Views
Conflicts – Between Domestic and Indigenous Legal Systems?
In Beaver v Hill, 2017 ONSC 7245 (available here) the applicant sought custody, spousal support and child support. All relevant facts happened in Ontario. Read more
NIKI continued (now in Austria)
Written by Lukas Schmidt, Research Fellow at the Center for Transnational Commercial Dispute Resolution (TCDR) of the EBS Law School, Wiesbaden, Germany
The Regional Court Korneuburg has opened a main insolvency proceeding – not a secondary insolvency proceeding that the German provisional administrator has applied for – on the assets of NIKI Luftfahrt GmbH in Austria (see here). Therefore, it obviously shares the view of the Regional Court of Berlin that NIKI’s COMI is located in Austria and not Germany. Read more
US Court Refused to Apply the Chosen Chinese Law due to Public Policy Concern
In Fu v. Fu, 2017 IL App (1st) 162958-U, a father brought a claim against his son to revoke an unconditional gift of $590,000 that he donated to his son for the later to pursue an EB-5 Visa to immigrate to the US. Both parties are Chinese citizens and the defendant is currently a resident of Massachusetts. The gift agreement was entered into in China, drafted in Chinese and contained a clause specifying PRC law should apply. The money was held by the International Bank of Chicago. The plaintiff brought the action in Illinois.
Under the US Law (Title 8 of the Code of Federal Regulations, § 204.6) a foreign national must invest at least $500,000 in the US to be considered for an EB-5 Visa, and must ‘show that he has invested his own capital obtained through lawful means.’ (Matter of Ho, 22 I&N Dec. 206, 210 (AAO 1998)) After a few denied EB-5 approval, the plaintiff sought to recover the money, by claiming that the defendant was estranged from his parents, including the donor and refused to support them, and the purpose of the gift contract was for the defendant to obtain an EB-5 Visa but the defendant failed to do so.
Under the Illinois law, a valid gift requires ‘delivery of the property by the donor to the donee, with the intent to pass the title to the donee absolutely and irrevocably, and the donor must relinquish all present and future dominion and power over the subject matter of the gift.” (Pocius v. Fleck, 13 Ill. 2d 420, 427 (1958)). Furthermore, the gift agreement between the parties also used the language that the gift was ‘unconditional’. However, the plaintiff argued that under the PRC law, gifts may be revocable after the transfer of ownership, if the donee ‘has the obligation to support the donor but does not fulfil it’, or a donnee ‘does not fulfill the obligations as stipulated in the gift agreement.’ (PRC Contract Law, Art 192)
The Appellate Court of Illinois First Judicial District affirmed the judgment of the circuit court of Cook County that the gift agreement was irrevocable. The plaintiff failed to successfully prove Chinese law. And even if the plaintiff properly pled PRC law, such interpretation was ‘oppressive, immoral, and impolitic’. Under the US law on EB-5 Visa application, the foreign citizen must prove ownership of those funds to be eligible for an EB-5 Visa. The signed agreement stating the gift ‘unconditional’ would help the defendant to prove he legally owned the funds to acquire an EB-5 visa. If the governing PRC law indeed allows a gift to be given unconditionally and revoked after delivery and acceptance, as argued by the plaintiff, it would facilitate a deception on the US Government and is against public policy.
The full judgment can be found here.
News
Conference: The Law of Treaties as Applied to Private International Law, Milan, 5-6 May 2023
A conference on “The Law of Treaties as Applied to Private International Law” will take place at the Catholic University of Milan on 5 and 6 May 2023, under the auspices of the Italian Society of International Law and EU Law (SIDI) and the European Association of Private International Law (EAPIL).
The event aims to discuss the impact of the rules of treaty law on the formation, interpretation and implementation of international conventions laying down rules of private international law, and to assess whether, and in which way, the specific object and features of private international law have a bearing on the operation of the law of treaties in this area.
Speakers and chairs include Paul Beaumont (University of Stirling), Catherine Brölmann (University of Amsterdam), Sergio Carbone (University of Genova, Emeritus), Luigi Crema (University of Milan), Zeno Crespi Reghizzi (University of Milan), Pedro De Miguel Asensio (Complutense University of Madrid), Malgosia Fitzmaurice (Queen Mary University of London), Burkhard Hess (Director of the Max Planck Institute Luxembourg for International, European and Regulatory Procedural Law), Patrick Kinsch (University of Luxembourg), Catherine Kessedjian (University Paris II Panthéon-Assas, Emerita), Jan Klabbers (University of Helsinki, TBC), Antonio Leandro (University of Bari), Alex Mills (University College London), Etienne Pataut (University Paris I – Panthéon-Sorbonne), Andrea Schulz (German Federal Ministry of Justice), Jean-Marc Thouvenin (University of Paris Nanterre; Secretary-General of The Hague Academy of International Law), Chiara Tuo (University of Genova), Hans van Loon (former Secretary-General of the Hague Conference on Private International Law), and Jan Wouters (KU Leuven).
A roundtable on “The role of IGOs in the elaboration, implementation and coordination of private international law treaties”, chaired by Fausto Pocar (University of Milan, Emeritus), will feature interventions by Luca Castellani (Secretary of Working Group IV (Electronic Commerce) – Uncitral), Nicolas Nord (Secretary-General of the International Commission on Civil Status), Andreas Stein (Head of Unit (Civil Justice) at the European Commission Directorate-General for Justice and Consumers – Civil and commercial justice) and Ignacio Tirado (Secretary-General of the International Institute for the Unification of Private Law (Unidroit), among others.
A key-note speech will be delivered by Maciej Szpunar (Judge at the Court of Justice of the European Union, TBC). Closing remarks will be provided by Stefania Bariatti (University of Milan).
The conference, in English, will be on-site only.
See the full programme and the registration form. Early bird rates are offered to those registering before 6 March 2023.
For further information: pietro.franzina@unicatt.it.
New law on International Commercial Arbitration in Greece
A new law on international commercial arbitration was published on the 4th of February in Greece. It is the fruit of the efforts by a committee established by the Ministry of Justice. The previous law nr. 2735/1999 is abolished.
The new law nr. 5016/2023 consists of 59 articles, whereas the predecessor had only 37 articles. Both laws are based on the UNCITRAL Arbitration Rules. The main novelties of the recent law are the following:
- Article 11 covers the issue of the validity of the arbitration agreement.
- Article 16 introduces a provision for multiparty arbitration.
- Article 22 regulates the issue of the arbitrator’s liability.
- Article 24 introduces a provision for the unification of multiple arbitrations.
- Article 35 contains a special rule for the production of documents and the submission of evidence.
- Last but not least, Article 46 sets the stage for the foundation of Arbitration Centers by private companies or public law corporations, such as Bar Associations. Some of them have already established Arbitration Centers (mostly if not exclusively for purely domestic disputes) in the major cities of the country, such as Athens and Thessaloniki. The new law grants them access to international commercial disputes.
Chinese judgment on the third-party funding in arbitration
Wang Jingru, Wuhan University Institute of International Law
Background
In November 2022, Beijing Fourth Intermediate People’s Court delivered the landmark decision in Ruili Airlines Co. Ltd. and Others v. CLC Aircraft Leasing (Tianjin) Co., Ltd. For the first instance, the Chinese court confirmed the legitimacy of third-party funding in arbitration and clarified the standard of review regarding the challenge towards it.
In 2021, the CIETAC rendered an arbitral award addressing the dispute arising from an aircraft leasing agreement. In this case, the claimant, CLC Aircraft Leasing (Tianjin) Co., Ltd., was funded by a third-party funder, IMF Bentham Limited. The respondents, Ruili Airlines Co. Ltd. (Ruili Airlines), Yunnan Jingcheng Group Co., Ltd. and Dong Lecheng, opposed enforcement of the award before Wuxi Intermediate People’s Court .[i] After being dismissed by the Wuxi Court, the respondents challenged the arbitral award before Beijing Fourth Intermediate People’s Court and were again dismissed.[ii]
Legal Issues
The respondents challenged the arbitral awards based on four grounds: first, the composition of the tribunal was not in accordance with the arbitration rules; second, the claimant and the tribunal breached the principle of confidentiality for disclosing information to the third-party funder; third, the tribunal failed to bear the parties fair opportunity to present the case; fourth, the arbitral award infringed the social public interest.[iii] The court reviewed the challenge under Article 281 of the Chinese Civil Procedure Law, which dealt with the challenge to foreign-related arbitral awards. Given our focus on third-party funding, this note only discussed the first two grounds.
Composition of the Tribunal
The respondents submitted that Rollin Chan, the arbitrator appointed by the claimant, was affiliated with the Nixon Peabody CWL, a Hong Kong law firm which had a significant relationship with the funder, IMF Bentham Limited. The Nixon Peabody CWL Law Firm had provided legal services to HSBC Group and JP Morgan Group, which were actual controllers of IMF Bentham Limited’s two main shareholders, HSBC Custody Nominees (Australia) Limited and JP Morgan Nominees Australia Limited. The respondents argued that this relationship fell within the arbitrator’s obligation to disclose. However, neither did Rollin Chan disclose the relationship nor did he resign, which raised justifiable doubts about his independence and impartiality.
The court first pointed out that the current law did not prohibit third-party funding arbitration. The third-party funding and the funder’s relationship with the arbitrator are related to the credibility of arbitration and the integrity of the award. Therefore, the court’s analysis focused on the challenge to the arbitrator and the disclosure of the third-party funder.
As explained by the court, the mechanism of challenge to arbitrators intended to eliminate the arbitrators with conflicts of interest which might undermine the fair trial and decision. The disclosure obligation requires the arbitrators to disclose any fact within their knowledge regarding their relationship with the case, the parties, members of the tribunal or other situations which may raise justifiable doubts about their independence and impartiality to the parties and the arbitration institution. Meanwhile, the court stressed that the arbitrators’ obligation to disclose should be based on their knowledge of potential conflicts of interest which may give rise to justifiable doubts about their independence and impartiality. Arbitrators could be challenged based on grounds specified by law or arbitration rules. If the relations were not known to the arbitrators and were insufficient to undermine the independence and impartiality of the arbitration, the arbitrator would not breach the duty for not disclosing the relationship. Likewise, there would be no violation against the provision of challenge to arbitrators.
In this case, the court found that Rollin Chan was a consultant of Nixon Peabody CWL instead of an associate or a partner who got dividends. He was based in Shanghai instead of Hong Kong. He did not engage in office matters and did not know about the dealings between Nixon Peabody CWL and IMF’s shareholders, as well as their actual controllers. Also, it was confirmed that none of them had been Nixon Peabody CWL’s clients. While they could connect with Nixon Peabody law firms in other regions, those law firms were independent of Nixon Peabody CWL. Nixon Peabody was an international lawyer network. Law firms within the network were separate entities subject to respective supervision of different jurisdictions. These law firms did not share client information or financial income. The respondents presented evidence to expose the business relationship between Nixon Peabody LLP (US) and HSBC (US), JP Morgan (US). However, the evidence mistook Nixon Peabody LLP (US) for Nixon Peabody CWL (HK). Also, HSBC (US) and JP Morgan (US) were different from the funder’s shareholders, HSBC Custody Nominees (Australia) Limited and JP Morgan Nominees Australia Limited. Therefore, the court concluded that the evidence was insufficient to prove the conflicts of interest or create a ground for challenge.
The court confirmed that the civil party had the legitimate right to accept third-party funding. Such a choice shall be respected as long as the arrangement does not breach the law or undermine the integrity of the award. In the absence of guidance on the disclosure of third-party funding, it is encourageable for the party to disclose the existence of third-party funding, which assists the parties in exercising their right based on the information.
Confidentiality
The respondents submitted that the third-party funder got information on the procedure and merits of the case. Considering that the funder was a listed company, the outcome of the case could be disclosed to the public. Therefore, the claimant and the tribunal breach the principle of confidentiality.
As acknowledged by the claimant, information including the procedural arrangement and the arbitral award was shared with the funder. For this issue, the court clarified that the key to confidentiality was withholding the information from the public so as to protect the parties’ commercial secrets and social image. While the arbitration rules prohibit disclosure to the “outsider”, information can be shared with the people concerned. In practice, the people concerned, such as the secretary of the tribunal and the parties’ shareholders who had significant interest in the case, could gain information about the arbitration, even though such disclosure was not explicitly allowed by the arbitration rules. Since the current rules did not preclude third-party funders from sponsoring the parties to engage in arbitration, the establishment of a funding relationship did not violate the principle of confidentiality.
Comments
Supporters of third-party funding argue that this mechanism could promote access to justice for impecunious parties and help the parties to overcome liquidity issues,[iv] which makes it an essential complement to the arbitration market. However, despite the fact that the third-party funding in arbitration has somewhat become a common phenomenon, worries about its adverse influence on arbitration are not unfounded. Third-party funders are stimulated by the economic interest directly connected to the outcome of the arbitration. To secure the recovery and maximize the profit, third-party funders may recommend counsel or arbitrators with whom they are familiar to the parties. They may also precipitate the “claim inflation” which exceeds the real loss of the funded party.[v] The third-party funding raises debate on its legitimacy and brings novel questions to be answered.
In this case, the Chinese court directly clarified the legitimacy of third-party funding and the standard of review. With the ambition to build up an attractive arbitral seat, China takes a rather friendly position to embrace this fast-growing mechanism. The court confirmed that third-party funding was not forbidden by the current law. Accordingly, it is natural to disclose relevant information to the third-party funder which is not viewed as a breach of confidentiality. The challenge to third-party funding will be assessed case by case. The arbitral award can only be set aside if third-party funding hinders the arbitration proceedings or undermine the integrity of the arbitral awards. The decision also shed some light on procedural control over third-party funding arbitration. The court held that the relationship between the arbitrator and third-party funder could also give rise to justifiable doubts about the arbitrator’s independence and impartiality. Besides, without explicit guidance of law, the court encouraged the funded party to disclose the existence of third-party funding, which was consistent with the common anticipation of arbitration practitioners.[vi] Whilst a single decision is not required to address everything, the way forward remains to be seen.
[i] See Ruili Airlines Co. Ltd. and Others v. CLC Aircraft Leasing (Tianjin) Co., Ltd. (2022) Su 02 Zhi Yi No. 14.
[ii] See Ruili Airlines Co. Ltd. and Others v. CLC Aircraft Leasing (Tianjin) Co., Ltd. (2022) Jing 04 Min Te No. 368.
[iii] Ibid.
[iv] See Marie Stoyanov and Olga Owczarek, ‘Third-Party Funding in International Arbitration: Is it Time for Some Soft Rules?’ (2015) 2(1) BCDR International Arbitration Review 171, 172.
[v] See John Beechey, ‘The Pandora’s Box of Third-Party Funding: Some Practical Suggestions for Arbitrators in Light of Recent Developments’ (2019) 20 ICCA Congress Series 558, 573.
[vi] See School of International Arbitration at Queen Mary University of London, 2015 Improvements and Innovations in International Arbitration, available at: https://arbitration.qmul.ac.uk/research/2015/index.html.