The Corporate & Commercial Law Society Blog, HNLU

Tag: International Trade and Investment Law

  • Navigating Uncharted Territories: ICSID Tribunal’s Power to Remove Counsel

    Navigating Uncharted Territories: ICSID Tribunal’s Power to Remove Counsel

    BY AARyA PARIHAR, THIRD-YEAR STUDENT AT RMLNLU, LUCKNOW

    Introduction

    The role of a lawyer is extremely crucial in an arbitration proceeding. The right to effective legal representation of one’s choice is recognized explicitly in various international instruments, like Article 14 of the International Covenant on Civil and Political Rights and Article 6 of the European Convention on Human Rights. Such a right is equally essential in investor-state arbitration proceedings, where it may form part of the due process expectations of the parties to the proceedings with serious transgressions from the principle, even potentially constitute a ground to challenge the award itself. The ICSID Convention, Rules, and Regulations do not expressly address the authority of ICSID Tribunals to permit the withdrawal of legal counsel or to compel their continued participation in the proceedings (against their wishes). This post discusses the authority of ICSID Tribunals to exclude or require the presence of particular counsel in a dispute. The post then discusses the existing arbitral decisions on this issue to examine the contours of ICSID Tribunals’ powers concerning these matters.

    Do ICSID Tribunals Have the Power to Remove/Exclude Counsel?

    ICSID Tribunals are formed to resolve treaty disputes between contracting parties. Every dispute has its own Tribunal with separate procedural rules that disputing parties agree on. Arbitration’s inherent nature of being party-centric, where parties’ autonomy is given primacy, leads to divergent procedural practices. Additionally, the non-binding nature or lack of precedential character of ICSID awards over other ICSID Tribunals leads to differing awards. Thus, it is essential that before moving to ICSID Tribunals, assistance shall be taken from the federal courts of the United States, who have often used their power to decide upon the issue of counsel resignation.

    The U.S. Court in May v. Seibert enquired about the existence of good cause, which depends upon the facts and circumstances of every case. Simply put, there is no straitjacket formula to when a counsel can legally stop their representation. It largely depends upon the peculiar factual matrix of every case and the application of mind by the judge presiding over it.

    In the realm of ICSID, only a few Tribunals were called upon to decide upon the issue of counsel resignation or removal of counsel. Five publicly available awards are from the Hrvatska Tribunal, Rompetrol Tribunal, Edmond Khudyan Tribunal, Fraport Tribunal, and Theodore David Einarsson Tribunal. These five orders from five different Tribunals delve into the removal of counsel. In all these five decisions, the Tribunal found its power to remove counsel under Article 44 of the ICSID Convention, providing residuary power to the Tribunals. It empowers the Tribunals to decide upon any question of procedure which is not explicitly covered under the ICSID Convention, Rules, and Regulations.

    Due to the heavy amount of cross-referencing/quoting done in these decisions, discussing them separately and conjointly is essential. The post attempts to cull out only the important dictum from these decisions, which is required to facilitate analysis in the present article.

    Hrvatska Tribunal

    In the Hrvatska award, the removal of counsel was warranted because of his apparent connection with one of the arbitrators, which might have caused bias. The Tribunal found that the right to effective representation is pitted against the right to effective and unbiased proceedings. After due deliberation, the Tribunal found itself empowered to rule on this issue by virtue of Article 44 of the ICSID Convention.

    Rompetrol Tribunal

    The Respondent in the Rompetrol decision cited the Hrvatska decision as the sole authority to bolster their argument regarding ICSID Tribunals’ authority to exclude counsel from the proceedings. The Tribunal found it has inherent power to exclude counsels under Article 44 of the ICSID Convention but refused to exercise the same in the present dispute. According to this Tribunal, this power should only be used in exceptionally uncommon circumstances where the integrity of the whole proceeding is in question/dispute.

    Edmond and Fraport Tribunals

    In the decision rendered in the Edmond dispute, the Tribunal reiterated that it has the power to exclude the participation of counsel under Article 44 of the ICSID Convention. In this case, both parties agreed to this power of the Tribunal without any disagreements. The Tribunal again emphasized using this power sparingly and only in certain circumstances. It should be used only to protect the proceedings’ integrity and fairness and to ensure the parties’ equality. The Tribunal heavily quoted from the Fraport decision, reaching a similar conclusion. The Fraport Tribunal also imposed the necessary contours of “ensuring fair conduct of the proceedings” while exercising its power under Article 44 of the ICSID Convention.

    Theodore Einarsson Tribunal

    Another crucial decision in this aspect is of the Theodore Einarsson Tribunal, where the Tribunal while deliberating on the removal of a counsel, outlined that the ICSID Tribunals do not have the power to police the compliance of counsels with their deontological or ethical mandates imposed by any local code/rule. These ethical constraints are generally introduced by a local code governing the professional conduct of the lawyer practicing thereof. They include the duty to not discontinue representation without a good cause or the commitment to confidentiality. It reasoned that since the removal of counsel attacks the core of the fairness of proceedings, it is a mandate of the ICSID Tribunal.

    The Contours of the Power of ICSID Tribunals to Control Representation of Counsels

    The Tribunals in all the above-quoted disputes have reasoned that the power to remove counsel is exercised to ensure the fairness and integrity of the proceedings. In both the decisions in Fraport and Theodore, the Tribunals refused to look into the counsel’s deontological or ethical mandate. They found it outside the purview of their authority and a question that is to be decided by local or regional courts.

    It can be understood that the ICSID Tribunals have been reluctant to rule on anything else apart from simply the participation of a counsel. The Author believes that the power to exclude includes the power to retain counsel by overriding the parties’ choice. In simpler words, there are instances where the Client/Party does not want their counsel to continue. The Tribunals have the power to order the continuation of their representation against the party’s wishes. One crucial aspect is the conditions or situations where a counsel can be removed from the ongoing proceedings.

    Ruling on Counsel’s request for removal

    The five above-referenced awards do not concern any situation where the Tribunal was required to address a counsel’s request to resign. Almost all of them had some bias or conflict between the challenged counsel and an arbitrator. There may arise a situation where the counsel wishes to resign, whether voluntarily or per the desire of either party that wants their counsel to discontinue representation. In these scenarios, as already stated, the courts generally use their wisdom to decide based on every case’s peculiar facts and circumstances.

    Generally, counsels decide to withdraw their representation when there is a breakdown of any attorney-client relationship. Simply put, it is when the attorney has lost faith in his client and their case or vice versa. It is broken down to such an extent that the representation would only harm the client’s case. Also, it is essential to note that the withdrawal should not cause undue or unreasonable delay to the proceeding. This also means that there should be no prejudice caused to parties involved by the ‘withdrawal of a counsel’.

    In the Jean-Boscotrial, the International Criminal Tribunal (hereinafter “ICT”) for Rwanda denied withdrawal/replacement of counsel because of the possibility of undue delay in the proceedings that would cause prejudice to the parties. It was highlighted in the Jean-Bosco decision that new counsel needs to acquaint themselves with the facts, documents, and figures of the existing case. Sometimes, this process of getting acquainted with everything also causes an undue delay in the proceedings, and the Courts have rejected the withdrawal for this reason of delay. This similar reasoning was also employed by the ICT for Rwanda in the Jean-Bosco Trial to decide on dismissing the withdrawal/replacement of counsel.

    Suggestions and Conclusion

    There is an apparent dearth of awards and decisions by ICSID Tribunals on the issue of counsel withdrawal/exclusion. The available awards reiterate the similar reasoning applied by the Tribunals in every dispute. There seems to be a well-founded reluctance by ICSID Tribunals to adjudicate over counsel’s withdrawal or exclusion with full vigor. ICSID Tribunals are constituted mainly to resolve the dispute between investors and States. The contours of a Tribunal’s powers are well-defined in the ICSID Convention, Rules, and Regulation. Thus, the Tribunal finds itself in a quagmire or conundrum where the chances of overreach exist. In light of various awards highlighted in this article, it is abundantly clear that the ICSID Tribunals have discovered their inherent power to decide on any question of “procedure” of the dispute flowing from Article 44 of the ICSID Convention. Issues of counsel’s conduct and obligations are not the mandate of ICSID Tribunals. If the Tribunals are given unfettered power to decide upon the issue of counsel’s ethical obligations, it will open a floodgate of fresh proceedings and further cause delay. This would defeat the purpose of arbitration proceedings, where the primary aim is to promote expediency and efficiency.

    If a further step could be taken, the ICSID Convention should insert an explicit provision defining the power of its Tribunals to decide upon the issue of counsel resignation/removal in cases of apparent bias/conflict with the arbitrator or irrevocable breakdown of attorney-client relationship. To develop their contours or limits, the Tribunals may take assistance from decisions of local courts and international tribunals where the issue of counsel resignation has been discussed in length.

  • Asymmetric Jurisdiction Clause: A note on determining transnational jurisdictional dispute 

    Asymmetric Jurisdiction Clause: A note on determining transnational jurisdictional dispute 

    By Manan Mondal, An SLS, HYDERABAD law graduate

    In general a jurisdiction clause dictates the forum where parties want their disputes arising under the terms of the agreement to be determined before a Competent Court with necessary jurisdiction. However, with present day drafters of finance agreements containing a limited jurisdiction clause, termed asymmetric jurisdiction clause, have created an unnecessary stir in determining the competent jurisdiction. The present analysis sheds some light towards deciphering the jurisdictional turmoil.

    What is Asymmetric jurisdiction?

    Herein parties decide the jurisdiction of the Court or Courts to adjudicate the dispute, allowing one party, usually the lender, to sue the other party, generally the borrower, in any Court of law but preventing the borrower from proceeding in any Court except the one with exclusive jurisdiction.

    For instance, through the terms of the contractual arrangement, in an Asymmetric Jurisdiction Clause between X and Y, Y has limited authority over particular designated jurisdiction named A, while X has jurisdiction to sue in any Court under such a clause. Hence, the terms of an Asymmetric Jurisdiction can also be understood as an exclusive choice of Court or devolving a choice of jurisdiction upon a particular Court, as opposed to the essential factors followed in our domestic Civil Procedure Code, 1908.

    Now, this liberty of choosing any Court to refer the dispute by the party with broader jurisdiction casts a few fundamental questions, i.e., whether such a Court will be stricto sensu ‘any Court’ or a Court of ‘Competent Jurisdiction’? And whether there exist any judicial opinion to determine the competence of a ‘Court’ in a transnational dispute?

    Generally, a non-symmetric jurisdiction draws its sustenance from two primary legislation of the European Union- the Brussels Regulation (Recast) and the 2005 Hague Convention. However, following the Brexit, the Brussels regulation is no longer a valid authority post-December 2020 in the United Kingdom. Parties are constrained to find shelter under the 2005 Hague (Choice of Court Agreement), making it difficult for them to navigate through turbulent jurisdictional waters.

    The Dissonance between Exclusive jurisdiction and Asymmetric jurisdiction

    The Hague Convention relates to an ‘exclusive’ choice of Court arrangement under article 3(a). This exclusivity must be mutual, and a clause stipulating the parties to either sue in a limited jurisdiction or in any other Court will not be an exclusive choice of court, since it designates more than one Court as the venue for dispute resolution. However, different types of arrangements are still valid in determining the suitable jurisdiction, and the 2005 Hague Convention does not protest such domestic legislations towards determining of Court’s adjudicatory authority. Therefore, ‘Exclusive Jurisdiction’ is when the Court of one contracting party is designated to decide the dispute to the exclusion of other jurisdictions, provided the transaction is international. An asymmetrical clause makes this choice of Court a contractual agreement, with the chosen forum applying its laws and procedures, even if the proceedings are running concurrently in another jurisdiction. And the party resisting the choice of agreement needs to establish exceptional circumstances to save itself from this jurisdictional bargain.

    In the English case of Commerzbank AG v Liquimar Tankers Management Inc, (‘Commerzbank AG‘) the issue before the Hon’ble High Court was whether the asymmetric jurisdiction clause is akin to the exclusive jurisdiction clause within the Brussels Regulation (Recast). As per article 31(2) of the Brussels 1 Recast, the jurisdiction agreement confers exclusive jurisdiction on the Courts of an EU member state; but this notion is true when any EU member state has been granted a limited jurisdiction, as in the instant case. Furthermore, Etihad Airways PJSC v Flother [2020] confirmed that the agreements conferring jurisdiction on the Courts of member states through an asymmetric clause would be akin to an exclusive jurisdiction clause. Thus, dictums flowing through article 31(2) of the Brussels 1 Recast will render concurrent judicial processes in other destinations redundant, an absurdity under the 2005 Hague Convention.

    Hence, according to Justice Cranston in Commerzbank AG, the asymmetric jurisdiction is akin to the exclusive jurisdiction clause, and the parties can sue only in the agreed or designated Court, deriving the ratio from Mauritius Commercial Bank Ltd v. Hestia Holdings Ltd ], where it is rightly held the party with the broader jurisdiction can sue in any Court with ‘competent jurisdiction’ the term ‘any Court’ symbolizes a Court with the necessary authority to hear the same.

    Conferring Jurisdiction in Asymmetric Clauses

    An asymmetric choice of court agreements, where only limited freedom to determine the courts having jurisdiction is allowed, should be respected. The jurisdiction of any alternative court depends on whether that Court has personal or subject matter jurisdiction.

    In the seminal decision of Apple Sales International v eBizcuss: Cass. 1ere Civ, (‘Apple Case‘), a dispute between companies incorporated in France and   Ireland, respectively, arose. They entered into an agreement containing an asymmetric clause and agreed that disputes would be decided by the Courts of the Republic of Ireland. However, the clause also allowed the Irish company to resolve disputes before the Court of counterparty’s registered office or in ‘any country’ where it suffered loss caused by the counterparty. The Irish entity then argued that the French Commercial Court did not have the necessary jurisdiction vide the asymmetric clause, and Courts in Ireland had the sole jurisdiction. Under these circumstances, following the afore-established rule of jurisdiction and competency, Ireland must have had broader jurisdiction. In contrast, the French entity had limited jurisdiction over Courts in the Republic of Ireland.

    However, the French Supreme Court took a different stance on the issue of asymmetric jurisdiction in X v Banque Privée Edmond de Rothschild. It observed that the asymmetric clause would be upheld provided there is no unilateral jurisdiction clause, failing the core purpose of the clause. In the Apple Case, it was not open to the entities with the benefit clause to choose jurisdiction in any country; the flexibility of selecting jurisdiction is limited to the registered office or where any loss was caused, and the other party has suffered. The French Supreme Court made it clear that asymmetric clauses are to be avoided that allow a single party to apply to any jurisdiction of its choosing unless other possible forums with competent jurisdiction can be objectively determined and applied.

    These French dictums might appear contrary to the notable English decisions in the Commerzbank AG and the Hestia Holdings case. Still, we can establish a faint connection that the flexibility of wider jurisdiction in the hands of one party is not an infinite ray of jurisdiction. It bends before the need of necessary subject matter to such unimpeded jurisdiction.

    Conclusion

    Let’s take an illustration wherein X is conferred the wider jurisdiction to unilaterally approach any Court through the asymmetric clause and Y to the limited jurisdiction A. Whether in such circumstances, it is fair for the transnational parties in an agreement to choose any Court, destination B, which is outside the knowledge of Y? And would the decision by the Courts of such country B have any bearing on the parties? It is a visible hurdle in these limited jurisdiction clauses.

    In the case of Dr Jesse Mashate vs Yoweri Museveni Kaguta , theEnglish Court has tried to answer this riddle. In this case, an overseas party was subjected to the jurisdiction of the English Courts, and necessary summons was served. However, the overseas party failed to submit the necessary defence or any document intended to protect; consequently, the Court issued a default judgment under the English Civil Procedure Rules.

    The Court of Appeal construed that before involving a party to the jurisdiction of the English Courts, i.e., destination B, the party A, with flexible jurisdiction, must explain why such Court has an authority over the dispute and the party be subjected to such jurisdiction. Otherwise, an overseas party must not be vexed with proceedings lacking substance, who bear no other allegiance to the English Courts’ jurisdiction must not be vexatiously subjected to service upon them of process issued out of English courts. Therefore, an applicant to serve out of the jurisdiction must explain the reason behind conferring jurisdiction and how the overseas party is subjected to the exorbitant jurisdiction of that unilaterally chosen Court.

    Hence, the term ‘any Court’ and ‘competent jurisdiction’ are intertwined in financial agreements containing asymmetric clauses. The asymmetric clause is not an agreement to confer jurisdiction where none would otherwise exist; rather it limits the power of one party to approach a certain court, and expands for the another to ‘any Court’. It preserves the right to sue in any court which would reserve itself as competent by establishing a link with the subject matter; otherwise, an infinite ray of broad jurisdiction will be unnecessarily exorbitant on the parties to the agreement.

  • Host States: The Perpetual Respondents in Investment Arbitration?

    Host States: The Perpetual Respondents in Investment Arbitration?

    By Vaidehi Balvally, a fourth-year student at HNLU, Raipur

    Here is what international investment arbitrations conventionally look like: a company contracts with a country to invest in mining, power plants, electricity, waste management, or other similar sectors. Apart from this investor-state contract, there exists a state-state international investment agreement between the home state of the company and the host state of investment, typically a Bilateral Investment Treaty (‘BIT’). This BIT guarantees investors of both states procedural rights (e.g. the right to an investment claim) and substantive rights (e.g. right against expropriation by host state). Upon breach of such rights under the contract or the BIT, a claimant-company can opt to institute an investment arbitration against the respondent-host state. 

    Off-balance access to the filing of claims

    In response to the filing of an investment claim, host states have often chosen to file counter-claims (albeit unsuccessfully, barring a few exceptions). However, it is exceptionally infrequent for host states to institute claims independently before investment tribunals. International Center for Settlement of Investment Disputes (‘ICSID‘) data exhibits that host states have largely either turned to domestic dispute resolution or worse, traded human rights for investment-friendliness (as in the case of Urbaser v. Argentina). 

    Only five cases under ICSID have moved past the jurisdictional and investor-consent barrier: Gabon’s proceedings against Société Serete S.A. which ended in a settlement (1976) (i); Tanzania’s case against a partly-owned Malaysian corporation (1998) (ii); an Indonesian province’s proceedings which failed since the province could not represent the host state (2007) (iii); Equatorial Guinea’s conciliation proceedings with CMS, which failed in coming to a settlement (2012) (iv); and a Rwandan government company’s case against a London-based power plant operator which is pending (2018) (v). 

    This asymmetry in filing claims before investment tribunals is not without good reason. Investment arbitration was created to protect foreign investment, and in turn, the investors from unbridled use of sovereign power by host states. Consequently, BITs rarely accord investors with substantive obligations, similar to third-party beneficiaries in contracts, and if host states do premise their substantive cause of action upon the BIT, the BIT either is silent or confers incomplete procedural rights to bring forth a claim. 

    It is pertinent to note that all former claimant-state cases have only been based on rights conferred to host states under the investor-state contract. This implies that in the absence of BIT-based rights to investment arbitration, inequitable contracts will continue to remain unaddressed, with a change in BIT structure offering a much-needed resolution forum. 

    Possible solutions

    UK’s BITs are oft-cited as including a model clause which not only confers upon the host state a right to initiate arbitration but also establishes investor-state privity by drafting in the investor’s consent for all disputes brought forth the host state. 

    However, even with a procedural right to proceed to arbitration, most BITs are silent on substantive rights for host states. A solution adopted when the investor suffers only from contractual but not treaty-based breaches, is the use of an ‘umbrella clause’ in BITs which encompasses rights conferred upon investors in an investor-state contract into the larger umbrella of the BIT. Thus, an investor can sue for contractual breach claims in investment arbitration, the jurisdiction of which was established under the BIT, followed in Noble Ventures v. Romania, SGS v. Philippines, and Eureko v. Poland amongst others. Drawing a parallel from this solution, a reverse umbrella clause would allow the institution of investment arbitration by host states in case of a contractual breach, and was similarly used in Roussalis v. Romania to allow filing of counterclaims.  

    Breeding good governance

    After establishing how host states could be equipped with claimant’s rights, prudence demands a look at why host states should begin relying on investment arbitration more than they historically have:

    • Often, states dependent on foreign investment are hosts to judicial systems which do not fulfill rule-of-law requirements, while investment arbitration is systemically more impartial than domestic courts of host/home states. Moreover, it affords host states an international enforcement mechanism, the likes of which are unavailable for locally adjudicated decisions. 
    • Developing states of the global south are especially vulnerable to exploitation by investors with an economic prowess that parallels their whole economies. Conversely, if the judicial systems are entrenched with judicial corruption, host states may want to take a lesson from the Lago Agrio case to preserve their reputation as investment-friendly states by approaching the international investment tribunals in the first place. 
    • The adjudicatory mechanism of the host states may also be exceptionally drawn-out or unreliable, which may eventually lead a party to file for investment claims with a tribunal. To elaborate India was found guilty of a BIT breach for being unable to process investor claims locally for over nine years in White Industries v. India.
    • Another advantage for host states may be the unavailability of appeal against investment arbitration awards except to have them annulled, as opposed to the layered domestic judicial systems. Accounting for the standard of care exercised by tribunals in ensuring that it reaches the most equitable decisions, the time and economic resources invested by parties of the process are significantly lower, especially if the claimant believes it has a strong case. 
    • Even if none of these ring true for a host state, foreign investors commonly operate only out of a domestic investment vehicle in the host state, and enforcement of a decision extra-territorially may not be an option. Alternatively, extra-territorial investments may be of significance in a dispute, which lie outside domestic jurisdiction.

    Conclusion

    The number of cases that were filed under ICSID by host states but failed, if we include state-owned enterprises, have tripled in the past decade. With 70% of all investment arbitration favouring investors in 2018, the resultant backlash of host states against international investment arbitration is understandable. The reasons for this lack of trust by host states or their subsequent failure in investment arbitration has its roots in state-state BIT and investor-state contract construction, which can be remedied. 

    The drafters of the ICSID Convention were wary of investment arbitration turning into a mechanism akin to the domestic judicial review of regulatory measures and appended a report endorsing equality of access to investment arbitration to investors and host states. In contract to commercial arbitration where parties are private actors, host states intervene to secure serious human rights for its populace (water, electricity, labour rights). If this discourse of delegitimisation prevails, conduct incompatible with public welfare will lose its international voice.