Boies, Schiller & Flexner Report - July 2015
Recent Developments in International Arbitration
By Wendy Miles QC
The recent $50 billion arbitration award against Russia in its dispute with Yukos shareholders has focused attention on international arbitration as a means of resolving major foreign investment disputes. It is the latest and largest in a number of billion-dollar arbitration awards that have been made public in the last few years. Many more remain confidential. Increasingly, multinational corporations and investors are looking to both international commercial arbitration and investment treaty arbitration to protect their overseas investments and positions.
The Yukos case began in 2005, when former shareholders of Yukos Oil Company started an investment arbitration before an arbitral tribunal administered by the Permanent Court of Arbitration (PCA) in The Hague, alleging that Russia had broken its obligations under the Energy Charter Treaty by expropriating the company’s assets. The arbitral tribunal held unanimously that Yukos was the object of a series of politically motivated attacks by the Russian authorities, and awarded damages of $50 billion to the former shareholders.
Other large quantum awards include Dow Chemical Co. v. Kuwait and Occidental Petroleum Corp. v. Ecuador, both in 2012. Dow Chemical brought an International Chamber of Commerce (ICC) arbitration claiming damages after Petrochemical Industries Co. of Kuwait backed out of a joint venture agreement during the global financial crisis. The tribunal awarded Dow, the foreign investor, $2.2 billion in 2012. In the case of Occidental, the investor went to arbitration at the International Court for the Settlement of Investment Disputes (ICSID) after Ecuador terminated a contract and seized Occidental’s wells and drilling equipment. The tribunal ruled that while Occidental was in breach of the agreement, Ecuador’s response was disproportionate, and it awarded Occidental $1.77 billion plus interest.
Meanwhile, a series of disputes over delays and cost overruns in the Panama Canal expansion, reported to involve some $1.6 billion, are being heard by the Miami International Arbitration Society.
Beyond the headline-grabbing public cases, there are other signs that arbitration is enjoying a surge in popularity. One is the rise in caseloads reported by the major international arbitration institutions, including the ICSID, which comes under the auspices of the World Bank; the ICC’s International Court of Arbitration; the London Court of International Arbitration (LCIA); and the Singapore International Arbitration Centre (SIAC). Another sign was the opening of the ICC’s New York office in 2013, where it now administers many of its North American and Latin American cases, as well as the opening of the International Arbitration Center facilities in New York the same year.
As the caseloads increase, arbitral institutions have taken a number of steps to streamline procedures. In October 2014, the LCIA issued new arbitration rules aimed at speeding up proceedings, such as the wider use of electronic submissions and a requirement that arbitrators declare that they are able to devote sufficient time to ensure an expeditious arbitration (a step put in place by the ICC Court of Arbitration some years earlier). In 2012, the ICC Court of Arbitration updated its case management procedures further to improve the speed, efficiency, and cost-effectiveness of arbitration.
A number of major arbitral seats have also recently taken steps to ensure that their national arbitration laws and judiciary continue to provide relevant and up-to-date support to meet ever-evolving needs. In Asia, Hong Kong’s 2011 Arbitration Ordinance requires arbitrators to avoid delays and expense, while Singapore has proposed to set up an International Commercial Court with wide jurisdiction over dispute resolution.
The increasing popularity of international arbitration to resolve cross-border disputes can be attributed to at least four factors. The first is that arbitration agreements and awards are enforceable under the New York Convention, which requires courts in signatory states to recognize valid private arbitral agreements and enforce valid arbitration awards made in other signatory states. The second is that arbitration is usually conducted in private, allowing participants to protect confidential business information from the public scrutiny that can accompany litigation in court. The third factor is the flexibility of arbitration, with a choice of seats and governing institutional rules to select from, depending on the particular situation. But perhaps the biggest reason to choose arbitration is its perceived neutrality. A corporation making a major investment in a foreign state may view the host state courts as potentially hostile. A private arbitral tribunal appointed by the parties, based in a neutral seat, and procedurally governed by a fair arbitration statute and institutional rules is more likely to be acceptable to both parties.
Clients who are about to engage in foreign investment or cross-border deals have many options when it comes to selecting the best forum to resolve disputes that may arise. Home courts may be the most advantageous jurisdiction to the investor but may be unacceptable to the foreign state or other counterparty. Under those circumstances, international arbitration is likely to be the way to go.
Wendy Miles QC joined Boies, Schiller & Flexner in London in September 2014 and heads the Firm’s International Arbitration practice.