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    Esin / Arbitration Quarterly - September 2023

    1. Significant court decisions in the last trimester concerning arbitration

    1.1 Decision of the 14th Civil Chamber of the Istanbul Regional Court on timing of raising the arbitration objection1

    The dispute between the parties arose from an amendment extending the term of a surety agreement. The parties have agreed that the disputes arising from the surety agreement will be resolved through arbitration. The plaintiff initiated execution proceedings for the collection of the receivable deriving from the general loan arrangement and surety agreement. Thereafter, the defendant objected to the execution proceedings and the plaintiff therefore initiated an action for cancellation of the objection to be able to proceed with the execution proceedings. The action for cancellation of the objection was initiated before Turkish courts despite the existence of an arbitration agreement, therefore, the defendant raised an arbitration objection against the jurisdiction of Turkish courts. The arbitration objection was upheld by the court, which then dismissed the plaintiff’s lawsuit on the basis of lack of jurisdiction.

    The plaintiff appealed the decision of the court of first instance and argued that the arbitration objection was not raised during the mandatory mediation phase, and that raising this objection for the first time during the execution phase is against the principle of good faith. In addition, the plaintiff argued that the arbitration clause in the surety agreement was invalid as the parties’ intent to arbitrate was not clear and definite due to the general loan agreement having a clause referring to the Turkish courts’ jurisdiction instead as arbitration.

    The 14th Civil Chamber of Istanbul Regional Court concluded that not raising the arbitration objection during mediation is not contrary to the principle of good faith. The regional court further emphasized that the surety agreement was an annex to the general loan agreement and that the respondents’ guarantee was provided for the purpose of securing the performances set out in the general loan agreement. Therefore, choice of arbitration in the surety agreement cannot be considered as invalid due to the clause regarding the jurisdiction of the Turkish courts in the general loan agreement. As a result, the regional court dismissed the plaintiff’s appeal and upheld the court of first instance’s decision.

    1.2 Decision of the 11th Civil Chamber of Court of Cassation on validity of the arbitration agreement2

    The dispute between the parties arose from a personal guarantee agreement that included an arbitration clause as an annex. The parties had agreed that any disputes arising from this agreement should be resolved in accordance with the Arbitration Rules of the International Chamber of Commerce (ICC) (“ICC Rules”). Although the parties had chosen German law as the governing law of the extension agreement (for the personal guarantee agreement), they had not determined the law to be applied to the arbitration agreement in the annex.

    The bank (defendant in the set-aside proceedings) initiated arbitration against the guarantor in connection with prolonging the guarantee term and obtained an arbitral award. The guarantor (plaintiff) then initiated setaside proceedings against the arbitral award in Türkiye, claiming, among others, that (i) the arbitral tribunal unduly applied German law during the arbitration and falsely found itself to have jurisdiction, (ii) the arbitration agreement was not signed and therefore does not meet the formal requirement for validity, (iii) the arbitral tribunal breached the principle of equality of the parties by assisting the defendant in proving its damages, and (iv) the arbitral tribunal inaccurately found itself to have the authority to decide on the penalty for the unjust objection to the execution proceedings. The guarantor thereby requested the arbitral award to be set-aside. On the other hand, the bank argued that formal requirement to execute a valid arbitration clause had been satisfied and the parties had chosen German law.

    The regional court determined that the annex extending the term of the personal guarantee agreement contains a provision that the parties would submit any dispute relating to the agreement to arbitration under the ICC Rules and that this annex was signed by the plaintiff. The regional court further ruled that the arbitral tribunal finding itself authorized, in principle, to rule on penalty for the unjust objection to the execution proceedings was not contrary to public order and, therefore, did not constitute a ground for setting-aside. As a result, the setaside lawsuit was dismissed by the regional court. This judgment was appealed by the plaintiff. The Court of Cassation dismissed the request for appeal with the same reasoning as the regional court.

    1.3 The Permanent Court of Arbitration renders its award on proceedings under the Indus Waters Treaty

    The Permanent Court of Arbitration (PCA) has issued its Award on the Competence of the Court (“Award”) in an arbitration initiated by the Islamic Republic of Pakistan against the Republic of India. The dispute relates to a disagreement between Pakistan and India regarding the design of a hydro-electric project in an Indian river called KHEP and whether it is in line with the Indus Waters Treaty signed between the parties in 1960. The PCA ruled that its jurisdiction remains unaffected by India’s absence in the proceedings, and it has the authority to determine its own jurisdiction as per Paragraph 16 of Annexure G to the Indus Waters Treaty 1960 (“Treaty”). The PCA acknowledged that the issues raised in Pakistan’s Arbitration Request represent a dispute under Article IX(2) of the Treaty. It confirmed that the current proceedings align with Articles IX(3), (4), and (5) of the Treaty, and the PCA was correctly constituted in accordance therewith. The PCA also established that the appointment of a neutral expert at India’s request by the World Bank doesn’t impede the PCA’s jurisdiction per the Treaty. The PCA therefore deemed itself eligible to examine Pakistan’s arbitration request, and any matters left undecided are held over for future consideration.3

    2. Other developments in the arbitration practice

    (a) Albania introduces new arbitration rules to attract foreign investment

    As we reported in the previous edition of Esin Arbitration Quarterly, the Albanian Parliament passed a new arbitration law, which not only follows the 1985 United Nations Commission on International Trade Law (UNCITRAL) Model Law, but also contains elements of influence from the arbitration laws of Germany, Italy, France, Spain, Kosovo, Croatia, and Serbia.

    This new legislation sets up a comprehensive legal structure that applies to all domestic and international arbitrations in Albania, in addition to managing the enforcement or revocation of any arbitral awards under its jurisdiction. The draft law empowers the arbitral tribunal to decide on its own jurisdiction and allows parties the liberty to determine the law that will preside over their conflict. In situations where the parties fail to decide on a governing law, the principles of private international law or relevant Albanian statutes will come into effect.

    The new legislation requires arbitration agreements to be in written form meaning that any oral agreement will be deemed invalid. Furthermore, the draft law explicitly states that the arbitration clause can be concluded independently from the main agreement. The draft law further outlines the process for setting-aside awards, stipulating that they must be filed before the Court of Appeal. Valid grounds for setting-aside include where one party is incapacitated, the governing law deems the principal agreement unlawful, or if the award conflicts with public policy. The draft law makes it so that the parties cannot further appeal to the Supreme Court where the Court of Appeal has ruled on the potential setting-aside of the arbitral award.

    The draft law permits the parties to the arbitration to decide on the number of arbitrators; however, if no consensus is achieved, the arbitral tribunal will consist of three arbitrators. The draft law further introduces important qualifications for the arbitrators, such as not having criminal convictions and maintaining impartiality and independence from the parties. The draft law allows for parties to challenge an arbitrator where they fail to comply with mutually agreed-upon criteria or has had previous advisory or testimonial roles for one of the disputing parties. The requirement of impartiality further extends to the spouses of the arbitrators to ensure that neither the arbitrator nor their spouse has a familial or professional interest in the case.4

    (b) Hungary’s bold move: Shaping arbitration in construction disputes

    The Hungarian government has implemented a new provision in Act XXXI 2023, which enables the courts to set-aside arbitral awards rendered in relation to construction disputes if the arbitral tribunal fails to consider expert opinions issued by the Jeliesitésigazolási Szakértői Szerv (TSZSZ), a board of technical experts. This change was adopted by a recent act amending the Hungarian Arbitration Act 2017. The TSZSZ provides technical opinions on performance and fee claims in construction disputes.

    With the implementation of the new provision, the arbitral tribunals are now obligated to consult the expert opinions of TSZSZ and are required to justify their decision if they choose not to rule in line with an expert report. The new provision introduces a third ground for setting-aside awards, in addition to the grounds of non-arbitrability and public policy, in line with the UNCITRAL Model Law. However, experts have expressed concerns about the independence of the TSZSZ and its impact on the integrity of arbitration and its international application. Some practitioners believe that the provision may create uncertainty but is unlikely to have a significant impact on practice. The applicability of the amendment to pending cases is also under discussion. Despite some concerns, the President of the Hungarian Arbitration Association stresses the importance of maintaining Hungary’s reputation as a safe place for arbitration and the pro-arbitration stance of its courts.5

    (c) Cloud-based technologies to supplement ICC Case Connect

    ICC has announced its partnership with tech specialist Opus 2 to build a new case management system that will complement the existing ICC Case Connect, which is a case management platform that was launched in 2022 that allows its users to securely share relevant documents and is accessible to all case users.

    This collaboration follows the ICC Dispute Resolution Services 2023 pledge to become a pioneer in the transformation of dispute prevention and resolution by magnifying the benefits of a digitalized economy and harnessing technology.

    The ICC believes that the new ICC Case Connect, which will be released in 2024, will be the “first of its kind to manage the scale and complexity of cases managed under the ICC Rules of Arbitration and ADR” and will allow its network to handle the volume of cases with ease.6

    (d) New code of conduct for arbitrators

    As we reported in the previous Esin Arbitration Quarterly,7 UNCITRAL and the International Centre for the Settlement of Investment Disputes (ICSID) collaborated on a code of conduct for arbitrators in investor-state disputes, which has finally been adopted by UN member states during UNCITRAL’s 56th annual session held in July 2023 in Vienna.

    The ICSID has revealed its intention to engage in further consultations with its member states regarding the possible application of the code to ICSID proceedings. Nonetheless, the code will be applicable to arbitration proceedings if the parties agree on its application or as required in the arbitration agreement (instrument of consent).

    The initial draft of the code of conduct, introduced in 2020, included provisions limiting the number of cases arbitrators can handle concurrently, introducing penalties for unethical conduct, and implementing measures to prevent “double-hatting” – the practice of arbitrators also serving as counsel or experts in other Investor-State Dispute Settlement (ISDS) cases.

    The practice has been a subject of contention, with arguments spanning from its alleged impact on arbitrators’ neutrality to the potential benefits of offering them a more comprehensive perspective. According to the finalized code of conduct, arbitrators are prohibited from functioning as legal counsel or expert witnesses in any ISDS case, or similar action involving the same measure or parties, for three years after their arbitration role. In situations where the same provisions of the same instrument of consent are involved, the prohibition period gets reduced to a year. However, the code allows for opposing parties to reach an agreement and opt out of these clauses.

    Recognizing the necessity for a set of norms to control the mediation process, UNCITRAL also issued guidelines on the use of mediation in investor-state dispute settlement, which refers to the ICSID rules for investor-state mediation.8

    (e) SVAMC AI Regulations on International Arbitration

    In cooperation with leading technology companies, law firms, ADR organizations, and educational institutions, the Silicon Valley Arbitration and Mediation Center (SVAMC) inaugurated an AI Task Force in February 2023. The 34-person group, under the leadership of Benjamin I. Malek, is dedicated to addressing the distinct issues arising from uncontrolled mishandling of sophisticated AI instruments. In response, the AI Task Force formulated the Guidelines for the Use of AI in International Arbitration (“AI Guidelines”), aiming to substantiate the optimal strategies concerning AI’s application in current and forthcoming arbitration procedures.

    Taking into account the varying legal frameworks that could pertain to an international arbitration case, the SVAMC’s AI Task Force has been bolstered by an eightperson Drafting Subcommittee (“Subcommittee”) tasked with formulating directives for the suitable employment of AI in the global arbitration mechanism. The Subcommittee is reportedly in the last stages of completing the AI Guidelines, aiming to present the preliminary version of the AI Guidelines to a diverse body of esteemed arbitrators and industry authorities in August 2023. This extended involvement strategy seeks to gather knowledge and feedback from experts in the field, with SVAMC planning to make the AI Guidelines public in September 2023.

    After the AI Guidelines are made public, SVAMC will encourage arbitration bodies globally to offer their insights and recommendations regarding these rules. These inputs will be assembled in an exclusive section named “Institutional Guidance to the Guidelines,” which will serve as a thorough review of the regulations.9

    (f) The EU en route to withdraw from the Energy Charter Treaty

    In the wake of unsuccessful efforts to update the Energy Charter Treaty (ECT), the European Commission has proposed that the EU and its member states disengage from the ECT. Presenting withdrawal motions to the EU Council, the Commission emphasizes that an orderly, joint departure, incorporating the European nuclear agency Euratom, constitutes the most logical strategy from a legal and policy standpoint. The ECT, which has remained substantially the same since its inception in the 1990s, is deemed not aligned with the EU’s progressive environmental objectives as outlined in the European Green Deal and the Paris Agreement.

    Commissioners Frans Timmermans and Kadri Simson advocate for the emphasis on renewable energy and future-focused sustainable plans, respectively. Acknowledging potential legal implications, the Commission asserts that the ECT’s sunset clause, which shields investments for two decades following withdrawal, won’t influence intra-EU relations. The Commission recommends a follow-up pact to decipher or implement the treaty in the context of the ECT’s unmodernized state.10

    (g) ICC Commission published guide on “Effective Conflict Management” and report on “Facilitating Settlement in International Arbitration”

    The ICC Commission on Arbitration and ADR has published its ‘Guide on Effective Conflict Management’ and ‘Report on Facilitating Settlement in International Arbitration‘ (“Guide”) aimed at increasing awareness of dispute resolution techniques and facilitating disputes in international arbitration among a wide range of ADR service providers.

    The Guide mainly offers guide and tips to businesses on how to avoid lengthy and exhausting disputes, as well as, maintaining effective dispute management procedures. Firstly, the Guide offers businesses to incorporate a clause into their contracts to include a mediator or a dispute board to assist the parties regarding a potential dispute. Secondly, the Guide also states that the Parties should come to an agreement in relation to a settlement procedure in case an arbitration procedure arises in the future. The Guide to Effective Conflict Management consists of two main sections, namely ‘Proactive Conflict Management’, which covers how businesses can approach conflict management without assistance and, ‘Assisted Conflict Management’ guide, which informs businesses about existing ICC ADR Services and how to effectively use them.11

    (h) From unity to bifurcation: the evolution of the ISDS Reform

    UNCITRAL Working Group III: Investor-State Dispute Settlement Reform (“ISDS Reform”) was drafting a code of conduct for decision-makers in investment disputes, which we have reported in detail in the seventh edition of Esin Arbitration Quarterly.12 Even though the project was initially seen as a feasible and comprehensive instrument, after facing difficulties during development, the draft code was split into two instruments for arbitrators and judges of permanent investment tribunals due to underlying complexities and tensions. Despite the difficulties, the Working Group III chose to go ahead with the code for arbitrators, reflecting the value of compromise and targeted reform. In addition, supporters of systemic reform have pointed out that the draft code is indeed a “low-hanging fruit”, but that it is only an “appetizer” while the EU awaits the implementation of the Multilateral Investment Court (MIC) as the “main course.” Lessons learned from this process include the early separation of reform options, the consideration of flexibility, the definition of implementation mechanisms and the exploitation of existing regulations. The course of the draft code serves as a roadmap for ISDS reform, underlining the need to seek progressive and systemic solutions. The final adoption and application of the draft code by the UNCITRAL Commission remains to be seen, and already has significant implications for the future of alternative dispute resolution systems.13

    (i) ICSID’s new 2023 caseload statistics

    The latest edition of caseload statistics, which were published by ICSID on 9 August 2023, once again illustrates the current trends and dynamics within ICSID arbitrations in the first half of 2023.

    Out of the 45 new cases registered under ICSID in the first 6 months of the year, 40 of them were arbitration cases, with 5 of them being arbitrations under ICSID’s Additional Facility Rules. With regards to the bases of consent in ICSID cases, 50% of cases registered in the first 6 months of 2023 pertained to bilateral investment treaty and ECT related arbitrations, whereas almost 60% of all cases registered under ICSID are arbitrations relating to bilateral investment treaties.

    Furthermore, out of all the cases registered in 2023, almost 50% of the parties involved were from the Americas region.

    On the other hand, unsurprisingly, around 1/3 of the cases registered in the last six months were oil, gas and mining disputes and electric power and other energy related disputes came close second with 15%.

    As of now, out of all appointments of arbitrators, conciliators and ad hoc committee members in 2023, 41% were from Western Europe origin and 15 appointed from France, which equals to only four appointments less than the USA.

    Of all 40 appointments of Chair/Secretary-General made in 2023, almost half of them were women, whereas this number considering all cases under ICSID is only 159 out of 950.14

    (j) DIAC publishes its statistics for 2022

    Apart from ICSID, the Dubai International Arbitration Centre (DIAC) has also shared its statistics for the last year.

    One of the many highlights is regarding the cases registered in 2022. While the previous year’s report illustrated that 271 new cases were registered under DIAC in 2021, the current data shows that a whopping number of 340 cases were registered in 2022 and 160 of them valued between 1-50 million AED.

    Furthermore, out of the 340 new cases, almost half of them were related to construction disputes and commercial disputes were a close second with 27%.

    Finally, parties to the newly registered cases originated from 48 different countries, including Türkiye.

    The report also emphasizes that DIAC will invest in technology and maintain e-case management systems and portals in order to evolve and adapt to the dynamics of the current international arbitration sector.15

    (k) The amendment of the Ireland Arbitration Act 2010 will legalise third-party funding in Ireland

    Ireland has recently passed a legislation permitting third-party funding in international arbitration, which was previously restricted in Ireland with limited exceptions. Accordingly, after the implementation of the Courts and Civil Law Act, which will modify the Irish Arbitration Act 2010, third-party funding will be officially legalised in international commercial arbitration and related proceedings.

    Furthermore, in a recently published consultation paper, the Law Reform Commission of Ireland expands on the advantages and disadvantages of legalising thirdparty funding. The paper argues that allowing thirdparty funding may increase legal costs, as well as give rise to a whole bunch of “meritless” disputes. On the other hand, the paper also sets out that allowing thirdparty funding may also improve the justice system and equality. Furthermore, the paper suggests that legalising third-party funding can “increase the pool of assets available to creditors in insolvency proceedings.”16

    (l) SIAC calls out the public to provide input on the draft 7th edition of the SIAC Rules

    The Singapore International Arbitration Centre (SIAC) has recently announced that it has finalized the draft of the 7th edition of the new SIAC Rules17 (“Draft SIAC Rules”) and that it awaits the international arbitration community’s feedback to revise the draft.

    The Draft SIAC Rules now contains further stipulations in relation to emergency arbitration, multiple contracts, consolidation of joinder and the newly introduced “streamlined procedure”, in order to achieve “efficient and cost-effective user experience.” The Draft SIAC Rules also presents the case management system called “the SIAC gateway.”18

    The public consultation period is between 22 August 2023 and 21 November 2023 and, feedbacks can be submitted through SIAC’s website.

    Conclusion

    During the past three months, the field of international arbitration was busy with development and progress. Just like the weather in Istanbul, the hot topic during the last three months was the adoption of technology and AI in international arbitration. On the other hand, as reflected in the previous issues of the Esin Arbitration Quarterly, the current trend to exit the ECT and the criticism surrounding its compatibility with the Paris Agreement is once again a highlight of the new edition. Last but not least, the recently published ICSID caseload statistics illustrates the mobility in the oil, gas & mining industries as well as the friction between investors and states. We expect to report more on these matters in the next edition of Esin Arbitration Quarterly.


    The original version of this article can be accessed via this link.


    14th Civil Chamber of Istanbul Regional Court File No: 2022/438, Decision No: 2023/610, dated 6 April 2023.

    2  11th Civil Chamber of Court of Cassation File No: 2022/5454, Decision No: 2022/8276 dated 23 November 2022.

    3  You may find more details on the case here.

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    The eight issue of Esin Arbitration Quarterly can be accessed here.

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    10 You may find more details here and here.

    11 You may find more details here.

    12 The seventh issue of Esin Arbitration Quarterly can be accessed here.

    13 You may find more details here.

    14 The ICSID Caseload – Statistics can be accessed through here.

    15 The DIAC Annual Report 2022 can be accessed through here.

    16 You may find more details here.

    17 You may access the draft 7th edition of the SIAC Rules here.

    18 The press release for the Public Consultation can be accessed through here.

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