Arbitration News Newsletter of the International Bar Association Legal Practice Division
Vol 14 No 2 SEPTEMBER 2009
The IBA acknowledges the support of LexisNexis in the production of this newsletter. A conference presented by the IBA Arbitration Committee and the ICC International Court of Arbitration
Arbitration in the 21st Century: Making it work
4–6 December 2009 New Delhi, India
Topics include: • International commercial arbitration in the 21st century: basic concepts, instruments and techniques • Overview on international commercial arbitration in the 21st century: getting the best out of the process • Transnational issues: the role of the judiciary • Transnational issues: from theory to practice • Mediation: a technique for business diplomacy • Dispute boards: the ‘promised land’ for complex, multiparty, mid-long term contracts • Expertise: the versatile method
Current topics including the tool box for the 21st century make this conference a must in arbitration lawyer’s diaries.
Who should attend? Arbitrators, litigators, judges, government officials, and all those involved in alternative dispute resolution.
For further information, please contact:
International Bar Association 10th Floor, 1 Stephen Street London W1T 1AT United Kingdom Tel: +44 (0)20 7691 6868 Fax: +44 (0)20 7691 6544 E-mail: [email protected] Website: www.ibanet.org Newsletter Editor In this issue Lawrence Schaner Jenner & Block LLP 330 North Wabash From the Co-Chairs 4 Chicago, IL 60611 United States Editor’s note 8 Tel: +1 (312) 923 2689 Fax: +1 (312) 840 7689 French-Spanish Perspectives [email protected] on Arbitration Agreement Conference 9 Committee Officers 10 Printed in the United Kingdom IBA Annual Conference, by Hobbs the Printers Ltd Madrid 2009: Arbitration Totton, Hampshire Committee sessions 12 SO40 3WX www.hobbs.uk.com Country developments Austria 14 International Bar Association Brazil 15 10th Floor, 1 Stephen Street Canada 16 London W1T 1AT, United Kingdom Tel: +44 (0)20 7691 6868 China 18 Fax: +44 (0)20 7691 6564 www.ibanet.org Denmark 19 © International Bar Association 2009. France 21 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or stored in any retrieval system of any nature without the prior permission of the Germany 23 copyright holder. Application for permission should be made to the Head of Publications at the IBA address. Hong Kong 34 India 36 This newsletter is intended to provide general Indonesia 39 information regarding recent developments in international arbitration. The views expressed Israel 42 are not necessarily those of the International Bar Association. Mexico 44 Netherlands 46 Terms and Conditions for submission of articles 1. Articles for inclusion in the newsletter should be sent to the Newsletter Editor. Nigeria 48 2. The article must be the original work of the author, must not have been previously published, and must not currently be under consideration by another journal. If it contains material which is someone else’s copyright, the unrestricted permission Poland 51 of the copyright owner must be obtained and evidence of this submitted with the article and the material should be clearly identified and acknowledged within the text. The article shall not, to the best of the author’s knowledge, contain Russia 52 anything which is libellous, illegal, or infringes anyone’s copyright or other rights. 3. Copyright shall be assigned to the IBA and the IBA will have the exclusive right to first publication, both to reproduce and/or distribute an article (including South Africa 54 the abstract) ourselves throughout the world in printed, electronic or any other medium, and to authorise others (including Reproduction Rights Organisations Switzerland 55 such as the Copyright Licensing Agency and the Copyright Clearance Center) to do the same. Following first publication, such publishing rights shall be non- exclusive, except that publication in another journal will require permission from United Kingdom 61 and acknowledgment of the IBA. Such permission may be obtained from the Head of Publications at [email protected]. 4. The rights of the author will be respected, the name of the author will always be United States 65 clearly associated with the article and, except for necessary editorial changes, no substantial alteration to the article will be made without consulting the author.
air rb t ation NEWSLETTER SEPTEMBER 2009 3 from the co-chairs
Pierre Bienvenu Ogilvy Renault LLP, Transcending jurisdictional Montréal, Canada pbienvenu@ boundaries through global ogilvyrenault.com dialogue Guido Santiago Tawil M. & M Bomchil, Buenos Aires, s we approach the close of another Madrid Annual Conference sessions Argentina eventful year for our committee, Your committee has organised five sessions guido.tawil@bomchil. we wish to extend our gratitude to during the Annual Conference on dedicated com all of those individuals who have A topics in international arbitration. These contributed to the success of the Arbitration sessions are scheduled to take place Committee’s endeavours over the course of sequentially, in half-day blocks, over the this year and who have taken up the mantle of course of the conference week in order to new leadership over the coming year. permit those of you with a keen interest in Your committee Co-Chairs anticipate arbitration to maximise your exposure to a strong end to 2009 with several events and participation in these sessions. Among planned during the second half of 2009 by those themes our committee will take up are the Arbitration Committee in cooperation current issues in investment treaty arbitration, with other arbitral institutions and IBA the continued vitality of fast track arbitration Committees. In the spirit of supporting in resolving commercial disputes, the status cross-cultural and transjurisdictional of the IBA Guidelines on Conflicts of Interest, dialogue in the international arbitration important developments in arbitral practice, community, events have been organised on including the review of the IBA Rules on three continents, offering an opportunity the Taking of Evidence in International for local practitioners in these regions to Commercial Arbitration, and the New York participate in and contribute to the debate Convention workshop with updates and of issues of interest to the international country reports on the global implementation arbitration community. of the New York Convention. The IBA Annual Conference, taking place It is recalled in respect of this latter topic in Madrid, Spain from 4-9 October 2009, that the Subcommittee on the Recognition offers an excellent opportunity to gather and Enforcement of Arbitral Awards was and debate cross-cutting issues that are revived earlier this year under the leadership important both to arbitration practitioners of Andrew Foyle. The main function of and to our colleagues engaged in other this subcommittee will be to monitor the areas of dispute resolution and legal implementation and application of the New practice. Attendees of this event will be York Convention by national courts and treated not only to stimulating conversation legislatures. We are pleased to note that the and debate among their peers, but to subcommittee has now been constituted the delights of our host city, Madrid. For with the following members: Andre A C those of you arriving early, our hosts have Abbud, Dominique Brown-Berset, José organised a Welcome Party on Sunday Antonio Cainzos, K H Liz Chung, Eduardo evening at the Palacio del Negralejo, a Damião Gonçalves, Sumeet Kachwaha, historic building built on the ruins of a Marta Khomyak, Andrew de Lotbinière 17th century castle, where guests will enjoy McDougall, Reza Mohtashami, Dr Patricia delectable Spanish food and wine. Other Nacimiento, Sophie Nappert, Felipe Ossa, informal gatherings have been organised Phillipe Pinsolle, Ank Santens, Franz T during the Annual Conference by regional Schwarz and Benedetta Vannini. We wish fora, as well as a Young Lawyers’ reception Andrew and his team success in carrying out sponsored by the Madrid City Council on this important mandate. Thursday evening. We will close out the Your committee has also jointly organised Annual Conference and bid farewell to with other IBA committees and fora five Madrid at the historic Casino de Madrid. additional sessions which will address cross-
4 I nTERNATIONAL Bar Association Legal Practice Division from the co-chairs cutting themes in arbitration, litigation and Other conferences commercial law. Two of these sessions will be On 25 August 2009, your committee hosted held on Monday 5 October, the inaugural day a conference in cooperation with the IBA of the Annual Conference. The first session, Latin American Regional Forum and the jointly organised with the Corporate Counsel ICC International Court of Arbitration in Forum will explore options for the resolution San Jose, Costa Rica, on arbitration in Latin of international commercial disputes, America, which has seen immense growth. including the drafting of dispute resolution Arbitration in this region provides a rich and clauses, under the able chairmanship of your complex landscape against which to examine committee Senior Vice-Chair, Judith Gill, the development of investor-state arbitration and Antonio Bravo. The second joint session, in the commercial and treaty contexts. Several presented by the Arbitration and Litigation panels were organised to address issues Committees, will focus on the issue of along this theme, including international sovereign immunity in international litigation commercial arbitration involving state parties, and arbitration. This discussion will be guided the status of bilateral investment treaties both by our Vice-Chair Abby Cohen Smutny and new and old, the relationship between free Klaus Reichert. trade agreements and bilateral investment A third joint-session, organised in treaties, and the anticipated impact of the cooperation with the Consumer Litigation recently negotiated DR-CAFTA. Committee, will take place on Tuesday 6 This event was followed by a second one- October. Under the leadership of John day conference jointly organised by the IBA Brown and Henri Alvarez, this session and the ICC, in Punta Cana, Dominican will examine, in the context of collective Republic, on 28 August 2009, during which redress, government and judicial responses panellists continued to take up current to transnational remedies for mass claims issues in commercial arbitration in the and whether litigation, arbitration and region. The focus of this event was the new government remedies are working together Dominican Republic law on commercial in this regard. The fourth joint session, arbitration, recent experiences with the organised with the Barristers and Advocates implementation of substantive provisions Forum, will debate the question: ‘Arbitration of the Model Law, and experiences with v Litigation: Is there A Clear Winner?’, under the Model Law in connection with the Co-Chairs Kaj Hobér, Vice-Chair of our recognition and enforcement of arbitral committee, and Chantal-Aimée Doerries, awards. We congratulate the esteemed group Co-Chair of the forum. Finally, our last of panellists who guided a thought-provoking joint session, organised with the Insurance discussion of these issues from Costa Rica to Committee, will explore whether arbitration the Dominican Republic. is failing the reinsurance industry, guided On 5-6 December 2009, your committee by our Publications and Newsletter Editor will also co-host a conference with the ICC Lawrence Schaner and Simon Twigden. International Court of Arbitration, in New As is your committee’s custom during the Delhi, India, titled ‘Arbitration in the 21st IBA Annual Conference, a meeting has been Century – Making it Work’. This conference organised on Wednesday 7 October 2009, late is intended to be both educational and afternoon in cooperation with the Madrid Bar informative for practitioners of all levels and the IBA Spanish Arbitration Club among of experience, including arbitrators and senior members of the Spanish judiciary and arbitration practitioners, litigators, judges reputable international arbitrators, including and government officials. During the first José María Alonso, José Astigarraga, Yves day, several panels will address cornerstone Derains, Sally Harpole, Alexis Mourre and concepts, instruments and techniques in Guido S Tawil. The Dean of the Madrid Bar, international commercial arbitration, as Mr Antonio Hernandez-Gil, will chair the well as several transnational issues relating meeting and guide a discussion of issues to the role of the judiciary in international arising in the relationship between arbitration commercial arbitration, and the leap from and the judiciary. We strongly encourage theory to practice in this field. The second conference participants to attend and take day is devoted to a hands-on study of a mock part in this important discussion. case under the ICC Rules of Arbitration,
air rb t ation NEWSLETTER SEPTEMBER 2009 5 from the co-chairs
applying the IBA Rules on the Taking of on Investment Treaty Arbitration. The Evidence in International Commercial subcommittee is devoted to the examination Arbitration, followed by an afternoon of of a broad range of issues pertaining to the sessions dedicated to alternative dispute field of investment treaty arbitration and is resolution, including the use of dispute currently engaged in gathering information boards, mediation and experts. for a report on ‘best practices’ for the production of evidence in investment treaty Looking toward the horizon, planning arbitration cases. We wish Nigel the very best is now underway for the IBA’s 13th in his new role as Chair of this important International Arbitration Day, scheduled to subcommittee and anticipate an active be held in London, England, on 5 March programme under his leadership. 2010. Under the theme ‘The Agreement In June 2009, a working group of the to Arbitrate: What Did You Bargain For?’, Arbitration Committee chaired by Alexis distinguished practitioners will address a host Mourre prepared a paper for submission to of issues such as essential and non-essential the European Commission in connection elements of the agreement, pathological with the EC’s Report and accompanying clauses, states’ consent to arbitrate and the Green Paper proposing possible changes impact of administrative law, whether consent to the operation of Council Regulation can be implied, and courts’ interference with EC No. 44/2001 on Jurisdiction and the agreements to arbitrate. The event will also Recognition and Enforcement of Judgments include a lively debate on the issue whether in Civil and Commercial Matters. The states are getting what they bargained for working group offered several observations in treaty arbitration and a novel interview on the interface between the Regulation format, in which attendees will meet three and arbitration, identifying concerns in senior figures in the world of international respect of the proposed deletion of the arbitration, all of which should make our arbitration exclusion from the Regulation. London International Arbitration Day a In particular, the working group observed unique and memorable event. that while the Green Paper identified no We hope that you will save the date and compelling reason for the removal of the we look forward to seeing many of you arbitration exclusion, its removal threatens there. Further details on the programme to affect adversely the effectiveness of for the 13th International Arbitration Day arbitration agreements and the circulation will be forthcoming. of arbitral awards in this jurisdiction. In The Arbitration Committee also intends the event the EC proceeds to remove the to team up with SEERIL in 2010 to support arbitration exclusion from the Regulation, a regional conference in Lagos, Nigeria, on the working group has recommended that the subject of dispute resolution in the oil a specific rule be introduced to preserve and gas industry. This conference is currently the effectiveness of arbitration agreements scheduled to take place in June 2010; be and compatibility of the Regulation with sure to monitor the IBA website for further the New York Convention. We thank Alexis information on this event. and his team for their commitment to this important undertaking and commend them for the impressive and persuasive quality Subcommittees and working groups of the paper submitted on behalf of the In addition to the planning of events and Arbitration Committee. educational activities, your committee In this fifth anniversary year of the IBA is involved on an ongoing basis through Guidelines on Conflicts of Interest in its various subcommittees and working International Arbitration, your committee is groups in the elaboration of guidelines also pleased to announce that the Guidelines and commentary on issues relevant to are now available in eight languages: your committee’s mandate. Several groups English, Chinese, Italian, Japanese, Polish, in particular have recently completed Portuguese, Russian and Spanish. The projects which contribute importantly to Russian translation of the Guidelines was the development of arbitral rules in key completed in April of this year and is jurisdictions and the dissemination of available for consultation on the Arbitration cornerstone instruments for arbitral practice. Committee’s webpage. The preparation In April 2009, your committee nominated of the Russian translation was undertaken Nigel Blackaby as Chair of the Subcommittee by a working group formed in early 2008,
6 I nTERNATIONAL Bar Association Legal Practice Division from the co-chairs consisting of Ivan Marisin and Irina Sergeeva guidelines to arbitration practitioners around of Clifford Chance, Vladimir Khvalei and the world in their native language. Ekaterina Solomatina of Baker & McKenzie, We hope that you will find the articles and Ilya Nikforov and Sergey Abesadze of and information in this newsletter to be Egorov Puginsky Afansiev & Partners. interesting and useful in your practice. We The Italian translation of the guidelines thank all contributors for sharing news was finalised in June of this year through the and developments from around the world, assistance of the Chamber of Arbitration of and extend a special thanks to Newsletter Milan, Professor Chiara Giovannucci Orlandi, Editor Lawrence Schaner and his team for and members of the Bocconi University XIVth their efforts in carrying out the successful Annual Willem C Vis Arbitration Mooting production of this committee publication. team. We are deeply grateful for the diligent We look forward to seeing many of you this work of these individuals in contributing October and in the New Year, and send our to the widespread dissemination of the best wishes to all committee members.
Past Chairs and co-chairs of the arbitration committee
2006–2008 2001–2002 Sally Harpole Bernardo Cremades
2005–2007 1998–2001 Audley Sheppard David W Rivkin
2004–2006 1995–1998 Claus Von Wobeser Wolfgang Kuhn
2004–2005 1992–1995 Dominique Brown-Berset Philippe Nouel
2002–2004 1992–1994 Bernard Hanotiau David St John Sutton
2002–2003 Henri Alvarez
air rb t ation NEWSLETTER SEPTEMBER 2009 7 Editor’s note
Lawrence Schaner Editor’s Note Jenner & Block LLP, Chicago [email protected] ost Americans will remember ‘manifest disregard’ of the law. The Co-Chairs’ ABC’s Wide World of Sports, Message at the beginning of this issue provides which aired on television on the latest news regarding your committee, MSaturday afternoons from 1961- including details about the Madrid conference 1998. The programme began with a musical and other upcoming events. fanfare, accompanied by exciting sports Having mentioned some of the substance, scenes and a dramatic introduction by the let’s get to the style! As you may have noticed, legendary Jim McKay: ‘Spanning the globe to the newsletter has a new name and a new bring you the constant variety of sport… the look. Goodbye IBA Arbitration Newsletter. Hello thrill of victory… and the agony of defeat… IBA Arbitration News. (Don’t worry, we did not the human drama of athletic competition… spend a lot money on consultants.) As for the This is ABC’s Wide World of Sports!’ new cover and new layout, to quote Thomas While the analogy is admittedly somewhat Jefferson, ‘a little rebellion now and then strained, our newsletter certainly spans the is probably a good thing.’ Besides, the old globe to bring you the constant variety of format was looking a little frumpy. arbitration. The thrill of victory? The agony of As this marks my last issue as the editor defeat? Human drama? Perhaps? Perhaps not? of the newsletter, a few ‘thank yous’ are in In any event, true to our lofty aspirations, order. First, thanks to the co-chairs who were this issue features articles from an impressive instrumental in bringing me on board and 20 jurisdictions, scattered across five who worked closely with me in turning out continents. While many of us are just coming issues of the newsletter these past two years: back from summer vacations, the arbitration Audley Sheppard; Sally Harpole; Pierre world has been remarkably busy, pumping Bienvenu; and Guido Tawil. I also want to out important developments left and right. acknowledge the enduring contributions of the For example, from the United Kingdom, prior editors of the newsletter who built it into we have a report on life after the ECJ’s West the premiere publication that I was privileged Tankers decision. One of our Swiss colleagues to inherit: David Rivkin; Robert Smit; Audley has provided us with news of the Swiss Federal Sheppard; and Mark Friedman. I am proud Supreme Court’s important holding that it is to have followed in your footsteps and I only the substance of an arbitral tribunal’s decision hope that I kept the franchise relatively intact. and not the name given to it that determines Major thanks to my Jenner & Block colleagues, whether it may be challenged in a court. Rachel Loftspring, Kara Martin, David Saunders From South Africa, we have a very positive and John Schleppenbach, for going well beyond report that the Constitutional Court of the call of duty in helping out with this issue. South Africa has ruled that the arbitration of Also, a very special thank you to my assistant private disputes does not violate the nation’s Peggy Lynch, who put all the pieces together 1996 constitution. An appeals court in the and whose dedication and attention to detail are Netherlands has enforced arbitral awards unsurpassed. Thank you also to the many authors despite their annullment in Moscow, and the who contributed to this issue and to each of the German Federal Court of Justice has reversed issues published on my watch. Your contributions prior rulings to now permit the arbitration of to our global dialogue are truly appreciated. challenges to shareholders’ resolutions. Please keep writing. Looking to Asia, Indonesia’s government As for you, our readers, my profound thanks appears to have found a new enthusiasm for for sticking with the newsletter and continuing investor-state cases and in Hong Kong, a court to support it. It has been an honour and a has heard its first application to set aside an privilege to serve as your editor. I hope that international arbitral award under Article you enjoy this issue and that you give the next 34 of the UNCITRAL Model Law. Closer to editor the same support that you gave me. home (at least for me), we have a preview of So, cue the fanfare, roll the clips from a case that will be heard by the United States assorted conferences and hearings, and Supreme Court that is expected to address for one last time I’ll do my best Jim McKay controversial issues including the availability impersonation: ‘Spanning the globe… This is of class action arbitrations and the doctrine of the IBA’s Arbitration News!’
8 I nTERNATIONAL Bar Association Legal Practice Division French-Spanish Perspectives on Arbitration Agreement Conference
French-Spanish Perspectives on Arbitration Agreement Conference
2 October 2009, Madrid
n Friday, 2 October 2009, the Club • the group of companies doctrine; Español del Arbitraje and the • parallel proceedings and stays of Comité Français de l’Arbitrage proceedings; Oare holding a joint conference in • issues concerning arbitrability and the Madrid titled ‘French-Spanish Perspectives protection of a weaker party; and on the Arbitration Agreement’. The one-day • provisions modifying the grounds for review conference, which is supported by the IBA of awards. Arbitration Committee, will look at all aspects The conference will take place at the Madrid of the agreement to arbitrate. Panels will offices of Garrigues. Additional information consider topics including: about the conference, including how • arbitration clauses incorporated by to register, can be found online at www. reference; clubarbitrage.com or by contacting Elena • pathological clauses; Hidalgo at [email protected].
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Committee Officers
Co-Chairs Mark Friedman Pierre Bienvenu Debevoise & Plimpton LLP Ogilvy Renault LLP 919 Third Avenue Suite 2500, 1 Place Ville Marie New York, NY 10022 Montreal, Quebec H3B 1R1, Canada United States Tel: +1 (514) 847 4452 Tel: +1 (212) 904 6034 Fax: +1 (514) 286 5474 Fax: +1 (212) 909 6836 [email protected] [email protected] Guido Tawil Kaj Hobér M&M Bomchil Mannheimer Swartling Suipacha 268 12th Floor Norrlandsgatan 21, PO Box 1711 Buenos Aires C10008AAF Stockholm SE 111 87, Sweden Argentina Tel: +46 (8) 5057 6500 Tel: +54 (11) 4321 7500 Fax: +46 (8) 5057 6501 Fax: +54 (11) 4321 7555 [email protected] [email protected] Kap-You (Kevin) Kim Bae Kim & Lee LLC Senior Vice-Chair 647-15, Yoksam-dong, Kangnam-gu Judith Gill Seoul 135-723, Allen & Overy LLP South Korea One Bishops Square Tel: +82 (2) 3404 0333 London E1 6AD, United Kingdom Fax: +82 (2) 3404 7306 Tel: +44 (0)20 3088 3779 [email protected] Fax: +44 (0)20 3088 0088 Alexis Mourre [email protected] Castaldi Mourre & Partners 73, boulevard Haussmann Vice-Chairs Paris 75008, France Dushyant Dave Tel: + 33 (1) 4073 1642 Senior Advocate Fax: +33 (1) 4073 1631 43 Prithviraj Road [email protected] New Delhi 110 011, India Ilya Nikiforov [email protected] Egorov Puginsky Afanasiev & Partners Nevsky PR 22-24, Office 132 Abby Cohen Smutny St Petersburg 191186 White & Case LLP Russian Federation 701 Thirteenth Street NW Tel: +7 (812) 322 9681 Washington, DC 20005 Fax: +7 (812) 322 9682 United States [email protected] Tel: +1 (202) 626 3600 Fax: +1 (202) 639 9355 Secretary [email protected] Eduardo Zuleta Juan Fernández-Armesto Gómez-Pinzón Zuleta Abogados SA Armesto & Asociados Calle 67 No 7-35 General Pardinas 102 Office 1204 8th Floor Edificio Caracol Madrid 28006 Bogotá, Colombia Spain Tel: +57 (1) 621 4950 Tel: +34 (91) 562 1625 Fax: +57 (1) 621 4992 Fax: +34 (91) 515 9145 [email protected] [email protected]
10 I nTERNATIONAL Bar Association Legal Practice Division Committee Officers
Publications and Newsletter Editor and Website Officer Investment Treaty Arbitration Subcommittee Lawrence Schaner Nigel Blackaby Jenner & Block LLP Freshfields Bruckhaus Deringer 330 North Wabash 701 Pennsylvania Avenue NW, Suite 600 Washington, DC Chicago, IL 60611 20004-2692, United States United States Tel: +1 (202) 777 4519 Tel: +1 (312) 923 2689 Fax: +1 (202) 777 4555 Fax: +1 (312) 840 7689 [email protected] [email protected]
Corporate Counsel Forum Liaison Officer Recognition and Enforcement of Arbitral Julius Ejikonye Awards Subcommittee The Shell Petroleum Development Company of Nigeria Ltd Chair Prefab G, Room 16 Andrew Foyle Shell I A, Rumubiakani One Essex Court Port Harcourt, Nigeria Temple, London Tel: +234 (0)84 421 933 EC4Y 9AR, England Fax: +234 (0)84 239 804 Tel: +44 (20) 7583 2000 [email protected] Fax: +44 (20) 7583 0118 [email protected] Young Lawyers Liaison Officer Julie Bédard Skadden Arps Slate Meagher & Flom LLP Rules of Evidence Subcommittee Four Times Square Chair New York Richard Kreindler NY 10036, United States Shearman & Sterling LLP Tel: +1 (212) 735 3236 Gervinusstrasse 17 Fax: +1 (917) 777 3236 Frankfurt am Main [email protected] 60322, Germany Tel: +49 (69) 9711 1681 Fax: +49 (69) 9711 1100 Conflicts of Interest Subcommittee [email protected] Chair Matthias Scherer Lalive LPD Administrator 35 Rue de la Mairie Kelly Savage PO Box 6569 [email protected] Geneva 6 1211, Switzerland Tel: +41 (22) 319 8700 Fax: +41 (22) 319 8760 [email protected]
Contributions to this newsletter are always welcome and should be sent to the Newsletter Editor at: Lawrence Schaner Jenner & Block LLP, 330 North Wabash, Chicago, IL, 60611 United States Tel: +1 (312) 923 2689 Fax: +1 (312) 840 7689 [email protected]
air rb t ation NEWSLETTER SEPTEMBER 2009 11 IBA Annual Conference Madrid 2009: Arbitration Committee sessions
Dispute Resolution Section
Council Liaison Officers
Sally Harpole Sally Harpole & Co, Hong Kong SAR 4–9 October 2009 Nicola Mumford Wragge & Co LLP, London, England International Bar Association Conference
Options for the resolution of international commercial disputes, including the drafting of dispute resolution clauses Joint session with the Corporate Counsel Forum. Typically, parties’ agreement to resolve differences or disputes is contained in a future-disputes clause in the matrix contract governing their relationship. Such clauses may provide that any disputes will be referred to mediation, expert determination or to a designated court jurisdiction, arbitration or to a combination of such means. This session will analyse the important elements contract drafters should consider in developing dispute resolution clauses, the pros and cons of different dispute resolution options and when they would be appropriate in typical international contractual disputes/agreements. Additionally, the session will provide sample clauses for consideration, covering major areas of commercial disputes. Speakers will explain factors one might take into account when considering whether to include such supplemental language and latest court decisions in relation to DR clauses. MONDAY 1000 – 1300
Arbitration Co-Chairs Pierre Bienvenu Ogilvy Renault LLP, Montreal, Quebec, Canada Guido Tawil M&M Bomchil, Buenos Aires, Argentina
Sovereign immunity in international litigation and arbitration Joint session with the Litigation Committee. The session will look at current issues relating to sovereign immunities that arise in dispute resolution with States and State entities. With the enormous changes brought about by the worldwide recession and the interventions by governments in the banking and economic sectors, sovereign immunity will become ever more important for clients. Speakers will address such topics as: • the extent to which sovereign immunity exists in modern practice and whether there has been any dilution brought about by the recent and massive increase in governmental economic activity; • what waivers of immunity may accomplish at the contracting phase; • the scope of sovereign immunity from suit; • immunity of sovereign assets from execution at the enforcement stage; • commercial activity exceptions to immunity; and • special problems dealing with state entities. MONDAY 1500 – 1800
A global update on mass claims: can litigation, arbitration and government remedies work together? Joint session with the Consumer Litigation Committee and the North American Regional Forum. The global marketplace for goods and services needs effective means to coordinate remedies for collective redress (actions in which claims are adjudicated jointly rather than separately). How can the array of disparate remedies (collective redress and class actions in litigation and arbitration, as well as government regulatory measures for collective redress) be made to work together to provide an efficient and fair resolution of disputes for all stakeholders in the global marketplace? How best to foster cooperation between jurisdictions, and between regulators and litigators, to secure the continuing viability of this critical market segment? Class arbitrations are now competing with judicial class actions. But are class-wide arbitrations desirable and should arbitration clauses be permitted to pre-empt other collective redress remedies? Hear the views of the key stakeholders – consumers, companies, litigators and arbitration practitioners, judges, arbitrators and government regulators. TUESDAY 1000 – 1300
Arbitration vs litigation: is there a clear winner? Joint session with the Forum for Barristers and Advocates. Eminent speakers from various jurisdictions will discuss the pros and cons of arbitration versus litigation. What are the respective strengths and weaknesses? Is there a clear winner? The panel will debate issues such as: • How important is the confidentiality of the arbitration process versus the public arena of court? • Process of enforcement – are the perceived benefits of enforcement of arbitration awards via the New York Convention significant? • The tribunal – is selection a real benefit? Consideration of the selection of tribunal by parties in arbitration, selection by an independent nominating body versus specialist courts and non-specialist courts. • Independence or neutrality of venue – is this a real advantage of arbitration? What is the impact of specialist courts? • Cost and speed – what are the differences? Is arbitration still considered to be quicker and less costly? • Consensual – is the arbitration process more likely to result in settlement? • Appeal – does the absence of appeal in arbitration make a difference? TUESDAY 1000 – 1300
12 I nTERNATIONAL Bar Association Legal Practice Division IBA Annual Conference Madrid 2009: Arbitration Committee sessions
Investment treaty arbitration The session will consider current issues in investment treaty arbitration, including a review of recent awards, applications for annulment, applications for provisional measures, and distinctions between arbitrations under UNCITRAL Rules and the ICSID Convention. TUESDAY 1500 – 1800
Fast-track arbitration: an idea whose time has come? This session will be dedicated to providing an overview of what are known as fast-track or expedited arbitration procedures, showing the ways they are used for many subjects, and trying to discern common elements from those various settings. It will also include a description of actual experience in fast-track arbitrations, including benefits and limitations. Furthermore, this session will contrast the argument in favour of using expedited arbitration more widely in commercial cases with reasons to be sceptical about their utility. Corporate counsel will explain how a company might evaluate whether to opt for or resist expedited arbitration. Finally, this session will explore potential pitfalls in drafting a fast-track arbitration clause, and provide an assessment of fast-track arbitral rules and whether there is a need for fast-track guidelines. WEDNESDAY 1000 – 1300
The IBA Guidelines on Conflicts of Interest in International Arbitration – a perspective five years later 2009 marks the fifth anniversary of the adoption of the IBA Guidelines on Conflicts of Interest in International Arbitration. Few other texts have had a more immediate and lasting impact on the arbitration community. This session will be devoted to these IBA Guidelines, as well as to conflicts of interest in international arbitration in general. A draft report on the Guidelines will be presented, touching on such topics as the case law referring to the Guidelines, criticism and praise for the Guidelines, how they are applied by practitioners and institutions, and what changes as to form and substance have been suggested. Speakers will address specific topics relating to conflicts, such as the potential for arbitrators and parties to incur liability or be sanctioned for a failure to disclose a conflict or for an improper challenge, the perspective of in-house counsel on conflicts, disclosure obligations, proper and improper challenges of arbitrators, and the way enforcement courts deal with alleged conflicts of interest. Finally, the panel will discuss current trends and offer views as to what can be expected in the next five years. WEDNESDAY 1500 – 1800
Is arbitration failing the reinsurance community? Joint session with the Insurance Committee. This session will commence with a lively debate by a panel of distinguished speakers from a number of jurisdictions on the motion: ‘Is arbitration failing the reinsurance community?’. Following the presentations, the audience will be asked to vote on whether they support or disagree with the motion. The second part of the session will focus on the alternatives to arbitration and whether it is time for reinsurance contracts to provide for a different form of dispute resolution, as opposed to arbitration. In particular, there will be a discussion of ‘step’ or ‘tier’ dispute resolution clauses and whether a mandatory ADR provision should now be included to bring reinsurance wordings into line with other commercial contracts. WEDNESDAY 1500 – 1800
Hot topics in arbitration This session will address important current developments in the practice of international arbitration. The current revision of the UNCITRAL and ICC Rules of Arbitration, as well as the review of the IBA Rules on the Taking of Evidence in International Arbitration, will be discussed. The session will also consider whether greater transparency is warranted and whether there is a need for new rules dealing with ethics in the practice of international arbitration. Finally, the session will highlight current legislative trends, notably the relationship between EU Law and arbitration. THURSDAY 1500 – 1800
New York Convention workshop In this acclaimed annual workshop, leading practitioners, scholars and institutional representatives will present the latest developments in cases and legislation relevant to the New York Convention from around the world. FRIDAY 1000 – 1300
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Dr Jürgen Brandstätter Austria BMA Brandstätter Rechtsanwälte GmbH, The binding nature and fact determining effect of an arbitral award Vienna juergen.brandstaetter@ bma-law.com n its decision of 1 October 2008, the The Supreme Court stated that the Austrian Supreme Court had to decide final judgment in a civil case is binding on whether a third party notice in an arbitral intervenors and any third parties that, despite proceeding was binding in a subsequent having received third party notices, did not I 1 civil proceeding. In that same case, the court enter the dispute. Additionally, those parties had to decide the fact determining effect of are barred from raising any objections in the arbitral award in the ensuing civil case. a subsequent action that contradict the According to the Austrian Code of Civil main holdings and findings of the previous Procedure (Zivilprozessordnung, ZPO), a judgment. Thus, these parties are bound by third party notice is the formal notification any detrimental finding of facts in previous to a third party of a forthcoming or already disputes so long as due process was observed pending lawsuit by one of the primary in the first action. (eg, plaintiff and defendant) parties to The Supreme Court further elaborated the suit. Whether the third party takes that § 607 of the ZPO mandates that a the opportunity to enter the dispute as an final arbitral award must be given the intervenor is entirely up to them. If the same legal effect as a civil judgment. third party intervenes, they may support However, according to §§ 594 ff ZPO, not the party on whose side they entered the all procedural rules are equally applicable dispute by filing additional pleadings and in arbitration. Arbitral proceedings are motions. These actions by the intervenor to a great extent determined by party are binding on the primary party. However, autonomy. Sections 577 ff ZPO which govern the third party is not allowed to plead arbitration, do not mention third party inconsistently with the primary party on notice. The Supreme Court next referred to whose side it has intervened. a legal doctrine which says that it is generally In the Supreme Court decision at hand, acceptable to serve third party notices in as part of the arbitration which preceded arbitration. That doctrine does not, however, the civil litigation, the plaintiff served a lead to the conclusion that an arbitral award third party notice. The third party notice has a binding effect if the addressee of the recipient, however, did not intervene in third party notice was not a party to the the arbitration. Ultimately, the plaintiff’s agreement to arbitrate. arbitration claim was dismissed. The Supreme Court’s opinion follows After the conclusion of arbitral this logic, holding that arbitration requires proceedings, the former arbitration plaintiff a conscious and unequivocal decision by filed suit in a civil court against the same the parties to the arbitration to opt-out of party to whom they had given third party the system of ordinary jurisdiction, and notice based on the same claim which they that at the same time parties have broad had already alleged against the third party discretion in determining the rules for in the arbitration. The defendant (the arbitration proceedings. It would therefore addressee of the third party notice in the not be in accordance with Article 6 of the arbitration) asserted objections against the European Convention on Human Rights claim that contradicted the objections that to force a third party into proceedings or had been raised by the respondent in the effectively bind them to the results of such prior arbitration. proceedings without them having had the The lower court dismissed the claim, opportunity to exercise the rights attached and the court of appeal confirmed. In his to such proceedings. Therefore, binding the extraordinary appeal, the plaintiff (claimant defendant in the civil suit (the addressee in the arbitration) raised the fact that their of the third party notice in the arbitral claim was dismissed in arbitration and that proceedings) to the findings of the arbitral the arbitration award was binding on the award was rejected. defendant. The appeal to the Supreme Court The binding effect must also be rejected was unsuccessful. because the defendant, as intervenor in the
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arbitral proceedings, would not have been is that the existence of the judgment is a fact allowed to plead in contradiction to the party on like any other which can be made part of the whose side they had entered the proceedings. facts of a case with certain legal consequences Due to the fact that the binding effect of resulting from those facts. Nevertheless, the previous proceedings requires, amongst other prerequisite for giving an arbitral award this things, that due process was observed and the fact determining effect is that the person intervening party was able to contribute to the against whom the effect is being applied findings of the court, the binding nature had to must have been accorded due process with be denied in the above case. regard to all aspects of the prior case. Since With regard to the fact determining effect the defendant in the case before the Supreme of an arbitral award in a subsequent civil Court did not intervene in the arbitral procedure, the Supreme Court has held that proceedings, they did not have due process. an arbitral award, like any judgment by the Hence, an arbitral award does not have courts, may become part of the substantive a fact determining effect on a subsequent facts of a new case as evidence. However, civil procedure if the party against whom this situation applies only insofar as an the effect is being applied did not have due arbitral award, like any judgment, has a fact process in the prior arbitral proceedings. determining effect (Tatbestandswirkung) or a reflexive effect Reflexwirkung)( as the case may be. These terms summarise all the legal effects Notes a court decision may have, outside the code 1 Austrian Supreme Court (Oberster Gerichtshof) – of civil procedure, for claims other than those Decision of 1 October 2008, 6 Ob 170/08f. involved in the dispute. The judgment’s effect
Fernando Marcondes F Marcondes Brazil Advocacia, São Paulo fernando@fmarcondes. Bankruptcy does not preclude the completion of previously com.br initiated arbitrations
n a breakthrough decision, the Court of unavailable and restricts its procedural capacity. Justice in São Paulo issued a judgment in The administrator further urged that the June 2008 that a bankruptcy filing by a ‘principle of attraction,’ based on Article 25 Iparty to an arbitration does not deprive the of the Brazilian Arbitration Law, should be arbitral tribunal of jurisdiction or otherwise implemented. Under that principle, the claims prevent the proceedings from going forward. of a party to an arbitration can be sent from In that case, Diagrama Construtora v Jackson the arbitration to a court, thereby suspending Empreendimentos,1 a building contractor was the arbitration process; the issue is, thus, hired to construct a building and the parties ‘attracted’ to a court. By invoking the principle, signed a contract containing an arbitration the administrator attempted to suspend the clause. A controversy upon completion arbitration and take the decision to court. The of the work resulted in the initiation court, however, rejected the case; whereupon of an arbitration before the Mediation the arbitrator, using the principle of kompetenz- and Arbitration Board at the Institute of kompetenz, proceeded with the arbitration. Engineering in São Paulo. Two months Under kompetenz-kompetenz, an arbitrator is able after the commencement of arbitration, the to determine his or her own competency to building contractor filed for bankruptcy. continue with an arbitration. Upon continuing The administrator nominated for the the arbitration, the arbitrator issued an award bankruptcy intervened in the arbitration. He against the contractor, ordering the bankrupt requested that the arbitration be terminated company to pay damages. and that the opposing party seek guidance The successful party sought to register from the Judicial Court to discuss its rights. the arbitration award in the bankruptcy In Brazil, bankruptcy makes a party’s assets proceeding. The bankruptcy judge, however,
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denied the request. That judge, supported by handled by creditors and other parties the Ministério Público 2 (which monitors suits involved in the bankruptcy process. Armelin against bankrupt companies), decided that also cited the judgment JRC 6,075 in 1991, the arbitration should have been terminated, which decided that an arbitral tribunal rendering the arbitration award invalid. will always be legally capable of issuing an The plaintiff appealed the bankruptcy arbitration award, regardless of the current judge’s decision, and the matter was referred state of the company’s liquidation. to the São Paulo State Court. Of note, a similar decision to the one The State Court ruled, unanimously, that heralded by the State Court in São Paulo the arbitration proceedings and subsequent was released a month earlier by the Superior decision were valid. It affirmed the arbitration Court of Justice. The Superior Court ruled award and held that a previously initiated that companies in the process of liquidation arbitration should not be suspended or may also use arbitration.4 The São Paulo terminated due to a bankruptcy. In addition, State Court decision and the Brazilian the court ruled that the input of the Ministério Superior Court decision on companies in Público was unnecessary. liquidation are historic. Going forward, Earlier scholarship outlined a similar the issue of whether bankruptcy precludes conclusion. The Brazilian lawyer and a previously initiated arbitration from arbitrator, Donaldo Armelin, wrote one year proceeding is resolved. before: ‘The announcement of liquidation or bankruptcy in court does not preclude Notes the bankrupt or liquidated company from 1 State Court of São Paulo, AI#531.020-4/3-00 complying with an arbitration clause signed 2 The Ministério Público is a Brazilian body of autonomous prior to the bankruptcy or liquidation.’3 magistrates formed of public prosecutors, working both Armelin cited the lesson of internationally at the federal and state level. 3 ‘Arbitration, Bankruptcy and Extrajudicial renowned Philippe Fouchard, who advocated Liquidation’ in Revista de Arbitragem e Mediação, for the continuation of an arbitration Vol 13, published by Editora Revista dos Tribunals, initiated prior to bankruptcy proceedings, São Paulo, Brazil, April 2007. leaving any payment of an award to be 4 Provisional Remedy 14295-SP 13 June 2008.
Joel Richler Blake, Cassels & Canada Graydon LLP, Toronto [email protected] Arbitrating lawyer-client fee disputes does not violate public policy
he Ontario Court of Appeal mother’s estate and, in that capacity, engaged reversed a lower court decision that in multinational litigation in the courts of agreements between a lawyer and a seven jurisdictions in Asia and Canada. The Tclient to arbitrate fee disputes are not respondent law firm acted for Wong in that enforceable on public policy grounds. litigation. The parties entered into a fee In the case Peter Wong et al v Wires Jolley agreement that provided for payment on the Llp,1 the court of appeal agreed that the basis of a percentage of the value of assets in question of whether the issue was arbitrable the estate. After the litigation was resolved by could be decided by the court in the first mediation, a dispute arose between Wong and instance but held that the resolution of the the lawyers as to the appropriate valuation fee dispute was for the arbitrator to decide. date for those assets. The fee agreement (The decision in the first instance was provided for the resolution of any dispute reported on in IBA Arbitration newsletter, Vol relating to the ‘success fee’ by arbitration in 13 No 2 (2008) pp17-18). Toronto before a single arbitrator from ADR These issues arose in a rather Chambers Inc, a Canadian arbitral institution. straightforward factual situation. The In response to the commencement of applicant (Wong) was the trustee of his arbitration under Ontario’s International
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Commercial Arbitration Act (ICAA),2 Wong can make first instance determinations applied for an order striking out the notice of jurisdiction where the issues are in of arbitration. Wong relied on provisions substance questions of law, or mixed of Ontario’s Solicitors Act3 which provide questions of fact and law and where the for court regulation of contingency fee questions of fact require only a superficial agreements and for the court assessment of review of documentary evidence. lawyers’ accounts. In the case at bar, the majority found that Wong was successful in first instance. While the jurisdictional issue was, in essence a Madam Justice Low recognised that as a general question of law (the application of public rule arbitrators should rule on their own policy to avoid an arbitration agreement) or, jurisdiction, she found that the courts also can alternatively, a question of mixed fact and make such determinations and that because law with a simple record. On this basis, the the parties were already before her, there was majority ruled that Justice Low did not err in no ‘practical or theoretical purpose served in declining to remit the jurisdictional question deferring the argument to the arbitrator’. to the arbitrator. On the substantive jurisdictional issue, On the other hand, the majority did not Madam Justice Low ruled that public policy agree with Justice Low’s ultimate ruling required that courts deal with fee-related that public policy trumped the arbitration disputes and with the assessment of legal fees agreement. Accepting that there are because: (i) lawyers exercise monopolistic important matters of public policy that are functions with respect to the provision of inherent in lawyer-client fee disputes, and legal services; (ii) there is an unbalanced accepting that the Solicitors Act makes bargaining relationship between lawyers and express reference to court jurisdiction and clients such that clients can be vulnerable to determination, the majority gave effect to lawyers; and (iii) these disputes transcend the arbitration agreement by balancing the ‘mere commercial transactions’. competing interests of public policy and arbitration in favour of the arbitral process. At paragraph 73: Majority decision of court of appeal ‘simply because the Solicitors Act refers The majority decision of the court of appeal to a Superior Court judge as having the first dealt with the application of competence- jurisdiction to protect clients’ rights, competence in Canadian courts and as applied this does not mean that disputes arising to the facts of the case. It did so under the between a solicitor and a client may auspices of the ICAA, apparently accepting not be submitted to arbitration. The that the dispute was commercial in nature. Act simply identifies the person within First, the majority held that notwithstanding the judicial system empowered to that Article 8(1) of the Model Law refers to an make a decision. The right to have an ‘action’ and that the proceeding before the independent decision maker who can court was an ‘application’ under Ontario’s court interpret the agreement and make a rules, for purposes of the Model Law, ‘actions’ decision respecting the contingency fee and ‘applications’ are one and the same. dispute is preserved through arbitration Secondly, for the second time, the majority and hence the public policy of the Act, ruled that the Supreme Court of Canada the provision of a forum for legitimate decision in Dell Computer Corp v Union des dispute resolution, is not undermined.’ consommateurs applies in Ontario. Thus, the There was an important caveat, however. following rules on this issue are to be applied: While the issues could be determined by • arbitrators are competent to determine arbitration, the arbitral tribunal would have their own jurisdiction on the basis of a wide to respect and give effect to the public policy view of competence-competence and a considerations represented by the statutory high degree of deference; provisions and the substantive statutory • as a general rule and in most cases, courts rights going to the merits of the dispute; should remit jurisdictional questions to in essence the fees had to be fair and arbitrators for an initial determination; reasonable in the circumstances. • the courts should not, however, allow There was a dissent. The dissenting competence-competence to be used as a Justice would have gone further in delaying tactic by any party to a dispute; preferring arbitration over court and adjudication of the dispute. • notwithstanding the general rule, courts In brief, the dissenting Justice would have
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given effect to a systemic referral approach on an application to recognise and enforce by requiring that Wong demonstrate that his an award. court application was not a delaying tactic. That proof should have been adduced in support of the initial court application Notes before Justice Low. The dissenting Justice 1 2009 ONCA 339. would also have reversed on the basis that 2 R S O 1990, c I 9, which adopts the UNCITRAL Model Law. Justice Low gave no consideration to the 3 R S O 1990, c S 15. public policy issues and that she gave no 4 [2007] 2 S C R 801; the first application effect to the countervailing public policy 5 The first application of Dell by the Ontario Court that favours arbitration. For the dissenting of Appeal was in Dancap Productions Inc v Key Brand Justice, public policy ought to come into Entertainment Inc, 2009 ONCA 135. play only on a review of an arbitral award or
Lanming Zhao Transking Law Office, China Beijing [email protected] Enforcement of ICC award refused on public policy grounds
n July 2008, the Jinan Intermediate initiating the litigation and property People’s Court of Shandong, China preservation action before the Chinese court, refused to enforce an ICC award because which in turn prevented the continuous Ithe award was contrary to Chinese public operation of Jinan Hemofarm. policy. The court held, for the first time, that The ICC tribunal found that Jinan a court’s jurisdiction is the subject of Chinese Yongning obtained the ruling on the public policy. property preservation from the Chinese In 1995, the applicants Hemofarm DD, court, that the implementation of that ruling MAG International Trade Company and caused a direct, material and adverse impact Sulame Media Co Ltd (translated names) on the rights and interests of the three signed a joint venture contract with the applicants, and finally caused the shutdown respondent, Jinan Yongning Pharmaceutical of the joint venture. The tribunal further Company Ltd, that established the joint found that the enforcement of the property venture, Jinan Hemofarm. The joint venture preservation constituted a breach of contract contract provided that any dispute between by Jinan Yongning. Finally, the tribunal the parties would be settled by arbitration held that the litigation itself was a breach of before the ICC. In connection with the joint contract because the parties’ disputes should venture contract, Jinan Hemofarm and Jinan have been arbitrated before the ICC under Yongning signed a lease contract. The lease the terms of the joint venture contract. In did not contain an arbitration clause. the end, the ICC tribunal awarded damages As a result of disputes arising out of the lease to the applicants. contract, Jinan Yongning sued Jinan Hemofarm In 2007, the three applicants applied to in court, and applied for property preservation. the Jinan Intermediate People’s Court for The court granted the property preservation recognition and enforcement of the award. and rejected the challenge to its jurisdiction The court held that the arbitration clause in raised by Jinan Hemofarm. Ultimately, Jinan the joint venture contract was only binding Yongning was victorious in the litigation. on the parties to the joint venture contract, In 2005, the three applicants initiated and did not extend to the lease contract arbitration before the ICC based on disputes between Jinan Yong and Jinan Hemofarm. with Jinan Yongning that arose during the The court determined that the ICC award operation of the joint venture. Specifically, should not be recognised pursuant to Article the applicants claimed that Jinan Yongning V (1)(c) of the New York Convention. The breached the joint venture contract by court reasoned that after the Chinese court
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had granted the preservation of the joint parties, and only if a court has not already venture’s property and entered a judgment exercised jurisdiction. on the dispute under the lease contract, the There is another question not yet ICC hearing and award violated the judicial discussed – the lease contract. This was a sovereignty of China and the jurisdiction domestic contract between two Chinese of the Chinese court. As a result, the parties. Whether the disputes in such a court held that the award should not be situation can be submitted to arbitration recognised under Article V (2)(b) of the before foreign arbitration institutions is still New York Convention. an open question in China. In the author’s experience, the absence of an express clause providing for arbitration before foreign Comment or foreign-related arbitration institutions The central issue resulting from the case means that disputes under that contract discussed above is the different approaches will be referred to domestic arbitration (if taken by the tribunal and the court with provided) or litigation, rather than being respect to who had jurisdiction over disputes consolidated in an ICC arbitration required related to the lease contract. by a related contract. The ICC tribunal’s conclusion that it According to the contract law of China, had jurisdiction may have been based on parties to foreign-related contracts may the fact that the arbitration clause in the submit their disputes to the arbitration joint venture contract stipulated that all institutions of China or other countries. the disputes arising out of or in connection Conversely, non-foreign-related disputes with the joint venture contract should may not be submitted to foreign arbitration be arbitrated, and the lease contract was institutions. Therefore, even where the parties connected to the joint venture contract. agree that their disputes should be settled by However, in the author’s view, when the foreign institutions, the agreed upon foreign parties to a joint venture contract are not the institutions or tribunals should be cautious of same as those to a lease contract, the ICC accepting the case or making any decisions tribunal’s jurisdiction should not extend to before first considering the jurisdiction of the latter unless expressly stipulated by the domestic courts or arbitration tribunals.
Steffen Pihlblad and Tania Saigol Roth* Denmark Danish Arbitration, Copenhagen Danish Appellate Court rejects challenge to arbitrator based on prior spi@voldgiftsinstituttet. newspaper statements dk tsr@voldgiftsinstituttet. dk he Danish Institute of Arbitration, the an arbitrator. When it comes to appointment only general arbitration institution of the chairman or the sole arbitrator, the in Denmark, appoints arbitrators appointment is also in the hands of the in accordance with Chapter C of parties. They are free to jointly propose any T 1 its Rules of Arbitration Procedure. Under person of any nationality, as long as he or she the Institute’s Rules, based on the Danish has a law degree and as long as there are no Arbitration Act of 2005 and the UNCITRAL issues of impartiality and independence. Model Law, in the case of a three-member In the international arbitration case arbitral panel the appointment of two E-1099 – C v A, the parties agreed that the of the arbitrators is in the hands of the three arbitrators should be appointed by the parties. Except for issues of impartiality and Institute and that the appointments should independence, the parties are free to propose not rest on proposals from the parties. any person of any nationality or profession as Besides Mr Schwarz, an attorney-at-law
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from Copenhagen, the Institute proposed a reasonable doubt regarding the impartiality judge from the general courts of Denmark as or independence of Mr Schwarz.5 the other co-arbitrator and a judge from the general courts of Sweden as the chairman of Decision of appellate court the tribunal. Before their appointments, the arbitrators signed declarations of indepen Party A brought an appeal against the dence and impartiality. These declarations, decision of the Copenhagen City Court. together with the arbitrators’ CVs, were The appellate court of the Eastern Division presented to C and A for any comments. unanimously upheld the decision of the Under the Rules of the Institute, a party Copenhagen City Court.6 may challenge the appointment of an In reaching this decision, the appellate arbitrator if it finds that circumstances court stated that: exist which give rise to justifiable doubts ‘The statements made by Mr Schwarz, as to the impartiality or independence of attorney-at-law, as rendered in the article the arbitrator, or if the party finds that the in the Danish financial dailyBørsen on 11 arbitrator does not possess the qualifications November 2005 are considered as having agreed on by the parties.2 A written statement been made in response to a letter from of the reasons for the challenge must be filed the Ministry of Employment. According to with the Institute within 15 days of a party the article, on the subject of the dismissal becoming aware of the circumstances upon of CEOs on account of age the Ministry which the challenge relies. expressed its understanding of the Danish Discriminatory Practices Act compared to two EU directives. The article quotes Party A’s challenge the Ministry as having said, among other Party A brought a challenge against the things, that: “In relation to CEOs, it follows appointment of Mr Schwarz stating that he from what is stated above that a signed was not impartial and independent due to contract for the resignation before the age statements he made in November 2005 to of 65 is invalid...”.’ the Danish financial daily newspaperBørsen According to the article in Børsen, it was on regarding the dismissal of CEOs on account the basis of this interpretation of Danish of age under the Danish Discriminatory legislation, the correctness of which was Practices Act and two European Union not commented upon by Mr Schwarz directives on the same subject. in the article, that Mr Schwarz gave the The Chairmanship of the Institute advice to companies having signed such determines whether an arbitrator must CEO contracts for resignation before the resign upon a challenge as mentioned age of 65 that they should renegotiate above.3 The Chairmanship informed C and the contracts. The article also referred to A that the Institute did not find that Mr a statement by Mr Schwarz to the effect Schwarz’s independence and impartiality that he expects commotion in their area was compromised as a consequence of his in the future as, eg, the Confederation statements in Børsen. Following this assessment, of Danish Employers did not concur the Institute appointed Mr Schwarz, together with the interpretation of the Act given with the two other arbitrators, to the tribunal by the Ministry. The statement referred for arbitration case E-1099. to in the Børsen article was made by Mr Despite the Institute’s assessment on the Schwarz more than one year before the impartiality and independence of Mr Schwarz, summary dismissal in December 2006 as permitted by the Danish Arbitration Act,4 which triggered the dispute now before the Party A filed a claim against the Institute in arbitral tribunal in which Mr Schwarz was Copenhagen City Court requesting Mr Schwarz one of three arbitrators. to be removed from arbitration case E-1099 due Against that background, and on the to his lack of impartiality and independence. assumption that judges – including arbitrators Party A again referred to Mr Schwarz’s – cannot be disqualified because of writings or statements from November 2005 regarding the statements issued by them on legal issues that dismissal of CEOs on account of age under the have occurred at a time that precedes the case Danish Discriminatory Practices Act and two involved, the High Court did not find that European Union directives on the same subject. circumstances exist which create reasonable The Copenhagen City Court found that doubt about the impartiality or independence no circumstances existed which created of Mr Schwarz in his capacity as arbitrator.
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As a concluding remark it should be Notes noted that the courts’ decisions as well as * Mr Pihlblad is the Managing Director of the Danish the Chairmanship’s decision are in line with Institute of Arbitration and Tania Saigol Roth is a the international standard for arbitrator Jurist at the Danish Institute of Arbitration. 1 The Rules of Arbitration Procedure of the Danish impartiality and independence. Institute of Arbitration are available on the Institute’s The IBA’s Guidelines on Conflicts of website at www.voldgiftsinstituttet.dk. Interest in International Arbitration, 2 See Article 14, paragraph 5 of the Institute’s Rules of specifically Point 4.1.1 on the Green List, Arbitration Procedure. includes previously expressed legal opinions 3 See Article 14, paragraphs 8 and 9 of the Institute’s in the enumeration of specific situations Rules of Arbitration Procedure. where no appearance of, and no actual, 4 See Article 13, paragraph 3 of the Danish Arbitration conflict of interest exists from the relevant Act of 2005 which is worded as follows: ‘If a challenge objective point of view, thereby resulting in no under any procedure agreed upon by the parties duty to disclose such statements.7 or under the procedure of subsection (2) is not In recent years, a lot has been done successful, the challenging party may request, within thirty days after having received notice of the decision in Denmark to establish a stringent rejecting the challenge, the courts to decide on the independence and impartiality standard challenge.’ The Danish Arbitration Act is available on especially for arbitrators but also for the Danish Institute of Arbitration’s website at www. lawyers and judges. The Danish Institute of voldgiftsinstituttet.dk. Arbitration follows this high standard. At 5 A v Danish Arbitration, Copenhagen City Court, 26 the same time, however, the Danish legal June 2008 (BS 5B-6423/2007). community recognises that there must be 6 A v Danish Arbitration, 21st Chamber of the Eastern limits to the kind of challenges that can be Division of the Danish High Court, 27 November 2008 raised successfully against arbitrators. (B-1752-08). The case of A v Danish Arbitration reaffirms 7 Point 6 of Part II, Practical Application of the the point that arbitrators need not fear being General Standards. Point 4.1.1 reads as follows: ‘The arbitrator has previously published a general seen as partial or biased based on general opinion (such as in a law review article or public statements they make within their field of legal lecture) concerning an issue which also arises in the expertise. The appellate court’s decision in the arbitration (but this opinion is not focused on the case of A v Danish Arbitration is available on the case that is being arbitrated).’ Institute’s website at www.voldgiftsinstituttet.dk.
Anne-Sophie Dufêtre Salans, Paris France [email protected] Paris Court of Appeal annuls partial award based on chair’s conflict of interest
n a recent decision,1 the Paris Court of of independence and was confirmed by the Appeal set aside a partial award on the secretary general of the ICC. In his statement ground that the chairman of the arbitral of independence, the chairman indicated that Itribunal had failed to act independently he accepted his appointment and disclosed and impartially. The chairman’s failure to that during the year prior to his appointment disclose his relationship with one of the as chairman, two foreign offices of the law parties led the court to conclude that the firm where he worked had represented tribunal was unlawfully constituted, which is the parent company of the claimant in this one of the limited grounds for annulment of arbitration. However, the chairman further an award under Article 1502 of the French stated that this representation was terminated Code of Civil Procedure. at the time of his appointment and that he This case concerned an International had never personally worked for that client. Chamber of Commerce (ICC) partial award The respondent in the arbitration then on liability. In accordance with the ICC Rules fortuitously learned of other potential of Arbitration, the chairman was designated undisclosed relationships between the by the two co-arbitrators, signed a statement chairman and the claimant and requested
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clarifications from the chairman on these influence the arbitrator’s judgment and issues. After having received the chairman’s impair his or her independence.’3 answers, the respondent filed a challenge of the chairman for an alleged lack of Analysis under IBA Conflicts Guidelines independence. However, the challenge was time barred and, therefore, inadmissible It is always interesting for international under Article 11(2) of the ICC Rules. The arbitration practitioners to analyse court respondent continued to participate in the decisions such as this in terms of the IBA arbitral proceedings but expressly reserved Guidelines on Conflicts of Interest in its rights and protested the situation. It International Arbitration, approved by the later requested further clarifications from Council of the IBA on 22 May 2004. In a the chairman about the exact scope of the number of respects, the court’s analysis is law firm’s relationship with the claimant. similar to that under the waivable Red List. The chairman then progressively disclosed The fact that the court considered the exact additional information on the relationship. amount of the fees paid by the claimant to the chairman’s law firm as one of the circumstances giving rise to a conflict tends Undisclosed facts emerge to indicate that the court approached this It became apparent that the disclosure conflict in the same way as under Article made by the chairman in his statement of 2.3.6 of the Guidelines, which contemplates independence was incomplete. In fact, his the situation where ‘[t]he arbitrator’s law law firm was still representing the claimant’s firm currently has a significant commercial parent company six months before the relationship with one of the parties or an chairman submitted his statement of affiliate of one of the parties.’ As a waivable independence; the firm formally closed the Red List item, the situation would have had file on this representation only in 2005, three to be disclosed by the chairman and then years after the arbitration proceedings had the parties could have chosen whether they commenced. In 2005, the chairman’s law firm wanted to expressly waive the conflict. also gave advice to a consortium composed On the other hand, an argument could of the claimant and one of its affiliates and be made that the facts of this case would fall this consortium remained a client of the firm under the Orange List. The amount of the fees through 2007, a period when the arbitration at stake, US$116,057, does not appear very was still underway. Furthermore, beginning significant for a global firm which, as the court in 2004 the Paris office of that law firm noted, employs 2,200 lawyers worldwide. As a – where the chairman worked as counsel result, this case could be analysed under Article – represented in French court litigation a 3.2.1 of the IBA Guidelines which provides company wholly-owned by the claimant. In that ‘[t]he arbitrator’s law firm is currently 2004, the Paris office also provided advice rendering services to one of the parties or on tax matters to this company. Eventually, to an affiliate of one of the parties without after these facts were disclosed and the partial creating a significant commercial relationship award rendered, the chairman offered his and without the involvement of the arbitrator.’ resignation which was accepted. Under the Orange List, the arbitrator has a Based on these facts and taking into duty to disclose the situation and the parties are consideration the exact amount of the fees deemed to have waived the conflict if they did paid by the claimant and its affiliates to the not object in a timely manner. chairman’s law firm over this period, the In any case, the rule of thumb, expressed in Paris Court of Appeal concluded that there General Standard 3(c) of the IBA Guidelines, was a conflict of interest. The court also held is that in case of doubt as to a potential that the chairman should have been aware of conflict of interests, an arbitrator should such conflict since his law firm had a conflict- always opt to disclose. Moreover, the duty checks system in place and readily available. to disclose continues throughout the entire Consistent with a well-established line of arbitration proceeding (Article 3(a) of the jurisprudence,2 the court stated that ‘the IBA Guidelines). trust relationship between the arbitrator and In this case, the chairman failed to disclose the parties must continuously be preserved certain facts and circumstances relating to and, thus, the parties must be kept informed his law firm’s activities with the claimant in throughout the entire arbitral proceeding of the arbitration. The latter had to bear the any relationships which could in their opinion consequences of the chairman’s failure to
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disclose: the Paris Court of Appeal ordered Notes the claimant in the arbitration to pay €70,000 1 C A Paris, 1st Panel, Section C, Judgment of 12 under Article 700 of the French Code of Civil February 2009 (RG no 2007/22164). Procedure, plus court costs. It remains to be seen 2 See Cass Civ 1st Panel, Judgment of 16 March 1999: Bull civ I, no 88. whether this decision will be appealed before the 3 C A Paris, 1st Panel, Section C, Judgment of 12 French Supreme Court (Cour de Cassation). February 2009 (RG no 2007/22164) (translation from the author).
Peter H Dehnen* DEHNEN.Lawyers, Duesseldorf Germany [email protected] Taxation meets arbitration: an introduction to arbitration under the Germany- USA Double Taxation Convention
n 2006, Germany and the United States ‘Where, pursuant to a mutual agreement signed a Protocol amending the Germany- procedure under this Article [25], the USA Double Taxation Convention (DTC) competent authorities have endeavored Iwhich introduced the requirement but are unable to reach a complete that double taxation conflicts between the agreement in a case, the case shall be contracting states be subjected to mandatory resolved through arbitration conducted in arbitration to the extent certain requirements the manner prescribed by, and subject to, are fulfilled. This change was introduced by the requirements of paragraph 6 and any the reformulation of Article 25(5) of the DTC rules or procedures agreed upon by the and the addition of a new paragraph 6 which contracting states. ...’ (Emphasis added). sets forth certain rules and definitions for the While on its face this paragraph would arbitration process.1 seem to require mandatory arbitration, the Additionally, in order to further define and mandatory nature is limited by the following: clarify the new provisions, the contracting • tax returns must have been filed in at least states concluded a Memorandum of one of the states with respect to the taxable Understanding between the Competent years at issue in the case; Authorities of the Federal Republic of • the case must either involve certain Germany and the United Sates of America2 enumerated issues, such as the and concurrently agreed to Arbitration Board determination of residency of natural Operating Guidelines.3 persons, permanent establishment While these documents all use the term questions, or issues involving business ‘arbitration’ to define the process which they profits, associated enterprises or royalties; describe, this process varies substantially from or must be an issue which the competent ‘arbitration’ as the term is usually used, for authorities specifically agree is suitable for example in the Rules of Arbitration published arbitration; and by the International Chamber of Commerce • all concerned persons, including the (hereinafter the ICC Rules). The following affected taxpayer and all other persons article will briefly compare the tax treaty whose tax liability may be directly affected, mandatory arbitration provisions (hereinafter must agree, prior to commencement, not the DTC Rules) with the corresponding to disclose any information received during aspects of the ICC Rules to see how different the course of the arbitration proceeding the two types of process actually are. other than the actual board determination. The DTC Rules also, however, specify the following types of cases which will generally Disputes eligible for arbitration be considered ineligible for arbitration: The 2006 Protocol replaced Article 25(5), • cases which a competent authority has not which provided for voluntary arbitration, accepted or in which a competent authority with the following so that the DTC provision ceases to provide assistance; and now reads: • cases which the competent authorities
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agree are not suitable for arbitral international tax matters and place further determination. limits on who may be chosen as arbitrators. Therefore, while claiming to be ‘mandatory’, Another aspect of the DTC Rules is that the there are so many exceptions to the rule that arbitrators are chosen by the contracting there can never be certainty that a particular states rather than the party actually affected dispute will actually come to arbitration, by the arbitral decision. particularly given the ability of the parties The ICC Rules provide that the arbitral concerned to block a proceeding or to deny tribunal will consist of one or three it outright. arbitrators, which is generally specified in In contrast, the ICC arbitration procedure the contractual arbitration clause. Similar is intended to replace judicial proceedings to the DTC Rules, three arbitrators are by giving contracting parties recourse to an called for, with each party appointing arbitral tribunal. While initially voluntary, one arbitrator and the third, who acts as in the sense that a contract can include an chairperson, being chosen by agreement of arbitration provision or not, once agreed the party-chosen members. to, the parties are bound to submit disputes Unlike the DTC Rules, however, the ICC arising from the contract in question to the Rules do not require the arbitrators to have arbitral tribunal and to the determinations special qualifications, but merely prescribe that made by such tribunals. One party cannot they be independent of the parties involved in unilaterally decide that the issue is not the arbitration. Therefore, the parties involved suitable for arbitration. Unlike the DTC Rules, are free to appoint persons whom they think therefore, the ICC Rules provide certainty as to will be appropriate for deciding the matter, the procedures which will apply to disputes for regardless of those persons’ background or which arbitration has been chosen. experience. If the contractual arbitration provision does not specify the number or method of appointment of arbitrators or if Parties the parties fail to make appointments within A DTC arbitration is conducted between the the prescribed time, the International Court competent authorities of Germany and the of Arbitration will decide on the number United States in regard to international tax and/or appoint the arbitrators, taking into issues relating to a taxpayer who is resident consideration any facts which could affect the in one of the two countries. Therefore, the arbitrators’ independence. person ultimately affected by the taxation in question, ie, the taxpayer, is not himself Arbitration proceedings a party to the arbitration proceedings. The taxpayer does not even have a right of The contracting states can provide a proposed representation during the arbitration; he resolution to the arbitration board after which merely has the right to reject the decision the proceeding can develop as follows: reached by the arbitrators. • If only one contracting state presents a In an ICC arbitration proceeding, the parties proposed resolution then this becomes the to the contract in which recourse to arbitration decision of the arbitration board. was chosen are also the parties participating, • If both states submit proposals, each state directly or through representation, in the may submit a reply submission within 180 arbitration proceedings. In this regard, days of the appointment of the chair. The therefore, the arbitration is conducted by the arbitration board then has nine months parties for whom the arbitral decision will have following appointment of the chair to direct consequences. consider and analyse the proposals, at which time it must announce its decision by accepting one of the proposed resolutions. Arbitration board No oral hearings take place, not even The arbitral board prescribed by the DTC face-to-face meetings between the board Rules must consist of three members, two members are required and meetings can be of whom are appointed by the contracting held via conference calls. states. The third member, who then serves • During the arbitration, the competent as chairperson, is appointed by the two authorities of the contracting states can state-appointed members. The DTC Rules nevertheless reach an agreement and generally require the arbitration board thereby end the proceeding. Similarly, a members to have significant experience in concerned person can rescind his or her
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request for arbitration, thereby ending Given its quasi-judicial role, an ICC the proceeding. arbitral tribunal must determine the facts The ICC Rules provide for ‘quasi’ judicial of the matter under dispute and is not proceedings: arbitration starts with a claim, required to accept the position of one of followed by a response or counterclaim, leading the parties but, rather, is free to reach its to hearings and resulting in a judgment. own decision. The award, as the arbitral Once arbitration has been agreed upon, the determination is termed under the ICC parties cannot simply refuse to participate Rules, must be accepted by the sole (without risk of adverse consequences), short arbitrator or by majority vote in the case of obtaining a court ruling that the arbitration of three arbitrators, and must specify the clause is not valid or does not apply to the reasons upon which the award is based. issues under dispute. Once issued by the arbitral tribunal and Failure of the respondent to reply to the approved by the ICC Court of Arbitration, claimant will not, however, automatically the award is binding on the parties, decide the issue in favor of the claimant. as a court decision would be, and the Rather, Article 6(3) of the ICC Rules provides parties, by having submitted the issue to that: ‘If any one of the parties refuses or arbitration, are deemed to have agreed fails to take part in the arbitration or any to accept the award rendered by the stage thereof, the arbitration shall proceed arbitral tribunal and to refrain from legal notwithstanding such refusal or failure.’ challenges of the award. Under the ICC Rules, the arbitrators may decide the case solely on the basis of Summary the documents submitted or they may call hearings in which one or both parties are Arbitration proceedings under the DTC required to appear. In order to determine the Rules are intended to achieve a particular facts of the case, the arbitral tribunal may also objective: reaching agreement between the question the parties involved, call witnesses competent authorities of the contracting and appoint experts. states in regard to issues for which no agreement could be found in the normal mutual agreement proceedings between Board determination the states. Under the DTC Rules, the arbitral board This different objective results in must, by majority vote, adopt one of the proceedings considerably at variance with proposed resolutions submitted by the arbitration proceedings prescribed by the ICC competent authorities. If there is more than Rules. In summary, under the DTC Rules: one issue to be decided, the determination • while claiming to be mandatory, the Rules will be reached on an issue-by-issue basis are limited to certain issues and contain which may result in the adoption of various numerous exceptions which significantly proposed resolutions. The determination limit the issues for which arbitration will may not, however, include any rationale or be required; analysis and the decision must be limited to • the person ultimately affected by the the determination of amounts of income, arbitral decision is not a party to the expenses and taxes and will not have any proceedings; precedential value for future cases. • the arbitration board is not free to The DTC Rules provide that the determine the facts or the merits of a case determination of the arbitration board will in reaching an independent decision but, be binding on both contracting states unless rather, is required to accept one of the it is not accepted by any concerned party, proposals submitted by the competent each of which has 30 days from receipt of authorities involved; and the arbitration determination to inform the • the concerned parties, including the competent authority as to whether he will taxpayer, must actively accept the accept the determination. To the extent arbitration board’s decision in a case for it that a concerned person fails to provide to actually become binding. such notification within such time, the Therefore, ‘arbitration’ as foreseen by determination will be deemed to have been the DTC Rules is quite far removed from rejected. If the board determination is not arbitration as it is normally understood and is accepted, the case cannot be the subject of a unlikely to actually prove effective as a dispute future arbitration proceeding. resolution tool.
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Notes DE/Wirtschaft__und__Verwaltung/Steuern/ * Peter H. Dehnen is partner of the law firm DEHNEN. Internationales__Steuerrecht/Staatenbezogene__ Lawyers, which has offices in Duesseldorf as well Informationen/Verein__Staaten/005__2,templateId as in Washington, DC. Mr Dehnen is a qualified =raw,property=publicationFile.pdf. German tax attorney (Fachanwalt für Steuerrecht) and 2 The MOU can be downloaded at: www.irs.gov/ is admitted to the Washington, DC Bar as a Special businesses/corporations/article/0,,id=201207,00.html. Legal Consultant. 3 The Guidelines can be downloaded at: www.irs.gov/ 1 The complete DTC can be downloaded at: businesses/corporations/article/0,,id=201203,00.html. www.bundesfinanzministerium.de/nn_75146/
Stephan Wilske and Todd J Fox Good faith prohibits a party from taking contradictory positions regarding the Gleiss Lutz, Stuttgart admissibility of arbitration in the same matter stephan.wilske@ gleisslutz.com [email protected] n a recent decision of the German Federal appellate level court) to determine whether Court of Justice, the court held that it is a arbitration is admissible. violation of good faith for a party to seek The appeal here concerned these two Idismissal of a state court action in favor of provisions of German arbitration law and arbitration, yet subsequently apply to a court questioned the binding effect of a court decision for a determination that arbitration in the dismissing an action in favor of arbitration. same matter is inadmissible.1 Facts of the case Relevant procedural provisions In this case, the parties had concluded a In 1998, Germany adopted the UNCITRAL contract for the delivery of machinery. The Model Law on Commercial Arbitration, buyer, apparently unhappy with the deal, essentially importing it into the German sued to avoid the contract in state court. Code of Civil Procedure (ZPO), and The seller objected that the court action although German arbitration law contains was improper since the dispute was subject some slight differences from the Model Law, to an arbitration agreement. Ultimately, in it corresponds to international standards the second instance the Higher Regional and practice.2 One difference is in section Court of Karlsruhe dismissed the action in 1032(1) ZPO, which provides that if an favour of arbitration in a decision dated action is brought before a state court in a 5 June 2007. matter which is the subject of an arbitration After the action was dismissed by the agreement and the defendant timely raises Higher Regional Court of Karlsruhe, the an objection, instead of merely staying buyer pursued its claim for avoidance the proceedings and referring the parties of the contract in arbitral proceedings, to arbitration (as in the Model Law and which it had by way of precaution already many common law jurisdictions), German commenced on 30 December 2004. courts are obliged to ‘reject the action However, the seller then filed an application as inadmissible’ unless they find that the pursuant to section 1032(2) ZPO with arbitration agreement is null and void, the Higher Regional Court of Stuttgart inoperative or incapable of being performed. seeking a determination that the arbitral Such a dismissal for lack of jurisdiction proceedings commenced by the buyer is the typical approach taken by civil law were inadmissible. The court rejected this jurisdictions in response to litigation brought application, finding that the decision of in violation of an arbitration agreement.3 the Higher Regional Court of Karlsruhe Another difference from the Model Law dismissing the action in favor of arbitration is found in section 1032(2) ZPO, which is binding for subsequent arbitral provides that prior to the constitution of proceedings, and the seller appealed to the the arbitral tribunal an application may be Federal Court of Justice. made to the Higher Regional Court (ie, an
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Estoppel due to violation of good faith States federal district court, which held that a Chinese party’s application to stay The Federal Court of Justice rejected the US litigation on the basis of an arbitration appeal. Finding no need to address the clause while simultaneously challenging the binding effect of a court’s dismissal of same arbitration clause in a Chinese court an action in favour of arbitration on the was inconsistent with the preservation of the validity of the arbitration agreement in right to arbitration and amounts to a waiver any subsequent arbitration, the court held of this right.5 that the contradictory conduct of the seller (relying on the arbitration agreement to deny the competence of the courts and Conclusion subsequently challenging the same arbitration This decision addresses two noteworthy agreement) is a violation of good faith. provisions of German arbitration law which The court held that if a party alleges in provide the possibility of an early decision state court proceedings that an arbitral by the courts on the issue of jurisdiction, tribunal rather than the state courts is possibly saving time and cost.6 The one issue the competent forum, then that party that is still somewhat disputed in German law, is generally estopped from claiming in namely whether and to what extent a court’s subsequent arbitral proceedings that in decision dismissing an action as inadmissible fact the state courts are competent. Such also decides with binding effect the validity of conflicting conduct amounts to an attempt the arbitration agreement, was expressly left to deprive the other party of recourse to open by the Federal Court of Justice. legal process and thereby essentially renders The court’s decision demonstrates that in such party without rights. a time when ‘guerrilla tactics’ are becoming Accordingly, in a subsequent arbitration increasingly prevalent in arbitration and a party must adhere to the position it took litigation, German courts will not suffer such before the state courts concerning the tactics, and stresses that taking contradictory arbitration agreement, and making such positions in an attempt to exploit procedural contradictory requests as in the present case rules is a violation of good faith. is a violation of good faith. The court noted that this result corresponds to that reached Notes in German commentaries, although the 1 Federal Court of Justice, Decision of 30 April 2009 reasoning in commentaries is often based on (Docket No III ZB 91/07). concepts such as abuse of rights, fraud, or the 2 Rützel/Wegen/Wilske, Commercial Dispute Resolution in binding effect of the state court’s decision Germany (Munich, CH Beck, 2005) p 111. dismissing the action in favor of arbitration. 3 See Born, International Commercial Arbitration, Vol 1 Indeed, this holding is consistent with an (Kluwer Law International, 2009) p 1029. older case of the Federal Court of Justice, 4 Federal Court of Justice, Decision of 20 May 1968 where the behavior of the respondent was (Docket No VII ZR 80/67, BGHZ 50, 191). similar but the other way around.4 In that 5 See Apple & Eve LLC v Yantai North Andre Juice Co, 2009 WL 1118862 (E D N Y April 27 2009). case the respondent first argued in arbitral 6 In Germany, as under the Model Law, although an proceedings that the state courts rather than arbitral tribunal has the power to rule on its own the arbitral tribunal were competent, and jurisdiction, the final decision lies with the courts, then in subsequent state court proceedings see Wilske/Krapfl, ‘A final farewell to the German in the same matter argued the opposite. concept of Kompetenz-Kompetenz’, Journal of The Federal Court of Justice held that such International Dispute Resolution, February 2005, pp 93- contradictory behavior was a violation of 94. Thus, these provisions of German arbitration law good faith. allow a party to seek an early decision by the courts It is notable that this decision is also regarding the basis for jurisdiction. in line with a recent decision of a United
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Markus Burianski and Dominique Will Germany’s amendment of its Foreign Trade and Payments Act lead to new Strieder* investment disputes? White & Case LLP, Frankfurt ormer export world champion Germany of circumventing the review process. In mburianski@whitecase. ensures protection for German other words, a company with its own business com investments through 139 bilateral activities, employees and/or assets will not investment treaties1 (hereinafter BIT), trigger the review process, even if a third F country person holds 25 per cent or more of the highest number worldwide. However, these BITs also protect foreign investments the voting rights in that company. in Germany. Germany’s recent amendments For the purpose of the Act, persons to the Foreign Trade and Payments Act and companies from the European Free (Außenwirtschaftsgesetz, hereinafter FTPA Trade Association (EFTA), namely Iceland, or the ‘Act’)2, which permit the German Liechtenstein, Norway and Switzerland are Government to block acquisitions, raise the treated like EU persons. question whether the new FTPA may conflict The only ministry that has authority to act with German BITs. under the amended legislation is the Ministry of Economics and Technology (MET). The MET may decide to enter into a formal The amended FTPA review process within three months from the The amendments to the FTPA are a conclusion of a sale-and-purchase agreement direct response to increased activities and or the announcement of a public takeover acquisitions by sovereign wealth funds offer. For at least the duration of this review (SWFs), as they are often perceived to pursue period any transaction remains subject to a economic as well as political aims. However, condition subsequent of the MET prohibiting 5 the legislation does not only apply to SWFs. such transaction. Instead, it allows the German Government to If the MET decides to institute a review, the effectively block any acquisition of a stake in purchaser has to provide the ministry with the 6 any German business if: relevant documents of the transaction. The • the purchaser is a non-EU person, or 25 MET is expected to publish a list of the exact per cent or more of the voting rights in the documents required in the near future. Upon purchaser are owned by a non-EU person; receipt of all the required documents, the • following the transaction, the purchaser statutory review period of two months begins directly or indirectly holds 25 per cent or to run. The only ground upon which the more of the target company’s voting rights; MET can order annulment is a determination and of a threat to public order or safety. • the transaction poses a threat to public Alternatively, an investor may apply order or public safety in Germany.3 for a certificate of non-objection If the purchaser is a non-EU person, or if (Unbedenklichkeitsbescheinigung) from the MET one non-EU person controls 25 per cent or before the conclusion of the acquisition. In more of the voting rights in the purchaser this case, it is merely necessary to outline the individually, the government’s right of review basic elements of the planned acquisition, the 7 is triggered. Conversely, no right to review investor and his field of business. There is is triggered if there are several non-EU no need to submit full documentation on the shareholders with a combined shareholding acquisition unless the MET decides to initiate of 25 per cent or above, as long as each of a formal review. them individually remains below 25 per cent. In the event the MET decides to prohibit However, any voting rights held indirectly the transaction, the legal consequence is through other entities in which the relevant the invalidity of the underlying sale-and- non-EU person holds 25 per cent or more of purchase agreement under German civil law. the voting rights are attributed to that person In case shares have already been transferred (as well as voting trusts).4 to the purchaser, the MET can limit or An exception to this general rule applies to restrain completely the voting rights in EU acquisition vehicles that have ‘sufficient the German target or appoint a trustee to 8 substance’. This means a company that has unwind the transaction. not been set up exclusively for the purpose
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Investment protection under German EC Treaty protections BITs and limits on restricting foreign The language used in the legislation (‘threat to investments public order or safety’) resembles language used Of course, once investments have taken in the EC Treaty, both in the areas of freedom place, they fall in principle within the scope of establishment and movement of capital. The of German BITs.9 A more delicate question German Government has used this language is whether German BITs also provide a intentionally, emphasising that under the right to market access. As designed by the amended FTPA an acquisition may be restricted German model BIT, Article 2 (1) is the or prohibited only if it threatens public policy or relevant provision of most German BITs, security as established by Articles 46 and 58 of which provides: ‘Each contracting state shall the EC Treaty and interpreted by the European in its territory promote as far as possible Court of Justice (ECJ).12 investments by investors of the other Under which head an analysis is to contracting state and admit such investments take place is important because unlike in accordance with its legislation.’10 the protections awarded under the free While some conclude from this language movement of capital, those relating to that German BITs do not provide a right establishment do not apply to third country to market access, the more persuasive nationals.13 Generally, the capital-related conclusion from this language is that provisions are applicable in cases where the German BITs do provide a right to market purpose is to finance business undertakings. access, subject to the condition that On the other hand, an establishment analysis investments are made ‘in accordance with is to be used where the investment is in the [German] legislation’.11 In other words, form of a personal business undertaking with German BITs contain a genuine right of entrepreneurial features. It is apparent that foreign investors that their investments be the line between these two freedoms is not allowed if they comply with the applicable always clear and will have to be determined laws and regulations. in each case. Generally speaking, the For the purpose of this analysis, the European Court of Justice (ECJ) will relevant legislation that could prevent the determine the applicable freedom based on transaction is the FTPA. Now, assume that an analysis of the dominant features of the the MET blocks an acquisition or orders to transaction in question.14 unwind it – is this the end of the story? It is In cases where the acquisition in question submitted that it does not necessarily need to leads an investor from a third country to be. The FTPA can only be a valid restriction assume a dominant position, allowing him to a foreign investor’s right to invest if the to control and determine business decisions, FTPA: (i) is in and of itself lawful; and (ii) chances are high that the ECJ will apply lawfully applied. Since we are currently not an establishment analysis. Being able to aware of any indications that the enactment control and determine business decisions is of the FTPA in and of itself may have been a question of fact under ECJ jurisprudence. unlawful, we will not further discuss the It is necessary to show that control and theoretical possibility that the application influence can be exercised any time and of the FTPA violates a BIT because the Act not only under specific circumstances is unlawful. Regardless of the lawfulness (as for example in cases where only a few of the FTPA, the Act needs to be lawfully shareholders voluntarily decide to exercise applied in each and every case in order to their right to vote). The FTPA, however, is justifiably restrict foreign investments. In not limited to cases where such level and other words, an unlawful application of the degree of control exists. It applies to any FTPA is not capable of validly restricting acquisition of 25 per cent or more. It follows foreign investment, leading to a revival of that certain transactions will have to be the investor’s initial right of admission. analysed under the provisions relating to the The application of the FTPA will have to free movement of capital. stand at least two tests, against the freedoms Preventing foreign investors from provided by (a) the EC Treaty and (b) investing in Germany constitutes a restriction Germany’s international obligations arising on the free movement of capital. However, under the GATS. this in itself is not necessarily a violation of EC law, so long as any restriction can be justified under the Treaty. Therefore, the
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amended legislation uses the language found which would not constitute a means of in EC Article 58(1), copying the concept arbitrary or unjustifiable discrimination or therein of a ‘threat to public order or a disguised restriction on trade in services public safety’. Under ECJ jurisprudence the (Article XIV chapeau). The fact that the MET concept is intended to protect the general does possess discretion in making its decision public against actual threats that endanger in itself is not conclusive. Instead, the Dispute fundamental interests.15 Telecommunication, Settlement Body17 would likely consider transportation and energy are the most actual application of the measure in specific apparent areas where the concept might find cases. It follows that a potentially broader its application. However, while the ECJ has sphere would be available to the MET within recognised this exception in a very limited which to act, so long as a measure does not number of cases, it is well established that constitute a disguised means to restrict trade. any measure taken must not be a disguised form of protectionism, must be strictly Conclusion necessary and no less restrictive measure must be available. Since German BITs seem to provide a right to make investments, the new FTPA on first sight appears to be in conflict. However, German GATS obligations BITs do not provide unrestricted market A different line of argument results from access but require that an investment be in Article XVI (f) GATS, which contains line with German legislation. Leaving aside a general prohibition of market access the currently rather far-fetched possibility and shareholding restrictions in relation that the FTPA is unlawful and, therefore, to foreign capital. Article XVI (f) GATS does not belong to ‘German legislation’ set out a general prohibition of market in the sense of German BITs, investment- access and shareholding restrictions in related conflicts may further arise where relation to foreign capital.16 Unlike under the German authorities apply the FTPA in EC law, the GATS approach is a positive a manner inconsistent with EC Treaty or one, meaning a signatory state is only GATS obligations. Whether this will occur in bound to the extent that it has specifically practice has yet to be seen. Market observers accepted certain obligations. In the area of comment that, in particular in the current telecommunication, for example, Germany market conditions, the FTPA is not likely to has adopted broad obligations to this effect. be put soon to a reality test. A restriction in that area would have to be justified under Articles XIV bis (Security Notes Exceptions), XII (Restrictions to Safeguard * Dr. Markus Burianski is a partner in the international the Balance of Payments) or XIV (General arbitration practice of White & Case LLP in Frankfurt Exceptions) GATS, respectively. am Main; Dominique Strieder was a summer associate Under Article XIV bis GATS, the only in White & Case LLP, Frankfurt. The views expressed in this article are exclusively those of the authors and grounds for restricting access are in cases do not necessarily reflect the opinions of White & concerning vital security interests, eg, Case LLP or its clients. where the supply of military installations 1 For a detailed list of all German BITs see: www. is endangered, the handling of nuclear bmwi.de/BMWi/Redaktion/PDF/B/bilaterale- materials is concerned or in times of crisis investitionsfoerderungs-und-schutzvertraege-IFV,prop and war. Article XII GATS allows restrictive erty=pdf,bereich=bmwi,sprache=de,rwb=true.pdf. measures only in order to safeguard the 2 Thirteenth Act amending the Foreign Trade and balance of payments, and, if allowed, any Payments Act and the Foreign Trade and Payments measure must be interim in nature. Article Regulation: www.bmwi.de/BMWi/Redaktion/PDF/ XIV GATS allows restrictive measures in Gesetz/englischer-gesetzestext-eines-dreizehnten- order to maintain public order or measures gesetzes-zur-aenderung-aussenwirtschaft,property=p df,bereich=bmwi,sprache=de,rwb=true.pdf, in force necessary to secure compliance with laws or since 24 April 2009. regulations which are not inconsistent with 3 Section 7 paragraph 2 no 6 FTPA in connection the provisions of the GATS. with section 53 Federal Trade Protection Regulation Whereas only the last of the list of (FTPR). exceptions might grant some latitude to 4 Section 53 paragraph 1 sentence 3 FTPR. restrict the movement of capital, for example 5 Section 31 paragraph 3 FTPA. in the area of telecommunication, such 6 Section 53 paragraph 2 FTPR. measures may only be applied in a manner 7 Section 53 paragraph 3 FTPR.
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8 Section 53 paragraph 4 FTPR. 46 EGV, paragraph 3; Article 58 EGV, paragraph 7. 9 Matthias Füracker, ‘Relevance and Structure 14 ECJ, decision of 06/12/2007 (case C-298/05) of Bilateral Investment Treaties – The German (regarding this decision see also the opinion of Approach’, Zeitschrift für Schiedsverfahren (German Advocate General Mengozzi delivered on 29/03/2007, Arbitration Journal) 2006, p 236 and 241. paragraph 51 ff). 10 Other German BITs refer to its 'laws and regulations’. 15 See ECJ, decision of 04/06/2002 (case C-483/99); 11 Matthias Füracker, ‘Relevance and Structure ECJ, decision of 13/05/2003 (case C-463/00). of Bilateral Investment Treaties – The German 16 Mario Martini, ‘Zu Gast bei Freunden?: Staatsfonds als Approach’ Zeitschrift für Schiedsverfahren (German Herausforderung an das europäische und internationale Arbitration Journal) 2006, p 236 and 241. Recht’, Die Öffentliche Verwaltung 2008, p 314. 12 See the official introductory memorandum in BT-Drs 17 This scenario assumes the filing of a dispute by 16/10730, p 11, available at: http://dip21.bundestag. another WTO Member State pursuant to the Dispute de/dip21/btd/16/107/1610730.pdf; see also ECJ Settlement Understanding. The more relevant (European Court of Justice), decision of 26/03/2009 question for foreign investors is whether they can (case C-326/07); ECJ, decision of 23/10/2007 (case individually rely on GATS obligations. This question C-112/05); ECJ, decision of 14/03/2000 (case cannot be dealt with in this contribution. Suffice it to C-54/99). note that the ECJ has indicated that, in exceptional 13 Callies/Ruffert-Bröhmer, Kommentar zu EU-Vertrag cases, individuals may rely on GATS obligations. See und EG-Vertrag, 2nd Edition (2002), Article 46 EGV, ECJ, decision of 22/06/1989 (case C-70/87); ECJ, paragraph 1; Article 58 EGV, paragraph 1; Streinz- decision of 07/05/1991 (case C-69/89); ECJ, decision Müller-Graf, EUV/EGV – Kommentar (2003), Article of 09/01/2003 (case C-76/00).
Dr Ulrich Lohmann V Boetticher Haase New ruling allows for arbitration of challenges to shareholders’ resolutions Lohman, Frankfurt am Main ntil recently, resolutions adopted it known that the courts should deal with Ulohmann@boetticher. by the shareholders of German this issue. The Federal Court of Justice com corporations could be challenged1 concluded that it was now the courts’ turn to Uin court but not in arbitration.2 The move ahead and resolve the issue. courts were concerned that an arbitration According to the judgment, disputes award declaring a shareholders’ resolution concerning challenges to shareholders’ void would violate the right to be heard resolutions are now arbitrable. Arbitral awards of those shareholders who had not been dealing with such challenges are now deemed a party to the proceedings. The statutory to be effective for and against the officers and provisions3 dealing with challenges to all shareholders of the corporation in the shareholders’ resolutions in court, on the same fashion as court judgments,5 provided other hand, provide for rules ensuring that that the arbitration clause: all shareholders will be heard and that the • is contained in the articles of association resulting judgment will be effective for and of the corporation or in a separate against all shareholders and officers of the agreement made by all shareholders and corporation.4 The position of the courts the corporation itself; was that as long as there was no express • ensures that each shareholder and the statutory provision in German arbitration corporation must be kept informed of law that would protect the officers and other the commencement and the status of the shareholders in arbitration proceedings in arbitration proceedings so as to be able to the same fashion as they would be protected intervene at any time; in court proceedings, arbitration clauses in • provides that each shareholder who articles of association would not apply to elects to participate in the arbitration challenges of shareholders’ resolutions. proceedings at the time they are In April 2009, the German Federal commenced may also participate in the Court of Justice revised this position. It selection of the arbitrators, unless a third noted that the legislature had completely party, such as an arbitration institution, is rewritten German arbitration law in 1998 requested to appoint the arbitrators; and without addressing the issue of challenges • ensures that all disputes relating to the to shareholders’ resolutions, and had made same object, notably relating to the
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(alleged) nullity of the same shareholders’ Notes resolution, are dealt with in the same 1 Anfechtungsrecht in German. proceedings by the same arbitral tribunal. 2 BGH, judgment dated 23 March 1996, II ZR 124/95, The decision is of importance for Limited BGHZ 132, 278 – Schiedsfähigkeit I. 3 §§ 248 (1) and 249 (1) of the German Stock Liability Companies,6 where the agreement Corporation Act (AktG), which apply also with respect to arbitrate can be included in the articles to Limited Liability Companies. of association. There is authority that 4 A judgment declaring void a shareholders’ resolution arbitration clauses cannot be included actually has effect erga omnes, not just the other in the articles of association of a Stock shareholders and the officers of the corporation, Corporation7 to the extent that the Stock Karsten Schmidt in Scholz, Kommentar zum GmbH- Corporation Act assigns certain matters to Gesetz, 10. Aufl 2007, § 45 Rdnr 171. the courts;8 it remains to be seen whether, on 5 On the basis that §§ 248 (1) and 249 (1) of the the basis of the decision, arbitration clauses German Stock Corporation Act apply by analogy. dealing with the challenge of shareholders’ 6 Limited Liability Companies are normally Stock resolutions can be included in the articles of Corporations, in German Aktiengesellschaften, and may list their shares on a stock exchange. A German stock association of a Stock Corporation, now that corporation has two boards, a management board such disputes are arbitrable. In any event, and a supervisory board. The supervisory board is the shareholders in Stock Corporations may elected by the shareholders, but cannot manage enter into a separate arbitration agreement, the corporation itself. It, in turn, appoints and to which the corporation should be made a supervises the management board, which manages party, provided their number is small enough the corporation with certain discretionary powers. As to bring this about. a result, the shareholders have no direct influence Arbitration clauses in the articles of on the management of the corporation. Stock association of German corporations and in Corporations may be publicly or privately held. agreements between shareholders in German 7 Most German corporations are Limited Liability corporations should now be reviewed to Companies, in German Gesellschaften mit beschränkter Haftung or GmbH (Limited Liability Companies). ensure that they protect the shareholders and Limited Liability Companies often have a simple the officers in the same fashion as they would structure consisting of just one or more shareholders be protected in court proceedings, taking into and one or more managing directors. account the detailed requirements set out in 8 § 23 (5) of the German Stock Corporation Act; the decision of the Federal Court of Justice. Schmidt/Lutter, Aktiengesetz Kommentar, Köln 2008, Finally, there is authority9 that arbitral § 23 Rdnr 57 with further citations. awards have effect erga omnes only if they have 9 Karsten Schmidt, l c (footnote 4). been declared enforceable. It remains to be seen whether the decision of the Federal Court of Justice revives the discussion of this issue.
Kevin Quennet and Dr Axel Confirmation order held to constitute binding, implicit agreement to arbitrate Kunze Norton Rose LLP, n 25 January 2008, the Higher Facts of the case1 Frankfurt am Main Regional Court of Hamburg (OLG Kevin.Quennet@ The dispute between the parties was about Hamburg) rendered a decision whether a charter party on the transport of nortonrose.com (Hanseatic Court of Appeal, O sewage sludge from Greece to Hamburg, Axel.Kunze@ decision of 25 January 2008 - file no 6 Sch which contained an arbitral agreement, nortonrose.com 07/07, SchiedsVZ 2009, page 71 et seq) on had become effective. The respondent the conclusion of an implicit agreement to had sued the petitioner for payment of arbitrate. Whereas arbitral agreements usually damages before the arbitral court of the form part of written contracts or are at least German Maritime Arbitration Association written down in some way and signed by the (GMAA). The petitioner challenged the parties, this case shows that even without arbitration action by arguing that no arbitral such agreements in writing, an arbitral agreement existed which would give the agreement can be concluded effectively due GMAA jurisdiction. The arbitral court, to commercial usages.
32 I nTERNATIONAL Bar Association Legal Practice Division country developments after hearing evidence from two witnesses, confirmation which can only be used concluded that a binding arbitral agreement to achieve a conclusion of a contract is came into force by way of a confirmation of not sufficient. The COO should clearly order with contractual effect (in German repeat and finalise the existing (oral) Kaufmännisches Bestätigungsschreiben - COO). agreement and the contents thereof Thus, the arbitral court decided by way of an and should be sent immediately after interlocutory decision that it had jurisdiction the contractual negotiations, so that in this case. Thereupon, the petitioner the recipient is prepared for the filed an application for a declaratory court receipt thereof; judgment, pursuant to the German Code (iii) The sender must act in good faith. of Civil Procedure (ZPO), against this Thus, he must be entitled to rely interlocutory decision. on the fact that the silence of the The OLG Hamburg confirmed the arbitral recipient can be understood by him court’s decision as, in its view, it was correct as an implicit agreement to the COO. to assume that an arbitral agreement with Modifications and amendment to the binding effect had been entered into by the previous (oral) agreement contained parties by way of a COO. in the COO will only become part of a contract if the sender can honestly expect the recipient’s approval. This, Confirmation of order doctrine however, will not apply in the case of In Germany, there exist commercial essential modifications or amendments usages (or customs) which are considered and depends on the circumstances; binding rules between businessmen as a and consequence of a consistent and unitary (iv) The other party must have received commercial practice. Pursuant to section the COO and must not have 346 German Commercial Code (HGB), immediately (without undue delay) such commercial usages have to be taken objected to it. Furthermore, it does into account in the commercial relationship not matter whether the COO is named between businessmen. as such. It is the content of the letter One example of these commercial usages which is decisive. are the principles of a COO: one businessman If the COO is only a summary of the content writes down the content of an oral agreement actually agreed upon in the previous (oral) already made (at least from his point of view) negotiations, the COO only has declaratory with the other businessman and sends it to effect. If, on the other hand, an agreement his counterparty. If the counterparty does has not yet been reached from the point not immediately object to the ‘confirmed’ of view of the issuing party, the COO has agreement or contract, his silence shall a constituent effect, ie, the contract is be interpreted as an implicit consent and concluded by this COO if there has been no therefore the agreement shall be deemed as objection to it. concluded between them under the terms In the present case the arbitral court, after specified in the confirmation of order. Hence, taking evidence, came to the conclusion this interpretation of silence in response to a that the parties had conducted contractual COO is an exception to the general principle negotiations on a shipment of 3,000 tonnes under German law that mere silence may not of sewage sludge. After several telephone be interpreted as a declaration of intent and conversations, in which the freight rate was shall have no legal significance. negotiated, the petitioner sent a ‘fixture A contract under the terms of the COO confirmation’, stating a freight rate of €33.00 becomes effective if the following conditions per tonne to the respondent. This fixture are fulfilled: confirmation contained a reference to the (i) Both parties are merchants or ‘Pro Forma Charter Party’. Box 25 of this Pro take part in business activities on a Forma Charter Party stated, inter alia, the regular basis; following wording: ‘German Law, Arbitration (ii) Contractual negotiations have taken Hamburg according to GMAA rules’. place between the merchants and both By his ‘fixture confirmation’ dated 17 parties must have firmly believed that May 2006, the respondent confirmed the the existing (oral) agreement between conclusion of a charter party on the shipment them covered all terms and conditions of 3,000 tonnes of sewage sludge on the terms in a conclusive and final way. A simple and conditions specified in the Pro Forma
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Charter Party. This confirmation qualified as parties do not wish for disputes to be resolved a COO. Both parties were merchants and the before an arbitral court or do not want to fixture confirmation referred to contractual accept the other party’s terms and conditions. negotiations previously conducted by Even in international business relationships them. Therefore, the petitioner would have it is important to bear in mind that although needed to object immediately to the fixture the principles of a COO are unknown in confirmation in order not to be bound by its most foreign jurisdictions, they may apply in content. As this was not the case, the contract certain cases depending on the counterparty. including the arbitral agreement was validly The legal significance of silence does not concluded between the parties in accordance depend on the agreed choice of law but on with the principles of a COO. the ordinary residence of the silent party. This, however, does not apply to business transactions being performed in the country Conclusion in which the counterparty to the silent party This case does not raise any particular or resides. In this case, the agreed choice of new point of arbitration law. If one party law will apply as the silent party will not be contests the jurisdiction of an arbitral court, entitled to rely on the fact that his actions the arbitral court usually decides by way of are being judged by the law of his country an interlocutory decision whether it has of residence. Therefore, caution is highly jurisdiction. The parties then have the right recommended in cases where a COO, a to appeal against this interlocutory decision confirmation letter or a similar kind of and apply for a declaratory decision of the letter is received from a party which has its competent Higher Regional Court within a residence in Germany and where such a period of one month. letter refers to a business transaction to be However, the case demonstrates that in performed outside of Germany. a given situation and based on the silence in response to a COO, a contract can be validly concluded which, in turn, triggers Notes the jurisdiction of an arbitral court. This can 1 The facts of the case have been shortened for the sake lead to unwanted results, in particular, if the of simplicity.
Mark Lin Lovells LLP, Hong Kong Hong Kong [email protected]
Court upholds award in first challenge under UNCITRAL Model Law
n the first-ever application to be heard in arbitral award made in Hong Kong is to Hong Kong to set-aside an international establish a prescribed ground for setting- arbitration award under Article 34 of the aside. These prescribed grounds are limited IUNCITRAL Model Law (which is part to procedural irregularities. of Hong Kong’s arbitration law), the Court In Brunswick Bowling & Billiards Corporation of First Instance has held that the court has v Shanghai Zhonglu Industrial Co Ltd and a residual discretion to uphold an award another, Shanghai Zhonglu applied to set aside notwithstanding that a ground for setting- an award made in the HKIAC-administered aside has been made out. A consideration UNCITRAL arbitration proceedings between in the exercise of the discretion is whether the parties. The arbitration was seated in the court is satisfied that the finding of Hong Kong although the underlying supply the tribunal would have been the same agreement (‘Supply Agreement’) from which notwithstanding its decision on the matter the proceedings arose was governed by that gives valid grounds for setting-aside. Illinois law. Article 34 of the Model Law provides that the only recourse against an international
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The application The court’s decision The application was based on a number of The court held that Shanghai Zhonglu had a grounds, including the following: valid ground of complaint under Article 34(2) • In the Supply Agreement, Shanghai (a)(ii) in relation to the contract ground and Zhonglu had warranted the validity the tort ground. The question arose as to and existence of a number of third- whether the court nevertheless had discretion party contracts that it had entered into to uphold the award. with other Peoples Republic of China In determining a discretion under (PRC) parties. Although the parties the Model Law, the court was guided by made submissions as to the correct law jurisprudence relating to the similarly- in accordance with which the validity of constructed New York Convention. The court these contracts were to be determined, was persuaded by Brunswick that, as with the the tribunal decided, without notice to convention, it has residual discretion under the parties, to determine their validity in the Model Law to uphold the award where it accordance with provisions of PRC law on is satisfied that the decision of the tribunal which the parties had not addressed the would have been the same regardless of the tribunal. Shanghai Zhonglu complained ground for setting aside. that the tribunal had formed a secret view The court gave guidance on situations on the correct law without giving it the where it might properly exercise the opportunity to present its case on PRC discretion to uphold an award even if a party law, in breach of Article 34(2)(a)(ii) (the may not have been able to present its case ‘Contract ground’). properly. These included: • Shanghai Zhonglu contended that the • where the tribunal had failed to give the tribunal had also applied PRC law to one parties an opportunity to address it on of Brunswick’s tort claims on the basis of something covered in its award by way a secretly formed view as to the correct of obiter and which had no bearing on its law, in breach of Article 34(2)(a)(ii) (the decision; or ‘Tort ground’). • where the arbitral tribunal had given • Shanghai Zhonglu complained that the several reasons for its award, any one of tribunal’s decision to award damages them sufficient for its decision, and the calculated by reference to lost revenue court is satisfied that the result would have (where Brunswick had pleaded damages been the same in the light of the other for loss of profits) was in breach of Article reasons given. 34(2)(a)(iii) as it was outside the scope The discretion is limited in scope and will of the submission to arbitration (the be exercised only when the result is plain ‘damages ground’). and obvious based on what has already been • The parties had agreed that the set out in the reasons for the award or on proceedings would be conducted using a other indisputable materials put before the ‘chess-clock’ procedure. However, most tribunal. It would be wrong for the court to of Shanghai Zhonglu’s witnesses gave examine the merits afresh as if it were sitting evidence in Chinese, which required in the arbitration. interpretation. Recognising that almost The court therefore decided to uphold the half of Brunswick’s cross examination tribunal’s award in relation to the contract time was taken up by interpretation, the ground, as there was evidence in the award tribunal intervened during the hearing that the tribunal had also decided that and, having given both parties the chance the third-party agreements warranted by to address it on the issue, the tribunal Shanghai Zhonglu in the Supply Agreement awarded more time to Brunswick to cross were invalid for reasons other than their examine Shanghai Zhonglu’s witnesses. construction as a matter of PRC law, so the Shanghai Zhonglu complained that tribunal’s decision would have been the same this was contrary to the parties’ agreed regardless of the ground for setting aside. procedure and a breach of Article 34(2) Conversely, as there was no similar evidence (a)(iv) (the ‘time ground’). in relation to the tort ground, the tribunal’s award on this claim was set-aside. In relation to the damages ground, the court confirmed that the tribunal had not acted in excess of jurisdiction. Quantum
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is one of the matters submitted to the challenged on the grounds that a party has tribunal for determination; a tribunal is been unable to present its case. It is also a not bound by the positions taken by the useful point of reference for future Article 34 parties in their submissions if it can, on the applications and for applications to enforce basis of the evidence before it, come to a convention awards in Hong Kong. different conclusion. The case also raises an interesting issue The court also refused to set-aside the relating to arbitral practice. Parties to arbitral award on the time ground. The court held proceedings often agree to conduct a hearing that the tribunal was required to give effect on a ‘chess-clock’ basis, thus agreeing that to Article 18 of the Model Law, which they will have the same amount of time to provides that each party should be treated present their case. However, a party who will with equality and be given a full opportunity have to cross examine a disproportionate to present its case. This also requires the number of witnesses who are giving evidence tribunal to step in and redress the problem in a language other than the language of the if a procedure agreed by the parties is proceedings (and there is no simultaneous unworkable and would result in a breach interpretation), should approach this of Article 18. Accordingly, the tribunal was procedure with caution. found to have acted correctly to ensure that An unanticipated consequence of the procedural fairness was achieved. chess-clock procedure is that a party in this position may end up having less ‘effective’ cross examination time available to it, as half Comment of its time will be spent on interpretation of As the first such application to be made to testimony. If the tribunal is not as sensitive to the Hong Kong courts, Brunswick Bowling is this as it was in the Brunswick Bowling arbitration, the first application under Article 34 of the that party will, in effect, have agreed to limit the Model Law in which the discretion to uphold amount of time it has to present its case. an international arbitral award has been considered. The decision provides a welcome statement of the principles to be applied by Lovells acted for Brunswick Bowling in the court the Hong Kong courts where an award is proceedings to set-aside the award.
Sahil Kanuga and Shafaq Uraizee India Sapre Nishith Desai Associates, Appointment of an arbitrator – a dispute in itself! Mumbai [email protected] [email protected] ontractual relationships are much details including forum and arbitrator into like marriages. In good times, the dispute resolution clause of a contract. anything goes, but in bad times, there is no issue small enough not to C The Arbitration and Conciliation Act, 1996 fight over. It is probably for this reason that something as simple as the law surrounding The law of arbitration in India is governed the appointment of an arbitrator has by the provisions of the Arbitration and developed in the manner it has. Conciliation Act, 1996, (‘the Act’). The Act Earlier, the appointment of an arbitrator leaves parties free to decide on whether they in India was less complicated, where both wish to go in for institutional arbitration or parties would agree to listen to the decision ad hoc arbitration. In India, institutional of a respected elder, whom both trusted arbitration had, initially, failed to take off as implicitly. Today, the law surrounding this expected and most parties preferred to go in for seemingly innocuous aspect of an agreement ad hoc arbitration. This was possibly due to the has developed tremendously and parties lack of enough institutional arbitration facilities. argue vociferously to insert their choice of However, it must be said that in the light of the rapid development of the Indian industry and
36 I nTERNATIONAL Bar Association Legal Practice Division country developments the creation of efficient facilities for institutional production of original agreement have been arbitration, both in India and globally, described by the Court as ‘red tape that has settlement of disputes by arbitral institutions is to be removed before the parties can get what fast gaining popularity. they really want – an efficient and potentially The Act provides for domestic arbitration cheap resolution of their dispute’ and these as well as international commercial technical issues are to be considered as mere arbitration. Under section 10 of the Act, indicators of intent and should not be insisted parties are free to determine the number of upon if parties are able to show intent (to arbitrators they wish to appoint to resolve a arbitrate) in other ways. dispute subject to the fact that such number is not an even number. Where an arbitration Section 11 of the Act agreement is silent about the number of arbitrators, the Act provides that the arbitral Let us now look at section 11 of the Act tribunal would consist of a sole arbitrator. A which deals with the appointment of ‘no-brainer’ provision as simple as this has arbitrators. When parties are unable to been tested and interpreted by the courts in mutually agree on an arbitral tribunal, several cases. depending on whether the arbitration is In MMTC Ltd v Sterlite Industries (India) a domestic arbitration or an international Ltd,1 the said provision was tested where commercial arbitration, either party can it was unsuccessfully argued that where make an application to the High Court or each party thereto had agreed to appoint the Supreme Court for appointment of an an arbitrator, and the two arbitrators so arbitrator. It can be seen on a bare reading appointed were to jointly appoint a third of the provisions of the Act that the parties arbitrator, the said arbitration agreement are given as much freedom as they wish in was invalid since technically the parties the appointment of the arbitral tribunal. have appointed an even number of In hearing applications under section 11 arbitrators, irrespective of the fact that of the Act, the courts have, in a number of the same agreement contemplates that decisions, always given the widest possible the two arbitrators will appoint a third interpretation to the terms of the agreement arbitrator. The Honourable Supreme Court between the parties in order to give meaning (‘Supreme Court/Court’) also held that thereto rather than invalidate it by giving it the validity of an arbitration agreement did a narrow interpretation. The Court has also not depend on the number of arbitrators time and again insisted, as was in the case specified in such agreement. In fact, in of Northern Railway Administration, Ministry Narayan Prasad Lohia v Nikunj Kumar Lohia of Railway, New Delhi v Patel Engineering & Ors,2 the Court upheld an arbitral award Company Ltd4 that the parties must follow issued by an arbitral tribunal consisting of the procedure agreed in the arbitration two arbitrators on the ground that when agreement and exhaust the remedies a party had an opportunity to object to provided therein before approaching the the composition of the arbitral tribunal courts for the appointment of the arbitral under the Act and did not object, and tribunal. The reason for this is to minimise instead participated in such proceedings, the supervisory role of the courts in the it would be deemed that such party would arbitration process, as is envisaged in the have waived their right to object to the statement of objects and reasons of the Act. composition of the arbitral tribunal. This has posed a challenging situation for the More importantly, in Great Offshore Limited courts in view of the fact that while the Act v Iranian Offshore Engineering & Construction envisages minimising the role of the courts Company,3 the Court has held that technical in the process of arbitration, litigants are irregularities in an arbitration agreement increasingly involving the courts in issues that per se will not make it invalid. The intention require the courts to delve deeper into the of the parties to arbitrate is of utmost crux of the arbitration agreement resulting in importance in deciding on the validity of an the courts setting precedents in the process. arbitration agreement. The judgment also In SBP & Co v Patel Engineering Ltd 5, lays down that the courts, while deciding questions were raised regarding the powers on an application for appointment of an of the courts in appointment of the arbitral arbitrator, should not go into technicalities of tribunal and if the courts could even go into the agreement in question. The technicalities any other issues, such as the validity of the such as stamping, seals, signatures or arbitration agreement. In the matter, a seven
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judge bench of the Court overruled the attractive alternate option. This has however decision of a five judge bench of the Court not stopped parties from litigating on the in the Konkan Railway Corporation6 case and issue of appointment of an arbitrator as has held inter alia that the power exercised by the been seen in Standard Corrosion Controls Pvt Chief Justice (of either the High Court or the Ltd v Sarku Engineering Services SDN BHD 9 Supreme Court, as the case may be) is not where, in spite of the parties having agreed to merely an administrative power but was, in fact, refer disputes to arbitration applying the rules a judicial power. Holding such power to be a of the International Chamber of Commerce judicial power and not a mere administrative to be held at Mumbai, an application was first power, therefore, requires the Chief Justice to made to the Court to appoint an arbitrator. see whether there is an arbitration agreement The said application was dismissed as non- between the parties and an arbitrable dispute maintainable and the Court once again there under. held that parties must first approach the In Ludhiana Improvement Trust & Anr v nominated authority. Today Homes and Infrastucture (Pvt) Ltd7 it Similarly, in Shivnath Rai Harnarain was contended and upheld that since an (India) Ltd v Abdul Ghaffar Abdul Rehman10 arbitration agreement obtained fraudulently the Court held that where the parties had would be void and unenforceable, it would agreed to refer disputes for arbitration be necessary for the court to exercise its in Singapore before a certain agreed judicial power under section 11 of the Act, arbitrator, it was not open to them to ask as held in SBP & Co v Patel Engineering Ltd, the Court to appoint an arbitrator. and decide on the existence of an arbitration However, care must be taken to ensure that agreement prior to the appointment of the the costs of such institutional arbitration, arbitral tribunal. which often appear higher than ad hoc Furthering the complications and in arbitration, are made clear upfront. addition to the various contentions put forth Significantly, in light of the restrictions before the courts for appointment of the placed by India on the enforcement of arbitral tribunal, in TDM Infrastructure Pvt Ltd arbitral awards not made in India, care v UE Development India Pvt Ltd8 it was argued must also be taken when choosing the seat that even though both the appellant and the of the arbitration proceedings. To get a respondent were companies incorporated quick arbitral award passed by an efficient in India, as the directors and shareholders arbitral institution in a country which is not were based in Malaysia, it would bring the recognised as a reciprocating country may proposed arbitration within the definition defeat the entire purpose of approaching of ‘international commercial arbitration’, as such institutions. defined under section 2(f) of the Act and an It should be remembered that an application under section 11 of the Act would arbitration agreement is merely an agreement lie before the Supreme Court. The Supreme between contracting parties to refer certain Court rejected this contention. disputes between them for adjudication before an arbitral tribunal, which may be nominated in advance. Where parties are at Appointments made by institutions logger heads there is a possibility that they A possible alternative to ad hoc arbitration will evade such previously agreed terms, and the complicated process of appointment however neutral and reasonable they may be. of an arbitrator (and the ever increasing It is, therefore, important that where parties issues surrounding the same) is for parties have entered into an arbitration agreement to opt for institutional arbitration which is out of their own volition, the courts let such conducted as per the rules and procedure arbitration agreement and procedure run of a mutually acceptable arbitral institution. its full course before intervening in any Though institutional arbitration has its manner whatsoever. Where parties seek to own set of problems such as high costs and avoid complying with previously agreed terms, possible delays, it is the preferred option such application for appointment ought to with foreign companies who enter into any be dismissed forthwith at the threshold and agreement with Indian counterparts and without any delay whatsoever. who are well aware of the infamous delays Whatever the choice between the parties, prevalent in the Indian judicial system. one can clearly say that in today’s highly Institutional arbitration proceedings offer competitive, sophisticated and ever-changing strict timelines and fixed costs and thus are an commercial relationships, appointment of
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an arbitrator to resolve a dispute has, in fact, 4 Judgment of the Supreme Court dated 18 August turned out to be one of the major disputes 2008, in Civil Appeal No 5067 of 2008 arising out of between the parties. SLP (C) No 16196 of 2006. 5 (2005) 8 SCC 618. 6 (2002) 2 SCC 388. Notes 7 Civil Appeal No 6104 of 2008 (Arising out of Special 1 AIR 1997 SC 605. Leave Petition (Civil) No 10550 of 2008. 2 (2002) 3 SCC 572. 8 Arbitration Application No 2 of 2008. 3 Arbitration Petition No 10 of 2006. 9 Arbitration Application No 6 of 2008. 10 (2008) 5 SCC 135.
Ilman Rakhmat and Karen Mills KarimSyah Law Firm, Indonesia Jakarta ilman.rakhmat@ Indonesia: Faith in investor-State arbitration restored? karimsyah.com Government of the Republic of Indonesia v PT Newmont Nusa Tenggara [email protected]
ndonesia has had more than its share loss, was the conclusion of the press and even of bad luck in investor-state arbitration. of the participants of a seminar held shortly Two previous major investment disputes after the Notice of Arbitration was filed by Ibrought to international arbitration at the the government against its mining contractor, turn of this century etched Indonesia’s name PT Newmont Nusa Tenggara (‘NNT’), a in the history of investor-state arbitration, but foreign investment company owned primarily not, to use the Indonesian term, in ‘golden by Newmont Mining Company of Denver, ink’. These arbitrations, relating to private Colorado and Sumitomo Corporation of power projects postponed at the insistence Japan. Isn’t the investor always right? of the IMF after the Asian economic crisis of But they were greatly mistaken. the late 1990s, were rife with questionable tactics and resulted in disastrous outcomes The facts for Indonesia. Such bad experience certainly appeared to elicit a rather pessimistic view NNT entered into a Contract of Work of investor-state arbitration among most (‘CoW’) with the Government of the Indonesians, and within the government in Republic of Indonesia (the ‘government’) particular, only intensifying the rising tide in December of 1986 pursuant to which of suspicion and mistrust of international NNT was appointed as contractor to explore, arbitration already felt by so many other develop and exploit copper and gold mineral developing nations. deposits in a certain area of the western end It is in part for this reason that the of the island of Sumbawa, in the Eastern Indonesian Government waited more than Islands of Indonesia known as West Nusa two years before commencing arbitration Tenggara. Pursuant to the Indonesian against a defaulting mining contractor – three Constitution, which confirms that all mineral years of exasperating attempts to realise its and other wealth contained within the rights in an amicable manner – before it saw earth belongs to the people of Indonesia there was no other option but to enforce and may only be developed by the state for them legally. the greatest benefit of the people, the CoW It was the first time the government had requires the project company (in this case commenced arbitration against an investor. NNT) to ensure that its foreign shareholders And, not surprisingly, the negative view of divest a portion of their shares in the project arbitration which had permeated the country company gradually, on a set schedule for the past seven or eight years, as referred commencing at the end of the fifth year of to above, elicited great skepticism. Surely the extraction operations, until foreign interests government must be wrong, and is heading hold no more than 49 per cent of the project for yet another embarrassing and unnecessary company. The foreign shareholders of NNT
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are subsidiaries of Newmont and Sumitomo. by Indonesian law and the seat of the Because there was already an Indonesian arbitration was Jakarta. The procedure was shareholder to the extent of 20 per cent, the governed by UNCITRAL rules, permissible foreign shareholders were required to divest under Indonesia’s Arbitration Law but only to only a further 31 per cent: three per cent in the extent that such rules do not conflict with 2006 and seven per cent annually from 2007 that Law. The tribunal consisted of highly through to 2010. regarded international arbitrators: Dr Robert NNT’s foreign shareholders continually Briner (Chair), Professor M Sornarajah and failed to effect the required divestment Judge Steven Schwebel. for 2006, 2007 and 2008, despite clear The issues focused primarily on instructions from the central and local interpretation of the CoW and establishment governments, including a recommendation of the facts. Despite a proliferation of of the local House of Representatives, legal expert witnesses, both Dutch and instructing them to do so, even after the Indonesian, there were very few points of law acquisition price for the 2006 and 2007 at issue. One of these was whether the right divestment had been agreed upon between to receive shares in the project company the parties. NNT had a string of excuses, is of a personal nature (intuitu personae). playing one government entity off against the NNT argued that one of the reasons why its other by entering into multiple sale contracts, shareholders had not divested the shares, none of which they were willing to make good even though an agreement was reached, was on, also failing to provide bank details for because the government had designated payment and then claiming the time limit for regional government-owned companies to payment had elapsed. They claimed the right take up the shares without the consent of of approval over which government entity the existing shareholders. This position had could purchase the shares and from whence been taken by NNT despite the facts that: the financing would come, at one point also (i) the CoW provided that the government claiming that they need only offer but not had such a right; and (ii) there were no actually sell the shares. Finally, after notices of preemptive rights provided for in NNT’s default had been issued by the government, Articles of Association, unusual in itself as NNT insisted that even if the shares were most such companies do provide for such to be sold, immediately upon purchase the restrictions. The tribunal found NNT’s argument without merit, government would have to re-pledge them intuitu personae not least because NNT’s own personnel to NNT’s lenders because, they admitted, admitted that once the shares are acquired all of their shares had been encumbered by the government it is free to resell to any as security for their financing. The CoW Indonesian entity it may choose. specifically puts the burden of financing upon Indonesia’s arbitration law allows 180 days the contractor, which is only natural since from the full constitution of the tribunal for why else would a state allow foreign interests completion of hearings and a further 30 days to take a major stake in the exploitation of its for the issuance of the award, but both time natural resources? At this announcement, the limits are extendable and the parties agreed government lost all patience and, on 3 March to a short extension of time for hearings until 2008, finally commenced arbitration pursuant the end of 2008, and extended the time for to the dispute resolution provisions of the issuance of the award to three months, until CoW, to seek a declaration of default, thereby 31 March 2009. Despite the breakdown of entitling the government to terminate the relations between the parties, their counsel CoW as provided in its default provisions. were able to cooperate throughout, setting an It was the first time that Indonesia has had early procedural agreement which eliminated to resort to arbitration to enforce its rights the necessity for a preliminary hearing, which against an investor. would have been extremely difficult because Judge Schwebel was still recuperating from The arbitration heart surgery. Government counsel took care of all arrangements for the hearings, which The government was represented by were held comfortably in a five-star hotel in the Attorney General, who appointed Jakarta in December 2008. Because of the KarimSyah Law Firm of Jakarta as lead and cooperative spirit the hearings were able coordinating counsel for the arbitration. NNT to be completed in just six days: including was represented by Covington & Burling, testimony from six witnesses of fact and Washington DC office. The CoW is governed eight legal experts, some using one of the
40 I nTERNATIONAL Bar Association Legal Practice Division country developments two interpreters; and opening and closing parties may request corrections of errors addresses of counsel and rebuttals, all without or ask the arbitrators to rule on matters rush or time pressure. It was without doubt which they neglected to do in the award, but the most efficiently and professionally run aside from that the mandate of the tribunal arbitration to date held within the country expires upon issuance of its final award and/ and assuaged the fears and skepticism of all or upon expiration of the time limit. Thus who attended. the time limit for any post-award relief is only 14 days, while the Award itself must be The award registered with the court within 30 days of issuance, if rendered in Indonesia, in order In their award, issued on 31 March 2009, to be enforceable. the tribunal found NNT to be in default of The award was rendered on 31 March its divestment obligations for 2006, 2007 2009, and under the Law is final and binding and 2008, which entitles the government upon issuance. No request for correction to terminate the contract unless NNT or supplement was filed. The award was cures such defaults within 180 days of the registered on 19 April, upon which it became date of the award, the maximum cure time enforceable. Nonetheless, on 30 April permissible under the CoW. The tribunal NNT filed an application for ‘clarification’ further held that offering pledged shares requesting the former arbitrators (now did not satisfy the divestment obligations functus officio) to expand their award to and that the shares must be transferred allow NNT to place the shares in escrow free and clear of any encumbrances in the event that the 180 day cure period whatsoever. Further the tribunal noted that could not be met as a result of various the government has the unrestricted right hypothetical possibilities. The government to designate any Indonesian entity it wishes challenged the legitimacy of such application to take up the shares, and that neither on jurisdictional and substantive grounds. the identity of the purchaser(s) nor the On 12 June 2009, the former arbitrators financing arrangements are of any concern rendered their decision, declining to of NNT. NNT was also ordered to reimburse provide any further clarification, primarily the government a major part of its costs. on the ground that no showing was made In fact all the tribunal did was to order of any genuine ambiguity nor any real NNT to comply with exactly the obligations necessity for clarification. to which it had bound itself 23 years earlier, As of the time of writing, with just over when mineral prices were a fraction of what 90 days remaining in which to cure their they were in 2008. One might consider the defaults, NNT would seem to have no further award very lenient for NNT, as it did not option but to comply or lose their contract. impose any damages, despite the government having been deprived of three years’ of Discussion dividends to which it should have been entitled, and three years’ participation on the The Indonesian Government’s board of directors – its entitlement as soon as uncharacteristically bold action in initiating it holds any shares at all. It also allowed NNT the arbitration was driven in part by the a further six months to cure, over and above government’s hope that other contractors the three years it had already delayed. will learn from the arbitration and respect But even after the award had been issued their contractual obligations, particularly and registered, NNT continued to seek those mandated by the Constitution for further means to postpone compliance. the benefit of the people. The rationale Article 35 of the UNCITRAL rules behind this constitutional requirement was provides that if an award is not clear a Indonesia’s unfortunate history of foreign party may, within 30 days of its issuance, interests’ continual control over and removal seek clarification from the tribunal. of Indonesia’s mineral wealth during colonial Indonesia’s Arbitration Law, Law No 30 of days, also preventing Indonesians from 1999 (the ‘Law’), while including rules of having the opportunity to gain the technical procedure for arbitration, allows the parties expertise necessary to develop its own to designate other rules to govern the resources. Along with the divestment comes procedure, but only to the extent that such the right of proportional participation in the rules do not conflict with any provisions of management of the project company and its the Law. The Law itself gives 14 days in which operations, so that when the contracts expire,
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in most cases 30 years after commencement very much in contrast to the Production of extraction operations, Indonesia will have Sharing Contract system, long applied for the full wherewithal to develop its own natural oil and gas mining, whereby the resources resources without the necessity to depend extracted are shared with the state, and the upon foreign contractors. state retains the majority, usually 85 per This is also the notion that underlies cent, after certain costs are recovered by Indonesia’s new Mining Law, which came into the contractor. The new Mining Law will effect subsequent to the close of hearings for bring mining rights more in line with the this case. The new Mining Law has done away Constitution, although still not as closely as with the CoW and restored greater control of the Production Sharing system. Indonesia’s natural resources to the state by The outcome of this arbitration is viewed introducing instead a system of short-term, by many as a turning point for Indonesia extendable licences. By issuing licences, the in investor-state arbitration. The general government is in a better position to control perception still seems to be that foreign the contractors and ensure that Indonesia investors reap the most benefit from investor- will eventually be able to develop its own state arbitration. Commentators frequently resources fully for the benefit of its people. mention that developing countries often Existing CoWs will still be honored for their find themselves in unfavorable positions in duration, with adjustments made in time to investor-state arbitration, and some South comply with other provisions of the new law. American states have withdrawn from ICSID Therefore, if NNT complies with the award for that very reason. This case is interesting and its divestment obligations before the because it serves as an antithesis of this deadline, thereby retaining its CoW, it will still argument. The case has restored the faith be in a better position than will new investors. of Indonesia, and perhaps some other Although much of the industry is not developing countries as well, in arbitration pleased with the new law, one should note as a fair and efficient way to settle investment that the CoW system has long been criticised and other cross-border disputes. by many as not sufficiently complying with Indonesia, and much of the rest of the world, the underlying Constitutional requirement is watching with interest to see whether NNT because instead of sharing the mineral will comply with the award. If this is carried out wealth with the state for the benefit of the without further contention, that should serve people, the contractor is permitted to retain to retain and perhaps enhance the positive and export all of the minerals extracted sentiment finally being enjoyed by resolution of during what is normally the most productive disputes through arbitration. For now we can period of a mining operation. This is only stay tuned and hope for the best.
Joseph Benkel and Ofer Larisch* Israel Raved Magriso Benkel Lahav & Co, Tel Aviv Amendments to Israel’s Arbitration Law offer new means to challenge awards [email protected] [email protected]
hanges recently made to the Israeli the Israeli court system. As such, in contrast law on arbitration, known as the to the English system where arbitrators are Arbitration Law 1968 (‘Arbitration subject to extensive control by the courts, CLaw’ or ‘Law’), demonstrate a including the right to appeal to the High unique legal situation in which a new and Court on a question of law, until 2008 and the contradicting legal mechanism to the one enactment of Amendment Two to the Law originally adopted somewhat surprisingly (‘Amendment’ or ‘Amendment Two’), the achieves an identical purpose. Israeli Arbitration Law did not provide for a In Israel, the legislative and judicial trend similar appeal of arbitration decisions. Instead has always been to encourage arbitration in the only way to challenge an arbitration order to ease the heavy case load faced by award was to ask the District Court (or the
42 I nTERNATIONAL Bar Association Legal Practice Division country developments court where the proceeding began prior to parties to an arbitration agreement to choose the appointment of the arbitrator) to set it from one of two options as an alternative to aside. The Israeli legislature established this the usual route of requesting that an award procedure in order to make arbitration as be set aside. The first option is to appeal to independent a process as possible, separate another arbitrator. The second option is to from the ordinary court system. appeal to the courts. Prior to the Amendment, there were ten To appeal to another arbitrator, the parties’ narrow grounds, listed in section 24 of the agreement must allow for such an appeal, Law, under which a court could set aside an and there must be an arbitration decision arbitration decision. Grounds could exist, for supported by the arbitrator’s reasoning. example, where there was no valid arbitration Should parties choose this route, the option agreement (if, for instance, a court found of appealing to a court is precluded. Further, deception or coercion), where an improper a request to set aside the arbitrator’s decision appointment of an arbitrator was made, or would be possible only under two specific when a deviation from authority was found grounds: (i) a decision that goes against (if, for example, an arbitration decision public policy; and (ii) the existence of a claim deviated from the conditions outlined in for which a court would normally set aside a the arbitration agreement). Denial of a final ruling. fair opportunity for a party to present its To appeal to the courts, there must have complaints or to bring forth evidence also been a fundamental error in the application constituted grounds by which an arbitration of the law which caused a distorted legal decision could be set aside. outcome. To use this option, the parties must The Israeli courts happily followed the agree that they will permit appeal of the legislative policy of not rehearing arbitration arbitrator’s decision to a court, in front of a cases by interpreting the already limited single judge, and be subject to the regular grounds under which an arbitration decision appeals process in the courts. The parties could be set aside very narrowly. must together agree that the arbitrator shall Unfortunately, this approach resulted in rule in accordance with the law, and must unwanted consequences: if a court set aside also get leave from the court in order to file an arbitration decision, the parties were the appeal. Should the parties receive such back to where they first began – that is, their permission, filing a motion to set aside the original conflict – constituting a waste of time decision is not necessary. Instead, the parties and resources. But if the court refused to set can argue for setting aside the decision based aside the original award, as was often the case on one of the ten grounds specified in section due to the limited grounds for setting aside 24 of the Law. an arbitration decision, litigants felt their It is difficult to asses at this relatively decision to arbitrate was an error and that early stage whether the recent Amendment they should have proceeded with the court to the Arbitration Law will strengthen the system where there was a better opportunity institution of arbitration in Israeli. Although to litigate their case. under the new legal regime arbitration Consequently, parties who initially favoured decisions will continue to be hard to overturn, arbitration became reluctant to arbitrate for thereby allowing the judiciary to maintain fear of reaching an undesirable result with no its traditional policy regarding arbitration right to appeal. Parties questioned whether decisions, it is nevertheless clear that the it is wise to use arbitration. The arbitration legislature and the judiciary are now aware process, a tool created to ease the burden that the public’s willingness to use arbitration on courts and to ensure that cases would as opposed to traditional courtroom litigation not return to the courtroom, lost its appeal. crucially depends upon its perception as a fair It was clear that steps had to be taken to and worthy legal process. prevent litigants from involving the courts in their arbitrations. Notes * Joseph Benkel is the Head of the Litigation Department, Amendment Two and Ofer Larisch is a partner at Raved Magriso Benkel At the end of 2008, Amendment Two Lahav & Co, in Tel Aviv. changed this arbitration process by allowing
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Leonel Pereznieto Castro Mexico Jauregui, Navarrete y Nader, Mexico DF New case law regarding the enforcement of awards in Mexico [email protected]
James A Graham Partner, Lobo & ollowing the landmark ADT ruling, not comply with its obligation to perform, the which upholds expeditiousness as a party must pay damages.5 Consequently, if the Graham, Monterrey general principle of international party cannot comply with the award granted graham@lobo-graham. Farbitration and prohibits appeals by the arbitration panel, it is obligated to com of arbitration awards in enforcement pay damages regardless of whether the proceedings,1 the federal courts have noncompliance is the result of impossibility or continued to show their support of arbitration choice. Moreover, the imposition of damages with two recent decisions dealing with the does not require a new trial; the claimant enforcement of arbitration awards. can present evidence of the respondent’s noncompliance in a summary proceeding6 to receive a damages settlement. As a result, Constitutional remedies available only before it is possible for the claimant to request court executed enforcement of award damages during the recognition proceeding In a recent decision, the First Circuit if it is already clear at that stage that a legal overturned the Koblenz decision,2 which or material impossibility will prevent the required national arbitration awards – unlike enforcement of the award. foreign or international awards – to seek judicial recognition in order to be enforced.3 Conclusion Secondly, the court addressed the timing for filing a challenge to the enforcement This recent set of decisions demonstrates of the award. Previously, practitioners a continued effort to favor arbitration and would oppose the enforcement of the to transform Mexico into a location for award, but would then seek constitutional international arbitration. Hopefully, these remedies after the enforcement procedure decisions will demonstrate that Mexico is no executed the award. This most recent longer just a burgeoning site for arbitration, decision requires the respondent to file any but an important center for arbitration.7 constitutional claims challenging the award during the enforcement proceeding and will Notes not allow any such claims after the execution 1 See Graham, Mexican Supreme Court decisions on of the enforcement. the authority of courts over arbitration agreements and the enforcement of awards, IBA Arbitration Newsletter, Vol 13, No 1 (2008), p 30. Damages imposed when legal or 2 SEGUNDO TRIBUNAL COLEGIADO EN MATERIA material impossibility prevents CIVIL DEL PRIMER CIRCUITO. Amparo en revisión compliance with award 233/2008. Joaquín Arturo Vega Morales y otra, 4 September 2008. Another recent federal decision deals with 3 Cf Pereznieto & Graham, Tratado de Arbitraje the specific case in which it is legally or Comercial Internacional Mexicano, Limusa, 2009, materially impossible to comply with the no 615. arbitration award.4 In that case, the claimant 4 TERCER TRIBUNAL COLEGIADO EN MATERIA sought to enforce an arbitration award in the CIVIL DEL PRIMER CIRCUITO. Amparo en State Court, and the respondent argued that revisión 17/2008. Enrique Autrique Gómez y otra, legal restrictions made compliance with the 19 May 2008. award impossible. 5 Article 2104. 6 Known in Mexican Law as ‘incidente’. Although the Commerce Code is silent 7 The decisions referenced in this article can be in regard to such a circumstance, the First viewed in full text with commentaries in Spanish at Circuit looked to the rules of the Federal the International Law Academy of the University of Civil Code for guidance. The rules of the Monterrey’s Blog: http://adi-udem.blogspot.com. Federal Civil Code state that if a party does
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Francisco González de Cossío Award enforcement counterclaim during setting aside proceedings: a significant González de Cossío development Abogados [email protected] or some time, Mexican practitioners The reasoning were forced to address an unexpected The reasoning used by the lower courts problem during award enforcement displayed a glaring irony: under the banner proceedings: the need to relitigate F of ‘speed,’ the creditor was forced to the same issues argued in the setting aside file two additional proceedings – clearly proceedings. In a recent opinion, an a more time-consuming outcome. The appellate court put an end to the problem.1 appellate court wisely realised that the During the setting-aside proceedings for an goals of arbitration would be achieved award issued under the Rules of Arbitration by allowing counterclaims to be raised in of the Mexican Arbitration Center (Centro the setting-aside proceeding. Because the de Arbitraje de México), the winning party in applicable procedural law did allow for the arbitration filed a counterclaim seeking counterclaims, the failure of the court to the recognition and enforcement of the allow a counterclaim during the setting- award. The court of first instance rejected aside proceeding would only lead to delay. the counterclaim, holding that allowing the More importantly, the court’s interpretation counterclaim would contradict the goals of included a construction of the Code of arbitration – speed, practicality and efficiency. Commerce in light of its UNCITRAL origin As expected, the decision was and a teleological analysis of the New York challenged. The District Court denied the Convention2 and of the Panama Convention.3 constitutional (amparo) protection based In doing so, a useful epistemological twist was on a similar premise. nurtured: the setting-aside and enforcement proceedings are now seen as a part of a single The appeal procedure designed to review the validity of the award.4 On appeal, an appellate court (Tercer Tribunal Colegiado del Primer Circuito) reversed the decision, granting constitutional Conclusion (amparo) protection for the counterclaim. The court’s decision is a positive development The appellate court (‘the court’) reasoned in Mexican arbitration which will increase the that the counterclaim was legally possible efficiency of the enforcement of awards in and did not violate the principles protected Mexico. Prior to this ruling, the enforcement by the arbitral and setting aside procedure. proceedings eroded the efficiency of First, the court held that there was no legal arbitration, thus undermining the overriding basis for the prohibition of counterclaims. purpose of arbitration. Several practitioners Rather, the Mexican Arbitration Statute had raised issue with the procedure.5 The (Commerce Code §1417.III) provides that court’s response, however, is both creative and where claims are allowed, counterclaims are effective. Moreover, it represents an insightful also specifically allowed. Secondly, the court analysis into how to protect arbitration held that the Code of Commerce (§1460) of proceedings when in conflict with other the Federal Code of Civil Procedure applies domestic legal institutions. to the entire enforcement process. Thirdly, the court held that allowing a counterclaim Notes was consistent with the goals of speed, 1 R C 274/2008. simplicity and procedural consolidation in 2 Convention on the Recognition and Enforcement of an award enforcement proceeding. Finally, Foreign Arbitral Awards of 1958. the court upheld the general procedural 3 Interamerican Convention on International right to counterclaim. Commercial Arbitration. 4 Page 61 of the Decision. 5 The author avows having proposed a solution in Arbitraje, Ed, Porrúa, 2004, p 433.
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Shawn Conway and Nathan D Netherlands O’Malley Conway & Partners N Amsterdam Court of Appeals enforces arbitral awards set aside at place V, Rotterdam of arbitration conway@conway- partners.com omalley@conway- recent decision by the Amsterdam in the former’s assets and liabilities being partners.com Court of Appeals indicated that transferred to Rosneft. In March 2007, Yukos foreign arbitral awards may be Capital moved to enforce the four arbitral Aenforceable despite having been awards against the assets of Rosneft located in previously annulled at the seat of arbitration. the Netherlands. Preliminary to its execution The judgment of the Court of Appeals petition, Yukos availed itself of a procedure concerned four related arbitral awards available within the Netherlands which allows that were rendered in 2006 in arbitrations for the placing of conservatory attachments conducted under the auspices of the on the assets of debtors, even if no lawsuit has International Commercial Arbitration Court been initiated, or as in this case, no exequatur (ICAC) of Moscow. During the pendency of has yet to be approved. The preliminary exequatur proceedings against assets located attachments were laid in December 2006. in the Netherlands, these awards were later While Yukos Capital’s exequatur vacated by the Moscow Arbitrazh Court in proceedings were pending before the March of 2007, and the annulments were Amsterdam District Court, the Russian subsequently confirmed by the Russian Arbitrazh Court in Moscow issued two Supreme Court in December of that judgments setting aside all four arbitral same year. The matter was handled in the awards in May 2007. Those annulment Netherlands by the Amsterdam District Court decisions were upheld on appeal to the and later the Amsterdam Court of Appeals. Federal Court of Appeals in Moscow and the The arbitral awards in dispute were Supreme Court of the Russian Federation. initially rendered pursuant to an arbitration between a Luxembourg company, Yukos Exequatur proceedings before the interim Capital, and Yuganskneftegaz, a Russian provisions judge at Amsterdam District entity (later merged into Rosneft). Both Court1 companies were part of what was then known as the Yukos group of companies in 2004, at The District Court of Amsterdam initially which time they entered into four separate heard Yukos Capital’s petition to enforce loan agreements. As a result of the well the four awards in December 2007. In its publicised tax dispute between the Yukos review of the matter, the court analysed Oil Company and the Russian government, the enforceability of the awards under the all common shares in Yuganskneftegaz were New York Convention of 1958, specifically sold in December of 2004 to the Baikal considering the impact of the Moscow court’s Finance Group (‘Baikal’) as part of a forced decision to set aside the awards. The court executorial sale. Four days after the sale of noted that Article V section 1 paragraph these shares, Baikal was itself purchased by (e) of the New York Convention provides OJSC Rosneft (‘Rosneft’). At that time, the that where ‘the award has not yet become Russian government wholly owned the shares binding on the parties, or has been set aside of Rosneft, and at present retains a majority or suspended by a competent authority of the share in the company. country in which, or under the law of which, In 2005, Yukos Capital commenced four that award was made’ a court may refuse arbitrations based on those loan agreements recognition and enforcement of the award. against Yuganskneftegaz. The outcome of the Against the backdrop of the convention, the arbitrations resulted in a cumulative recovery District Court acknowledged that the grounds for Yukos Capital of 13 billion Russian Rouble for the enforcement of an award that has (‘RUB’) excluding costs and interest. been nullified are very limited. The District Following the issuance of these awards, Court concluded that the close connection Yuganskneftegaz was formally merged with between the Yukos bankruptcy and Rosneft’s Rosneft in October 2006, which resulted position in it were insufficient to establish
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Yukos Capital’s case for lack of impartiality Putin and the rulings of other courts which and independence of the Russian judiciary, refused recognition of Russian judgments. including the ‘exceptional circumstances’ of In considering this evidence, and the breach of due process principles by, lack of defenses posited by Rosneft, the appellate impartiality or indepenance of, or insufficient court decided that indeed decisions of the reasoning in the decision of the setting aside Russian courts concerning the former Yukos court. Therefore the District Court declined group did not qualify as impartial. The fact to enforce the arbitral awards on the basis of that there seemed to be an identifiable Article V, section 1 (e). pattern of influence being exerted over the judiciary within Russia, in particular with regard to the Yukos case, caused the Appeal to the Amsterdam Court of Amsterdam court to find that the Russian Appeals2 court had not acted with the requisite Yukos Capital appealed that decision to the independence needed for the annulment Amsterdam Court of Appeals. In its analysis decision to comport with basic notions of of whether Article V section 1 (e) applied, the due process. Subsidiary arguments based on appellate court pointed out that the New York various articles of the New York Convention Convention controlled the issue of whether which were made by Rosneft were also a foreign arbitral award can be enforced, but dismissed by the court. that Dutch private international law rules Having thus decided that the annulment govern whether foreign court judgments are judgment by the Russian court did not to be recognised, including the question of merit recognition, the Court of Appeal whether the setting aside decision of the court proceeded to issue an order for the in Moscow should be recognised. The court enforcement of the awards. emphasised that there were no international conventions or obligations requiring it to give Conclusion recognition to Russian court judgments. Taking the above principle into account, This recent decision by the Amsterdam the Court of Appeals found that the Dutch Court of Appeals follows on a string of highly courts have no obligation to recognise a publicised decisions by the courts of France foreign court’s setting aside judgment if whereby awards have been enforced despite that foreign court’s decision cannot be the fact that they were annulled at the seat of recognised in the Netherlands. Recognition the arbitration. There is also similar American may be refused when such a judgment precedent on this point such as the well violates Dutch public policy. A foreign court known Chromalloy decision from the federal proceeding is deficient in this respect if that district court in the District of Columbia. court was not impartial and independent. Whether the Netherlands can now be added The Amsterdam Court of Appeals went on to this list of jurisdictions which allow for to find that indeed the Russian judgment the enforcement of awards that have been suffered just such a deficiency. previously set aside, depends largely on the Yukos Capital asserted in its arguments treatment that this judgment will receive in that the annulment of the arbitral awards the future. Admittedly, the facts surrounding was a part of the overall attempt by the this case are exceptional, given the high Russian Government to dismantle and profile nature of the Russian Government’s take over the assets of the Yukos group of role in the demise of the Yukos Oil group of companies. In support of its position, Yukos companies and the prosecutions undertaken Capital supplied evidence in the form of against its owner. It does establish, however, press articles, reports by human rights and that not every court decision setting aside a anti-corruption groups, reported opinions by foreign arbitral awards will be recognised in think-tanks as well as an analysis published the Netherlands. by the European Council with respect to the apparent control exerted by the Russian Notes Government over the judiciary. The court 1 Amsterdam District Court, 28 February 2008, LJN: also looked to quotes by Russian officials BC8150, available at: www.rechtspraak.nl themselves concerning Yuganskneftegaz, 2 Amsterdam Court of Appeals, 28 April 2009, LJN: such as statements made by then President BI2451, available at: www.rechtspraak.nl
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Biola Adimula Biola Adimula & Co, Nigeria Nigeria biola@ The multi-door courthouse expands arbitration in Nigeria salvationchambers.com
he concept of the ‘multi-door litigation in the resolution of disputes; courthouse’ began in the United (ii) minimise citizen frustration and delays States, but it has found a receptive in justice delivery by providing a Tnew home in Nigeria where it is standard legal framework for the fair easing court congestion and providing civil and efficient settlement of disputes litigants with the flexibility to resolve their through ADR; disputes quickly. This article explains what is (iii) serve as the focal point for the meant by the multi-door courthouse, how it promotion of ADR in Lagos State; and has worked in practice in Nigeria, and what (iv) promote the growth and effective its possible benefits and challenges will be in functioning of the judicial system the future. through ADR methods.7 The objectives also include: promoting the spirit of understanding and harmony Defining the multi-door courthouse amongst disputants who resort to ADR for The concept of the multi-door courthouse the settlement of their disputes; enhancing was first enunciated by Harvard Law the spirit of well-being and cooperation professor Frank Sander in 1976.1 It envisions between parties to a dispute; and fostering a single, state-sponsored legal institution a peaceful and congenial environment for where individuals can take all of their resolution of disputes.8 disputes and have them routed to the most During its admittedly brief history in appropriate form of dispute resolution, Nigeria, the multi-door courthouse has had a whether it be litigation, mediation, number of successes. arbitration, negotiation, or some hybrid.2 Its goal is to increase the efficiency and Dispute resolution in Nigeria cost-effectiveness of dispute resolution by ensuring that each type of dispute is resolved In Nigeria, litigation remains the most in the most suitable fashion.3 common means of the settlement of disputes, The multi-door courthouse received with its associated problems and aftermath. a major boost in Nigeria with the Litigation in Nigeria frequently breeds establishment of the Negotiation & Conflict discord, disharmony, acrimony and high Management Group (NCMG) in 1996. The costs. Before the emergence of the multi-door NCMG is a non-profit, non-governmental courthouse, Nigeria had some mechanisms organisation designed to midwife the for the amicable settlement of disputes, promotion of alternative dispute resolution including arbitration, mediation, conciliation, (ADR) in Nigeria and the introduction of the negotiation, early neutral evaluation, multi-door concept into the Nigerian judicial facilitation and the hybrid method. It is system of adjudication.4 As established in pertinent to note that these mechanisms all Nigeria, the multi-door courthouse is a have the following features in common: procedure for the amicable settlement of • two or more disputing parties must be disputes where the parties agree to be bound involved; by the decision of an impartial arbitrator, • there must either be an existing agreement using quasi-judicial methods of dispute or an agreement to be fashioned out or resolution, whose decision is final and made for an amicable settlement by an legally binding on both parties.5 The state impartial third party called either the serves as the supervisor and enforcer of the ‘Arbitrator; Mediator’, ‘Conciliator’ or legal process of the multi-door courthouse.6 ‘Negotiator’ as the case may be; The objectives of the multi-door courthouse • there must be mutual agreement for the in Nigeria have been stated as follows: settlement of the dispute; and (i) enhance access to justice by providing • the agreement must be binding and alternative mechanisms to supplement enforceable.
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Some perspective on traditional methods of multi-door proceedings are not broken but dispute resolution in Nigeria was provided rather strengthened. by experienced practitioner Kehinde Aina in The multi-door courthouse also serves his address at the establishment of the Lagos to decongest the Nigerian courts. Civil Multi-Door Courthouse: cases – for instance commercial, land or ‘The road to the events of today began family matters – currently form the bulk in 1995. Having spent most of my early of the cases currently being tried in the practice years in courtrooms, it became Nigerian courts. These cases can almost all crystal clear to me that the justice system be resolved through multi-door courthouse was in desperate need of an overhaul. I proceedings. Through the careful use envisioned a comprehensive justice center of multi-door proceedings, it is possible where both the consumers and providers that only criminal cases and exceedingly will be collaborators and co-creators of a complex commercial and family cases will streamlined and agile process. I dreamt require judicial intervention. of a faster case flow management system In addition, the following advantages to where parties are not left impoverished use of the multi-door courthouse can be and embittered; I fantasised about a legal discerned: regime where an apology would be seen (i) minimising citizens’ frustration by as a useful tool rather than an admission providing a standard legal framework of guilt; a system where disputants could for the fair and efficient settlement problem-solve and search for common of disputes; ground within the backdrop of integrity, (ii) providing a friendly atmosphere for the understanding and human decency. My resolution of disputes; dream was to create a nexus for peace, (iii) reducing the need for copious fairness and an effective administration of pleadings and documentary evidence justice in our dear country, Nigeria.’9 to obtain justice; Today, the courthouse is well rooted and (iv) reducing reliance on legal technicalities; practiced in Lagos and Abuja, while many (v) making room for direct intervention in other states in Nigeria are working on the conflicts of national importance; and establishment of the same. (vi) reducing unemployment by providing dispute resolution positions for qualified personnel. Prospects for the multi-door courthouse in Nigeria Challenges for the multi-door courthouse The reasons that the multi-door courthouse in Nigeria is of benefit to Nigeria are many. With its growing economy and the attendant rise in The challenges of multi-door court practice litigation, the Nigerian courts are becoming are many. The first challenge is a lack of very congested and parties experience awareness. There is little knowledge of much delay in obtaining justice. The multi- the practice and procedure of multi-door door courthouse gives parties to a dispute courthouses among the judiciary in Nigeria. the opportunity to obtain justice more Among lawyers, many are just hearing about quickly while retaining control over the arbitration for the first time and they do not fate of their case. The parties can not only know what it entails or how it works. The choose their preferred method of dispute public who are the beneficiaries themselves resolution – such as mediation, arbitration or have no idea of what a multi-door courthouse conciliation – but also choose the individuals is and how it can assist them to resolve their who will decide their matters. This degree of matters speedily and without damage to their autonomy is not possible under the regular business relationships. As a result, there is a Nigerian court system. need for intensive awareness programmes to The use of the multi-door court procedure introduce the judiciary, legal practitioners, also in a way stabilises the Nigerian economy. and the general public to the concept, It provides for a mode of dispute resolution procedure and operations of the multi-door whereby disputing parties can continue to go court system. on with their businesses during the hearing Another challenge is the lack of facilities of and after the determination of their for operation of the multi-door courthouse cases. In fact, many business relationships programme on the ground. The Nigerian subjected to dispute resolution through judiciary uses mainly open courtrooms with
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benches, tables, and judges’ chambers, which From the above, it can be said that a large are definitely not suitable for the operations sum of money is required for multi-door of a multi-door courthouse. The multi-door courtrooms to survive in any Nigerian locality. courthouse is better suited to the modest Thus, the state governments who in most roundtable setting of an office than the usual cases are responsible for expending on the courtroom setting. There will be a need for project must be willing and ready to release reconstruction of buildings on the ground funds to establish and maintain their multi- to better serve the multi-door courthouse door courtrooms at all times. setting. This boils down to more financial commitment by the relevant authorities. Conclusion Funding is in fact the third challenge faced by the multi-door courthouse. Though there are constraints and challenges The successful operation of a multi-door of that multi-door courthouses face in courthouse requires the employment of Nigeria, the advantages that can be derived seasoned personnel who are highly qualified from them far outweigh these constraints. to adjudicate on any dispute that may be Multi-door courthouses are a welcome idea brought before the body. These individuals for a vibrant and dynamic society. cost money to employ. This is especially an issue given that members of the judiciary Notes in Nigeria still depend on the executive for 1 International Institute for Conflict Prevention & funding for their work. This poses a threat Resolution, CPR News, 27 Alternatives to High Cost to the independence of the judiciary – and Litigation 66 (April 2009). 2 A Dialogue Between Professors Frank Sander & to the potential independence of the multi- Mariana Hernandez Crespo: Exploring the Evolution door courthouse. Justice Kayode Eso has of the Multi-Door Courthouse, 5 Univ of St Thomas L J stressed the importance of the funding issue 665, 666 & 670 (2008). for multi-door courthouses in a speech 3 Ibid at 666. on the tenth anniversary of the NCMG: 4 Kehinde Aina, ADR in Africa: The Prospect for the ‘The issue of private-public sector partnership Multi-Door Courthouse Concept, London ADR Symposium is one that needs urgent attention in Nigeria. (2003). We need to understand that the wheel of 5 Kehinde Aina, Inaugural Address, Negotiation & development is an unending circle. It will Conflict Management Group, 11 June, 2002. take output from us all to make it happen. 6 Ibid. The private sector desperately needs our 7 Section 2 of the Lagos Multi-door Courthouse. 8 Ibid. initiatives to work; and we desperately need 9 Kehinde Aina, Inaugural Address, Negotiation & their financial and moral support. If we are Conflict Management Group, 11 June, 2002. to be partners in the development of our 10 Kayode Eso, Speech at the 10th Anniversary of country, we must learn to appreciate what Negotiation & Conflict Management Group, 10 each of us is able to bring to the table.’ Negotiation & Conflict Management Group, 2006.
50 I nTERNATIONAL Bar Association Legal Practice Division country developments
Piotr Nowaczyk Salans, Warsaw [email protected] Poland
The new Polish Arbitration Law – need for further changes?
n 28 July 2005, Poland amended in conflict with the Tax Office, eg, with the Code of Civil Procedure as regard to VAT. They cannot sue the parties regards mediation and arbitration. by whom they were chosen at a common OThe issue of arbitration was shifted court for payment of remuneration until to Part Five of the Code. Its contents are the completion of the case. This solution is modeled after the UNCITRAL Model Law. anything but elegant. The arbitration community has breathed • The shift of the arbitration provisions from a sigh of relief. This act put an end to a the former Book III to Part V has disrupted debate, ongoing since 1990, as to whether the traditional principles of evidentiary arbitration should be reformed and, if so, proceedings that were common to both based on what models. arbitration and litigation. It is not clear if, Four years have passed since then. Business for example, arbitrators may administer people and journalists are inquiring about an an oath to witnesses or whether they are assessment of the new regulations. How do allowed to instruct them about criminal they fare in practice? What changes have they liability for making false statements. brought about? • The Code of Civil Procedure has The answer is not easy, and the questions ignored the requirement under which might be premature. The provisions of the arbitrator may exercise all of his or Part Five of the Code of Civil Procedure her public and honorary civic rights. concerning the arbitration clause, the Without such restriction, the Code of Civil composition of the court, jurisdiction, the Procedure allows even a person with a proceedings and the issuance of awards criminal record to serve as an arbitrator. often do not apply. The parties usually refer • The confidentiality of proceedings has not to arbitration institutions, such as the Court been sufficiently secured. According to of Arbitration at the Polish Chamber of the Code of Civil Procedure, an arbitration Commerce in Warsaw or the International court may conduct proceedings as it Chamber of Commerce in Paris. Permanent thinks appropriate, which does not always arbitration courts have very good rules, imply confidentiality. which are often better than the Code of • The time limit for lodging a complaint Civil Procedure. The parties to ad hoc for setting aside an arbitral award is three arbitration apply the 1976 UNCITRAL Rules months, just like in the 1985 UNCITRAL of Arbitration, which have remained intact for Model Law. Such a long time limit leads to over 30 years. uncertainty in business dealings, and that The provisions of Part Five of the Code is why some lawyers and businesspeople of Civil Proceedings therefore apply only want to have it limited to one month, ie, to when the parties choose neither the rules of reinstate the pre-amendment solution. an institution nor the UNCITRAL Rules of • The idea of specialisation for judges has not Arbitration. In practice, this happens rather been introduced and common court judges seldom. However, possible imperfections in are not prepared to conduct proceedings the provisions of the Code of Civil Procedure instigated as a result of a complaint for have begun to emerge and are making their the setting aside of an arbitral award. A presence felt. specialised department in one or, at most, Here are examples: several courts in Poland is a possible solution. • Arbitrators’ remuneration has not been If established, Poland would have courts secured with a deposit. If the parties do not issuing more consistent rulings and develop make advance payments, arbitrators end up specialised common court judges with a working for free and may find themselves genuine understanding of arbitration.
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Ilya Nikiforov* Egorov, Puginsky, Russia Afanasiev & Partners. St Petersburg Arbitrating in Russia: tips for a practitioner [email protected]
rbitration in Russia is a relatively of attorney before a lawyer will be allowed to fast and inexpensive dispute represent their client. resolution method. Generally, It is also not uncommon for opposing Athe parties enjoy a more counsel to argue that power of attorney is, ‘intelligent, intellectual and fair’ approach for technical reasons, invalid. It is best to as compared to national courts. Still, be cautious in this situation; your client will foreign practitioners should be aware of the be more than displeased to find themselves emphasis on formalities and the prevalence without an attorney at trial time. It cannot of ‘surprise tactics’ when engaging in be emphasised enough – always have your arbitration in Russia. Arbitral practice in passport/ID with you once power of attorney Russia is unique from other jurisdictions has been recognised. You may still be in many ways; for example, arbitrators give required to prove that ‘you are who you say more weight to documentary evidence than you are’ and that you are the person to whom testimony, yet value oral pleadings over the power of attorney has been granted. written submissions. Despite some of these The issues presented here should give a seemingly unique customs, Russian legal practitioner a basic grasp on the pitfalls and tradition follows many ‘global’ or universal caveats of Russian arbitration. imperatives of effective advocacy, so the practitioner’s best strategic foundation Submissions remains thorough knowledge of the case and the ability to quickly and intelligently react The Russian approach to arbitration has on-the-spot to unexpected developments. been more simplistic compared to other legal There are a number of other tips to highlight systems. Voluminous submissions are not for practitioners facing Russian arbitration. the preferred route to success. Submissions Arbitration proceedings in this country should be sufficiently plentiful, but they must represent a unique blend of the practices of be directed to the heart of the matter. Russian national courts and international commercial arbitration traditions. Surprises One Russian litigator, upon his first arbitration experience, characterised Russian So-called ‘shotgun’ tactics are also prevalent arbitration as: ‘intelligent, intellectual and in Russian arbitration. The most important fair.’ He also referred to the relative absence arguments and issues are reserved for the of ‘cut-throat’ tactics, personal attacks, courtroom. The lawyers relying on this and bold assertions, which are typical for tactic are hoping that a surprise attack Russian litigation (and jury trials elsewhere). might overwhelm their opponents. Russian Practitioners can expect a competitive and lawyers are veterans in this field because professional environment. they have experience with the proceedings In many ways, however, Russian arbitration in which they needed to react quickly demands more from legal professionals. For and shrewdly with evidence, argument, success, thorough knowledge of the facts of the or counter-argument. Typically, on the case, quick reaction and general intelligence courtroom doorsteps, Russian lawyers will continue to be absolute necessities. have a ‘surprise’ in their arsenal for both their There continues to be an emphasis on opponents and tribunals alike. formalities, such as ‘proper authority’. Power of attorney is a ‘must’ to represent the client Russian Language either inside or outside the tribunal. Any Russian administrative or judicial authority Some institutional tribunals in Russia provide will demand to see a properly executed and for Russian to be the default official language certified, legal document confirming power of the proceeding.1 Documentation submitted
52 I nTERNATIONAL Bar Association Legal Practice Division country developments to the court as evidence must be accompanied Venue by certified translations, and the formal What should clients first and foremost think procedural and substantive requirements when signing an agreement with provisions must be followed very closely. Some for ad hoc or institutional arbitration in institutional arbitration tribunals require that Russia? Location, location, location. Expect copies of the documents submitted (with as the arbitration to take place in the locality many as five copies) shall be authenticated specified. Typically, available arbitrators will as genuine by the party filing it on a page-by- also be from the locality. If a party elects to page basis. What else is important? It cannot have a non-local arbitrator, travel expenses be emphasised enough – always have extra will be added on to the arbitration costs, often copies of all your documents! Without these in addition to a regular fee schedule. spare sets, practitioners may be left out in Relationships are also important. When the cold, and as those familiar with Russian counsel and arbitrators know each other (or at weather know – this can be quite unpleasant. least have heard about each other) prior to the case, proceedings can be much more relaxed. Evidence Russian culture significantly values maintaining established relationships. When there is Russian arbitrators tend to give more weight mutual recognition between counsel and to documentary evidence over testimony, arbitrators, there will be less room for unsavory but prefer oral pleadings over written tactics, bureaucratic hold-ups, and other submissions. Also, there is no criminal penalty unprofessional conduct. A good metaphor is for lying to the tribunal in Russia. However, the consistency of an orange. Their outer skin arbitrators will draw adverse inferences from is relatively tough. But, the inside is relatively blatantly one-sided testimony – so ‘catch ‘em soft and malleable. Local legal representation, lying and win the case.’ therefore, would be advantageous. Personal knowledge and experience with Policy Arguments the subject matter are always important to success in arbitration: ‘Know your client, Put your case into the business, and even know the case, and know your client’s geopolitical, context.2 The majority of business’. When practitioners are familiar arbitrators in Russia these days are still legal with their client’s affairs, and how their academics, rather than legal practitioners. business is run, a lot of headaches can This can lead to misunderstandings in some be prevented. This is especially true in instances. Sometimes their perspectives can Russian arbitration. be far from the realities of doing business. Russia continues to have a number of Notes gaps between law ‘on the books’ and law * Ilya Nikiforov is the Managing Partner of Egorov, enforcement. These gaps are narrowing but Puginsky, Afanasiev & Partners and an advocate practitioners should be aware of them. Special and an adjunct professor at the School of Law of St attention should be given in both written and Petersburg University, in St Petersburg, Russia. oral presentations to regulatory environment 1 This reflects the fact that older generation arbitrators and business practices. Prepare as though the cannot administer proceedings in other languages. arbitrators are not going to read your written 2 This should be understood expressly in the context submissions. Reliance on written submissions of the Russian legal system. Russian judges tend to alone will not be sufficient. Present the demand a very formal approach, and these tendencies sometimes flow over into arbitration procedures. position and analysis in the oral statement.
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Peter Ramsden Advocate of the High South Africa Court of South Africa Ramsden@vodamail. South Africa – arbitration and constitutional rights co.za
n Lufuno Mphaphuli & Associates (Pty) arbitrators are, of course, not provided by Ltd v Nigel Athol Andrews and Bopanang the State but are private agents employed by Construction CC, Case CCT 97/07 [2009] parties for the resolution of disputes. Private IZACC 6, decided on 20 March 2009, the arbitration, as conventionally understood, Constitutional Court of South Africa was is ordinarily not held in public. It is, as its tasked, for the first time since the adoption of name implies, a private process. Nor can the Constitution of South Africa, 1996, with it ordinarily be said that arbitrators have determining whether parties may voluntarily to be independent in the full sense that waive their constitutional rights and refer courts and tribunals must be. Parties can issues in dispute between them to arbitration. knowingly consent to an arbitrator who may The key question that the Constitutional not be entirely independent. Accordingly, it Court had to answer was whether section 34 of is not clear that arbitrators can accurately be the Constitution applies to private arbitration. described as ‘independent . . . tribunals’. Section 34 of the Constitution provides: As private arbitration proceedings do ‘Everyone has the right to have any dispute not and, if international practice is to be that can be resolved by the application of law accepted, should not require public hearings, decided in a fair public hearing before a court and similarly if private arbitrators need not, or, where appropriate, another independent as long as parties knowingly accept this, and impartial tribunal or forum.’ always be ‘independent’, then the language The majority decision as pronounced by of section 34 does not fit the conception of O’Regan ADCJ held that section 34 did not private arbitration. apply directly to private arbitrations and The effect of a person choosing private that arbitration was not unconstitutional. arbitration for the resolution of a dispute The Constitutional Court’s reasoning was is therefore not that they have waived their as follows (see from paragraph 199 of the rights under section 34. They have instead judgment onwards): chosen not to exercise their rights under Section 34 provides a right to have disputes section 34. resolved by the application of law in a fair The fact that section 34 does not apply to public hearing before a court or where arbitration does not mean that fairness is not appropriate an independent and impartial a requirement of arbitrations. tribunal. It is clear that a private arbitration is At Roman-Dutch law (the South African not a court. common law), it was always accepted that a The question can thus be reduced. When submission to arbitration was subject to an section 34 refers to another independent and implied condition that the arbitrator should impartial tribunal, does it include private proceed fairly or, as it is sometimes described, arbitration? If it does not, then section 34 can according to law and justice. The recognition have no application to private arbitration. of such an implied condition fits snugly with Properly read, an independent and modern constitutional values. In interpreting impartial tribunal (if appropriate) must an arbitration agreement, it should ordinarily hold fair, public hearings when it resolves be accepted that when parties submit to disputes by the application of law. It is not arbitration, they submit to a process they possible textually to detach the requirement intend should be fair. Fairness is one of of fairness from the requirement of being the core values of our constitutional order: in public: both requirements apply to the requirement of fairness is imposed on proceedings before courts and independent administrative decision makers by section 33 of and impartial tribunals. the Constitution; on courts by sections 34 and Underlying this right is the rule of law 35 of the Constitution; in respect of labour and the positive obligation upon the State to practices by section 23 of the Constitution; and provide courts and, where appropriate, other in relation to discrimination by section 9 of fora for the resolution of disputes. Private the Constitution.
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The arbitration agreement should thus be have publicly noted that this important interpreted, unless its terms expressly suggest judgment affirming the constitutionality of otherwise, on the basis that the parties intended arbitration should open the way for South the arbitration proceedings to be conducted Africa to modernise its arbitration legislation fairly. Indeed, it may well be that an arbitration in line with the UK Arbitration Act, 1996, agreement that provides expressly for a and the UNCITRAL Model Law as proposed procedure that is unfair will be contra bonos mores. by the South African Law Commission in Senior members of the legal fraternity 1998 and 2001.
Matthias Scherer LALIVE, Geneva [email protected] Switzerland
Awards disguised as procedural orders are subject to challenge
n a landmark decision of 29 October 2008, The arbitral tribunal bifurcated the the Swiss Federal Supreme Court held for proceedings, determining first the duration of the first time explicitly that whatever the the obligation to pay royalties and deferring Ititle, name or terms the arbitral tribunal the calculation of the royalties to a later stage. uses to designate its decision, only the actual In a partial award, the tribunal ruled that Y content of the decision will determine whether Ltd was entitled to receive royalties. X S A’s or not it can be challenged before the Swiss counterclaim was dismissed. Supreme Court.1 The court’s decision is in X S A took the view that the arbitral tribunal keeping with similar decisions rendered in had interpreted the amendments to the France and the United States.2 licence agreement in a manner which was inconsistent with X S A’s intentions when it had entered into the amendments. X S A Background therefore notified Y Ltd of the rescission of The facts of the case were as follows. In 1989, the amendment for error on an essential point Professor A and X S A, a Swiss pharmaceutical (Article 24 of the Swiss Code of Obligations). company, entered into a know-how license Concomitantly, X S A commenced new agreement. X S A was to develop the arbitration proceedings against Y Ltd seeking substance that A had discovered with a view from a second arbitral tribunal a declaration to turning it into a marketable drug. The confirming the validity of the rescission. Y contract contained an arbitration agreement Ltd, on the other hand, requested the first referring all disputes to arbitration in arbitral tribunal to pursue the arbitration and Geneva under the Rules of the International to decide on quantum. X S A asked the first Chamber of Commerce (ICC). The parties tribunal to stay the arbitration pending the concluded two amendments in 1991 and outcome of the second arbitration. In its view, 1992, extending the scope of the agreement the second tribunal had exclusive jurisdiction to the whole world and modifying the to examine the validity of the rescission of the calculation of the royalties. Subsequently, A amendment for fundamental error. On 31 transferred all his rights under the licence March 2008, the first tribunal issued a decision agreement to Y Ltd. In 2005, Y Ltd initiated captioned ‘Procecural Order No 4’ in which it arbitration against X S A claiming unpaid rejected X S A’s application for a stay. On 15 royalties. X S A argued that the obligation to April, X S A challenged the members of the pay royalties for sales in Japan and the United arbitral tribunal before the ICC International States had expired and that in any event Court of Arbitration (who dismissed the Professor A had, contrary to his undertakings, challenge on 30 May 2008). On 29 April, X failed to transfer the entirety of his know-how. S A also brought an application before the X S A raised a counterclaim whereby it sought Swiss Federal Supreme Court to set aside the to recover royalties it had paid to Y Ltd. procedural order.
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Award v procedural order means restrictive and covered in particular disputes relating to the existence, validity and The first, obvious question for the Supreme extinction of the contractual undertakings Court was whether the decision, which on resulting from the licence agreement. The its face was a procedural order, could be the matters before the first tribunal concerned subject of a challenge. Indeed, under Swiss the interpretation of the licence agreement arbitration law only arbitral awards can be as well as its amendments. The validity of set aside, not mere procedural orders; the the rescission of the amendment therefore latter do not bind the arbitral tribunal who fell plainly within the jurisdiction of the first can issue new directions in the course of arbitral tribunal.6 the proceedings. On its terms, the decision X S A also argued that in any event Y Ltd which X S A sought to set aside was precisely had failed to object to the jurisdiction of the a procedural order. The court held, however, second arbitral tribunal. Having proceeded that the content, rather than the title of on the merits, Y Ltd was thus estopped from a decision was decisive (‘pour juger de la arguing that the first arbitral tribunal should recevabilité du recours, ce qui est déterminant decide the matter. The Supreme Court n’est pas la dénomination du prononcé entrepris, confirmed that a party that proceeds on the mais le contenu de celui-ci’). It found that the merits before an arbitral tribunal forgoes arbitral tribunal had not just given directions its right to challenge the jurisdiction of that for the further course of the arbitration, but arbitral tribunal. In the case at hand, however, it had decided on an application for a stay, the court found that Y Ltd had not proceeded and hence rendered, at least implicitly, a on the merits. decision regarding the subject-matter covered Moreover, under Article 186(1bis) of the by the arbitration agreement, and hence PIL Act, arbitral tribunals sitting in Switzerland its jurisdiction ratione materiae. This type are not obliged to stay the arbitration pending of decision constitutes an award (‘décision parallel court or arbitration proceedings incidente’) which can be challenged.3 between the same parties unless there are serious reasons to do so.7 Scope of relief In its challenge, X S A also argued that by issuing an order rather than an award Another preliminary issue for the Supreme the arbitral tribunal had bypassed the ICC Court to decide was the propriety of the Court’s prerogative to scrutinise all awards prayers for relief. X S A had asked for the rendered by arbitrators sitting under the aegis award to be annulled, for a declaration that of the ICC (Article 27 of the ICC Rules). The the arbitral tribunal lacked jurisdiction and Supreme Court rejected this argument. As for the removal of all the members of the per its standing case law, the mere violation arbitral tribunal. In principle, an application of a provision governing the arbitration under Article 190 of the Swiss Private proceedings is not a ground to set aside an International Law Act (PIL Act) only permits award. The court added that Article 27 of the one form of relief, the setting aside of the ICC Rules in any event does not govern the award. Exceptionally, it has been admitted jurisdiction, subject-matter or personal, of the that the court can also itself determine the arbitral tribunal. In other words, it is excluded jurisdiction or lack of jurisdiction of an that a party can ground a jurisdictional arbitral tribunal.4 Whether the Supreme challenge under Article 190(2)(b) of the PIL Court could also remove the arbitrators has Act on a purported violation of Article 27 of not yet been decided and was left open in this the ICC Rules.8 case since the application was dismissed.5 As a second ground, X S A asserted that the The first ground of challenge was rooted tribunal had not been properly constituted in Article 190(2)(b) of the PIL Act, lack (Article 190(2)(a) of the PIL Act). of jurisdiction. According to X S A the X S A took issue with an obiter dictum in arbitral tribunal had no jurisdiction to the partial award on liability in which the deal with the issue of the validity of the arbitral tribunal had stated that in any rescission of the amendment to the licence event the right to rescind the 1989 licence agreement. The Supreme Court rejected agreement had long been time-barred (The the challenge without much ado: it found time limit for rescission is indeed one year that the arbitration clause in the licence from the discovery of the circumstances at agreement (‘any dispute arising under, or in the origin of the error). X S A had rescinded connection with this agreement’) was by no the amendment to the licence agreement
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and initiated the second arbitration on the the parties to plead on the issue of the validity validity of the rescission after the award was of the amendments. rendered. In its application for a stay of the first arbitration, X S A submitted that in light of their obiter dictum, the members of Notes the tribunal were no longer impartial and 1 Swiss Federal Supreme Court, Decision should step down. In the order refusing a 4A_210/2008 of 29 October 2008, ASA Bull 2/2009, stay (Procedural Order No 4), the tribunal p 309, consid 2.1, referring to Decision 122 III 492. observed that the relevant portion of the An English translation will be published in 2 Swiss Int’l Arb L Rep 2 (2008). partial award only dealt with the licence 2 Braspetro Oil Services (Brasoil) c Great Man-Made agreement, not with its amendments. X S A River Project (GMRA), Cour d’appel, 1 July 1999, had not been reassured: simultaneously with Rev arb 1999, 835 ; ASA Bull 2/2000, p 376 [Order its request to set the order aside, which it qualified as award and set aside for not having been brought before the Swiss Federal Supreme subject to scrutiny of ICC Court] see also: Andrea Court, X S A had filed an application with Carlevaris, La qualificazione delle sentenze arbitrali, the ICC Court to remove the arbitrators. Rivista dell’arbitrato; 3.2002, US Court of Appeals, The ICC Court had dismissed the motion. 7th circuit, Publicis v True North, 206 F.3d 725; 2000 US The Supreme Court, in line with its standing App LEXIS 3765 [disclosure order qualified as award under the NY Convention]. case law, found that it was not bound by the 3 Swiss Federal Supreme Court, Decision 4A_210/2008 decision of the ICC Court or any private body of 29 October 2008, ASA Bull 2/2009, p 309, consid and could examine freely whether the arbitral 2.1, referring to Decision 4A_370/2007 of 21 9 tribunal had been properly constituted. February 2008. Ultimately, the court rejected the 4 Ibid, consid 2.2, referring to 127 III 279; 117 II 94. challenge. It found that X S A’s concerns were 5 Ibid, consid 2.2. purely subjective and were not founded on 6 Ibid, consid 3. any concrete element. The arbitral tribunal, 7 See Domitille Baizeau, ‘Modification de l’article when deciding on the time bar, could not 186 de la LDIP suisse: procédures parallèles et have had in mind any time bar issue for the litispendance, clarification du législateur après la jurisprudence Fomento’, Les Cahiers de l’Arbitrage, rescission of the amendment. The material 2007, Vol 4 No 1, pp 19-24. error on which X S A relied for its rescission 8 Swiss Federal Supreme Court, Decision 4A_210/2008 became apparent only as a result of the award of 29 October 2008, ASA Bull. 2/2009, p 309, consid itself to the extent that the arbitral tribunal’s 3.3.1.6. interpretation of the amendment differed 9 Swiss Federal Supreme Court, Decision 4A_210/2008 from X S A’s. Moreover the tribunal had in of 29 October 2008, ASA Bull. 2/2009, p 309, consid the order regarding the stay expressly invited 4, referring to 128 III 330.
Georg Naegeli* Homburger AG, Zurich The impact of bankruptcy on a pending arbitral proceeding – comments on a georg.naegeli@ homburger.ch recent decision of the Swiss Federal Supreme Court
n a decision of 31 March 2008, the Swiss bankruptcy on a pending arbitration, its Federal Supreme Court confirmed judgment does not qualify as a landmark an arbitral award pursuant to which decision. The reason may be that the court Ithe arbitration was terminated against was strongly divided over the merits of the one of the respondents, a Polish company case – the decision was taken by three votes that had been declared bankrupt after to two – and may have wanted to leave the the beginning of the arbitral proceedings. question open to reconsideration. While the decision can be accessed through the court’s website1, the court will not Facts include it in its official bulletin of leading cases. Thus, although this was the first time In 2006, Vivendi S A and subsidiaries initiated the court had to decide on the impact of arbitration under the ICC Rules against, inter
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alia, Deutsche Telekom AG and the Polish is governed by Polish law. Relying on the company Elektrim S A. The place of the interim award and the opinions of Polish arbitration was Geneva. legal experts cited therein, the court found Elektrim was declared bankrupt in that pursuant to Article 142 LBR a Polish August 2007. It requested termination of bankrupt entity is deprived of its subjective the arbitration against it based on Article capacity to arbitrate in a pending arbitral 142 of the Polish Law on Bankruptcy and proceeding. Elektrim had thus lost its capacity Restructuring (LBR), which reads as follows: to take part in an arbitration. ‘Any arbitration clause conducted by the Based on these grounds, the Federal bankrupt shall lose its legal effect as at Supreme Court dismissed the challenge of the date bankruptcy is declared and any the interim award. pending arbitration proceedings shall be discontinued.’ The arguments of the minority of the In an interim award rendered in 2008, court the arbitral tribunal discontinued the proceedings against Elektrim, essentially The court’s opinion is silent on the based on the following reason: the purpose of arguments of the minority of the court, Article 142 LBR is to deprive arbitral tribunals which, however, expressed its opinion at the of jurisdiction over bankrupt Polish parties. public deliberations. It is for Polish bankruptcy law to determine In essence, the minority held that it follows the effects of bankruptcy on insolvent from various Articles of the LBR that a Polish Polish entities. The capacity to act in a Swiss entity does not automatically lose its capacity arbitration is governed by the general conflict to act upon declaration of bankruptcy. of law rules of the Swiss Private International The bankrupt entity is even able to initiate Law Act (PILA). The ‘continued capacity’ new arbitral proceedings with the creditors of Elektrim to appear as a party in arbitral committee’s consent. proceedings has thus to be determined Pursuant to Article 142 LBR, the pursuant to Polish law. Pursuant to Article 142 arbitration agreement loses its effect upon LBR, a Polish party loses its subjective capacity declaration of bankruptcy. The minority, to be a party to arbitration proceedings. however, noted that the validity of the The claimants filed a motion to set aside arbitration agreement, and, thus, the the interim award with the Federal Supreme impact of bankruptcy on an international Court. By three votes to two, the court arbitration based on such agreement, rejected the motion. is governed by the law applying to the substantive validity of the arbitration agreement. Pursuant to Article 178(2) PILA, The Federal Supreme Court’s reasons the arbitration agreement shall be valid if it In its unusually succinct opinion, the complies with the requirements of the law court confirmed that it fully reviews chosen by the parties, the law governing the issues of capacity to be a party to arbitral dispute, or Swiss law. Pursuant to Swiss law, proceedings as a preliminary issue in the declaration of bankruptcy does not avoid connection with the challenge of an award an arbitration agreement. confirming or denying jurisdiction. If such Finally, the minority held that Article preliminary issues are governed by foreign 142 LBR is not a loi d’application immédiate law, the Federal Supreme Court examines requiring mandatory application even its application without restriction, whereby though, otherwise, Swiss law applies. In this the court follows the predominant opinion context, the minority referred to the EC in the applicable jurisdiction. Insolvency Regulation, which also provides The court noted that the PILA is silent on that the impact of bankruptcy on lawsuits the subjective capacity of non-state parties pending2 shall be governed by the lex fori. to arbitrate. The capacity to be a party to proceedings depends on legal capacity, which Comments is an issue of substantive law and determined by the law governing the personal status of Does Article 142 LBR impact the capacity of a legal entities. bankrupt to arbitrate? As Elektrim is a Polish corporation, its A point hotly debated between the legal capacity and its capacity to be a party parties was whether Article 142 LBR in international arbitration proceedings impacts the capacity of a party declared
58 I nTERNATIONAL Bar Association Legal Practice Division country developments bankrupt to remain a party to pending shall represent the bankrupt entity in the arbitral proceedings. arbitration. However, Polish law should not Given that there was no predominant mandate the termination of the arbitration if doctrine in Poland on this issue, the Federal the law of the seat of the arbitration provides Supreme Court would have been free, that the proceedings are to continue. pursuant to its own standards, to fully review the question. However, it merely relied on the Alternatively: impact of bankruptcy on opinions cited in the interim award. Both the the arbitration as an instance of legal way in which the court approached the issue succession and its decision on the same raise questions. Pursuant to Article 142 LBR, ‘as at the Pursuant to Article 142 LBR, the impact of date bankruptcy is declared, […] any bankruptcy on a pending arbitration may pending arbitration proceedings shall be be seen as a mere consequence of the rule discontinued’. Nothing in this wording that the arbitration clause ‘shall lose its legal suggests that the provision affects the capacity effect as at the date bankruptcy is declared’. of the bankrupt. Rather, it appears to be a It seems evident that the validity of the rule of purely procedural character. arbitration agreement shall not be governed This is reinforced by the fact that Polish law by the lex concursus. leaves intact the bankrupt entity’s capacity Renowned Swiss arbitrators4 examine the to be a party to court proceedings. The question under the aspect of the transfer bankrupt entity can even initiate arbitral of the arbitration clause from the bankrupt proceedings, provided that the creditors’ entity to the bankruptcy administrator. They committee agrees. Article 185(2) LBR states treat the issue as one of legal succession that ‘[t]he declaration of bankruptcy shall not and, ultimately, the subjective scope of affect the bankrupt entity’s legal capacity or the arbitration agreement. The transfer his capacity to perform legal acts.’ to the bankruptcy administrator of the For some legal acts, though, the bankrupt right to dispose of the debtor’s estate is a entity requires approval of certain bodies. core feature of bankruptcy proceedings. Furthermore, the bankruptcy court can The question whether the pre-existing appoint an administrator for conducting arbitration agreement becomes binding on the bankrupt entity’s business. The the administrator relates to the subjective administrator acts in place of the bankrupt scope of the arbitration agreement, which entity’s board of directors. In effect, the is governed by the lex arbitri. In Switzerland, situation hardly differs from a situation in the relevant provision is Article 178(2) which a board of directors is replaced in PILA, ie, the provision determining the law its entirety. The company remains able to applying to the substantive validity of the conduct its business, although not through arbitration agreement. The Article provides the board but through the administrator. that the validity and scope of the arbitration It is difficult to see why the replacement of agreement are subject to the least demanding the board by an administrator who assumes of three possible laws, including Swiss law. largely identical functions should affect the This approach is not undisputed in Swiss bankrupt entity’s legal capacity. legal writing. Some authors5 hold, without further explanation, that the law applying to the bankruptcy determines the question of A procedural conflict of laws approach whether the bankruptcy administrator acting The Federal Supreme Court was faced with in place of the bankrupt is bound by an the question of which law is appropriate arbitration agreement concluded by the latter. to govern the impact of bankruptcy on a Other authors supporting the application pending procedure – the lex arbitri or the of the lex concursus explain their view by lex concursus? As demonstrated above, the referring to the rules they deem applicable procedural character of Article 142 LBR for the law applying to the effects of an suggests a procedural approach. assignment of the arbitration agreement, Many international arbitral tribunals which in their view is the law with the closest have voted for application of the lex arbitri, connection to the dispute.6 However, these thus taking into consideration the parties’ authors admit that their position finds no justified expectations.3 This jurisprudence support in Swiss jurisprudence.7 Rather, the is in line with the Insolvency Regulation. Of Federal Supreme Court constantly held that course, it is for Polish law to determine who the most favorable of the laws alternatively
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applying to the substantive validity of the Conclusions arbitration agreement (Article 178(2) PILA) The Federal Supreme Court confirmed the also determines whether an arbitration clause arbitral tribunal’s decision to discontinue has been validly transferred. This is approved the arbitration against Elektrim because by the majority of legal writers.8 it qualified the impact of bankruptcy on a If the impact of the bankruptcy declaration pending arbitration as an issue of capacity. on the bankrupt entity’s estate is deemed The preceding considerations show that this to be an instance of legal succession, then it is at least debatable. First, the conclusion that appears plausible to apply the same principles Polish bankruptcy law affects the bankrupt to the ‘transfer’ of the arbitration agreement entity’s legal capacity is not convincing. to the bankruptcy estate as in the case of a Secondly, the procedural character of ‘transfer’ by assignment, as Brown-Berset, Article 142 LBR suggests a purely procedural Lévy, and Kaufmann-Kohler hold. This is also conflict of laws approach, which would in line with the Federal Supreme Court’s case result in determining the lex arbitri as the law on the law(s) governing the assignment of law governing the impact of bankruptcy on arbitration agreements. a pending arbitral procedure. An alternative approach suggests treating the issue as one Is Article 142 LBR a loi d’application of legal succession, which relates to the immédiate? subjective scope of the arbitration agreement The majority of the bench of the Federal and is again governed by the lex arbitri. Supreme Court did not have to deal with the Under all these premises, Article 142 LBR issue of whether Article 142 LBR qualifies would not have applied to the arbitration as a loi d’application immédiate because they proceeding against Elektrim – not even as a loi concluded that Article 142 LBR applies d’application immédiate, as the provision does directly to the pending arbitration. If one not qualify as a rule of Swiss international accepts, however, that it is not for the lex public policy requiring mandatory concursus but the lex arbitri to rule on the application. A different outcome in the impact of bankruptcy on the pending setting-aside procedure before the Federal arbitration, the question arises whether Supreme Court was indeed conceivable, as Article 142 LBR requires mandatory the narrow outcome of the court’s vote shows. application by the arbitral tribunal. Immediately upon the public release of the It is hotly debated in Swiss legal doctrine Federal Supreme Court’s opinion, voices were whether and to what extent arbitral tribunals heard warning that the court’s judgment may have to take into account foreign mandatory have a negative impact on Switzerland as a provisions.9 The common ground seems to preferred place for international arbitration. be that there can be at best a very limited Are these concerns well founded? The answer application of mandatory provisions. Some is no. The debate on the rules governing the authors emphasise that the content of the impact of bankruptcy on an international provision at stake must reflect not only local arbitration with seat in Switzerland is not put but international public policy.10 The Federal to rest by the judgment. The Federal Supreme Supreme Court held that Swiss law does Court remains free to reconsider the case in a not mandate an arbitral tribunal to apply second instance, if any. foreign mandatory rules of law; at least it does Finally, it has to be emphasised that, in not amount to a violation of public policy general, the Federal Supreme Court’s case when the tribunal does not apply foreign law is clearly supportive of international mandatory provisions.11 arbitration in Switzerland. As FELIX Article 142 LBR seems to be quite a unique DASSER’S statistical analysis of setting- provision. We are not aware of any similar aside proceedings between 1989 and 2005 provision in other European countries in Switzerland demonstrates,13 the overall providing for the termination of an arbitral chances of even partial success of a setting- proceeding upon declaration of bankruptcy aside motion are distinctly below ten per cent. of one party. The Article also contradicts The Federal Supreme Court deeply respects the rules set forth by the Insolvency the parties’ autonomy expressed by their Regulation.12 Against this background, Article choice to submit their disputes to arbitration 142 LBR does not qualify as a rule of Swiss and applies its powers of interference with international public policy. arbitral awards with care and reluctance. This is one of many reasons that Switzerland
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remains an excellent venue for international 4 Kaufmann-Kohler|Lévy, Insolvency and International arbitral proceedings. Arbitration, in The Challenges of Insolvency Law Reform in the 21st Century, ed by Peter|Jeandin|Kilborn, 2006, pp 257 et seqq, 267; Lévy, Insolvency in Arbitration (Swiss law), in Int A L R 2005 pp 23 et seqq, 27; Brown- Notes Berset|Lévy, Faillite et Arbitrage, ASA Bull 4|1998 pp * Georg Naegeli ([email protected]) is a 664 et seqq, 668. partner in Homburger’s litigation and arbitration 5 Wenger|Müller, in Basler Kommentar, IPRG, eds by team. Homburger represents the claimants in the Honsell et al, 2nd ed 2007, Article 178 PILA No 78. proceedings discussed in this article. 6 Berger|Kellerhals, Internationale und interne 1 Decision of 31 March 2008, no 4A_428|2008, Schiedsgerichtsbarkeit in der Schweiz, 2006, No 511, fn www.bger.ch/index/juridiction/jurisdiction-inherit- 380, with reference to No 503. template/jurisdiction-recht/jurisdiction-recht- 7 Berger|Kellerhals (fn 7) No 503 and fn 370; see also urteile2000.htm. No 500. 2 The term ‘lawsuits pending’ includes arbitrations; 8 See, eg, Wenger|Müller (fn 6) Article 178 PILA N 73; see Josef Syska (acting as Elektrim’s administrator) v Poudret|Besson, Comparative Law of International Vivendi Universal S A et al [2008] EWHC 2155(Comm); Arbitration, 2nd ed 2007, No 283. Burgstaller, Internationales Zivilverfahrensrecht, 9 See, eg, Hochstrasser, Choice of Law and Foreign Kap 71, 2003, Article 15 No 2; Maderbacher, in Mandatory Rules in International Arbitration, in Konecny|Schubert, Kommentar zu den Insolvenzgesetzen, Journal of International Arbitration, 11(1) (1994), pp 57 Article 7-15 EUInsvo, 2007, Article 15 No 9; et seqq, 85 et seqq; Karrer, in Basler Kommentar, IPRG (fn Virgos|Garcimartin, The European Insolvency: Law 6) Article 187 PILA N. 284. and Practice, 2004, Nos 121, 261; Giorgini, Arbitrage et 10 Voser, Mandatory Rules of Laws as a Limitation on the droit Européen des faillites, r a e.-l e a 2005, 259 et seqq, Law Applicable in International Commercial Arbitration, nos 12-14, 16. American Review of International Arbitration, 7 (1996), 3 See ICC Award Nos 2073, 2139 and 4415 in pp 316 et seqq, 345 et seqq; Briner, in Basler Kommentar, Jarvin|Derains, Collection of ICC Awards 1074-1985, IPRG, ed by Honsell et al, 2nd ed 2007, Article 177 1990, pp 236, 240 and 530; ICC Award No 6057 in PILA No 218. Arnaldez|Derains|Hascher, Collection of ICC Awards 11 Decision of 12 December 1994, in ASA Bull 1995, pp 1991-1995, 1997, pp 487 et seqq. This jurisprudence 217 et seqq, cons 2c. is approved, inter alia, by Perret, Faillite et Arbitrage 12 See fn 3 above. International, ASA Bull 1|2007 pp 36 et seqq; Mourre, 13 Dasser, International Arbitration and Setting Aside Arbitrage et le droit de la faillite, in Affaki (ed), Faillite Proceedings in Switzerland, ASA Bull 3|2007 pp 444 et internationale et conflit de juridiction, 2007, pp 153 et seqq, in particular pp 452 et seq, 455 and 471. seqq, Nos 9, 12 and 27-29; Giorgini (fn 3), No 19; Fouchard|Gaillard|Goldman, On international commercial arbitration, ed by Gaillard and Savage, 1999, No 587.
Joe Tirado and Matthew Knowles* United Kingdom Norton Rose LLP, London West Tankers: what it says, why it matters and what it means for those joseph.tirado@ arbitrating in the EU nortonrose.com matthew.knowles@ nortonrose.com he risk of parallel proceedings is appropriate cases, to exercise its jurisdiction regularly present in an international to grant an interlocutory or final injunction in context. While it is impossible to any case where it appears just and convenient1 Tremove the risk completely, an to restrain parties from commencing or anti-suit injunction, ie, an order from the continuing proceedings overseas in breach of English court prohibiting a party from an arbitration or jurisdiction agreement. commencing or continuing proceedings in However, in Gasser GmbH v MISAT srl2 another jurisdiction, is a mechanism that and Turner v Grovit,3 the European Court of can help to stop parties from ignoring their Justice ruled that anti-suit injunctions are own agreements (or those agreements of inconsistent with the principles of mutual which they seek to take advantage). The trust which underlie EC Council Regulation English High Court’s practice has been, in 44/2001 on jurisdiction and the recognition
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and enforcement of judgments in civil Member State on the ground that such and commercial matters (the Brussels proceedings are in breach of an arbitration Regulation); the court second seised must agreement?’ The House of Lords, with Lord stay its proceedings and wait for the court first Hoffmann giving a particularly forceful seised to determine jurisdiction. opinion, were of the unanimous view that the But did this also apply to arbitration, answer to the question was a resounding ‘Yes’, particularly in light of the express exclusion both on the interpretation of the Regulation of arbitration from the ambit of the Brussels and as a matter of commercial good sense.6 Regulation? This was the question for the ECJ in Allianz SpA v West Tankers Inc.4 Its ECJ decision judgment was greatly anticipated and, even though very few people are surprised by the However, the ECJ followed Advocate-General outcome, it has attracted much criticism. Kockott’s opinion and disagreed. The ECJ For example, one former Law Lord has considered that as the claim for damages commented that the ECJ’s judgment ‘shows in the Italian court proceedings fell within the downside of having a court none of whose the Regulation, a preliminary issue in those members has any substantial experience of proceedings concerning the applicability of heavy commercial practice.’ In this article, the arbitration agreement must therefore we describe the background to the West also fall within its scope.7 Echoing Gasser and Tankers decision, assess what it means for Turner, the ECJ said that to grant an anti-suit the interaction between arbitration and the injunction would be contrary to the general Brussels Regulation and consider where principle that every EU court seised of a parties and practitioners might be able to find dispute must determine its own jurisdiction practical solutions to the conundrums that and would run ‘counter to the trust which the face them. Member States accord to one another’s legal systems and judicial institutions and on which the system of jurisdiction under Regulation Procedural history No 44/2001 is based’.8 A vessel owned by West Tankers and chartered The ECJ went on to say that if an anti-suit to Erg, an Italian company, damaged a injunction was permissible, jetty owned by Erg. The charterparty was ‘a party could avoid the proceedings governed by English law and contained a merely by relying on [the arbitration] London arbitration agreement. Erg’s insurers agreement and the applicant, which commenced proceedings against West considers that the agreement is void, Tankers in the Syracuse court to recover the inoperative or incapable of being amounts paid to Erg under the insurance performed, would thus be barred from policy. West Tankers started English court access to the court before which it proceedings seeking a declaration that the brought proceedings under Article 5(3) dispute before the Italian court arose out of Regulation No 44/2001 and would of the charterparty and was covered by the therefore be deprived of a form of judicial agreement to arbitrate in London and an protection to which it is entitled.’9 anti-suit injunction restraining the insurers The ECJ referred to Article 2(3) of the New from proceeding in Italy. York Convention,10 saying that this paragraph In 2005, the High Court granted the meant that it is not for other states to requested injunction. However, the insurers interfere in the consideration by a national queried whether it was consistent with the court of its jurisdiction. Regulation to grant an injunction restraining proceedings in another Member State. As this question had previously been determined Comment (in the affirmative) by the Court of Appeal However, the issue is whether or not a in Through Transport,5 the insurers were given binding arbitration agreement exists. If it permission to appeal directly to the House of does, a party to that agreement no longer Lords, which referred the following question enjoys a right of access to the court but it can to the ECJ: ‘Is it consistent with the EC always bring a claim under the arbitration Regulation 44/2001 (the Brussels Regulation) agreement. The question is, therefore, who for a court of a Member State to make an should first be asked to determine whether order to restrain a person from commencing or not the party still enjoys the right to or continuing proceedings in another
62 I nTERNATIONAL Bar Association Legal Practice Division country developments take its claim to court. Article 2(3) should Of course, this does not reflect the be considered in light of the principle of principle of competence-competence, but it ‘competence-competence’, ie, that a tribunal seems, in practice, likely to be a considerably may, in the first instance, rule upon its own lesser evil than the present position. jurisdiction. The ECJ’s interpretation of Article 2(3) was that a party can only go to The EU Commission’s response, arbitration if it first proves to a court that published recently, recognises the current the arbitration agreement is neither null problems with the interface between the nor void nor inoperative nor incapable of Regulation and arbitration and its Green being performed. Accordingly, we would Paper,12 published at the same time, invites suggest that the correct interpretation is that comments on the Heidelberg proposals.13 It matters should go to arbitration except in the is, in our view, to be hoped that the fourth extreme cases mentioned in the paragraph. of the Heidelberg proposals set out above When the test is perceived in that way, the is brought forward among the amendments idea that the tribunal should be first to rule to the Regulation, but it is unlikely that any on its jurisdiction makes abundant sense. changes will come into force soon. So what to do in the meantime? The Heidelberg report Possible practical steps The Heidelberg report on the Brussels Regulation11 was published in 2007 and Possible drafting approaches made the following four recommendations Parties may wish to include in the arbitration as to how the Regulation and arbitration agreement an express covenant not to bring should interact: proceedings in any other forum and/or a (i) the arbitration exception should be provision acknowledging a right to damages deleted from the Regulation but the in the event of a breach of the arbitration prevalence of the New York Convention agreement. Given the decision in West Tankers, should be maintained; neither will enable a party to obtain an anti- (ii) the courts of the arbitral seat should suit injunction restraining court proceedings, have exclusive jurisdiction in ancillary but either may help to obtain remedies proceedings relating to arbitration; further down the line. (iii) guiding principles should be laid down as to how to determine the place of the arbitration i.e. in accordance with the Relief from the court seised parties’ agreement or as determined The party intending to arbitrate the dispute by the tribunal, failing which the court should seek a stay of the court proceedings at of the Member State that would be the earliest opportunity and, where possible, competent under the Regulation; and apply to have jurisdiction determined as a (iv) finally, and most importantly, a court preliminary issue. of a Member State should stay the proceedings once a defendant contests the jurisdiction of that court with respect to the existence and scope of the Relief from the English court arbitration agreement and the court of It is possible to apply to the court for a the Member Seat that is designated as declaration that the arbitration agreement the seat of the arbitration is seised for is valid and binding. This may encourage declaratory relief with respect to the the tribunal to continue hearing the existence, validity and/or scope of the dispute, ultimately assist enforcement of arbitration agreement. the award and, importantly, help resist If this last recommendation ultimately proceedings for the foreign judgment’s becomes law, in the West Tankers situation, registration in England. it would be possible for the party in West Mrs Justice Gloster granted such a Tankers’ position to bring proceedings in declaration in NNC v Endesa,14 despite the the English courts for a declaration that the fact that a Spanish court had decided that arbitration agreement is valid and binding. In the arbitration agreement did not apply such a case, the Italian court would have to and its decision was within the scope of the stay proceedings pending the English court’s Regulation. The judge said that the English judgment, which would bind the Italian court. courts were not bound to recognise the
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decision in proceedings which fell outside to hear the case, Fallimento’s receiver the Regulation (because, for example, they was not bound by the arbitration clause came within the arbitration exception).15 and DHL must pay the amount claimed. She also said that this did not amount to a DHL failed to prevent registration of the review of the Spanish court’s jurisdiction. Italian judgment in England). Rather, the English court was only deciding, in compliance with its international Conclusion arbitration obligations under the New York Convention, if there was an applicable So, where are we? Well, it is a mess but not a arbitration agreement. total disaster. There is continued uncertainty Whether or not this decision will survive as to the meaning of the arbitration exception the appeals process is open to some doubt. and there is an open door for parties at least However, it is, at least, consistent with the to delay the proper operation of arbitration ECJ’s approach that it is the nature of the agreements by bringing proceedings in underlying proceedings that determines breach of those agreements. if the Regulation is engaged. Indeed, it is If the proposed changes to the Brussels probably the only way of getting round that Regulation go through, this is likely to approach; as the focus falls on the underlying refocus attention on the issue and may proceedings, if the merits of the substantive in fact lead to more parties choosing to dispute are put in issue, the arbitration arbitrate in London. This is on the basis that exception will almost never apply. they may, if necessary, be able to obtain a judgment that would amount to an anti-suit injunction, that they would be able to do so Relief from the arbitral tribunal promptly and, even better, this judgment If an arbitration is already under way, would be binding within the EU. bring the court proceedings to the In the meantime, there are ways and means tribunal’s attention at the earliest possible of ameliorating the position. They are not opportunity. If an arbitration has not yet been fail-safe but they do give parties faced with commenced, you may well want to start one as foreign court proceedings ways of bringing soon as possible. pressure to bear on parties who breach As a general matter, it is entirely arbitration agreements and the prospect of consistent with the principle of competence- recouping at least some of the damage that competence for the tribunal to proceed parallel proceedings would entail. with the arbitration and determine its own jurisdiction, regardless of any parallel Notes proceedings and then, having determined * Joe Tirado is a partner and Head of International that it has jurisdiction, to proceed with Arbitration and ADR. Matthew Knowles is a senior the arbitration (subject, of course, to any associate in the Dispute Resolution Group. Both are successful setting aside application). based in London. 1 Section 37(1), Supreme Court Act 1981. But what remedies should you ask the 2 Case C-116/02 [2003] ECR I-14693. tribunal to grant? The possibilities include: 3 Case C-159/02 [2004] ECR I-3565. (i) Damages for breach of the arbitration 4 Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v agreement.16 West Tankers Inc (The Front Comor), Case C-185/07. (ii) A declaration that the arbitration 5 [2005] 1 Lloyd’s Rep 67. agreement is valid and binding.17 6 [2007] UKHL 4. See, in particular, paragraphs 16 (iii) An order requiring the party in breach and 22. to raise certain points before the 7 Previously, the view had always been that such a decision did not fall within the Regulation and national courts.18 therefore did not need to be recognised elsewhere in (iv) The imposition of reporting obligations the EU (see Marc Rich Case C-190/89). on the parties with regard to the 8 Paragraph 30. court proceedings (However, if you 9 Paragraph 31. are tempted not to attend the court 10 Paragraph 33. proceedings, note the recent case of DHL 11 Report on the Application of Regulation Brussels I GBS (UK) Limited v Fallimento Finmatica SPA19 is on the Member States presented by Professor Hess, a salutary reminder of the risks involved Professor Pfeiffer and Professor Schlosser (September in that approach. DHL played no part 2007). in Italian proceedings and in its absence 12 Green Paper on the review of Council Regulation the court held that it had jurisdiction (EC) No 44/2001 on Jurisdiction and the Recognition
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and Enforcement of Judgments in Civil and recognise the Spanish court’s judgment in relation to Commercial Matters (April 2009). the non-incorporation of the arbitration agreement 13 The Green Paper also suggests uniform jurisdiction and the alleged waiver of any agreement. for provisional measures and to determine choice of 16 See, for example, CMA CGM SA v Hyundai Mipo law in arbitration agreements and how enforcement Dockland Ltd [2008] EWHC 2791 (Comm). of European arbitral awards could be streamlined 17 Section 48(5)(a) of the Arbitration Act provides that within the EC. the tribunal has the same power as the Court ‘to order 14 [2009] EWHC 196 (Comm). a party to do or refrain from doing anything…’. 15 The judge said that if she was wrong about this, the 18 Section 41 of the Arbitration Act gives the tribunal English court could refuse recognition of the Spanish powers in the event that a party fails to do ‘something judgment on the grounds of public policy because it necessary for the proper and expeditious conduct of would also be manifestly contrary to the public policy arbitration.’ of the United Kingdom pursuant to Article 34(1) to 19 [2009] EWHC 291 (Comm).
S I Strong* University of Missouri, Columbia United States [email protected] United States Supreme Court holds that non-parties to arbitration agreements may appeal denials of stays of litigation under the US Federal Arbitration Act
n May 4, 2009, the United States had attempted to minimise taxes to be paid Supreme Court held in Arthur as the result of the sale of their company. Andersen LLP v Carlisle, 129 S Ct The individuals had consulted with Arthur O1896 (2009), that non-parties Andersen LLP (Andersen), the company’s to an arbitration agreement could appeal accountant and tax adviser, who introduced the denial of a stay of litigation under the the individuals to Bricolage Capital, LLC Federal Arbitration Act (FAA), 9 U S C §§ (Bricolage). Bricolage referred the individuals 3, 16. Although the dispute in question was to a law firm that recommended a particular entirely domestic, the opinion has potentially tax shelter device. As a result of the advice broader applicability by virtue of sections 208 received, the individuals created several and 307 of the FAA. Those sections permit limited liability corporations (LLCs) which the general provisions of chapter 1 of the then entered into investment-management FAA (including sections 3 and 16) to apply agreements with Bricolage. Each of the to international proceedings to the extent investment-management agreements required that those provisions are not inconsistent arbitration of any controversy arising out of with the FAA’s international regime. The or relating to the agreements. These were the international applicability of the Supreme only agreements that mandated arbitration Court’s decision in Arthur Andersen is further of disputes, and the only parties to these supported by an earlier federal circuit agreements were Bricolage and the LLCs. court case – Sourcing Unlimited, Inc v Asimco Problems arose when the tax shelter International, Inc, 526 F 3d 38 (1st Cir 2008) device was determined to be illegal by the US – that permitted a functionally similar third Internal Revenue Service. The individuals party appeal under section 16(a)(1)(C) of and LLCs had to pay significant taxes, the FAA following the denial of an order to penalties and interest, leading them to file compel an international arbitration. suit in federal district court against Bricolage, Andersen, the law firm and others. The defendants, including Bricolage, moved for a Underlying facts and lower court stay of litigation under section 3 of the FAA, proceedings but the district court denied the motion as Because the Supreme Court in Arthur moot after Bricolage filed for bankruptcy. Andersen focused on jurisdictional issues, The remaining defendants – none of whom the relevant facts are limited. The case was was party to the arbitration agreement initially brought by several individuals who between the plaintiff LLCs and Bricolage –
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filed an interlocutory appeal of the denial of the form of the motion, stating that the ‘[t] the motion to stay, claiming that principles he jurisdictional statute [section 16(a)] here of equitable estoppel, combined with a strict unambiguously makes the underlying merits statutory reading of sections 3 and 16 of the irrelevant, for even utter frivolousness of FAA, required the plaintiffs to arbitrate their the underlying request for a [section] 3 stay claims pursuant to the arbitration agreement cannot turn a denial into something other with Bricolage. than “an order . . . . refusing a stay of any The Court of Appeals for the Sixth Circuit action under section 3.”’1 Thus, ‘any litigant dismissed the appeal for want of jurisdiction who asks for a stay under [section] 3 is entitled in Carlisle v Curtis, Mallet-Prevost, Colt & to an immediate appeal from a denial of that Mosle, LLP, 521 F 3d 597 (6th Cir 2008), motion – regardless of whether the litigant stating that the plain language of section is in fact eligible for a stay.’2 Justice Scalia 16 of the FAA – which governs appeals of justified this approach, which separates the orders denying stays – precluded appellate jurisdictional issue from the merits of the jurisdiction over these particular parties. appeal (ie, whether the party appealing the The US Supreme Court granted certiorari stay in fact has standing under the arbitration to resolve a split between different federal agreement to obtain a stay), by claiming that it Circuit Courts. In a 6-3 decision, a majority will result in a more predictable outcome. of the Supreme Court reversed the Sixth The court’s second major point relates Circuit’s opinion, holding that federal to the concept of equitable estoppel. appellate courts have jurisdiction to hear an Interestingly, the opinion contained very little interlocutory appeal of a denial of a motion discussion of this important issue, which Justice to stay litigation under the FAA, even when Scalia relegated to ‘background principles that motion is made by a non-signatory to of state contract law regarding the scope of the arbitration agreement in question. agreements (including the question of who The legal debate in Arthur Andersen is bound by them).’3 Thus, if the arbitration involved two sections of the FAA. Section 3 of agreement is either enforceable against a third the FAA indicates that a stay shall be issued party or made for the benefit of a third party ‘on application of one of the parties . . . until under state contract law, the appeal would, in such arbitration has been had in accordance the majority’s view, be proper. However, Justice with the term of the agreement.’ Section Scalia took the view that this issue should be 16(a)(1)(A) states that an immediate appeal heard as part of a full hearing on the merits may be taken from an order denying a stay and thus should not enter in the question under section 3. In the dispute at bar, the of whether a federal appellate court has defendants who remained in the case after jurisdiction over an appeal under section 16. Bricolage’s bankruptcy claimed that the Furthermore, he objected to the notion that appeal under section 16 could be taken by ‘because stay motions premised on equitable non-signatories to the arbitration agreement estoppel seek to expand (rather than simply because principles of equitable estoppel vindicate) agreements, they are not cognisable prohibited the plaintiff LLCs from avoiding under [sections] 3 and 4 [of the FAA], and arbitration under the contracts they had therefore the relevant motions are not actually entered into with Bricolage. “under” those provisions’.4
The majority opinion The dissent The Supreme Court’s majority opinion, Three members of the court dissented from authored by Justice Scalia, consisted of two the position advocated by Justice Scalia. major elements. The first relates to the Justice Souter, who stepped down from the statutory language of the FAA, which was read court at the end of the court’s 2008-2009 both broadly and mechanically. For example, term, authored an opinion that relied heavily the four Justices in the majority agreed that on the congressional policy restricting the reference to ‘the parties’ in section 3 of the interlocutory appeals. Justice Souter would FAA referred to ‘parties to the litigation’ rather limit the availability of appeals under the FAA than ‘parties to the arbitration agreement.’ by reading section 3 as only permitting stays This expansive reading of one provision was at the request of a signatory to the arbitration accompanied by an entirely superficial reading agreement. He would then look through of the other, with the majority claiming that section 16 to section 3 and only permit the FAA required the court to focus solely on appeals of the denial of a stay by those who
66 I nTERNATIONAL Bar Association Legal Practice Division country developments are allowed to request a stay, ie, a signatory of they are sadly absent from the majority the arbitration agreement. Justice Souter took opinion. Instead, Justice Scalia justifies his the view that this approach provides a simple, approach on the grounds that it provides bright line rule for appellate courts to follow a simple, bright line rule, dismissing the and avoids the risk of gamesmanship and fact that Justice Souter’s solution provides delay by sophisticated third parties. a similarly simple rule that also respects the fundamental principles of arbitration. The majority’s approach not only fails to Comment address important policy issues, it also fails, The majority opinion in Arthur Andersen is as a practical matter, to create a useful rule interesting – and alarming – both in what of law. For example, Justice Scalia does not it does and does not do. First, it clearly seem at all concerned that his reliance on permits third party appeals of the denial of underlying state law will not result in the a stay of litigation in cases involving both creation of a consistent national standard. domestic and international arbitrations, an Instead, his approach grants different rights approach that is extremely troubling. In a to parties in different states, thus eviscerating time when the United States is already seen the notion of a federal law and policy on as having an extraordinarily broad approach arbitration. Effectively, the same jurisdictional to non-signatories in arbitration,5 it seems split that now exists concerning the right to problematic to extend that doctrine even appeal a decision to stay a litigation will exist further. The decision also increases judicial under Justice Scalia’s rule, although that involvement in arbitration, something that is split will be masked as ostensibly a matter of not considered desirable by the international substance rather than procedure. arbitral community. Though parties to Although the decision in Arthur Andersen arbitration agreements could attempt to LLP v Carlisle seems limited to a single forestall the applicability of this opinion jurisdictional issue, it marks an approach by explicitly prohibiting third parties from to arbitration that is truly alarming. While relying on the arbitration agreement (which equitable estoppel has its place in the world of might act as a deterrent by making any arbitration, it is this commentator’s respectful motion to appeal by a non-signatory so opinion that the three dissenting justices in ‘frivolous’ as to be sanctionable), this case Arthur Andersen LLP v Carlisle provided a far involved the doctrine of equitable estoppel better response to the issue at bar. and future courts could conceivably find ways of overcoming explicit provisions as a matter of equity.6 Notes Secondly, the majority opinion is * Associate Professor of Law, University of Missouri, and remarkable for what it does not do. Most Senior Fellow, Center for the Study of Dispute Resolution. importantly, the majority’s mechanistic 1 Arthur Andersen, 129 S Ct at 1901 (quoting section reading of the FAA fails to delve into the 16(a) of the FAA). 2 Ibid at 1900. relationship between equitable estoppel 3 Ibid at 1902. and arbitration. This result appears to arise 4 Ibid. from Justice Scalia’s uncritical acceptance 5 Bernard Hanotiau, Groups of Companies in of the broad pro-arbitration policy espoused International Arbitration, in Pervasive Problems in in the United States, which requires courts International Arbitration 279, 287 (Loukas A Mistelis ‘to place such agreements upon the same & Julian DM Lew eds 2006); James M Hosking, footing as other contracts.’7 However, this Non-Signatories and International Arbitration in the type of superficial analysis suggests a lack United States: the Quest for Consent, 20 Arb Int’l of appreciation about the unique nature 289, 303 (2004). of arbitration. Arbitration takes certain 6 Furthermore, the question of whether non- disputes out of state court and places them signatories to an arbitration agreement can compel arbitration under a theory other than equitable in the hands of private individuals. A true estoppel appears to be open in at least some US pro-arbitration policy is properly limited in jurisdictions. See, eg, Ross v American Express Co, 547 scope and does not attempt to impose private F.3d 137, 143 n3 (2d Cir 2008). proceedings on or against those who cannot 7 Volt Information Sciences, Inc v Board of Trustees of be said to have agreed to that method of Leland Stanford Junior Univ, 489 US 468, 478 (1989), dispute resolution. While good reasons may as quoted in Andersen, 129 S Ct at 1901 (internal exist to permit appeals by non-signatories, quotation marks omitted).
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Marc J Goldstein Marc J Goldstein Convention awards made in the United States: confusion in the application of Litigation & Arbitration domestic law Chambers, New York [email protected]
hapter One of the United States’ the opposite view. RZS Holdings AVV v. PDVSA Federal Arbitration Act – sometimes Petroleos, S A, 2009 US Dist LEXIS 47126 (ED referred to as the ‘domestic FAA’ – Va, 5 February 2009), and that case relies has long been a source of confusion on a decision of the Eleventh Circuit, which C 1 in regard to its application in proceedings remains ‘good law’, that other federal courts concerning the recognition of international of appeals have not found persuasive. arbitration awards under the New York and Panama Conventions. Chapter Two of Inconsistent American case law the FAA was enacted in 1970 at the time of the accession by the United States to the The RZS decision is in direct conflict with New York Convention, and was intended a consistent line of cases in the US Court to implement the Convention. Among the of Appeals for the Second Circuit, and important differences between Chapter decisions in the Fifth and Sixth Circuits, Two and Chapter One is that the former that clearly hold that section 10 of the FAA provides subject matter jurisdiction in the provides the standards for a motion to set federal courts, treating questions under the aside a Convention award made in the United Convention as ‘substantial federal questions’ States.2 The rationale of those cases is that under the laws and treaties of the United Article V(1)(e) of the Convention provides States. In any action to confirm a domestic express authority for the courts at the place arbitration award or to enforce a domestic of arbitration to apply domestic arbitration arbitration agreement, in contrast, the law to a motion to set aside the award. party bringing the actions needs to show Article V(1)(e) provides that a court asked to an ‘independent’ basis for subject matter recognise and enforce an award may refuse jurisdiction. This might infrequently be that to do so if the award has been ‘set aside or the underlying arbitration involves substantial suspended by a competent authority of the issues of federal law. More commonly, an country in which, or under the law of which, application for relief under Chapter One that award was made.’ would have to show diversity of citizenship The RZS court, finding no controlling of the parties – ie, that they are domiciled in Fourth Circuit3 decision, elected to rely different states of the United States. principally on the Eleventh Circuit’s Chapter Two of the FAA provides for decision in Industrial Risk Insurers v M A N ‘residual’ application of Chapter One, ie, Gutenhoffnungshutte, 141 F 3d 1434 (11th Cir Chapter One applies to the extent that its 1998), cert denied, 525 US 1068 (1999) and provisions are not in conflict with express the Sixth Circuit’s decision in M&C Corp v provisions of Chapter Two and the New York Erwin Behr, 87 F 3d 844 (6th Cir 1996). This Convention. Similar residual application is commentary will demonstrate that such provided for under Chapter Three of the reliance was misplaced. FAA, implementing the Panama Convention. Within the coverage of Chapter One, of Potential for misunderstanding in the course, are the grounds on which a court convention/statutory framework is permitted to vacate, modify, or correct an award. And one issue of the residual The potential for misunderstanding application of Chapter One in Convention concerning the intersection of the cases, of particular importance, is whether FAA’s ‘domestic’ (Chapter One) and those grounds for vacatur apply to a motion ‘international’ (Chapters Two and Three) to vacate an international arbitration award rules is considerable. The framers of the that has been made in the United States and New York Convention elected not to create is governed by the Convention and Chapter a uniform regime governing motions to Two? Many arbitration practitioners have set aside awards to which the Convention thought the settled answer was ‘yes’, but a new applies. Congress in enacting Chapter 2 federal district court decision in Virginia takes to implement the Convention also created
68 I nTERNATIONAL Bar Association Legal Practice Division country developments no regime concerning motions to set aside So section 10 of the FAA, permitting a motion Convention awards. One reason for this is to vacate to be brought in the federal district that it may not have been well-understood, court at the place of arbitration, applies in a at the time of adoption of Chapter Two, that Convention case where the award was made the Convention’s coverage could extend to in the United States, introduced through awards made in the United States that are section 208. ‘not considered as domestic’ under US law. The US Court of Appeals for the Fifth The Convention’s drafters indirectly Circuit reaffirmed in Gulf Petro Trading endorsed then-existing domestic law regimes Co v Nigerian Nat’l Petroleum Corp, 512 F governing motions to set aside international 3d 742 (5th Cir 2008) that the New York arbitration awards, and encouraged the Convention confers ‘primary jurisdiction’ to evolution of such regimes, by including review the award upon courts of the country Article V(1)(e). That Article provides that ‘in which, or under the law of which, the recognition and enforcement may be refused award was made’. While Gulf Petro dealt with if the award has been ‘set aside or suspended a Swiss award, and thus was not concerned by a competent authority of the country in with Chapter One and section 10 of the which, or under the law of which, the award FAA, the court held that ‘the Convention was made.’ The variety of such regimes does not restrict the grounds on which motivated the drafters of the UNCITRAL primary-jurisdiction courts may annul Model Law on International Commercial the award, thereby leaving to a primary Arbitration (the ‘Model Law’) to provide jurisdiction’s local law the decision whether in Article 34 that an award may be set aside to set aside an award’ (quoting from the only on one of the grounds for refusing Fifth Circuit’s opinion in Karha Bodas Co v enforcement under the New York Convention Perusahaan Pertambangan Minyak Dan Gas (omitting Article V(1)(e) as redundant). Bumi Negara, 335 F 3d 357, 368 (5th Cir), The United States has elected not to adopt cert denied, 539 US 904 (2003). The Fifth the Model Law, and when Chapter Two Circuit in Gulf Petro went on to say – quoting was added to the FAA, its relationship to from the Second Circuit’s decision in Yusuf the ‘domestic FAA’ was addressed through Ahmed Alghanim & Sons v Toys ‘R’ Us, Inc, 126 section 208. That section provides that F 3d 15, 23 (2d Cir 1997), cert denied, 522 US Chapter One applies to the extent it is not in 1111 (1998) (‘Yusuf’) – that such ‘primary conflict with express provisions of Chapter jurisdiction’ courts are ‘free to set aside or Two or of the Convention. modify an award in accordance with [the country’s] domestic arbitral law and its full panoply of express and implied grounds for The proper approach: different regimes for relief’, 512 F 3d at 747. vacatur and denial of recognition The court in the recent RZS Holdings case Is section 10 of the FAA, stating the grounds followed the Eleventh Circuit position in to set aside an award, in conflict with Chapter Industrial Risk Insurers, although it was not Two and the Convention? Insofar as a party bound to do so.4 And its error was the same opposing recognition by an American court as that of the Eleventh Circuit, ie, a failure of a foreign-made award might argue that to appreciate Article V(1)(e). The error recognition should be refused on a ground made by the Eleventh Circuit in Industrial stated in section 10, a conflict does exist: the Risk Insurers is in large measure attributable Article V regime is exclusive – in the realm of to the subtlety – one might say obscurity – of motions to recognise and enforce awards. Article V(1)(e)’s gesture in the direction of But if the award whose recognition is domestic law set-aside regimes at the place sought was made in the United States, of arbitration. That court quoted Article then a cross-motion to set aside the award V of the Convention in its entirety, then, is permitted by Chapter Two and the despite having before it procedurally proper Convention to the extent it is permitted by motion to vacate the award, proceeded to the FAA. Neither the Convention nor FAA identify only two possible grounds to refuse to Chapter Two purports to prohibit a set-aside recognise the award – procedural irregularity motion at the place of arbitration (or, in the under Article V(1)(d), and violation of public unusual circumstance, where the award was policy under Article V(2)(b). made elsewhere but by agreement US arbitral The Industrial Risk Insurers court failed to procedural law applied) and Article V(1)(e), appreciate the distinction, rarely discussed as noted, indirectly authorises such a motion. in American case law, between vacating
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the award and refusing to recognise it. Practical significance for non-US Only a handful of federal appellate courts arbitrators have fully developed an understanding What is the practical significance of this that, as to Convention awards made in the confusion in American law for foreign United States, they have both ‘primary’ arbitrators sitting in the United States? (vactur) and ‘secondary’ (enforcement) Mainly it is a reminder that the United States jurisdiction. Exercise of these separate does not have the Model Law, and that the heads of jurisdiction may have different United States has not otherwise attempted consequences when the award is taken a statutory harmonisation of its regimes elsewhere for enforcement. Vacatur of a for recognising and vacating international Convention award under Chapter One of awards. This does not mean that the United the FAA would, in many other jurisdictions, States should necessarily be understood as result in the award being considered as null a place where opportunities for vacatur are and void – such that an attempt to have generally broader than they are in Model Law the award recognised would be resisted jurisdictions. But it does mean that arbitrators successfully under Article V(1)(e). Refusal should be mindful that the ‘domestic’ FAA of recognition in one jurisdiction, however, has a history dating back to 1925, and that US is not one of the Convention grounds for jurisprudence on the FAA grounds for vacatur another jurisdiction to refuse recognition. In – for example ‘evident partiality’ of the a second or third enforcing jurisdiction, res arbitrators – may have evolved in a way that judicata principles might or might not lead is not in direct alignment with conceptually the court to deny recognition on the same similar grounds under the Convention. grounds as the court where enforcement was initially sought. Absent res judicata, a second Notes or third jurisdiction might reach a different 1 That is to say, binding on federal district courts in the conclusion on the fairness of the procedure, Eleventh Circuit the composition of the tribunal, etc. For 2 Under section 10, an award may be vacated if: (i) it this reason, while the Convention purports was procured by ‘fraud, corruption or undue means’; to provide that the grounds for refusal of (ii) if there was ‘evident partiality’ or ‘corruption’ on recognition will be the same in all member the part of any of the arbitrators; (iii) the arbitrators states, it provides no guarantees that an award were guilty of misconduct in refusing to postpone a that is recognised or denied recognition hearing or refusing to hear evidence, or misbehaved in one member state will obtain the same in other ways that prejudiced the rights of the parties; treatment in another. or (iv) the arbitrators exceeded their powers, or so imperfectly executed them that no final award upon The fundamental error in both RZS and the subject matter submitted to arbitration was made. Industrial Risk Insurers was the conflation of 3 The Fourth Circuit embraces many of the Atlantic the concepts of ‘vacatur’ of a Convention Seaboard states, including Maryland, Virginia, North award and denial of recognition of a Carolina and South Carolina. Convention award, and the consequent 4 The Court in RZS also purported to find support failure to give effect to the dual legal regime for its position in another Sixth Circuit case, M&C governing Convention awards made in the Corp v Erwin Behr, 87 F 3d 844 (6th Cir 1996), but the United States. American courts should be award at issue in Behr was a foreign award, and the mindful to keep distinct the concepts of Court properly held that the exclusivity of Article V vacatur and denial of recognition, and to of the Convention prevents the grounds for setting be mindful of the overlapping coverage of aside an award, enumerated in FAA section 10, from becoming additional grounds to refuse recognition Chapters 1 and 2 of the FAA in the context of a foreign award. of review of international arbitration awards made in the United States.
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S I Strong* University of Missouri, Columbia United States Supreme Court grants certiorari in case involving doctrine [email protected] of ‘manifest disregard of law’ and availability of class arbitration under international maritime contracts that are silent as to class treatment
n 15 June 2009, the United States a threshold matter, whether the arbitration Supreme Court granted certiorari agreements at issue can support a class claim. in a closely watched and much That decision (termed a ‘Clause Construction Ocontested case, Stolt-Nielsen SA v Award’) may be subject to immediate court AnimalFeeds International, 548 F 3d 85 (2d review under the AAA Supplementary Rules, Cir 2008), cert granted, – S Ct – (2009). The and it is that decision (ie, a ruling on the decision to grant certiorari came after Justice construction of the contract) that will be Ginsburg’s 29 February 2009 denial (without under discussion in the Supreme Court, a written opinion) of an application to stay rather than a determination as to whether the underlying class arbitration pending the class proceedings are merited on these facts petitioners’ appeal to the Supreme Court. (termed the ‘Class Determination Award’ The Supreme Court is expected to address under the AAA Supplementary Rules and also two highly controversial issues in this case: (i) subject to immediate court review). the doctrine of manifest disregard of law as a The first court to consider the matter possible basis for vacating an arbitral award; (the federal District Court for the Southern and (ii) the availability of class arbitration in District of New York) held that the arbitral situations where the arbitration agreement tribunal acted in manifest disregard of law is silent or ambiguous as to class treatment.1 in construing the contract to permit class Though this case would pique the interest proceedings. The Court of Appeals for the of international observers regardless of the Second Circuit reversed the District Court, particular facts of the matter, the cross-border making several important rulings that are now relevance of this decision is made abundantly being challenged in the US Supreme Court clear by the fact that the dispute arises out of by Stolt-Nielsen and the other defendants. international maritime contracts. Issues before the court Background There are two main issues that the Supreme Factually, the case involves allegations by Court is being asked to address. The first AnimalFeeds International (AnimalFeeds) concerns manifest disregard of law, a doctrine that eight different defendants, including that has troubled many in the national and Stolt-Nielsen SA (Stolt-Nielsen), violated international arbitral community. In the federal antitrust laws by engaging in a past, some US courts that have held that an worldwide conspiracy in restraint of trade. arbitral award may be vacated by courts as a The parties to the litigation are also parties result of a tribunal’s manifest disregard of to broadly worded arbitration agreements controlling law. Although the standard for that provide for arbitration of ‘[a]ny dispute vacatur on these grounds was extremely high arising from the making, performance or and very seldom met, the mere possibility termination’ of the charter parties, 548 F that an arbitral award might be set aside 3d at 89 (noting similar language in other led many disgruntled parties to advance an relevant agreements). In bringing the argument based on manifest disregard of law, claim, AnimalFeeds seeks to represent an thus delaying enforcement and thwarting the arbitral class of all direct buyers of certain finality of arbitral awards. transportation services, even though the Many courts and commentators thought arbitration agreements are silent as to group that the viability of manifest disregard of law or class treatment. as a basis for vacatur was put to an end by the The parties agreed to be bound by Rules 3 recent Supreme Court decision in Hall Street to 7 of the American Arbitration Association’s Associates, LLC v Mattel, Inc, 128 S Ct 1396 Supplementary Rules for Class Arbitrations (2008), but the Second Circuit held in Stolt- (AAA Supplementary Rules), which indicate Nielsen that Hall Street ‘did not . . . abrogate that the arbitral tribunal is to determine, as the “manifest disregard” doctrine altogether’,
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548 F 3d at 95. Although the Second Circuit Financial Corp v Bazzle, 539 US 444 (2003), did held that the extremely rigorous standard not confront the issue fully. had not been met on the facts of the case at It will be interesting to see what issues the bar, it is expected that the Supreme Court Supreme Court decides to take up in this will finally issue a determinative ruling on the case and what issues, if any, it declines to scope and existence of the manifest disregard consider. Some may attempt to read the tea doctrine in its decision in Stolt-Nielsen. leaves of Justice Ginsberg’s denial of a stay The second matter that the Supreme as suggesting that whatever else happens, Court is being asked to consider concerns the court will further solidify its approval of the availability of class arbitration in cases the class arbitration device, at least in the where the arbitration agreements are abstract. Such speculation is dangerous, as silent or ambiguous as to class treatment. is any attempt to second guess the Supreme The issue arose in this case in the context Court. However, one thing at least is certain: of the discussion of whether the Clause whatever the Supreme Court decides in Stolt- Construction Award was issued in manifest Nielsen, it will have far reaching effects in both disregard of the relevant law, which the the United States and elsewhere. arbitral tribunal concluded was either federal maritime law or New York state law Notes (a decision as to which controlled was not * Associate Professor of Law, University of Missouri, and necessary, since the outcome was the same Senior Fellow, Center for the Study of Dispute Resolution. 1 Those who are interested in the class arbitration under either option). It is possible that the issue may wish to consider an article written by the Supreme Court will not reach this point if it author entitled ‘The Sounds of Silence: Are US concludes definitively that manifest disregard Arbitrators Creating Internationally Enforceable is no longer a viable basis for vacatur under Awards When Ordering Class Arbitration in Cases of US law. However, it seems at least equally Contractual Silence or Ambiguity?’ The piece, which likely that the Supreme Court will give some considers the Stolt-Nielsen issue from an international guidance regarding silent or ambiguous and comparative perspective, appears in volume 30 arbitration agreements, since the court’s of the Michigan Journal of International Law, published earlier decision on class arbitration, Green Tree in July 2009.
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