ARBITRAL PROCEEDINGS

ARBITRAL PROCEEDINGS

Equal treatment of parties Article 17

(1) The parties to proceedings before an arbitral tribunal shall be treated equally.

(2) The parties shall have the right to respond to statements and claims of their adversary.

(3) For the purpose of compliance with the provisions of paragraphs 1 and 2 of this article, arbitrators shall, to the extent necessary and possible, attempt to disclose to the parties their opinions and give appropriate explanations in order to evaluate all relevant factual and legal issues.

 Rules of procedure Article 18

(1) Subject to the provisions of this Law, parties are free to agree, directly or by reference to any established set of rules, a statute or in other appropriate manner, the procedure to be followed by the arbitral tribunal in the conduct of the proceedings.

(2) Failing such agreement, the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the rules of procedure either directly or by reference to a set of rules, a statute or in other appropriate manner, and the power to determine the admissibility, relevance and weight of any evidence.

Place of arbitration Article 19

(1) The parties are free to agree on the place of arbitration.

(2) Failing such agreement, the place of arbitration will be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience for the parties.

(3) If the place of arbitration is not determined pursuant to paragraphs 1 and 2 of this article, the place of arbitration shall be deemed to be the place designated in the award as the place where the award was made.

(4) Notwithstanding the provisions of paragraph 1 and 2 of this article, the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of goods or documents.

ARBITRAL AWARD

ARBITRAL AWARD

(1) Unless otherwise agreed by the parties, an arbitral tribunal is authorized to make partial and interim awards. A partial award is deemed to be an independent award.

(2) The award shall be made in the place of arbitration (Article 19 of this Law).

(3) The award shall be made in writing. It shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or if the award is an award on agreed terms under Article 29 of this Law.

(4) The date when the award was made and place where it was made shall be stated in the award pursuant to Article 19, paragraphs 1 and 2 of this Law and paragraph 2 of this article.

(5) The original of the award and all copies thereof shall be signed by the sole arbitrator or all members of the panel of arbitrators. The award shall be valid even if some arbitrators failed to sign it, provided that it was signed by the majority of all members of the arbitral tribunal, and that the omission of a signature or signatures is stated in the award.

(6) The awards made in an institutional arbitration shall be served upon the parties by the arbitral institution. In all other cases, the service of the award to the parties shall be made by the arbitral tribunal.

 (7) Unless otherwise agreed by the parties, the service of the award shall be made pursuant to provisions of Article 4 of this Law. If both parties so request, service of the award may be carried out by the court designated in Article 43, paragraph 5 or by a notary public.

Legal effect of the award

The award of the arbitral tribunal shall have, in respect of the parties, the force of a final judgment (res Judicata), unless the parties have expressly agreed that the award may be contested by an arbitral tribunal of a higher instance.

Failure to perform arbitrator’s duties

Failure to perform arbitrator’s duties Article 13

 (1) If an arbitrator becomes de jure or de facto unable to perform his functions, and he withdraws from his office or the parties agree on the termination, his mandate shall be terminated. If a controversy remains concerning any of the grounds, any party may request the authority specified in Article 43, paragraph 3 of this Law to decide on the termination of the mandate.

 (2) If under this article or Article 12, paragraph 6, an arbitrator withdraws from his office or parties agree to terminate his mandate, this does not imply existence of any ground referred to in this article or Article 12, paragraph 2 of this Law.

 Appointment of substitute arbitrator Article 14

Where the mandate of an arbitrator terminates under Articles 12 or 13 of this Law, or because of his withdrawal from office for any other reason or because of the revocation of his mandate by agreement of the parties, or in any other case of termination of his mandate, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

 Jurisdiction of arbitral tribunal Article 15

 (1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or the validity of the arbitration agreement. For that purpose, an arbitration clause that forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso iure the invalidity of the arbitration clause.

 (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defense in which the respondent raised issues related to the Law on Arbitration (Arbitration Act) 7 substance of the dispute. A party is not precluded from raising such a plea by the fact that he has appointed or participated in the appointment of an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be made as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.

(3) The arbitral tribunal may rule on a plea referred to in paragraph 2 of this article either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in Article 43, paragraph 1 of this Law to decide the matter. While such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.

(4) The court proceedings from paragraph 3 of this Article shall be urgent.

What is risk?

What is risk?

The informal notion of risk as the chance that something bad might happen is not a bad place to start defining risk. Better management requires a better definition though. We need to break risk into distinct parts that are measurable.

RISK IS THE PROBABILITY OF LOSS GIVEN AN EVENT

Mathematical precision is possible and desirable in some cases. Large financial firms, for example, have sufficient data about operational losses that they can build predictive models based on experience to measure risk. They are the exception.

To illustrate how we might define risk in statistical terms take the formula: R = p * LGE. In this case R stands for risk, p for Probability of Event expressed as a percentage, and LGE stands for Loss Given Event. LGE is a measurement of the financial harm from an event. LGE can include non-financial losses, but they must yield to measurement for the formula to quantify risk.

Most organizations do not have the data or resources (or confidence in) abstract models of risk. Organizations without statistically valid loss data can still measure and manage risk, particularly legal risk, by simply moving a few steps toward quantification, away from the "bad stuff" notion.

Effective risk identification

To identify risks reliably requires a workable definition of risk. The ISO 31000 definition of risk usefully includes "positive risks." This is right lens for identifying legal risks and, ultimately, managing legal risks.

Risk in an information problem. We can manage risk when we understand the scope and components of our uncertainty. The approach to risk can guide the organization to develop a risk management strategy.

WHY IS RISK TOLERANCE IMPORTANT?

An explicit legal risk tolerance policy achieves two objectives. First, it saves the organization money by calibrating the cost of risk treatment under ISO 31000. The organization cannot know how much to spend on preventative risk management if it does not have a target for acceptable risk.

Second, the legal risk tolerance policy improves organizational efficiency. For example, it is not unusual for sales executives to complain about revenue deals held up in legal. If both sides understand the organization's tolerance for risk, then sales executives and lawyers can collaborate on the contract in a meaningful way.

Legal risk in the context of market data

With annual revenues in excess of USD 20 billion, the market data industry is complex and large. It is no surprise that using, buying, creating or selling market data presents a range of risks, including technology, financial and legal risk.  Legal risk typically arises from breach of obligations under legislation (including regulations) or contract.

Legal risk translates to additional payments (e.g. damages or regulatory fines), increased regulatory burdens, reputational damage (e.g. public censure) and regulatory or legal processes which are costly and time-consuming distractions from a firm’s core activities. A lawyer advising on market data may be involved in a range of matters: (many) contract negotiations; negotiations and disputes over audit outcomes and licensing policy; advice on data management and compliance/remediation projects; advice on creating and contributing to financial indices and benchmarks; matters involving trading and information platforms (sometimes in competition with existing data vendors); and submissions to competition law authorities.

In the context of market data, some key legal risks for market data users are:

(1)    Unbudgeted spend arising from usage: unsurprisingly, vendors will seek to maximise revenue and customers will seek to control spend. Customers may have to pay for unauthorised use, or pay a fee based on usage (or deemed usage or access). Exchanges and vendors are alert to the possibility of undeclared usage, whether through audit, training or even relationship visits to the trading floor. Uncontrolled usage or distribution of market data can therefore be very expensive.

(2)    Terms unilaterally changeable by the vendor, so little control of legal risk:some vendors (notably exchanges) reserve the right to change the deal by notifications to customers (or even simply by notifications on a website). In such cases, the customer will have little opportunity to manage legal risk. Sometime what appear as small points of detail – e.g. unit of count for users – can have significant commercial impact. Some vendors are even unwilling to provide contractual assurances of their right to license data to their customers in the form of indemnities against third party intellectual property claims.

(3)    Complexity of contracts: some market data contracts have many components  – for example, master agreements, licensing policies, business principles, addenda, order forms – which customers often find difficult to manage. Uncertainty over whether customers can create derived data (either at all or without further payment) may taint data held by financial institutions. Industry developments such as the FISD Consumer Constituency Group’s CRISP (Contracts should be Readable, Intuitive, Standardised and Precise) are welcome but at an early stage – readers may assume that, at least for now, many market data Contracts are Rubbish, Asymmetrical and Problematic. In the shorter term, data governance and remediation projects can help bring clarity to the complexity, but require resources with the requisite expertise and time.

(4)    Vendor contractual terms lock users in: vendor contracts often impose restrictions on users from using a vendor’s data, even if that data is not protected by any intellectual property rights and in the public domain. Requirements to delete data upon a subscription terminating can also effectively mean that a subscription cannot be terminated, as historic data may need to be held to support risk and P&L figures.

(5)    Burden and risk of contributing data: contributing to a benchmark has proven costly for a number of banks. The processes for contributing to any reference price or benchmark should be subject to strict governance – not just for interest rate benchmarks, but for any contributed price.

(6)    Risk of inaccurate regulatory reporting:  market data is generally provided by vendors with no or very limited assurance as to its accuracy. While the vendor’s wish to limit liability is understandable, this leaves financial institutions with the responsibility of ensuring that their filings to regulators, shareholders and the markets are accurate. In theory, the management of an FCA-regulated entity could face criminal penalties for negligent processes around reports to regulators – food for thought for senior management.

(7)    Reporting and audit requirements: the burden of audit and reportingrequirements can be complex and resource-intensive.

While negotiation of new agreements can go a long way to mitigating these risks, sometimes firms are hamstrung by master agreements signed several years ago (often with no review by market data professionals or by lawyers with knowledge of market data) and so face the question of whether and when existing agreements should be renegotiated.  Deciding on the correct strategy is an area where market data professionals and experienced lawyers can add value.

But it’s not plain sailing for data providers either: their role in creating markets is increasingly under scrutiny, with the possibility of increased regulatory involvement from the financial services regulators, anti-trust authorities and privacy regulators.

Legal Risk Management

Legal Risk Management

1. Select framework

RISK MANAGEMENT IS A CONTINUUM

OBJECTIVES FOR A FRAMEWORK

A risk management framework for legal risk and compliance should meet four objectives:

1.    Simple but not simplistic

2.    Scalable but not overbearing

3.    Adaptable but with clear guidance

4.    Practical but not regimented

2. Obtain organizational commitment

Risk management initiatives often stall and stagnate because the organization insists on "doing it right," meaning implementing a risk management framework for the entire enterprise. Enterprise risk management (ERM) is a noble and important endeavor. However, it is not an essential starting point.

General counsel, compliance officers, contract managers, other legal professionals can implement legal risk management within their own domain. A focus on legal risk yields two benefits. First, the broader enterprise will benefit from clarity and measurement of formerly opaque risks. Second, the bar for approval of software and processes is lower than enterprise risk management, because the systems are simpler and the field of use is constrained.

There are four key questions to obtain organizational commitment:

·         What is the scope of the legal risk management initiative (meaning: departments, divisions, or enterprise)?

·         What types of legal risk will get tracked with the initiative (contracts, regulations, litigation, etc.)?

·         Who is the audience for legal risk reporting (management layer, corporate functions, etc.)?

·         How much budget is available to track and treat legal risk in terms of time, money, and staff?

Answering these questions will focus the organizational commitment needed to get started.

3. Identify legal risks

Risk identification is an issue spotting exercise. The objective is to compile a broad list of risks. There are three steps to identify legal risks:

Step 1: Find sources of legal risk. The primary sources of legal risk are contracts, regulations, litigation, and structural changes.

Step 2: Recognize potential and actual risks. Uncertainties with legal consequences can arise from hazards (physical injuries), events (a single occurrence), situations (entering a new international market), and scenarios (counterparty does X, Y, or Z).

Step 3: Record risks in a risk register. A risk register is basically a list that also captures some attributes of each risk. To start, track the name of the risk, the likelihood on a simple scale as an estimate, the consequences rating on a simple scale as an estimate, and the combined risk rating on a simple scale.

Now you can subject the risks to analysis, driving toward decisions about how to manage legal risks.

4. Analyze legal risks

Risk analysis is about understanding the risks in the risk register. To analyze legal risks, begin with an assessment of controls. Risk controls can take a variety of forms depending on the risk, the industry, and the organization. For example, to manage a contract risk, an organization might use a requirements tracking system to ensure that individual obligations are satisfied.

Once you have gauged the effectiveness of risk controls, analyze the likelihood and consequences of each risk. The likelihood of a legal risk is the combination of the chance of discovery (will a claimant or regulator identify the problem) and the chance of an adverse decision. Similarly, consequences are the product of damages (usually in financial terms) and frequency (the number of incidents).

Precise measurement of likelihood and consequences is rarely, if ever, possible or even desirable. Risk involves uncertainty. Risk analysis aims to refine, but not resolve, the identified risks. The final part of risk analysis is to build in parameters or variables for the elements

With the analysis in hand, you can refine the risk register with more definitive ranges. Risk analysis is an iterative process. Some risks will fall off the list; some will merge with others; new risks will emerge after analysis.

5. Evaluate legal risks

Evaluating legal risks is quite different from the analysis of risks. To evaluate a legal risk is to prioritize the response to the risk. At the core of risk evaluation is your organization's risk tolerance. Legal risks that are above the line - intolerable - need risk treatment. The idea behind risk treatment is simple: modify the risk so that it is tolerable. Notice that it is not necessary to eliminate the risk, just render it tolerable.

Risk treatment options are as diverse as the risks we manage. However, there are several repeatable techniques:

·         Avoid the risk by not starting or continuing the activity that can create the uncertainty

·         Increase the activity that creates the risk, if the consequence is beneficial

·         Remove the source of the risk

·         Change the likelihood and/or consequence of the risk

·         Share the risk through contracting or insurance

Each of these techniques can change the character of legal risk. Adapting these techniques to legal risks brings legal professionals closer to the operations of the organization to reduce the cost and impact of uncertainty.

6. Communicate and advise

Once legal risks are inventoried and analyzed in the risk register, it is important to communicate the results to the broader enterprise. However, many risk professionals diminish the power of their message and the effectiveness of their communication by presenting each risk.

To make a lasting impact on the organization, think holistically and communicate clearly. The principles of effective risk management presentations are detailed in "The 20 Minute Risk Manager."

Risk management is the frontier for lawyers, compliance officers, and contract managers to add value to their organizations. A pragmatic approach to legal risk management is within reach.

Why global legal risks have increased

Why global legal risks have increased

RISK CRITERIA

Risk criteria allow the organization to evaluate and compare risks. The cost of risk treatment is measured against the level of the risk with the risk criteria. Risk criteria impose consistency on how an organization identifies and measures each element of a risk. In the examples here, there are only three risk criteria:

1.    Likelihood is measured as a percentage probability,

2.    Consequence is exclusively a financial loss (not a profit), and

3.    Risk is the product of the two with no other considerations.

Reason for increase in risk

Over recent decades legal risks have intensified around the world. The following are the main reasons:

·         The volume of law is now out of control internationally and is unmanageable.

·         A large part of this increase of risk results from the intensification of regulatory regimes, notably in the West. These regulatory regimes, of which there are a great many, typically criminalise the ordinary law and are sometimes aggressive. In some cases, particularly large parts of financial regulation, their usefulness is questionable.

·         Almost all jurisdictions are now part of the world economy in the sense that they have businesses, banks and corporations which do business with other countries. Few countries are hermetically sealed off. Out of the just under 200 countries, there are about 320 jurisdictions and almost all of these now participate in world markets.

·         The law is much more volatile than it has ever been and changes rapidly, sometimes with no apparent reason, arbitrarily, just because somebody wants to fiddle with the law, or has a flash of anger.

·         In developed countries, domestic financial and corporate law is breaking up into tiers or layers internally, with different protections for different sectors of the population, usually politically driven.

·         There is great diversity around the world as to how the law is actually applied and the rule of law. For example the basic law in Congo-Kinshasa and Belgium derives from the same roots but the application is very different. One therefore has to cope with a double layer – the written law, or the law on the books, and then how it is applied.