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ICC Explores Arbitration’s Role in Resolving Complex ESG Disputes

The ICC Commission on Arbitration and ADR recently discussed the role of arbitration in resolving Environmental, Social, and Governance (ESG) issues at a meeting in Paris. Angeline Welsh’s keynote addressed the evolving nature of ESG requirements and the complex legal challenges they present.

ESG duties arise from litigation, voluntary standards, and regulation, with advancements in mandatory ESG due diligence, sustainable financing, and soft law standards. A case study on the 2015 Mariana dam disaster in Brazil highlighted the complexity of ESG disputes.

The discussion emphasized the potential of alternative dispute resolution (ADR) and arbitration in navigating ESG issues, focusing on confidentiality, arbitrator expertise, and handling business and victim conflicts. The need for further research on ESG contract clauses, legal frameworks, causality in climate change cases, and effective remedies was also highlighted, along with the importance of experienced ESG arbitrators and institutional support.

The ICC Commission’s focus underscores the growing importance of ESG disputes and the need for arbitration to adapt.

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ICC Commission on Arbitration and ADR Announces New Leadership and Expanded Membership

The Commission on Arbitration and ADR’s leadership and membership have undergone substantial changes, according to the International Chamber of Commerce (ICC). Twelve new Vice-Chairs have joined the six returning Vice-Chairs on the Commission’s Steering Committee, while Melanie van Leeuwen has been reappointed as Chair for a second term. The new appointments demonstrate the ICC’s dedication to supporting regional diversity and providing equitable representation in both established and developing dispute resolution jurisdictions. Many nations, including Tunisia, Mexico, the United States, Canada, Nigeria, Ireland, Greece, India, Australia, Poland, Switzerland, and Brazil, are represented among the recently named Vice-Chairs.

The Commission now has over 1,400 members from more than 100 countries, a significant increase in membership. Interestingly, the number of in-house solicitors and corporate representatives representing organisations has increased significantly. In order to get closer to gender balance, the new composition attempts to enhance gender, age, professional, and regional diversity.
The Commission has been especially active in the last three years in offering advice on effective dispute resolution, settlement facilitation, the use of technology in arbitration, and disability inclusion. The ICC Guide on Effective Conflict Management, a Report on Encouraging Settlement in International Arbitration, and the highly regarded Guide on Disability Inclusion in International Arbitration are just a few of the recent publications.

Two ongoing projects are a working group on provisions for faster procedures and a task force against corruption. The Commission has reaffirmed its commitment to modifying arbitration and alternative dispute resolution procedures to suit user needs in a fast evolving economic landscape, as seen by its expanded membership and new leadership.

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Debate Explores Viability of Trust Arbitration for Resolving Disputes

At London International Issues Week, experts from Baker McKenzie and Serle Court Chambers debated trust arbitration’s effectiveness in resolving trust disputes. Key issues included its application to unilateral trusts, binding future or unidentified beneficiaries, and comparisons to traditional litigation.

Proponents argued that challenges like enforcing arbitration agreements for all beneficiaries, losing court oversight, and unpredictability under the New York Convention hinder trust arbitration’s success. Opponents highlighted arbitration’s confidentiality, impartiality, flexibility, and quicker resolutions.

The discussion noted the growing interest in trust arbitration, citing The Bahamas’ Volpi ruling, which affirmed arbitral verdicts in trust disputes. The debate emphasized the need to evaluate arbitration’s pros and cons in trust contexts and develop legal frameworks to address its unique challenges.

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Indian Government’s New Guidelines on Arbitration Raise Concerns for Dispute Resolution

The Indian government’s new guidelines on arbitration and mediation for domestic public procurement contracts limit arbitration to disputes under ₹10 crore and require senior officials’ consent for larger amounts. Critics argue this move undermines India’s goal to be an international arbitration hub and may overburden courts by pushing significant disputes into the judicial system. They also point out that the proposed mediation alternative may be ineffective due to government employees’ reluctance to settle, fearing vigilance department scrutiny.

Concerns have been raised that these guidelines prioritize the government’s defense against unfair arbitration rulings over efficient dispute resolution, potentially damaging India’s legal governance and deterring international investors. The Arbitration Council of India has expressed these concerns to the Finance Minister, with many legal experts hoping for a reconsideration or withdrawal of the guidelines to align with efforts to make India a premier arbitration center.

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New Guidelines Address AI Use in Arbitration

Concerns have been raised about the protectionist undertone of these recommendations, which put the government’s defence against unfair arbitration rulings ahead of the advancement of efficient dispute settlement procedures. This strategy would erode India’s dedication to legal governance and discourage international investors who respect dependable dispute settlement procedures.
The Finance Minister has received complaints from the Arbitration Council of India detailing concerns over the recommendations. Many legal experts expect that the government would reevaluate or remove these recommendations because they run counter to efforts to make India a premier centre for arbitration.

The guidelines stress that parties and representatives bear the responsibility of confirming the accuracy of outputs created by AI. Crucially, they specify that arbitrators must retain independent analysis and cannot assign their decision-making to AI.

The rules emphasise that although AI has the potential to increase efficiency when handling vast amounts of data, human judgement should always be used first, especially when making decisions.

These principles, which concentrate mostly on arbitration, supplement current national AI rules. They underscore the need for responsible use and an understanding of its limitations and risks, while also reflecting AI’s rising position in the legal profession.

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Why did SC launch a ‘special Lok Adalat’ today? How long will it last?

The Supreme Court of India launched its first-ever special Lok Adalat to reduce the backlog of pending cases, marking its 75th anniversary. This week-long event, from July 29 to August 2, 2024, allows media cameras inside the courtrooms for the first time. Lok Adalats, established under the Legal Services Authorities Act of 1987, serve as alternative dispute resolution mechanisms designed to facilitate amicable settlements of both pending and pre-litigation cases, including matrimonial disputes, property disputes, motor accident claims, and labor matters.

Chief Justice of India DY Chandrachud highlighted the informal, technology-based approach of the Lok Adalat, urging citizens and lawyers to utilize this opportunity for swift and consensual dispute resolution. The Supreme Court has identified over 2,200 cases for this special Lok Adalat, with seven courts specifically designated for this purpose. The initiative aims to enhance the judicial system’s efficiency and alleviate the extensive backlog of cases.

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UK Supreme Court Affirms Power to Issue Anti-Suit Injunctions for Foreign-Seated Arbitrations

In UniCredit Bank GmbH v. RusChemAlliance, the UK Supreme Court upheld a Court of Appeal decision affirming the power of English courts to issue anti-suit injunctions (ASIs) for arbitrations with foreign seats governed by English law. The case involved RusChemAlliance (RCA), a Russian company, and UniCredit, a German bank, in a dispute over bonds related to a Russian gas plant project. RCA filed lawsuits in Russia against UniCredit, violating an arbitration agreement that mandated English-law ICC arbitration in Paris. UniCredit sought an ASI from English courts to halt the Russian proceedings. Despite the Commercial Court’s initial rejection, the Court of Appeal allowed the ASI, a decision now confirmed by the Supreme Court.

The ruling signifies that English courts can issue ASIs for foreign-seated arbitrations governed by English law, even if the law of the arbitration seat (French law, in this case) does not permit such injunctions. This is particularly significant given Russia’s counter-sanctions allowing legal actions in Russian courts despite agreements to arbitrate disputes abroad. However, the pending Arbitration Bill in the UK Parliament could limit the longevity of this decision. If passed, the bill could restrict English courts’ ability to issue ASIs for arbitrations outside the UK by establishing the law of the seat as the default governing law for arbitration agreements.

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Swiss Federal Supreme Court Limits Appeals on Security for Costs Orders

The Swiss Federal Supreme Court (SFSC) has reiterated how stringently it will consider appeals of interim rulings requiring security for expenses in civil cases. The SFSC made it clear in a ruling on May 6, 2024, that a claimant can only challenge such an order if they can demonstrate an immediate risk of being denied entry to court and prove they are unable to pay the needed security.
Due to apparent liquidity issues, the claimant in this case was compelled to furnish CHF 2 million in security for the defendant’s fees. The SFSC maintained that in order to appeal a decision, the claimant must still demonstrate their incapacity to pay, even in cases where security is needed due to their financial circumstances.

This leads to a scenario that is contradictory in that claimants cannot dispute an order based on financial issues unless they essentially acknowledge having financial troubles.

The grounds for appealing security for costs orders are substantially reduced by the SFSC’s ruling, especially when considering the claimant’s financial situation. Additionally, it might restrict appeals on other grounds, such non-Swiss domicile. This decision effectively makes it necessary for claimants to prove that they are unable to pay security before they can file an appeal, which may in and of itself provide an alternative justification for the first security order.

This ruling emphasises the stringent definition of a “irreparable disadvantage” that the SFSC upholds, which may limit the availability of judicial review in some situations.

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Hong Kong Court Clarifies Distinction Between Arbitral Awards and Interim Orders

The Hong Kong Court of First Instance has issued important guidelines distinguishing interim orders from arbitral decisions, particularly concerning interim remedies. In the cases of G v. N and W v. Contractor, Justice Mimmie Chan ruled that arbitrators’ rulings on interim remedies, despite being referred to as “awards,” were not considered awards. The court referenced the English case ZCCM Investments Holdings, emphasizing that classification should consider substance over form, focusing on factors like interpretation, fundamental rights, resolution of matters, and finality.

Justice Chan highlighted that under Hong Kong’s Arbitration Ordinance, awards and interim measures have different enforcement procedures. Awards follow stricter standards under Parts 9 and 10, while interim orders are enforced under Section 61, which lacks specific grounds for denial. This distinction is crucial for enforcement, legitimate defences, and appeal options. The decisions clarify that interim measure rulings are not definitive determinations of substantive rights and do not qualify as awards under Hong Kong law, aligning Hong Kong’s approach with other jurisdictions and providing clear guidance for arbitration practitioners.

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Japan Aims to Become Asian Hub for International Mediation and Arbitration

Leading Japanese attorney Yoshihiro Takatori is spearheading efforts to position Japan as a significant player in Asia’s alternative dispute resolution (ADR) market, competing with Hong Kong and Singapore. Despite limited experience among Japanese businesses, Takatori sees potential for growth in international arbitration and mediation. The government has made notable advancements in ADR, including the 2017 national economic strategy promoting international arbitration, the establishment of the Japan International Dispute Resolution Centre in Osaka in 2018, and plans for a Tokyo office. Additionally, the Japan International Mediation Centre in Kyoto was established in 2018 to resolve international conflicts and set mediation standards.

Takatori believes Japanese businesses’ familiarity with mediation-like proceedings in domestic courts, where settlements account for 80% of civil disputes, can be leveraged for international mediation. However, concerns remain about foreign businesses’ reluctance to choose Japan due to its reputation for being difficult to navigate. Takatori addresses these concerns by emphasizing the involvement of foreign arbitrators in Japan’s arbitration process. He is actively educating Japanese judges on arbitration and mediation, viewing this effort as an opportunity to enhance Japan’s international reputation in ADR.

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