International Arbitration William H. Knull, III Co-Chair, International Arbitration Group wknull@mayerbrown.com Presentation to: Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are:, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.
Advantages of Arbitration Disputes are inevitable; arbitration provides a reliable means to resolve disputes while maintaining commercial relationships Court proceedings are public, subject to local political bias and may carry undesirable features (discovery, jury trial, punitive damages, etc.) Parties can choose neutral, expert arbitrators to resolve disputes Arbitration awards are enforceable across borders under NY and other Conventions; there is no comparable convention for judgments of [US] courts 2
Disadvantages of Arbitration Now as expensive as litigation Loss of important procedural guarantees, including right to substantive review on appeal Errors in choice of site for arbitration can leave the proceedings subject to judicial interference 3
On Balance: Arbitration Often Better Suited to Transnational Disputes Ability to enforce awards under the NY and other Conventions Confidentiality (if specifically agreed) Ability to ensure a neutral forum 4
Purpose of Arbitration Ensure that the rules won t be changed to deny the benefits of your investment Contracts embody agreements between the parties on their respective rights and obligations; arbitration to enforce agreement Treaties protect investors against changes in the rules by the host government; arbitration to enforce protections Arbitration provides a means to protect your investment against encroachment Key to success: agreement on procedure in which both parties have confidence 5
Forms of International Arbitration Contract-based Administered by institution (e.g., ICC, ICDR (AAA), LCIA, CIETAC, HKIAC, SIAC, Stockholm Chamber of Commerce) Non-Administered (Ad Hoc), e.g., under Rules of UN Commission on Trade Law (UNCITRAL) Treaty-based (investor-state) Bilateral investment treaties (BIT s) Multi-lateral treaties (e.g., Energy Charter Treaty) 6
Administered vs. Ad Hoc Arbitration Institutional administrators Regulate the selection/disqualification of arbitrators Act as appointing authority if one party fails to participate Handle negotiation, collection and disbursement of arbitrators fees Provide and periodically update rules Provide some assurances of regularity that can be helpful in ensuring enforcement of an award Many administer arbitrations all over the world (e.g., ICC, AAA/ICDR, LCIA) 7
Administered vs. Ad Hoc Arbitration Ad Hoc Excellent set of rules from UNCITRAL Provides for Permanent Court of Arbitration in The Hague to act as appointing authority PCA can administer proceedings as well Negotiation, collection, disbursement of costs and fees left to the parties and arbitrators to work out on their own Saves fees for institution, but at the cost of leaving everything to be organized by the participants 8
Framework for International Arbitration Commercial cases: New York Convention on the Recognition and Enforcement of Arbitral Awards Provides for enforcement of agreements to arbitrate And for enforcement of awards absent narrow circumstances going to fundamental fairness of proceeding More than 140 countries are signatories and bound to enforce arbitration agreements and awards 9
Framework for International Arbitration Procedural law Parties usually free to choose law governing subject matter Parties choose the procedural rules and the arbitrators Arbitrators generally authorized to decide choice of law issues Remaining issues governed by the law of the site of the arbitration Choice of site determines more than hotels Most jurisdictions in Western Europe, the US, British Commonwealth, Hong Kong, Singapore have long records of respecting and enforcing arbitration agreements and awards Others (India, Brazil, China) are making progress, but still have a way to go Other jurisdictions like Indonesia have proven hostile to arbitration judicial interference in proceedings, refusals to enforce awards Care in selection of site is extremely important 10
Contract Arbitration: Party Autonomy Parties free to contract for procedures suitable for their relationship Parties can agree to vary rules and some statutory provisions to suit their needs Agreement unlikely after dispute arises Design workable, flexible arbitration clause in original contract Ensure applicable law permits procedure as contemplated 11
Contract-Based Arbitration: Key Considerations Administered or non-administered Site of the arbitration Panel Number of arbitrators Method of selection Special qualifications Language Governing law Avoid ambiguity in drafting 12
Procedure International arbitration procedures are evolving, blending national legal traditions Discovery: limited document discovery usually allowed to permit both sides to present their case Witnesses: live testimony, cross-examination allowed under most rules; not all Pre-arbitration attachment Privilege 13
Discovery Traditionally very limited Seen as contrary to original arbitration paradigm of informal, less expensive, faster proceeding Horrifying prospect to parties outside US, British Commonwealth No or few depositions, interrogatories, requests to admit Document discovery accepted but limited: What each party will rely on Responses to requests for specifically identified documents or narrowly defined categories Subject to showing of relevance and materiality, burden of production 14
Witnesses Cultural divide between common law and civil law traditions Cross-examination central to common law trial Not used in civil law Convergence of practice in international proceedings Witness statements in lieu of direct testimony Cross-examination commonly allowed Not quite as free-wheeling as in US litigation 15
Discovery: Current Issues E-Discovery Largely unknown outside common law countries As potentially important in international proceedings as it is in domestic litigation IBA Rules define document to include electronically record material, no specific rules New ICDR Guidelines: Emphasis on arbitrator management of process Produce in form most convenient for producing party unless good cause shown Balance cost against need May condition production on payment of costs by requesting party But affirmatively provides for e-discovery 16
Discovery: Current Issues Pre-Arbitration attachment Most arbitration rules allow parties to seek aid of courts to preserve subject matter of arbitration without waiving right to arbitrate Availability of particular forms of interim relief depend on the law of the jurisdiction where relief is sought ExxonMobil v. PDVSA: order ultimately vacated because of lack of connection between dispute and England 17
Discovery: Current Issues Privilege Very hot issue because of different degrees of protection under different national systems Recent decision in Europe denies protection to communications with in-house counsel Important issue in selecting arbitrators: some non- US arbitrators feel strongly that material evidence should not be protected Most rules silent ICDR Guidelines: Establish level playing field Tend to recognize the higher level of protection 18
Treaty-Based Arbitration Investment treaties: substantive protection to investors against interference by host governments Treaties prohibit, e.g., unfair and inequitable treatment, expropriation without full and adequate compensation Commonly require the better of national or most favored nation treatment Treaties permit investors to assert claims in arbitration against the host government directly, without a contract Encourage investors by providing remedy other than local courts Arbitration replaces diplomatic protection Treaties are reciprocal: protect each state s investors against adverse action by other state s government 19
Treaty Protection Is Not Universal There are some 2,400 bilateral investment treaties world-wide US has 40, but none, for example, with Venezuela Other areas covered by free trade agreements, like NAFTA China has many with little substance; recently has signed new generation (including Netherlands, Germany, New Zealand) comparable to many others to protect outgoing investments Take-away: Structure investments to take advantage of best treaty protection available 20
Optimizing Treaty Protection Treaties protect investors of one state party who invest in the territory of the other state party In many cases, more than one entity in the chain of ownership may have a claim May be able to obtain maximum protection by, for example, incorporating a subsidiary in a country that has a stronger treaty with the host Beware governments seeking to cancel treaty protections: they want to restore their ability to change the rules after your invested is made Example: Venezuela threatening to cancel or renegotiate treaty with Netherlands, invoked by many investors 21
Current Issues in Investor-State Arbitration Perceptions of Bias Host countries see pro-investor bias Investors see reluctance to award full damages Awards as Precedent Technically not binding on other tribunals Potential for inconsistency; need to develop a coherent body of interpretation Need for appellate review? Host government reaction to restrictions on sovereignty 22
Current Issues in Investor-State Arbitration Withdrawals from BIT s and ICSID Led by Venezuela Nicaragua, Bolivia, Ecuador threatened withdrawal in whole or in part Part of political cycle between conservative and populist/leftist regimes No immediate legal effect except to deter further investment 23
Current Issues in Investor-State Arbitration Collection Argentina Has threatened to refuse to recognize awards Most recently asserts that awards can only be enforced through Argentinian courts No reports of Argentine assets seized outside Argentina No reports that Argentina has paid awards voluntarily Venezuela ExxonMobil attachments put spotlight on extensive PDVSA assets outside Venezuela 24
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International Arbitration William H. Knull, III Co-Chair, International Arbitration Group wknull@mayerbrown.com Presentation to: