Jump to Content Jump to Main Navigation
International Project Finance, 3rd Edition edited by Dewar, John (14th August 2019)

16 Dispute Resolution in Project Finance Transactions

Michael Nolan, Tom Canning, Erin Culbertson, Paul Kinninmont

From: International Project Finance (3rd Edition)

Edited By: John Dewar

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.date: 01 April 2020

Subject(s):
Credit risk — Capital markets

(p. 520) 16  Dispute Resolution in Project Finance Transactions

Introduction

16.01  Dispute resolution mechanisms in the project finance context are a means of enforcing the allocation of risks among a project’s many participants—sponsors, lenders, contractors and subcontractors, service providers, offtake purchasers, and others. To the extent that a dispute resolution mechanism is swift, flexible, reliable, final, and enforceable, the project’s (p. 521) intended allocation of risks can be maintained. This chapter identifies various dispute resolution mechanisms that are available to project participants and discusses their suitability for the maintenance of a project’s intended risk allocation.

  1. (1)  Paragraphs 16.02 to 16.25 address the options, which are predominantly contractual, for the resolution of disputes about commercial risks. They examine two regimes for dispute resolution that are commonly specified in project finance contracts: litigation in national courts and arbitration before privately constituted international tribunals.

  2. (2)  Paragraphs 16.26 to 16.52 address options for resolving disputes about political risks. They describe the main political risk factors that cross-border projects frequently face, explain the traditional means by which project participants have addressed political risks, and set forth how bilateral and multilateral investment protection treaties (and to a lesser extent domestic investment legislation) have provided additional options to protect participants over the past two decades (or more).

  3. (3)  Paragraphs 16.53 to 16.64 address the enforcement of arbitral awards and domestic judgments. One of the main advantages of choosing international arbitration instead of national litigation is that arbitral awards are, typically, more readily enforceable in a large number of jurisdictions. The section describes the main enforcement mechanisms for international arbitration awards, as well as how national court judgments may be relied upon in foreign jurisdictions.

  4. (4)  Paragraphs 16.65 to 16.99 provide a ‘toolkit’ for drafting dispute resolution provisions to achieve participants’ goals. They also describe ‘multi-tiered’ dispute resolution, which may include, for example, referring a technical dispute to an expert to assist in settlement of the dispute before turning to litigation or arbitration. Finally, the section describes options that may be useful to protect participants once they become engaged in disputes.

  5. (5)  Paragraphs 16.100 to 16.102 address the ways in which project participants can reduce the scope for error in their chosen dispute resolution mechanism.

  6. (6)  Paragraphs 16.103 to 16.105 address the ability of project participants to consolidate potential disputes by agreement, whether by way of joinder in litigation or multi-party arbitration.

  7. (7)  Paragraphs 16.106 to 16.109 address how project participants can increase the effectiveness of their chosen dispute resolution mechanism by including express waivers of defences to enforcement of judgments, seeking early interim relief in arbitration, and limiting the ability of parties to set aside an arbitral award.

Disputes Involving Commercial Risk

16.02  Major international projects invariably face commercial risks. These risks typically are allocated in separate agreements between the various project participants. This section focuses on how dispute resolution may be affected by the selection of either litigation or arbitration. There are three subparts: (a) identification of commercial risks for which dispute resolution provisions are frequently invoked in project finance transactions, (b) identification of features of the litigation and arbitration frameworks that may be of particular relevance in project finance transactions, and (c) analysis of how the choice of litigation or arbitration may affect the resolution of commercial risks.

(p. 522) Commercial Risks that Frequently Result in Project Disputes

16.03  As described in more detail in Chapter 4, international projects inevitably face a number of risks that generally fall into the following categories:

  1. (1)  completion risk, including delays, cost overruns, and technology risks;

  2. (2)  offtake or revenue risk;

  3. (3)  operating risk;

  4. (4)  supply risk;

  5. (5)  currency risk;

  6. (6)  environmental and social risk;

  7. (7)  force majeure event risk; and

  8. (8)  participant risk.

16.04  Generally, project risks either are assigned to the stakeholder in the project that is best able to manage the relevant risk, or are allocated as much as possible to risk-absorbing third parties, such as insurers. It is a basic, but important, point that a party’s preferences with regard to dispute resolution mechanisms will vary depending upon the risks allocated to it. A project participant bearing little or no project risk but significant payment risk—such as a subcontractor, or a material or service provider, or, in some circumstances, a lender—may prefer a fast, public dispute resolution mechanism to obtain rights to satisfy payment obligations as quickly as possible, no matter the impact on the overall project. In contrast, a project participant with significant project risk likely will prefer a private dispute resolution mechanism that postpones the payment of money as long as possible.

16.05  Each type of commercial risk can give rise to disputes. The most significant disputes, in terms of claim value, typically arise when substantial project risks materialize, such as when a project cannot achieve commercial operation or does so belatedly,1 or when a concessionaire and a governmental contracting authority disagree on material payment terms once the project enters commercial operation.2 But seemingly smaller disputes can balloon, (p. 523) particularly when they arise during the development phase. For example, a subcontractor may withdraw from a project over a payment dispute with the turnkey contractor, and this in turn could jeopardize the completion of the project. Thus, even when an underlying dispute is comparatively small, its effects—depending in part upon the availability of viable dispute resolution mechanisms to prevent endangering the project at large—may not be.

The Choice between Litigation and Arbitration

16.06  Fundamentally, commercial disputes can be resolved in one of two legal frameworks: by means of litigation in national courts (of the host state or some other state) or by means of arbitration before international tribunals. Although there are other dispute resolution mechanisms discussed here that can be used either alone or in conjunction with litigation or arbitration, the enforcement mechanisms in place throughout the world generally allow for enforcement of court judgments or arbitral awards. Thus, to the extent that a dispute is not resolved through settlement, it likely will be resolved by a court or an arbitral tribunal, if it is to be resolved at all.

16.07  This reality is reflected in project agreements. Project agreements contain either a forum selection clause (also referred to as a ‘jurisdiction clause’) if the parties have selected litigation as their preferred method of dispute resolution,3 or an arbitration clause if the parties desire to submit their disputes to arbitration.4 A forum selection or jurisdiction clause permits or requires parties to pursue claims in one or more national courts which the parties, typically, designate. An arbitration clause embodies the parties’ agreement to submit disputes to final and binding determination by non-governmental decision-makers.5 The framework for resolution of project-related disputes through litigation, like the framework for the same through arbitration, has key features that may bear upon both the ultimate outcome of a dispute and the effect of the dispute resolution process on the project.

Litigation in national courts

16.08  The framework for litigation varies from country to country. If the parties choose a litigation framework to resolve their disputes, it is important to look at possible jurisdictions in order to understand how a dispute between them may be treated. The litigation framework discussed here is drawn largely from a common law perspective; it refers to key civil law jurisdictions and concepts when appropriate.

(p. 524) 16.09  When a dispute is litigated, the plaintiff (or ‘claimant’) must serve a complaint or other initial document on the defendant. Depending in part upon the jurisdiction, this document can contain either a great deal of information about the parties’ dispute—or very little.6 The manner in which a document initiating suit may be filed is frequently subject both to the civil procedure rules of the court in which the suit is to be filed, as well as to international agreements.7 Once this document is properly filed and served, judicial relief is available at least as a matter of principle. For example, courts can order attachments of property at a very early stage.8 The availability of preliminary relief at an early stage is a significant benefit if the dispute in question requires fast action. This comes at a cost, however, because the judge, who now has the ability to act immediately, is assigned and not chosen by the parties.

16.10  Litigation is perceived as the dispute resolution mechanism that tends to provide quick provisional remedies and strict, literal enforcement of contracts (including loan documents). For example, most jurisdictions make summary judicial procedures available to resolve cases in which the legal sufficiency of claims or defences can be assessed at an early stage.9 Summary procedures can be an efficient way to resolve business disputes involving, (p. 525) for example, questions of contractual interpretation without a heavy factual component. This benefit may be overstated in the project context, however, because project disputes frequently involve complicated factual issues that cannot be resolved through summary procedures.10

16.11  Most jurisdictions provide their courts with at least some ability to compel the disclosure of documentary evidence and the testimony of witnesses. In the US, broad discovery is permitted in civil litigation, with a range of pre-trial discovery methods available to each side (and sometimes third parties) pursuant to the US Federal Rules of Civil Procedure and state procedural laws.11 Depositions, or sworn oral examinations prior to trial, for example, can be taken of not only the opposing side, but also of non-party witnesses.12 Other jurisdictions, although they make compelled disclosure of evidence possible to various extents, do not allow such broad ‘US-style’ pre-trial discovery. In England and Wales, parties are under a duty to disclose documents to their opponents as part of the litigation process. The documents to be disclosed are typically those documents on which a party will rely and any documents which could support or adversely affect either party’s case (‘standard disclosure’). Following recent legal reforms, however, there is more flexibility with regard to disclosure. Courts now also have broad discretion to make a range of disclosure orders, especially in high-value cases, including dispensing with disclosure altogether or ordering issue-by-issue disclosure or deploying technology to ensure that irrelevant documents are excluded from disclosure at an early stage to the greatest extent possible.13 In Singapore, discovery is generally allowed by order of the court, and the scope of document discovery is similar to standard disclosure in England and Wales.14 Nevertheless, documents that are indirectly relevant, such as documents that have the potential to lead to the discovery of directly relevant evidence, are not typically discoverable in England and Wales15 or Singapore.16 In Germany, no party is under any obligation to make documents or other materials available (p. 526) to the other side in the absence of a specific statutory basis.17 In France, it is possible to obtain disclosure of such documents that are ‘indispensable to the discovery of the truth of the matter’ where the underlying information cannot otherwise be obtained.18

16.12  A judgment rendered by a court is typically subject to appeal, which serves as a check on the legal correctness of the initial determination, and may encourage rigorous determinations and discourage compromise rulings.19 Once appeals are exhausted (whether by determination or by expiration of the time in which an appeal must be brought), a judgment is final in the jurisdiction in which it was issued. If a party does not voluntarily satisfy an adverse judgment, and assets are not available in the jurisdiction in which the judgment was made, the judgment may need to be enforced abroad. Enforcement against assets abroad, however, may be far from straightforward or quick, as discussed in paragraphs 16.54 to 16.60.

16.13  Litigation is conducted in accordance with laws, rules, and practices appropriate for a wide range of disputes. Dispute resolution by means of litigation thus often lacks flexibility.20 As a practical matter, it is not possible for project participants to specify the manner in which litigation will be conducted to the same extent as they can in arbitration, which may be customized to suit the parties’ preferences and the project’s particular circumstances. If project participants specify litigation as a means of dispute resolution, their most important choice may be of the particular judicial system that offers key attributes attractive to them under the circumstances, such as the presence or absence of a mechanism for the speedy resolution of issues. Accordingly, lenders in cross-border project financings historically have preferred access to courts in either their home jurisdictions or in financial hubs, such as New York or London.21

Arbitration

16.14  Arbitration often is said to have several advantages over national court litigation.22 For example, arbitration traditionally has been described as offering quick and efficient resolution of disputes with lower legal fees.23 In reality, however, arbitration can on occasion (p. 527) be just as expensive (sometimes more so) and lengthy (sometimes more so) as litigation, especially in complex disputes in which parties and their counsel press for extensive proceedings and exchanges of evidence.24

16.15  Arbitration undoubtedly is more flexible than litigation. Because arbitration exists by virtue of the parties’ consent,25 parties are free to choose from a large variety of institutions and rules, or ad hoc arbitral proceedings pursuant to rules of the parties’ own design, to which they can submit disputes.26 Arbitral proceedings can be tailored by contract to modify these rules and to meet the particular needs and circumstances of a specific transaction.27 Arbitral proceedings are perceived to be neutral, and parties have the flexibility to agree that arbitrators be of third-state nationality and to designate a place of arbitration in order to minimize the prospect of interference through host state judicial proceedings.28 In many circumstances, it also can be far easier for parties to enforce an arbitral award internationally due to the existence of broadly ratified international treaties, particularly the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the ‘New York Convention’.29

16.16  The following outline is intended to provide a basic understanding of how a ‘typical’ arbitration of a cross-border commercial dispute may unfold in the project finance context and to give a sense of the advantages and disadvantages of arbitration.

(p. 528) 16.17  Arbitration proceedings commence with the submission of a request document, informing the adversary party of the claim being asserted against it.30 Such requests vary in length and complexity, but typically describe the nature of the dispute and the key evidence supporting the claim.31 Additionally, in the request document, the claimant often nominates its chosen arbitrator (the selection of an arbitrator is discussed in more detail in paragraphs 16.73 to 16.75).

16.18  Typically in large cases, one arbitrator will be appointed by each party, with the third arbitrator chosen by agreement of the two party-appointed arbitrators.32 The parties’ ability to choose arbitrators directly, and to have the arbitrators selected by them then choose the third arbitrator (often in consultation with the parties), is an important feature of arbitration. It both enables parties to shape the qualifications of the tribunal that will hear their dispute and to have direct responsibility for the arbitral process that may contribute to the parties’ respect for its outcome.33 For example, if a technical matter of some kind is at the core of a dispute, the parties can appoint arbitrators with the desired technical expertise.

16.19  One significant potential drawback of arbitration follows from the manner of selecting arbitrators. Because parties typically select two arbitrators who then must confer and agree upon a third arbitrator, there is usually no decision-maker immediately available to issue interim relief, such as orders temporarily restraining transactions or actions that may upset the status quo, unless emergency arbitrators are available (on which, see paragraph 16.108).34 This distinction between arbitration and litigation can be significant if time is of the essence, such as when a dispute threatens to grind construction or operation to a halt, (p. 529) or when there is a risk of dissipation of assets, especially as the vast majority of emergency arbitrators cannot grant ex parte relief.35 Depending upon the jurisdiction in which the project is located or in which the relevant project participants keep assets, it often is possible to apply to a court to act until an arbitration panel can be appointed.36 This remedy, while effective in many instances, is a realistic option only if the counterparty is subject to the jurisdiction of the court in question. In some instances, resorting to local courts will be less effective if one seeks to restrain the activities of prominent project participants of the host country.

16.20  International arbitration often is described as allowing more disclosure of evidence than European civil law systems, but less disclosure than in the US and in England and Wales.37 Unless otherwise agreed, the parties to an arbitration typically will be given access to documents that are relevant or important to the dispute that can be described with reasonable certainty.38 This generalization, although true, reveals a further key issue for arbitration: the disclosure of evidence is largely dependent upon the arbitrators’ perspective of what constitutes ‘relevant’ and ‘material’ evidence.39 Practice in international arbitration varies depending on the background of the arbitrators and lawyers, who usually are influenced by the legal values and principles of their home jurisdictions.40 Typically a combination of procedures taken from common law and civil law systems is adopted.41 This amalgam approach can leave users from either legal tradition unsatisfied.

16.21  Arbitration provisions can be drafted to make clear the parties’ intention as to the manner and extent of document disclosure and presentation. How extensive is document disclosure to be? Will the parties be permitted to request documents prior to the submission of their principal written statements of position? Or will ‘fishing expeditions’ be prohibited, with (p. 530) each party being limited to document requests only to ‘fill gaps’ after each side has asserted its claims and defences in its primary written submission on the basis of the information in its possession before the arbitration began?

16.22  A hallmark of litigation is that published precedent and/or consistent education and training of lawyers and judges tend to result in similar cases being decided in a similar way. In contrast, commercial disputes in arbitration tend to be resolved not by comparison to past arbitration cases (the resolution of which are not routinely reported), but rather, on the strength of their individual facts.42 One benefit of this approach is that arbitrators with particular expertise relevant to the project or the dispute may be in a better position than a judge to assess the particular facts of the case. On the other hand, one risk (and common fear) is that arbitrators will ‘split the baby’—that is, the two party-appointed arbitrators will favour the parties that appointed them, and the third ‘neutral’ arbitrator will attempt to find a compromise between the two.43

16.23  Arbitral decisions usually cannot be appealed. Although post-award challenges are becoming more frequent, many courts will not review the substance or merits of an arbitrator’s decision.44 This lack of a substantive review of arbitral awards is based on several international conventions that have greatly increased the ability of the parties to enforce final arbitral awards.45 Some parties may view the absence of appeal as an advantage of arbitration, while (p. 531) others may conclude for the same reason that international arbitration is ‘essentially free of the rule of law’.46

16.24  A principal concern arising out of the lack of an appeals process is decisional error incapable of correction. Error can have significant costs for the project: namely that the contractual allocation of risks agreed upon at the outset of the project has been changed. If this happens, a party may become shouldered with expenses and risks that it did not originally agree to incur and consequently will be under-compensated by the agreement in dispute. Outside of the agreement in dispute, depending upon the risk that now has been reallocated, other project agreements related to the contract in dispute may now be founded on an incorrect premise. Because there may be a web of contracts, rather than just one contract, affected by an arbitral decision, misallocation of risk in the project context may have an unanticipated ripple effect. This ripple effect may lead to additional disputes regarding the performance of various agreements. The main safeguard against error in arbitration is the expertise of the arbitrators chosen by the parties.

16.25  Project companies, contractors, and operators often favour arbitration, with its perceived efficient and timely procedures and privacy. The interrelated, ongoing nature of relationships between the project parties may be better preserved by an arbitral decision-making process. Similarly, offtake purchasers, and particularly governmental offtake purchasers, frequently are asked to enter into arbitration clauses to avoid having to litigate disputes in their home courts. Some governmental agencies will resist such a request because they may not be free to agree to certain dispute settlement methods, such as arbitration.47 This can be a highly important matter if the prospect of ‘home cooking’ causes a sponsor to fear that host state courts may rewrite offtake agreements, leaving the sponsors with no meaningful commercial or legal recourse to address a denial of justice.

Disputes Involving Political Risk

Contractual, regulatory, and tax risks

16.26  So far, this chapter has discussed dispute resolution options for commercial differences between the various participants in a project. But these are not the only disputes that may arise in a project: project participants often find themselves in disputes with host-state governments regarding contract performance, legal requirements, regulation, taxes, and foreign exchange. Disputes relating to such matters may arise in connection with the issuance, renewal, and revocation of permits and licences;48 changes in the regulatory and (p. 532) tax environments in which a project must operate;49 politically driven reopening of price adjustment formulae;50 the repatriation of profits; and, in extreme cases, expropriations.51 Although disputes over matters such as these may be brought within the ambit of contractual arbitration, if there is an agreement to which the relevant government agency or instrumentality is a party, these disputes also may fall within the ambit of investor-protection regimes existing separately from the project documents themselves.

Investment agreements

16.27  A very basic tool to protect projects against political risks is the conclusion of an investment agreement, including concession agreements (as discussed in greater detail in Chapter 5) with the host country, or with an agency of the host country responsible for the project. The host state in such agreements frequently agrees to ‘stabilize’ the regulatory and fiscal regime for the project.52 Traditionally, this has meant a freeze of the regulatory and fiscal environment as it existed at the conclusion of the investment agreement.53 Contemporary agreements frequently do not freeze the regulatory and fiscal environment, but instead set parameters within which both may change in case of larger market shifts. To the extent that the government is a customer of the project or regulates prices for the project, investment agreements also may contain formulae for the determination of prices for the life of the project.

16.28  Frequently, investment agreements with the host state or with an agency of the host state contain arbitration clauses.54 The reason why arbitration clauses were included, historically, (p. 533) was to avoid resolving disputes with the host state in the state’s own courts. Even with arbitration clauses in place, however, host states frequently refused to enforce adverse arbitral awards by reference to public policy grounds or the alleged incapacity of state parties to enter into such agreements in the first place.55 Partly in order to address these concerns, the World Bank in the 1960s decided to create, by way of the so-called Washington Convention, an international arbitration institution for the resolution of investment disputes between host states and nationals of third-party states, thereby creating the International Centre for Settlement of Investment Disputes, or ICSID.56

16.29  ICSID provides a forum for dispute settlement, setting forth detailed rules of procedure and institutional support for investor-state disputes.57 The ICSID process is ‘entirely self-contained and hence delocalized’.58 It provides a strong enforcement mechanism expressly adopted to avoid the prior enforcement problems in arbitrations to which a state was a (losing) party.59 Further, pursuant to Article 25 of the Washington Convention, which defines the scope of ICSID jurisdiction, in order to be eligible for ICSID arbitration a dispute must (1) arise out of an investment; (2) involve a country that is a signatory to the Washington Convention and a national of another country that is a signatory to the Washington Convention; and (3) involve parties that have consented to ICSID arbitration.60 Other than those requirements, the ICSID arbitral process is similar to the contractual arbitration process discussed previously.

16.30  Many investment agreements contain arbitration clauses consenting to ICSID arbitration. Such consents have generally survived challenges by host states once an investor commenced arbitration proceedings.61 ICSID arbitration clauses therefore have become a safer option for investment agreements. Alternatively, ICC arbitration or UNCITRAL arbitration have been typical choices in investment agreements, (p. 534) especially where the host country of the project is not a party to the Washington Convention.62

Treaty-based political risk protections

16.31  Another means of political risk protection exists in the form of international treaties. Although the scope and content of bilateral investment treaties (BITs) and multilateral investment treaties (MITs) varies considerably, most contain similar substantive protections.

Political risks covered by investment treaties and statutes

Expropriation

16.32  BITs and MITs oblige a host government to compensate foreign investors in the event of an expropriation, regardless of whether the expropriation resulted from a direct act of taking, such as nationalization, or an indirect act of taking that substantially deprived the investor of the use or enjoyment of its investment.63 An expropriation can be ‘creeping’ when the host government takes a foreign investment in stages or through a series of acts collectively tantamount to expropriation.64 Clauses in a BIT typically address ‘only the conditions and consequences of an expropriation, leaving the right to expropriate as such unaffected’.65 Most treaties provide that a legal expropriatory measure must: (1) serve a public purpose; (2) not be arbitrary and discriminatory; (3) follow the principles of due process; and (4) be accompanied by prompt, adequate, and effective compensation.66

(p. 535) Regulatory risk (fair and equitable treatment)

16.33  Most investment treaties also provide for fair and equitable treatment of foreign investments.67 Fair and equitable treatment has diverse manifestations, depending in part upon the wording of the specific clause in the specific treaty in question. Much debate has focused on whether the fair and equitable treatment standard to which BITs and MITs refer reflects a minimum standard of treatment, as required by customary international law, or whether it is an independent treaty standard that exists in addition to customary international law.68 For example, Article 14.6 of the United States-Mexico-Canada Agreement (USMCA) requires the Contracting Parties to ‘accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.’69 The USMCA also clarifies that the treatment required is limited to the customary international law minimum standard of treatment.70 Article 14.6 of the USMCA further provides that ‘the mere fact that a Party takes or fails to take an action that may be inconsistent with an investor’s expectations does not constitute a breach of this Article, even if there is loss or damage to the covered investment as a result.’71 In contrast, arbitral tribunals interpreting other treaties have attempted to provide more specific definitions for fair and equitable treatment, based on the specific wording of the treaty.72

16.34  In general, countries are required to maintain stable and predictable investment environments consistent with the reasonable investment-backed expectations of foreign investors.73 (p. 536) For example, the tribunal in Saluka v Czech Republic described the requirements of fair and equitable treatment as follows:

A foreign investor whose interests are protected under the Treaty is entitled to expect that the [host state] will not act in a way that is manifestly inconsistent, non-transparent, unreasonable (i.e. unrelated to some rational policy), or discriminatory (i.e. based on unjustifiable distinctions).74

16.35  A protection conceptually linked to fair and equitable treatment is ‘full protection and security’. This standard has been applied primarily in situations of physical protection of real and tangible property, but it has been extended in certain cases to apply to other circumstances, such as the withdrawal of vital governmental authorizations.75

Non-discrimination

16.36  The host country usually is under a legal obligation not to impair the management or operation of an investment by ‘arbitrary or discriminatory measures’.76 Arbitrariness has been viewed as a ‘wilful disregard of due process of law’.77 There is a partial overlap between the arbitrary and non-discriminatory standard and the fair and equitable treatment standard, as an arbitrary action arguably is neither fair nor equitable. Although some tribunals have found that the standards are merged, other tribunals have evaluated the two standards separately.78 A discriminatory measure treats an investor differently than other similarly situated investors.79 Under a ‘national treatment’ standard, a host country must treat foreign investors ‘no less favourably’ than national investors.80 Under the ‘most favoured nation’ standard, a host country may not treat one foreign investor less favourably than another foreign investor from a different country.81 The inclusion of a ‘most favoured nation’ clause in a BIT may have broad (p. 537) implications.82 Whereas some tribunals have ruled that a foreign investor may rely on a ‘most favoured nation’ clause to import from a third-party BIT a more favourable procedural or jurisdictional clause,83 other tribunals have interpreted more narrowly the scope of a ‘most favoured nation’ clause.84

Contract risk (umbrella clauses)

16.37  Umbrella clauses are blanket provisions in a BIT that require the host government to observe, or guarantee the observance of, specific promises and obligations towards investors, such as investor–state contracts or national investment laws.85 It has been argued that umbrella clauses import arbitration into a contract that does not include an arbitration clause. The effect of umbrella clauses is to ‘blur the distinction between investment arbitration and commercial arbitration’.86 One of the most contentious issues with regard to umbrella clauses is ‘whether, and under what circumstances, they place investment agreements, that is, contracts between the host state and the investor, under the treaty’s protection’.87 Tribunal decisions have been divided on the interpretation of the purpose, meaning, and scope of umbrella clauses. In SGS v Pakistan, the first tribunal to consider the issue of the scope of umbrella clauses, the tribunal interpreted the investment treaty narrowly and concluded that to interpret the legal effect of an umbrella clause as being to ‘elevate’ any breach of contractual agreements between states and investors to the level of a treaty breach would have a ‘far-reaching impact’ on the sovereignty of the host country.88 This narrow interpretation was rejected in SGS v Philippines (which was brought by the (p. 538) same investor against the Philippines) when the tribunal ruled that in the presence of an umbrella clause, a violation of an investment agreement leads to a violation of an investment treaty.89 These diverging approaches have led subsequent tribunals to attempt to distinguish between ‘sovereign’ and ‘commercial’ acts when interpreting the scope and impact of umbrella clauses.90

Potentially eligible project participants with treaty protections

16.38  To have access to various protections under national legislation and treaties, an ‘investment’ (as defined in relevant investment treaties or statutes) must have been made. Some tribunals have held projects or transactions to qualify as investments when the project or transaction:

(a) had a significant duration; (b) provided a measurable return to the investor; (c) involved an element of risk on both sides; (d) involved a substantial commitment on the part of the investor; and (e) was significant to the [host country’s] development.91

As a general matter, tribunals ‘have not entertained doubts’ that construction and infrastructure projects are investments.92

Sponsors

16.39  BITs typically include shares of stock in a company or the commitment of capital in the definition of investment. For example, the BIT between Argentina and the US defines ‘investment’ to include ‘a company or shares of stock or other interests in a company or interests in the assets thereof’.93 The BIT between the US and Chile defines ‘investment’ broadly:

Investment means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.94

Thus a sponsor, who directly or indirectly owns or controls the project, typically has committed capital, expects a profit, and has assumed risk.

(p. 539) Lenders

16.40  Financial instruments such as loans and other credit facilities have been repeatedly recognized by arbitral tribunals as investments.95 Therefore, lenders who extend loans and credit facilities in order to finance projects generally are ‘investors’ entitled to certain treaty protections.

Contractors

16.41  Most treaties and national legislation include rights under a contract as an ‘investment’.96 For example, the US Model BIT of 2012 provides that an investment may take the form of ‘turnkey, construction, management, production, concession, revenue-sharing, and other similar contracts’.97 Thus, a contractor on a project typically also is an ‘investor’ entitled to certain treaty protections.

Operators

16.42  Contribution to a host country’s development has been identified as a feature of an investment.98 To the extent a project’s operator contributes to a country’s GDP or to the ‘development of human potential, political and social development and the protection of the local and the global environment’,99 the operator may well be an ‘investor’ entitled to certain treaty protections.

Consent to arbitration in investment treaties

16.43  One of the main benefits of BITs and MITs is that private investors frequently can initiate arbitration even in the absence of a contractual arbitration agreement. Investors can seek relief when host state consent for such proceedings is given by means of multilateral investment protection treaties, such as USMCA,100 the Energy Charter Treaty (‘ECT’),101 or (p. 540) the Association of Southeast Asian Nations (‘ASEAN’) Treaty,102 or by means of bilateral investment treaties, which by some estimates increased from 385 in 1989 to nearly 3,000 as of year-end 2017.103 These consents frequently are to arbitration pursuant to ICSID or, alternatively, ad hoc arbitration or national court litigation.

16.44  In such non-contractual arbitration, consent generally is expressed in two steps.104 First, the host country expresses its consent by including in a treaty its standing, unilateral offer to submit to arbitration.105 Second, the investor subsequently matches that free-standing consent either in writing to the host government at the time of the investment, or by filing a request to arbitrate with the designated tribunal.106 It is advisable to consult a specialist to determine whether consent was actually given. A mere reference to arbitration as a dispute resolution mechanism may not actually be consent. Once the consent of the host state has been given, the arbitration proceedings follow rules that are relatively similar to the arbitral process discussed previously.

Political risk insurance

16.45  As further described in paragraph 4.62, another means to protect against political risk is the purchase of political risk insurance. Political risk insurance is likely to be available from public sources from the home states of project participants. Commercial political risk insurers also offer political risk coverage to investors in emerging market projects.107 In addition, the World Bank makes available political risk guarantees through the Multilateral Investment Guarantee Agency (MIGA).

16.46  Although coverage may differ, political risk insurance is available for currency inconvertibility, expropriation, and political violence.108 Other specialized coverage is available for certain kinds of breaches of contract or arbitration agreements or failure to enforce arbitration awards.109 Political risk insurance generally does not cover the entire loss, but only a fraction of the loss, with the project participant effectively paying a deductible.

16.47  Overseas Private Investment Corporation (OPIC) and MIGA also make available insurance for the breach of certain types of investment agreements. Such coverage, however, usually requires a determination, through an arbitral proceeding or a local court judgment, that the contract has in fact been breached in order for the claim to be paid out.110 In those (p. 541) instances, investment insurance coverage in the project context is available only to the extent that the dispute resolution provisions discussed previously have already resulted in a favourable result for the insured investor.

16.48  Related coverage offered by OPIC provides coverage for failure to pay an arbitral award or, alternatively, to perform an arbitration agreement.111 In the first case, an arbitral award must actually have been obtained. In the second case, it is necessary to show that the respondent government should have gone to arbitration, but frustrated its own arbitral undertaking. In that case, it is necessary to show only the plausibility of success on the merits.112

16.49  Political risk insurance historically was one of the main tools to protect against political risk. With the increased use of other protections such as treaty arbitration, it is no longer as prominent a tool. Yet, political risk insurance remains an important component in political risk structuring, even where investors also have structured their investments to benefit from international treaty protections.113 Political risk insurance can in many instances be a faster and more reliable means to obtain redress with regard to clear-cut political risks. In addition, political risk insurance determinations provide important insight into the scope of proper government conduct and how investors can protect themselves against political risk. Thus, these mechanisms continue to have significance. The correct mix of investment treaty and insurance protection remains for each project participant to consider on a project-by-project basis.

Structuring investments to optimize political risk protections

16.50  Not all investment structures make available the same political risk protections. Some may make available different insurance protection options; others may make available treaty protections. For projects in which political risk is a major concern, political risk structuring may be a worthwhile and long-term cost-saving exercise. In many instances, this structuring could be done in tandem with international tax structuring in order to optimize both the political risk protection and fiscal profile.114

16.51  The key in structuring for political risk is to understand the scope of treaty protections available for the host country through different structures. Online databases, such as UNCTAD’s treaty website,115 currently make available many international investment-protection treaties. The substantive protections and arbitration consents of each jurisdiction can be mapped out relatively easily. With these differences in protection in hand, it should be possible to compare the relative advantages and disadvantages of the different (p. 542) jurisdictions through which an investment could be structured. Thus, it is possible to understand the indirect costs of each investment structure and proceed accordingly.

16.52  ‘Nationality planning’, ‘forum shopping’, or ‘treaty shopping’ is typically accomplished through the establishment of a company, which will be used as a ‘conduit’ for the investment, in a country that has favourable treaty relations with the host country.116 Such structuring at the beginning of a project generally has been recognized as acceptable thus far.117 Once a dispute is brewing, restructuring an investment in order to benefit from such treaty protections is another matter: depending upon the specific facts, such restructurings may or may not survive scrutiny.118

Enforcement of Judgments and Awards

16.53  Dispute resolution mechanisms often are only as good as the reliability of the enforcement of their final results. In the project context, project participants will come from many different countries and generally will not have a reliable, large asset base in the same jurisdiction. This means that the result of the dispute resolution mechanism—that is, arbitral awards and court judgments—will have to travel. As mentioned previously, and discussed later in the chapter, arbitral awards in general travel far more easily than court judgments do. Repeat users of international arbitration value this benefit of international arbitration perhaps the most.

Enforcement of judgments

16.54  Court judgments frequently face cross-border enforcement issues. Judgments may well be reviewed in detail by the enforcing courts, frequently leading to an effective re-litigation of a dispute at the enforcement stage.

(p. 543) 16.55  Many jurisdictions treat foreign money judgments as presumptively enforceable. For example, in the US, most states have adopted the Uniform Foreign Money Judgments Recognition Act (UFMJRA), under which foreign monetary judgments are presumptively enforceable under the principle of comity.119 The UFMJRA, however, allows for significant procedural review of the underlying judgment.120

16.56  The ease with which a foreign judgment can be enforced in England and Wales is largely dependent upon where the judgment originated.121 If it originated from a jurisdiction which has entered into reciprocal enforcement arrangements with England and Wales, enforcement is typically by way of a registration process.122 If, however, the judgment originates from a jurisdiction which has no such reciprocal arrangement in place with England and Wales, then it will ordinarily be necessary for the party seeking to enforce the judgment to bring fresh proceedings before the English courts, seeking to recover the foreign judgment as a debt. The claimant would normally seek summary judgment at an early stage. There are a number of potential defences open to a party wishing to challenge such proceedings. These defences include, amongst others, the foreign court lacking jurisdiction, the judgment not being final and conclusive on the issue, the judgment being obtained by fraud, and the judgment conflicting with a prior judgment of the English court.

16.57  The German civil procedure code (ZPO) on its face grants courts a measure of discretion in enforcing foreign judgments. It states that foreign judgments shall not be enforced if, as a matter of German law, the foreign court lacked jurisdiction over the dispute, the foreign judgment violates German public policy, there is a conflict between the judgment and a German proceeding, there has been a failure of service, or there has been a failure of due process.123

16.58  One potential issue frequently overlooked is service: some countries may strongly oppose service by post/mail even where the jurisdiction in which a judgment is rendered allows for it.124 Depending on how the forum selection clause is drafted, such service issues can make a judgment effectively unenforceable.

16.59  There are international attempts to regulate cross-border enforcement of international judgments. One such international regime that has greatly facilitated cross-border enforcement (p. 544) is the Brussels Regulation applicable in the European Union (the ‘EU’).125 It mandates cross-border enforcement, subject only to limited challenges by a party opposing enforcement.126 To the extent that a European judgment is sought to be enforced in another EU state, this regime will greatly facilitate the portability of judgments. That said, in the project context, it is likely that project participants will hail from both inside and outside the EU, meaning that the Brussels Regulation will have limited relevance as a practical matter.

16.60  Another development that may support greater enforceability of judicial decisions is the Hague Convention on Choice of Court Agreements (the ‘Choice of Court Convention’). The Choice of Court Convention generally applies to forum selection (jurisdiction) clauses. It has been described as making litigation a ‘more viable alternative to arbitration’, because the Choice of Court Convention ‘ensures the enforcement of forum selection clauses just like the New York Convention guarantees the enforcement of arbitration clauses’.127 So far, the signatories to the Choice of Court Convention are the US, the EU, China, Denmark, Mexico, Montenegro, Singapore and Ukraine. Of these, Mexico (2007), the EU (2015),128 Singapore (2016), Montenegro (2018) and Denmark (2018) have ratified and acceded to it (with certain insurance-related exceptions reserved by Denmark and the EU).129 As the Choice of Court Convention has only recently been ratified and acceded to by the few states involved so far, it has not yet been tested in practice.

Enforcement of arbitral awards

16.61  Arbitration, on the other hand, is an international dispute resolution mechanism with a long history of relatively consistent international enforcement. There are two important international conventions governing enforcement of arbitral awards: the New York Convention and the Washington Convention.130

New York Convention

16.62  The New York Convention is the main mechanism for enforcement of commercial arbitral awards. To date, it has 159 state parties.131 It requires that ‘each Contracting State (p. 545) shall recognize arbitral awards as binding and enforce them’.132 A court may refuse to enforce an award only in certain limited circumstances regarding the procedural propriety of awards—that is, was the question at issue in an award properly submitted to a neutral arbitral tribunal and did the parties have a fair and equal opportunity to present their case?133 To the extent that these questions are answered in the affirmative, it is difficult, barring exceptional circumstances, to challenge and set aside an arbitral award.134

16.63  The main risk to enforcement in the context of the New York Convention is an action to set aside the award at the seat of the arbitration. Such a challenge may be broader than those listed in the New York Convention itself, depending on the jurisdiction.135 Jurisdictions differ significantly in terms of whether they will enforce an award which has been set aside, with, for example, the US having expressed some concerns with regard to enforcement,136 and France having a strong pro-enforcement point of view where the setting-aside decision itself is dubious.137

Washington Convention

16.64  As noted, the Washington Convention is applicable to investor–state disputes arbitrated at ICSID. One advantage to ICSID arbitration is the enforcement mechanism available (p. 546) under the Washington Convention. ‘One of the greatest strengths’ of the Washington Convention is that it is ‘even more favourable to recognition and enforcement than the New York Convention’, because the Washington Convention ‘accepts no grounds whatsoever’ for refusal to recognize and enforce ICSID tribunal awards.138 ICSID awards are considered binding and final. They are not subject to review except under certain limited conditions outlined in the Washington Convention—on restricted grounds before a three-member ad hoc committee that may only interpret, revise, or annul the award.139 Generally, an ICSID award is therefore more readily enforceable than a New York Convention award. An ICSID award avoids local actions to set aside the arbitral award, and replaces such actions with a specialized review by a panel chosen by ICSID itself. Despite a surge in attempts to set aside a number of ICSID awards rendered in the context of the Argentine peso crisis in the early 2000s, the efficacy of ICSID awards remains significant.

Dispute Resolution ‘Toolkit’

16.65  Previous sections of this chapter discussed key risks and benefits of different dispute resolution mechanisms and investment structures. This section identifies tools that are available to structure around some of the risks discussed, as well as the costs those structures may entail.140 These tools generally need to be employed at the drafting stage, rather than at the dispute stage.

Dispute resolution clauses, common components

16.66  If the parties to a project finance transaction choose arbitration as their preferred dispute resolution method, consideration of the various types of disputes that may arise is vital in addressing the political and commercial risks that are inherent in a multi-party, multi-contract transaction. It is important to remember that disputes to which an arbitration clause applies frequently arise years after it has been drafted.141 As one influential treatise explains:

Most international commercial arbitration takes place pursuant to an arbitration clause in a commercial contract. These clauses are often ‘midnight clauses’, i.e. the last clauses to be considered in contract negotiations, sometimes late at night or in the early hours of the morning. Insufficient thought is given as to how disputes are to be resolved (possibly because the parties are reluctant to contemplate falling into dispute) and an inappropriate and unwieldy compromise is often adopted. … If a dispute arises, and arbitration proceedings begin, these matters must be dealt with before any progress can be made with the real issues.142

16.67  Below is a list of the various components of an arbitration clause.

(p. 547) Exclusivity

Unilateral option clauses

16.68  Typically an arbitration clause states that arbitration is the sole method of dispute resolution. Situations may arise, however, in which the parties to a project finance agreement would like the option of choosing either arbitration or litigation, depending on the type of dispute that arises. Such clauses—known as ‘unilateral option’ or ‘asymmetric’ clauses—usually prescribe one method of dispute resolution while giving one party (or a group of the parties, such as the lenders) the right to choose to refer a dispute to a different forum. These clauses therefore typically allow one side to select the most appropriate type of dispute resolution forum after a dispute has arisen. Currently, courts in the US ‘are not aligned on whether “unilateral option clauses” are enforceable in the arbitration context’.143 Russian courts have held that hybrid clauses violate the principle that the parties to a dispute must have equal access to justice.144 In England and Wales, however, a well-drafted clause that presents just one of the parties with a unilateral option to refer a dispute to either arbitration or litigation, if and when such a dispute arises, will typically be upheld as a matter of English law.145

16.69  Unilateral option clauses that give one party the right to choose between courts of different jurisdictions (as opposed to choosing between arbitration and litigation) also have been the subject of much judicial debate. In France, such a clause has been held to be invalid as a matter of EU law, with the consequence that the whole jurisdiction clause (not just the unilateral option element) failed.146 This decision has been subject to criticism not least because the previous version of the Brussels Regulation147—upon which the French Cour de Cassation relied in deciding the case—was considered to be sufficiently broad so as to allow one-sided jurisdiction clauses to be enforced. Whether other EU courts will follow this decision remains to be seen, especially in light of the current version of the Brussels Regulation148 and as the Cour de Cassation has more recently held that such clauses could (p. 548) be upheld to the extent that they allowed a party to sue ‘where a harm … is occurring’.149 As a matter of English law, however, the courts of England and Wales have confirmed that one-sided jurisdiction clauses are generally enforceable, notwithstanding the decisions of the French Cour de Cassation.150 Other European jurisdictions, such as Luxembourg, Spain and Italy, have adopted the approach of the English Courts.151

Scope of arbitration

16.70  The range of disputes or claims that will be subject to arbitration is critical. Most arbitration clauses are drafted broadly to encompass ‘all disputes, claims, controversies and disagreements’ that are ‘arising under’, ‘arising out of’, ‘in connection with’, or ‘relating to’ the agreement or the ‘subject matter of the agreement’.152 Questions arise as to whether non-contractual claims, such as tort claims, ‘arise under’ an agreement. Courts in the US, for example, look to the terms of the clause to determine whether the parties intended the clause to be broad or narrow.153 Therefore, the broader phrases of ‘relating to’ or ‘in connection with’ may be preferable. The position under English law was clarified and modernized by the House of Lords in the case of Fiona Trust and Holding Corp. v Privalov (also reported sub nom. Premium Nafta Products Ltd v Fili Shipping Ltd). In the words of Lord Hoffmann:

… the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction …154

Institution selected for arbitration

16.71  Institutional arbitration is conducted pursuant to procedural rules of the selected arbitration institution. Choosing among the established arbitral institutions requires the consideration of the parties’ transaction, identities, and respective interests, as well as the likely nature of future disputes.155 Once an arbitral institution has been selected, it is important to incorporate the institution’s rules. Keep in mind that it is usually possible to modify aspects of an institution’s arbitration rules (although, if this is done, such modifications should be drafted with great care). Institutional arbitration may be the most useful for (p. 549) project financing because the complexity of transactions as well as multiple parties and interests may need an experienced panel acting under well-developed rules.156

16.72  By contrast, ad hoc arbitration is conducted without an administering authority and generally without the aid of institutional procedural rules. The UNCITRAL Arbitration Rules were approved by the UN General Assembly, thus making them more acceptable to parties from all regions. Moreover, there is a substantial body of reported decisions using UNCITRAL Rules. The CPR Institute for Dispute Resolution also has published procedural rules for ad hoc international arbitrations. Ad hoc arbitration is appropriate when all the parties to the transaction are experienced with international arbitration and are cooperating. It also may be attractive for disputes where the parties wish to avoid paying fees to an arbitral institution.

Selection of arbitration tribunal

16.73  The selection of the arbitral tribunal, whose members will serve as the judges in the case, is one of the most important aspects of the arbitral process. The number of arbitrators should be determined in advance and should depend on cost, speed, expertise, consistency, and efficiency. The most common way to select arbitrators is to include an ‘appointing authority’ (as set out in the institutional arbitration rules) which will select either a sole arbitrator or a presiding arbitrator (if the parties chose three arbitrators as the number to sit on the panel). As noted in paragraph 16.18, when three arbitrators are selected, each party usually selects one arbitrator, and the third arbitrator is selected by the two party-nominated arbitrators or by the ‘appointing authority’.

16.74  The nationality of the arbitrator can be a particularly important factor in selecting, or objecting to, an arbitrator. Different arbitration rules deal with the question of nationality differently.157 Many commercial arbitration rules do not prohibit the appointment by a party of an arbitrator who has the same nationality as the party itself. Many institutional rules require, however, that the presiding arbitrator should not have the same nationality as any of the parties. For example, Article 13(5) of the 2017 ICC Arbitration Rules provide that ‘the sole arbitrator or the chairman of the Arbitral Tribunal shall be of a nationality other than those of the parties’.

16.75  Finally, arbitrators should, at a minimum, be ‘independent’ and ‘impartial’—that is, arbitrators should not have direct financial, business, or professional relationships with any of the parties.158 Increasingly, the standard of independence for arbitrators is rising, with (p. 550) several legal authorities insisting that there should not be any perceived (as opposed to actual) bias,159 although any finding of bias will depend heavily on the facts of an individual case and is a rare occurrence.160 To this end, arbitrators may be required to submit statements, which should be updated in light of any material developments, certifying their independence. Failure to disclose or to update properly may lead to perceptions of bias, which may cause difficulty in the course of the arbitration and after.

Severability

16.76  Most jurisdictions treat an arbitration clause contained in a larger transactional agreement as a separate contract from the remainder of the transaction. For example, the House of Lords in Fiona Trust and Holding Corp. v Privalov161 confirmed that, as a matter of English law, an agreement to arbitrate is separable from the underlying contract, even in the face of allegations that the entire contract was induced by bribery.162 Similarly, the United States Supreme Court has held that it is for arbitrators to decide whether a contract is invalid because it was induced by fraud, so long as the allegations of fraud or illegality do not extend to the arbitration clause itself.163 Therefore, challenges against the transaction or the contract will not necessarily defeat the arbitration clause.

Language of arbitration

16.77  An easily overlooked, yet significant, matter is the language of the arbitration. Typically, the language of the arbitration is the same language that governs the contract. Some arbitration clauses, however, may require that arbitrators be fluent in a second language or that witnesses be permitted to testify in their native languages. Choosing two or more languages may burden the arbitral proceedings and increase the time and cost because of the need for translation and interpreters.164

Seat of arbitration

16.78  The law governing the arbitral proceedings—the lex arbitri—is normally determined by the seat of the arbitration. It can be a different law altogether from the law that governs the underlying contract. The choice of an appropriate seat can have significant implications for an international arbitration. The seat of arbitration is the place where the formal arbitral award will be made and the jurisdiction whose laws will ordinarily govern the arbitral proceedings and actions to vacate the award. Moreover, the arbitral seat could have a material effect on the selection of the arbitrators, arbitral procedures, and other substantive and procedural issues.

(p. 551) 16.79  It is key to designate as the arbitral seat a state that is a party to one of the international enforcement conventions (i.e., the New York Convention, the Panama Convention, or the European Convention on International Commercial Arbitration). Similarly, the arbitral seat should have national arbitration legislation and national courts that are ‘hospitable to and supportive of’ international arbitration, such as legislation based on the UNCITRAL Model Law on International Commercial Arbitration.165

16.80  Unless the parties agree on the seat of the arbitration (as is usually the case), the rules of the various institutions typically empower the tribunal to make that determination. Various factors influence the choice of the seat of the arbitration, such as: (1) the suitability of the law on arbitral procedure of the seat of arbitration; (2) the existence of a multilateral or bilateral treaty on enforcement of arbitral awards between the state where the arbitration is ‘seated’ and the state or states where the award may have to be enforced (as described previously); (3) the convenience of the parties and the arbitrators; (4) the availability and cost of support services; and (5) the location of the subject matter in dispute and the location of evidence.166

Scope of disclosure

16.81  International arbitration lacks a fixed legal regime governing discovery; therefore, a party that desires expressly to permit or prohibit certain types of discovery may do so through the arbitration clause.167 The efficacy and application of discovery provisions may be affected by the national law in the seat of arbitration, the institutional rules, the nationalities and legal backgrounds of the arbitrators, and the availability of remedies or sanctions for non-compliance.168 As discussed, broad disclosure of documents is not embraced by some arbitrators.

Privacy and/or confidentiality

16.82  In contrast to litigation proceedings, where court hearings and the court file (including pleadings and exhibits) are open to the public and press in many jurisdictions, arbitral proceedings (including the hearings and the parties’ submissions) typically are private.169 Such privacy does not, however, keep the submissions or the proceedings confidential. This is because, although there is a general expectation and tradition of confidentiality,170 arbitration permits, not imposes, confidentiality, and different jurisdictions address confidentiality in (p. 552) varying ways.171 The existence of such differences illustrate the importance of the seat of arbitration (as discussed) and the benefit of expressly negotiating—either at the contracting stage or when a dispute arises and arbitration has commenced—specific confidentiality provisions to supplement the privacy or confidentiality regime provided by institutional rules.

Jurisdiction

16.83  Jurisdictional objections can be raised in court proceedings or with the arbitral tribunal. The manner and timing of such challenges will depend on the respective legal system in which the proceedings are taking place, as well as the arbitral clause. For example, in some countries, such as the US, courts have the first turn at deciding jurisdictional issues unless a clause in the arbitration agreement gives the arbitral tribunal the power to decide such issues.172 Other countries, however, may have different default rules with respect to jurisdictional objections.173

16.84  Dealing with jurisdictional breaches of arbitration agreements (i.e., where one party ignores the arbitration agreement and commences court proceedings) can be difficult. Typically, a party facing such a breach has two remedies available to it: (i) make an application to the court where proceedings have been (wrongfully) brought for a stay or dismissal of those proceedings; or (ii) make an application to the court of the seat of arbitration restraining the other party from taking any further steps in the court proceedings (such applications are commonly known as ‘anti-suit injunctions’). In certain circumstances, it may also be possible to apply to the arbitral tribunal, once it has been constituted. Whether courts are prepared to grant either of these remedies depends on the jurisdiction in question. For example, federal courts in the US are divided on the specific circumstances under which anti-suit injunctions will be granted.174 English courts have powers to grant anti-suit (p. 553) injunctions only in respect of the commencement or continuation of foreign proceedings in a jurisdiction outside the EU (that is the case even where no arbitration proceedings have commenced or have been proposed).175 If a party wrongfully commences court proceedings within the EU, English courts must wait for their EU counterpart to decline jurisdiction.176 In those circumstances, the wronged party would be advised to commence arbitration proceedings, while simultaneously trying to persuade the relevant EU court to designate primacy to the arbitration agreement and decline jurisdiction.177

Entry of judgment, judgment currency, and manner of payment

16.85  An arbitration clause can limit the remedial powers of the arbitrator by stating a range of monetary awards (a ‘high–low’ arbitration clause) or by providing that the arbitrators must select a proposal submitted by one of the parties (sometimes called ‘baseball arbitration’, especially in the US). The purpose of such provisions is to provide a financial incentive for compromise and negotiation.178

16.86  An ‘entry of judgment’ clause ensures the enforceability of arbitral awards in the US.179 Although other legal systems generally do not require such provisions for enforcement, it may be prudent to consider such a clause when a US-related party or transaction is involved.

Final and binding arbitration

16.87  The clause should state that the arbitration award will be final and binding on all the parties.

Payment of costs and legal fees

16.88  Under most institutional arbitration rules, the parties pay their own litigation expenses180 and share payment of the arbitrators’ and the institution’s fees and (p. 554) costs.181 This initial payment usually is subsequently reallocated to the unsuccessful party.182

Choice of law

16.89  A choice of law clause specifying the substantive law applicable to the underlying contract should be in a separate provision in the contract, not in the dispute resolution clause. A different law, however, may apply to the arbitration agreement, because most legal systems deem the arbitration agreement to be a separable contract.183 If the parties do not select a governing law, then the decision is left to the arbitrators.

16.90  Parties can explicitly consent to release arbitrators from their obligation to apply substantive law. Such ex aequo et bono and amiable compositeur arbitrations are based in equity and fairness, similar to a mediation or conciliation, rather than on a substantive application of the law.184 The concepts were developed with the aim of restoring harmony and achieving a workable legal relationship between the parties.185

Reducing disruption—multi-tiered dispute resolution

16.91  Drawn-out disputes are inherently disruptive to ongoing projects. Given the collaborative nature of a typical project, it may be preferable to avoid formal confrontation from a business perspective. There are often significant and negative implications associated with the publicity of court cases and arbitrations that can have a further damaging impact on the project.186

(p. 555) 16.92  A tool that can help avoid lengthy and costly disputes (and the risk of adverse publicity) is the use of different forms of alternative dispute resolution (‘ADR’) prior to engaging in arbitration or litigation. ‘Escalation’ or multi-tiered dispute resolution clauses are an example. Such clauses require the exhaustion of specified dispute resolution mechanisms prior to the institution of the ‘formal’ and final form of dispute resolution. The main benefit is the ability to settle a dispute at an early stage. The main drawbacks include (1) the time and resources needed to complete such preliminary steps of dispute resolution (especially if success seems unlikely under the particular circumstances), and (2) the strategic withholding of key positions and information in order to improve a party’s positions should preliminary efforts at dispute resolution fail. Problems and satellite disputes can occur if the drafting of the multi-tiered dispute resolution provisions does not make entirely clear which steps in the process are optional and which are mandatory.187 Care should be taken to ensure that, by agreeing to ADR as part of a mandatory escalation procedure, the parties have not prevented themselves from seeking urgent precautionary or protective relief from a court while the ADR process runs its course.

Typical means of ADR

Mediation and conciliation

16.93  Non-binding forms of dispute resolution include mediation and conciliation, in which an independent third party or panel assists the parties in dispute to reach an amicable settlement.188 The UNCITRAL Conciliation Rules and the ICC Mediation Rules are popular means of pre-arbitration mediation.189 The terms ‘mediation’ and ‘conciliation’ often are used interchangeably as synonyms, although there are distinctions. A mediator listens to the outline of a dispute, meets with each party separately, and tries to persuade the parties to moderate their respective positions. A conciliator makes proposals for a settlement, and if no settlement is reached during the conciliation proceedings, the conciliator may formulate the terms of a possible settlement and submit the terms to the parties for acceptance or rejection.190

16.94  Mediation and conciliation procedures typically are confidential, informal, accessible, quick, and inexpensive.191 Both mediation and conciliation end when there is a settlement of the dispute or if the process is unsuccessful in reaching a settlement. Mediation and conciliation may be particularly useful when there are many parties involved in a dispute and it would be difficult to achieve a settlement by direct negotiations among all the parties. As with all dispute resolution methods, conciliation and mediation raise issues that parties should consider. For example, the parties may be reluctant to present, at an early stage in a dispute, a well-developed statement of position for fear of providing ‘informal discovery’ or some type of advantage to the other side. The parties may perceive that agreeing to conciliation or mediation before commencing arbitration or litigation is (p. 556) a wasted expense, particularly if the parties believe that the dispute ultimately will go to arbitration or litigation.

16.95  If the parties provide for mediation or conciliation in the project agreements, they should consider a number of procedural questions. For example, the parties should consider whether a mediator would be permitted to become an arbitrator.192 On one hand, this may increase the efficiency of the process, because the individual will already be familiar with all of the issues. On the other hand, it may undermine the arbitral process and its requirements of impartiality and a fair hearing. Further, the parties should ensure, to the extent possible, that material created for the purposes of any mediation or conciliation is protected from subsequent use in any arbitration or litigation. It is important to bear in mind that, in some jurisdictions, such as the United Arab Emirates, the protection which is afforded in other jurisdictions to ‘without prejudice’ communications is not prima facie respected.

Expert determination

16.96  Disputes arising from a project financing may involve highly technical matters. Disputes also may need to be resolved quickly in order not to disrupt the construction or the operation of the facility. In those circumstances, parties may wish to consider mechanisms that allow for selection of competent experts to assist in the settlement of disputes. Expert determination, which can be binding or non-binding, may be useful in international contracts relating to energy, mining, and telecommunication projects.193

16.97  An agreement can specify that certain disputes, such as taxation issues, should be presented for expert determination, while other disputes should be resolved by arbitration or some other dispute resolution method. An expert determination clause should include, among other things: (i) the issue to be determined; (ii) the qualifications of the expert; (iii) the methodology for appointing the expert; and (iv) the conditions under which the expert’s decision will be final and binding.194

Dispute boards

16.98  Another form of dispute resolution is a dispute resolution board, which under some circumstances may offer advantages over both arbitration and litigation, including speed, cost, and simplicity.195 Dispute resolution boards historically have been used almost exclusively in connection with construction contracts, but they have become more widely used over time. The boards typically are established at the beginning of a project and remain in place throughout its duration. The members of these boards or panels—which can be companies, organizations, or individuals—are chosen for their expertise in a certain area. For certain disputes, it will be more useful to have decision-makers with technical expertise rather than legal expertise. In other cases, it may be useful for a dispute resolution board to be located on the site of a large-scale construction project in order to immediately address problems as they arise. In some large infrastructure projects, more than one board may be established—for example, one board may deal exclusively with disputes regarding matters (p. 557) of a technical nature, while another board may deal with disputes of a contractual or financial nature. The ICC has adopted simple and proven rules for different types of boards that can be established for any type of contract.196

Management resolution

16.99  Another form of dispute resolution is management resolution, requiring that high-level decision-makers for the parties become involved in the resolution of disputes generally or, alternatively, in the resolution of specific types of disputes. Management resolution usually is included as a preliminary step in an escalation clause with other ADR mechanisms, followed by arbitration or litigation. This dispute resolution mechanism recently has gained more prominence.

Reducing the Chance for Error: Qualification Requirements and Appeals

Limited flexibility in litigation

16.100  There are limited ways in which to affect the qualifications of judges assigned to hear the case or the rights to appeal in the litigation context. The only true choice that a party has to affect such risks in litigation is in the choice of forum or jurisdiction.

Qualification requirements in arbitral clauses

16.101  Arbitration agreements can specify certain qualifications and characteristics of prospective arbitrators. For example, the agreement could require the appointment of an accountant as an arbitrator.197 It is also possible to designate arbitrators in advance, but the parties should be aware that a pre-designated arbitrator may become unavailable or conflicted by the time a dispute arises.

Appeals rules in arbitral clauses

16.102  Some arbitral institutions have instituted arbitral rules for appeals of arbitral awards. Given the flexibility of arbitral clauses, it is possible to include a provision in an arbitration clause allowing for an arbitral appeal. Some BITs, for example, contain language contemplating or requiring the negotiation of an appellate mechanism in the future.198 In the projects (p. 558) context, this is not industry practice. Including appeals rules, therefore, should be carefully considered on a case-by-case basis.

Consolidation of Potential Disputes by Agreement

16.103  Unlike litigation, arbitration exists only on the basis of the consent of the parties to a dispute. This requirement of consent means that non-parties to a specific dispute resolution clause cannot be joined to arbitration proceedings without their express subsequent consent,199 no matter how instrumental they are to the dispute itself, whereas such joinder may be possible in the litigation context.200 Especially in the early stages of a project, there may be significant overlap between project agreements and between different participants. A dispute regarding one contract may impact the entire project, given the transactional unity of project financings.201 This may lead to a significant risk of contribution suits between the different affected parties in order to allocate the costs of an adverse decision correctly between themselves.202

(p. 559) Structuring for permissive joinder in litigation

16.104  A second procedural complexity may arise when parallel proceedings are commenced at different times under related contracts as already discussed.203 In litigation, joinder of the parties can be relatively simple if all parties are generally subject to the jurisdiction of the court before which a dispute is pending. In arbitration, it may be helpful to include waiver clauses in an arbitration agreement stating that no objection would be made to joinder in any ongoing proceeding between other project participants in the underlying project agreements or to select an institution that specifically contemplates arbitrations involving multiple parties and/or multiple contracts.204

Structuring for multi-party arbitration

16.105  If the parties desire the consolidation of related arbitral proceedings, the arbitration clause in each underlying contract should be drafted to permit consolidation.205 A master agreement, which is incorporated by reference into individual project contracts, is one means of providing a single contractual dispute resolution mechanism.206 When drafting, one should consider whether the following elements should be included in such clauses: (i) equality among all the parties in the appointment of arbitrators; (ii) consent of the parties to the participation of third parties to future arbitrations; and (iii) consolidation of possible parallel arbitration proceedings.207 Keep in mind that although the prospect of multiple arbitral proceedings can be addressed through multi-party, multiple-contract arbitration agreements, all the parties must consent to such agreements.

Increasing Effectiveness: Early Remedies and Final Enforcement

Waiver of defences to enforcement of judgments

16.106  It may be possible to include waivers to objections, immunities, or defences with regard to enforcement in the forum selection clause. In practice, a waiver is typically included if a party to an agreement might enjoy sovereign immunity. This is important because, if sovereign immunity applies, it can frustrate the very regime by which the parties intended to enforce the allocation of risks between them as originally agreed in the contract. In many jurisdictions, including China208 and Russia, state immunity is absolute: a state cannot fall within the jurisdiction of the courts, and the courts cannot interfere with any state assets, however indirectly. Other jurisdictions, including the US and England and Wales, adopt a ‘restrictive approach’. A court must assume that states and state assets fall outside its jurisdiction unless certain exceptions apply, usually by statute. Clearly, therefore, when choosing the seat of the arbitration, and the governing (p. 560) law of the contract, a jurisdiction that adopts the restrictive approach is preferable. Even in these jurisdictions, however, careful drafting is required to obviate the effects of sovereign immunity completely.

16.107  In the US, for example, the Foreign Sovereign Immunities Act establishes the sole basis by which foreign states, as well as their agencies and instrumentalities, may be sued in federal courts.209 Under this Act, a foreign state is presumed to be immune from the jurisdiction of US federal courts unless one of its exceptions applies. An express or implied waiver of immunity is one such exception.210 Similarly, in England and Wales, the State Immunity Act 1978 sets out the exceptions to the application of sovereign immunity.211 To take advantage of these exceptions, the waiver should expressly include not only arbitration proceedings, but also court proceedings in aid of arbitration,212 as well as court proceedings relating to the recognition and enforcement of the arbitral award. This avoids a position in which an arbitral award has no practical value, or in which a state can move assets out of the jurisdiction before an arbitral award can be rendered. Second, the parties should ensure that the state and the state entity waive sovereign immunity completely:213 even if the state (p. 561) entity has no assets in a jurisdiction that adopts the restrictive approach, it is likely that a state will.214

Early relief in arbitration

16.108  Traditionally, one of the key problems with regard to the choice of arbitration as a dispute resolution forum was the availability of quick interim relief. As discussed briefly in paragraph 16.19, to address this issue some arbitral institutions have worked on introducing emergency arbitrators who are available to resolve such interim relief issues if empowered by an arbitration clause to do so.215 The parties electing arbitration may agree to interim measures being issued by a court prior to the constitution of an arbitral tribunal (and, in some jurisdictions, the availability of urgent relief from the court before the arbitral tribunal has been established will be assumed in the absence of the parties’ express agreement to the contrary).216

Limiting recourse to set aside actions

16.109  Depending on the jurisdiction, it may be possible to reduce further the ability of the parties to seek to set aside an arbitral award. A waiver of this kind should be agreed to in the underlying transaction documents. If justified concerns about the suitability of the seat of jurisdiction necessitate a waiver clause, the courts of the seat of the arbitration of course may be more likely to ignore such provisions. Such a waiver clause may nevertheless help protect the award against the consequences of proceedings in a different jurisdiction aimed at setting aside the award.217

Footnotes:

1  Examples of such disputes reported by the American Lawyer 2013 and 2015 Arbitration Scorecards are (1) German Federal Ministry of Transport, Building and Housing v Toll Collect GbR (Germany), DaimlerChrysler Financial Services AG (Germany), and Deutsche Telekom AG (Germany), a US$7.6 billion dispute with regard to lost revenues and contractual penalties for the Toll Collect consortium’s alleged delay in constructing and operating a high-tech toll-collection system for heavy trucks on German highways; (2) Alstom Transport SA (France) v Republic of Turkey, a US$1.1 billion dispute arising from the termination of an engineering, procurement, and construction contract for a project to upgrade Istanbul’s railway system; (3) AREVASiemens Consortium (France/Germany) v Teollisuuden Voima Oyj (Finland), a US$2.8 billion dispute arising from the delayed construction of a nuclear power plant in Finland, between the Finnish utility Teollisuuden Voima and a Franco-German construction consortium; and (4) Naftogaz v Gazprom, a US$23 billion dispute relating to the supply, pricing, and transit of gas in Ukraine and Russia.

2  Examples of such disputes reported by the American Lawyer 2013 and 2015 Arbitration Scorecards are (1) Chevron (US) and Statoil (Norway) v Nigerian National Petroleum Corporation, a US$2 billion dispute regarding accusations that the Nigerian National Petroleum Corporation ‘overlifted’ or took more than its contractual share of oil from the Niger Delta; (2) Republic of Kazakhstan v Agip Karachaganak B.V. (The Netherlands), a US$2 billion dispute with regard to accusations of overbilling pursuant to an oil production sharing agreement; (3) Metro Rail Transit Corporation Limited (Hong Kong) v Republic of the Philippines, a US$2.4 billion dispute arising out of a 1997 agreement between Metro Rail Transit Corporation and the Philippines over the building, leasing, operation, and transfer of a light rail system in the greater Manila area; and (4) BOTAS Petroleum Pipeline Corporation v National Iranian Gas Company, a US$38 billion gas pricing dispute under a 25-year contract for the supply of gas by Iran to Turkey’s national pipeline company.

3  Forum selection clauses became a viable choice in contracts involving US parties following the Supreme Court’s decision in M/S Bremen v Zapata Off-Shore Co., 407 US 1 (1972), which recognized the validity of such clauses. The validity of forum selection clauses was confirmed thereafter in Scherk v Alberto-Culver Co., 417 US 506 (1974) and Carnival Cruise Lines, Inc. v Shute, 499 US 585 (1991), among other cases. In Europe, international forum selection clauses involving one or more parties domiciled in a country that is a member of the EU (excluding Denmark) are generally enforceable. (Council Regulation 1215/2012/EC of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast), Art. 23 (‘If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction …’).)

4  See generally Gary B. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing (5th edn, Kluwer Law International, 2016).

5  See Nigel Blackaby, Constantine Partasides, Alan Redfern, et al., Redfern and Hunter on International Arbitration (6th edn, Oxford University Press, Oxford 2015) at 1.04 (hereinafter ‘Redfern and Hunter’).

6  In the US, cases (other than fraud cases) generally require well-pleaded facts that allege a plausible claim for relief. See Ashcroft v Iqbal 129 S Ct 1937, 1940 (2009). In England and Wales, a concise written statement of the facts relied upon by the claimant must be provided to the defendant within 14 days of the claim being served (Parts 7.4 and 16.4 of the Civil Procedure Rules 1998), and there are specific provisions as to other information which must be provided in the case of certain types of disputes. Civil law systems generally require more detail. See, for example, German ZPO § 253; see also Baumbach, Lauterbach, Albers, et al., Zivilprozessordnung (68th edn, 2010) 934–53 (requiring specific requests and basis for the requests to be stated at the complaint stage as a matter of German law); compare Serge Guinchard (ed.), Droit et Pratique de la Procedure Civile (2004) 353–84 (requiring that the first pleading must identify specific facts with exhibits as well as legal argumentation supporting the requested relief).

7  See Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters. The Convention captures different approaches to service of pleadings in common law and civil law jurisdictions. See also generally Philipp A. Buhler, ‘Transnational Service of Process and Discovery in Federal Court Proceedings: An Overview’ (2002) 27 Tul Mar LJ 1; Charles B. Campbell, ‘No Sirve: The Invalidity of Service of Process Abroad by Mail or Private Process Server on Parties in Mexico Under the Hague Service Convention’ (2010) 19 Minn J Int’l L 107; Kenneth B. Reisenfeld, ‘Service of United States Process Abroad: A Practical Guide to Service Under the Hague Service Convention and the Federal Rules of Civil Procedure’ (1990) 24 Int’l L 55.

8  See, for example, NY CPLR § 6201 et seq. (permitting a New York court to grant an order of attachment in any action where the claimant has demanded and would be entitled to a money judgment against the defendant); see also Mareva Compania Naviera S.A. v Int’l Bulkcarriers S.A. [1975] 2 Lloyd’s Rep. 509 at 510 (CA 1975) (‘If it appears that [a] debt is due and owing—and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment—the Court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him [from] disposing of those assets’). (Given statutory force in England and Wales by the Supreme Court Act 1981, s 37(3); also applied in JSC BTA Bank v Mukhtar Ablyazov [2015] UKSC 64). See also Part 25 of the Civil Procedure Rules 1998 (England and Wales).

9  In the US, motions to dismiss for insufficiency of the underlying legal theory may be made at the outset of the case, and motions for summary judgment may be made prior to trial for failure of proof. See, for example, Fed R Civ P 12(b)(1) (motion to dismiss for lack of subject-matter jurisdiction); Fed R Civ P 12(b)(2) (motion to dismiss for lack of personal jurisdiction); Fed R Civ P 12(b)(6) (motion to dismiss for failure to state a claim upon which relief can be granted); Fed R Civ P 56 (motion for summary judgment); NY CPLR § 3211 (motion to dismiss); NY CPLR § 3212 (motion for summary judgment); see generally 2 Moore’s Federal Practice (3rd edn, Matthew Bender) § 12; 11 Moore’s Federal Practice (3rd edn, Matthew Bender) § 56. In England and Wales, a court has the ability to give summary judgment against a claimant or defendant on the whole or part of a claim if (1) there is no reasonable prospect of that case (or part of it) succeeding, and (2) there is no other compelling reason why the case should proceed to a full trial (Part 24.2 of the Civil Procedure Rules 1998). Less formal rules available in civil law jurisdictions may permit the judge, in certain circumstances, to dismiss a complaint on its face. Schlesinger et al., Comparative Law (7th edn, 2009) 417.

10  In a number of jurisdictions, a claim for a certain sum of money may not necessitate a complaint. For example, under New York law, when an action is based upon an instrument for only the payment of money, the claimant may serve a summons, a notice of motion for summary judgment, and supporting papers in lieu of a complaint. See NY CPLR § 3213.

11  See, for example, Fed R Civ P 30 (depositions); Fed R Civ P 33 (interrogatories); Fed R Civ P 34 (requests for document production); Fed R Civ P 36 (requests for admission); NY CPLR § 3102 (disclosure devices); see generally 7 Moore’s Federal Practice (3rd edn, Matthew Bender) §§ 30, 31, 32, 33, 34, 35, 36.

12  See, for example, Fed R Civ P 45 (subpoena to facilitate non-party discovery); NY CPLR § 3102 (subpoenas to compel disclosure listed among disclosure devices); 9 Moore’s Federal Practice (3rd edn, Matthew Bender) § 45.

13  Parts 31.5 and 31.6, and Practice Direction 31B, of the Civil Procedure Rules 1998; Pyrrho Investments Ltd v MWB Property Ltd [2016] EWHC 256 (Ch); Brown v BCA Trading Ltd and others [2016] EWHC 1464 (Ch).

14  Singapore Rules of Court, Order 24, Rule 1; Tan Chuan Thye and John Choong, ‘Disclosure of Documents in Singapore International Arbitrations: Time for a Reassessment’ (2005) 1(1) Asian International Arbitration Journal 49–50.

15  While courts have the power in multi-track cases to order disclosure on a ‘train of enquiry’ basis, the court would do so only if, having regard to the overriding objective and the need to limit disclosure, the court was satisfied that such an order was necessary to deal with the case justly. More broadly, parties may apply for specific disclosure of classes of documents that fall outside the scope of standard disclosure. See Part 31.12 of the Civil Procedure Rules 1998.

16  Similarly, the parties may apply for specific disclosure in Singapore. Singapore Rules of Court, Order 24, Rule 5; Tan Chuan Thye and John Choong, ‘Disclosure of Documents in Singapore International Arbitrations: Time for a Reassessment’ (2005) 1(1) Asian International Arbitration Journal 49–50.

17  Klaus Peter Berger, ‘The International Arbitrator’s Dilemma: Transnational Procedure versus Home Jurisdiction’ (2009) 25(2) Arbitration International 226.

18  Serge Guinchard (ed.), Droit et Pratique de la Procedure Civile (2004) 678–82.

19  The manner in which appeal is taken and the grounds upon which it can be taken vary significantly from jurisdiction to jurisdiction. For example, in the US a court can review a jury verdict for sufficiency of evidence, a trial court’s findings of fact for clear error, and a conclusion of law for clear error. See, for example, 19 Moore’s Federal Practice (3rd edn, Matthew Bender) § 206. In Germany, on the other hand, appeals typically arise if there has been legal error or if facts established by the appeals court following the relevant appellate procedure justify a different result. Baumbach, Lauterbach, Albers, et al., Zivilprozessordnung (68th edn, 2010) 1599–705. An appellate court in England and Wales will allow an appeal if the decision was ‘wrong or unjust because of a serious procedural or other irregularity in the proceedings in the lower court’. Civil Procedure Rules 1998, Part 52.21(3).

20  Litigation is not entirely inflexible. For example, in the US, parties can waive their right to a jury trial.

21  See, for example, Christophe Dugué, ‘Dispute Resolution in International Project Finance Transactions’ (2001) 24 Fordham Int’l LJ 1064, 1072 (hereinafter ‘Dugué’).

22  See generally Paul D. Friedland, Arbitration Clauses for International Contracts (2nd edn, JurisNet LLC, New York 2007) (hereinafter ‘Friedland’); Redfern and Hunter at 1.103–1.107.

23  See, for example, the United Nations Commission for International Trade Law (‘UNCITRAL’), Travaux Preparatoires, New York Convention, Doc. No. E/2822/Add.3—General Considerations by the United States Chamber of Commerce and the International Institute for the Unification of Private Law, at 2 (‘The Chamber of Commerce of the United States strongly advocates arbitration as a desirable and economic method of settling disputes in international trade, and recommends the inclusion of properly drawn arbitration clauses in foreign trade contracts’).

24  See Redfern and Hunter at 1.123–1.125; see also William W. Park, ‘Arbitration of International Contract Disputes’ (1983) 39 Bus L 1783 (‘Hard tasks take a high toll, and arbitration thus may become a long and costly process’).

25  W. Michael Reisman, ‘The Supervisory Jurisdiction of the International Court of Justice: International Arbitration and International Adjudication’ (1996) 258(9) Academie de Droit International, Recueil des Cours 39 (‘Insofar as a legal system enables legal actors to conclude a private contract with respect to future behaviour, it should encounter no theoretical problem with allowing those actors to designate someone else to specify, under procedures and on contingencies agreed upon in the contract, certain obligations that will be deemed, in advance, to be part of the contract … With the extraordinary growth of transnational trade and investment, arbitration has become de facto a basic and indispensable strut of the world economy’).

26  The parties can choose institutional arbitration or ad hoc, un-administered arbitration. Ad hoc arbitration generally specifies that the rules promulgated by UNCITRAL shall be applicable. In terms of institutional arbitration, choices abound. Institutional arbitration may be conducted through the following institutions, among many others: American Arbitration Association (‘AAA’); the International Center for Dispute Resolution (‘ICDR’); International Chamber of Commerce (‘ICC’); London Court of International Arbitration (‘LCIA’); Inter-American Commercial Arbitration Commission; Vienna International Arbitral Centre; Stockholm Chamber of Commerce (‘SCC’); British Columbia International Commercial Arbitration Centre; Australian Centre for International Commercial Arbitration; German Institution of Arbitration; Japan Commercial Arbitration Association; Singapore International Arbitration Centre (‘SIAC’); Hong Kong International Arbitration Centre; Chinese International Economic and Trade Association Center (‘CIETAC’); Cairo Regional Centre for International Commercial Arbitration; Kuala Lumpur Regional Centre for Arbitration; Indian Council of Arbitration; Dubai International Arbitration Centre; Abu Dhabi Commercial Conciliation and Arbitration Center; Qatari International Center for Arbitration; Bahrain Center for Dispute Resolution.

27  How arbitration agreements can be tailored to meet specific project needs is discussed in William W. Park, ‘Arbitration of International Contract Disputes’ (1983) 39 Bus L 1783; Gary B. Born, International Arbitration: Law & Practice (2nd edn, Kluwer Law International, 2015) (hereinafter ‘Born (2015)’) at 1.2–1.4.

28  Park, 39 Bus L 1783 (stating, on the basis of a hypothetical: ‘Neither the Swedish shipyard nor the Libyan government “chooses” arbitration. Rather, arbitration imposes itself for lack of an acceptable alternative’).

29  See New York Convention, art. III. The enforcement mechanism of the New York Convention is discussed in more detail later.

30  ICC Arbitration Rules (2012), art. 4(3); UNCITRAL Arbitration Rules (2013) art. 3; LCIA Arbitration Rules (2014) art. 1. See generally Julian M. Lew, Loukas A. Mistelis, et al., Comparative International Commercial Arbitration (Kluwer Law International, The Hague 2003) 515–17 (hereinafter ‘Lew, Mistelis, et al.’).

31  See generally David Rivkin, ‘Strategic Considerations in Developing an International Arbitration Case’, in Doak Bishop and Edward Kehoe (eds), The Art of Advocacy in International Arbitration (2nd edn, JurisNet, New York 2010) 151–72; Lew, Mistelis, et al. at 505–20.

32  For example, in the ICC, one of the largest arbitral institutions, the parties can agree to resolution of disputes by an arbitral tribunal consisting of either a sole arbitrator or three arbitrators. Where a three-person tribunal is chosen, the rules provide that each party shall nominate an arbitrator in the Request and Answer, with the third appointed by the ICC (unless the parties have agreed a different procedure). See ICC Arbitration Rules, art. 12(1) to (8); see also UNCITRAL Arbitration Rules, art. 9(1) to (3), and LCIA Arbitration Rules, arts 1.1(v), 2.1(v), and 5.6. To the extent that an arbitrator is not appointed within the appropriate timeframe, arbitration rules generally call for appointment of the arbitrator by the arbitral institution in question or by a neutral appointing authority: see ICC Arbitration Rules, arts 11(6) and 12(8); LCIA Arbitration Rules, arts 5.1 and 5.6; UNCITRAL Arbitration Rules, arts 8–10. For a detailed comparison of different rules’ practices, see Lew, Mistelis, et al. at 223–53. For a critique of the prevalent appointment method, see Jan Paulsson, ‘Are Unilateral Appointments Defensible?’, available at <http://kluwerarbitrationblog.com/blog/2009/04/02/are-unilateral-appointments-defensible>.

33  Rivkin, The Art of Advocacy in International Arbitration (2nd edn, JurisNet, New York 2010) 151–72; Lew, Mistelis, et al. at 505–20; see also Redfern and Hunter at 4.13–4.16; Born (2015) at 7.43–7.48.

34  The inclusion of powers to appoint emergency arbitrators is becoming increasingly common in the leading arbitral institutional rules. See, for example, ICC Arbitration Rules, art. 29 and Appendix V; SIAC Rules (2016), schedule 1; ICDR Rules (2014), art. 37; LCIA Rules, art. 9B; and HKIAC Rules (2013), schedule 4. For a discussion of interim measures in international arbitration, see Kaj Hobér, ‘Interim Measures by Arbitrators’, in Albert Jan van den Berg (ed.), International Arbitration 2006: Back to Basics? (ICCA Congress Series, Montreal 2006 Vol. 13) 721–50 (2007) (summarizing interim measures rules available in ICDR, AAA, ICC, LCIA, CIETAC, and SCC arbitrations).

35  The only exception at the time of publication was the Swiss Chamber of Commerce Association for Arbitration and Mediation (art. 43).

36  For a discussion on recent developments regarding the availability of courts to issue interim measures in aid of arbitration, see para. 16.108. See also, Luis Enrique Graham, ‘Interim Measures: Ongoing Regulation and Practices (A View from the UNCITRAL Arbitration Regime)’, in Albert Jan van den Berg (ed.), Years of the New York Convention: ICCA International Arbitration Conference, ICCA Congress Series, 2009 Dublin Volume 14, 539–69 (2009).

37  See, for example, Redfern and Hunter at 6.92–6.94.

38  See, for example, the International Bar Association Rules on the Taking of Evidence in International Arbitration (the ‘IBA Rules’), art. 3 (requiring that a document must be described ‘sufficient to identify it’, ‘relevant to the case and material to its outcome’, and ‘not in the possession, custody or control of the requesting Party’). For a discussion of the IBA Rules, see Hilmar Raeschke-Kessler, ‘The Production of Documents in International Arbitration—A Commentary on Article 3 of the New IBA Rules of Evidence’ (2002) 18 Arb. Int’l 411; see also 1999 IBA Working Party & 2010 IBA Rules of Evidence Review Subcommittee, ‘Commentary on the revised text of the 2010 IBA Rules on the Taking of Evidence in International Arbitration’.

39  See IBA Rules, art. 3.

40  Klaus Peter Berger, ‘The International Arbitrator’s Dilemma: Transnational Procedure versus Home Jurisdiction’ (2009) 25(2) Arbitration International 216, 228.

41  Tan Chuan Thye and John Choong, ‘Disclosure of Documents in Singapore International Arbitrations: Time for a Reassessment?’ (2005) 1(1) Asian International Arbitration Journal 51–2. The IBA Rules, which set forth detailed procedures for, inter alia, the disclosure of documents, can provide a useful starting point or guideline for parties or tribunals. The IBA Rules have ‘built-in flexibility’, allowing the tribunal to exercise its discretion to suit the circumstances of each case. See Thye and Choong at 58. Differences between the disclosure regimes of various countries, such as in the presentation of evidence and the scope of discovery, and the impact of those differences on as yet unknown disputes, may be difficult to assess at the drafting stage of a dispute resolution clause. Friedland at 26–35.

42  Stanimir Alexandrov, Panel Discussion, in Ian Laird and Todd Weiler (eds), Investment Treaty Arbitration and International Law (JurisNet, New York 2009, vol. 2) 205 (‘the outcome of the case is determined by the facts. And I have said that at other forums, and I want to say it here again. Many of those who comment on awards focus on the legal conclusions of the tribunal and completely ignore the facts of the case’).

43  Commentators point out, however, a lack of empirical support for the view that arbitrators ignore or misapply the law in favour of finding compromise, and in fact, judges and juries also might render ‘compromise verdicts’. See Friedland at 18. At least one study suggests that many arbitral awards are substantially in favour of one party. See Friedland at 18; see also Stephanie E. Keer and Richard W. Naimark, ‘Arbitrators Do Not “Split the Baby” Empirical Evidence from International Business Arbitrations’ (2001), reprinted in Christopher R. Drahozal and Richard W. Naimark (eds), Towards a Science of International Arbitration: Collected Empirical Research (Kluwer Law International, The Hague 2005) 311, 316 (‘there seems to be little factual support for the idea that arbitrators thoughtlessly split award amounts. It also suggests that there is work to be done on the decision-making process utilized by arbitrators … Nevertheless, the results from this study show emphatically that arbitrators did not engage in the practice of “splitting the baby” ’).

44  In England, the Arbitration Act 1996 permits challenges to an arbitral award on only three grounds. First, section 67 allows a party to challenge the tribunal as to its substantive jurisdiction. Such challenges, however, should be made promptly, and are rare and difficult to establish. See, for instance, Habas Sinai Ve Tibbi Gazlar Istihsal Andustrisi AS v VSC Steel Company Ltd [2013] EWHC 4071 (Comm), which challenge failed. Second, section 68 permits a challenge on the ground of serious irregularity affecting the tribunal, the proceedings, or the award (again, these challenges are rare). See The Secretary of State for Defence v Turner Estate Solutions Ltd [2014] EWHC 244 (TCC), which also failed). Finally, section 69 stipulates that a party may appeal to a court on a question of law arising out of an arbitral award made in the proceedings. Again, although appeals on this ground rarely succeed, they are not unheard of. See, for example, Cottonex Anstalt v Patriot Spinning Mills Ltd [2013] EWHC 236 (Comm), which succeeded.

45  For example, the New York Convention, discussed in more detail in paras 16.62–16.63, has been ratified by 159 countries and requires domestic courts to recognize and enforce international arbitration agreements and awards. See <http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html>. Other conventions, such as the Inter-American Convention on International Commercial Arbitration, which has been ratified by 19 countries including the US, Mexico, the Dominican Republic, and several Latin American and South American countries, and the European Convention on International Commercial Arbitration, which has 32 parties, are similar to the New York Convention in their treatment of international arbitration agreements and awards.

46  See Friedland at 16–17. It is of course possible for the parties to an arbitration agreement to specify appellate review as part of their arbitration clauses. See also Born (2015) at 1.21.

47  See Born (2015) at 3.27. See also United Nations Commission on International Trade Law, Privately financed infrastructure projects: draft chapters of a legislative guide on privately financed infrastructure projects, A/CN.9/471/Add.7 (8 February 2000) at 4 (hereinafter, ‘UNCITRAL Legislative Guide’). For example, the Law of Arbitration of Saudi Arabia states that ‘[g]overnment bodies may not agree to enter into arbitration agreements except upon approval by the Prime Minister, unless allowed by a special provision of law’ (art. 10.2). Under some civil law systems, project agreements are regarded as administrative contracts, thereby requiring that disputes arising under such agreements be settled through the judiciary or administrative courts of the host country.

48  See, for example, Lauder v Czech Republic, Final Award, dated 3 September 2001, Ad hoc–UNCITRAL Arbitration Rules; IIC 205 (2001) (discussing changes in licensing requirements in the broadcasting industry); Fittydent International GmbH v Brawn Laboratories Ltd, High Court, Delhi, CS(OS) 2447/2000; I.A. 12332/2008, 11 May 2010. y.b. Comm. Arb. 2010—Volume XXXV (van den Berg (ed.) Jan 2010 (awarding Claimants damages for Respondents’ failure to take necessary steps to procure government licences as required under the contract).

49  See, for example, Duke Energy International Peru Investments No 1, Ltd v Peru, Award and Partial Dissenting Opinions; ICSID Case No. ARB/03/28; IIC 334 (2008); Sergei Paushok et al. v Mongolia, Award on Jurisdiction and Liability, dated 28 April 2011, Ad hoc–UNCITRAL Arbitration Rules; Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon, Award, ICSID Case No. ARB/07/12, 7 June 2012 (finding that in the absence of a stabilization clause, a change in the regulatory framework was a breach of the duty to grant full protection and fair and equitable treatment only if the change was ‘drastic’ or ‘discriminatory’ in the essential features of the transaction); Micula v Romania (Award), ICSID Case No. ARB/05/20,11 December 2013 (finding government’s revocation of economic incentives violated the BIT between Sweden and Romania).

50  See, for example, Azurix Corp v Argentina, Award, dated 23 June 2006, ICSID Case No. ARB/01/12; IIC 24 (2006).

51  See, for example, Compañía del Desarrollo de Santa Elena SA v Costa Rica, Final Award, dated 17 February 2000, ICSID Case No. ARB/96/1, IIC 73 (2000); Quiborax S.A. and Non Metallic Minerals S.A. v. The Plurinational State of Bolivia (Award and Partially Dissenting Opinion of Professor Brigitte Stern), ICSID Case No. ARB/06/2, 16 September 2015 (finding that Bolivia had expropriated mining concessions and awarding Claimants US$48 million in compensatory damages); Burlington Resources Inc. v Republic of Ecuador (Decision on Reconsideration and Award), ICSID Case No. ARB/08/5, 07 February 2017 (awarding US$380 million dollars for the expropriation of Claimants’ oil reserves under a BIT between the US and Ecuador).

52  On the other hand, such agreements often also impose ‘performance requirements’ on the project participants such as a minimum capital investment, minimum project production, or minimal employment of host-state nationals, to name a few.

53  For example, Peru enters into legal stability agreements both at the enterprise and investor level. These agreements give contractual assurances for ten years (or, in the case of concessions, the entire period of the concession) of protection from any change in certain key policies. See United Nations Conference on Trade and Development, Investment Policy Review, Peru, UNCTAD/ITE/IIP/Misc.19 (2000).

54  See, for example, Bishop, Foreign Investment Disputes: Cases, Materials and Commentary 225–313.

55  See, for example, Sébastien Manciaux, Investissement étrangers et Arbitrage entre états Ressortissants D’Autres états (2004) 122; A. Broches, ‘Note transmitted to the Executive Directors, Settlement of Disputes between Governments and Private Parties’ dated 28 August 1961, in History of the ICSID Convention II1 2 (1970).

56  John T. Schmidt provides a list of cases in which states effectively reneged on their arbitration consent in an investment dispute with an international investor between 1930 and 1963: Anglo-Iranian Oil Co. Case, ICJ Pleadings 11, 40, 258, 267–8 (1952); British Petroleum Exploration Co. (Libya), Ltd. v Government of the Libyan Arab Republic, Unpublished Private Arbitral Award (1973); Sapphire International Petroleums Ltd. v National Iranian Oil Co., Private Arbitral Award (1963); Société Européene d’Etudes et d’Entreprise v People’s Federal Republic of Yugoslavia, Private Arbitral Award (1956); Lena Goldfields, Ltd. v Government of the Soviet Union, Private Arbitral Award (1930). See John T. Schmidt, ‘Arbitration under the Auspices of the International Centre for Settlement of Investment Disputes (ICSID): Implications of the Decision on Jurisdiction in Alcoa Minerals of Jamaica, Inc. v. Government of Jamaica’ (1976) 17 Harv Int’l L J 90, n. 1. See also A. Broches, ‘Note transmitted to the Executive Directors, Settlement of Disputes between Governments and Private Parties’, dated 28 August 1961, in History of the ICSID Convention II1 (1970) 3. In national court proceedings, similar principles have become known as the ‘act of state doctrine’. See Andreas Lowenfeld, International Economic Law (Oxford University Press, Oxford 2002) 439–54.

57  Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford University Press, Oxford 2012) 238 (hereinafter ‘Dolzer and Schreuer’).

58  Lucy Reed, Jan Paulsson, and Nigel Blackaby, Guide to ICSID Arbitration 8 (Kluwer Law International, 2nd edn, The Hague 2010).

59  Guide to ICSID Arbitration at 96.

60  Guide to the ICSID Convention at 14; Dolzer and Schreuer at 238.

61  See Société Ouest Africaine des Bétons Industriels v Senegal, ICSID Case No. ARB/82/1 (1991) ICSID Review—Foreign Investment Law Journal 125, award (25 February 1988).

62  Although approximately 154 countries are parties to the Washington Convention (with Mexico being one of the countries to most recently ratify the Washington Convention), countries that are not parties include Russia, Brazil, and India. China is a party, but issued a reservation indicating that China will consider submitting to the jurisdiction of ICSID with respect to disputes arising in limited circumstances. China issued a Notification on 7 January 1993 stating that: ‘[P]ursuant to Article 25(4) of the Convention, the Chinese Government would only consider submitting to the jurisdiction of the International Centre for Settlement of Investment Disputes disputes over compensation resulting from expropriation and nationalization.’ The list of contracting states is available at <http://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=ContractingStates&ReqFrom=Main>.

63  Guide to ICSID Arbitration at 52.

64  Dolzer and Schreuer at 125. For example, in Siemens v Argentina, ICSID Case No. ARB/02/8, Award, 6 February 2007, Argentina had taken a series of adverse measures, including postponements and suspensions of the investor’s profitable activities, renegotiations, and cancellation of the project, which the tribunal found amounted to a creeping expropriation. See also Middle East Cement Shipping and Handling Co. S.A. v Arab Republic of Egypt (ICSID Case No. ARB/99.6), Award of 12 April 2002, at 107; Antoine Goetz and others v Republic of Burundi (ICSID Case No. ARB/95/3), Award of 10 February 1999, at 124; Crystallex International Corp. v. Bolivarian Republic of Venezuela (Award), ICSID Case No. ARB(AF)/11/2, 30 March 2016 (finding that the denial of a permit, negative statements by the Venezuelan government, and the recession of a Mine Operation Contract constituted a creeping expropriation). See also GPF GP SARL v Republic of Poland [2018] EWHC 409 (Comm), in which an English Court set aside certain paragraphs of an Award and inserted new wording to ensure that the tribunal had jurisdiction to decide a claim in respect of indirect expropriation (but left the tribunal to decide the claim subsequently). The Court also held that ‘creeping’ expropriation is possible even if followed by an act that constitutes a direct appropriation: the final event does not render the previous events irrelevant.

65  Dolzer and Schreuer at 98.

66  Dolzer and Schreuer at 99–100. Historically this formulation was contested, but it currently has achieved significant global acceptance. See also Andrew Newcome and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International, The Hague 2009) 331–3. On the historical origins of expropriation, see Lowenfeld, International Economic Law at 392–414.

67  Dolzer and Schreuer at 130. For a detailed discussion of fair and equitable treatment, see Ioana Tudor, The Fair and Equitable Treatment Standard in International Foreign Investment Law (Oxford University Press, Oxford 2008).

68  Dolzer and Schreuer at 134; see, for example, Mr. Franck Charles Arif v Republic of Moldova, ICSID Case No. ARB/11/23, Award, 8 April 2013 at 435–8 (distinguishing between a denial of justice claim based on customary law and one based on the fair and equitable treatment clause of the underlying treaty); see also Inmaris Perestroika Sailing Maritime Services GmbH and Others v Ukraine, ICSID Case No. ARB/08/8, Award, 1 March 2012 at 264 (concluding that the fair and equitable treatment clause in the Germany–Ukraine BIT was not limited to customary international law); Suez, Sociedad General de Aguas de Barcelona S.A., and InterAguas Servicios Integrales del Agua S.A. v. The Argentine Republic, Decision on Liability and Separate Opinion of Arbitrator Pedro Nikken, ICSID Case No. ARB/03/17, 30 July 2010 (discussing the difference between the understanding of fair and equitable under international customary law and the minimum standard).

69  This language is almost identical to the language in Article 1105(1) of the former North American Free Trade Agreement (NAFTA).

70  Article 14.6(2) of USMCA (‘For greater certainty, paragraph 1 prescribes the customary international law minimum standard of treatment of aliens as the standard of treatment to be afforded to covered investments.’). The scope of international custom similarly has led to some debate. A narrower view is supported by the award in Glamis Gold Ltd v United States, Award, dated 14 May 2009, Ad hoc–UNCITRAL Arbitration Rules; IIC 380 (2009); a broader conception has been adopted by Merrill & Ring Forestry LP v Canada, Award, dated 31 March 2010, Ad hoc–UNCITRAL Arbitration Rules; IIC 427 (2010).

71  Article 14.6(4) of USMCA. This provision, which was not found in NAFTA, may have been adopted in response to recent NAFTA awards relying on the State’s frustration of an investor’s legitimate expectations about the stability of the regulatory environment in finding a violation of the minimum standard of treatment. The language in this new provision may constrain tribunals’ interpretation of the scope of the minimum standard of treatment.

72  See, for example, MTD Equity Sdn Bhd and MTD Chile SA v Chile, Award, dated 25 May 2004, ICSID Case No. ARB/01/7; IIC 174 (2004); Dolzer and Schreuer at 137; Ioan Micula and others v Romania, Award, ICSID Case No. ARB/05/20, at 502–21.

73  Técnicas Medioambientales Tecmed S.A. v Mexico, ARB(AF)/00/2, IIC 247 (2003), 10 ICSID Report 130, at 154, Award (29 May 2003); EDF (Services) Limited v Romania, Award, at 216; Waguih Elie George Siag and Clorinda Vecchi v Egypt, Award, ICSID Case No. ARB/05/15, 1 June 2009 at 450; CMS Gas v Argentina, Award, ICSID Case No. ARB/01/8, at 274; Dolzer and Schreuer at 145.

74  Saluka v Czech Republic, Partial Award, 17 March 2006.

75  See, for example, Waguih Elie George Siag and Clorinda Vecchi v Egypt, Award, at 447; see also Guide to ICSID Arbitration at 50; see also Siemens v Argentina, Award, ICSID Case No. ARB/02/8 (2007), at 286, 308 (finding additional authority for the proposition that full protection and security goes beyond physical security to encompass intangible assets).

76  See, for example, Agreement Between the Government of the Kingdom of Sweden and the Government of the Republic of Estonia on the Promotion and Reciprocal Protection of Investments, 2 May 1992, art. 2(2) (‘unreasonable or discriminatory measures’); see also Guide to ICSID Arbitration at 50.

77  Case Concerning Elettronica Sicula SpA (ELSI) (United States v Italy), Judgment (20 July 1989) (1989) ICJ Reports 15 at 76; Alex Genin et al. v Estonia, Award, ICSID Case No. ARB/ 99/2 at 371.

78  Compare Saluka Investments BV (The Netherlands) v The Czech Republic, Partial Award, 17 March 2006, at 460, with Siemens v Argentina, Award, 6 February 2007, at 310–21.

79  Guide to ICSID Arbitration at 50.

80  For example, art. 2(1) of the Treaty Between the Government of the United States and the Government of the State of Bahrain Concerning the Encouragement and Reciprocal Protection of Investment (the ‘US–Bahrain BIT’) provides: ‘With respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of covered investments, each Party shall accord treatment no less favourable than that it accords, in like situations, to investments in its territory of its own nationals or companies (hereinafter “national treatment”) or to investments in its territory of nationals or companies of a third country (hereinafter “most favoured nation treatment”), whichever is most favourable (hereinafter “national and most favoured nation treatment”). Each Party shall ensure that its state enterprises, in the provision of their goods or services, accord national and most favoured nation treatment to covered investments.’ In some European BITs, the national treatment clauses state that the foreign investor and his investments are ‘accorded treatment no less favourable than that which the host state accords its own investors.’ See R. Dolzer and M. Stevens, Bilateral Investment Treaties (Martinus Nijhoff Publishers, The Hague 1995) 63–5; see also Dolzer and Schreuer at 198; Guide to ICSID Arbitration at 50.

81  See Model UK Bilateral Investment Treaty, art. 3:

  1. (1)  Neither Contracting Party shall in its territory subject investments or returns of nationals or companies of the other Contracting Party to treatment less favourable than that which it accords to investments or returns of its own nationals or companies or to investments or returns of nationals or companies of any third State.

  2. (2)  Neither Contracting Party shall in its territory subject nationals or companies of the other Contracting Party, as regards their management, maintenance, use, enjoyment or disposal of their investments, to treatment less favourable than that which it accords to its own nationals or companies or to nationals or companies of any third State.

See generally Guide to ICSID Arbitration at 50.

82  See generally, Stephan W. Schill, ‘Chapter 18: Maffezini v. Plama: Reflections on the Jurisprudential Schism in the Application of Most-Favored-Nation Clauses to Matters of Dispute Settlement’, in Meg Kinnear, Geraldine R. Fischer, et al. (eds), Building International Investment Law: The First 50 Years of ICSID (Kluwer Law International 2015) 251–66.

83  See, for example, Maffezini v Spain, ICSID/ARB/97/7; Siemens A.G. v Argentina, ICSID Case No. ARB/02/8; Garanti Koza LLP v Turkmenistan, ICSID Case No. ARB/1120, Decision on the Objection to Jurisdiction for Lack of Consent, 3 July 2013 (holding that the most favoured nation clause entitled the UK claimant to avail itself of the more favourable dispute resolution provisions (which allowed for ICSID, rather than UNCITRAL, arbitration) contained in Turkmenistan’s BIT with Switzerland).

84  See, for example, Wintershall Aktiengesellschaft v Argentina, ICSID Case No. ARB/04/14; Plama Consortium Ltd. v Bulgaria, ICSID Case No. ARB/03/24.

85  See Model UK Bilateral Investment Treaty, art. 2(2): ‘Each Contracting Party shall observe any obligation it may have entered into with regard to investments of nationals or companies of the other Contracting Party.’ See also Switzerland–Pakistan BIT, art. 11: ‘Either Contracting Party shall constantly guarantee the observance of the commitments it has entered into with respect to the investments of the investors of the other Contracting Party.’ See generally Guide to ICSID Arbitration at 55.

86  Dolzer and Schreuer at 168; see, for example, Ioan Micula, et al. v Romania, ICSID Case No. ARB/05/20, Final Award, 11 December 2013 at 415 (affirming that the umbrella clause in the Romania–Sweden BIT covered obligations of any nature, regardless of whether the obligations were contractual or non-contractual).

87  See, for example, Michael D. Nolan and Edward G. Baldwin, The Treatment of Contract-Related Claims in Treaty-Based Arbitration, Mealey’s International Arbitration Report (June 2006); see generally Dolzer and Schreuer at 166.

88  SGS v Pakistan, Decision on Jurisdiction, 6 August 2003, 42 ILM (2003) 1290.

89  SGS v Philippines, Decision on Jurisdiction, 29 January 2004, eight ICSID Reports (2005) 518; Toto Costruzioni Generali S.p.A. v Lebanon, Decision on Jurisdiction, ICSID Case no. ARB/07/12 at 189–202.

90  Dolzer and Schreuer at 173–5. Commentators have described four ‘camps’ of jurisprudence: (1) holding umbrella clauses operative only where it is possible to discern a shared intent of the parties that any breach of contract is a breach of the BIT; (2) limiting umbrella clauses to breaches of contract committed by the host state in the exercise of its sovereign authority; (3) viewing umbrella clauses as transforming contractual claims into treaty claims directly subject to treaty rules; and (4) viewing umbrella clauses as possibly forming the basis for a substantive treaty claim, but not converting a contractual claim into a treaty claim. See Redfern and Hunter at 8.134–8.140.

91  Guide to ICSID Arbitration at 15.

92  Christoph Schreuer et al., The ICSID Convention: A Commentary (2nd edn, Cambridge University Press, Cambridge 2009) 127 (citing arbitral decisions).

93  Article 1(a)(ii) of the Treaty between United States of America and the Argentine Republic concerning the Reciprocal Encouragement and Protection of Investment, 20 October 1994. See, for example, Giovanni Alemanni and others v The Argentine Republic (Award), ICSID Case No. ARB/07/8, 17 November 2014 (finding that bonds were investments under the ICSID convention and BIT).

94  Article 10.27 of the Free Trade Agreement between the Government of the United States of America and the Government of the Republic of Chile, 6 June 2003.

95  ICSID Commentary at 126; see Fedax v Venezuela, Decision on Jurisdiction, 11 July 1997, at 18–43 (concluding that loans and other credit facilities were within the jurisdiction of ICSID); CSOB v Slovakia, Decision on Jurisdiction, 24 May 1999, at 76–91 (holding that the broad meaning of investment included a loan, especially if the loan contributed substantially to the host country’s economic development); Sempra v Argentina, Award, 28 September 2007, at 214–16 (accepting loans as investments and noting that the loans were part of the overall continuing financing arrangement); Abalcat and others v Argentina, Decision on Jurisdiction, ICSID Case No. ARB/07/5 at 387.

96  ICSID Commentary at 126 (‘It is also well established that rights arising from contracts may amount to investments’).

97  The full text of the 2012 US Model BIT is available at <https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf>.

98  ICSID Commentary at 128–34.

99  ICSID Commentary at 134.

100  In contrast to NAFTA, the USMCA has significant changes to the investment arbitration mechanism in the agreement. For example, aside from certain circumstances, US and Mexican investors cannot bring arbitration claims against Canada under the USMCA, nor can Canadian investors bring such claims against the United States or Mexico. There are also numerous changes to the investment arbitration regime for claims against Mexico (by US investors) or the United States (by Mexican investors). US and Mexican claimants will have fewer potential bases for a claim (for example, an investor cannot bring a claim for breach of the minimum standard of treatment or for indirect expropriation) and will have to undertake domestic litigation before initiating arbitration. For more information about these jurisdictional and procedural changes, see R. Kent, D. Morris, S. Forrest (WilmerHale), NAFTA 2.0: Investment Protection and Dispute Settlement under Chapter 14 of the United States-Mexico-Canada Agreement.

101  Energy Charter Treaty, art. 26. For a discussion of jurisdiction pursuant to the ECT, see, for example, AMTO LLC v Ukraine, Final Award, dated 26 March 2008, SCC Case No. 080/2005; IIC 346 (2008); Hulley Enterprises Ltd v Russian Federation, Interim Award on Jurisdiction and Admissibility, dated 30 November 2009, PCA Case No. AA 226; IIC 415 (2009).

102  For a discussion of the ASEAN framework, see Yaung Chi Oo Trading Pte Ltd v Myanmar, Award, dated 31 March 2003, ASEAN Case No. ARB/01/1; IIC 278 (2003); (2003) 42 ILM 540.

103  Compare UNCTAD, World Investment Report, Global Value Chains: Investment and Trade for Development, 2013 with UNCTAD, World Investment Report, Investment and New Industrial Policies, 2018 at 17.

104  For a full discussion of the operation of consent instruments in investor–state arbitration, see Michael D. Nolan and Frédéric G. Sourgens, The Interplay Between State Consent to ICSID Arbitration and Denunciation of the ICSID Convention: The (Possible) Venezuelan Case Study, Transnational Dispute Management (2007); Michael D. Nolan and Frédéric G. Sourgens, ‘Limits of Consent–Arbitration without Privity and Beyond’, in Liber Amicorum Bernardo Cremades (2010) para 843.

105  See Nolan and Sourgens at para 843.

106  See Nolan and Sourgens at para 843.

107  See, for example, M. Nolan and E. Culbertson, ‘Political Risk Insurance as a Means of Managing Investment Risks’, Business Guide to Trade and Investment (ICC, vol. II, 2018).

108  See, for example, OPIC Handbook 16 (2013 version).

109  See, for example, <http://www.opic.gov>.

110  See, for example, MIGA, Types of Coverage, available at <http://www.miga.org/guarantees/index_sv.cfm?stid=1547> (stating with regard to breach of contract coverage that: ‘[i]n the event of an alleged breach or repudiation, the investor should invoke a dispute resolution mechanism set out in the underlying contract and obtain a final arbitral award or judicial decision for damages’).

111  See MidAmerican Energy Holdings Company (Indonesia: 1999) (partly relying on failure to arbitrate coverage for its claim).

112  See Construction Aggregates Corporation (Dominica: 1977) (arbitration proceedings were commenced but not pursued when the government failed to participate in the arbitration proceedings).

113  See Enron Corporation and Ponderosa Assets, LP v Argentina, Award, ICSID Case No. ARB/01/3; IIC 292 (2007), at 235.

114  Dolzer and Schreuer at 228.

116  Dolzer and Schreuer at 52–4. For example, the tribunal in Aguas del Tunari v Bolivia stated: ‘It is not uncommon in practice, and—absent a particular limitation—not illegal to locate one’s operations in a jurisdiction perceived to provide a beneficial regulatory and legal environment in terms, for examples, of taxation or the substantive law of the jurisdiction … ’ Aguas del Tunari v Bolivia, Decision on Jurisdiction, 21 October 2005.

117  See Alison Ross, ‘Brigitte in Brazil’, Global Arbitration Review, 22 June 2010, available at <http://www.globalarbitrationreview.com/journal/article/28562/brigitte-brazil>; see also ConocoPhillips Petrozuata B.V., et al. v The Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Decision on Jurisdiction and Merits, 3 September 2013 at 279–80; Orascom TMT Investments S.à r.l. v. People’s Democratic Republic of Algeria (Award), ICSID Case No. ARB/12/35, 31 May 2017 (‘It goes without saying that structuring an investment through several layers of corporate entities in different states is not illegitimate. Indeed, the structure may well pursue legitimate corporate, tax, or pre-dispute BIT nationality planning purposes. In the field of investment treaties, the existence of a vertical corporate chain and of treaty protection covering “indirect” investments implies that several entities in the chain may claim treaty protection, especially where a host state has entered into several investment treaties.’).

118  See ConocoPhillips Petrozuata B.V., et al. v The Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Decision on Jurisdiction and Merits, 3 September 2013 at 279–80; see also Tidewater Inc., et al. v The Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Jurisdiction, 8 February 2013 at 146; see also Phoenix Action Ltd v Czech Republic, ICSID Case No. ARB/06/5 (15 April 2009); but see Pac Rim Cayman LLC v. The Republic of El Salvador, Decision on the Respondent’s Jurisdiction Objections, ICSID Case No. ARB/09/12 , 1 June 2012 (finding that the Claimants could reorganize their nationality after El Salvador’s policy of denying permits and concessions was implemented because the policy constituted a ‘continuous act’, rather than a ‘one-time act’ or a ‘composite act’, and that this continuous act had begun before Claimants’ change of nationality and continued after it.)

119  UFMJRA, 13 ULA Supp 89 (West Supp 2000).

120  The UFMJRA provides a list of mandatory and discretionary grounds for non-enforcement of a judgment. The mandatory grounds for non-enforcement are limited: (1) the judgment was rendered under a system that does not provide impartial tribunals or procedures compatible with due process, or (2) the foreign court did not have personal or subject matter jurisdiction over the defendant or the subject matter. UFMJRA, § 4(a). In several situations, however, US courts have the option of deciding not to recognize the foreign judgment even where these mandatory grounds were not present, including situations in which US courts deemed that the foreign court was a seriously inconvenient forum. UFMJRA, § 4(b).

121  The type of judgment is also a factor. This paragraph relates to monetary claims.

122  See Part 74 of the Civil Procedure Rules 1998; Council Regulation 1215/2012/EC; the Administration of Justice Act 1920; and the Foreign Judgments (Reciprocal Enforcement) Act 1933, in particular.

123  ZPO, § 328.

124  See Philipp A. Buhler, ‘Transnational Service of Process and Discovery in Federal Court Proceedings: An Overview’ (2002) 27 Tul Mar LJ 1; Charles B. Campbell, ‘No Sirve: The Invalidity of Service of Process Abroad by Mail or Private Process Server on Parties in Mexico Under the Hague Service Convention’ (2010) 19 Minn J Int’l L 107; Kenneth B. Reisenfeld, ‘Service of United States Process Abroad: A Practical Guide to Service Under the Hague Service Convention and the Federal Rules of Civil Procedure’ (1990) 24 Int’l L 55.

125  See Council Regulation 1215/2012/EC, which developed the previous regime governed by its predecessor, 44/2001/EC.

126  See Council Regulation 1215/2012/EC, especially arts. 36–51.

127  Louise Ellen Teitz, ‘The Hague Choice of Court Convention: Validating Party Autonomy and Providing an Alternative to Arbitration’ (2005) 53 Am J Comp L 543 at 557. Similarly, if either party to an agreement containing a forum selection clause attempts to file a lawsuit in a court that was not designated as a chosen forum, that court must, under nearly all circumstances, suspend or dismiss proceedings.

128  The UK has indicated that after Brexit it will, if necessary, accede to the Choice of Court Convention as soon as possible, and already has a draft statutory instrument ready to enact in this regard (The Civil Jurisdiction and Judgments (Hague Convention on Choice of Court Agreements 2005) (EU Exit) Regulations 2018). Absent any special agreement, the accession process for the Choice of Court Convention will take a minimum of three months. Such accession would, absent any other post-Brexit agreements, enable the EU and the UK to maintain a high level of judicial reciprocity and cooperation going forward.

129  See Status Table, Convention of 30 June 2005 on Choice of Court Agreements, available at <http://www.hcch.net/index_en.php?act=conventions.status&cid=98>.

130  The position of the UK in relation to both of these conventions will not be affected by Brexit.

131  UNCITRAL, New York Convention, status, available at <http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html>. Note that the convention allows states to ratify its terms subject to certain reservations; these are typically referred to as the ‘reciprocity reservation’ (in essence, that an award will only be enforced if it has been rendered from another Convention state) and the ‘commercial reservation’ (that the state will enforce only awards relating to commercial matters).

132  New York Convention, art. III.

133  New York Convention, art. V. See also Admart AG v Stephen & Mary Birch Found., Inc., 457 F.3d 302 (3d Cir. 2006) (explaining that ‘to carry out the policy favouring enforcement of foreign arbitral awards, courts have strictly applied the Article V defenses and generally view them narrowly’).

134  See, for example, Yukos Universal Ltd v Russian Federation (Final Award), PCA Case No. AA 227, 18 July 2014 (awarding US$50 billion in damages for expropriation of company) (vacated by The Hague District Court, Judgment of 20 April 2016.)

135  Compare Caja Nacional De Ahorro Y Seguros in Liquidation v Deutsche Ruckversicherung AG, 2007 US Dist LEXIS 56197 (SDNY 1 August 2007) (limiting review in a set-aside action to egregious procedural issues) and Saipem SpA v Bangladesh, Decision on jurisdiction and recommendation on provisional measures, ICSID Case No. ARB/05/07; IIC 280 (2007) (describing Bangladeshi set-aside proceeding on relatively minor procedural grounds).

136  See, for example, Chromalloy Gas Turbine Corp v Arab Republic of Egypt, 939 F Supp 907 (DDCs 1996) (recognizing an arbitral award made in Egypt, notwithstanding the fact that an Egyptian court had subsequently annulled the award on the grounds that the arbitrators had misapplied Egyptian law); Baker Marine Ltd v Chevron Ltd, 191 F3d 194, 197 n.3 (2d Cir., 1999) (refusing to recognize an arbitral award that had been annulled in Nigeria due to excess of authority and procedural misconduct); Termorio SA v Electranta SP, 487 F3d 928 (DC Cir., 2007) (holding that an arbitral award made by a Colombian tribunal could not be enforced in the US, because Colombia’s highest administrative court nullified the award on the ground that the arbitration clause violated Colombian law); Corporación Mexicana de Mantenimiento Integral, S. de R.L. de C.V. v Pemex-Exploración y Producción, 832 F.3d 92, 107 (2d Cir. 2016), cert. dismissed, 137 S. Ct. 1622 (2017) (enforcing arbitral award that had been nullified at the seat of arbitration because the court concluded that the Mexican appellate court had retroactively applied Mexican law and deprived the plaintiff of a remedy, contrary to fundamental US public policy); Thai-Lao Lignite (Thailand) Co., Ltd v Government of the Lao People’s Democratic Republic (2d Cir. 2017) (upholding district court decision vacating its prior enforcement of a US$57 million arbitral award against Laos after the award was annulled by a court at the seat of the arbitration).

137  See, for example, Judgment of 9 October 1984, Pabalk Ticaret Limited Sirketi v Norsolor SA, XI YB Comm Arb 484 (French Cour de cassation civ Le) (1986) (reversing lower court judgment denying recognition to an arbitral award that had been made, and then annulled, in Austria, the arbitral seat); Judgment of 29 September 2005, XXXI YB Comm Arb 629 (Paris Cour d’appel) (2006) (recognizing award annulled in arbitral seat); Judgment of 6 December 1988, Société Nationale pour la Recherche, le Transport et la commercialization des Hydrocarbures (Sonatrach) v Ford, Bacon & Davis, Inc., XV YB Comm Arb 370 (Brussels Tribunal de Première Instance) (1990) (recognizing award annulled in Algeria); Judgment of 20 October 1993, Radenska v Kajo, XXVla YB Comm Arb 919 (Austrian Oberster Gerichtshof) (1999) (reversing lower court decision refusing to recognize an award that was made and then annulled on public policy grounds in Belgrade).

138  Guide to ICSID Arbitration at 96.

139  Dolzer and Schreuer at 239; Guide to ICSID Arbitration at 96; but see E. Baldwin, M. Kantor, and M. Nolan, ‘Limits to Enforcement of ICSID Awards’, (2006) 23 J of Int’l Arb 1 (identifying possible ways to avoid ICSID Awards).

140  For more detailed discussion of the following section, see generally Born (2015); Friedland.

141  Alternatively, the parties can enter into a ‘submission agreement’—an agreement to arbitrate that is made after a dispute has actually arisen. See Redfern and Hunter at 2.02–2.03.

142  See Redfern and Hunter at 2.04.

143  Scott L. Hoffman, The Law and Business of International Project Finance (3rd edn, Cambridge University Press, Cambridge 2007) 406; see also Sablosky v Edward S. Gordon Co., 535 N.E.2d 643, 646 (N.Y. 1989) (ruling that ‘[s]ince … the validity of an arbitration agreement is to be determined by the law applicable to contracts generally …, there is no reason for a different mutuality rule in arbitration cases’); but see Carey v. 24 Hour Fitness, USA, Inc., 669 F.3d 202, 205 (5th Cir. 2012) (setting aside a unilateral arbitration agreement as illusory because ‘where one party to an arbitration agreement seeks to invoke arbitration to settle a dispute, if the other party can suddenly change the terms of the agreement to avoid arbitration, then the agreement was illusory from the outset’).

144  Russian Telephone Company v Sony Ericsson Mobile Communications Rus (Case No. VAS–1831/12).

145  See NB Three Shipping Ltd v Harebell Shipping Ltd [2005] 1 All ER 200 and Law Debenture Trust Corporation PLC v Elektrim Finance BV and others [2005] 2 All ER 476 (the principle, as set out in both cases, was more recently applied in Mauritius Commercial Bank Ltd v Hestia Holdings Ltd [2013] EWHC 1328 (Comm) at 41 and Commerzbank Aktiengesellschaft v Liquimar Tankers Management Inc. [2017] EWHC 161 (Comm) at 40). Other jurisdictions also have recently recognized the validity of hybrid arbitration clauses. For example, the Provisional Court of Madrid upheld a hybrid dispute resolution clause which referred disputes to either arbitration under the Rules of the Netherlands Arbitration Institute or the Courts of ‘s-Hertogenbosch in the Netherlands (AP Madrid, Auto 147/2013).

146  Mme X v La société Banque privée Edmond de Rothschild Europe (Case No. 11–26.022, 26 September 2012). This decision, although concerned with one-sided jurisdiction clauses, could influence the way in which French courts approach hybrid clauses that give one party the right to defer a dispute to either arbitration or litigation.

147  Article 23 of the Brussels Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (EC) 44/2001.

148  1215/2012/EC.

149  Société eBizcuss.com v. Apple , First Civil Chamber, 7 October 2015, Case No. 14-16898.

150  Mauritius Commercial Bank v Hestia Holdings Limited [2013] EWHC 1328 (Comm).

151  Financial Markets Law Committee, Issues of Legal Uncertainty Arising in the Context of Asymmetric Jurisdiction Clauses, July 2016, 3.11, available at <http://fmlc.org/wp-content/uploads/2018/03/paper_on_unilateral_jurisdiction_clause.pdf>.

152  See generally, Born (2015) at 1.55; Friedland at 61.

153  See, for example, Vetco Sales, Inc. v Vinar, 98 F. App’x 264, 266–7 (5th Cir., 2004) (finding that ‘arising out of’ language in arbitration clause indicated that ‘the parties intended to limit the applicability of this clause’, and holding that claims for breach of a related agreement were outside the scope of the arbitration clause); Chelsea Family Pharmacy, PLLC v. Medco Health Solutions, Inc., 567 F.3d 1191, 1196 (10th Cir. 2009) (‘In construing the scope of an arbitration agreement, we classify the particular clause as either broad or narrow … To determine the breadth of an arbitration clause we ask if the parties clearly manifested an intent to narrowly limit arbitration to specific disputes that might arise between them.’) (citations omitted).

154  [2007] UKHL 40 (also applied in Interprods Limited v De La Rue International Limited [2014] EWHC 68 (Comm) at 7).

155  See Born (2015) at 1.35–1.37. Refer to footnote 26 for a non-exclusive list of arbitral institutions.

156  See Hoffman at 412.

157  See, for example, ICSID Arbitration Rules:

The majority of the arbitrators shall be nationals of States other than the State party to the dispute and of the State whose national is a party to the dispute, unless the sole arbitrator or each individual member of the Tribunal is appointed by agreement of the parties. Where the Tribunal is to consist of three members, a national of either of these States may not be appointed as an arbitrator by a party without the agreement of the other party to the dispute. Where the Tribunal is to consist of five or more members, nationals of either of these States may not be appointed as arbitrators by a party if appointment by the other party of the same number of arbitrators of either of these nationalities would result in a majority of arbitrators of these nationalities.

158  See, for example, Blue Bank International & Trust (Barbados) Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/20, Decision on the Parties’ Proposals to Disqualify a Majority of the Tribunal, 12 November 2013 at 66–7 (disqualifying an arbitrator who manifestly lacked impartiality, because, in part, he was a partner in a law firm which represented the claimant in a parallel proceeding against the respondent and the arbitrator’s remuneration depended ‘primarily’ on the results achieved by the firm).

159  For example, General Standard 2(b) of the International Bar Association Guidelines on Conflicts of Interest in International Arbitration stipulates that ‘facts or circumstances exist, or have arisen since the appointment, that, from a reasonable third person’s point of view having knowledge of the relevant facts, give rise to justifiable doubts as to the arbitrator’s impartiality or independence’.

160  See both W Ltd v M SDN BHD [2016] EWHC 422 (Comm), in which a set aside application failed, and T v V and others [2017] EWHC 565 (Comm), in which an application to remove an arbitrator failed.

161  [2007] UKHL 40 (also applied in Interprods Limited v De La Rue International Limited [2014] EWHC 68 (Comm) at 7).

162  See Mark S. McNeill and Ben Juratowitch, ‘Agora: Thoughts on Fiona Trust—The Doctrine of Separability and Consent to Arbitrate’ (2008) 24(3) Arbitration International at 475.

163  See Buckey Check Cashing, Inc. v Cardegna, 546 U.S. 440, 445–6 (2006).

164  See Friedland at 70.

165  The purpose of the UNCITRAL Model Law is to make international arbitration agreements and awards more ‘readily, expeditiously enforced’. See Born (2015) at 1.19.

166  UNCITRAL Notes on Organizing Arbitral Proceedings (2012).

167  For example, as discussed earlier, the parties could reference the IBA Rules on the Taking of Evidence in International Arbitration.

168  See, for example, Born (2015) at 9.15–9.20.

169  There is a distinction between contractual and treaty-based arbitration. For example, the Central American Free Trade Agreement guarantees the transparency of arbitral proceedings by requiring the respondent to make submissions available to the public and the tribunal to conduct hearings open to the public. (Dominican Republic–Central America–United States Free Trade Agreement, 2004, Article 10.21.)

170  See, for example, Friedland at 20–1 (‘Notwithstanding the usual absence of prohibitions on party disclosure, there is an expectation and tradition of confidentiality in arbitration, which a party violates at its own peril vis-à-vis the arbitrators’); see also Churchill Mining PLC v Republic of Indonesia, ICSID Case No. ARB/12/14 and 12/40, Procedural Order No. 3 on Provisional Measures, 4 March 2013 at 46–7 (acknowledging that parties are bound by a good faith duty not to exacerbate the dispute or affect the integrity of the arbitration proceedings).

171  For example, Singapore recognizes an implied duty of confidentiality in arbitration proceedings, although disclosures can be made in certain circumstances. See Michael Young and Simon Chapman, ‘Confidentiality in International Arbitration: Does the Exception Prove the Rule? Where Now for the Implied Duty of Confidentiality Under English Law?’ (2009) 27(1) ASA Bulletin 41 (citing Myanma Yaung Chi Oo Co. v Win Win Nu [2003] 2 SLR 547). Under Swedish law, on the other hand, the parties in arbitration proceedings are not bound by a duty of confidentiality unless the parties have entered into an express agreement regarding confidentiality. See Young and Chapman at 43–4 (citing Bulgarian Foreign Trade Bank Ltd. v A. I. Trade Finance Inc., an English translation of which can be found in A. J. van den Berg (ed.), Yearbook of Commercial Arbitration, Vol. XXVI (2001) 291–8).

172  See, for example, China Minmetals Materials Import and Export Co. v Chi Mei Corp., 334 F.3d 274 (3d Cir. 2003). Nevertheless, ‘the arbitrators’ jurisdictional decision is subject to judicial review at any time before, after or during arbitration proceedings’. See China Minmetals Materials Import and Export Co., at 288.

173  For example, in Germany an arbitral tribunal may rule on its own jurisdiction. See § 1040(1) Code of Civil Procedure. Objections to the jurisdiction of the arbitral tribunal must be raised within certain time-limits. See § 1040(2) Code of Civil Procedure. In England and Wales, the tribunal is able to rule on its own jurisdiction, unless the parties have agreed otherwise (s 30(1) of the Arbitration Act 1996). Further, a challenge to a tribunal’s jurisdiction should typically be made to the tribunal itself, rather than the court, unless (1) all the parties consent to the court hearing the issue or (2) the permission of the tribunal is first obtained and the court is satisfied that the application was made without delay, will result in a substantial saving in costs, and there is good reason why the court should hear the issue (s 32 of the Arbitration Act 1996). Note that time-limits apply to any challenge to jurisdiction: see, in particular, s 73 of the Arbitration Act 1996.

174  The First, Second, Third, Sixth, Eighth and D.C. Circuits adopt a ‘conservative’ approach whereby anti-suit injunctions may be granted if the parties are the same in both actions and the resolution of the case before the enjoining court is dispositive of the action to be enjoined. Where these two threshold requirements are satisfied, a court must go on to consider five additional factors in determining whether the foregoing action should be enjoined: (1) whether the enjoining forum’s policy would be frustrated; (2) whether the foreign action would be vexatious; (3) whether the foreign proceedings present a threat to the issuing court’s jurisdiction; (4) whether the proceedings in the other forum prejudice other equitable considerations; or (5) whether adjudication of the same issues in separate actions would result in delay, inconvenience, expense, inconsistency, or a race to judgment. See, for example, Lam Yeen Leng v. Pinnacle Performance Ltd., 474 Fed.Appx. 810, 812–13 (2d Cir. 2012) (upholding a district court’s application of the five-factor test for anti-suit injunctions announced in China Trade & Dev. Corp. v M.V. Choong Yong, 837 F.2d 33, 35 (2d Cir, 1987)). In contrast, the Fifth, Seventh, and Ninth Circuits have adopted a more ‘liberal approach’ to issuing anti-suit injunctions. These courts consider equitable factors, such as the burden of the duplicative foreign litigation. See, for example, Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, (9th Cir. 2012) (Noting that district precedent ‘establishes a three-part inquiry for assessing the propriety of a [foreign anti-suit] injunction’ based on E. & J. Gallo Winery v Andina Licores S.A., 446 F.3d 984, 989–91 (9th Cir., 2006)); Karaha Bodas Co. v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 335 F.3d 357, 364, n. 19, 366–7 (5th Cir., 2003); Allendale Mutual Ins. Co. v Bull Data Sys., Inc., 10 F.3d 425, 430–1 (7th Cir., 1993) (leaning towards the liberal standard).

175  An arbitration agreement constitutes a promise not to commence foreign proceedings, and whether future arbitral proceedings are anticipated is irrelevant for these purposes. See UstKamenogorsk Hydropower Plant JSC v AES UstKamenogorsk Hydropower Plant LLP [2013] UKSC 35.

176  Allianz SpA v West Tankers Inc (Case C–185/07), applied in National Navigation Co v Endesa Generacion SA [2009] EWCA Civ 1397; Nori Holdings Ltd v Bank Otkritie Financial Corp [2018] EWHC 1343 (Comm).

177  It is possible that the position of the UK may change following Brexit.

178  See Born (2015) at 1.14.

179  Sample wording for such a clause includes: ‘Judgment on the award of the arbitral tribunal may be entered and enforced by any court of competent jurisdiction.’

180  Although third-party funding of legal fees and expenses in arbitration (and litigation) generally is becoming more common, thus far it has rarely been used in the project finance context. Customarily, the project company requires the lenders’ permission to commence any material litigation or arbitration, because the outcome of the claims and related litigation expenses can potentially have a material effect on the project’s cashflows and/or value of the loan collateral. From a commercial perspective, the lenders may find it difficult to accept that a third-party funder would enjoy ‘first dollar recovery’ on claims, especially if the project company has sufficient available cashflow or access to other funding to pay the relevant litigation expenses.

181  Note also that should one party fail to pay its initial share of the tribunal’s or the arbitration centre’s costs, the other (innocent) party will likely have to pay the defaulting party’s share as well and then seek to recover those costs by way of a costs award from the tribunal. Sometimes a respondent can use this as a tactic against a claimant to make commencing arbitration proceedings more difficult. English courts recently rejected a claimant’s argument that the respondent’s refusal to pay its share of the tribunal’s costs amounted to a repudiation of the arbitration agreement and, therefore, it was entitled to commence court proceedings. See BDMS Ltd v Rafael Advance Defence Systems [2014] EWHC 451 (Comm). While the court sympathized with the claimant, it held that arbitration remained the proper forum for the dispute.

182  See Born (2015) at 15.42–15.44.

183  See Born (2015) at 2.23. In BCY v. BCZ [2016] SGHC 249, however, the Singapore High Court held that there is a strong presumption that the governing law of an arbitration agreement will be the governing law of the main contract unless this would negate the arbitration agreement. If there is no express choice of governing law of an arbitration agreement, a Singapore court will look to the implied choice of the parties as gleaned from their intentions at the time of contracting. In the absence of any indication to the contrary, parties are assumed to have intended the whole of their relationship to be governed by the same system of law, and the natural inference is that the proper law of the main contract should also govern the arbitration agreement. While the choice of the seat of arbitration could be a mitigating factor, it would insufficient in and of itself to negate this presumption. The Singapore High Court emphasized that the governing law of the main contract is a ‘strong indicator’ of the governing law of the arbitration agreement, particularly where the agreement is a clause/provision forming part of a main contract.

184  Karl-Heinz Bockstiegel, Stefan Michael Kroll, and Patricia Nacimiento (eds), Arbitration in Germany: The Model Law in Practice (Kluwer Law International, Alphen aan den Rijn 2007) 359.

185  See Bockstiegel, Kroll, and Nacimiento (eds), Arbitration in Germany, 359.

186  The disclosure and publicity associated with litigation proceedings could impede negotiations as well as the project’s broader progress. For some participants in certain projects, ‘transparency’—and in particular, the desire to avoid being publicly perceived as being non-transparent—is important. Other parties may desire for the proceedings and the outcome to become public, in order to raise public awareness or to generate binding precedent. By contrast, lenders and host governments may be more attracted to the private nature of arbitral proceedings and the confidentiality rules that typically attach to such proceedings.

187  See Redfern and Hunter at 2.91.

188  See Redfern and Hunter at 1.82; see also UNCITRAL Legislative Guide at 6–7.

190  UNCITRAL Legislative Guide at 14–16.

191  UNCITRAL Legislative Guide at 4.

192  Redfern and Hunter at 1.138.

193  Chapter VI of the UNCITRAL Legislative Guide at 17 (non-binding) and 20–2 (binding).

194  See Friedland at 150–1.

195  Chapter VI of the UNCITRAL Legislative Guide at 23–8.

196  A Dispute Review Board issues recommendations with which the parties agree to comply if no party expresses dissatisfaction within a given time period. A Dispute Adjudication Board issues decisions with which the parties must comply immediately. A Combined Dispute Board typically issues recommendations, but it can also issue decisions upon a party’s request. Even if a contract contains a clause designating a Dispute Resolution Board, arbitration or litigation can be preserved as an option if the party is dissatisfied with the decisions or recommendations of the board. See <http://www.iccwbo.org/court/dispute_boards/id4529/index.html>.

197  But see Friedland at 71 (cautioning that it is unwise to specify any qualifications for arbitrators in advance because (1) the parties may find it difficult to identify an arbitrator who fulfils the contractual criteria, is available, and is not conflicted; and (2) the parties rarely know in advance of a dispute what qualifications may be appropriate).

198  See, for example, US 2012 Model BIT at clause 10 (‘In the event that an appellate mechanism for reviewing awards rendered by investor-State dispute settlement tribunals is developed in the future under other institutional arrangements, the Parties shall consider whether awards rendered under Article 34 should be subject to that appellate mechanism.’); Free Trade Agreement between the Government of Australia and the Government of the People’s Republic of China, art. 9.23 (‘Within three years after the date of entry into force of this Agreement, the Parties shall commence negotiations with a view to establishing an appellate mechanism to review awards rendered under Article 9.22 in arbitrations commenced after any such appellate mechanism is established. Any such appellate mechanism would hear appeals on questions of law.’).

199  See, for example, UNCITRAL Rules (2013), art. 17(5) (‘The arbitral tribunal may, at the request of any party, allow one or more third persons to be joined in the arbitration as a party provided such person is a party to the arbitration agreement, unless the arbitral tribunal finds, after giving all parties, including the person or persons to be joined, the opportunity to be heard, that joinder should not be permitted because of prejudice to any of those parties.’).

200  In litigation, mechanisms generally are available for the joinder of necessary third parties. For example, as a matter of US civil procedure, a party can be joined to an ongoing proceeding, if but for the joinder, the court could not accord complete relief among existing parties. Fed R Civ P 19(a)(1)(A). Problematically, a court’s ability to join the parties to an ongoing dispute will depend upon whether the court has personal jurisdiction over the additional party. In the context of projects, this frequently may not be the case. It will be especially difficult in the context of certain special purpose vehicles incorporated in tax-favourable jurisdictions or of certain host-state project participants. The typical means employed by an arbitral tribunal to join a non-signatory, which are much more limited than those available in litigation, include agency theories or, in a parent–subsidiary relationship, some form of piercing of the corporate veil. Some jurisdictions also recognize a ‘group of companies’ theory to join a non-signatory to an arbitration proceeding, but this is availing only if the companies to be joined are in the same corporate family. See, for example, Dow Chemical case, ICC Case No. 4131 (1982), (1984) 9 YB Com Arb 136. Thus, little to no means exists to add true third parties to an arbitration proceeding, unless consent to such joinder can be obtained after a dispute arises. To the extent that certain groups of contracts with different project participants would likely lead to a cluster of disputes relating to the same underlying occurrence, it may therefore be worthwhile to keep this risk in mind at the drafting stage.

201  See Dugué at 1064.

202  There may be many hidden costs associated with the inability to join all relevant parties to arbitration proceedings. In some instances, a prospective claimant may conclude that, without the ability to claim against multiple parties in a single proceeding, claims are not worth pursuing in multiple arbitrations or in a single arbitration with the prospect of, at most, incomplete relief. Another hidden cost is the possibility of contribution suits. Thus, when one party is saddled with a risk covered by a third agreement, this party will have to commence suit anew. The need for duplicative dispute resolution has both immediate costs and long-term project costs. Most immediately, multiple disputes likely will impose a greater burden and distraction upon the claimant’s management, as well as higher counsel fees and multiple arbitration or litigation costs. Less immediate, but perhaps more importantly, such disputes involve a risk that project participants will continuously be in litigation or arbitration with one another as adversaries rather than partners.

203  IBA Guidelines for Drafting International Arbitration Clauses, 7 October 2010, at 105.

204  See, for example, ICC Rules, art. 8 (Claims between Multiple Parties) and art. 9 (Multiple Contracts).

205  IBA Guidelines for Drafting International Arbitration Clauses, 7 October 2010, at 106. See also ICC Rules, art. 10 (Consolidation of Arbitrations).

206  A multi-party agreement might permit any party to assert claims against any other party, for any respondent to add additional parties, or for any party to have the right to intervene. See Born (2015) at 12.3–12.6.

207  See Dugué at 1078.

208  This includes Hong Kong following the Hong Kong Supreme Court decision in Democratic Republic of the Congo and others v FG Hemisphere Associates LLC FACV No. 5 of 2010.

209  Argentine Republic v Amerada Hess Shipping Corp., 488 U.S. 428, 443, 109 S.Ct. 683 (1989).

210  Waivers of immunity from suit have been treated by US courts as generally distinct from waivers of immunity from execution, and a waiver intended to cover both situations should expressly provide for as much. Further, in order for a foreign state to waive its immunity from pre-judgment attachment (a tool that may be used to prevent a foreign state from taking steps to move or conceal assets that could otherwise be relied upon to satisfy a judgment), any such waiver must also be express. See S & S Mach. Co. v Masinexportimport, 706 F.2d 411, 416 (2d Cir., 1983); See 28 USCA § 1610(d); de Sousa v. Embassy of Republic of Angola, 229 F.Supp.3d 23, 27 (D.D.C. 2017) (‘The explicit waiver requirement for pre-judgment attachment under § 1610(d) requires that waiver “be explicit in the common sense meaning of the term”: the asserted waiver must demonstrate unambiguously the foreign state’s intention to waive its immunity from prejudgment attachment in this country.’); Frank v. Commonwealth of Ant. & Barb., 842 F.3d 362, 369–70 (5th Cir. 2016) (holding that explicit waiver requires ‘an intentional and knowing relinquishment of [a] legal right’). A residual waiver, or one that is generally broad, is unlikely to constitute a sufficient waiver of immunity to pre-judgment attachment in the US.

211  Three exceptions are especially relevant in the project finance context: (i) a state can expressly submit to the court’s jurisdiction (section 2(1)); (ii) a state can expressly submit to arbitration (section 9), which can be understood as a waiver of sovereign immunity for both the arbitration proceedings and subsequent enforcement proceedings (Svenska Petroleum Exploration AB v Republic of Lithuania [2006] EWCA Civ 1529, as recently applied in LR Avionics Technologies Ltd v Nigeria [2016] EWHC 1761 (Comm) at 20–3); and (iii) commercial transactions entered into by a state do not attract sovereign immunity, nor does property held by the state ‘which is for the time being in use or intended for use for commercial purposes’ (sections 3(1) and 13(4)). What constitutes a commercial transaction as opposed to a sovereign act, or a commercial purpose as opposed to a sovereign function, can be complex. The courts are prepared to take a broad view, but the onus is on the party seeking to enforce an award to show that state property falls within the 1978 Act. See SerVaas Inc. v Rafidain Bank and others [2012] UKSC 40, as recently applied in LR Avionics Technologies Limited v The Federal Republic of Nigeria, Attorney General of the Federation of Nigeria [2016] EWHC 1761 (Comm) at 30, 38–40.

212  This is essential following the judgment in ETI Euro Telecom International NV v Republic of Bolivia and anor [2008] EWCA Civ 880, as recently considered in Pearl Petroleum Company Limited and others v The Kurdistan Regional Government of Iraq [2015] EWHC 3361 (Comm).

213  The distinction between a state and a state entity always depends on individual circumstances, but separate control functions and legal personality can be indicative that the state entity is separate for the purposes of substantive proceedings. See Tsavliris Salvage (International) Ltd v The Grain Board of Iraq [2008] EWHC 612 (Comm); Wilhelm Finance Inc. v Ente Administrador Del Astillero Rio Santiago [2009] EWHC 1074. A similar distinction is made for the assets of each for the purposes of execution proceedings. See La Générale des Carrières et des Mines v F. G. Hemisphere Associates LLC [2012] UKPC 27. The inclusion of both the state and any relevant state entity in any waiver makes the contractual dispute regime more certain and hence more effective.

214  Ideally, both would declare that they are not acting in a sovereign capacity, and waive immunity in respect of sovereign acts, for the purposes of the contract. If the state also promises by way of a ‘stabilization clause’ not to legislate its way out of any contractual commitments, this can assist in legal proceedings by creating a presumption that the state itself, as opposed to the state entity alone, is party to the contract.

215  See, for example, the American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures, Optional Rules for Emergency Measures for Protection. Where the parties by special agreement or in their arbitration clause have adopted the AAA’s rules for emergency measures of protection, a party in need of emergency relief prior to the constitution of the arbitral panel shall notify the AAA and all other parties in writing of the nature of the relief sought and the reasons why such relief is required on an emergency basis. Within one business day of receipt of notice, the AAA shall appoint a single emergency arbitrator from a special AAA panel of emergency arbitrators designated to rule on emergency applications. See also, ICC Arbitration Rules, art. 29 and Appendix V, SIAC Rules (2016), schedule 1 and ICDR Rules (2014), art. 37, LCIA Rules, art. 9B, and HKIAC Rules (2013), schedule 4.

216  See, for example, in England and Wales, section 44 of the Arbitration Act 1996 and, more rarely, section 37 of the Senior Courts Act 1981.

217  See, for example, In the Matter of the Arbitration of Certain Controversies Between Chromalloy Aeroservices and the Arab Republic of Egypt, 939 F Supp 907 (D DC, 1996); see also Charles S. Haight Jr., Arbitration and the Courts: Some Recent American Cases, Address at the Fourteenth International Congress of Maritime Arbitrators (October 2001), available at <http://www.smany.org/congress/haight.html> (‘if the parties state explicitly in their contract that an arbitration award will not only be final and binding upon the parties, but also that no appeal will be taken to any court, an American court will enforce that contract and enforce an arbitration rendered in a foreign country, even though the courts of that country have vacated the award’).