International Business Law Advisor : Miami International Business Lawyer & Attorney : Santiago Cueto Law Firm : Florida and Global Business Litigation

 Although the hearings began live-streaming yesterday, Simon Lester over at the International Economic Law and Policy Blog, has reported that the International Center for the Settlement of Investment Disputes (ICSID) is webcasting a hearing in the Pac Rim CAFTA-DR investment arbitration (via Luke Peterson):

A hearing on preliminary objections in the above case will be transmitted live via internet feed on Monday, May 31, 2010 and Tuesday, June 1, 2010, starting at 9:30 a.m. EST (U.S. Eastern Time) each day. The live streaming is being made available pursuant to Article 10.21.2 of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA).

Accessing the Live Stream

To access the live stream you will need Windows Media Player, which is available free for download here:
http://www.microsoft.com/windows/windowsmedia/download/AllDownloads.aspx

The stream will be transmitted in both English and Spanish, and will be available in high speed (256 kbps) and low speed (56 kbps) to accommodate different bandwidth capabilities.

For the hearing in English, click here: mms://wbmswebcast1.worldbank.org/live1

For the hearing in Spanish, click here: mms://wbmswebcast1.worldbank.org/live2

For those interested in following along, relevant documents are here: http://www.minec.gob.sv/index.php?option=com_phocadownload&view=category&id=26:otros-documentos&Itemid=63

As Lester commented, live-casting this type of hearing is a great development.  It will be interesting to see if other dispute resolution organizations will follow suit

     -Santiago

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As an international litigation and arbitration attorney based in Miami, I’m thrilled that the Florida Legislature just passed a bill that standardizes the rules of international arbitration.

The language of the new legislation mirrors a model law developed by the U.N. Commission on International Trade Law, or UNCITRAL.

Florida is the sixth state to pass the measure after California, Connecticut, Illinois, Louisiana and Texas. More than 50 countries follow the model law.

The primary aim of the UNICTRAL model law is to even the playing field for companies from different countries by incorporating aspects of common law and civil law.  The rules have become a major catalyst in resolving  international business disputes due largely to this hybrid approach.

For all you out-of-state and international attorneys, the rule revision includes a provision that would allow attorneys from other states or countries to engage in international arbitration in Florida.

With South Florida’s high concentration of bilingual attorneys and easy access to Latin America, it’s a convenient spot to conduct international arbitration. Florida also boasts world class accommodations, a thriving business climate and easy access to some of the world's major tourist attractions.

Think of Florida next time you're drafting an international arbitration clause.

    -Santiago   

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International Arbitration has made great advances in the past several decades in becoming the mechanism of choice to resolve international disputes. Give me any court system in the world and nothing approaches the dynamic pragmatism of international arbitration. The relative costs, speed and predictability of this dispute resolution regime are unbeatable. 

While international arbitration does it best to bridge the cultural, legal and even ideological gap among parties from opposite sides of the globe, there’s still a lot of work to be done to address conflicting national ethical rules.

At least that’s the argument raised in a compelling book chapter I just read, The Ethics of Advocacy in International Arbitration by Catherine A. Rogers, Professor of Law at Penn State University, & Università Commerciale Luigi Bocconi, Milan, Italy.

The chapter is from the book, The Art of Advocacy in International Arbitration. Although I haven’t not read the book, I do plan on getting my hands on it.

As Rogers characterizes it, international arbitration is the wild west of ethics because it lacks a uniform set of ethical rules.  Attorneys in a cross-border arbitration are each following different and often-conflicting national ethical rules.

In jurisdictions like the United States, for example, there is a tradition of opposing parties exchanging of documents before trial. Under this tradition, attorneys have an ethical obligation to search for and disclose non-privileged documents in response to authorized requests. In other jurisdictions, where there is no tradition of document exchange, and hence no related ethical obligations, many counsel regard it as a betrayal of their obligation of loyalty to disclose documents that are damaging to their client.  

Another example—consider the French doctrine of “sous la foi du Palais” that may require that an attorney maintain as confidential as against his own client a communication conveyed by opposing counsel, even if such communication contains a proposed settlement that U.S. ethical rules mandate that the attorney disclose to the client.

As Rogers correctly points out “lawyers engaged in international arbitration have little or no guidance about how these rules fit together, and even less guidance about how to manage such conflicts when appearing before international arbitration tribunals.” 

Rogers advances the idea that international arbitration regime must develop a uniform set of ethical rules. She makes a compelling argument:

The Ethics of Advocacy in International Arbitration

Rogers concludes by stating that there are several primary reasons why a new ethics regime is needed in international arbitration: 1) attorneys need more guidance about what constitutes proper conduct; and 2) parties need to understand better how to plan their legal representation and related case strategy.   

I think Rogers is on the right track but it’s going to take unprecedented cooperation of all relevant actors—parties, counsel, arbitrators, arbitral institutions, and national and international regulatory authorities—to not only develop the content of the new ethical rules, but to implement them and ensure their meaningful enforcement.

What do you think?

    -Santiago

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“As a moth is drawn to the light, so is a litigant drawn to the United States.”   -- Lord Denning

Was Lord Denning right? Last month the U.S. Supreme Court heard oral argument in Morrison v. National Australia Bank on the issue of whether a foreign plaintiff could use U.S. courts to file international securities class actions.

This has to be one of the most interesting international cases heard before the Court in the last few years.

Morrison v. National Australia Bank* seemed to confirm Lord Denning’s decades-old aphorism that United States courts are being inundated by an ever-increasing number of foreign-oriented lawsuits brought by both United States and non-United States citizens.

Or so I thought.

I bring this up because I just read an excellent article in the Cornell Law Review challenging the conventional understanding of an international litigation explosion in the U.S. The article, The Evolving Forum Shopping System, by Christopher A. Whytock, shatters my perception that the number of foreign litigants filing claims in U.S. courts has been increasing.

Rather, the article presents empirical evidence that international forum shopping into U.S. courts has actually been decreasing. The article, embedded in its entirety below, is worth reading. You’ll see why. 

Evolving Forum Shopping System

As the abstract suggests, the "Article’s findings pose a genuine puzzle for legal scholars: Why, in an age of globalization in which one would expect an increase in disputes between U.S. citizens and foreign citizens—and why, given the well-documented attractions that the U.S. legal system offers to plaintiffs—would the number of alienage filings be decreasing?"

Those are excellent questions. The article suggests some intriguing possibilities. For example,  maybe international disputes that would once have been filed in the U.S. federal courts are increasingly being filed in U.S. state courts or submitted to international  arbitration.

Or perhaps U.S. tort reform has reduced the attractiveness of the U.S. legal system for plaintiffs relative to other legal systems or changes to foreign legal systems have increased their attractiveness compared to the United States.  

So many possibilities. What do you think?

    -Santiago

*For additional reading on Morrison v. National Australia Bank, see my previous posts:  U.S. Supreme Court to Decide Whether Foreign Plaintiffs Can Use American Courts to File International Securities Class Actions and Post-Game Analysis of Morrison v. National Australia Bank. Read the Transcript Here.

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There was a high increase in arbitration cases submitted to the court under the Swiss Rules of International Arbitration, according to the Swiss Chambers’ Court of Arbitration and Mediation.

According to the Swiss Chamber, a total of 104 new arbitration cases were filed in 2009, an increase of more than fifty percent over the number of cases submitted in 2008.

Statistics released by the Swiss Chamber indicate that 48% of the parties were from Western Europe, 24% from Switzerland, 6% from Eastern Europe and Russia, 12% from Asia/Middle East and 5% from Northern America. 43% of the new arbitrations were heard by a panel of three arbitrators, 53% by a sole arbitrator.

The increase in Swiss arbitrations is attributable to the expedited procedures available under the Swiss Rules. The expedited procedures have gained substantial international exposure for their cost-efficiency and speed.

Pursuant to Article 42 of the Swiss Rules, cases involving amounts in dispute of less than CHF 1 million are referred to expedited arbitration. In expedited proceedings, the parties are, in principle, limited to one Statement of Claim and one Statement of Defense.

Under the expedited rules, the arbitral tribunal must hold a single hearing for the examination of the witnesses and expert witnesses as well as for oral argument and the award shall be made within six months from the date when the file was transmitted to the arbitral tribunal.

Also contributing to the expediency of the process is the rule that the arbitral tribunal must state the reasons upon which the award is based in summary form only—no lengthy opinions here.

The Swiss Rules are embedded below:

Swiss Rules of International Arbitration

The Swiss Chambers expedited procedures are a welcome change over other arbitrations that can unnecessarily drag on indefintely. The success of the expedited procedures confirms the need of parties for lean and efficient arbitration particularly in smaller cases.

     -Santiago

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South America Hosts Majority of ICSID Cases

The International Center for the Settlement of Investment Disputes (ICSID) recently released a report on its caseload statistics. The report includes lots of interesting data and illustrative charts. One chart I found particularly noteworthy was the geographic distribution of ICSID cases by state party.

South America leads the pack with 30%, followed by Eastern Europe and Central Asia (22%), Sub-Saharan Africa (16%), Middle East and North Africa (10%), South & East Asia and the Pacific (8%), Central America and the Caribbean (7%) and North America (6%). Again, the statistics confirm the widespread use of ICSID arbitration around the globe.

ICSID

Another interesting chart shows the basis of consent invoked to establish ICSID jurisdiction. Sixty-two percent of all cases came from Bilateral Investment Treaties, while twenty-two percent came from investment contracts. An additional eleven percent came from various multilateral treaties (Energy Charter 5%, NAFTA 4%, ASEAN 1%, DR-CAFTA 1%), and five percent came from the investment law of the host state.

As one commenter mentioned “the fact that ICSID cases are derived from so many different sources–domestic law, contracts, bilateral treaties, and multilateral treaties–underscores the vibrancy of ICSID investment arbitration.”

Finally, the frequency with which ICSID cases are pursued is also significant, with over half of all ICSID cases in its thirty-seven year history registered in the past six years.

These are promising statistics and show increased demand for ICSID arbitration.

Now if we can only get Brazil to ratify some BITs and the ICSID Convention...

Trend to Watch: Look for ICSID cases to Increase Further As Governments Step-Up Their Efforts to Attract Foreign Capital.

 -Santiago

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I’ve been lucky to have visited Ireland a few times in the past several years. From the unbridled majesty of the Cliffs of Moer, to the emerald hills of Kilarney, to the bustling streets of Dublin, everything about Ireland is pastoral and progressive at the same time. 

Leave it to an international law geek like me to notice that even its judiciary reflects this unique mix.  While holding strong to its English common law heritage, I found that Ireland is willing to abolish entire legislative codes that fail to keep up with modern jurisprudence.

Ireland Arbitration Act of 2010

In keeping with its progressive mandate, Ireland recently passed a new arbitration act that removes the distinction between domestic and international arbitration and creates a Swiss-style one-stop shop for post-award court proceedings.

The 2010 legislation includes the entire text of the United Nations Convention on International Trade Law Model Law on International Commercial Arbitration (Model Law) and will be instantly recognizable to lawyers across the globe. The Arbitration Act of 2010 will apply the Model Law to all arbitrations in Ireland and do away with the historical distinction between domestic and international arbitration.

UNCITRAL Model Law

The UNCITRAL Model Law has been adopted by more than 50 countries and covers all stages of the arbitral process. While initially designed for international commercial arbitration in mind, other countries such as Germany, New Zealand and Kenya have extended it to domestic arbitrations. Ireland originally adopted the Model Law in the Arbitration (International Commercial) Act 1998, but only for international commercial arbitrations.

Key Revisions to Irish Arbitration Law

1.  No Distinction Between Domestic/International Arbitrations

There will be no difference between the legislative provisions relating to domestic arbitrations and international arbitrations. Irish practitioners will need to be familiar with the Model Law and this will be particularly useful when advising on contractual arbitration clauses, particularly those which have an international dimension.

2. Judicial Intervention Virtually Eliminated

The Arbitration Act of 2010 abolished the 'case stated' procedure. Arbitrators will no longer be able to refer to the courts a question of law arising in the course of the arbitration. The removal of the case stated procedure and significant reduction of the scope for judicial intervention will likely to lead to an increased focus on the choice of arbitrators and appointment mechanisms and requirements.

3. Limited Award Challenges

The only method of challenging an arbitral award will be under Article 34 of the Model Law. The grounds are extremely limited and the 2010 legislation will make it far more difficult to challenge an arbitral award than was the case under the previous legislation. The Model Law grounds of challenge have been interpreted narrowly in other jurisdictions, and the Irish Courts are likely to adopt a similar approach, in keeping with their approach to arbitration generally*.

4. Cost Allocation                     

The 2010 legislation allows the parties to agree on the allocation of costs either before or after the dispute has arisen (Section 21). The previous legislation provided that any such agreement on costs was only binding if it was reached after the dispute had arisen.

Effective Date June 2010

The 2010 legislation will apply to all arbitrations which commence after the legislation comes into operation. The 2010 legislation comes into operation in June 2010, 3 months from the enactment date.

Trend to Watch: Look for a Precipitous Increase in International Commercial Arbitrations Taking Place in Ireland in the Next Several Years 

    -Santiago

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  I recently represented an overseas client who sued a U.S. party based on a transaction that took place overseas.  The transaction centered on several key affidavits, powers of attorney and attestations that we would need to use in U.S. litigation.  

Traditionally, for such documents to be made admissible in U.S. courts, the documents must have been authenticated or “legalized’ by the U.S. embassy or consulate in the country in which the documents originated.  And before authentication is possible, the document must have been certified by the foreign ministry of the country of origin. 

Folks, the red tape involved can be a real headache and extremely time consuming.  This is not what your clients want to hear.

Hague Convention Gives VIP Status to  Documents to Be Used Abroad

 Fortunately, there’s the Hague Legalization Convention to streamline the authentication of documents for use abroad. The Convention is a multilateral treaty designed to cut through the traditional certification process by relying solely on the convention “apostille.”

The apostille gives any public document VIP status for acceptance into any country that is a party to the Convention. Currently, 98 countries have signed on to the Convention.  As one commenter, correctly pointed out--be sure to verify that the target country (ies) are signatories to the Convention before assuming otherwise. You can check here.

U.S. Origin Documents for Use Abroad

In the U.S., all states have authorized their respective Secretaries of State to sign Hague Convention apostilles. Also, the clerk of each federal court has been empowered to issue apostilles for documents originating in that court or contained in the records of cases before that court.  Documents originating in state courts are subject to certification by the court clerk and issuance of a convention apostille by the secretary of state.

When you request the apostille, be sure to specify in which country the document is to be used.  Once the apostille is issued, it’s ready to be used abroad.

Foreign Documents for Use in the U.S.

To be admissible in the U.S., documents from other countries that are parties to the Convention and the prior certifications of those documents need only be covered by a completed apostille issued by the official of the country of origin. That’s all that is generally required.

The documents certified by apostille do not require legalization by the U.S. embassy or a U.S. consulate in the country  where the country originated.

It’s that easy!

What has been your experience with authenticating documents under the Convention?

         -Santiago

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The International Law Prof Blog has passed along details about an upcoming teleconference, “Doing Business with Japan,” sponsored by the American Bar Association Section of International Law.

The conference could not come at a better time. Businessweek’s Daniel Kruger reported this week that Japan has overtaken China as the largest foreign holder of U.S. Treasury securities. The number is staggering--Japan is now holding $768.8 Billion in U.S. T-Bills.

Folks, the conference is a great first step towards bridging the trade gap and getting back some of those T-Bills.

Here are the details:

90-Minute ABA Teleconference on Doing Business with Japan

Are you interested in getting a better understanding of the legal system in Japan?  Or in the advantages (and dangers) of selecting Japanese law or Japan as a place to arbitrate?  Or other issues relating to doing business with (and in) Asia? 

There's a teleconference on "Doing Business with Japan" on Wednesday, February 24, 2010 from noon to 1:30 p.m. Eastern US Time.  The program is organized by the Asia/Pacific Committee of the American Bar Association Section of International Law.  Click here for the program description, speaker bios, and registration form.  Download Japan.  There is an extremely modest fee to call in ($15 for section members and $25 for non-members).  Register by Monday, February 22, 2010.

Looks like an excellent program. Will you be attending?

    -Santiago

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As an international business attorney, a focal point of my practice involves advising clients how to best handle cross-border disputes.  The most effective mechanism by far in resolving international dispute is international arbitration. Why?  International arbitration levels the playing field by taking away the home court advantage of parties on either side of a transaction.  

But the most attractive aspect of arbitration is that the awards issued by an international arbitration tribunal will receive worldwide recognition by countries that are members of one of the international conventions on the enforcement of tribunal awards.

Given the superior advantages arbitration has over litigation in resolving international disputes, it’s essential that you make the international arbitration agreement ironclad and bullet proof.  

Here’s how to do it:

             1.  Be Unambiguous.  

Unequivocally state that any dispute will be resolved through arbitration e.g. “Any dispute or difference arising out of or relating to this agreement shall be finally resolved by arbitration …”

              2.  Be Clear

Define whether arbitration is to be preceded by negotiation or mediation and designate a timeframe e.g. “If no agreement has been reached within __ days of the delivery of  written notice of the existence of a dispute, either party may serve a request for arbitration …”.

3.      Be Specific

Specify the administering institution and the rules to be applied e.g. “The arbitration shall be administered by the International Center for Dispute Resolution in accordance with its International Arbitration Rules

4.      Be Careful

Carefully select the site of the arbitration taking into consideration the quality of its arbitration jurisprudence and the respect of its courts for the arbitral process. e.g. China, no. Hong Kong, yes.

5.      Be Meticulous

 Meticulously set forth the number of arbitrators on the panel and how they will be      selected. Choose an arbitrator who demonstrates communicative proficiency, a firm appreciation of the rules of evidence and an acknowledged expertise in the industry in which the dispute arose or about the issues in dispute.

6.      Be Heard.

Designate the language of the proceeding. It is unsettling how many times parties overlook this provision and are forced to rely on a foreign translator to communicate every word of the proceeding.

7.      Be Final

 In order to prevent further review and appeals of an arbitral award once it is rendered, you must include a statement in the arbitration agreement that clearly states that the award is final e.g. “The arbitral award is binding, final, not subject to review, and not subject to appeal  by the courts in any jurisdiction." This provision is  particularly essential in jurisdictions where the laws allow parties to appeal an  award issued  in that country.

Follow the points I described above, and you’ll be well on your way to drafting a bullet proof international arbitration agreement. 

     -Santiago

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The arc of the moral universe is long but it bends toward justice

— Martin Luther King, Jr.

The seventeen-year war between Ecuador’s 30,000 class plaintiffs against oil giant Chevron  continues its global odyssey, as the oil giant pulls out every trick in the book to avoid an impending $27 Billion judgment against it in Ecuador for contaminating an immense portion of rainforest and devastating the local population.

Chevron first fought successfully to force plaintiffs to try their lawsuit in Ecuador rather than U.S. courts. Then it sought (unsuccessfully) to win indemnification in U.S. courts from a possible judgment in Ecuador. And now it's filed for arbitration seven thousand miles across the Atlantic in Holland.

Chevron’s latest tactical attempt to escape justice in Ecuador is consistent with its October 2007 press release, in which it promised the plaintiffs “a lifetime” of appellate and collateral litigation if they persisted in pursuing their claims.

Unfortunately for Chevron, it grossly underestimated the resolve of the class plaintiffs to seek justice.  As reported in The Wall Street Journal article, Chevron Plaintiffs Ask U.S. Court for Action, the People of Ecuador just filed a Petition to Stay Arbitration in United States District Court (S.D.N.Y) to enjoin Chevron from proceeding on the baseless international arbitration claim it recently filed in Holland. In December the Government of Ecuador filed its own Petition to Stay Arbitration.

As a litigator, I’m mindful that an attorney's obligation to zealously advocate his clients' interest may involve forum shopping as part of the procedural calculus, however, the obligation must be tempered with a keen understanding of what becomes abusive litigation.

Chevron’s global quest for a favorable forum is a text book example of abusive litigation. To litigate a lawsuit across three continents is a cynical game of musical jurisdictions and takes corporate arrogance and the civil justice system to a new low.  Isn’t it time for Chevron to take a seat when the music stops in Ecuador?

What do you think?

   -Santiago

P.S. This is the third in a series of posts discussing this extremely important case. Be sure to read Chevron Files International Arbitration Claim Against Ecuador: Forum Shopping in the Hague? and Chevron’s Missteps: How Not to Handle Foreign Litigation.

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Only 2 weeks into 2010 and I’m seeing a lot of positive movement on the street. The international markets are roaring back to life. Deal makers are picking up the phone again. And lawyers are being hired to put these deals together.  Based on this snapshot view, I expect to see international transactions skyrocket as investor confidence and flexible credit terms return. While some may perceive this forecast as abundantly rosy, it is not without its thorns.

As the number of international transactions skyrocket, so do foreign parties' attempts to escape from their arbitration agreements and to force disputes into foreign courts. All too often, a party that thought it would be arbitrating international disputes - and that may have commenced arbitration in the agreed forum - may nevertheless find itself the target of foreign litigation.

A recent federal court decision reinforces strong public policies in favor of arbitration and against improper collateral  litigation.  In Telenor Mobile Communications v. Storm LLC, the United States Court of Appeals for the Second Circuit affirmed the district court’s granting of an anti-suit injunction against Ukraine litigation in aid of an UNCITRAL arbitration. You can read the decision here.

As the case illustrates, U.S. federal courts are increasingly resistant to efforts to use foreign litigation to interfere with pending international arbitration, and are increasingly willing to brandish their injunctive powers to prevent such interference.

The Telenor decision should cause parties to arbitration agreements to think twice before staging "friendly litigation" in an effort to avoid their contractual obligations, as Judge Robert D. Sack wrote for the court:

Our view, in light of the findings of the arbitration panel and the district court, is that it is Storm's improper collateral litigation, not the arbitral award that is contrary to public policy, viz., the well-established federal public policy in favor of arbitration. "Through the FAA, Congress has declared a strong federal policy favoring arbitration as an alternative means of dispute resolution." (Internal quotation marks omitted)). Collateral and unilateral litigation of arbitrability – or any other issue pertinent to arbitration, for that matter --undertaken in a foreign forum by a party to that arbitration in an attempt to protect itself from an adverse arbitral award would, if indulged, tend seriously to undermine the underlying scheme of the FAA and the New York Convention.

It's reassuring to see that U.S. federal courts are increasingly protecting the integrity of awards rendered in international arbitration and that collateral litigation commenced by a foreign party to avoid an arbitral award will not be tolerated. 

Trend to Watch:  Look for More U.S. federal courts to hold international parties to their arbitration agreements, and to prevent them from seeking refuge in litigation abroad.

      -Santiago 

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 On a recent trip to Hong Kong, I noted several newly built skyscrapers filling up the remaining voids of the city’s skyline. From my perspective sitting in the Felix restaurant, perched atop a high rise on the other side of Victoria Harbor, it was easy to see how global economic and financial activity had shifted from west to east, especially to markets connected to the Chinese economy.

To illustrate this point, the Financial Times reported yesterday in its article China Eclipses U.S. in IPOs, that “Chinese stock exchanges raised double the amount of money secured by initial public offerings across the US in 2009, highlighting the region’s rising weight in international finance.Ken Poon of Citigroup said:

It is likely to be another busy 12 months [in 2010]. Expect more records to fall."

In light of the surge of economic activity, Hong Kong will likely remain the international arbitration hub in Asia for resolving commercial disputes. Due to its relationship with and proximity to the Mainland, Hong Kong has become the arbitral seat of choice for China-related arbitration.

Between 2007 and 2008, the Hong Kong International Arbitration Center (HKIAC) saw a 34% increase in the number of arbitrations handled by it, which was a significantly bigger increase than those enjoyed by fellow heavy weights American Arbitration Association (AAA), Center for Investment, China International Economic and Trade Arbitration Commission (CIETAC) and International Chamber of Commerce (ICC). This trends is indicative of the world's growing trust in the Hong Kong government's abnility to resolve disputes.

Two recent developments in Hong Kong arbitration are likely to cement Hong Kong's position as the hub for internatioal arbitration in Asia: The new rules of HKIAC and the implementation of the Civil Justice Reforms (CJR).

HKIAC Rules

The overall approach of the new Rules, which went into effect early this year, is to provide “light touch” administration. They are generally based on the UNCITRAL arbitration rules and are said to be inspired by the Swiss Arbitration Rules. The main purpose of the new HKIAC rules is to make arbitration more user friendly to arbitration users both in and outside Hong Kong. It will enable the Hong Kong business community and arbitration practitioners to operate an arbitration regime which accords with widely accepted international arbitration practices and development. The main features of the Administered Rules include:

1. The use of more user-friendly language;
2. The Administered Rules are designed especially with Chinese-foreign disputes in mind and are issued in Chinese and English versions;
3. If the parties to an arbitration are of different nationalities, neither the sole arbitrator nor the chairman of a three-member arbitral tribunal shall have the same nationality as any party unless specifically agreed otherwise by all parties in writing;

Hong Kong Civil Justice Reforms

The CJR is effectively a revamp of the existing civil procedure system. The new procedures are designed to change the litigation culture in Hong Kong, with the courts taking on a much more pro-active role in case management. Hong Kong courts, like those in a number of other jurisdictions, have struggled to address the increasing delays, complexity and expense associated with modern litigation.

Also, prior to the implementation of the CJR the HongKong courts had been held to lack power to entertain an application for a Mareva injunction (or other interim relief) in aid of foreign litigation proceedings. As part of the CJR, both the High Court Ordinance and the Arbitration Ordinance have been amended to make it clear that interim relief can be sought in aid of foreign proceedings and foreign arbitrations as an independent, free-standing form of relief, without being ancillary or incidental to substantive proceedings in Hong Kong.

Conclusion

The recent developments that have taken place in Hong Kong and that are referred to above will all contribute to making Hong Kong an increasingly attractive, and friendly, place for arbitration, as well as to reinforce Hong Kong as a hub for international arbitration in the Asia Pacific region.

Trend to Watch: Look for Hong Kong to Challenge Shanghai and Singapore as the Region’s Premiere Arbitration Center.

-Santiago

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Brazil is on a roll.  Yesterday’s Financial Times included a special 10-page section devoted to Brazil. One of the articles, Olympic Accolade Sets Seal on Progress, written by Jonathan Wheatly, succinctly describes the “exuberant optimism” that has gripped the country since it was awarded the 2016 Olympic Games.  And the Wall Street Journal recently reported on the Brazilian stock exchange making spectacular gains in the article Brazilian Stock Scores Spectacular Gains on US GDP Growth.  This is following last month’s IPO of Banco Santander’s Brazilian unit, the world’s largest IPO so far this year, as reported in the New York Times article, Banco Santander's Brazil Unit Raises $8 Billion in I.P.O.

While these events are certain to fund rapid expansion in Brazil’s capital sector, the exuberance is tempered by a look at the long road ahead. Yet it is impossible not to be blinded by the bright future that seemed out of reach not long ago.  Antonio Quintella, country manager at Credit Suisse Sao Paulo put it succinctly:

Nothing is guaranteed. But it is reasonable to assume that [Brazil] won’t repeat the mistakes of the past…it is very difficult not to be bullish”

Brazil Should Ratify Bilateral Investment Agreements

Brazil has emerged from the global recession as the darling of international investors; this has created a wealth of investment opportunities.  However, it lags behind all other Latin American countries in one important respect: it has yet to ratify any bilateral investment agreements (BITs).  These agreements protect international investors when disputes arise in host countries. In light of Brazil’s recent good fortune, the time has come for Brazil to rethink its approach to BITs and implement measures to protect foreign investors.

Bilateral Invest Agreements Provide Important Safeguards

BITs obligate host countries to provide safeguards for foreign investment. If host governments fail to heed these safeguards, investors maybe awarded money damages. The following safeguards are among those afforded by BITs:

1. host countries are prohibited from expropriating foreign investment without compensation.
2. The agreements often include national treatment provisions, which require a government to treat foreign investors no less favorably than they treat domestic investors. They also often include most favored nation provisions, which extent the same protections afforded to foreign investors from one country to foreign investors from other countries.
3. foreign investors have the right to transfer funds into and out of the host country without delay.
4.  In addition to substantive protections, BITs provide powerful dispute resolution mechanisms. Under these mechanisms, Foreign investors may choose to resolve disputes in binding international arbitration such as in the International Center for Settlement of Investment Disputes (ICSID) and arbitral tribunals organized under the United Nations Commission of International Trade Law (UNCITRAL).

These agreements provide important safeguards against government mistreatment, mitigating some of the political risks associated with making investments in foreign countries.

Conclusion

Although Brazil’s reluctance to ratify BITs may help to protect it against claims by foreign investors, the recent surge in outbound Brazilian investment should cause Brazil to reconsider its position against international investment agreements. 

While Brazil is busy contemplating this proposition, there is a way investors can structure their investments to take advantage of BITs between other states. Stay tuned, and I’ll let you know how in a follow-up post.

Trend to Watch: A Surge in Investment Activity in Brazil Will Lead to the Adoption of International Investment Agreements

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**Update January 15, 2010**: The Republic of Ecuador and the class Plaintiffs have both challenged Chevron's arbitration claim in New York federal court. You can read about it here and here.

First, the United States. Then Ecuador. Now Holland. Chevron's wanderlust knows no bounds, as it recently filed a parallel international arbitration proceeding in the Hague (Holland).

The Arbitration Claim

As reported in this article in the Wall Street Journal and in this article in the New York Times,  Chevron filed an international arbitration claim before the Permanent Court of Arbitration in The Hague under the Rules of the United Nations Commission on International Trade Law (UNCITRAL). The claim is based on Ecuador's alleged violation of investment agreements, international law, and its treaty with the United States--the Encouragement and Protection of Investments Treaty.

Chevron’s claims relate to the Amazon oil lawsuit I wrote about in an earlier post.  In the arbitration filed in the Hague, Chevron alleges that Ecuador’s judicial process is broken and that the South American nation cannot fairly adjudicate the long-running oil pollution litigation.

Through the filing, Chevron seeks to enforce prior settlement and release agreements that the government of Ecuador entered into with Texaco Petroleum when the consortium was terminated, and to hold Ecuador accountable for its obligations under Ecuadorian law and existing international treaties.

Forum Shopping in the Hague Must be Condemned

Chevron's latest move is the litigation equivalent of three card monty and is yet another tactic to divert attention away from the trial taking place in Ecuador. Filing an international arbitration campaign at this point in time smacks of desperation and is a clear example of forum shopping, as Plaintiffs counsel Steven Donziger stated in this Reuters article.

Chevron first fought successfully to force plaintiffs to try their lawsuit in Ecuador rather than U.S. courts. Then it sought (unsuccessfully) to win indemnification in U.S. courts from a possible judgment in Ecuador. And now it's filed for arbitration seven thousand miles across the Atlantic in Holland. 

The Hague is arguably the most hallowed institution for the resolution of high-profile international disputes. Chevron's latest tactic all but mocks the institution's primary mission to administer justice. The Hague must not be utilized to frustrate legitimate legal proceedings taking place elsewhere.

Forum Shopping Creates Broad Incentives for Abuse

As Chevron's arbitration claim illustrates, the opportunity for one party to game the system and manipulate the outcome of a case by choosing a specific forum over another creates broad incentives for abuse. Among other things, forum shopping :

1. creates legal uncertainty (particularly for the defendant);
2. drains resources by imposing substantial additional costs on defendants, who must transport lawyers, documents, and numerous witnesses to the site of the trial – an expense that is multiplied when the trial is located far from the defendant’s place of business.
3. undermines the authority of substantive state law by calling into question the equity of the legal system.

Although under extremely limited circumstances forum shopping may prove a legitimate means to achieve a more just result, it is disproportionately utilized to avoid a just result by exploiting the points outlined above--as Chevron has done.

Conclusion

While an attorney's obligation to zealously advocate his clients' interest may involve forum shopping as part of the procedural calculus, the obligation must be tempered with a keen understanding of what becomes abusive litigation.

Trend to Watch: Given the High Profile Nature of Chevron's Claim, Look for an Increase in Similar Filings in the Hague

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On August 4, 2009, China's Supreme People's Court issued a new regulation to encourage parties involved in conflicts to consider arbitration as an alternative means of dispute resolution. The regulation is in response to a rapid increase in lawsuits during the past two years. Under the new regulation, agreements achieved in arbitration or mediation by administrative bodies, mercantile organizations and industrial groups will have the same force in law as those judged by Chinese courts.

This latest measure is yet another step in the direction towards the establishment of a more favorable dispute resolution environment in Asia. As recently reported in this Economist article, China's labour laws: Arbitration Needed, arbitration continues to gain traction in resolving disputes in China.  Just within the past year, the International Chamber of Commerce (ICC) opened a branch of the Secretariat in Hong Kong where it set up its International Court of Arbitration. The branch secretariat, the first in Asia, has a case management team to administer cases in the region under the ICC Rules of Arbitration.  

In light of these recent developments, it is imperative for contracting parties to implement best practices in drafting China-related commercial contracts. While significant inroads have been made in the development of a more Westernized approach to dispute resolution in China, corporate counsel would be keen to carefully structure China-related commercial contracts to best safeguard against unexpected setbacks often encountered in nascent dispute resolution regimes.

In drafting an effective dispute resolution provision in this context, the most significant point is to agree to arbitration outside of China maximize the benefit of neutrality. While this point may seem obvious, many parties unfamiliar with Sino dispute resolution practices will assume that matters will be resolved under similar guidelines and principles adopted in a more familiar milieu.

Hong Kong and Singapore are the best regional alternatives to arbitrating a dispute in mainland China, as they are more closely aligned with the standards of leading European arbitration centers. Because it is a common-law jurisdiction and a part of the People's Republic of China, Hong Kong is uniquely positioned in international arbitration. As an arbitration venue, Hong Kong has benefited from the growing number of Chinese-related disputes arising from the surge of foreign investment rushing into Asia, and in particular China. Because it has kept its English common law-based legal system, foreign parties view Hong Kong as a more familiar and neutral forum for arbitrating commercial disputes. At the same time, Chinese parties regard Hong Kong as a culture-friendly venue due to its close proximity to the mainland.

In addition to negotiating an ICC arbitration in Hong Kong or Singapore, the other favored arbitral bodies in the region are the HKIAC arbitration in Honk Kong and the SIAC arbitration in Singapore. If it can be negotiated, another viable option is to arbitrate in one of the major European arbitration centers such as Zurich, Geneva, London and Stockholm.

Some additional best practices to consider are to keep the language of any arbitral provision as straight forward as possible and to be clear on the language that will govern the arbitration. Due to the wide gulf in language and culture, doing so will minimize the likelihood for misunderstanding.

Trend to Watch: Look for Hong Kong to increase its profile as a favorable seat of arbitration in Asia for disputes involving China-related commercial contracts.

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