bilateral Investment Treaties. We wrote about the likelihood of further cases that would either give clarity or create further uncertainty. The saga continues.

In the Achmea case the Court of Justice of the European Union (ECJ) held that Article 8 of the Netherlands – Slovakia bilateral investment treaty, which allowed for the resolution of disputes by way of arbitration, was incompatible with EU law. The rationale for the decision was that a tribunal may have to interpret or apply EU law and where a question of law arose, unlike a Member State court, that question of law could not be referred to the ECJ. In other words, intra-EU bilateral investment treaty arbitration provisions, as reasoned by the ECJ, deprived the EU courts of jurisdiction in respect of the interpretation of EU law.

We raised the prospect that the ramifications from the decision were potentially far reaching and were not, it seemed, confined to the BIT between Netherlands and Slovakia.

We reasoned that the possible conclusion for intra-EU investment treaty arbitrations, it seems, is that tribunals may have to begin to accept the inevitable, which is to say that they may no longer have jurisdiction to deal with disputes arising from claims under intra-EU investment treaties. Even if the tribunal concludes that it has jurisdiction to hear a dispute, following the Raiffeisen Bank case it is likely that there will be a real risk that the arbitration will either be dismissed by a domestic court of a member state of the EU, or possibly that any potential award is likely to be unenforceable within the EU, albeit that questions remain regarding enforceability of awards in jurisdictions outside the EU in say, the US or the UK.

However, less obvious is the impact of the Achmea case on multinational or multilateral investment treaties which may involve signatories from various EU member states as well as countries outside of the EU. For example, can an investor from an EU member state commence an arbitration against another EU member state pursuant to the dispute resolution provisions of multinational investment treaty simply because that treaty has signatories that include countries from jurisdictions outside of the EU.

This particular issue has been playing out over the past few years in the context of the Energy Charter Treaty (ECT) and in two particular cases.

Background

The Rockhopper Case

In 2015 the Italian Parliament re-introduced a ban on oil and gas exploration within 12 miles of the Italian coastline. The ban had previously been introduced in 2010 but revoked in 2012.

In 2017, Rockhopper Exploration Plc (based in the United Kingdom), along with its Italian subsidiary, filed a claim for compensation alleging violations of the investor protection provisions of the Energy Charter Treaty. The case is Rockhopper Italia SpA, Rockhopper Mediterranean Ltd. and Rockhopper Exploration Plc v. Italian Republic in the International Centre for Settlement of Investment Disputes (Rockhopper).

The claim concerned interests of the Rockhopper Corporation in the Ombrina Mare oil rig, for which it was hoping to obtain a production concession from the Italian Government prior to the introduction of the ban. The company is claiming compensation both for funds spent and for anticipated profits, which may run to USD $200-300 million.

Around June 2019, Italy invited the tribunal to recuse itself on the basis that it lacked jurisdiction following the Achmea decision, which barred in intra-EU arbitration emanating from bilateral investment treaties. The tribunal rejected Italy’s position on the basis that the Achmea decision had no application to the ECT (in other words it was limited to the specific circumstances of that case) which is a multinational or multilateral investment treaty that includes nations outside of the EU. The tribunal concluded that in any event, the dispute involved Italy’s alleged breaches of the ECT and the application of public international law. EU law, the tribunal reasoned, had no application to the present dispute.

Moldova

Fast forward two years to September 2021, and the issue of the Achmea case and the ECT resurfaced in the case of Moldova v Komstroy LLC (Moldova) which was referred to the ECJ. Initially the case was about the interpretation of the term “investment” under the ECT. However, several member states urged the ECJ to also rule on the issue as to whether the arbitration provisions in the ECT are compatible with EU law.

Unsurprisingly the ECJ ruled that the ECT’s arbitration provisions fall foul of EU law to the extent that the dispute involves an investor from an EU member state suing an EU member state. The ECJ relied once again on the rationale of the Achmea case i.e. that such tribunals deprived the EU courts of jurisdiction in respect of the interpretation of EU law.

Rockhopper 2.0

Following the ECJ’s decision in the Moldova case, towards the end of 2021, Italy urged the tribunal in the Rockhopper case to reconsider its previous 2019 decision (as above) and recuse itself for lack of jurisdiction.

The tribunal once again rejected Italy’s position although the reasons for the decision are not yet available. One suspects that the tribunal may have continued to rely upon the fact that the dispute does not involve the application of EU law and that the ECT, which forms part of public international law, cannot simply be ignored by Italy.

Comment

The ECJ’s position is problematic and to some extent devoid from reality.

For example, one of the main issues with the ECJ’s conclusion in Moldova is the creation of a two tier system in respect of the ECT. Where the dispute involves an EU member state and the investor is from outside the EU, that investor can rely upon the full benefit of the arbitration provisions in the ECT whereas an investor from within the EU cannot (according to the analysis of the ECJ). No such two tier system has been expressly provided for in the ECT.

Secondly, treaties such as the ECT amount to something that is akin to an international contract. The signatories are required to perform their obligations in accordance with the rules of such treaties and the arbitration provisions provide a mechanism for investors to enforce their rights. A dispute of this nature involves the application of international law and the terms of the ECT.

At present it appears that arbitral tribunals appointed pursuant to the ECT seem to agree and will for the time being reject any arguments, based upon the Achmea case, regarding their jurisdiction as evidenced by Rockhopper.

While that may give some degree of the comfort to investors, questions remain about the enforceability of the awards. It is no good for an investor taking the time and no doubt significant expense in concluding an arbitration under the ECT only to find that the award will not be enforced. Based upon the position adopted by the ECJ in Achmea and the German Supreme Court in Raiffeisen Bank it seems inevitable that an investor will not be able to enforce the award within a member state of the EU.

However, it remains to be seen how jurisdictions outside of the EU will react, most notably the US. If a tribunal has concluded that it has jurisdiction under a multinational treaty like the ECT and an award is issued, on what basis should jurisdictions outside of the EU concern itself with decisions of the ECJ, like Achmea, when enforcing awards. International treaties such as the ICSID and the New York Convention suggest that decisions of the ECJ should have little baring and the award should be enforced. This remains an open ended issue and only time will tell how jurisdictions outside of the EU will react to the enforcement of awards.

Looking at the Achmea decision in the context of the global energy crisis, the cost of fuel and other energy prices for industry and the public has been in the news over many months. The effect of these fluctuations in energy prices may have contributed to the super-inflation in prices impacting various sectors including construction. It’s not surprising that there will inevitably be disputes or referrals to arbitration concerning energy tariff agreements and the like. The importance of the ECT is ever more relevant for global trade deals in this sector. Preserving the ability of parties to rely on ECT to resolve disputes is an international trade issue, and any decision that effects the ECT may have serious ramifications for EU trade. For reasons of international trade relations there may also be good policy reasons for distinguishing international trade agreements, such as the ECT, from intra- EU treaties.

The Achmea decision continues to cause uncertainty. At this stage it seems a step too far that the decision can impact upon multilateral treaties such as the ECT by removing the jurisdiction of tribunals in intra-EU disputes. In the author’s view that is to be applauded, parties who have agreed to submit disputes to arbitration should not be able to unilaterally retract that agreement. Nonetheless this is unlikely to be the end of the saga, and it will be interesting to see how this issue continues to unravel.

Vijay K. Bange (Partner)

Matthew Friedlander (Senior Associate)

January 13, 2022April 6, 2023 by Vijay K. Bange

Using Technology in Arbitration: Necessity or Choice?

By Vijay Bange and Tanya Chadha

The global pandemic continues to challenge us, with various measures ranging from further lockdowns to restrictions on in-person meetings. The judicial machinery, including that in the arbitration world, has continued to function throughout the pandemic notwithstanding the difficulties of embracing innovative processes and new technology.

In January 2021, Vijay Bange wrote an article examining the challenges of using technology in formal dispute resolution proceedings. Whilst technology has of course been used in international arbitration and high court litigation (particularly in the Technology & Construction Court) for quite some time, that use has been somewhat limited with parties, their legal counsel, and the tribunal often preferring in-person hearings and hard copy papers. 2021 however saw a dramatic rise in the use of technology in dispute resolution proceedings. This was almost certainly borne out of necessity as a result of the COVID-19 pandemic, rather than necessarily by choice or organic progression. If disputes were to continue to be resolved, parties had no option but to get to grips with remote hearings, electronic bundles and virtual breakout rooms. Whilst some inevitably faced technological and logistical stumbling blocks, the move to virtual hearings and electronic working proved largely successful with many disputes being resolved expeditiously along the way. In fact, the move towards technology was so successful that many people are now opting to use technology out of choice and not simply out of necessity. Continue reading “Using Technology in Arbitration: Necessity or Choice?”