Esin Dispute Quarterly - December 2024

1. Significant court decisions

1.1 The Constitutional Court ruled that the provisions of the Law on Mediation in Civil Disputes regarding mandatory mediation proceedings before filing a lawsuit for termination of joint ownership was constitutional.[1]

The Constitutional Court of the Republic of Türkiye (“Constitutional Court”) recently made a significant ruling (file no. 2023/178, decision no. 2024/125), published in the Official Gazette on 2 October 2024. The Constitutional Court assessed the constitutionality of the phrase in Article 18/B(1)(b) of the Law on Mediation in Civil Disputes No. 6325, which mandates mediation as a prerequisite before filing a lawsuit for disputes related to the termination of joint ownership. Sorgun Court of Peace alleged that this provision imposes an unreasonable restriction on the right to access to the court, as it does not allow parties to bypass mediation even when it is impractical or impossible to gather all necessary parties. The Constitutional Court ruled that the phrase is constitutional and should not be annulled.

In its objection, Sorgun Court of Peace claimed that the primary challenge in disputes concerning the termination of joint ownership is identifying the involved parties. This type of lawsuit often necessitates additional legal actions, such as obtaining a certificate of inheritance or correcting civil registry records. As a result, the mandatory mediation process could complicate the identification of these parties. However, the Constitutional Court disagreed with this perspective, stating that requiring mediation as a pre-condition for disputes helps resolve issues more quickly and effectively. This approach allows lawsuits to be concluded within reasonable timeframes while also reducing the workload on judicial authorities.

The Constitutional Court further noted that the Mediation Law empowers mediators with various tools to organize the parties involved, ensuring a smooth and effective mediation process.

As a result, the Constitutional Court ruled that the regulation mandating obligatory mediation in termination of joint ownership lawsuits is constitutional and should remain in effect.

1.2 The Constitutional Court annuls the provision of Article 278 of Enforcement and Bankruptcy Law in which the gratuitous dispositions made between the adoptee and the adopter are accepted as donation. [2]

The Constitutional Court recently examined the constitutionality of a provision in Article 278 of the Enforcement and Bankruptcy Law No. 2004. This provision treats all gratuitous transfers between an adopter and an adoptee made within a specified period before insolvency or bankruptcy as donations, rendering them null and void in cancellation of disposition lawsuits.

In its ruling for case no. 2023/200 and decision no. 2024/103, the Constitutional Court found that this provision imposes an unreasonable restriction on property rights and the right to seek justice, as it prevents parties from presenting evidence
or counterarguments regarding whether these transfers were indeed gratuitous dispositions. Consequently, the Constitutional Court ruled that the provision is unconstitutional and should be annulled, with the annulment taking effect nine months after the decision is published in the Official Gazette.

The Constitutional Court’s annulment decision is a further step in protecting property rights and the right to seek justice. This ruling ensures that individuals can present evidence and arguments in legal proceedings, preventing unreasonable restrictions on their  constitutional rights

1.3 UK Supreme Court upheld the Court of Appeal’s decision in UniCredit Bank GmbH V. RusChemAlliance LLC [2024] EWCA Civ 64.

The UK Supreme Court recently upheld the Court of Appeal’s decision in UniCredit Bank GmbH V. RusChemAlliance (“RCA”) LLC [2024] EWCA Civ 64 regarding anti-suit injunction against RCA. [3]

RCA had entered into contracts with a third party for the construction of gas processing plants in Russia. To support these contracts, UniCredit had issued seven on-demand bonds totaling approximately EUR 420 million. The bonds contained arbitration clauses governed by English law and provided arbitration under International Chamber of Commerce (“ICC”) rules, with Paris as the seat.

Following the invasion of Ukraine, the contractors claimed EU sanctions prevented them from finishing the project and refused to return the advance payments. Following that, RCA filed a lawsuit against UniCredit in Russia for EUR 448 million under the bonds. In response, UniCredit sought an anti-suit injunction in the UK to stop the proceedings in Russia arguing that RCA is in breach of the arbitration agreement.

Initially, the High Court granted an interim injunction on an ex parte basis in favor of UniCredit but later declined to make it permanent. The High Court reasoned that, since the arbitration was seated in Paris, French law governed the arbitration process, and thus English courts should not issue an anti-suit injunction. Furthermore, it concluded that even if English law applied, England was not the appropriate forum due to the arbitration’s location.

However, the Court of Appeal of England and Wales (“English Court of Appeal”) allowed UniCredit’s appeal, ultimately granting an injunction that required RCA to discontinue the Russian proceedings.

The Supreme Court upheld the English Court of Appeal’s judgement and decided that the English courts have jurisdiction over anti-suit injunctions where parties have expressly chosen English law as the governing law to their arbitration agreements.

1.4 English Court of Appeal rules out immunity defense to International Centre for Settlement of Investment Disputes (“ICSID”) awards.

English Court of Appeal has ruled that states cannot use sovereign immunity to avoid the registration of ICSID awards against them with its decision in the case numbered [2024] EWCA Civ 1257.

This decision came after Spain and Zimbabwe appealed against the registration of ICSID awards in favor of investors claiming that as being sovereign states, they have jurisdictional immunity before English courts, and therefore they cannot be a party to a proceeding before the English courts. Spain’s appeal involved a €101 million award related to changes in its renewable energy subsidy regime, while Zimbabwe’s appeal concerned a $124 million award over a land reform program.

Spain and Zimbabwe argued that the UK’s State Immunity Act should protect them, but the English Court of Appeal disagreed, saying the ICSID Convention’s wording was clear enough to waive immunity, meaning states cannot oppose the registration of ICSID awards on these grounds. Therefore, English Court of Appeal ruled out both Spain and Zimbabwe’s claims and decided that they cannot deny the registration of ICSID awards against them

1.5 The irregular constitution of the arbitral tribunal caused the Paris Court of Appeal to revoke the ICC award in a 15 Billion Dollar dispute. [4]

The Paris Court of Appeal revoked an ICC award given on 1 September 2016 due to concerns relating to the presiding arbitrator’s independence in accordance with article 1520(2) of the French Code of Civil Procedure, which is related to irregular tribunal constitution. The court emphasized the need to assess an arbitrator’s independence and impartiality by identifying any circumstances that could create reasonable doubt in the parties’ minds. The court found that the presiding arbitrator’s law firm had ongoing business relations with Vivendi (Telecom Italia’s principal shareholder, making it economically interested in the outcome of the proceedings), which were not disclosed during the arbitration. Vivendi’s significant shareholding in Telecom Italia and its involvement in Telecom Italia’s governance were deemed to create a conflict of interest.

The court concluded that these ties constituted an objective conflict of interest, thereby raising reasonable doubt about the arbitrator’s independence. The decision to set aside the award is notable for its reliance on the relationship between the arbitrator’s law firm and a third party interested in the arbitration outcome. The court’s reasoning aligns with the Note to Parties and Arbitral Tribunals on the Conduct of Arbitration, which underscores the importance of disclosing such relationships.

The judgment highlights the necessity for arbitrators to disclose relevant information promptly to avoid conflicts of interest and ensure the integrity of the arbitration process.

1.6 The English High Court has ruled that the identity of a third-party supplying documents to lawyers for litigation is not privileged.

The English High Court has ruled with its decision numbered [2024] EWHC 2573 (Comm) that a law firm must disclose the identity of a consultant that provided a report used in litigation, in case there are suspicions that the report is a forgery.

The case arose from a long-running dispute between Oleg Deripaska and Vladimir Chernukhin concerning a joint venture. Mr. Chernukhin and his associated company Chernukhin Parties alleged that the report submitted by Deripaska and his associated company the Deripaska Parties, was forged, and hence led to significantly inflated damages awarded to Deripaska.

The High Court found that the identity of the consultant was not protected by litigation privilege because it did not reveal any privileged communications or litigation strategy. Therefore, the High Court granted a Norwich Pharmacal order, which requires a third party involved in wrongdoing to disclose information to help identify the wrongdoer.

The decision highlights the court’s approach to privilege and the conditions under which Norwich Pharmacal relief can be granted. It also underscores the importance of transparency and accountability in legal proceedings, especially when there is a strong public interest in uncovering serious wrongdoing.

1.7 Russian Supreme Court declares tribunal with nationals from unfriendly states presumed biased.

On 26 July 2024, the Russian Supreme Court has made a significant ruling that affects arbitration proceedings involving Russia. In the case numbered A45-19015/2023, the Russian Supreme Court decided that arbitrators from countries designated as “unfriendly” by Russia are presumed to lack impartiality and independence. Unfriendly countries list includes the USA, the UK, all EU Member States, Switzerland, and others.

The Russian Supreme Court’s ruling implies that any arbitrator from a country on Russia’s “unfriendly” list is presumed biased unless proven otherwise. This presumption is difficult to rebut, making it challenging to enforce arbitral awards against Russian parties in Russia. As a result, there is likely to be an increase in the appointment of arbitrators from countries not on the “unfriendly” list, such as Turkey, Egypt, the UAE, and China, in cases involving Russian parties. This trend reflects the growing difficulty of navigating arbitration with Russian entities under the current political climate.

1.8 Swiss Federal Supreme Court rules that there is no post-award requirement when proving bias in revision cases for arbitrator independence and impartiality.

On 11 June 2024, the Swiss Federal Supreme Court made key decisions (numbered 4A_288/2023 and 4A_572/2023) regarding the arbitration case between Crescent Petroleum and the National Iranian Oil Company (“NIOC”). The court rejected NIOC’s requests to revise an interim award, which followed the disqualification
of two arbitrators by the ICC Court of Arbitration due to alleged conflicts of interest and bias.

The Swiss Federal Supreme Court ruled that for a revision request to be valid, the grounds for challenging an arbitrator must have existed at the time the award was made, not based on actions or comments occurring years later.

This decision highlights the Swiss Supreme Court’s strict approach to revising arbitral awards, emphasizing that grounds for challenge must be present at the time of the award. The court also noted that post-award comments by an arbitrator do not necessarily indicate bias at the time of the award. This underscores the importance of maintaining the integrity of arbitration and the challenges of revising awards based on later developments.

2. Significant news and developments concerning dispute resolution

2.1 Emotion AI as an alternative modern AI tool to be used in arbitration proceedings and AI’s presence in arbitration.

Emotion AI, also known as affective computing, is a field within artificial intelligence that focuses on recognizing and interpreting human emotions by analyzing facial expressions, voice patterns, and word choices. This technology is growing rapidly, with a market value of around 30 billion USD, and is being used
in various fields such as health, defense, and legal contexts. For example, Walmart uses AI-powered chatbots to negotiate with suppliers.

In international arbitration, emotion AI can enhance efficiency and due process by monitoring participants’ attentiveness, engagement, confusion, and anxiety in real time during hearings. This technology provides immediate feedback, aids in drafting submissions, prepares closing statements, and assesses witness credibility based on emotional responses.

Additionally, emotion AI can facilitate settlements by helping parties understand each other’s perspectives and detect non- verbal signals indicating openness to negotiation. It can monitor multiple individuals in larger arbitration settings, offering insights that human observers might miss. Furthermore, it ensures arbitrator attentiveness by identifying signs of distraction and alerting the tribunal, thus maintaining the integrity of the process without extreme measures like challenging an arbitrator.

However, integrating emotion AI into arbitration must be approached responsibly, addressing ethical concerns such as data privacy and algorithmic bias. Strong data protection, transparency, and adherence to legal guidelines are essential. Participants should be informed about the system, and any documentation generated should be available for review, ensuring human oversight. As technology evolves, emotion AI has the potential to reduce bias and improve emotional assessments, making it a valuable asset in arbitration and beyond.

Besides the advantages of using AI such as efficiency and due process, it also has some risks and disadvantages in areas such as privacy, security, human rights. Especially with the European Union’s AI regulation, the attention given to this topic has increased and it has started to become a more regulated area. Arbitration institutions such as ICC and DIS are also addressing the implications of AI on arbitration. DIS even offers trainings and seminars in this area and focuses on high-risk AI systems, obligations of AI users and disclosure requirements regarding the use of AI in arbitration proceedings. In addition, Germany has drafted a bill for modernisation of arbitration law, which is expected to address and regulate the position and usage of AI and technology in arbitration.

2.2 ICC’s 2023 Dispute Resolution Statistics were announced.

ICC has announced its Dispute Resolution statistics for the 2023 fiscal year. In 2023, a total of 890 cases were registered with the Secretariat of the ICC Court, of which 870 cases were filed under the ICC Arbitration Rules and 20 under the Rules of ICC as Appointing Authority. [5]

In 2023, ICC arbitrations arise from a very broad range of contracts, with the five most frequent types being construction/ engineering (21.2%), purchase and sale (16.3%), purchase/transfer of shares and shareholders’ agreements (8.5%), distribution/ franchising (7.4%), and joint venture/consortium/partnership contracts (4%).

Places of Arbitration

According to the ICC, in 2023, the top five countries chosen as places of arbitration were France (with 99 cases, representing 15% of all locations), the United Kingdom (85 cases), Switzerland (79 cases), the United States (66 cases), and Brazil (34 cases). These were followed by Germany (33 cases), Singapore (30 cases), the United Arab Emirates (24 cases), Mexico (19 cases), and Spain (18 cases). The top five cities most frequently selected for arbitration were Paris (96 cases), London (85 cases), Geneva (49 cases), New York (39 cases), and Singapore (30 cases).

Disputed Amounts

Regarding the claim amounts, approximately 50% of cases filed in 2023 and those pending at the end of the year involved claim amounts between US$ 1 million and US$ 30 million. Nearly 40% of the new cases registered involved amounts not exceeding US$ 3 million, which is the threshold for the automatic application of the expedited procedure provisions for disputes arising from arbitration agreements concluded after January 1, 2021.

3. Other developments from around the world

3.1 An advantageous mechanism for resolving crypto-disputes: Hong Kong Arbitration.

In recent years, the popularity and value of virtual assets, like cryptocurrencies and non-fungible tokens (NFTs), have grown rapidly. These digital assets, authenticated by blockchain technology, have attracted significant investment and changed how we view value and ownership. However, the lack of a universal definition for virtual assets complicates their regulation across different countries. As the crypto-asset industry integrates more into financial markets, the potential for disputes increases. Arbitration is seen as a suitable method for resolving these disputes, especially those arising from contracts involving virtual assets and related Technologies like blockchain and Web 3.0.

Hong Kond is positioning itself as a key hub for digital assets, with the government and financial regulators creating a supportive environment fort he sector’s development while managing risks.

Arbitration in Hong Kong offers many advantages for resolving crypto-related disputes. Hong Kong law recognizes cryptocurrency as property, allowing parties to seek injunctions and enforce arbitral awards against virtual assets. Arbitration provides a neutral forum for resolving multi-jurisdictional disputes, avoiding fragmented disputes and parallel proceedings. Hong Kong awards are enforceable in over 170 jurisdictions, including Mainland China and Macau, thanks to the New York Convention and separate enforcement arrangements.

Overall, Hong Kong’s combination of a sophisticated financial market, internationally aligned regulatory regimes, and a supportive arbitration framework makes it an ideal forum for resolving crypto-related disputes.

3.2 A new office of the Permanent Court of Arbitration will be opened in Delhi.

The Permanent Court of Arbitration (“PCA”) is set to open a new office in Delhi, near the Indian Supreme Court, as announced during a conference celebrating the PCA’s 125th anniversary and the Supreme Court’s 75th. This initiative, stemming from a 2008 agreement and active discussions since 2013, marks the PCA’s sixth office outside The Hague, joining locations in Mauritius, Singapore, Buenos Aires, Vienna, and Hanoi.

PCA plays a crucial role in the landscape of international dispute resolution. By providing a neutral forum for arbitration, the PCA helps countries and entities resolve conflicts efficiently and fairly, which is essential in today’s interconnected world. Its new office in Delhi not only enhances its accessibility but also underscores India’s growing significance as an arbitration-friendly jurisdiction.

3.3 Guidelines for arbitrator disclosure were published by International Institute for Conflict Prevention and Resolution.

The International Institute for Conflict Prevention and Resolution (“CPR”) has introduced new guidelines for arbitrators on how to disclose conflicts of interest. These guidelines aim to address a gap in existing standards by not only specifying what arbitrators should disclose but also how they should make these disclosures. The guidelines are applicable to any arbitration proceedings where conflict disclosures are required, including those under CPR’s own rules. However, they are not intended to serve as standards for courts or institutions to determine if an arbitrator has failed in their duty to investigate or disclose conflicts.

The guidelines recommend that arbitrators maintain an electronic database of key details from previous and ongoing arbitrations, covering at least the past five years. This database should include information about the parties’ counsel and any third parties with a controlling influence or direct economic interest in the case. Arbitrators should also ensure that their conflict checks cover interests and relationships within their law firms.

When drafting a disclosure statement, arbitrators should follow applicable laws and standards, disclosing any information that might raise doubts about their independence and impartiality. If unsure, they should err on the side of caution and disclose the information. If a conflict of interest is found, the arbitrator should decline the appointment. The guidelines also suggest making blanket disclosures about general interests and relationships for transparency.

These guidelines are intended to help arbitrators maintain transparency and integrity in their proceedings. They complement recent updates by the International Bar Association on conflicts of interest in international arbitration.

Conclusion

In this issue of Esin Dispute Quarterly, we explore rulings from various Supreme Courts, Constitutional Court, and the Regional Court of Appeals. We delve into a myriad of themes, from changes in the enforcement and bankruptcy law to irregular constitution of the arbitral tribunal and to the use of artificial intelligence in arbitration proceedings while curating significant and exciting news in the world of dispute resolution. Stay tuned for our next issue, as the world of dispute resolution promises, as always, more to come next year.

1 The decision can be accessed here.

2 The decision can be accessed here.

3 The decision can be accessed here.

4 The decision can be accessed here.

5 2023 Statistics ICC Dispute Resolution