Focus on BAC rules appeal mechanism

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On 1 October 2019, the Beijing Arbitration Commission/Beijing International Arbitration Centre Rules for International Investment Arbitration formulated by the Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC) became effective.

A highlight of the BAC investment arbitration rules is that they provide an appeal mechanism under article 46 and appendix E, allowing the parties to appeal by consent. This article introduces several procedural settings related to the appeal mechanism.

It should be noted that the article reflects the author’s own observations from her participation in making the rules, and is not endorsed by the BAC officially, nor does it constitute an interpretation of the rules in any sense.

Preconditions for the initiation of appeal proceedings

The BAC investment arbitration rules adopt the “opt-in” model, meaning that the appeal shall be based on both parties’ consent. Therefore, the appeal proceedings stipulated in appendix E shall not apply automatically unless the parties expressly agree on this.

According to article 46.2 of the BAC investment arbitration rules, the parties shall notify the BAC of their agreement to appeal in writing, no later than the deadline fixed by the arbitral tribunal for the party’s submission of comments on the draft award.

The notification referred to here only shows that the parties have reached the agreement to appeal. It does not mean that the parties have initiated the appeal proceedings, nor that the parties will initiate the appeal proceedings later for sure.

If the parties wish to initiate the appeal proceedings, they shall, within 60 days from the date on which the award is made, submit a written notice of appeal to the BAC, and the appeal proceedings shall be deemed to commence on the date on which the notice of appeal is validly submitted.

Theoretically speaking, the investor and the host state could reach agreement to appeal at any time, but nevertheless the rules require the parties to notify the BAC of their agreement to appeal as soon as possible, and no later than the deadline fixed by the arbitral tribunal for the party’s submission of comments on the draft award, which means that the parties must reach agreement in writing on the appeal no later than the time for submitting comments on the draft award as fixed by the arbitral tribunal.

The rationale behind this is to strike a balance between the parties’ reasonable use of the appeal procedure, and the possible abuse of process to cause delay. The parties should be able to determine whether to agree to appeal, as they can roughly ascertain the result of the case when receiving the draft award for their comment.

In addition, the appeal proceedings mean extra time and financial costs for the parties, therefore reaching agreement on appeal as soon as possible, and notifying the arbitration institution, can play an active role in the smooth conduct of the appeal proceedings later, and encourage the efficient settlement of the dispute.

Grounds of appeal

Article 3 of appendix E of the BAC investment arbitration rules provides that an appeal may only be initiated based on three grounds: (1) that the arbitral award contains errors in the application or interpretation of the applicable law or rules of law; (2) that the arbitral award contains manifest and material errors of fact; or (3) that the BAC or the arbitral tribunal lacked jurisdiction, or the arbitral tribunal exceeded its power.

In principle, the parties can appeal only based on the above-mentioned three grounds, but article 46.4 of the rules allows the parties to agree on other grounds for appeal. Under such circumstances, the rules do not directly stipulate that the BAC shall accept appeals submitted pursuant to grounds agreed upon, but require the BAC to determine whether to accept such appeal.

On one hand, this embodies the basic principle of “party autonomy” in arbitration, and on the other hand, by granting the power to accept such appeal to the arbitration institution, it could avoid the potential incompatibility between the grounds of appeal agreed by the parties and the law of the seat of arbitration, and diminish the risk for challenging the award.

Effect of the arbitral award and appeal award

According to article 42 of the rules, the arbitral award shall be final and binding upon the parties as of the date it is made, except where an agreement that the award may be appealed has been notified to the BAC. Meanwhile, article 8.2 of appendix E of the rules provides that the appeal award shall substitute the arbitral award and shall be made in one of the following forms: (1) upholding the arbitral award; (2) making material modifications to the award; or (3) making a new award.

Considering that, from the date on which the arbitral award is made to the initiation of the appeal proceedings, and to the termination of the appeal proceedings, there might exist different possibilities, it is necessary to illustrate the effectiveness of the arbitral award and the appeal award.

If the parties have reached agreement on appeal in writing and notified the BAC, the arbitral award, after being rendered, shall not take effect immediately and may fall into the following three circumstances:

(1) Where neither party has summited a notice of appeal within 60 days after the award was made, then the award shall become effective on the 61st day since the date on which it was made; or

(2) The party appeals, but the appeal proceedings are terminated because the party withdraws the appeal, or the appellate tribunal decides that it does not have jurisdiction over the case, then the award takes effect as of the date of termination of the appeal proceedings; or

(3) The party appeals, and the appellate tribunal renders the appeal award and substitutes the arbitral award, then the arbitral award shall not take effect, unless it is upheld by the appellate tribunal. Where the appellate tribunal upholds the arbitral award, the award shall take effect from the date on which the appeal award is made.

As the first specialized investment arbitration rules that introduce an appeal mechanism, the BAC rules are more of a research attempt to provide a feasible solution to address the current debate over the reform of the investment arbitration system.

Nevertheless, the author remains optimistic to see this appeal mechanism tested by practice in the future.

Zhang Xi is a senior counsel of the International Case Management & Business Development Division of Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC)

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