What’s the Big Deal? Legal Implications for Australians in the wake of the TPP — Anna John

The final stages of the Trans Pacific Partnership (TPP) negotiations were well-publicised in Australia, albeit hazy with regard to the implications of the agreement. Negotiations between Australia, the US, Japan and nine other Asia-Pacific countries over the mammoth deal have been ongoing for seven years. From an international law point-of-view, the fact that an agreement has been reached is in itself laudable.

DFAT has said that outcomes from the conclusion of the TPP include new market opportunities for exporters and investors, increased transparency of regulators frameworks, greater certainty for businesses, improved access for regional supply chains, and a reduction in bureaucratic processes. However, reactions to the deal so far have been mixed, and key economic commentators have concluded that the advantages and the disadvantages of the TPP are largely unremarkable (see for example, opinions by Ross Gittins, Joseph Stiglitz and Adam S. Hersh). Major changes to existing legislation as a result of the TPP are unlikely. There are, however, legal implications to be aware of.

Investor-state dispute settlement arrangements

One of the most contentious issues appears to be the investor-state dispute settlement (ISDS) mechanisms in the TPP. Australia initially maintained that it would not accept any arbitration mechanisms for investor-state dispute settlements. However, the final text of the TPP reveals that Australia has conceded to the ISDS provisions, which allow for the establishment of an arbitration tribunal specifically to adjudicate on claims arising from the operation of the TPP. As a result, foreign investors will be able to bring claims against a participating TPP country.

ISDS mechanisms can enable foreign investors to attack legislation enacted for the protection of the public interest. The best example of such a such a scenario is the Phillip Morris litigation. One of the avenues Phillip Morris used to challenge Australian plain-packaging legislation was the ISDS mechanism in the 1993 Australian bilateral investment treaty with Hong Kong. Recently, the Permanent Court of Arbitration dismissed the case, agreeing with Australia’s position that it did not have jurisdiction to hear the case.

Notably, the TPP disallows tobacco companies to challenge public health legislation. So Phillip Morris, for example, will not be able to seek relief under the TPP. Nevertheless, such free trade agreements can stand in opposition to public interest legislation. Article 9.15 of the the TPP’s Investment Chapter provides that a signatory party is not prevented from legislating in the public interest. However, there is a clause allowing non-discriminatory public welfare legislation to be challenged ‘in rare circumstances’, at appendix 9-B, clause 3(b). Effectively, this can give rise to challenges against legislation that protects legitimate public welfare objectives.

Intellectual property

The Intellectual Property Chapter of the TPP was crucial to the conclusion of the negotiations, especially for the Australian delegation.

The TPP and pharmaceuticals

One of the central issues was the length of the data exclusivity period, especially for biologics. Biologics are a type of medicine made of protein-producing cells found in living organisms, and are used to treat a number of illnesses, including diabetes and cancer. Generic versions of biologics, known as biosimilars, can be manufactured in Australia after a minimum of five years since the release of the biologic. This is known as the data exclusivity period.

The US pushed for a twelve-year minimum data exclusivity period during the negotiations. However, according to the final text of the TPP, the agreed data exclusivity period is five years. Since this is the same level of protection that is afforded to biologics under Australian legislation, there is no real impact here.

The TPP and copyright

Once again, it is unlikely that there will be any major change to domestic copyright laws. DFAT has confirmed that provisions under domestic legislation relating to copyright terms, patents and Internet Service Provider liability are all consistent with the TPP’s standards. Notably, there will likely be no introduction of new civil or criminal penalties for individuals who download movies illegally.

The biggest legal implication here for the Asia-Pacific region involves the TPP’s provisions on counterfeit and pirated goods. The TPP requires signatory countries to legislate against the use of counterfeit and pirated goods. This includes expanding the range of offences for counterfeit or pirated labels and packaging, broaden powers to allow the forfeiture of counterfeit or private goods, and ensuring that adequate damages are available for copyright and trademark infringement. Within the Asia-Pacific region, this may have large implications, given that the large majority of counterfeit goods originate from the Asia-Pacific region (mostly from China, but also from Malaysia, a TPP signatory). These countries will now be required to legislate according to the TPP’s provisions. This is a welcome development for Australia.

Finance Expats in the Asia-Pacific Region

Under the TPP, the Australian financial sector has more opportunity to integrate with those in the Asia-Pacific region. Australian bank and asset managers have been seeking expanded growth in Asia, with a focus on financial services exports. This includes lowering restrictions for Australian professionals to work in Australian financial companies overseas. Some countries within the Asia-Pacific region limit the number of foreign persons that can hold senior managerial positions in a financial institution in their country. The TPP places a cap on these restrictions, and also provides for special visa arrangements that will allow such professionals more certainty during their stay overseas. This is outlined by DFAT, announcing that Australian financial institutions will be ‘guaranteed’ the option to transfer specialists and managerial staff to their overseas branches for extended periods. Conversely, such provisions will also lead to an increase in financial services (and expats) from Asia-Pacific countries.

Where does the TPP leave us?

Overall, the TPP is a good deal for Australia, and promotes Australian involvement in the Asia-Pacific. Legally, the biggest uncertainty is what the ISDS provisions will entail. While an exception has justifiably been made for tobacco companies, the clause allowing public welfare legislation to be challenged is perturbing. For example, under a similar ISDS mechanism, a US investor was able to sue Costa Rica on the basis that its environmental legislation impeded their business interests, thus contravening a free trade agreement. As has been pointed out, ‘tobacco control measures are not the only policies worth protecting’. Litigation against public welfare legislation is detrimental to the public interest, can encroach on national sovereignty in a negative way, and could ultimately lead to the public expenditure of millions in legal fees.

A further (albeit political) consideration for Australia is its relationship with the US. Australia has an important role to play in the imminent economic dominance of the Asian countries. A criticism often brought against the TPP is that it preserves US interests in the Asia-Pacific region in the face of growing Chinese influence. Tellingly, the negotiations (released on Wikileaks)showed a reluctance on Australia’s part to step away from its alignment with US interests and establish itself as an important regional player in its own right. For example, Australia’s position in the negotiations lined up with the US 64 times. This was higher than its alignment with the next highest, Peru (54 times) and Singapore (51 times). Additionally, Australia ranked second last in terms of the support drawn by its proposals. The dominance of Asia-Pacific region should lead to a convergence in regional interests, but Australia appears to be taking a step away from this direction.

The TPP is an important step towards economic integration within the Asia-Pacific region. This is not without legal implications, and while many aspects of the deal are welcome and needed, a better outcome could be achieved in others.

Anna John is a final year Law/Arts student at the University of Queensland. She works as a research assistant at the T. C. Beirne School of Law. Anna was recently also a guest researcher and research assistant at the Max Planck Institute of Comparative Public and International Law in Heidelberg, Germany.

Understanding the USS Lassen Move

Last week the USS Lassen, a United States guided-missile destroyer, sailed within 12 nautical miles of a series of artificial islands built by China in the South China Sea. In response, China reportedly summoned the US Ambassador, with a state-run newspaper claiming that China was not afraid of fighting a war. China’s naval commander warned that the move was ‘dangerous and provocative’, and policy makers, officials and journalists on all sides of the dispute have debated the wisdom, or otherwise, of these actions by the US.

The latest move by the US comes in the wake of China’s actions in the previously uninhabited Spratly Island group. In late 2014, China began reclaiming land on a series of reefs, some of which were only partially exposed at low tide. In 2015, satellite images showed significant construction beginning on the reefs/islands. China based its claim over the reef/islands on the so-called ‘Nine-Dash Line’, a 1947 map drawn up by Chiang Kai-shek’s nationalist government. It has been used as the basis, once in 1958, and in 2009 before the UN, in order to substantiate China’s claims.

China’s claim has not gone uncontested. Both Vietnam and the Philippines lay claim to the Spratly Island group, and some of the islands fall within the Exclusive Economic Zone of Malaysia and Brunei under the United Nations Convention on the Law of the Sea (UNCLOS). The Philippines has brought a case challenging the validity of China’s claims before an arbitral tribunal under UNCLOS. Despite China’s argument that the is over competing sovereignty claims, and so outside the remit of the arbitral body, last week the Permanent Court of Arbitration rejected this argument and will consider the case under UNCLOS (see Lea Christopher’s piece on the ILA Reporter on 5 November 2015 summarising the tribunal’s decision). However, China has pre-empted any finding, stating that it will not comply with any unfavourable ruling.

The legal issues associated with the South China Sea are complicated. There is a distinction to be made between claims that are covered by customary law and claims that are covered by the international law of the sea (predominantly contained within UNCLOS). The case of the USS Lassen is to be distinguished on this basis as well, and Shannon Tiezzi’s Diplomat analysis is instructive on the point. The recent US patrol was not concerned with challenging China’s claim to sovereignty over the islands, but rather asserting freedom of navigation, a point which the author claims has been lost among much of the news coverage.

Under UNCLOS, territorial sea extends 12 nautical miles from the shore (article 3). Within it, any ship enjoys the right of innocent passage (article 19). The circumstances that will generate territorial sea is central to the current disputes. A key provision is article 13, regarding low-tide elevations (LTEs):

Where a low-tide elevation is wholly situated at a distance exceeding the breadth of the territorial sea from the mainland or an island, it has no territorial sea of its own.

Article 60 then states that artificial islands do not have any territorial sea of their own and are only entitled to at most a 500 metre ‘safety zone’. This means that under UNCLOS, any artificial structures built by China on LTEs have no territorial sea. Whilst some of China’s construction has occurred on land not considered LTEs, the US has only conducted patrols within 12 nm of Mischief and Subi reefs, artificial islands that were previously LTEs, and so understood by the US not to have a territorial sea. By asserting their right to freedom of navigation past such structures, Tiezzi suggests the US ‘is not challenging China’s sovereignty over the Spratly features; it is challenging the status of those features under international law‘.

With many other LTEs in the region, this stand on freedom of navigation past the Spratly chain is an important test. Understanding how patrols, such as the USS Lassen’s, challenge China under the international law of the sea will be central in understanding the broader geopolitical developments in the region.

 

Philippines v China: Tribunal rules favourably on jurisdiction in South China Sea Arbitration – Lea Christopher

On 29 October 2015, an Arbitral Tribunal (Tribunal) issued its award on the questions of jurisdiction and admissibility in the arbitration between the Republic of Philippines and the People’s Republic of China concerning the South China Sea.  In brief, the Tribunal found that it had jurisdiction to decide seven of the Philippines’ 15 substantive claims.  As to the Philippines’ remaining claims, the Tribunal decided that the question of its jurisdiction needed to be deferred for further consideration in conjunction with its hearing of the merits of the claims.

The Philippines’ substantive claims were summarised in my previous article of 22 July 2015. To recap, its 15 claims can be broadly distilled as follows:

  1. China’s maritime entitlements or ‘historic rights’ over the waters, seabed and subsoil in the South China Sea do not extend beyond the limits of its entitlements under the United Nations Convention on the Law of the Sea (UNCLOS). The corollary is that China’s nine-dash line, insofar as it purports to define the limits of China’s ‘historic rights’ in the South China Sea, is not supported by UNCLOS or another source of international law;
  2. The various features relied upon by China to assert its maritime claims in the South China Sea are not islands (as China claims) but are properly characterised as either ‘rocks’ or ‘low tide elevations’ or are permanently submerged.  China’s construction activities on particular maritime features cannot change their nature in law. This claim is critical to the arbitration because, under UNCLOS, the characterisation of these features determines the maritime entitlements they are capable of generating for a state (namely, an exclusive economic zone (EEZ) and/or continental shelf);
  3. China’s construction and occupation activities in relation to particular maritime features in the South China Sea constitute attempted appropriation of such features in violation of UNCLOS. Further, these activities, as well as China’s fishing and law enforcement activities, have interfered with the Philippines’ ability to freely navigate in its EEZ and the exercise of its sovereign rights in relation to the resources falling within its EEZ and continental shelf; and
  4. China has violated UNCLOS by engaging in fishing and construction activities that damage the marine environment in the South China Sea.

In summary, the Tribunal determined that it has jurisdiction over the second and fourth categories of claims (deferring consideration of the remaining first and third categories). In so finding, the Tribunal addressed each of the following issues in relation to the question of jurisdiction.

Did the Philippines’ claims raise a dispute concerning the interpretation and application of UNCLOS?

According to China’s Position Paper, the dispute could be characterised in two ways, both of which excluded the Tribunal’s jurisdiction. First, China characterised the dispute as concerning territorial sovereignty-related questions over features in the South China Sea. On that basis, China contended that the dispute did not concern the ‘interpretation and application of UNCLOS’, being the threshold requirement for the Tribunal’s jurisdiction under article 288 of UNCLOS.

The Tribunal rejected this characterisation, finding that, while a dispute between the parties did exist concerning land sovereignty over certain features, the Philippines’ claims did not require the Tribunal to make determinations on questions of sovereignty. The Tribunal found that each of the Philippines’ claims concerned the interpretation and application of UNCLOS.

Secondly, China contended that the dispute was properly characterised as relating to maritime boundary delimitation which, for the reasons given below, was excluded from the Tribunal’s jurisdiction by an exclusionary provision in the UNCLOS that China had activated in 2006.

In rejecting this contention, the Tribunal distinguished between a dispute concerning the existence of an entitlement to maritime zones (the present matter), and a dispute concerning the delimitation of those zones where parties’ entitlements overlap. The Tribunal also emphasised that, while it would determine the nature of particular maritime features in dispute, insofar as this resulted in overlapping entitlements between the parties the Tribunal’s determination would not go so far as to delimit boundaries.

Did any of the claims fall within the exceptions to jurisdiction in Part XV of UNCLOS?

As noted above, in 2006 China opted out of the Tribunal’s jurisdiction over particular categories of disputes, including those concerning:

  1. sea boundary delimitations;
  2. historic bays and titles;
  3. law enforcement activities; and
  4. military activities.

This action was taken in accordance with article 298 of UNCLOS, which entitles a party to opt out of compulsory dispute settlement procedures for specific types of disputes when signing or ratifying UNCLOS.

Considering each of the claims in turn, the Tribunal found that none of the exceptions to jurisdiction applied to the Philippines’ second and fourth category of claims. Consequently, it had jurisdiction to determine those claims.

As to the first and third categories, the Tribunal noted that the applicability of the above exceptions depended on merits of the claims and, as such, the possible jurisdictional objections did not possess an exclusively preliminary character. For that reason, the Tribunal reserved a decision on jurisdiction for consideration in conjunction with its determination of the merits of the claims. The Tribunal’s key considerations can be broadly summarised as follows:

  1. The Tribunal’s jurisdiction over the first category of claims (ie, the effect of any historic rights claimed by China) is dependent on whether the claims are caught by the exclusion for ‘historic bays and titles’ in article 298 of UNCLOS. This requires a determination as to the nature and effect of China’s claimed historic rights and their interaction with UNCLOS (ie, a merits determination);
  2. The Tribunal’s jurisdiction over the third category of claims (ie, concerning China’s various construction/interference activities) is dependent on the status of certain maritime features claimed by China and whether any such features generate maritime entitlements for China. Insofar as they generate entitlements for China and result in overlapping entitlements to maritime zones between the parties, the exclusion from ‘sea boundary delimitations’ in article 298 would prevent the Tribunal from addressing some of the Philippines’ claims. That is, such claims would first require a delimitation of the overlapping zones, which the Tribunal is not empowered to do; and
  3. The specifics of China’s activities in particular areas and whether they are military in nature (and therefore fall within the exclusion in article 298) are best assessed in conjunction with the merits.

Were the preconditions to the Tribunal’s jurisdiction met?

Relying on articles 281 and 282 of UNCLOS, China contended that state parties had agreed on a peaceful dispute resolution mechanism of their own choice, precluding recourse to the compulsory dispute settlement procedures under UNCLOS. The articles essentially prevent a state from resorting to the compulsory procedures in the event that they have already agreed on another means of dispute resolution.  In this regard, China pointed to a series of joint statements by state parties starting in the mid-1990s that referred to the resolution of their dispute by negotiation, as well as the Treaty of Amity and Cooperation in South East Asia.

Having regard to these statements and instrument, the Tribunal concluded that they did not prevent the Philippines from resorting to arbitration under the compulsory dispute resolution provisions.

The Tribunal also found that the Philippines had satisfied the precondition for resorting to arbitration, namely, that the parties had an ‘exchange of views’ regarding settlement of the dispute (article 283). In so finding, the Tribunal relied upon diplomatic communications by the Philippines to affected parties in which it proposed multilateral negotiations to resolve the dispute. China insisted on bilateral talks only and the parties ultimately failed to identify a mutually agreeable mode of settlement.

The Tribunal also noted that it was not deprived of jurisdiction by either China’s non-participation in the arbitration to date or the absence of other states with claims to features in the South China Sea (such as Vietnam).

Next steps

The dispute will now proceed to a substantive hearing to enable the Tribunal to determine the merits of the Philippines’ claims alongside the outstanding jurisdictional questions.

However, China has reiterated its position of non-acceptance of (and non-participation in) the arbitration. Its Vice Foreign Minister recently claimed that the outcome of the arbitration ‘will not impact China’s sovereignty, rights or jurisdiction over the South China Sea under historical facts and international law’. Without any power to enforce its rulings, the Tribunal could end up being entirely ignored by China insofar as the outcome is not in its favour.  The proceeding could even prompt China to withdraw from UNCLOS altogether.

While the Philippines has acknowledged this risk, it hopes that an outcome unfavourable to China will encourage other states to defend their respective claims in the region and will result in sufficient diplomatic pressure to dissuade China from further construction activities in the South China Sea. In the meantime, the US has presented its most significant challenge yet to China’s claims in the South China Sea, sending a guided missile destroyer into waters within 12 nautical miles of one of the reefs in dispute days before the Tribunal published its award.

Lea Christopher is a lawyer at Clayton Utz in Canberra. The views expressed in this article are solely her own.

LIV Event – Melbourne – International Commercial Arbitration Moot 2015

The Law Institute of Victoria is holding the International Commercial Arbitration Moot. The moot is designed to provide an opportunity for penultimate and final year university students, law graduates and new solicitors to exercise and improve their advocacy skills in an international arbitration.

Participation in the moot is free. The preliminary round is being held on 15 October 2015 at 5.30 pm.

For further information and registration click here.

Tribunal holds hearing on jurisdictional questions in Philippines v China arbitration — Lea Christopher

Introduction

From 7 to 13 July 2015, the Arbitral Tribunal held the first hearing in the arbitration between the Republic of Philippines and the People’s Republic of China in connection with their dispute in the South China Sea.  The arbitration was submitted by the Philippines on 22 January 2013, pursuant to the compulsory dispute settlement provisions under part XV of the United Nations Convention on the Law of the Sea (UNCLOS).  A five member ad hoc tribunal was constituted under annex VII of UNCLOS and sat in the Peace Palace, the headquarters of the Permanent Court of Arbitration, in the Hague. While the hearing was not open to the public, the Tribunal permitted the governments of certain states (Indonesia, Vietnam, Japan, Thailand and Malaysia) to send small delegations as observers.

The arbitration concerns disputes between the Philippines and China in relation to their maritime entitlements in the South China Sea. China has continued to reiterate its position of non-acceptance of (and non-participation in) the arbitration, maintaining that it believes in resolving disputes in the South China Sea via bilateral negotiations and that the arbitration violates previous agreements between the two states. The Philippines has sought to challenge this position at the hearing, submitting that they have pursued a course of bilateral and regional diplomatic efforts to resolve its disputes with China for almost two decades without success. The Philippines says that this has left no recourse other than arbitration.

In its Statement of Claim, the Philippines relies on UNCLOS which, it submits, defines and limits the entitlements of coastal states to a territorial sea, exclusive economic zone (EEZ) and continental shelf (and sets out states’ rights and obligations within those areas).  In particular, the Philippines relies on provisions that provide that a state’s EEZ cannot extend beyond 200 nautical miles from its mainland coast (or any island over which the state has sovereignty) (article 57), and that its continental shelf extends to the same distance (unless it can be established that the state’s continental margin extends beyond that distance) (article 76).

According to the Philippines, China contravenes these provisions by claiming, on the basis of its nine-dash line, ‘historic rights’ to areas that are beyond its 200M limit, including some areas that fall within 200M of the coasts of the Philippines’ main islands.  While China is a signatory to UNCLOS (which enabled the Philippines to commence the compulsory arbitral proceedings), it claims that it does not subscribe to some of its tenets.

However, the purpose of the first hearing was not to decide the Philippines’ substantive claims, but to decide whether the Tribunal has jurisdiction over these claims and whether they are admissible.

The Philippines’ substantive claims

At the hearing, the Philippines outlined the principal substantive claims that it intends to pursue if the Tribunal decides the question of jurisdiction in its favour. They can be summarised as follows:

  1. China is not entitled to exercise its alleged ‘historic rights’ over the waters, seabed and subsoil beyond the limits of its entitlements under UNCLOS.  Its nine-dash line, insofar as it purports to define the limits of China’s ‘historic rights’, is not supported by international law;
  2. The various maritime features relied upon by China to assert its maritime claims in the South China Sea are not islands (as China claims) but are either ‘rocks’ (within the meaning of article 121, paragraph 3 of UNCLOS), ‘low tide elevations’ or are permanently submerged.  While rocks generate an entitlement to a territorial sea of 12M (allowing China to exercise sovereignty over that area), they cannot generate an entitlement to an EEZ or continental shelf beyond that limit (and low tide elevations generate no entitlements).  China’s significant construction activities on various maritime features cannot change their nature in law;
  3. China has breached UNCLOS by interfering with the Philippines’ exercise of its sovereign rights and jurisdiction; and
  4. China’s fishing practices have damaged the marine environment in the South China Sea, including within the Philippines’ EEZ, in breach of UNCLOS. UNCLOS requires states parties to adopt measures to protect the marine environment.

The jurisdictional question

China’s position

In a position paper published in December 2014 (see also a summary of the paper here), China contended that the Philippines’ claims are beyond the scope of the Tribunal’s jurisdiction because they require the Tribunal to make determinations on territorial sovereignty and the delimitation of sea boundaries.

China made three interrelated claims in support of this contention. First, it claimed that UNCLOS does not give the Tribunal jurisdiction to address territorial sovereignty-related questions. According to China, in order to decide any of the Philippines’ claims, the Tribunal would be required to determine, directly or indirectly, the territorial sovereignty over various maritime features in the South China Sea, which is beyond the scope of UNCLOS.

Secondly, it claimed that in 2006, pursuant to article 298 of UNCLOS, China opted out of compulsory arbitration on particular categories of disputes, including those relating to sea boundary delimitations. Article 298(1) provides that, when signing or ratifying UNCLOS (or any time thereafter), a state may opt out of compulsory arbitration with respect to particular categories of disputes, one of which relates to sea boundary delimitations.  Article 298(a)(i) then provides that, when such a dispute arises and no agreement within a reasonable period of time is reached in negotiations, the opted out party must accept, at the request of the other party, submission of the matter to conciliation.

The Philippines has not requested that the parties participate in conciliation pursuant to article 298(a)(a) presumably because, as discussed below, its position is that the dispute does not concern sea boundary delimitations and therefore has not been ‘opted out of’ by China.

The Philippines’ position

At the hearing, the Philippines submitted that its claims do not require the Tribunal to make determinations on the question of territorial sovereignty or the delimitation of sea boundaries (its statement is available here). It emphasised that the Tribunal is really being asked to do the following:

  1. To clarify the nature of the disputed features in the South China Sea (ie, whether they are rocks, islands or low-tide elevations) that are relied upon by China to assert its claims, because the features’ characterisations determine whether they can be appropriated by China or can generate their own 200M EEZ; and
  2. To examine the validity of China’s nine-dash line based on its ‘historical rights’.

According to the Philippines, the question to be determined by the Tribunal on this issue, therefore, is whether UNCLOS allows a state to claim maritime entitlements based on ‘historic’ rights beyond those provided for in UNCLOS.

Accordingly, a key issue in the dispute is whether it is possible for the Tribunal to make determinations about the nature of particular maritime features and their entitlements, without addressing who actually exercises sovereignty over those features. The Tribunal will also need to consider whether it can determine the validity of the nine-dash line without addressing sovereignty over any of the maritime features within the area delimited by the line.

On a higher level, the Philippines painted the case as being a test of the utility and feasibility of UNCLOS compulsory dispute resolution mechanisms. Emphasising China’s ‘aggressive and disconcerting’ activities in the South China Sea, the Philippines contended that the dispute resolution mechanisms give weaker states the opportunity to ‘challenge the powerful on an equal footing’ on the belief that ‘law triumphs over force’. On this basis, according to the Philippines, a finding that the Tribunal lacks jurisdiction to hear its claims would render the UNCLOS dispute resolution mechanisms almost valueless for small states parties vis a vis their more powerful neighbours.

Conclusion

Notwithstanding the Philippines’ contentions concerning the case’s significance to the international community, the jurisdictional questions facing the Tribunal turn on the characterisation of the Philippines’ substantive claims and, in particular, whether they involve the determination of questions of territorial sovereignty.

The Philippines now has until 23 July 2015 to provide supplementary written submissions in response to questions posed by the Tribunal at the hearing. The Tribunal expects to determine the issue of jurisdiction by the end of the year. If it decides that it does have jurisdiction over the Philippines’ claims (and they are admissible), the matter will proceed to a substantive hearing. However, China has reiterated that it will not alter its position in the South China Sea and, therefore, is unlikely to comply with any unfavourable ruling ultimately made by the Tribunal.

Lea Christopher is a lawyer at Clayton Utz in Canberra. The views expressed in this article are solely her own.

Timor-Leste withdraws ICJ proceedings against Australia in relation to seizure of legal documents

On 12 June 2015, the International Court of Justice (ICJ) confirmed that Timor-Leste had officially withdrawn its case against Australia in Questions relating to the Seizure and Detention of Certain Documents and Data (see this ICJ Press Release).  Timor-Leste commenced the proceedings against Australia in December 2013 in relation to the seizure by ASIO of Timorese legal documents relating to the dispute between the two states before a tribunal at the Permanent Court of Arbitration.  The arbitration concerns  the validity of the Treaty on Certain Maritime Arrangements in the Timor Sea following allegations that Australia spied on the Timorese Cabinet during the treaty negotiation process.  The resolution of the ICJ proceedings come only after Australia returned the seized documents.

The ICJ had previously indicated provisional measures (see the ICJ Summary) in March 2014.  The ICJ determined that the sovereign equality of states provided an inviolable right to confidential correspondence with their legal counsel.  Whilst undertakings given by Australia not to review the documents reduced the risk of disadvantage to Timor-Leste, orders were still given by the ICJ to fully protect Timor-Leste’s rights to their confidential legal documents.  The ICJ’s measures required that Australia:

(a)               ensure that the content of seized materials was not used to the disadvantage of Timor-Leste;

(b)              keep all documents, electronic data and copies of the data under seal; and

(c)               not interfere in communications between Timor-Leste and its lawyers in relation to the arbitration.

As the dispute between the two states has concluded at the ICJ, the central arbitration dispute will now resume.  Australia’s Department of Foreign Affairs and Trade, commenting on the withdrawal of the ICJ proceedings, stated that the Australia is ‘disappointed that Timor-Leste has decided to resume the arbitration against Australia’ and that ‘Australia will strongly defend the arbitration’ (see this DFAT Press Release).

7th Annual International Arbitration Moot 2015

The NSW Young Lawyers International Law Committee is hosting the 7th Annual International Arbitration Moot 2015 in Sydney.

The information brochure and application form can be found here.

The main round of the moot will take place on 29 August 2015, with finals to be held on 1 September 2015.

The moot problem will involve a contractual dispute between two international companies. The problem will raise procedural issues (such as the rules of the arbitration institution and the jurisdiction of the Tribunal) and substantive issues (relating to the parties’ rights and obligations arising from the construction of the contract between them).

The event is open to young lawyers, law graduates and law students.

Applications close Friday 26 June 2015.

Please contact Erika Williams at Erika.Williams@bakermckenzie.com if you require further information.

ILA Committee Update: International Commercial Arbitration Committee — Judith Levine

Can users of international commercial arbitration safely assume the process is confidential?  Do international arbitrators possess ‘inherent powers’ beyond what is specified in the arbitral rules?  These are two topics recently examined by the International Law Association’s (ILA) International Commercial Arbitration Committee (Committee).

As noted in the Editors’ welcome entry, one aim of the ILA Reporter is to provide updates on the work and progress of the ILA’s international committees.

The International Commercial Arbitration Committee

International arbitration has been a subject of interest for the ILA since as early as 1895.  The current International Commercial Arbitration Committee is composed of 53 members from over 30 countries, including professors, judges, arbitrators, private practitioners and staff of international organisations.

The Committee meets in different locations around the world, approximately three times a year. The Australian Branch has two members — Hague-based Judith Levine and Sydney-based Damian Sturzaker and an alternate, Jason Clapham.  Having members in both hemispheres helps ensure that an Australian representative is present at each meeting.  There are other ways for ILA Australia branch members to participate in the Committee’s work. For example, for the recent project on confidentiality, young lawyers from the ILA Victoria Chapter helped compile information and draft a submission on Australian case law and legislation, which was used for the Committee’s final report.

The cumulated reports of the Committee form a valuable body of work and contain recommendations based on experience in national jurisdictions and international practice.  Blog readers are encouraged to look back at reports of the past decade, including on ‘Public Policy as a Bar to Enforcement of International Arbitral Awards‘ (New Delhi Conference, 2002); ‘Res Judicata and International Arbitration‘ (Berlin Conference, 2004); and ‘Lis Pidens and Arbitration‘ (Toronto Conference, 2006).  This post will focus on the two most recent topics examined by the Committee: ‘Confidentiality in International Commercial Arbitration‘ (The Hague Conference, 2010); and ‘Inherent and Implied Powers of Arbitral Tribunals‘ (Washington DC Conference, 2014).

Recent Committee Work: Confidentiality

The Committee’s last report surveys current law and practice to test the assumption commonly held by parties that their international arbitration proceedings are confidential.  The report identifies problems that may arise as a result of inconsistent confidentiality rules, sets out findings and offers recommendations, including two model clauses.  The Committee decided to limit the scope of its report to international commercial arbitration, consciously excluding discussion of confidentiality as it relates to investor-State arbitration.  The investor-State context was seen as giving rise to distinct policy concerns that may warrant different approaches and solutions that have since been the subject of a separate set of rules on transparency promulgated by UNCITRAL.

The Committee found that confidentiality is an important feature of international commercial arbitration but that many users incorrectly assume that arbitral proceedings are inherently confidential. In fact, many national laws and arbitral rules do not currently provide for confidentiality and those that do vary in their approach and scope. The report notes that arbitration confidentiality obligations bind the parties to the dispute and their agents and representatives, as well as arbitrators, arbitral institutions and tribunal secretaries, but not others involved in a case (like witnesses). Where a tribunal has jurisdiction over an arbitral confidentiality dispute, it may use a range of remedial powers, such as ordering injunctive or declaratory relief, awarding damages, barring the introduction of evidence procured in breach of confidentiality, or treating the breach as a breach of the underlying contract.

The Committee recommended that:

  1. The best way safely to ensure confidentiality (or non-confidentiality) across many jurisdictions is to provide for it by express agreement (prior to or during the arbitration);
  2. In the absence of contractual provisions on confidentiality, arbitrators should consider drawing the attention of the parties to confidentiality and, if appropriate, addressing the issue in terms of reference or a procedural order at the outset of proceedings;
  3. Express agreement to confidentiality should specify the scope, extent, duration of the confidentiality obligation, the exceptions to it, and how it may be enforced;
  4. Given that confidentiality provisions do not normally impose obligations on third parties involved in the arbitral process(like witnesses), it should be incumbent upon the participant in the arbitration who brings the third party into the proceedings to make reasonable efforts to obtain their express agreement to preserve confidentiality; and
  5. Reasonable exceptions to an obligation of confidentiality may include:
    • prosecuting or defending the arbitration or proceedings related to it (e.g. for enforcement/annulment);
    • responding to a compulsory order or request for information of a governmental or regulatory body;
    • making a disclosure required by law or by the rules of a securities exchange; or
    • seeking legal, accounting or other professional services, or satisfying information requests of potential acquirers, investors or lenders.

The topic currently under consideration by the Committee is ‘Implied and Inherent Powers of Arbitral Tribunals’.  Unlike the confidentiality project, this topic was not limited to commercial arbitration and, in fact, many of the examples in the report were drawn from investment treaty disputes.  As with the confidentiality project, Australian members actively participated in discussions and contributed research papers and sources that are referenced in the report.

The report introduces the topic by noting that party agreement is the foundation of every arbitration, and poses the following questions:

[A]rbitrators are sometimes confronted with situations that are not addressed by either the parties’ arbitration agreement or the applicable curial law and rules.  What, if any, powers do the arbitrators have to deal with those situations?  What is the source of those powers?  What is the limit of them?

The report reviews the common law origins of inherent and implied powers and discusses various situations where such powers may be relevant to international commercial arbitration, including:

  • Powers relating to procedure (e.g. determining the seat, bifurcating proceedings, deciding on evidentiary matters, permitting non-party participation);
  • Powers to issue interim relief (e.g. to seek a stay of court proceedings, to stop criminal proceedings, to stop disclosure of documents, and to take steps to prevent the exacerbation of the dispute or to maintain the integrity of the arbitral proceedings);
  • Powers related to decision-making (e.g. to deal with new objections to jurisdiction, to order summary dismissal, to award interest);
  • Powers to safeguard against misconduct and perceived improprieties (e.g. to deal with vexatious claims or bad faith conduct, to allocate costs as a sanction, to disqualify counsel); and
  • Powers of revision (e.g. to modify a decision in light of new evidence).

The Committee conceptually divides the sources of power into three categories:

  • powers implied by textual sources (the parties’ agreement, applicable rules and law governing the arbitration);
  • discretionary powers of procedure (stemming from the right to oversee proceedings); and
  • inherent powers necessary to preserve jurisdiction (stemming from the duty of arbitrators to protect the integrity of proceedings and render an enforceable award).

While implied and discretionary powers remain subordinate to party agreement, inherent powers cannot be so restricted, and therefore, according to the Committee, ‘should be used narrowly, proportionately and only so far as necessary to accomplish the exigencies of the particular situation’.

The Committee’s recommendations are targeted at:

  • Parties — who should understand that tribunals have inherent and implied powers and realise that, within limits, they may by agreement confirm, expand or constrict arbitral powers;
  • Arbitrators — who should always first look to the arbitration agreement, rules governing proceedings and relevant law to assess the scope of their authority in any given situation. Only if those sources do not adequately resolve the issue, should they consider whether to act on the basis of implied, discretionary, or inherent authority (in that order). Before exercising such powers, arbitrators should elicit the parties’ views and assistance to fashion the most appropriate solution, taking into account their legal background and the law governing the arbitration. Arbitrators should explain their reasoning for exercising implied, discretionary or inherent powers, which may help the award to withstand review at enforcement or actions to set aside proceedings; and
  • Courts — which should appreciate that arbitrators often have some power to act beyond the explicit boundaries set by the laws and rules governing an arbitration.

Future Committee Work?

As noted on the ILA website, the Inherent Powers report will be tabled for finalisation at the 2016 conference in Johannesburg.  Future topics for the committee are being considered and suggestions are welcome to be sent to: jlevine@pca-cpa.org.

Judith Levine is Senior Legal Counsel at the Permanent Court of Arbitration in The Hague (PCA), where her duties include serving as Registrar in the Philippines v China UNCLOS arbitration. She is a member of the Board of Directors of the Australian Centre for International Commercial Arbitration (ACICA). Neither the views expressed in this blog entry nor the ILA Committee Reports are attributable to the PCA or ACICA.