NEWSLETTER ARBITRATION INTERNATIONAL BAR ASSOCIATION legal practice division

Vol 13 No 2 SEPTEMBER 2008

IN THIS ISSUE From the CO-ChairS

From the Co-Chairs 1 Committee officers 4 Looking forward UNCITRAL New York Convention survey IBA support of the UNCITRAL survey on the implementation of the New York Convention 5 to Buenos Aires Expression of appreciation from UNCITRAL 5 Sally Harpole Pierre Bienvenu IBA contributors to the survey 6 Sally Harpole & Co, Hong Kong Ogilvy Renault, Montreal Editor’s note 7 [email protected] [email protected] Conferences Co-Chairs, Arbitration Committee IBA Annual Conference 2008, 12–17 October, Buenos Aires: Arbitration Committee sessions 8 e hope that many of you reading this newsletter will be attending Open Forum in Buenos Aires on the IBA Wthe International Bar Association (IBA) Annual Conference in Rules on the Taking of Evidence in International Commercial Arbitration 9 Buenos Aires and that we will see you there. Your committee has a number of very interesting sessions planned. The moderators have 11th IBA International Arbitration Day: Record-breaking gathering honours the gathered many eminent speakers together who will share with us their New York Convention at 50 9 experience and wisdom. You can see full details on page 8 of this Caracas conference report: Arbitration and the judiciary 12 newsletter. Current developments In addition to the formal sessions, your committee will have its dinner on the Wednesday evening at the Tattersall. This site, located Belgium 13 in one of the most beautiful parts of Buenos Aires (adjacent to the Brazil 14 Palermo horse track and in front of the polo grounds), will be a Canada 17 marvellous setting to meet up with friends and colleagues and enjoy a England 21 sumptuous meal. Prior to dinner, a one hour drinks reception will be France 23 held on the terrace of the same venue. Germany 24 As we did previously in Singapore and Chicago, in Buenos Aires we Hong Kong 27 will take the opportunity to speak to students at the University of Israel 29 Buenos Aires about arbitration. More and more students are learning Mexico 31 the theory of arbitration and are interested to hear what it is like in Peru 32 practice. The Arbitration Committee also supports a scholarship that Romania 33 pays for a young lawyer to attend the conference who could not Russian Federation 35 otherwise afford to do so. South Africa 36 Continued overleaf Spain 37 Sweden 39 International Bar Association Switzerland 40 10th Floor, 1 Stephen Street, London W1T 1AT, United Kingdom Tel: +44 (0)20 7691 6868. Fax: +44 (0)20 7691 6544 www.ibanet.org Ukraine 41 © International Bar Association 2008. United Arab Emirates 42 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 copyright holder. Application for United States 46 permission should be made to the Managing Editor at the IBA address. Investment treaties Stabilisation clauses – is there a middle ground between competing clauses 52 Practitioners’ comments International sport arbitration – a different ball game 54 Double difficulty for non-signatory parties to multiparty ICC arbitrations 56 Printed in the United Kingdom by The IBA acknowledges the support of LexisNexis Hobbs the Printers Ltd, Totton in the production of this Newsletter. Hampshire, SO40 3WX www.hobbs.uk.com From the CO-ChairS

In addition, the Argentine Chamber of Commerce contributors to the survey coordinated by your and Buenos Aires Stock Exchange will jointly sponsor committee, all of whose names and professional with your committee a colloquium on dispute affiliations are listed below. We would like to add our resolution issues on Thursday, 16 October from 3:15 to own deep appreciation for the generous and 5:30 pm at the Buenos Aires Stock Exchange, followed thoughtful contributions that were made by those who by a drinks reception. Committee members are participated in the IBA’s coordinated portion of the welcome to attend. We extend very special thanks to survey. The survey results will be published by Committee Senior Vice-Chair Guido Tawil, whose UNCITRAL in the summer of 2008 and will be the practice is based in Buenos Aires, for all of the subject of a report by UN Legal Officer Corinne excellent arrangements that he has made for the Montineri at the IBA Conference in Buenos Aires, on committee in his home city. We also take this Friday 17 October 2008. opportunity to recognise all of the committee’s 24 Your committee continues to collaborate with Argentine members, whose names are listed at the end UNCITRAL in respect of its Working Group on of this message. Arbitration, with observer status. That working group is Planning for the next IBA International Arbitration reviewing the UNCITRAL Arbitration Rules. Sally Day, which will take place in Dubai on 16 February Harpole and Audley Sheppard represented the 2009, is already under way. We are thrilled that this committee at a meeting of the working group last important annual committee event is to take place in February and the committee plans to continue its this exciting city and we will be providing more details observer status in the forthcoming working group in the coming months. The conference theme will be meeting in September. We will be sending a request for ‘due process in international arbitration’, a topic of information and input from committee members in deep interest to all practitioners in the field. A welcome preparation for the September meeting. reception will be held on the evening of 15 February. Over the first half of this year, the committee officers Two regional events in Asia are currently being have been involved in a number of ongoing activities. planned by your committee for the later part of this Matthias Scherer and his subcommittee members have year and next year. A colloquium for experienced continued monitoring decisions relating to the IBA lawyers and arbitrators on the subjects of evidence and Guidelines on Conflicts of Interest. Abby Cohen ethics in international arbitration will take place on 24 Smutny and the Investment Treaty Subcommittee have November 2008 in Beijing, jointly sponsored with the begun work to gather information on best practices for China International Economic and Trade Arbitration addressing the special problems associated with the Commission (CIETAC). The colloquium will focus production of evidence in investment treaty arbitration upon the IBA Rules on the Taking of Evidence in including, in particular, problems faced by state parties. International Commercial Arbitration and IBA The goal of the subcommittee is to prepare a report on Guidelines on the Conflict of Interest in International this important topic. Arbitration and how these rules and guidelines may be The committee’s two task forces, the Task Force on applied in the People’s Republic of China. Committee Ethics for Attorneys in International Arbitration members who are interested in participating in this (headed by Judith Gill) and the Task Force on conference should contact Committee Co-Chair Sally Arbitrators’ Terms in Ad Hoc Arbitration (headed by Harpole ([email protected]). A Kaj Hober), continue to gather information relevant to conference in New Delhi is being coorganised with the their respective focus topics. Among other things, the ICC Court of International Arbitration. More details on Ethics Task Force is considering the problems that arise both of these events will be available soon. in practice, as well as how the IBA might play a While speaking of regional conferences, we take this supportive role in this connection. opportunity to congratulate former Committee Co- The Subcommittee on the Rules of Evidence (headed Chair Claus von Wobeser and committee officers Guido by Richard Kreindler) is actively reviewing a substantial Tawil and Eduardo Zuleta, who formed the Organising list of issues as it considers how the requirements under Committee of the very successful ‘Arbitration and the current international arbitration practices relate to the judiciary’ conference that took place in Caracas last scope and contents of these important IBA rules, which April. We also thank IBA Vice-President Fernando will be celebrating their tenth anniversary next year. We Peláez-Pier for co-chairing this event with Claus. encourage committee members to actively participate Katherine González Arrocha represented the event co- in the Open Forum regarding the Rules of Evidence, sponsor, the ICC, on the Organising Committee. which will take place at the Buenos Aires Conference We are proud to report the successful completion of on Tuesday 14 October 2008, as further described in your committee’s collaboration with the UN this newsletter. Commission on International Trade Law (UNCITRAL) We are delighted that Polish and Portuguese on its survey regarding the worldwide implementation language versions of the IBA Guidelines on Conflicts of of the New York Convention. UNCITRAL has extended Interest were posted on the committee website in the a gracious message of thanks in recognition of the

 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 From the CO-ChairS past few months (www.ibanet.org/legalpractice/ Taking of Evidence is being created by a team of Arbitration.cfm). We extend special thanks to those lawyers and experts based in Beijing. We are extremely who carried out the work on the Polish translation. grateful for these efforts, which will promote broader These include Piotr Nowaczyk and Krzysztof Makosa of international access to the IBA Guidelines and Rules. Salans, independent arbitrator Andrzej Kakolecki, and An exceptional collection of articles relating to the Lukasz Rozdeiczer of Clifford Chance. We also New York Convention appears in the May 2008 edition enthusiastically thank those who worked on the of the IBA’s journal Dispute Resolution International, Portuguese translation, including Gilberto Giusti of contributed by several of the eminent experts who Pinheiro Neto, Luiz Gustavo A. S. Bichara of Bichara, spoke at the IBA International Arbitration Day in New Barata, Costa & Rocha Advogados, as well as York City last February. We thank and congratulate the coordinators Agostinho de Miranda and Tania Cascais editor, Andrew Foyle, and the contributing authors for of Miranda Correia Amendoeira & Associados. this outstanding edition and hope that all of you have Finally, we are delighted to note that a German benefited by receiving the journal, as members of the translation of the IBA Rules on the Taking of Evidence Arbitration Committee. in International Commercial Arbitration has also been We also hope that you will find the articles and posted on the committee website. Our deepest thanks information in this newsletter to be stimulating and go to all of those who contributed to the German useful. We are grateful to all contributors for sharing translation, including Hilmar Raeschke-Kessler, Pierre news and developments from many parts of the world Karrer, Christoph Liebscher, Klaus Sachs, Rolf and thank newsletter editor, Lawrence Schaner, and his Trittmann and Barbara Raeschke-Kessler. team for the successful production of this committee An Arabic version of the IBA Conflicts Guidelines is publication. currently being coordinated by Karim Hafez, and a We look forward to seeing many of you in Buenos Russian version is being coordinated by Ilya Nikiforov. Aires this October and send our best wishes to all In addition, a Chinese version of the IBA Rules on the committee members.

Members of the IBA Arbitration Past Chairs and co-chairs Committee resident in Argentina of the arbitration committee

Fernando Aguilar Eduardo Koch 2005–2007 2001–2002 Marval O’Farrell & Mairal Rosso Alba Francia Audley Sheppard Bernardo Cremades & Ruiz Moreno Carlos E. Alfaro 2004–2006 1998–2001 Alfaro Abogados Sergio C Alfonso Le Pera Claus Von Wobeser David W Rivkin Le Pera & Lessa Adelino Arantes Neto 2004–2005 1995–1998 M&M Bomchil Rafael M. Lobos Dominique Brown-Berset Wolfgang Kuhn Estudio Baccar Varela Martin Campbell 2002–2004 1992–1995 Marval O’Farrell & Mairal Ignacio J. Minorini Lima Bernard Hanotiau Philippe Nouel M&M Bomchil Santiago Caparelli 2002–2003 1992–1994 Baker & McKenzie Cristian Mitrani Henri Alvarez David St John Sutton Leandro Caputo Mitrani, Caballero & Ojam M&M Bomchil Santiago Ricardo O’Conor Miguel Carchio Marval O’Farrell & Mairal save the date! Brons & Salas Alejandro Quiroga 12th IBA International Arbitration Day Juan Pablo Cardinal Lopez YPF SA Richards Cardinal Tutzer Julio Cesar Rivera Dubai, 16 February 2009 Zabala & Zaefferer SC Julio Cesar Rivera Abogados (Welcome reception on 15 February) Luis Erize Andres Sanguinetti Abeledo Gottheil Abogados SC Estudio Moltedo Federico Godoy Guido Tawil Joint IBA–CIETAC conference Beretta Godoy M&M Bomchil Evidence and Ethics in International Arbitration Diego Gosis Mario Thiem Remaggi Pico Jessea Chevron 24 November 2008 & Asociados Carlos Maria Tombeur Kempinski Hotel, Beijing, China Bernardo Iriberri Severgnini Robiola For further information, contact IBA Arbitration Committee Cardenas Di Ció Romero Co-Chair Sally Harpole: Tarsitano & Lucero Abogados [email protected]

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008  CommITTEE oFFICERS

Co-Chairs Judith Gill Corporate Counsel Forum Allen & Overy LLP Liaison Officer Sally Harpole One Bishop’s Square Sally Harpole & Co Julius Ejikonye London E1 6AQ, United Kingdom GPO Box 12153 The Shell Petroleum Development Company Tel: +44 (0)20 3088 3779 Hong Kong, China of Nigeria Ltd Fax: +44 (0)20 3088 0088 Tel: +852 2526 2302 Prefab G, Room 16 [email protected] [email protected] Shell I A Kaj Hobér Rumubiakani Pierre Bienvenu Mannheimer Swartling Port Harcourt, Nigeria Ogilvy Renault Normalmstorg 4, PO Box 1711 Tel: +234 (0)84 421 933 Suite 1100, 1981 McGill College Avenue Stockholm 111 87, Sweden Fax: +234 (0)84 239 804 Montreal, Quebec H3A 3C1, Canada Tel: +46 (8) 5057 6500 [email protected] Tel: +1 (514) 847 4452 Fax: +46 (8) 5057 6501 Fax: +1 (514) 286 5474 [email protected] [email protected] Investment Treaty Arbitration Ilya Nikiforov Subcommittee Senior Vice-Chair Egorov Puginsky Afanasiev & Partners Guido Tawil Nevsky PR 22-24, Office 132 Chair M&M Bomchil St Petersburg 191186 Abby Cohen Smutny Suipacha 268 12th Floor Russian Federation White & Case LLP Buenos Aires C10008AAF Tel: +7 (812) 322 9681 701 Thirteenth Street NW Argentina Fax: +7 (812) 322 9682 Washington, DC 20005 Tel: +54 (11) 4321 7506 [email protected] United States Fax: +54 (11) 4321 7555 Hiroyuki Tezuka Tel: +1 (202) 626 3600 [email protected] Nishimura & Asahi Fax: +1 (202) 639 9355 ARK Mori Building 29th Floor [email protected] Vice-Chairs 1-12-32 Akasaka, Minato-Ku Christian Camboulive Tokyo 107-6029, Japan Rules of Evidence Gide Loyrette Nouel Tel: +81 (3) 5562 8577 Subcommittee 26 cours Albert 1er Fax: +81 (3) 5561 9711 Paris 750008, France [email protected] Chair Tel: +33 (1) 4075 3604 Fax: +33 (1) 4075 3775 Secretary Richard Kreindler Shearman & Sterling LLP [email protected] Eduardo Zuleta Gervinusstrasse 17 Gómez-Pinzón Zuleta Abogados SA Dushyant Dave Frankfurt am Main Calle 67 No 7-35 Senior Advocate 60322, Germany Office 1204 43 Prithviraj Road Tel: +49 (69) 9711 1681 Edificio Caracol New Delhi Fax: +49 (69) 9711 1100 Bogotá, Colombia 110 011, India [email protected] [email protected] Tel: +57 (1) 621 4950 Fax: +57 (1) 621 4992 Juan Fernandez-Armesto [email protected] Conflicts of Interest Armesto & Asociados Subcommittee General Pardinas 102 Publications and Newsletter Editor 8th Floor Lawrence Schaner Chair Madrid 28006 Jenner & Block LLP Spain Mathias Scherer 330 North Wabash Tel: +34 (91) 562 1625 LALIVE Chicago, IL 60611 Fax: +34 (91) 515 9145 35 rue de la Mairie United States [email protected] PO Box 6569 Tel: +1 (312) 923 2689 Geneva 6 Mark Friedman Fax: +1 (312) 840 7689 1211, Switzerland Debevoise & Plimpton LLP [email protected] Tel: +41 (22) 319 8700 International Financial Centre Fax: +41 (22) 319 8760 Tower 42, 25 Old Broad Street [email protected] London, EC2N 1HQ United Kingdom Tel: +44 (0)20 7786 9080 LPD Administrator Fax: +44 (0)20 7588 4180 [email protected] [email protected]

Contributions to this newsletter are always welcome and should be sent to the Newsletter Editor, Lawrence Schaner, at the address below: Jenner & Block LLP, 330 North Wabash, Chicago, IL, 60611 United States Tel: +1 (312) 923 2689 Fax: +1 (312) 840 7689 [email protected]

 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 UNCITRAL New York Convention Survey

IBA support of the UNCITRAL survey on the implementation of the New York Convention

Introduction by the Arbitration Committee Co-Chairs

he 50th anniversary of the New York Convention were added to the survey as a result of efforts by the Tmarks an excellent occasion to contemplate the IBA regional coordinators and country reporters who impact of the convention on a practical level, through are listed below. the national legislation of convention member We deeply appreciate the invaluable contributions of countries, as well as the related procedures and court the IBA regional coordinators and country reporters decisions. for dedicating their time and knowledge to this To facilitate understanding of the convention and worthwhile project. We also take this opportunity to how it has been implemented worldwide, the United congratulate the UNCITRAL Secretariat on the Nations Commission on International Trade Law successful completion of this important survey. (UNCITRAL) launched a major survey in 1995 on the Committee members may find the survey results, related legislation and practices in member countries. which were published recently, on the UNCITRAL A detailed questionnaire was first distributed to the website and will have the opportunity to learn more official delegates of convention countries. In the final about the survey at the committee session regarding stage of the survey, the IBA Arbitration Committee the New York Convention, which takes place on Friday undertook to involve legal practitioners in member 17 October 2008 in Buenos Aires. countries where survey results were still being collected. The insights of lawyers with working Sally Harpole knowledge of the convention in 33 different Pierre Bienvenu jurisdictions in Africa, Asia, Europe and South America

Expression of appreciation from the UNCITRAL Secretariat

he UNCITRAL Secretariat conveyed the following The UNCITRAL Secretariat is pleased to express its Tnote of appreciation in recognition of the appreciation to the Arbitration Committee of the contributions of the IBA to the survey on the legislative IBA and to all individual contributors who undertook implementation of the New York Convention: research and provided information. Their ‘UNCITRAL, in coordination with the Arbitration contributions were important to allow completion of Committee of the IBA, recently re-activated a survey a report on the legislative implementation of the launched in 1995, with the aim of monitoring the New York Convention, which will be submitted for legislative implementation of the New York discussion at the forty-first session of the Convention. Many governments of State parties to Commission, in June 2008.’ the New York Convention have actively participated in that survey. The Arbitration Committee of the UNCITRAL Secretariat IBA has provided assistance to the UNCITRAL 8 May 2008 Secretariat in collecting additional information.

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008  UNCITRAL New York Convention Survey

IBA contributors to the UNCITRAL survey on the implementation of the New York Convention

Regional Coordinators Sally Harpole (Sally Harpole & Co, Hong Kong) Ilya Nikiforov (Egorov Puginsky Afanasiev & Partners, Russia) Agostinho Periera de Miranda (Miranda Correia Amendoeira & Associados, Portugal) Matthew Saunders (DLA Piper, England) Michael Schneider (Lalive, Switzerland) Guido Tawil (M & M Bomchil, Argentina)

National Contributors

Country Contributor Firm/Organisation Albania The Honorable Adrian Neritani Albanian Ambassador to the United States Armenia Thomas Samuelian Arlex International CJSD Barbados Trevor Carmichael, QC Chancery Chambers Botswana Jeff Bookbinder Collins Newman & Co Brazil Gilberto Giusti, Eliana Baraldi Pinheiro Neto Advogados Bulgaria Borislav Boyanov, Kina Chuturkova, Borislav Boyanov & Co DLA Piper Stamen Yamen and Peter Valert Cambodia Rubert Haw, Martin Desautels DFDL Mekon/Mekong Law Group Costa Rica Dyalá Jiménez Carey & Cia Víctor Garita Facio & Cañas Cyprus George Pamboridis Pamboridis & Associates Dominican Republic Fabiola Medina Medina Garnes Estonia Toomas Vaher Raidla & Partners Georgia Nick Gvinadze DLA Piper Guatemala Álvaro Castellanos Consortium Legal Honduras Vanessa Oquelí García and Bodán Indonesia Karen Mills Karim Syah Iran Mostafa Shahabi Tavakoli & Shahabi Jamaica C. Dennis Morrison, QC Dunn Cox Kenya Oliver Fowler Kaplan & Stratten Laos Max Howlett Sciaroni & Associates Mozambique Aostinho Pereira de Miranda Miranda Correira Amendoeira & Associados Nepal Bharat Raj Upreti Pioneer Law Associates

 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 UNCITRAL New York Convention Survey

Country Contributor Firm/Organisation Netherlands Diederik de Groot DLA Piper Nigeria Dorothy Ufot Dorothy Ufot & Co Portugal Agostinho Pereira de Miranda Miranda Correira Amendoeira & Associados Republic of Katerina Jordanova Lawyers Antevski Macedonia Republic of Mauritius Salim Moollan Essex Court Romania Daniel Costa Costea Jalba Popa & Associates Tanzania Protase Ishengoma IMMA Associates Trinidad & Tobago Daniel John Fitzwilliam and Fitzwilliam, Stone, Furness-Smith & Morgan Jon Paul Mouttet Ukraine Timur Bondaryev, Igor Darmogray Arzinger & Partners Uruguay Mercedes Jiménez de Aréchaga Guyer & Regaules Uzbekistan Nizomiddin Shakhabutdinov Leges Advokat Zambia Victoria Dean Chibesakunda & Co

Editor’s note

Lawrence Schaner Jenner & Block LLP, Chicago [email protected]

any thanks to the many authors from around the ‘Thank yous’ also to my Jenner & Block colleagues, Mworld who took time from their busy schedules to Ashley Litwin, David Saunders, John Schleppenbach make contributions to the newsletter. The scope, and Sandra Vasher, for their invaluable assistance in quality and volume of contributions are remarkable helping to review and edit the text of this edition of the and speak well to the vitality of our committee. newsletter.

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008  Buenos Aires 12-17 October International Bar Association Conference 2008

Arbitral procedure: new developments and Arbitration good practice This session will highlight best practices in arbitral procedure and Co-Chairs new developments affecting the manner in which arbitration Pierre Bienvenu Ogilvy Renault, Montréal, Quebec, Canada is conducted around the world. In addition, we will provide an Sally Harpole Sally Harpole & Co, Hong Kong update on the IBA’s working study relating to the IBA Rules of Evidence and hold an Open Forum on possible future revisions to Financial aspects of dispute resolution the IBA Rules. Joint session with the Dispute Resolution Section TUESDAY 1500 – 1800 As clients well know, dispute resolution can be expensive no matter how it is achieved. As a result, parties with lesser economic Hot topics in arbitration power are developing new strategies to level the playing field, This session addresses notable developments and current trends in and parties with greater resources must recognise the impact international arbitration. These include: recent sports arbitration of these changes and adapt to these new developments. In this cases, an update on Mercosur, the restrictions on arbitration that Joint session, experts in Arbitration, Litigation, and Mediation are found in some jurisdictions, and future new arbitration rules will together explore not only the reasons for these escalating (including a survey of current efforts to revise the Arbitration Rules expenses, but also the various changes emerging throughout of UNCITRAL, the ICC and AAA). the world as a result, including the increasing availability WEDNESDAY 1500 – 1800 of contingency fee arrangements, third party funding, the securitisation of disputed claims, and changes to fee-shifting rules. Investment treaty arbitration workshop MONDAY 1000 – 1300 The session will look at the current issues in investment treaty arbitration including a review of recent awards, applications for Ethics in arbitration for counsel and annulment, applications for provisional measures and distinctions arbitrators between arbitrations under the UNCITRAL Rules and the ICSID Joint session with the Corporate Counsel Forum Convention. This session will consider the ethical issues affecting counsel and THURSDAY 1000 – 1300 arbitrators in international arbitration. Is there a worldwide ethical code for counsel in arbitration? To what extent do domestic The New York Convention – worldwide professional obligations apply to international arbitration? What implementation, recent cases and practical is the scope of ethical requirements that should be imposed on issues arbitrators? This session will highlight the 2008 reports by UNCITRAL and These and numerous other issues will be debated in a lively the ICC on the worldwide implementation of the New York format. Convention, followed by the IBA’s annual review of recent MONDAY 1500 – 1800 convention cases and current challenges to recognition and enforcement. In addition, the issues of whether the New York Court support for arbitration in the Americas Convention should be updated and the merits of the Panama and the role of public law Convention will be debated in this session. Joint session with the Latin American Forum and North American FRIDAY 1000 – 1300 Forum The relationship between judicial courts and arbitral tribunals has been a matter of tension and debate for decades. In the same annual committee dinner and reception way that court support is essential to the success of arbitration as a dispute resolution method, judicial interference can render Arbitration Committee Dinner and Reception the parties’ choice for arbitration meaningless. In this session, practitioners will consider forms of support and interference by Tattersall de Palermo courts at different stages of an arbitration, including upholding agreements to arbitrate and staying litigation, interim measures, WEDNESDAY challenges to arbitrators, obtaining evidence, applications to set Drinks reception 2000 aside awards and enforcing awards. The session will focus on the Americas and recent decisions based on constitutional and other Dinner 2100 public law, which have allowed judicial review of various types of arbitral decisions, including awards. TUESDAY 1000 – 1300 www.ibanet.org/conferences/BA2008

 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 CONFERENCES Open Forum in Buenos Aires on the IBA Rules on the Taking of Evidence in International Commercial Arbitration

n Open Forum on the IBA Rules on the Taking of throughout the world. Among the topics for discussion AEvidence in International Commercial Arbitration will be how well the Rules of Evidence can be expected will be held in the second half of the ‘Arbitral to meet challenges of electronically stored data Procedure: New Developments and Good Practice’ (e-discovery), the treatment of amicus briefs, the session, which takes place on 14 October 2008 from managing of disclosure in class actions, confidentiality, 1500 to 1800 hours in Buenos Aires. The Open Forum and the extent of permissible witness preparation. This will be a flexible ‘town-hall’-style opportunity to forum is meant to complement the efforts of the consider the revisions to the IBA Rules of Evidence as recently created IBA Subcommittee on Evidence, they approach their tenth anniversary. Possible chaired by Richard Kreindler, which is embarking on a amendments address issues that have arisen since the rule-by-rule review of the wording and structure of the enactment of the original version of the Rules of IBA Rules in the course of 2008. Evidence and their implementation in arbitrations

11th IBA International Arbitration Day: Record-breaking gathering honours the New York Convention at 50

Lawrence Schaner Jenner & Block, Chicago; Publications and Newsletter Editor, Arbitration Committee [email protected]

ver 650 delegates from more than 50 countries Terming the convention ‘the treaty that changed the Oconvened in New York for the 11th IBA world’, Rivkin credited the convention with making International Arbitration Day. The conference, titled possible the exponential growth in international ‘The New York Convention: 50 Years’, commemorated arbitration over the past 50 years. the 50th anniversary of the 1958 United Nations The day’s programme, introduced by Sally Harpole, Convention on the Recognition and Enforcement of Sally Harpole & Co, Hong Kong, Co-Chair of the Foreign Arbitral Awards, commonly known as the ‘New Arbitration Committee and Conference Co-Chair, York Convention’. Held in the Grand Ballroom of the consisted of four main sessions, each of which explored Waldorf=Astoria, the conference was by far the largest different aspects of the New York Convention. The speciality conference in the history of the IBA, conference featured over 35 speakers, as well as the according to David Rivkin, Debevoise & Plimpton LLP, premier screening of a special film interview of Pieter New York, Chair of the IBA Legal Practice Division. Sanders, the principal architect of the convention. The The conference began with welcoming remarks by conference was followed by a session at the United Rivkin and Nicolas Michel, United Nations Under- Nations Headquarters in the UN Trusteeship Council Secretary General for Legal Affairs and Conference Chamber, and a cocktail reception in the UN Delegates Co-Chair, who presented a statement by Ban Ki-Moon, Dining Room. Secretary General of the United Nations, which proclaimed the New York Convention ‘a cornerstone in the rule of law in international trade relations’.

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008  11th IBA International Arbitration Day

Convention history question posed by class actions, namely, whether signatories to different agreements may arbitrate The first session, co-chaired by Essam Al-Tamimi, together. The challenges posed by parallel proceedings Al Tamimi & Company, Dubai, and Audley Sheppard, were tackled by Gabrielle Kaufman-Kohler, Levy Clifford Chance LLP, London, focused on the history Kaufmann-Kohler, Geneva. In view of the proliferation and significance of the New York Convention. Pierre of parallel proceedings, she suggested that the tools for Tercier, Chairman of the ICC International Court of managing them, such as anti-suit injunctions, are Arbitration, spoke on the 1927 Geneva Convention, the insufficient and posed the question of whether it is predecessor to the New York Convention, and the ICC time for a multilateral treaty solution. Commission on Arbitration reform proposals that, in conjunction with Pieter Sanders’ ‘Dutch Proposal’, led to the adoption of the 1958 Convention. Pieter Sanders interview Sheppard, filling in for Sergei Lebedev, Moscow During the conference lunch, the delegates viewed Institute of International Relations, and Maritime the premier screening of ‘Pieter Sanders at 95 – Arbitration Commission at the Russian Chamber Reflections on the New York Convention’. J. William of Commerce & Industry, Moscow, discussed the Rowley QC, McMillan Binch Mendelsohn LLP, convention in its early days and the history of Toronto, introduced this exclusive IBA-produced film accessions by member countries. He was followed interview with Pieter Sanders, the principal architect of by Tang Houzhi, China International Economic and the New York Convention. Trade Arbitration Commission, Beijing, who surveyed The Arbitration Committee commissioned the the New York Convention experience in China. project to commemorate the 50th anniversary of the The next group of speakers considered the vast New York Convention. The film covers the history of influence of the New York Convention. Claus von the convention, as well as the extraordinary life and Wobeser, Von Wobeser y Sierra, Mexico City, discussed achievements of Pieter Sanders. the connection between the New York Convention and the Panama Convention, adopted by most South and Latin American nations. Jan Paulsson, Enforcement Freshfields Bruckhaus Deringer, Paris, commented Following lunch and under the guidance of session on the many ways that the New York Convention has Co-Chairs, William Slate, President and Chief Executive helped international arbitration. Renaud Sorieul, Officer of the American Arbitration Association, and UN Principal Legal Officer, International Trade Law Dorothy Ufot, Dorothy Ufot & Co, Lagos, the Division, Vienna, discussed the effect of the New York programme turned to the recognition and Convention on the shaping of the UNCITRAL Model enforcement of awards. First up was Judith Gill, Allen Law. & Overy, London, who considered the problem of defining an award for purposes of enforcement. She Arbitration agreements cited the lack of a definition in the text of the New York Convention as an area for potential reform. Turning to practical applications of the New York Next, Karl-Heinz Bockstiegel, German Institute for Convention, the second session, co-chaired by Dato’ Arbitration (DIS), Bergisch-Gladbach, and Dushyant Noorashikin Bint Tan Sri Abdul Rahim, Kuala Lumpur Dave, Senior Advocate, New Delhi, reviewed the most Regional Centre for Arbitration, Kuala Lumpur, and common grounds for refusing enforcement of arbitral Guido Tawil, M&M Bomchil, Buenos Aires, examined awards. Bockstiegel tackled the Article V(2) public the recognition and enforcement of agreements to policy defense, observing that public policy is treated arbitrate. Kaj Hober, Mannheimer Swartling, differently in different jurisdictions. Dave took on the Stockholm, surveyed the doctrine of separability, and other Article V defenses, as well as a controversial how it applies in different, frequently encountered recent decision of the Indian Supreme Court. ‘There scenarios. is a pro-enforcement bias in most jurisdictions in the Jernej Sekolec, Secretary, UNCITRAL, Vienna, world, except where I come from’, Dave said. He addressed the 2006 UNCITRAL Recommendations attributed the problem to a lack of knowledge of regarding the interpretation of Articles II and VII of arbitration on the part of judges. the New York Convention. He was followed by Mark Friedman, Debevoise & Plimpton LLP, London, Lawrence Boo, Singapore International Arbitration and Neal Gillen, International Cotton Advisory Centre, Singapore, who took on the Article II writing Committee, Washington, DC, reviewed jurisdictional requirement and considered whether this aspect of the and other obstacles to award enforcement. In the convention was in need of a makeover. United States, Friedman observed, the courts must William (Rusty) Park, Boston University Law Faculty, have personal jurisdiction over respondents in order to Boston, discussed the circumstances in which non- satisfy the Constitution’s due process requirements. signatories may be required to arbitrate, as well as the Some courts, however, will allow enforcement on the

10 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 11th IBA International Arbitration Day basis of quasi in rem jurisdiction, he said. Gillen cited allow it to become a pale replica of them, he said. problems with the enforcement of awards, declaring Gaston Kenfack Douajni, Association for the that cotton awards are almost impossible to enforce in Promotion of Arbitration in Africa, Yaonde, noted that the developing world. The problem is spreading, he the current system of international arbitration is highly warned. effective and very flexible. There is no need, he said, José Maria Abascal Zamora, Abascal & Associados, to supplement the convention. Robert Smit, Simpson Mexico City, examined the effects of annulment of an Thatcher & Bartlett, New York, discussed a case award at the place of arbitration, observing that courts pending before the US Supreme Court, Hall Street v may enforce an award even if it has been annulled. He Mattel, which presented the issue of whether parties noted that there was no uniform approach to the can, by contract, expand the grounds for review of an subject of the enforcement of annulled awards and arbitral award. He took a dim view of the possibility, suggested that this might be an area for reform. stating that expanded review runs contrary to the gestalt of the New York Convention. Concluding the session, Luis Olavao Baptista, LO A view to the future Baptista Advogado, São Paulo, expressed doubt as to The final session, co-chaired by MIM Aboul Enein, whether it was possible to predict the future of Cairo Regional Centre for International Commercial arbitration. He noted the enduring existence of Arbitration, and Pierre Bienvenu, Ogilvy Renault, cultural problems whereby some courts have a hostile Montréal, Co-Chair of the IBA Arbitration Committee, gut reaction to arbitration. He suggested that regional looked to the future of arbitration and the New York organisations could do a better job of promoting and Convention. They first introduced Michael Schneider, explaining arbitration. Lalive, Geneva, who provided an update on the joint UNCITRAL/IBA project aimed at strengthening the Closing remarks and visit to the UN implementation of the New York Convention. As of January 2008, reports had been received from 102 In closing, Jernej Sekolec, Secretary, UNCITRAL, states, he said. Vienna, characterised the New York Convention as The balance of the session was devoted to a panel more than a set of rules: ‘it is a state of mind’. Sekolec discussion that looked ahead to the next 50 years of explained that the convention created an expectation arbitration. Emmanuel Gaillard, Shearman & Sterling, that arbitral awards will be complied with. He observed Paris, identified features of the New York Convention that continued attention needs to be paid to the role of where he felt there was room for improvement, national courts, warning that the public policy including Articles II(3) and V. He expressed doubts, exception remains ‘a particular sore point’. The however, as to whether changes were feasible, record of compliance in some places has been ‘dismal’, concluding that, in any event, ‘the New York he said. He called for ongoing monitoring of the Convention is good enough to serve for another 50 implementation of the convention and continued years’. Theresa Cheng, Des Voeux Chambers, Hong efforts to make the convention truly universal by Kong, addressed the goal of achieving judicial harmony appealing to those states that have not yet joined. between nations with respect to the interpretation and Sekolec ended optimistically, expressing certainty that application of the New York Convention. She offered there would be a similar conference in 50 years to several suggestions, including the improved discuss the New York Convention or perhaps a revised dissemination of information regarding the convention version of the convention. and how it is being implemented around the world. The conference adjourned to the UN Headquarters Looking to threats to the convention, Alan Redfern, for a special session in the UN Trusteeship Council One Essex Court, London, observed that ‘when Chamber. Comments were presented by Nicolas America sneezes, the rest of the world catches cold’. Michel and L. Yves Fortier, Ogilvy Renault, Montréal, He warned of the danger of arbitration becoming more Former Ambassador and Permanent Representative of like American-style litigation. There is a need to keep Canada to the UN. arbitration distinct from state court systems, and not

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 11 CARACAS CONFERENCE REPORT: ARBITRATION AND THE JUDICIARY Caracas conference report: Arbitration and the judiciary

Guido Santiago Tawil M&M Bomchil, Buenos Aires; Senior Vice-Chair, Arbitration Committee [email protected]

‘Arbitration and the judiciary’, the first joint Bogota. conference of the IBA Arbitration Committee and Chaired by Diana Droulers, Director, Arbitration ICC International Court of Arbitration was held on 17 Center, Caracas, the fifth panel focused on the and 18 April 2008, in Caracas, Venezuela. The main protection of fundamental rights in arbitration and programme consisted of six panels and lasted a day constitutional actions against arbitral awards. The and a half. It was followed on the afternoon of Friday speakers were Tatiana Maekelt, President of the 18 April by a half-day programme designed for young Venezuelan National Law Academy, Valera-Maekelt- arbitrators and practitioners. Bentata & Associados, Caracas; Fernando Mantilla The conference was opened by Fernando Pombo, Serrano, Shearman & Sterling, Paris; César Coronel President of the IBA, Fernando Peláez, Vice-President Jones, Coronel & Perez, Guayaquil; and Guido Santiago of the IBA, and Pierre Tercier, President, ICC Tawil, Senior Vice-Chair of the IBA Arbitration International Court of Arbitration. Following their Committee, M&M Bomchil, Buenos Aires. The panel introduction, the first session examined the duties of held a lively discussion of the limits to parties’ judges in arbitration. The Hon Manuel Cepeda, Justice autonomy in arbitration and the increasing trend in of the Constitutional Court of Colombia, Bogota, Claus Latin America towards a constitutional review of Von Wobeser, Von Wobeser y Sierra, Mexico City, arbitral awards. former Co-Chair of the Arbitration Committee, and The last panel, chaired by Cristian Conejero, Nigel Blackaby, Freshfields Bruckhaus Deringer, Paris, Cuatrecasas, Paris, took the form of a workshop, which expressed their views from their respective perspectives discussed two hypothetical cases previously distributed of courts, arbitrators and advocates. The panellists among the participants. The speakers were Adriana discussed the different approaches towards arbitration Braghetta, L. O. Baptista Advogados Associados, São taken by the courts of countries in the region, in Paolo; Daniel Posse, Posse Herrera & Ruiz, Bogotá; particular, Colombia and Venezuela. Javier Robalino, Perez Bustamante & Ponce, Quito; The second panel, chaired by Katherine González Andrea Saldarriaga, Independent Arbitration Advisor, Arrocha, Director for Latin American ICC Dispute New York; and Victorino Tejera, McLeod Dixon, Resolution Services, Panama City, addressed the Caracas. sensitive issue of precautionary measures in arbitration. The highlights of the main programme included The speakers were Arbitration Committee Vice-Chair speeches by Pierre Tercier and Fernando Pombo Juan Fernández Armesto, Armesto & Associados, during the first-day lunch. They addressed recent Madrid; Nicolás Gamboa Morales, Gamboa Chalela & developments concerning ICC and Ibero-American Gamboa, Bogota; and Luis Alfredo Araque, Araque arbitration. The closing remarks were delivered by Reyna Sosa Viso & Pittier, Caracas. Katherine González Arrocha and Guido Santiago Tawil. The third panel, chaired by José Ricardo Feris, The second event – the programme for young Counsel, ICC International Court of Arbitration, arbitrators and practitioners – was devoted primarily to Dominican Republic, discussed actions to set aside the drafting of arbitral clauses and terms of reference. arbitration awards, the possibility of waiving such In the first panel, Cristian Conejero, José Ricardo Feris, actions, and the advantages and disadvantages of and Diana Droulers discussed international standards having judges that specialise in arbitration. The and key issues to be considered when drafting arbitral speakers were former IBA Arbitration Committee Vice- awards, both in institutional and ad hoc arbitration. Chair Gilberto Giusti, Pinheiro Neto Advogados, São David Arias, Katherine González Arrocha and Paulo; Eugenio Hernández Bretón, Baker & McKenzie, Adriana Braghetta addressed, in the second panel, the Caracas; and Ignacio Suárez Anzorena, Clifford drafting of terms of reference. Eduardo Zuleta Chance, Washington, DC. delivered the closing remarks. The fourth panel was chaired by David Arias, Perez Approximately 160 people attended the conferences. Llorca, Madrid. It considered the recognition and The turnout was one of the highest for this type of enforcement of awards and the concept of public programme in the region. The conference Co-Chairs order. The speakers were Donald Donovan, Debevoise were Fernando Pelaez (IBA) and Claus Von Wobeser & Plimpton, New York; Eloy Anzola, International (IBA/ICC). Katherine González Arrocha, Guido Arbitrator, Caracas; and IBA Arbitration Committee Santiago Tawil, Claus Von Wobeser and Eduardo Zuleta Secretary Eduardo Zuleta, Gómez-Pinzón Zuleta, formed the Organising Committee.

12 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 CURRENT DEVELOPMENTS

took two years to reject the Republic of Poland’s BELGIUM challenge to an arbitrator. Referring to clause 3.4.1 of the ‘Orange List’ of the IBA Guidelines on the Conflict A call for reduced judicial intervention of Interest in International Arbitration, the Republic of Poland objected to Judge Schwebel’s close relationship Caroline Verbruggen with Sidley & Austin because the law firm was acting in DLA Piper UK LLP, Brussels a separate Bilateral Investment Treaty (BIT) arbitration [email protected] against the Republic of Poland. The Brussels Court of Appeals rejected the challenge, ruling that arbitrators elgium is currently investigating the possibility of have their own professional integrity and therefore will Baligning its Arbitration Act, Part VI of the Belgian not be influenced by others’ actions against one of the Judiciary Code, with the UNCITRAL Model Law on parties to the arbitration. Moreover, the relationship International Commercial Arbitration. Enacted in between Judge Schwebel and Sidley & Austin did not 1972, the Belgian Arbitration Act implemented the make Judge Schwebel a member of the law firm. The uniform law annexed to the European Convention on Republic of Poland also invoked an argument of Arbitration. The Belgian Arbitration Act, last amended vertical or intellectual conflict of interest with Judge on 19 May 1998, currently applies without distinction Schwebel, due to his involvement as counsel in a to both domestic and international arbitration. This separate BIT arbitration. That argument was review affords Belgium the opportunity to improve an considered inadmissible because it was raised for the area where parties currently fear the negative impact of first time before the Court of Appeals and therefore its court intervention on arbitration: challenge merits were not addressed. Although the Republic of proceedings. Poland’s challenges were ultimately unsuccessful, the Arbitrations must be conducted by arbitrators who challenges delayed the court for two years. During are wholly independent and impartial from the parties. these lengthy proceedings, the arbitration was If a party has reason to believe that an arbitrator is not suspended. independent or impartial, there must be an efficient On the other hand, in institutional arbitrations, the procedure in place to challenge that arbitrator. These rules of the institution frequently provide a quick ad- challenges must be decided promptly, especially since hoc challenge procedure. CEPANI/CEPINA, the these challenges are a tool used by parties not satisfied Belgian arbitral institution, has implemented such with the decision rendered by their arbitrators. proceedings. But, in a case decided on 21 June 2005 Therefore, the law must provide an efficient, but (RG 2004/AR/3106, unreported), the Brussels Court prompt procedure, which disrupts the arbitral of Appeals held that even in institutional arbitrations, proceeding as little as possible. the court has the exclusive power to protect the fundamental notions of independence and impartiality.1 Thus, a party can always submit a Status quo challenge to the court. Currently, the Arbitration Act allows a party to challenge the independence and impartiality of an Possible reforms arbitrator when circumstances raise legitimate doubts. A party may only bring a challenge proceeding after The delay caused by the lengthy judicial review of a the nomination of the arbitrator and must act challenge proceeding, however, can be cured by expeditiously after gaining such knowledge. Belgian modifying the Arbitration Act. For centralisation and courts have applied this test reasonably and rejected coherence, the Act should limit challenge proceedings challenges against arbitrators where the circumstances to a single jurisdiction: the Brussels Court of Appeals. invoked did not raise any legitimate concern about the These challenge proceedings should be conducted as arbitrator’s independence or impartiality. summary proceedings,2 shortening the length of the But, under the current Arbitration Act, a challenge procedure to a number of weeks. Further, while proceeding against an arbitrator in an ad hoc arbitration proceedings are currently automatically arbitration can be lengthy. This delay in resolving suspended during a pending challenge, the Arbitration judicial challenges creates a powerful tool in the hands Act should give arbitrators the discretion to continue of a party wanting to slow down an arbitration of which the arbitral proceeding during the pending challenge. it fears the outcome. Belgium is a convenient place for arbitration – a This problem was illustrated in the judgment neutral forum, multilingual and located in the centre rendered by the Brussels Court of Appeals on 29 of Europe. Additionally, the Arbitration Act and the October 2007 in the case of Republic of Poland v Eureko Belgian courts are generally arbitration-friendly. Still, and Stephen M. Schwebel. In Republic of Poland, the court there is room for improvement; court intervention in

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 13 Current developments challenge proceedings should be more efficient and disputes through arbitration, although it does limit the significantly reduced, thereby increasing the efficiency place and language of the arbitration. Foreign of arbitration in Belgium. investors may take comfort in the fact that Brazil is a signatory to the New York Convention and the Brazilian Arbitration Law is very much in harmony with Notes 1 This decision has been strongly criticised by legal authors (see G. other modern arbitration laws. Keutgen and G.A. Dal, L’arbitrage en droit belge et international, Bruylant, A private–public partnership is an investment in a 2006, p 266, n° 312). specific public activity where risk and reward are shared 2 There is an ambiguity in the current Arbitration Act, which provides that a challenge is decided by the Tribunal of first instance and refers between the public administration and the private appeal proceedings to summary proceedings, originally organised for sector. Public participation reduces the risk to the challenges against judges. The legislature did not realise that it then private investor, even though some risks remain: left challenge proceedings against arbitrators subject to the normal – political, regulatory, operational, judicial, and so on.2 and therefore lengthy – appeal process. A decision with no appeal, as foreseen by Article 13(3) of the UNCITRAL Model Law, would yield a Providing for arbitration is one way to lessen these risks more efficient process. and grant some degree of legal certainty to private investors.3 In Brazil, even in domestic matters, the Supreme Court of Justice has confirmed the validity BRAZIL and enforceability of arbitration clauses in contracts involving state-controlled companies.4 Arbitration and public–private Some types of disputes cannot be decided by partnerships in Brazil arbitration. To decide the issue of arbitrability, the arbitrator needs to look to the law determining the André Osorio Gondinho and Juliana Lima validity of the arbitration clause. Here, the concepts of Doria, Jacobina, Rosado e Gondinho – objective and subjective arbitrability come into play. Advogados Associados, Rio de Janeiro ‘Subjective arbitrability considers the capacity of a party [email protected] • [email protected] to conclude arbitration agreements, for example, a ttracting private investment is one of the most minor, or, in some national laws, the State or certain Acommon means of reducing an economy’s reliance state institutions.’5 On the other hand, objective on state participation, not only in developing countries arbitrability refers to whether a particular subject is but also in developed ones. The United Kingdom led properly decided by an arbitrator. the way in this area when it established the Private Because the Brazilian legal system generally gives the Finance Initiative, the main goal of which was to turn state the ability to contract, the state has the capacity to some public works projects into privately financed choose arbitration as a method of dispute resolution. ones. Many other countries have chosen to use public– So there can be no real controversy with regard to private partnerships (‘PPPs’), arrangements whereby subjective arbitrability. As to objective arbitrability, the the private sector supplies infrastructure assets and first article of the Brazilian Law of Arbitration provides infrastructure-based services that traditionally have that only ‘freely transferable’ property rights may be been provided by the government. Canada, France, submitted to arbitration. There is some dispute as to the Netherlands, Portugal, Ireland, Norway, Finland, whether the public interest in a governmental project India, Australia, Japan, Malaysia, the United States, and hinders its ability to be transferred.6 Singapore have all embraced PPPs in one form or Eros Roberto Grau, Brazilian Supreme Court another. Minister, distinguishes property rights that are not In 2004, the Brazilian National Congress approved ‘freely transferable’ from property rights invested with the Public Private Partnership Law (Law No. 11.079) to the public interest. Freely transferable property rights attract investments in sectors like infrastructure, where are those that can be disposed of. Property rights the state could not support the demand for invested with the public interest cannot be freely investment.1 To resolve disputes that may arise in the disposed of in the usual sense, but it can be argued context of public–private partnerships, the mode of that, in order to guarantee the public interest, the dispute resolution most favourable for investors, government must dispose of them. Under this view, especially foreign investors, is arbitration. the government can agree to arbitrate in relation to Article 11, item II of the Public Private Partnership PPPs because the property rights involved must be Law states that a public–private investment contract considered transferable to protect the public interests may provide for ‘the use of private dispute resolution involved.7 mechanisms, arbitration included, to be carried out in In this respect, the position of the Superior Court of Brazil in the Portuguese language, pursuant to Law No. Justice is that administrative contracts are governed by 9,307 of 23 September 1996 (Brazilian Law of public law clauses and principles combined with private Arbitration), in order to solve conflicts arising from or law principles, which reinforce the possibility of relating to the contract.’ Therefore, the PPP Law adopting arbitral procedures to solve disputes related provides that the parties may agree to resolve any to these contracts.

14 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments

Conclusion According to the convention, each country may adopt the judicial review procedure from its own civil In Brazilian PPP Law, arbitration works to protect the procedural rules. However, these proceedings must be parties and give them a degree of certainty because simple and can never contradict the rules of the arbitration is an international and highly regarded convention. In Brazil, as in countries such as the method of dispute resolution. In this regard, United States, Italy, England, and France, foreign arbitration also contributes to the improvement of the arbitration awards must be confirmed by a civil court in investment environment and the attraction of order to be fully enforceable. additional foreign investment. The Brazilian Superior Court of Justice has been applying the convention in its confirmation decisions. Notes In May 2008, for example, the Brazilian Superior Court 1 Following the federal policy, many Brazilian states approved their own of Justice, in L’Aigion x Têxtil União, confirmed a laws on public–private partnership: Minas Gerais (Law No 14.862/2003); Santa Catarina (Law No 12.930/2004); São Paulo (Law foreign arbitration award based on the Convention No 11.688/2004); Goiás (Law No 14.910/2004); Ceará (Law No rules (Files No. 856 - EX 2005/0031430-2). The 13.557/2004); Bahia (Law No 9.290/2004); Rio Grande do Sul (Law arbitration in question was initiated by Liverpool No 12.234/2005); Pernambuco (Law No 12.765/2005); Piauí (Law No Cotton Association, Ltd, a Swiss company, against a 5.494/2005); Rio de Janeiro (Law No 5.068/2007; and Sergipe (Law No 6.299/2007). In Alagoas, there are proposed laws under Brazilian company. According to the award, the discussion. defendant Brazilian company was responsible for 2 Lauro da Gama e Souza, Jr, Sinal Verde para a Arbitragem nas damages to the plaintiff Swiss company for breach of Parcerias Público-Privadas (A Construção de Um Novo Paradigma para Os Contratos entre Estado e o Investidor Privado), 17 revista de contract. However, when the foreign arbitration award direito da aperj 293 (2006). was sent to the Brazilian Superior Court of Justice for 3 See Rudolf Dolzer & Christoph Schreuer, Principles of international confirmation, the defendant challenged the arbitration investment law 220-221 (New York: Oxford University Press, 2008). decision. The defendant alleged that it had not 4 TMC Terminal Multimodal v Min. De Estado Ciência e Tecnologia (MS 11.308 – DF, Rel. Min. Luiz Fux, j. 09.04.2008, DJ 19.05.2008). AES consented to arbitration because the contract entered Uruguaiana Empreendimentos Ltda. v Companhia Estadual de Energia into by the parties and containing the arbitration Elétrica (RESP 606.345 – RS, Rel. Min. João Otávio Noronha, j. clause was unsigned. 17.05.2007, DJ 08.06.2007). AES Uruguaiana Empreendimentos Ltda. v The reporting justice of the case, Mr Carlos Alberto Companhia Estadual de Energia Elétrica (RESP 612.439 – RS, Rel. Min. João Otávio Noronha, j. 25.10.2005, DJ 14.09.2006). Menezes Direito, denied the defendant’s claim, stating 5 Marna Lourens, The Issue of ‘Arbitrability’ in the Context of International that the Brazilian company had participated in the Commercial Arbitration, 11 South African Mercantile Law Journal, pp entire arbitration proceeding and presented a defence. 364–65 (1999). Moreover, the reporting justice stated that the 6 Gustavo Henrique Justino de Oliveira, A Arbitragem e as Parcerias Público-Privadas, Redae n. 2 (2005) (available at www.direitodoestado. defendant had not challenged the arbitration clause at com.br). any time during the course of the arbitration. 7 Eros Roberto Grau, Arbitragem e Contrato Administrativo, 32 Revista Based on this reasoning and also on the rules of the Trimestral De Direito Público 20 (São Paulo 2000). convention (which do not require the signature of the parties to make an arbitration clause valid), the Brazilian Superior Court of Justice granted the The New York Convention takes hold in confirmation request. The court held that the Brazil defendant’s conduct during the arbitration proceeding demonstrated its acceptance of the arbitration clause. Carlos Roberto Fornes Mateucci, Marcos Gomes The reporting justice concluded that ‘the international Da Costa and Deborah Valcozora Evangelista practice in contracts... must always be respected’, and Yarshell, Mateucci e Camargo Advogados, São Paulo therefore the arbitration clause could not be [email protected] • [email protected] • [email protected] disregarded. Brazil is becoming increasingly more aligned with the current needs of the global market, following the he 1958 United Nations Convention on the growth and development tendencies of the world Recognition and Enforcement of Foreign Arbitral T economy. From the judgment mentioned above, we Awards, commonly known as the New York Convention, may conclude that the Brazilian Superior Court of was approved in Brazil by Legislative Decree No. 52, on Justice will apply the convention’s rules in its decisions, 26 April 2002, and made effective by Decree No. 4.311 providing greater enforcement of international on 23 July 2002. Although the convention was not arbitration awards in Brazil and assuring judicial formally approved until 2002, Brazilian legislation security to international arbitrations involving Brazilian began adopting its principles in 1996 when changes parties. were made to arbitration procedures in Brazil. The significant modifications generated by this legislation and by the adoption of the convention were well received by legal scholars and the courts.

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 15 Current developments

ICC rules supersede Brazilian law on limited grounds, such as correcting a clerical, requests for clarification computational or typographical error, or to request an interpretation of a decision.2 Horacio Bernandes Neto and Fernando Lobo The difference between the Brazilian Arbitration Law Xavier, Bernandes, Bragança Sociedade de Advogado, and the ICC Rules has generated a debate as to the São Paulo proper filing deadline for a motion for clarification. [email protected] • [email protected] Recently, an arbitration tribunal applying ICC Rules had to decide this question. In a Brazilian arbitration ecause even arbitrators are human, from time to between a Brazilian plaintiff, and Brazilian and foreign Btime parties may have difficulty completely corporate defendants, under the ICC Rules, the understanding an arbitrator’s decision, or the plaintiff filed a motion for clarification within five days arbitrator may not decide a relevant matter or may of the decision, relying on the Brazilian Arbitration make a material error in judgment. This, of course, Law. happens more than we would hope. As a result, Article The arbitration tribunal, however, applying Article 29 30 of the Brazilian Law of Arbitration permits a party to of the ICC Rules, granted a 20-day period for the file a motion for clarification in the event of an defendant to respond. The plaintiff opposed the omission, obscurity or contradiction in the decision tribunal’s decision and argued that the tribunal should rendered by an arbitration tribunal. apply the Brazilian Arbitration Law. The tribunal thus Article 30 is clearly inspired by the Brazilian Civil had to decide not only the motion for clarification, but Procedural Code (Article 535). According to recent also the proper law to apply. Brazilian jurisprudence, a motion for clarification may Such a dispute can be, and was, resolved by looking result in a modification of the arbitration decision only to the parties’ choice of applicable law. Article 21 of in extraordinary situations, eg, relevant material error the Brazilian Arbitration Law establishes that by the court. It is important to note that a motion for arbitrations shall comply with the procedural rules clarification is considered an appeal under the selected by the parties. Therefore, the ICC Rules will Brazilian Civil Procedure Code, but it is not considered apply with respect to filing deadlines if the parties have an appeal under the Brazilian Arbitration Law because expressly chosen the ICC Rules for their procedural no appeal is permitted from an arbitration decision rules, as was the case in the matter being discussed. under the Brazilian Arbitration Law. Both the Brazilian Moreover, the plaintiff in this matter asserted that no Civil Procedure Code and the Brazilian Arbitration Law response by the defendant should be permitted establish a filing deadline of five days from the date of because the applicable rule in the case, Article 30 of the decision in which a party may present a motion for the Brazilian Arbitration Law, does not permit such a clarification. response. The plaintiff argued for the application of As mentioned above, even though an arbitration the Brazilian Arbitration Law because the motion for decision cannot be appealed, Brazil’s recent clarification was based on omissions, contradictions or jurisprudence permits an amendment of the obscurities in the award. According to the plaintiff, the arbitration decision in response to a motion for ICC Rules only apply in cases of material error. clarification. To this effect, Prof Selma Ferreira Lopes However, the arbitration court, we believe, correctly published an article in the Brazilian Magazine of realised that the interpretation advocated by the Mediation and Arbitration, indicating that ‘[there] may plaintiff was incorrect. If the rules chosen by the exist special situations [where], in view of [clear] error parties do not apply with respect to a motion for [by] the arbitrator in the analysis of the evidence […] clarification, then the Brazilian Arbitration Law would or the circumstances presented by the party on the dictate the deadline for the motion and no response motion, [an] arbitrator decides to review [his] from an opposing party would be allowed. In the case understanding and [his] decision.’1 being discussed, however, there was no reason to apply It is also important to mention that, although the the Brazilian Arbitration Law. The rules selected by the UNCITRAL Model Rules and Brazilian Arbitration Law parties – the ICC Rules – addressed motions for both provide for motions for clarification, some clarification. arbitration tribunals may not permit such motions, may Furthermore, the difference in the wording of the establish different deadlines for filing and/or may limit ICC Rules and Brazilian Arbitration Law should not the scope of the inquiry pursuant to such motion. determine the application of one or the other. A Additionally, according to the ICC Rules of careful analysis of both rules indicates that the Arbitration, a motion for clarification may only be filed intention of both sets of rules are the same: to avoid to correct or interpret an award. Under the ICC Rules, clerical or similar errors and to enable parties to the deadline for filing a motion for clarification is 30 achieve a complete and accurate comprehension of the days from the decision date. A motion for clarification decision granted. made pursuant to the ICC Rules may only be made on Therefore, in an arbitration carried out in Brazil, if the procedural rules chosen by the parties have specific

16 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments provisions regarding a request for clarification, the was made, the parties also agreed to arbitrate any terms and filing deadline of such rules will supersede dispute in relation to the success fee. There was to be Brazilian Arbitration Law. an ad hoc arbitration before a single arbitrator in Toronto, and an arbitrator (a very experienced former appellate judge) was designated to act. Under Ontario Notes 1 ‘Poderá existir situações especialíssimas que em decorrência de law, the arbitration was to be under the auspices of the equívoco manifesto do árbitro na análise das provas ou das International Commercial Arbitration Act,2 which circunstâncias apresentadas pela parte no embargos arbitrais, este incorporates, with minor exceptions, the UNCITRAL decida reformular seu entendimento e rever o julgado.’ (Revista de Mediação e Arbitragem, Ano 2, n 6, julho-setembro 2005, Model Law. Notwithstanding the agreement, prior to Revista dos Tribunais p 37). the commencement of the arbitration, Wong applied to 2 Article 29(2), ICC Rules of Arbitration. the court to have the notice of arbitration struck out, and the application judge acceded to that request. In deciding the application, Madam Justice Low had CANADA to consider the implications of the Solicitors Act.3 Under section 16 of that Act, Ontario lawyers are The arbitrability of contingency fee entitled to make fee agreements. When in relation to contracts litigation, payment of an agreed-upon fee cannot be made until the agreement is approved by a court Joel Richler assessment officer. The assessment officer must be Blake, Cassels & Graydon LLP, Toronto satisfied that the fee is ‘fair and reasonable’, failing [email protected] which the court can then reduce the fee or cancel it and have the fee assessed in the ‘same manner as if the here contingency fee arrangements are subject to agreement had not been made’.4 The Act further Wstatutory and/or court regulation and control, provides that either party to a fee agreement can apply can lawyers and their clients agree that the amount of to the court for a determination of rights thereunder; contingency fees be determined by arbitration? In on such application, the court is to be guided by the Ontario, it would appear not (at least not yet). In The standard of ‘fair and reasonable’. Again, where that Estate of Tung Jean and Peter Wong v Wires Jolley,1 the standard is not met, fees are to be assessed under Superior Court ruled that, notwithstanding their normal court procedures.5 The Act also permits agreement to the contrary, a lawyer and his clients contingency fee agreements. For those types of could not have the former’s contingency fees agreements, the assessment regime is slightly different. determined by arbitration. Either party can apply to the court for an assessment of The client protagonist in the case was one Peter the lawyer’s bill, and such bills are to be assessed Wong, the executor and sole beneficiary of his keeping in mind regulations prescribing maximum mother’s estate, who predeceased his father. The estate amounts and contingency fee criteria made under the being very large, litigation ensued in Hong Kong, statute.6 British Columbia, Quebec, Japan, Singapore, Ontario, In reaching her decision, Low J. accepted that Wong and several other jurisdictions. The subject matter of had agreed to a private arbitration of fees and that, the Ontario litigation was a fund of US$2.8 million first after making his agreement, he had changed his mind; held by Wong’s parents and then transferred to his the decision does not reflect any facts that may have mother. Wong retained Wires to act on his behalf in the related to the making of the agreement or Wong’s Ontario litigation. change of mind. In this context, Wires took the In 2004, the parties agreed to hold a global position that it was for the arbitrator himself to mediation in Hong Kong to settle all of the litigation. determine, at least in the first instance, whether Wong Wires and Wong agreed to a success fee arrangement should be bound to his agreement to arbitrate. The under which Wires was to be paid ten per cent of the focal point of the decision, then, became whether value of Wong’s inheritance at an agreed-upon date. public policy in Ontario could and should trump the The mediation succeeded and US$400,000 was released principles that would otherwise apply to a jurisdictional from the Canadian account for payment of legal challenge to arbitration. expenses. The parties could not agree, however, on the Low J. held that, as a ‘general proposition’, where success fee. Wong’s position was that the fee should parties have agreed to arbitrate: (i) the arbitration have been based upon an inheritance value of tribunal is to rule upon questions of contract validity US$10,875,100, and he paid approximately US$119,000 and enforceability; (ii) the tribunal is also to rule on on that basis. Wires, maintaining that the value of the the existence and extent of its own jurisdiction; and inheritance had increased, claimed a success fee of (iii) the court should stay any applications made unless US$2 million. it is clear that the dispute is outside the ambit of the There was no doubt that, when the fee agreement agreement such that it ought to be litigated rather than arbitrated.

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 17 Current developments

Low J. then ruled, however, that inasmuch as the court scrutinise the claimed fees. court has jurisdiction under the Solicitor’s Act to As a final note, the decision of Low J. is now under determine whether a fee agreement between lawyer appeal. It is likely that, on appeal, the court will give and client is enforceable, and inasmuch as the parties more attention to the kompetenz-kompetenz issue. More were already before the court, ‘there is no practical or importantly, the court will have to consider whether an theoretical purpose served in deferring the argument agreement to have a fee entitlement determined by an to the arbitrator’. So much for kompetenz-kompetenz. Low experienced retired judge (albeit in private) is really J. did not give any apparent attention to the principles the same as a party relinquishing his rights to a neutral enunciated by the Supreme Court of Canada in Dell decision-maker. It is suggested that the appeal court Computer Corp. v Union des Consommateurs,7 that, may give greater attention to the fact that arbitration is arguably, would have militated in favour of deference a significant part of the dispute resolution process and to a tribunal to decide upon its own jurisdiction; there not merely an informal and hence lesser form of could have been evidence relevant to the agreement to decision-making. arbitrate and Wong’s refusal to abide by his own agreement to arbitrate. Notes Turning to the substance of the application, Low J. 1 Superior Court of Justice court file No. 07-CV-344655PD1, 4 April rejected arbitration on the following grounds. First, she 2008. ruled that, contrary to private commercial disputes, the 2 R.S.O. 1990, c. I.9. 3 R.S.O. 1990, c. S.15. relationship between members of the legal profession 4 Sections 17, 18 and 19. and members of the public ‘transcends’ ‘mere 5 Sections 23 and 24. commerce’. Lawyers ‘have a monopoly over the 6 Section 28. provision of legal services and the occasions upon 7 2007 S.C.C. 34. 8 Price v Sonshini (2002), 60 O.R. (3d) 257 (C.A.) and Plazavest which lawyers interact with members of the public Financial Corporation et al v National Bank of Canada et al (2000), 47 occur often when the latter are in the most vulnerable O.R. (3d) 641. of circumstances’. Hence, there is the need for court supervision to exercise ‘a residual institutional duty’ with regard to ‘the public interest and the broader ramifications of the decision’. In her view, the statutory Arbitrator faults sport federation regime for the control, supervision and assessment of for failure to actively defend sport contingency fees reflected a public interest in limiting arbitration process freedom of contract in this type of instance. Citing Daniel Urbas appellate authority, Price v Sonshini, the application judge wrote that such regulation forms part of the Borden Ladner Gervais srl/LLP, Montréal court’s inherent jurisdiction.8 (In this regard, it is [email protected] noteworthy that while the appellate decisions cited by the application judge did hold fee assessment to be a abres have rattled over the conflicting results matter of public interest that required court Sgenerated by recent arbitration and court supervision, those decisions were made in quite proceedings regarding Olympic athlete selection. The different contexts. Those cases involved situations result of the court proceeding generated not only where clients had purported to waive rights to an surprise among arbitration counsel, but also a assessment either by waiver or delay. The cases did not recommendation designed to ensure that this conflict involve a contractual mechanism to have fees remains an isolated event. Whenever court proceedings determined.) risk damaging the sport arbitration process, the federal Secondly, and following from the above, ‘although governing body that funds national sports federations the statute does not express a prohibition against ought to be notified so it can either intervene or contracting out of the right to an assessment, an submit an amicus brief. agreement to arbitrate is in effect an agreement by the client to relinquish his recourse to the court and ought not to be enforced’. Again, drawing from Price, Low J. Athletes dispute selection drew an equivalence between the agreement to On 26 March 2008, the Canadian Fencing Federation arbitrate fees and an agreement to arbitrate in the (‘CFF’) chose B as the sole male sabre fencer to attend context of a consumer protection contract. This could an April (26–28) Olympic qualifier tournament. The not be permitted. tournament winner would receive the International Low J.’s ‘bottom line’: ‘I am of the view that an Fencing Federation’s nominative qualification for the agreement to arbitrate a fee dispute privately is no 2008 Summer Olympic Games. The tournament was to more enforceable than a bald agreement to forego be the final opportunity to qualify for the games. The assessment of a solicitor’s accounts.’ This was in decision eliminated another male fencer, M. On derogation of the Act and Wong’s right to have the

18 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments

2 April, M appealed the decision to the CFF appeal in November 2007, of the points he gained in this board, which dismissed M’s appeal on 9 April. tournament held earlier in 2007 is unjust and On 9 April, M filed a request to arbitrate the appeal inequitable, and gives an unfair advantage to [B].’6 board’s decision with the Sport Dispute Resolution Arbitrator Drymer acknowledged that an arbitrator’s Centre of Canada (‘SDRCC’),1 whose arbitrations are intervention in an athlete selection process was rare, governed by a detailed Canadian Sport Dispute but justified when a sport federation does not follow its Resolution Code (‘Code’).2 The SDRCC’s Secretariat own regulations or changes its regulations along the oversees the dispute resolution system and provides way.7 logistical support to ensure that disputes settle in a fair, transparent, efficient and timely manner. Superior Court Though the arbitration process is confidential, the awards must be made public unless otherwise ordered Unsatisfied with the result, and without waiting for by the arbitrator.3 The Code distinguishes between reasons, B applied to the Québec Superior Court on 21 ‘awards’, ‘decisions’ and ‘reasons’, providing a delay of April. He sought provisional and interlocutory up to 15 days for delivery of the reasons: injunctive relief, including, inter alia, an order that the ‘6.22 All awards shall be in writing, dated and signed CFF respect the 12 April 2008 decision of Arbitrator by the Panel.… Arbitration decisions shall be Drymer, rank M according to the 2006–2008 Selection communicated to the Parties within seven (7) days of Policies, apply the 2006–2008 Selection Policies and the completion of the hearing. In the absence of an rankings according to said policies, and select the agreement between the Parties to the contrary, the athlete to compete in the Olympic Qualifier according Panel shall also provide written reasons for the to the 2006–2008 Selection Policies, and for the court award. Such written reasons, if any, shall be provided to affirm that B ranked first according to the 2006– to the Parties within fifteen (15) days of the 2008 Selection Policies. completion of the hearing.’ B’s proceeding was made presentable to an On 10 April, the CFF submitted an answer, B experienced judge of the Québec Superior Court on 22 submitted an intervention, and an experienced April. B’s proceeding did not name M as a party but the arbitrator, Stephen Drymer, was appointed. What minutes of hearing note the attendance of M’s attorney should be noted from the record is the efficiency with at the hearing. The hearing lasted most of the day. The which the arbitration hearing was scheduled and that court suspended the hearing, ordered Arbitrator the parties were heard and the arbitral award issued Drymer be served as mise-en-cause8 with B’s proceeding without compromising the quality of the arbitral and with notice that the hearing would continue at 9:30 process.4 a.m. on 23 April. On 10 April, Arbitrator Drymer held a preliminary On 23 April, the hearing resumed at 9:45 a.m. but hearing followed by a full hearing on 11 April, during was suspended so that Arbitrator Drymer could be which the parties presented evidence, underwent cross- telephoned. The hearing resumed at 10:07 a.m. The examination, made submissions and answered minutes of hearing note that the arbitrator declined to questions from Arbitrator Drymer. Given the urgency, attend to explain his decision or to be a witness. At Arbitrator Drymer issued his award on 12 April with 10:10 a.m., B amended his proceeding to add a reasons to follow, a process explicitly permitted by the ‘subsidiary’ conclusion, namely to annul the 12 and 15 Code and expressly agreed to by the parties.5 Extensive April decisions and to maintain the decision of the CFF reasons followed on 24 April, within the 15-day period, to select B. The court granted the amendment. The as agreed and authorised. CFF then announced it no longer contested the On 14 April, the CFF applied for an interpretation of ‘judicial review’. The hearing continued and in the Arbitrator Drymer’s award, as permitted by section 6.24 afternoon the court granted what by then had become of the Code, asking that he confirm its understanding an ‘alternative’ conclusion for annulment of the that he had ordered that the CFF select M. M awards. B’s initial conclusion was an order for supported the application. B contested it. On 15 April, compliance with Arbitrator Drymer’s award. In the Arbitrator Drymer held a hearing with the parties. alternative conclusion, B sought to annul that same After hearing the parties, he confirmed that his award. decision was that the CFF select M. It is clear from the minutes of hearing that the court M’s main challenge was that the CFF had unfairly was influenced by the urgent deadlines the parties modified the selection policies by reducing the number claimed applied to the athlete’s selection. The court of pre-assigned tournaments used to rank the fencers. did what it could to make a decision on the evidence The Madrid tournament, listed in the 2006–2008 and submissions made to it during that condensed Selection Policies, no longer appeared in the 2007– period. 2008 Selection Policies. M had won 50 points at the The court ordered the CFF to register B as the 2007 Madrid tournament compared with 0 collected by chosen athlete. The court focused on the lack of B. Arbitrator Drymer agreed with M. ‘To deprive [M], reasons on 12 April, though it did observe that the

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 19 Current developments arbitrator had confirmed that his reasons would follow Richard Pound, comments on the actions taken by B, and noted that the arbitrator would provide the the role of the court and the involvement of the CFF. reasons the next morning. The court referred to an He characterised B’s action as ‘impetuous’ but noted earlier court decision9 in which the court had annulled that ‘[n]o matter how undisciplined nor premature an arbitral award that issued without reasons and to a [B]’s action may have been in the circumstances, one Supreme Court of Canada decision10 regarding the could perhaps understand his desperation’.17 The scope of a court’s review of an arbitral award. arbitrator also appeared to concede that the court had been placed in a difficult position, pressured by deadlines and unaided by the passive position taken by Arbitration law in Québec the CFF in the court proceedings.18 The Québec Code of Civil Procedure11 provides that the Arbitrator Pound focused on the CFF’s failure to only recourse against an arbitral award, domestic or resist the court’s adjudication of the injunction-turned- international, is an application for annulment. The annulment proceedings. ‘Simply submitting to justice grounds for annulment are limited.12 A court in the legal proceedings fell woefully short of its duty in examining a motion for annulment cannot enquire the circumstances.’19 He perceived that the CFF’s into the merits of the dispute.13 Of the grounds passive involvement in the court process contributed to provided for annulment, only one can arguably apply the imbroglio: to the separate delivery of reasons, namely that ‘the ‘I take, however, serious and specific exception to the applicable arbitration procedure’ was not observed. behaviour of the CFF in this matter. I do not refer to Three points suggest that the case did not fall within the impugned decision of 26 May 2008 or to the this ground. First, the ‘applicable’ arbitration internal appeal decision of 9 April 2008 … I refer procedure set out in the Code had been followed. That instead to the failure, indeed refusal, of the CFF to procedure allowed for a delay between the award and resist the intervention of the Court in the matter the reasons. prior to the completion of the arbitration process. It Secondly, on the application of a party, if the court was irresponsible not to have put – forcefully – considers it expedient, the court may suspend an before the Court the whole team selection process application for annulment for such time as it deems and the process of dispute resolution in, inter alia, necessary to allow the arbitrator to take whatever selection matters and not to have objected in the measures are necessary to remove the grounds for strongest possible terms to the institution of the annulment.14 If the alleged ground for annulment was proceedings launched by [B]. As a national the absence of reasons, the court could have suspended federation, the CFF has a responsibility to all its B’s application for annulment until after receipt the athletes, even to those who may disagree with some next morning of the reasons promised. of the decisions it makes, as well as to honour its Thirdly, Article 946.4(5) C.C.P.’s mention of ‘the contractual commitments. By not making the full applicable arbitration procedure’ may be construed to dispute resolution system to which it and its athletes incorporate the need for reasons set out in Article were subject abundantly clear, the CFF abrogated a 945.2 C.C.P. But, Article 954.2 sets no time limit for the fundamental responsibility.’20 issuance of such reasons. Article 940 C.C.P. also Arbitrator Pound noted that the court had issued no specifically provides that the C.C.P. provisions apply injunction and had only annulled the initial arbitral where the parties have not made stipulations to the awards. As such, he was free to issue a new award and contrary, effectively allowing parties to contract out of did so adopting as his own the reasons and disposition many provisions of the C.C.P. applicable to arbitration. of Arbitrator Drymer. The CFF has since filed its own Only certain provisions are deemed to be peremptory. application before the Superior Court seeking the Article 945.2 C.C.P. is not listed as being peremptory. annulment of that award, along with a later award on The parties did agree, through their adoption of the the costs.21 Code, that reasons could be delivered up to 15 days after the completion of the hearing. The Code at 6.25 Conclusion provides that the applicable law for arbitrations shall be the Ontario law and that the arbitration legislation in For future litigation, Arbitrator Pound proposed to place for Ontario shall be the law of SDRCC involve Sport Canada: arbitrations. In Québec courts, foreign law must be ‘Although it is to be hoped that the present matter alleged and proven, failing which the court applies the proves to be an isolated case, it may be worth law in force in Québec.15 considering the possibility that whenever court proceedings are instituted in circumstances that may be damaging to the SDRCC process, notice shall be Pound arbitration given to Sport Canada to allow it to intervene in such After the court hearing, M commenced a second proceedings or at least permit it to submit an amicus arbitration.16 In his 25 April award, the arbitrator, brief, so that the courts will have the benefit of

20 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments

knowing the systemic nature of sport-related principle of confidentiality in arbitration when it arbitration process that is in place throughout the concluded that disclosure of arbitration materials in country.’22 the ‘interests of justice’ is not limited to the interests of The conflict between the arbitral and court processes justice in England. Although the decision resulted in is an isolated result. It is unlikely that the result will the English court ordering disclosure of a limited set of repeat itself or that Arbitrator Pound’s comments will documents to third parties, the court stressed that most go unnoticed. arbitrations in England are conducted with complete confidentiality. The court also confirmed that where there is an arbitration agreement, the question of Notes 1 An Act to Promote Physical Activity and Sport, S.C. 2003, c.2. whether an exception to the general principle of 2 See (www.adrsportred.ca/eng/documents/CODEFINAL2007-05- confidentiality applies ought properly to be determined 01EN.pdf). by the arbitral tribunal and it is only in rare 3 See (www.adrsportred.ca/eng/dispute-resource-databases- jurisprudence.cfm). circumstances (such as those that existed in this case) 4 Arbitrator Drymer was correctly identified in the subsequent that a court may intervene. London therefore remains Pound Award, infra, as ‘a well known and respected arbitrator, an attractive seat for parties wishing to arbitrate in both domestically and internationally’. See Pound Award at p 11, order to avoid public exposure and scrutiny of their para 17. 5 24 April 2008 Award, No. 08-0074 (‘Drymer Award’) at p 4, para private business disputes. 13 and p 5, para 18. 6 Drymer Award, at p 13, para 44. 7 Drymer Award, at p 19, para 65. Facts 8 No conclusions are sought against the person but with the effect that the resulting decision is opposable to the person. Michael Wilson & Partners Ltd (MWP) was 9 Kendrick v Merling et al (500-05-006550-923) Marcelin J.C.S. (June established to provide legal services in Kazakhstan. Mr 2, 1992) (‘Kendrick’) EYB 1992-75406, J.E. 92-1142. In Kendrick, the Emmott joined the company in 2001 under an award was annulled for other reasons following which the court agreement that contained an arbitration clause also noted the failure to issue reasons. In Kendrick, neither the parties nor the rules provided for a delay between the award and providing for ad hoc arbitration in England under the reasons. English law. Mr Emmott left MWP in 2006 to set up a 10 Desputeaux v Éditions Chouette (1987) Inc., [2003] 1 S.C.R. 178, business with two other former MWP employees. MWP paragraphs 22, 68 and 69. sued Mr Emmott in arbitration in London for breach 11 R.S.Q. c.25 (‘C.C.P.’). 12 Articles 946.2 to 946.5 applying to homologation of arbitral of contract and breach of trust. Mr Emmott’s two awards, apply as required to annulment. See Article 947.2 C.C.P. former MWP colleagues and two of his companies 13 Article 946.2 C.C.P. (through which he was providing his own legal services 14 Arbitrators may interpret a specific part of the award provided the parties agree. See Article 945.6(2) C.C.P. in Kazakhstan) were also being sued in court 15 Civil Code of Québec, S.Q. 1991, c. 64, Article 2809. proceedings in New South Wales (NSW) in Australia, in 16 25 April, 2008 Award, No. 08-0077 (‘Pound Award’) at p 4, para the British Virgin Islands (BVI), in Jersey and in 13. See (www.adrsportred.ca/resource_centre/pdf/english/NR- Colorado. Mr Emmott was not a party to those other 295819.pdf). 17 Pound Award, at p 7, para 10. proceedings. 18 Pound Award, at p 10, para 16. MWP originally made allegations of fraud and 19 Pound Award, at p 8, para 12. conspiracy against Mr Emmott in the London 20 Pound Award, at pp 7–8, para 11. See also Pound Award, at p 10, arbitration proceedings but the allegations were para 16. 21 Borden Ladner Gervais LLP has appeared on behalf of M to subsequently withdrawn. The NSW and BVI represent him. proceedings did not originally include claims of fraud 22 Pound Award, at p 10, para 15. and conspiracy against Mr Emmott but MWP later successfully applied to the NSW and BVI courts to amend its claim to include allegations that Mr ENGLAND Emmott’s companies had acted fraudulently. In making this application, MWP stated that the purpose behind Has the ‘private & confidential’ cloak the amendments was to ‘bring a level of parity to the been lifted for international arbitration in proceedings being conducted in NSW, the BVI and England? England’. As the London arbitration no longer contained Michelle Sindler claims of fraud but the NSW and BVI proceedings did, Olswang, London Mr Emmott claimed that the allegations made in the [email protected] London case were materially inconsistent with what was being advanced in NSW and the BVI and, consequently, n Emmott v Michael Wilson & Partners Limited [2008] MWP was presenting those courts with a misleading or IEWCA Civ184, the English Court of Appeal inaccurate picture. He applied to the English court for broadened an exception to the general English permission to disclose to the NSW and BVI courts limited categories of documents generated in or in

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 21 Current developments connection with the London arbitration (including be private, that strangers will be excluded from the amended Points of Claim, certain skeleton arguments hearing and conduct of the arbitration and that a court and Points of Defence), claiming that disclosure of the will only intervene in very limited circumstances. This documents was in the interests of justice and would privacy of arbitration is underlined in England by the cause no prejudice to MWP. Civil Procedure Rules (CPR) (the rules that govern the way in which court proceedings are governed in England and Wales). CPR 62.10(3)(b) provides that The court’s findings any court proceedings concerning arbitration will be The English court held (at first instance and on heard in private except for specific exceptions, such as appeal) that, while the documents were confidential in a hearing on a preliminary point of law under s.45 of principle, disclosure should be permitted. In the Arbitration Act 1996 or an appeal or question of permitting limited disclosure of the documents in the law arising out of an award under s.69. Further, CPR foreign court proceedings, the court’s comments and Practice Direction 62.5.1 provides that a court findings can be summarised as follows. application concerning arbitration may only be (i) The interests of justice were not confined to the inspected by a third party with the court’s permission. interests of justice in England. The international Similarly, the privacy of hearings is almost universally nature of the dispute demanded that the court recognised by institutional arbitration rules such as the take a broader view. Therefore, if the interests of LCIA, ICC, AAA, Swiss and UNCITRAL Rules. justice would be served in another jurisdiction, In contrast to matters of privacy, as noted in the disclosure of the arbitration materials would and Emmott case, only few arbitration rules deal expressly should be permitted. with the confidentiality of material generated in an (ii) It was in the interests of justice to order disclosure arbitration (the LCIA and Swiss Rules are among the of a limited set of documents from the arbitration few with quite comprehensive provisions). Some for a limited purpose because, without being important rules are silent on confidentiality (eg, the informed of the London arbitration, the NSW and ICC and UNCITRAL Rules). Cases in some countries BVI courts were in danger of being misled. have expressly rejected a general, implied duty of (iii) It was possible that, by referring a foreign court to confidentiality (see, for example, the controversial the scope of the claims in the English arbitration, Australian case Esso Australia Resources Ltd et al. v MWP had waived its right to assert confidentiality Plowman 138 CLR 10 (1995), the US case United States v over the English arbitration. Panhandle Eastern Corp., 118 FRD 346 (D. Del. 1998), (iv) The Court of Appeal did not have to rule on the and the Swedish case A.I. Trade Finance Inc v Bulgarian issue of the most appropriate forum for Foreign Trade Bank Ltd (Bulbank), 14 Mealey’s Int’l determining the question of confidentiality, as Mr Arbitration Rep.4.A1 (1999), essentially holding that Emmott had chosen to apply to the court for confidential information in arbitration is only directions instead of dealing with the matter in protected when special circumstances warrant a finding the arbitration and MWP had chosen not to apply that the parties intended to keep specific information for a stay. If, however, the issue had arisen, the private). court would have made it clear that this was an issue for the arbitral tribunal (where the matter What are the exceptions? would have been determined in private), as it arose between parties to a pending arbitration. The court in Emmott acknowledged that there is a (v) The court emphasised that, while the interests of well-settled obligation, implied by law in England, on justice necessitated disclosure of the facts of this both parties not to disclose documents prepared for particular case, the decision should not obscure and used in arbitration for any other purpose. The the fact that the overwhelming majority of court also recognised a concurrent and sometimes arbitrations in England are conducted privately overriding public interest that in certain circumstances and with complete confidentiality. disclosure may be permissible (to be determined on a (vi) By authorising the disclosure of certain of the case-by-case basis). documents in redacted form, the court was able to As a result of Emmott, parties to an arbitration in balance what was reasonably necessary against the England may generally be allowed, and may even be need to retain and respect the privacy of the required, to disclose details of the arbitration where: arbitration as much as possible. (i) the parties to the arbitration expressly or impliedly consent; (ii) disclosure is reasonably necessary for the Privacy and confidentiality: a valid assumption? protection of the legitimate interests of an Privacy is an essential feature of the process of arbitrating party (including requirements of arbitration in England. Parties who submit to public reporting, fiduciary obligations, auditing arbitration in England expect that the arbitration will requirements, disclosures to insurers, as well as

22 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments

disclosure in court applications); misleading or inaccurate impression created in the (iii) a court permits disclosure (by order or leave); or foreign court proceedings. (iv) the interests of justice require disclosure and also (perhaps) where the public interest requires Conclusion disclosure. The decision in Emmott appears to restate existing principles about the confidentiality of arbitral Lessons to be drawn proceedings in England. The case emphasises the Confidentiality is still an important advantage of importance placed by the English courts on the private arbitration, but because of the legal inconsistencies and confidential nature of arbitration in England even across jurisdictions and different treatment by though it also demonstrates the willingness of the institutional arbitration rules, parties to an arbitration courts to extend considerations of the interests of should not assume that the existence of their justice to international proceedings. Emmott goes arbitration, the evidence and the award will be kept further than any previous case by allowing disclosure of confidential. If parties are keen to preserve arbitral documents in foreign proceedings to which the confidentiality to the extent possible, they should applicant is not a party. However, despite allowing incorporate express confidentiality provisions in their disclosure in this rather unusual case, the judgment in arbitration agreement and stipulate to confidentiality Emmott confirms that the courts in England respect the terms in an arbitrator’s procedural directions or in an confidential nature of arbitration and will vigorously order from the arbitral tribunal. It may be more safeguard this ‘substantive rule of arbitration law’. difficult to exact confidentiality from witnesses. If Emmott was decided very much on its facts, and had the opting for institutional arbitration, parties should also documents in question been presented to the arbitral consider choosing an institution whose rules provide tribunal as evidence, rather than pleadings, the ruling wider confidentiality protection (eg, LCIA or Swiss might well have been different. Chambers). It is always preferable to negotiate a written arbitration agreement before a dispute arises because it FRANCE is often difficult to reach a consensual agreement once a dispute occurs. The appropriate terms of a Doubts are lifted as to French attorneys’ confidentiality agreement will be different depending ability to prepare witnesses for cross- on the circumstances of each transaction or dispute. examination Any confidentiality clause must, of course, comply with the applicable law in the relevant jurisdiction. Peter J W Sherwin and Ana Vermal When contracting parties consider an arbitration Proskauer Rose LLP, Paris agreement with a seat in England and seek to protect [email protected] • [email protected] the confidentiality of business secrets, or if they seek to ensure their dispute and arbitration remain as n a recent decision, the Board of the Paris Bar finally confidential as possible, they should make sure that: Ilifted enduring doubts as to whether lawyers (i) their arbitration agreement contains an admitted to a French bar can prepare witnesses in appropriate confidentiality clause (covering all international arbitration proceedings prior to their aspects of the arrangement, transaction or examination at hearings without violating France’s venture that they want to keep confidential); applicable ethical rules. After studying a report (ii) if one of them applies to a court for authorisation submitted by the international arbitration committee to rely on confidential information generated or of the Paris Bar Association, the Paris Bar Board disclosed in their English arbitration, the other (Conseil de l’Ordre) issued a decision on 26 February should apply for a stay of the court proceedings in 2008 holding that: favour of the matter being dealt with by the ‘in the context of international arbitration arbitral tribunal, so that it is decided in private, proceedings in France or abroad, it is part of a something that MWP failed to do in the Emmott lawyer’s mission to measure the relevance and case; seriousness of the testimonies submitted in support (iii) if one of them makes reference in a foreign court of his client’s claims and in so doing to adapt to the to English arbitration proceedings, consider applicable procedural rules. In this spirit, the obtaining an injunction from the arbitral tribunal preparation of a witness by a lawyer prior to a or the English courts to prevent any further hearing does not affect the basic principles of the disclosure. legal profession and is a commonly accepted practice As in Emmott, if appropriate, seek an order from the that is needed to allow the lawyer to fully exercise his arbitral tribunal or the court for permission to disclose role as a defender.’1 confidential documents or information to correct any

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 23 Current developments

The procedures applied in international commercial arbitration, where their role is closer to that of arbitration tend to unify, but they can sometimes witnesses in common law systems. The board further conflict with the practice of law as it exists in the home considered that in preparing a witness, a lawyer helps countries of the lawyers acting in such arbitration to ensure the truthfulness and relevance of facts and proceedings. While meetings between a lawyer and opinions stated by a witness, and that the lawyer’s witnesses to prepare for direct and cross-examination objective is thus not to cause the witness to make are common litigation practice in common law statements that are different from what they would countries (and, indeed, a lawyer who neglected to so otherwise have been. In addition, the board recognised prepare witnesses could be found to have failed to fulfil that it is useful for lawyers to familiarise witnesses with his duties), such witness preparation is often banned in the procedure of direct and cross-examination. court proceedings in civil law countries such as France. In France, Articles 1 and 5 of the national ethics code Notes constitute the basis for this prohibition. Article 1, which 1 Petites affiches 30 avril 2008 oN 84 p 4. defines the basic principles of the legal profession, requires that the lawyer perform his duties with ‘dignity, conscience and in accordance with the GERMANY principles of honor and loyalty’. Article 5 requires the lawyer to comply with the requirements of a fair trial, to Refusal to recognise foreign arbitral behave fairly towards the opposing party and to respect award set aside at place of arbitration the rights of the defence. While these principles are very broad and general, they are considered to Stephan Wilske and Claudia Krapfl encompass a prohibition on the preparation of a Gleiss Lutz, Stuttgart witness for his examination, a practice that can be [email protected] • [email protected] viewed as being aimed at influencing the witness’s testimony. n a recent decision, the Higher Regional Court of Although French lawyers who specialise in IDresden refused to recognise a foreign arbitral award international arbitration in practice routinely prepare that had been set aside at the place of arbitration in witnesses for examination at international arbitration Minsk, Belarus.1 The court held that if a foreign hearings, there has been an ongoing debate in France arbitral award is set aside in its country of origin, due to as to whether, in so doing, they are violating the ethical a violation of the applicable arbitration rules, and if and professional rules to which they are subject. such setting aside is in line with fundamental principles Application of the prohibition against the preparation of German law, recognition of the award in Germany is of witnesses in the international arbitration context to be refused. would have created serious difficulties in arbitrations in The case before the Higher Regional Court which one party’s lawyer is subject to the prohibition concerned an arbitration between a US company and a while the other party’s lawyer is not. Arbitral tribunals state-owned company from Minsk, Belarus, in the would have been called upon to prevent the potential business of manufacturing tractors. The parties had unfairness and the situation would, in all likelihood, made an agreement for the US company to deliver eventually have harmed the practice of attorneys tyres and wheel rims to the Belarusian company. The bound by the prohibition. agreement included a clause requiring that any dispute As could be expected in a country that is one of the be resolved according to the Rules of the International main centres of international arbitration and that has Arbitration Court at the Belarusian Chamber of one of the most arbitration-friendly legal environments Commerce and Industry (IAC Rules). After the in the world, the issue has now been resolved in favour Belarusian company failed to pay for the delivery of the of the continued expansion of international arbitration tyres and wheel rims, the US company initiated in France. arbitration proceedings under the IAC Rules. The The Paris Bar Board’s formal decision that the arbitral tribunal issued a final award, ordering the prohibition against preparing witnesses does not apply Belarusian company to pay a total of US$2.1 million to to attorneys acting in international arbitration the US company. proceedings was based on the international arbitration committee’s report, which highlighted, primarily, that the preparation of witnesses does not undermine the Arbitral award set aside in Belarus fairness of the trial requirement; both parties follow the The Belarusian company applied to the Supreme practice and the witnesses’ written statements allow Commercial Court of Belarus, which set aside the each party to be aware of the position taken by the arbitral award. The court based its decision on several other prior to the hearing. The report also gave weight grounds: (i) the arbitration agreement had not been to the fact that witnesses do not play the same role in validly concluded because the permanent branch of French court proceedings as they do in international

24 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments the US company had not been properly registered in the Belarusian company, did not participate in the Minsk and had therefore not been legally competent to deliberations or the voting procedure for the arbitral conclude an arbitration agreement; (ii) the US award. When the chairman asked the arbitrator to sign company had not been properly represented in the the arbitral award, the arbitrator refused and proceedings because there was no proper power of announced that he would be abroad on holiday and attorney; (iii) the arbitral tribunal had ignored a would decide whether to render a dissenting opinion payment and set off prohibition; and (iv) the arbitral upon his return. The chairman considered the tribunal had not followed the applicable procedure arbitrator’s behaviour to be an attempt to frustrate the under the IAC Rules when it issued an award that was rendering of the award, and therefore submitted an signed only by two arbitrators. award signed by only two of the arbitrators and stated Undaunted, the US company requested recognition that the third arbitrator’s signature was omitted due to and enforcement of the arbitral award in Germany, his holiday absence. Under section 10.2 of the IAC where one of the Belarusian company’s subsidiaries was Rules, however, it was necessary for the chairman to domiciled and had assets.2 The Belarusian company replace the missing arbitrator before issuing the award. requested that recognition and enforcement of the His failure to do so was a violation of procedure. arbitral award be denied on the grounds that the award The Higher Regional Court of Dresden confirmed had been set aside by the Supreme Commercial Court that the arbitral tribunal had not adhered to the of Belarus. In response, the US company argued that proper procedure under the IAC Rules and therefore Belarus was a dictatorship and the Supreme the Supreme Commercial Court of Belarus’s decision Commercial Court only served to protect the financial to set aside the arbitral award was compatible with interests of the state, rendering its decision unworthy of fundamental principles of German law. Therefore, the recognition in Germany. According to the US company, arbitral award could not be recognised and enforced in the Supreme Commercial Court had set aside the Germany. award for the sole reason that an award rendered against a state-owned company affected the financial Conclusion interests of the state. Furthermore, the US company argued that the grounds listed by the court to set aside This decision once again highlights the importance the award were not valid. of the applicable arbitration rules and the place of arbitration, especially when it comes to setting-aside proceedings.3 Parties agreeing on institutional Refusal due to arbitral tribunal not observing agreed arbitration rules less commonly used, such as the IAC procedure Rules, should make sure to check the rules for any The Higher Regional Court of Dresden held that it impractical or surprising provisions. It is just as was unreasonable to assume that each court decision in important for the chairperson of an arbitral tribunal to a dictatorship was unlawful, stating that ‘even in a carefully study and follow the applicable rules. dictatorship, court decisions can be correct’. The The Higher Regional Court’s decision, furthermore, Higher Regional Court concluded that the Belarusian shows that there still is not consistent case law court had properly set aside the award based on the worldwide on the question of whether awards that are arbitral tribunal’s failure to observe the agreed-upon set aside at the place of arbitration may be enforced in procedure. The court’s reasoning was based on the other jurisdictions. A recent decision by the Court of European Convention on International Commercial Appeals of the District of Columbia held that an award Arbitration of 1961 (European Convention), which it set aside by a Columbian court would not be enforced held applied due to the most-favoured-nation clause in unless the setting aside of the award violated public a US/Belarus trade agreement, despite the United policy.4 However, there are still courts, especially in States’ status as a non-signatory. The court also held France, which will declare awards enforceable despite that the European Convention’s grounds for refusing their having been set aside at the place of arbitration.5 enforcement of arbitral awards trumped the grounds The Higher Regional Court of Dresden did not contained in the New York Convention on the explicitly decide whether German courts are bound per Recognition and Enforcement of Foreign Arbitral se by decisions of foreign courts setting aside arbitral Awards. awards rendered in their country or whether this is The Higher Regional Court found that, in this case, only the case if the foreign court’s decision is capable the arbitral tribunal had in fact not observed the of recognition in Germany. However, the court did agreed-upon procedure. According to section 10.2 of express an affinity for the view that courts will generally the IAC Rules, if an arbitrator refuses to participate, a be bound by decisions of foreign courts setting aside new arbitrator must be appointed as a replacement. arbitral awards. Under the IAC Rules, such reserve arbitrators are to be appointed at the beginning of the proceedings. In this case, the arbitrator appointed by the respondent, ie,

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 25 Current developments

Notes needs of the franchisor. The court held that the 1 Higher Regional Court of Dresden, Decision of 31 January 2007 franchisor chose New York as the place of arbitration (No. 11 Sch 18/05), SchiedsVZ – (2007) German Arbitration Journal, 328 (the case is currently on appeal before the Federal purely for its own convenience. However, the court did Court of Justice). not consider that a franchisor with tens of thousands of 2 For further details on enforcement proceedings in Germany, see franchise agreements with contract partners all over Rützel, Wegen, & Wilske, Commercial Dispute Resolution in Germany the world requires a consistent dispute resolution (Munich: C H Beck, 2005), pp 157 et seq. 3 See also Wilske & Krapfl,Grounds to Refuse the Declaration of mechanism. The franchisor should not be required to Enforceability Precluded If Not Raised in Foreign Setting Aside pay attention to the national particularities of each of Proceedings, IBA Arbitration Committee Newsletter 37 (October its franchisees and should have the right to agree on 2007). 4 TermoRio S.A. E.S.P. v Electranta S.P. et al., No. 06-7058 (D.C. Cir. one single jurisdiction, ie, one common place of May 25, 2007) (available at http://pacer.cadc.uscourts.gov/docs/ arbitration. common/opinions/200705/06-7058a.pdf) (criticising the Secondly, the court overestimated the difficulties that decision in In re Chromalloy Aeroservices, 939 F. Supp. 907 (D.D.C. the franchisee would face in New York. The court 1996), in which the District Court for the District of Columbia had declared an award enforceable despite it having been set simply stated that the franchisee would have problems aside in Egypt). engaging a US lawyer and attending hearings in New 5 Cour de cassation, 23 March 1994, Hilmarton Ltd. v Omnium de York. These ‘problems’, however, cannot be sufficient traitement de valoristation – OTV, XX Yearbook Comm. Arb. 663 to render an arbitration clause invalid when it was (1995); confirmed most recently by Cour de cassation, two decisions dated 29 June 2007, Putrabali Adyamulia v Rena Holding freely agreed to by two sophisticated contracting (not yet published). parties, who do not require the special protections under German law afforded to ordinary consumers. Surprisingly, the court declared that the travel expenses for a flight to New York were irrelevant to its US arbitration award unenforceable determination. This suggests that the mere distance against German franchisee between the site of arbitration and the home of the Jan Kraayvanger and Mark C. Hilgard1 defendant was not decisive. If distance does not matter, one could argue that arbitration in France or the Mayer Brown LLP, Frankfurt am Main Netherlands would be as burdensome for a regional [email protected] • [email protected] German company as arbitration in New York. Why should it be more difficult to engage a French or a he Court of Appeals of Dresden recently rendered Dutch lawyer than an American? And why would the Ta US-arbitral award unenforceable in the Federal ‘orientation problems’ in New York be greater than in Republic of Germany.2 The arbitration proceedings Paris or Amsterdam? Based on this logic, arbitration that resulted in the award were based on an arbitration clauses in general terms and conditions would always clause used by the sandwich franchisor, Subway, in its have to provide for a place of arbitration in the home general terms and conditions. The arbitration clause jurisdiction of a non-international contracting party. provided for New York, where Subway has its However, this result is contrary to the case law of the headquarters, as the place of arbitration. The Federal Supreme Court of Germany. For instance, in its defendant in the arbitral proceeding was a small decision dated 26 June 1986, the Federal Supreme franchisee of Subway, based in Germany. Court stated that an arbitration clause providing for a Pursuant to section 307 of the German Civil Code, place of arbitration in the Netherlands was valid, even general terms and conditions are null and void if they if the contract partner was a company seated in discriminate against a party to the contract in an Germany.3 unreasonable manner. The Court of Appeals It goes without saying that, under certain conditions, considered New York an unreasonably burdensome site a specific place of arbitration can be so burdensome as of arbitration for the defendant and rendered the to render the entire arbitration clause void. Examples arbitration clause invalid. As a result, the court held the would be when a party uses general terms and award given to Subway unenforceable. The court conditions for the purpose of stipulating a place of reasoned that, while the franchisor was a multinational arbitration in a foreign jurisdiction with the intention company with legal counsel in Germany that could of discouraging the counterparty from enforcing its have easily attended an arbitration proceeding close to rights or when the party cannot reach the place of the business residence of the franchisee, the franchisee arbitration because it requires a visa that has been would suffer ‘orientation problems’ in New York due to denied. Neither of these scenarios is present in the case its small size and lack of contacts to the United States. at hand. The franchisor had a reasonable interest in choosing New York as the place of arbitration, and the A flawed decision franchisee was free to engage a US lawyer and to attend the hearing in New York. The Dresden Court’s reasoning is flawed. First, the court did not pay sufficient attention to the reasonable

26 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments

Conclusion current Ordinance and is governed by the Model Law, incorporated by reference into the Ordinance. The The franchisor has appealed the decision of the domestic regime was updated in 1996 to minimise Dresden Court, and the matter is pending before the differences between the domestic and international Federal Supreme Court of Germany. Based on the arbitration regimes, at which time it was first foregoing, there is a good likelihood that the Federal acknowledged that the Ordinance should be redrawn Supreme Court will overturn the Dresden Court’s to apply the Model Law to both regimes. decision. If the decision stands, however, the The proposed reform implements the contracting parties would be wise to negotiate in the recommendations made in the Report of the future with the Dresden Court’s holding in mind. One Committee on Hong Kong Arbitration Law, published possible solution would be to differentiate between the in 2003, that a new Ordinance should be enacted, site of arbitration and the place where the actual providing for a unitary regime under which the Model hearing takes place. In the case at hand, the franchisor Law will govern both domestic and international could chose New York as the site for arbitration, but arbitrations seated in Hong Kong. determine a place close to the home of its franchisees as a place for the oral hearing. This would be a compromise between the interests of the franchisees The aims of the reform and the needs of the franchisor to have one common The aim of the reform is to create a new Arbitration jurisdiction for all disputes with its various franchisees. Ordinance that will be as user-friendly as possible for users of arbitration in and outside Hong Kong. By Notes adhering to the Model Law, it is hoped that the new 1 Dr Jan Kraayvanger is an attorney (Rechtsanwalt) in the litigation Ordinance will enable the Hong Kong business and arbitration practice of Mayer Brown LLP in Frankfurt am Main; Dr Mark C. Hilgard is a partner of Mayer Brown LLP, community and arbitration practitioners to operate in a attorney (Rechtsanwalt) in Frankfurt am Main and head of Mayer regime that accords with widely accepted international Brown’s German litigation and arbitration practice. arbitration practices and developments. 2 OLG Dresden, decision dated 7 December 2007, ref no 11-Sch- It is also the expressed aim of the government that, 08-07. 3 Federal Supreme Court, decision of 26 June 1986, ref no II ZR due to the familiarity of practitioners from all 200/85. jurisdictions with the Model Law and the adoption of more easy-to-use legislation, Hong Kong will be able to attract more international business parties to Hong HONG KONG Kong as a place to conduct arbitral proceedings and to reinforce and promote Hong Kong as the leading A critique of proposed changes to the regional centre for legal services and dispute arbitration ordinance in Hong Kong resolution. The question that arises, therefore, is whether the 1 Mark Lin, Michael Darowski and Andrew Chin proposed reforms will achieve these objectives and Lovells, Hong Kong whether any opportunities have been missed. In [email protected] • [email protected] • andrew.chin@ answering this question, it is important to keep in mind lovells.com the factors that influence parties to choose arbitration over litigation, particularly, finality, procedural he Government of Hong Kong recently published flexibility, limitations on court interference and Ta Consultation Paper on Reform of the Law of confidentiality. Arbitration along with a draft Arbitration Bill. It is It is the view of the authors that the reform does proposed that, following the consultation, a new represent some progress, in particular with regards to Arbitration Ordinance based largely on the UNCITRAL domestic Hong Kong users, who may be encouraged to Model Law on International Commercial Arbitration opt for arbitration over litigation as a result of the will come into force. It is envisaged that the Draft adoption of a more codified framework for domestic Arbitration Bill will be passed into law in 2009. arbitration than has existed to date. Even though the expressed aims of the reform are admirable, the draft Bill fails to give full effect to those aims. Further, an The background to the reform opportunity has been missed to introduce provisions The current Arbitration Ordinance has different that would help make arbitration a more attractive regimes for ‘domestic’ and ‘international’ arbitrations. alternative to the traditional litigation process and Domestic arbitration is governed by Part II of the encourage international parties to choose Hong Kong current Ordinance and is largely based on the English as a place to conduct arbitral proceedings. Arbitration Act of 1950 (which has now been repealed). International arbitration is governed by Part IIA of the

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 27 Current developments

A unitary regime? the tribunal should take into account all relevant circumstances, such as the fact that a party has made an The draft Arbitration Bill attempts to apply the offer during the proceedings to settle the dispute and Model Law to both the domestic and international the conduct of the parties during the proceedings. In regime. But it also introduces provisions that enable addition, the parties are able to agree that the costs of parties to contract out of the full effect of the Model the arbitration should be assessed by the courts. We Law, which undermines the legislative aim of the respectfully submit that the new Arbitration Ordinance creation of a unitary regime. could have further increased the autonomy of the The proposed reforms, particularly of the domestic arbitral process by giving the tribunal absolute regime, appear to provide for a substantial change to discretion to award costs, rather than requiring it to be the present position. In reality, however, the change to guided by principles that are akin to those applicable to the domestic regime has been rendered somewhat the assessment of costs in court litigation. illusory by the proposal that parties to arbitration The position in Hong Kong as to the ability of a party agreements will be able to opt-in to certain key to present its case has also been retained. Article 18 of provisions that had previously only applied to domestic the Model Law, giving each party a ‘full opportunity of arbitrations. In addition, these opt-in provisions will presenting his case’, has been circumscribed. The new automatically apply to domestic arbitration agreements Arbitration Ordinance gives each party a reasonable entered into before the new Ordinance comes into opportunity to present its case, but the tribunal will also force and to domestic arbitration agreements entered ‘use procedures that are appropriate to the particular into at any time within a period of six years after the case, avoiding unnecessary delay or expense, so as to Ordinance becomes law. provide a fair means for resolving the dispute to which Specifically, the new Ordinance provides that parties the proceedings relate’. Accordingly, the tribunal is can agree to allow all or specific parts of Schedule 3 to given more discretion to regulate the procedure than the new Ordinance to apply to an arbitration between was the case under the Model Law. them. For example, the parties can agree to allow a preliminary question of law to be determined by the courts or permit an arbitral award to be challenged in Confidentiality the courts on the grounds of serious irregularity or to Confidentiality of the proceedings is one of the most be appealed on a point of law. These ‘domestic’ attractive features of arbitration but it is not dealt with features have been retained after some lobbying by the by the Model Law. One of the most notable features of largest users of arbitration in the jurisdiction, but we the draft Bill is that any court proceedings relating to respectfully submit that, in so doing, a chance has been arbitral matters will be heard in open court. This is missed to increase the finality and autonomy of the subject to a party’s application for an order of the court arbitral process, for example, by allowing recourse removing the proceedings from being heard in open against an award to be limited only to the procedural court. This differs from the present position, whereby grounds in Article 34 of the Model Law. court proceedings are heard behind closed doors, Arguably, this important concession also represents a unless a party applies for an order with the opposite step backwards from promoting the ideals of effect. In our view, this is a retrogressive step and arbitration, like minimal court interference, and undermines one of the key attractions of arbitration. promoting Hong Kong’s role as a regional leader in The government explains that this change balances international arbitration. the need to protect the confidentiality of arbitral proceedings against the public interest in having Features of the old regime survive transparency of process and public accountability of the judicial system. However, given the importance that Although the thrust of the reform has been to codify parties accord to matters of confidentiality and the the Model Law into Hong Kong legislation and impose stated aim of attracting international and local it on domestic arbitration, some provisions of the old businesses to use Hong Kong as an arbitration hub, this regime have been retained in the draft Bill. Some of proposed change is surprising. these may be unfamiliar to practitioners from other On a more positive note, the draft Bill maintains jurisdictions and the more important ones may statutory protection of arbitral confidentiality by therefore benefit from a brief summary. providing for a general rule of confidentiality in By way of example, in Hong Kong, the arbitral arbitration proceedings with limited exceptions. tribunal is empowered to award costs both of the proceedings and of any request by a party for a direction or interim measure. Although the tribunal is Interim measures not required to assess costs as precisely as a court in The draft Bill largely adopts the Article 17 Model Law Hong Kong would in litigation, there is a clear ‘court provisions on interim measures. The main difference is litigation’ flavour to this provision. In making its award, that Article 17J (relating to court-ordered interim

28 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments measures) is excluded. Instead, the draft Bill preserves the existing position in Hong Kong that the court is ISRAEL able to order interim measures in arbitral proceedings seated both in and outside Hong Kong. If the measure Supreme Court refuses to stay court relates to foreign arbitral proceedings, it will only be proceeding against corporate officers on granted if those proceedings are capable of giving rise basis of arbitration agreements to an arbitral award that may be enforced in Hong 1 Kong and the measure must be of a type that may be Joseph Benkel and Ofer Larisch made by a court in Hong Kong in an arbitral Raved, Magriso, Benkel, Lahav & Co, Tel-Aviv proceeding seated in Hong Kong. [email protected] • [email protected] We submit that the first condition of linking the enforceability of the award to the granting of an sraeli courts’ approach towards arbitration interim measure is unnecessary. At the time of granting Iagreements, primarily governed by the Israel an interim measure, it is often too early to form a Arbitration Law of 1968 (the ‘Arbitration Law’), has meaningful view on the ultimate enforceability of an been consistently favourable. Arbitration agreements award. The parties may change their case at any time are seen as an effective tool for settling commercial prior to the issuance of an award. Thus, the interim disputes and a means to reduce the Israeli court measure should be dealt with on its own merits, and system’s heavy case load. When an action is brought to the reserve issues concerning the enforceability of the court involving a dispute the parties had agreed to award left to the enforcement stage. arbitrate, and a party to the arbitration agreement applies for a stay of the proceedings, those proceedings Conclusion will be stayed unless special grounds require that the dispute not be referred to arbitration. Similarly, when There is no question that the aims motivating the an international convention to which Israel is a party reform of Hong Kong’s arbitration law should be applies to arbitration, and the convention lays down admired. There are a number of ways in which the provisions for a stay of proceedings, the court shall draft Bill represents a step forward for Hong Kong exercise its power to stay the proceedings, subject to arbitration law and improves on the current position of those provisions (section 6 of the Arbitration Law). arbitration in Hong Kong: it will now be governed by The Israeli courts actively, some might argue one consistent and unified piece of legislation. aggressively, encourage parties to civil disputes, mostly Doubts exist, nevertheless, as to whether the reforms at the preliminary stage of litigation, to adopt have much practical effect and whether they are alternative dispute resolution measures, such as actually ‘pro-arbitration’. By not minimising the arbitration. Moreover, while in English law arbitrators opportunities for courts to be involved in the arbitral are subject to extensive control by the courts, inter alia process and thereby failing to reinforce the finality, by granting a party to an arbitration the right to appeal autonomy and confidentiality of the arbitral process, a to the High Court on a question of law, under the valuable opportunity has been missed to create Israeli Arbitration Law an arbitral award cannot be arbitration in Hong Kong that is a real, more attractive appealed, but only set aside, supplemented, amended alternative, to litigation. Hong Kong risks sending the or remitted to the arbitrator. The grounds for setting wrong signal to the international business community. aside an arbitral award, as specified in section 24 of the While, on the one hand, we recognise the competing Arbitration Law, are limited and narrowly interpreted considerations of different users of arbitration, on the by the courts. other hand, it is regrettable that a chance has been A recent self-imposed limitation on the consistent missed to make an even bolder move to further liberate judicial tendency to refer civil disputes to arbitration the arbitration regime from the influence of litigation was noted in the Supreme Court judgment, rendered practices. in Civil Appeal 10892/02 Neot Oasis Hotels v Mordechai Notes Zisser. The relevant facts were as follows: Oazis Hotel 1 Mark Lin is a partner and Michael Darowski and Andrew Chin Eilat Ltd (‘Oazis Hotel’) was the owner of a parcel of are associates in the international arbitration group of Lovells. land in the city of Eilat. The shareholders of Oazis Hotel, two foreign corporations (the ‘Foreign Corporations’), signed an agreement (the ‘Co- Operation Agreement’) with respondent no 1, Control Centers Ltd. (‘Control Centers’) and with two of its officers, respondent no 2, Mr. Mordechai Zisser (‘Zisser’) and respondent no 3, Mr Samuel Samocha (‘Samocha’). In the Co-Operation Agreement, the respondents undertook actions necessary to allow the

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 29 Current developments construction of a hotel on the land. In consideration of the shareholders of the Foreign Corporations who sold its efforts, Control Centers was granted the right to their shares to the appellants. The Supreme Court appoint two directors in Oazis Hotel and to receive found that the respondents were not mentioned in the shares in that company. Those shares, however, were agreements and neither did they sign the agreements; held in trust by a third party for the benefit of Control moreover, the first two agreements contained the Centers. names of two persons who were acting on behalf of the A few years later, a dispute broke out between the shareholders of the Foreign Corporations. Thus, the parties and, as a result, Control Centers wished to sell respondents could not be considered the legal its rights in Oazis Hotel. The appellants were interested representatives of the Foreign Corporations’ in buying those rights, and they negotiated a deal with shareholders. Nor could the respondents be considered Zisser and Samocha, who were acting as Oazis Hotel’s interchangeable parties with the Foreign Corporations’ representatives. Following these negotiations, and due shareholders, since neither had any obligation or rights to a complex ownership structure, three agreements under the first two agreements. The Supreme Court were signed: the first two agreements transferred the ruled that in those circumstances, in which it is clear shares in the Foreign Corporations to the appellants that Control Centers is not an interchangeable party, it and the third agreement transferred the shares of Oazis could not be said that its officers, respondents 2 and 3, Hotel held in trust for Control Centers back to the were interchangeable parties. It was further held that shareholders of the Foreign Corporations to be passed the 1958 New York Convention, which was ratified in (within the first two agreements) to the appellants. Israel and requires the obedience of Israeli courts to The first two agreements were governed by English arbitration agreements, did not apply because there law and contained arbitration clauses that stipulated was no valid arbitration agreement between the that: ‘Any dispute which arises between the parties appellants and the respondents. relating to and/or in connection with and/or arising In a final note, one of the Supreme Court judges out of this Agreement, its validity, execution, operation, commented that whether an interchangeable party can interpretation and cancellation’ shall be referred to an apply to stay the proceedings to an arbitration arbitrator who will be appointed by the parties. In case agreement in the first place has yet to be considered. of a disagreement regarding the arbitrator’s identity, Since then, however, the Divisional Courts in Israel the arbitrator will be appointed by the International have adopted an independent and affirmative Court of Arbitration in London. Sections 12.1 of the approach to this question, determining that an first two agreements further stipulated that: ‘This interchangeable party indeed has such a right. It Agreement shall bind and inure for the benefit of the remains to be seen whether the Supreme Court will respective parties, their legal representatives, successors follow this trend, which will no doubt have a direct and assigns’. The third agreement contained an effect on the scope of matters to be dealt with in arbitration clause that determined that in case of a arbitration. dispute, an arbitration will be conducted in Israel. The appellants filed a suit against the respondents in Notes the Tel Aviv Divisional Court arguing for damages 1 Joseph Benkel is the Head of the Litigation Department, and caused due to false representations made by the Ofer Larisch is an Associate of Raved, Magriso, Benkel, Lahav & respondents, as a result of which, the appellants Co. arguably agreed to purchase the shares of Oazis Hotel. The respondents filed a motion to stay the proceeding due to the arbitration clauses contained in the first two agreements, contending that the dispute should be resolved in an arbitration conducted in London. The Divisional Court determined that although the respondents were not parties to either of the first two agreements, or to the third one, the respondents should be considered interchangeable parties who entered into the agreements with the appellants (ie, shareholders of the Foreign Corporations); inter alia, the appellants considered the respondents representatives of the interests of those who signed the agreements and they conducted the relevant negotiations on behalf of the sellers. Consequently, the proceedings were stayed. The appellants appealed to the Supreme Court. The Supreme Court held that the question on appeal was whether the respondents had any connection with

30 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments

First, there is the Direct Amparo, a single-stage process MEXICO before panels of Circuit Court judges, which protects individuals from a final decision by any Mexican court. Mexican Supreme Court clarifies Secondly, the Indirect Amparo encompasses a two-stage procedure for constitutional challenges procedure, beginning at the District Court level and to arbitration awards moving up to the Circuit Court. It protects individuals, among others, against any judicial decision other than Leonel Pereznieto Castro a Final Trial Sentence. Jauregui, Navarrete y Nader, Mexico DF In 2002, the media companies Radio Monitor and [email protected] Infored filed a claim against Radio Centro, another James A. Graham media company, seeking the rescission of a contract for Lobo & Graham, Monterrey news production services and the payment of [email protected] subsequent damages. The arbitration agreement called for an ICC arbitration, with an arbitral tribunal composed of three arbitrators, each being ‘an expert in n an important decision, the Mexican Supreme the related matter’. Each party appointed highly Court established that an ‘indirect amparo’ is the I qualified Mexican lawyers as arbitrators and both proper means of challenging the constitutionality of a arbitrators designated the tribunal’s chairman. The decree setting aside or upholding an arbitral award. three arbitrators were confirmed by the ICC, and the However, before reviewing this decision in detail, we parties did not challenge the arbitrators at any time note another ruling that in itself does not have much during the proceeding. In 2004, the arbitral tribunal relevance, but that indicates that notwithstanding an rescinded the contract and ordered Radio Centro to unfortunate ‘kompetenz-kompetenz’ decision,1 the pay damages. Disagreeing with the decision, Radio Mexican Supreme Court reaffirms its willingness to Centro filed a petition to set aside the award on the promote arbitration. ground that the arbitrators were not ‘experts in the field of communication’, as required by the arbitration Reaffirmation of the constitutionality of arbitration agreement. The annulment judge shared Radio Centro’s view and set aside the award. In a ‘national’ arbitration matter, the Supreme Court Not satisfied with the decision, Infored and Radio has once again affirmed the validity of an arbitration Monitor filed an indirect amparo petition before the agreement.2 However, the highest judicial body could District Court, which declared the annulment sentence have ruled that the case involved a matter of void. However, the Circuit Court reversed the District inarbitrability. The facts were as follows. Operadora Court, stating that from a procedural point of view, the Portuaria de Manzanillo, a Mexican company, obtained claimant should not have filed an indirect amparo but a concession from the government to operate a a direct amparo, and furthermore upheld the terminal of the port of Manzanillo, and agreed in the annulment decision of the ruling judge of the Federal concession contract to submit any dispute to District. Consequently, Radio Monitor filed an arbitration. When a controversy arose, the company extraordinary petition before the Supreme Court, alleged that the arbitration agreement was arguing that direct amparo can only be brought against unconstitutional and that Article 3 of the Law of the ‘final trial sentences’ and the decree resulting from a Ports, which recognises the possibility of arbitration, proceeding to set aside an award is not a ‘final trial should be declared constitutionally invalid because the decision’; the procedure is not a ‘trial’ but an jurisdiction of the federal tribunals is mandatory. The incidental proceeding. justices, however, found that arbitration is The petitioner’s arguments were well received by the constitutional as long as the law permits it, and that, in Supreme Court, which held that only an indirect this case, the parties had voluntarily agreed to submit amparo can be filed against decrees that set aside or any disagreement to arbitration. Consequently, even if uphold awards because they are decisions ‘outside of a the decision did not affirm arbitrabilityexpresis verbis, it trial’.6 did hold that there is no objective inarbitrability just Some voices may disagree with the commented because public authorities are involved in a contract,3 decision, arguing that a direct amparo is a faster which corresponds to the criteria of the American proceeding than an indirect amparo, but there is no Supreme Court’s well-known Mitsubishi ruling.4 doubt that the Supreme Court’s ruling is more than justified. The decision not only corresponds to the text Clarification of the constitutional proceedings and the spirit of the Law of Amparo, but it also upholds the principle that an arbitral award is a final decision, Amparo is a legal mechanism for enforcing the as a direct amparo proceeding would open the door to Constitution and protecting individual constitutional de novo review of arbitral awards, an approach that was rights.5 There are two different procedures of amparo. banned by the federal courts years ago.7

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 31 Current developments

Notes valid reason to grant an arbitration award reversal 1 Graham, Mexican Supreme Court decisions on the authority of courts appeal. The Constitutional Court found that a suit for over arbitration agreements and the enforcement of awards, IBA Arbitration Newsletter, March 2008.29. an extension of time on a work agreement (ie, 2 Amparo en revisión 137/2008, 4/23/08 (unpublished). contractor delays) does not affect a protected right. 3 Graham et al, Guía práctica para el arbitraje internacional The Peruvian Constitutional Court is restricted by the (Monterrey: Lazcano, 2005). grounds specifically established by the Arbitration Act. 4 Yearbook, 1986.565. 5 Zamaro, Cossio, Pereznieto et al, Mexican Law (New York: The court’s opinion, however, does not render Oxford, 2004). arbitration awards unreviewable under the Arbitration 6 Contradicción de tesis 78/2007-PS. Entre las sustentadas por el Act. Rather, it means that such review may not be Segundo Tribunal Colegiado en Materia Civil del Sexto Circuito, Tribunales Colegiados Segundo y Sexto, ambos en Materia Civil exerted by an arbitration award reversal proceeding. del Primer Circuito y Tribunales Colegiados Tercero y Décimo Those rights are protected by a proceeding for relief. Tercero, ambos en Materia Civil del Primer Circuito. 19 de Furthermore, the Peruvian Constitutional Court held Septiembre de 2007. See, Graham, La fase post-arbitral en materia de that in order to preserve the arbitrator’s power to issue controversias comerciales internacionales, Revista Internacional de Derecho y Ciencias Sociales, 2004, n 5, p 9. a judgment, actions for relief may not be filed until the 7 Cuarto Tribunal Colegiado en Materia Civil del Primer Circuito. arbitrators have conducted the regular proceeding and Amparo en revisión 364/2002. 22 de febrero de 2002, issued an arbitration award. In other words, an action Unanimidad de votos, Núm. 53 C. for relief cannot stay the arbitration proceeding. The Constitutional Court explained that in a defence action the court considers whether: (i) the objection PERU was filed after the issuance of an award; (ii) all possible legal actions have been exhausted; (iii) the Arbitration awards and proceedings for interpretation of legal provisions executed by the relief Arbitration Court infringes on jurisdictional Juan Manuel Nunez Salinas protections or on the legal process; (iv) the facts and Valencia Law Office, Lima circumstances are subject to arbitration; and (v) the alleged infringement of a basic right is supported by [email protected] the facts and the law. In summary, a party can file an action for relief nder the Peruvian Arbitration Act, a proceeding against an arbitration award that violates any Uto reverse an arbitration award may only be filed if fundamental right, even if the right is not enumerated the grounds for reversal are specifically enumerated in in the Arbitration Act. However, when the right the Arbitration Act.1 A violation endangering a jeopardised is actually included in the Arbitration Act’s fundamental right, but not included in the grounds for grounds for reversal, the suitable means for asserting the reversal of an arbitration award, may not be this right is filing an arbitration award reversal appeal brought as an arbitration award reversal appeal. or annulment. Instead, to protect fundamental rights, a losing party can file an action for relief from the arbitral award. Notes On 16 November 2007, under docket no 04195-2006- 1 Ley 26572, Official Gazette, 3 January 1996. AA/TC, the Peruvian Constitutional Court explained that an arbitration award may be reversed by filing an arbitration award reversal appeal or annulment. In this case, PROIME Contratistas Generales brought an Judicial proceedings after a finding that action for constitutional injury against the Superior an arbitration award is null and void Court of Justice of Lima. PROIME had brought a defence action before the Superior Court against an Mario Castillo Freyre and Rita Sabroso Minaya arbitration award issued by the Colegio de Ingenieros Estudio Mario Castillo Freyre, Lima del Peru Arbitration Court. This defence action [email protected] • [email protected] asserted that the award should be overturned because the arbitrators made an uninformed decision eruvian arbitration law, Law no 26572, provides that infringing on their right to an adequate process and Pan arbitral award is null and void if the subject of jurisdictional protection. The Superior Court of Lima, the arbitration was not expressly or implicitly submitted however, held that PROIME’s defence action was to arbitration (Article 73, paragraph 6). Thus, improper; PROIME objected to the general validity of arbitrators cannot resolve disputes that were not the arbitration award and not to the violation of a assigned to them. The question arises as to what particular protected right. PROIME then appealed to happens after an award is declared null and void. the Peruvian Constitutional Court. The Constitutional The Peruvian Arbitration Law states that if an arbitral Court reviewed the case and agreed with the Superior award is found null and void, the dispute will of Court of Lima that an uninformed decision is not a automatically be referred to the judiciary unless

32 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments otherwise agreed by the parties (Article 78, paragraph 6). But the law does not specify whether the court ROMANIA should merely substitute its judgment for the arbitrators or whether the court is required to re-try the Arbitration of capital market matters in entire dispute. Romania Cristina Metea and Cornel Popa A sentence in substitution of the null and void award Ţuca Zbârcea & Asociaţii, Bucharest Once an arbitral award is found null and void, the [email protected] • [email protected] court can simply review the prior proceeding and enact a sentence in substitution of the null award. If the he Bucharest Stock Exchange S.A. (the ‘BSE’), the legitimacy of the arbitral procedure was maintained Toperator of the securities regulated market, has set until the award was enacted, then the proceedings are up a permanent arbitration body, namely the still valid. For judicial economy, the judge could merely Arbitration Court of the Bucharest Stock Exchange S. study the prior proceeding and provide a sentence A. (the ‘BSE Arbitration Court’). Organised pursuant based on his/her judgment replacing the null and void to the former capital market law (Law no 52/1994),1 award. the BSE Arbitration Court is governed by the In practice, merely substituting the evaluator is Procedural Rules adopted by the BSE Committee, as difficult. First, the Peruvian Arbitration Law does not approved by the regulatory authority, the National establish which judicial body a party should address; it Securities Commission, through decision no 372 of 31 is not clear if the competent authority is a First Instance January 2006 (the ‘Procedural Rules’).2 Court (Civil or Commercial) or the Superior Courts. Secondly, the required paperwork and filing fee for this kind of sui generis procedure are unknown. Thirdly, Jurisdiction of the BSE Arbitration Court there is no previously established legal procedure or The BSE Arbitration Court is a permanent means of entering a request for a sentence in arbitration body organised by the BSE for the substitution of a null and void award at the Documents settlement of disputes relating to regulated markets Filing Desk for the First Instance or Superior Courts for and the alternative trading system operated by the BSE, petitions. Finally, it is unclear how the appeal process and between: would work if the sentence just replaced the award. (i) participants in the BSE trading system;3 (ii) participants in the BSE trading system and the Setting aside the previous proceedings issuers of securities or financial instruments permitted to trade on the BSE system; When an award is voided, the dispute remains (iii) issuers of securities or financial instruments that unresolved. A court could therefore initiate a new are traded on the BSE system; or proceeding to resolve the controversy, setting aside the (iv) clients and participants in the BSE trading system. arbitration proceeding that resulted from the null and The parties to a dispute may submit a claim to the void award. The parties could still partially reproduce BSE Arbitration Court for arbitration if there is an the prior proceedings through presentation of the arbitration clause in the contract, or the parties agree proceedings or by making reference to them, but the to arbitrate after the fact. An agreement to arbitrate court would review the dispute de novo. (either in the form of an arbitration clause or a De novo judicial review, however, runs counter to the separate agreement) must be in writing to be valid. The parties’ intentions. The parties initially agreed to Procedural Rules expressly state that the validity of an arbitrate instead of submitting their dispute to the arbitration clause is determined independently of the judiciary, presumably for a rapid resolution of their validity of the contract in which it is included. Further, controversies. It is not reasonable to force the parties to the arbitral tribunal has the authority to rule on its own undergo an entirely new, time-consuming proceeding ability to decide a case. Unless there is a provision to before the judiciary after completing an arbitral the contrary, it is presumed that the parties accept the proceeding. It would go against the principle of BSE Arbitration Court’s Procedural Rules. procedural celerity. Further, only the arbitral award was declared null and void, as discussed above; the procedure itself was not defective. Arbitral tribunals Although both interpretations of the Peruvian Generally, disputes submitted to the BSE Arbitration Arbitration Law have pluses and minuses, the authors Court are to be heard by a panel of three arbitrators. of this article assert that judicial review should not However, should the parties agree, the disputes may be extend to an entirely new hearing. Judicial review heard by a sole arbitrator. should be limited to a mere substitution of the Under the Procedural Rules, each party nominates evaluator. one member of the panel and one replacement

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 33 Current developments arbitrator from the BSE Arbitration Court’s published The arbitral decision list of arbitrators.4 The claimant indicates the names in The arbitral tribunal must rule within five months of its request for arbitration. The respondent has to make the proceedings, unless the parties have agreed its nominations within ten days of receiving the request otherwise. The tribunal must decide the case on the for arbitration. The two arbitrators nominated by the basis of the main contract, the relevant legal provisions, parties then nominate the third arbitrator, who also the commercial practice and, if necessary, the chairs the arbitration panel. Should one of the parties applicable law. Should the parties expressly agree, the not make an appointment, or the two arbitrators not arbitral tribunal may resolve the case ex aequo et bono. agree on the person to chair the panel, the claimant If the tribunal fails to rule on a claim, within ten days may request that the Chairman of the BSE Arbitral of receiving the ruling, the arbitral decision may be Court make such nominations. amended at the request of any of the parties. The The nominated arbitrators must accept the correction of clerical, computational or typographic appointment in writing within five days of receiving the errors may also be requested within the same time nomination. To accept, each arbitrator signs an frame. Communication of the arbitral decision to the engagement letter and promises to arbitrate impartially parties has the same effect as a final court decision; it and in full compliance with the applicable procedural may be enforced after a competent court issues a writ rules. of enforcement. An arbitrator may be recused for lack of A party may annul a decision by filing a motion to independence or impartiality. However, the nominating annul for the following grounds: party may only seek recusal for causes that arose (i) the dispute could not be resolved through subsequent to the arbitrator’s nomination. arbitration; (ii) there was no arbitration clause or agreement to Arbitration proceedings arbitrate or the arbitration clause is null or ineffective; A request for arbitration must be filed in writing, (iii) the arbitral tribunal was not appropriately identify the parties, and indicate the applicable constituted; arbitration clause or agreement, the subject matter and (iv) a party missed a hearing where the argument took amount in controversy, de facto and de jure grounds place due to a lack of proper notice; for each of the claims, the documents or other (v) the arbitral decision was issued after the evidence in support of the claim, and the nominated expiration of the five-month deadline; arbitrator and replacement arbitrator. Should any of (vi) the arbitral tribunal either ruled on matters that the required information be missing, the Chairman of were not requested, failed to rule on matters that the BSE Arbitration Court will ask the claimant to were requested, or granted greater relief than was supplement the request within five days. requested; After a request is filed, the respondent has 30 days to (vii) the arbitral decision did not contain the submit a statement of defence. Counterclaims may be resolution or the grounds, it did not show the filed with the statement of defence or separately, until date and place of issue; or it was not signed by the the first hearing of the case. Any motion regarding the arbitrators; existence or validity of the arbitration agreement, the (viii) the resolution provides for something that is not constitution of the tribunal, the limits of the practical; or, arbitrators’ competence or the proceedings may be (ix) the arbitral decision violates the public order, the raised until the first hearing, unless a shorter term has moral order or mandatory legal provisions. been established by the tribunal. Additionally, written The parties may not waive their right to challenge the evidence must be submitted to the tribunal by the date arbitral decision until after the decision is issued. A of the hearing. motion to challenge the arbitral decision must be made Once the arbitral tribunal is selected, the case file is within one month after the decision is issued. transmitted to the tribunal (or the sole arbitrator). The tribunal will then set a hearing and summon the parties before the tribunal, giving the parties at least 15 days The role of other arbitration bodies advance notice. Can a dispute involving the BSE trading system, but The tribunal may only consider evidence indicated in also involving an external element (eg, one of the the submissions filed by the parties. Further evidence parties is a foreigner or a legal entity registered may be considered if it is necessary to the hearing and abroad), be arbitrated by the Court of International producing such evidence would not cause undue delay. Commercial Arbitration attached to the Court of The entire arbitration file is confidential. No third Commerce and Industry of Romania? In our view, the party may have access to the file unless agreed to in answer would be ‘yes’. The jurisdiction of the BSE writing by the parties and approved by the arbitral Arbitration Court is not exclusive. Therefore, parties to tribunal.

34 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments a dispute have the freedom to choose their forum. This Despite general stipulations in the law, there are no alternative is available as long as the arbitration clause substantive criteria available for determining the does not exclude arbitration before the Court of partiality of an arbitrator. In practice, it is always a International Commercial Arbitration. In the absence question of how much an arbitrator should actually of an arbitration clause, the other party must agree that disclose. Therefore, any case law on the subject is of the the dispute can be arbitrated by another arbitration greatest significance. body. The issue of impartiality was addressed in a recent Russian Supreme Arbitrazh (state commercial) Court decision. At a request brought by OAO NK Rosneft, the Notes 1 Law 52/1994 has been repealed by the Government Emergency court of first instance set aside an arbitral award Ordinance no 28/2002, which in turn was repealed by Law rendered by the International Commercial Arbitration 297/2004 on the capital market, the current law in the capital Court of the Russian Chamber of Commerce and market area. According to Article 134 para (6) of Law 297/2004, the market operator may set up an arbitration system for disputes Industry (ICAC or MKAS) in favour of Yukos Capital between intermediaries and/or issuers of securities. S.a.r.l. The decision of the court of first instance was 2 The Procedure Rules are available (www.bvb.ro/Regulations/ challenged in cassation and finally tried by the RegCamArbit.aspx). Supreme Arbitrazh Court. Eventually, the Supreme 3 According to the Rulebook of BSE, ‘participant’ means any authorised intermediary (brokerage house) or investment Arbitrazh Court set aside the award on the grounds company recorded with the public registry of the National that there were defects in the composition of the Securities Commission, admitted in the trading system of BSE and arbitral tribunal. registered as such in the Participants’ Registry kept by the BSE. In its request, OAO NK Rosneft argued that the 4 The list of persons recorded as arbitrators with the BSE Arbitration Court is posted on the BSE website (www.bvb.ro/ arbitrators did not disclose their connection with the Regulations/RegCamArbit.aspx). legal counsel of the other party at the time of their appointment. It appeared that the arbitrators had spoken at a conference organised and financed by the RUSSIAN FEDERATION law firm representing Yukos Capital S.a.r.l. All three court instances noted that it is a statutory Setting aside arbitration awards: recent obligation of an arbitrator to disclose any information case law that may raise doubts as to his or her impartiality. The courts, however, did not state that participation in the Roman Zykov and Petra Kiurunen conferences established the partiality of the arbitrators Hannes Snellman, Moscow and Helsinki per se. Rather, the courts left it to the challenging party [email protected] • petra.kiurunen@ to decide whether such circumstances were essential hannessnellman.com enough that an arbitrator should be dismissed. Meanwhile, it remains an arbitrator’s duty to disclose he Russian courts recently issued two decisions any such information. Toutlining the practice of setting aside arbitral awards. In the first case, the Supreme Arbitrazh Court Comments defined boundaries for the impartiality of arbitrators in perhaps a surprisingly strict manner. The second case Accordingly, arbitrators’ involvement in academic raises even more questions; the views taken by the events, such as conferences, should be made known to Constitutional Court (likely prompted by an evidently the other party. The courts, however, did not set out corrupt procedure) opened the door for third parties any general standards as to the partiality of arbitrators. to challenge arbitral awards by claiming that the In the absence of elementary impartiality standards outcome affects their rights. Both cases may under Russian law, guidance should have been sought unfortunately add to foreign practitioners’ mistrust of in other legal sources, such as business practices. In this the recognition and enforcement of arbitral awards in respect, the IBA Guidelines on the Conflict of Interest Russia. in International Arbitration might be of interest. Secondly, the facts of the case suggest that information pertaining to the conference, such as its Arbitrator’s duty to disclose programme and the list of participants, was available on As with most arbitral regimes, Russian law stipulates the internet. One might argue that the background of that an arbitrator shall disclose any circumstances that the arbitrators could be easily established if the may give rise to justifiable doubts as to his or her challenging party exercised a minimum duty of care impartiality or independence. If the arbitrator fails to when the tribunal was composed, but this case disclose any information or circumstances at the time disregarded such a duty. This may lead to the the arbitrator is appointed, there may be grounds to conclusion that failure to exercise a duty of care in attack the arbitral award in the future. appointing an arbitrator does not necessarily waive a party’s right to challenge the arbitrator’s appointment.

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 35 Current developments

Challenging an award by third parties The constitutional court, however, held that one person’s recourse of judicial protection does not The Russian Constitutional Court examined a claim breach the constitutional right of the other person to that challenged certain judicial procedural norms’ judicial protection. Interference by a third party does compliance with the Russian Constitution. In their not preclude the other party from protecting its rights claim, a number of individuals asserted that a non-party in the same case. Furthermore, if an award is annulled, to an arbitration agreement may not challenge an it can always be re-arbitrated or litigated to protect the arbitral award. infringed rights. Therefore, the constitutional court The claim arose out of the Kursk Arbitrazh Court’s dismissed the claim. decision to set aside a domestic arbitral award at the request of the Kursk Regional Unit of the Agency for Federal Real Estate Management. Despite the fact that Comments the agency was not a party to the arbitral proceedings, Decisions of the courts do not have precedential its interests were directly affected by the award. By value in Russia. In practice, however, the courts closely virtue of the award, the claimants were granted the follow the decisions of their colleagues, striving for property registration right to a land plot possessed by uniform application of the laws. There is no question the state agricultural company Nadezhda, ie, the that this case is another obstacle in the path of transfer of the title from the state to the private persons arbitration. in question. It may be argued that the claimants chose a dubious The decision was upheld by a court of higher approach to tackle the matter. Since the challenged instance; the cassation court held that a non-party to an provisions of the Arbitrazh Procedure Code echo the arbitration proceeding may request an arbitral award constitutional principle of judicial protection, the be set aside if the party’s rights are affected by the claimants in essence attacked the constitution itself. award. Such affirmation was based on a procedural rule Therefore, it could have been anticipated that the that any person may seek protection of their rights in constitutional court would dismiss the claim. More the state courts. The court held that as long as there is importantly, the case opens up a discussion on the no other way of intervening in an arbitration protection of third parties from awards of corrupt proceeding, an appeal to set aside the award is the only tribunals. Despite heavy criticism of the ratio decidendi way for a party to protect its rights. of the decisions of the Arbitrazh Courts and the The Arbitrazh Court also noted that the arbitration constitutional court, this motion seems to be the only was conflicted. The person acting as the sole arbitrator protection available under Russian law to third parties later represented the respondent in state court whose interests are impacted by arbitral awards. proceedings. This, of course, raises doubts as to his Presumably, more claims of this type will be filed in the impartiality. Secondly, the court noted that disputes future, especially in ‘shareholders v management’ cases arising from the titles to real estate fall within the and in real estate disputes. exclusive jurisdiction of the state Arbitrazh Courts, and thus the case should not have been arbitrated in the first place. SOUTH AFRICA The ruling of the constitutional court New alternative domain name dispute Disagreeing with the Arbitrazh Court’s rulings, the resolution procedure claimants addressed the constitutionality of the Megan Reimers constitutional court’s following of procedural rules: ‘an Spoor & Fisher, Pretoria interested party may appeal to the court for protection [email protected] of its rights’ and ‘a person whose rights are affected by a court decision may challenge such decision’. In essence, the claimants argued that the procedural here has recently been a welcome development in rules invoked by the courts in their decisions restricted Trelation to domain name dispute resolution in their freedom to enter into an arbitration agreement South Africa. and prevented them from effective legal protection. The South African co.za domain is not regulated by The claimants noted that the appeal to set an award ICANN’s Uniform Domain Name Dispute Resolution aside is only available to the parties of the arbitration. Policy (UDRP) and it is not possible to lodge a Hence, the right to challenge the award could not have complaint in relation to a co.za domain with WIPO. been extended to the agency. This has made things difficult for South African trade As the objective of the constitutional court is only to mark owners as the only possible action which a trade consider the constitutionality of certain norms of mark owner in South Africa can take against the Russian law, it did not review the merits of the dispute. unauthorised registration of a co.za domain name is to

36 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments institute court proceedings for trade mark infringement. However, a new procedure which is very SPAIN similar to the procedure followed by WIPO in its administration of the UDRP has now been introduced The binding effect of an arbitration in South Africa. clause on the signatories of an ancillary The procedure has been introduced as a result of the contract: the Spanish Supreme Court Electronic Communications and Transactions Act No. approach 25 of 2002. This Act provided for regulations to be issued relating to domain name dispute resolution in Elisabeth de Nadal and Victor Manuel Sánchez South Africa. The regulations were published in Cuatrecasas Abogados, Barcelona November last year, effectively introducing an [email protected] • victormanuel.sanchez@ alternative dispute resolution procedure in the case of cuatrecasas.com domain names which can be used instead of going to court. he Spanish Supreme Court is contributing As in the case of the UDRP, the regulations allow for Tsignificantly to the rise and development of the appointment of certain approved providers to arbitration in Spain by applying doctrines in support of administer the dispute resolution procedure. In April alternative dispute resolution in its judgments. The of this year, it was announced that the South African court’s recently published decision in case number Institute of Intellectual Property Law (SAIIPL) and the 404/2005 represents a milestone on the road towards Arbitration Foundation of South Africa (AFSA) have overcoming a now-distant past of hostility towards both been accredited as dispute resolution service arbitration.1 In that decision, the Supreme Court held providers under the regulations. Consequently, as of 1 that a non-signatory could be bound by an arbitration April 2007, it is possible to lodge a complaint in agreement if it was a party to a different contract connection with a co.za domain name to either of these closely linked to the agreement mandating arbitration. bodies. As is common in domestic arbitration laws, the The regulations specify the circumstances under Spanish Arbitration Statute 6/2003 does not deal with which complaints can be lodged and the procedure to the impact of an arbitration agreement on non- be followed. In essence, any party can lodge a signatory third parties. This lack of clear authority, complaint against a co.za domain if the domain name together with the importance of the rule of privity of qualifies as either an ‘abusive registration’ or an contract under Spanish law, has presented a hurdle to ‘offensive registration’. An ‘abusive registration’ is a multiparty and multicontract arbitrations. The registration which takes unfair advantage of the rights Supreme Court has only addressed multiparty and of the complainant. This covers all rights, of whatever multicontract situations on a case-by-case basis.2 type, such as intellectual property rights, commercial, Although built upon a slight theoretical basis, the cultural, linguistic and personal rights. An ‘offensive decision in case number 404/2005 provides an answer registration’ is contrary to law or likely to give offence to a problem that frequently arises when the following to any class of persons. The regulations consequently contractual structure has been used: a main contract open the door wide for complaints to be lodged. that contains an arbitration clause is accompanied by Complaints can be filed against domain names which an ancillary agreement that does not contain an incorporate registered trade marks or even trade marks arbitration clause, in which a third party also which are not registered but which are well known. participates, generally guaranteeing the debt arising Complaints can also be filed against domain names from the main obligations or establishing an escrow which amount to hate speech or racism or any other agent in charge of releasing the variable price of the such names which are contrary to public policy. main contract. The main contract and the ancillary If the complainant is successful in the case of an agreement are connected, not only because the latter abusive registration, the domain name registrant will be complements the former, but also because it owes its ordered to transfer the domain name to the existence to it. complainant. In the case of an offensive registration, The factual background behind the decision in case the domain name will be deleted and prohibited from number 404/2005 follows this pattern. In that case, future registration. It is possible to appeal the decision ITSA and Satcom entered into a sales contract under of the adjudicator – either to a panel of three which Satcom would provide ITSA with components to adjudicators or to the court. develop a system of ‘Active Television’ in Spain. In a The new regulations intend to provide a cost-efficient subsequent agreement, a bank guaranteed the and expeditious resolution of domain name disputes. fulfilment of ITSA’s payment obligations to Satcom The development is to be welcomed and goes a long under the sales contract up to €901,518.16. The sales way to ensuring that South Africa is keeping pace with contract contained an arbitration clause, but the international developments. subsequent agreement containing the guarantee did not.

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 37 Current developments

ITSA sued both Satcom and the bank before the arbitrated, as the link between the two contracts was Spanish courts, claiming that Satcom had breached the very close, regardless of whether the third party sales contract and, accordingly, requesting that the participated in the contract containing the arbitration guarantee be held unenforceable. Satcom filed a clause. The Supreme Court’s decision also tracked motion, arguing that based on the arbitration Bernard Hanotiau’s ‘Problems Raised by Complex agreement the court lacked jurisdiction. This motion Arbitrations Involving Multiple – Contracts – Parties was granted by the trial court and the ruling was Issues’ 18(3) Journal of International Arbitration 256 affirmed by both the provincial court and the Supreme (2001), which referred to a sales and purchase contract Court, requiring the claims against both the seller and entered into by two parties that contained an the bank to be arbitrated. arbitration clause and a subsequent complementary The Supreme Court grounded its decision to apply contract of escrow that did not. Mr Hanotiau also the arbitration clause to the bank on several pro- concluded that all parties involved in the transaction arbitration premises. First, the Supreme Court relied should be subject to arbitration. on a doctrine called ‘transmission of the arbitral Both the French Supreme Court and Mr Hanotiau agreement’, whereby non-signatories are bound by an focused on the close connection between the subject arbitration clause if the contract containing the clause matter of the two contracts to extend the binding recognises the rights of those non-signatories. effects of the arbitration clause. In contrast, the Apparently, for the Supreme Court, it was the reference Spanish Supreme Court disregarded the existence of made to the non-signatory in the main contract, not an ancillary agreement, and relied only on the rights the ancillary contract to which the non-signatory was a given to the third parties in the contract containing the party, that bound the non-signatory to arbitrate. The arbitration clause. Supreme Court’s approach departed from the ordinary Two aspects of the factual background of case civil law of contracts, which would require the non- number 404/2005 are not mentioned in the decision signatory’s consent or acceptance for the contract to itself but modulate to some extent its implications for bind it.3 arbitration practice. First, the bank did not oppose Secondly, the Supreme Court relied on the non- either the initial filing in the Spanish courts or the signatory’s involvement in enforcing the contract motion to dismiss for lack of jurisdiction. Accordingly, containing the arbitration clause in order to hold the the bank’s role in the proceedings was not affected by non-signatory bound. Again, it was not mentioned that the jurisdictional issue. Secondly, although the the bank was a party to a different, but related, agreement entered into by the bank did not contain an ancillary agreement intended to complement the sales arbitration clause, it also did not contain a clause contract. Yet, although not mentioned expressly, the granting jurisdiction to Spanish courts. Should it have Supreme Court’s underlying point could be contained such a clause, it would have been interesting understood as finding a single transaction, involving to see whether the solution reached by the Supreme more than one contract and multiple parties. Court would have been the same. Accordingly, the arbitration clause also bound the non- signatory parties who participated in the execution of Notes that transaction. 1 Sentencia Tribunal Supremo núm 404/2005 (Sala de lo Civil, Finally, the Supreme Court referred to the doctrine Sección 1ª), de 26 Mayo (RJ 2005\4140). of ‘incorporation by reference’ to hold the non- 2 Case law already allows non-signatories to be bound by an arbitration agreement in several instances: where the non- signatory bound, even though it expressly stated that signatory has been subrogated by law to the rights and obligations the doctrine did not apply to this case. The Supreme of a signatory; where the corporate veil doctrine allows a non- Court referred to the preliminary recitals of the signatory entity to be bound by a signatory corporation’s Spanish Arbitration Act, which defines ‘arbitral clause agreement to arbitrate; where an arbitration clause in corporate bylaws binds all shareholders without regard to whether they were by reference’ as a clause not included in the principal shareholders when the bylaws were approved; and where a merger contract, but understood to be included in that makes the acquiring company subject to the acquired entity’s contract due to a reference made to it in a separate rights and obligations under an agreement containing an contract that does contain an arbitration clause. The arbitration clause. 3 Article 1257 of the Spanish Civil Code. incorporation by reference, as it is interpreted by case 4 For instance, in Compañía Española de Petróleos, S.A. v Nereu law, is a more elaborate way to reach the same Shipping, S.A., 527 F. 2d 966 (2d Cir. 1975), cert. denied, 426 U.S. outcome.4 936 (1996), the doctrine of incorporation by reference was The Supreme Court’s decision was in line with the applied to extend the binding effects of an arbitration clause to a guarantor who was not a signatory to the contract. The guarantor best authority from other jurisdictions. Its approach guaranteed the obligations of one party under the contract was similar to the French Supreme Court’s judgment in containing the arbitration clause. Société Firma Waibel v Käuffer, which dealt with a sales 5 Cour de Cassation, Deuxième Chambre Civile, 30 Mars. 2000, N° agreement that contained an arbitration clause and an 9815090. escrow agreement that did not.5 The French Supreme Court held that a dispute over the escrow must be

38 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments

tribunal should have applied the doctrine of assertion SWEDEN and based its decision about jurisdiction on the facts alleged by Petrobart. The Supreme Court therefore set Clarification of the doctrine of assertion aside the award. and other recent Swedish Supreme Court arbitration decisions Refusal to deposit security for arbitrators’ fees does Tore Wiwen-Nilsson and Niklas Åstenius not lead to forfeiture of right to arbitrate future Mannheimer Swartling, Malmö disputes [email protected] • [email protected] In a recent decision (case Ö 2289-05), the Supreme Court clarified the consequences for a party that fails to he Swedish Supreme Court (case T 2113-06) pay its part of the advance for the arbitrators’ fees Trecently set aside an award in an investment requested by the arbitrators. arbitration where the tribunal dismissed the claim In a Swedish arbitration between two Polish because there had been no ‘investment’. The Supreme companies, the defendant refused to pay its part of the Court found that the arbitral tribunal, instead of second round of advance payments for the arbitrators’ examining the facts invoked by the claimant, should fees. The claimant had also declined to pay the have applied the doctrine of assertion when defendant’s share. The arbitration was subsequently determining its jurisdiction. terminated and the tribunal ordered the parties to pay In an investment arbitration between the Gibraltar the arbitrators’ fees jointly and severally. The claimant corporation, Petrobart, and the Kyrgyz Republic, then sued the defendant in court, alleging that the Petrobart based its claim on the law of foreign defendant’s refusal to pay its part of the advance investments in the Kyrgyz Republic, which provided for constituted a breach of the parties’ agreement. The protection of investments. The law also provided that claimant claimed compensation for damages, ie, the ‘investment disputes’ between a foreign investor and arbitrators’ fees, its legal fees, and its own costs for the the Kyrgyz Republic should be settled through terminated arbitration. The defendant, relying on the arbitration. The Kyrgyz Republic, on the other hand, arbitration clause in the parties’ agreement, asserted objected to jurisdiction of the tribunal on the basis that that the claim should be arbitrated and requested that Petrobart was not a foreign investor and that it had the court dismiss the claim. The claimant, however, made no investment according to the meaning of the argued that the defendant had forfeited its rights to law. invoke the arbitration clause since the defendant The tribunal agreed with the Kyrgyz Republic, and refused to pay its part of the advance. Petrobart’s claim was accordingly dismissed. According The Supreme Court found that since the dispute now to Swedish law, a decision to dismiss a claim due to lack brought to court by claimant (ie, compensation for of jurisdiction is made in the form of an award. Such breach of agreement by not providing security) was not award may be appealed in court. Petrobart thus the same as the dispute in the terminated arbitration appealed the tribunal’s decision in accordance with this proceedings, the defendant had not forfeited its right procedure, and the case found its way up to the to invoke the arbitration agreement as a bar to court Supreme Court. proceedings. Accordingly, the Supreme Court The Supreme Court found that it is well established dismissed (Sw. ‘avvisa’) claimant’s claim. that a tribunal under Swedish lex arbitri shall apply the doctrine of assertion when determining its jurisdiction. Request for a court to appoint arbitrator on behalf of The core of the doctrine is that the tribunal shall not defendant examine the existence of the facts relied on by the claimant where the alleged facts fall within the scope of The Court of Appeals (Hovrätten för övre Norrland) the arbitration agreement (or law, where, as in this recently held (case ÖÄ 75-08) that a court may only case, the arbitration is based on law). Instead, the reject a claimant’s request to appoint an arbitrator on tribunal shall assume that these facts are at hand when behalf of a defendant (where the defendant has failed determining its jurisdiction. The doctrine of assertion to do so) where it is obvious that the arbitration cannot, however, be applied where the defendant requested by claimant lacks a legal basis. questions the existence of an arbitration agreement, or According to Swedish law, a court may, upon the where the parties disagree on the scope of the request of a party, appoint the defendant’s arbitrator arbitration agreement. where the defendant has failed to do so within the The Supreme Court concluded that the tribunal stipulated time. In the case at hand, the claimant’s should not have substantively examined the facts request to appoint an arbitrator on behalf of the alleged by Petrobart to find whether Petrobart actually defendant was denied by the District Court because the had made a foreign investment within the meaning of claimant had proved neither the existence of an the law. Instead, according to the Supreme Court, the arbitration agreement between the parties nor that the

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 39 Current developments defendant had received the request for arbitration. On appeal, the Court of Appeals ruled that a request SWITZERLAND to appoint an arbitrator may only be rejected if it is obvious that the arbitration lacks legal basis, for First reference of the Swiss Supreme example, where the matter is not arbitrable. If it is not Court to the IBA Conflicts Guidelines1 obvious from the material at hand, this question cannot be determined without knowing the position of the Matthias Scherer defendant. The Court of Appeal found that, in this LALIVE, Geneva; Chair, Conflicts of Interest Subcommittee of case, it was not obvious that the arbitration lacked legal the IBA Arbitration Committee basis and also that the defendant’s position was [email protected] unknown. Accordingly, the Court of Appeals overruled the District Court’s decision and referred the request n a case decided on 20 March 2008, the Swiss Federal back to the District Court for proper handling. ISupreme Court referred, for the first time to our knowledge, to the IBA Guidelines on Conflicts of 2 Private law effects on competition law held arbitrable Interest in International Arbitration. The dispute in question arose out of a contract In court proceedings between the Danish state-owned concluded between a Swiss marketing executive and company, BornholmsTrafikken, and the Swedish the Turkish Football Federation in relation to the company, Ystad Hamn Logistik AB (owned by a local organisation of, and TV rights to, five games which community), BornholmsTrafikken claimed repayment were to take place prior to the 2006 Football World of certain fees paid to Ystad Hamn for harbour services Cup in Germany. The contract contained an arbitration in the port of Ystad. The basis for clause to submit any dispute to the Court of Arbitration BornholmsTrafikken’s claim was firstly that Ystad for Sport (CAS). The organiser initiated arbitration Hamn allegedly violated a certain public law principle proceedings against the Turkish Football Federation when determining the fees and, secondly, that Ystad alleging that the latter had breached the contract by Hamn had abused its dominant position in relevant allowing a TV network to broadcast the games live. The harbour services in violation of EC competition law. Federation designated Mr B as its party-appointed A portion of the fees sought by BornholmsTrafikken arbitrator and subsequently appointed external had been paid under an investment agreement entered counsel, Mr C, to represent it before the CAS. The two into between the parties. Ystad Hamn argued that party-appointed arbitrators nominated Mr P as Chair of BornholmsTrafikken’s claim should be dismissed the arbitral tribunal.3 because fees had been paid under the investment Following the dismissal of his claims by the CAS, the agreement and the investment agreement contained an Swiss organiser filed an appeal with the Swiss Federal arbitration clause. BornholmsTrafikken, on the other Supreme Court requesting the annulment of the award hand, argued that it did not base any portion of its on the grounds, inter alia, of the irregular composition claim on the investment agreement and that the court of the arbitral tribunal. The Swiss organiser (claimant) accordingly had jurisdiction to try the dispute submitted that after the issuance of the award he had notwithstanding the arbitration clause. discovered by chance that the arbitrator appointed by The Supreme Court (case T 2808-05) found that the Turkish Football Federation (Mr B), the Chair (Mr arbitrators may rule on the private effects of P), and the Turkish Football Federation’s counsel, Mr competition law on the parties and, accordingly, that C, all belonged to a professional organization called Ystad Hamn’s request for dismissal should not be ‘Rex Sport’,4 which was composed of 26 members and denied simply because any subsequent arbitration the website of which was protected by a secret access could entail matters of competition law. The Supreme code. Yet the arbitrators in question had not disclosed Court also found that some of the fees were so closely this information in their declaration of independence. connected to the investment agreement that they were The claimant requested that the Federal Supreme covered by the arbitration agreement. The fact that Court annul the award and appoint two other BornholmsTrafikken had chosen not to rely on the independent arbitrators. investment agreement did not, according to the The Swiss Federal Supreme Court rejected the Supreme Court, mean that BornholmsTrafikken could challenge. It held that the claimant had foregone its be relieved from its undertaking to arbitrate. right to challenge the independence and impartiality Accordingly, BornholmsTrafikken’s claim was dismissed of the two arbitrators. Indeed, the jurisprudence of the to the extent it related to fees paid under the Court clearly provides that any challenge to arbitrators investment agreement. must be made forthwith, as soon as a party has learnt of the relevant facts, or could reasonably have been expected to be aware of them. The Court found that had the claimant performed a proper due diligence

40 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments when he was informed of the identities of the Court’s webpage www.bger.ch does not identify the names of the arbitrators, the existence of the link between the Chair arbitrators and parties. 4 According to the summary in GAR, see above. and the arbitrator appointed by the other party would 5 Par. 4.4.1 of the Green List reads: ‘The arbitrator has a relationship with easily have been discovered. On the Chair’s profile on another arbitrator or with the counsel for one of the parties through membership his law firm’s website, his position as president of Rex in the same professional association or social organization.’ Sport was clearly mentioned. With regard to the affiliation of the two arbitrators and the Turkish Federation’s counsel, the Court ruled UKRAINE that they did not need to be disclosed. In its reasoning on this point, it referred to the IBA Guidelines, and Non-arbitrability of corporate disputes in stated that, in line with paragraph 4.1.1 of the Ukraine Guideline’s Green List, such a social and professional Yuliya Chernykh and Andrey Astapov relationship between the arbitrators and a party’s Astapov Lawyers, Kyiv counsel was not likely to give rise to an objective doubt [email protected] • [email protected] with respect to the impartiality of the arbitral tribunal.5 Therefore, only additional circumstances could have led to a different appreciation of the situation before ntil recently, arbitrability of corporate disputes was the Federal Supreme Court. The claimant argued that Unot questioned in Ukraine. The situation changed there were indeed such circumstances, namely the dramatically at the end of 2007 when the Presidium of secretive and opaque nature of the association, the aim the High Commercial Court of Ukraine adopted of which was the furtherance of its members’ interests Recommendations stressing that any agreement of in international sport arbitration, especially in the parties opting for international commercial arbitration framework of CAS proceedings. The claimant also in regard to corporate disputes shall be deemed void. referred to the data he had compiled purportedly For a decade the situation around corporate disputes showing that members of Rex Sport systematically was heated in Ukraine, due to numerous procedural appointed co-members as arbitrators. The Court found diversions initiated by minor shareholders in courts of that the organisation was not secret and that a cross general jurisdiction. These diversions led to legislative appointment was not necessarily evidence for lack of amendments at the end of 2006 on the allocation of independence and impartiality as there is a jurisdiction between the courts of general jurisdiction presumption that the members of an arbitral tribunal and specialised commercial courts. The courts of are capable of seeing past the circumstances of their general jurisdiction were deprived of competence to designation when they are called to render a specific rule in corporate matters. Nothing in the amendments, decision in the exercise of their mandate. however, explicitly affected international commercial In an obiter dictum, the Court hinted that the outcome arbitration. may have been different if the data the claimant A year after the amendments, the High Commercial produced had shown systematic cross-appointments Court of Ukraine adopted the expected among the association’s members and that arbitral Recommendations, ‘On Application of the Legislature tribunals comprising a member of the association in Corporate Relations’. Although the systematically decided in favour of the party Recommendations are not regarded as precedential in represented by another member. Had this been the Ukraine, which is a civil law country, they are seen as an case, there may indeed have been objective doubts as to important means to provide guidance and to achieve the independence of the arbitrators. uniform and consistent implementation of the law in lower courts. Nobody expected that the issue of international commercial arbitration would be affected Notes 1 Readers who become aware of new case law referring to the IBA by the Recommendations. Quite surprisingly, the Guidelines are kindly invited to inform the Subcommittee. Recommendations contained an express provision that Opinions expressed in this paper and any errors it may contain shareholders shall not submit corporate disputes are the author’s alone. 2 Switzerland, Federal Supreme Court, 1st Civil Chamber, Decision of related to the activity of a company incorporated in 20 March 2008, 4A_506/2007, ASA Bulletin 3/2008. For a more Ukraine (in particular, disputes related to corporate extensive discussion of this and other recent court decisions on the governance) to international commercial arbitration IBA Guidelines see Matthias Scherer, New Case Law From Austria, tribunals. Switzerland and Germany Regarding the IBA Guidelines on Conflicts of Interest in International Arbitration, 5 Transnational Dispute The main reasoning was apparent in provisions on Management (TDM) 4/2008 (Ed. Sophie Nappert). The volume mandatory application of Ukrainian law to corporate contains numerous other papers on arbitrators’ conflicts and related matters. Under the Recommendations, the relations issues. between the shareholders of a company in regard to 3 According to the summary of the judgment in Global Arbitration Review GAR of 23 May 2008, the arbitrator appointed by the Turkish the company’s creation, corporate governance, and the Football Federation was Mr Effram Barak, and the chairman Mr José procedure for calling general meetings are regulated Juan Pintó Sala. The publication of the judgment on the Supreme by mandatory norms of Ukrainian law. Violations

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 41 Current developments constitute violation of public policy in Ukraine. Any agreement to the contrary shall be deemed void. The UNITED ARAB EMIRATES issue of corporate governance may be the subject of an agreement between the shareholders in cases governed Brighter times - developments in by Ukrainian law. If the agreement relates to issues arbitration in the United Arab Emirates defined by the law or articles of association, the Patrick Bourke and Dominic Hennessy1 agreement might be declared void by a court. The notion of corporate disputes was defined by the Norton Rose (Middle East) LLP, Dubai Recommendations through various criteria. Further, [email protected] • [email protected] according to the Recommendations, the parties to a corporate dispute are: (i) participants/shareholders of he accession by the United Arab Emirates (UAE) a company including those who stepped out of the Tto the 1958 Convention on the Recognition and company, and a company; or (ii) participants/ Enforcement of Foreign Arbitral Awards (the shareholders in disputes among themselves on Convention) in 2006 has led to a significant increase in creation, activity, corporate governance and interest within the region in international arbitration as dissolution. a means of dispute resolution. This interest culminated While the application of mandatory provisions of in the recent announcement of new arbitration Ukrainian law to corporate matters is not disputed, the legislation in the UAE and the Dubai International issue of state jurisdiction may be questioned. Why does Financial Centre (DIFC).2 This article looks at the the state wish to possess exclusive jurisdiction in proposed new UAE and DIFC arbitration laws, and corporate disputes if the application of mandatory other recent developments relating to arbitration in Ukrainian provisions may be equally reached by the UAE and DIFC. international commercial arbitration? Why should disputes among the shareholders themselves not be The UAE’s Arbitration Law resolved through arbitration if the shareholders seek confidentiality and thus wish to opt for international Although the UAE acceded to the Convention on 21 commercial arbitration rather then to go to a national August 2006, its existing arbitration legislation is set out court of law? in only a handful of articles in the UAE’s 1992 Civil Despite these rhetorical questions, arbitration in Procedure Code. These articles arguably do not corporate matters, where it could be extremely useful adequately deal with the UAE’s Convention obligations. given the confidentiality required in resolution of For example, under the existing legislation, awards corporate disputes, cannot now freely develop in must first be ratified by the courts before they become Ukraine. enforceable in the UAE, and an arbitral award may be Needless to say, transparency of the state with regard challenged ‘if an invalidity occurs in the ruling or in to arbitration and public policy articulated in the the procedures which influence the ruling’. special legislature on international commercial Historically, the courts of the UAE have taken a strict arbitration is highly advisable. Clarification of public view of this provision, and have refused to recognise policy and arbitrability by non-binding sources with and enforce arbitral awards with only minor defects in unclear status may harm the image of Ukraine as an the proceedings, form or content of the award. This arbitration-friendly country. approach may now be changing. On 3 February 2008, the UAE Ministry of Economy announced that it had finalised a draft arbitration law (the ‘UAE Arbitration Law’), based on the UNCITRAL Model Law on International Commercial Arbitration (the ‘Model Law’). The UAE expects to ratify the Arbitration Law in 2008. The proposed UAE Arbitration Law adopts the Model Law in its entirety, which is then supplemented by a schedule of amendments. This format has been chosen in order to allow arbitration practitioners to identify quickly and easily where the UAE Arbitration Law deviates from the Model Law. It is intended to make the UAE’s law as user-friendly as possible. Enforcement of both domestic and foreign arbitrations will be covered by the UAE Arbitration Law. The law will establish provisions for the enforcement of awards in a manner that will remove the residual inconsistencies between the UAE’s existing

42 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments arbitration framework and its obligations under the ‘Centre’). The Centre has its own rules of arbitration convention. and mediation, the first within the DIFC, which closely In addition to the legislative developments on follow the LCIA’s existing arbitration rules, but which enforcement of arbitral awards at the federal level, a have been adapted to fit within the DIFC’s legal recent judgment of the Dubai Supreme Court (Appeal framework. Case 151/2007) suggests that the courts in the UAE are The DIFC-LCIA joint venture establishes the first moving towards a softer stance towards the arbitration institution within the DIFC, and follows enforcement of arbitral awards. The court was asked to closely on the heels of the announcement in 2007 by consider whether Article 212(5) of the UAE Civil the Abu Dhabi Commercial Conciliation and Procedure Code, which stipulates that the arbitral Arbitration Centre of its plans to cooperate with the award ‘must include, among other things, in particular Hong Kong International Arbitration Centre. As well as a copy of the arbitration agreement’, required the aiming to provide a cost-effective and timely alternative arbitration agreement to be set out in its entirety in the to litigation, the Centre will look to promote arbitral award. The court rejected this interpretation, arbitration and mediation as effective mechanisms for which had been raised in defence of the enforcement the resolution of international business disputes proceedings, stating that what is meant by Article worldwide. 212(5) is simply that the contents of the arbitration As previously noted, the DIFC’s existing arbitration agreement should be reproduced in a manner that legislation requires a connection with the jurisdiction allows the court ratifying the award to understand its before parties can adopt the DIFC as the seat of extent. It does not necessarily require the arbitration arbitration for their disputes. However, following the agreement to be cited word for word. enactment of the revised DIFC arbitration law, the Centre will be able to offer dispute resolution services to parties located internationally, rather than solely to Arbitration in the DIFC those based within the DIFC. The DIFC was established in September 2004 as an Hopefully, the Centre’s association with the LCIA, on-shore international financial centre, occupying a reputed to be one of the world’s longest-established 110-acre site in the heart of Dubai’s financial district. international institutions for commercial dispute The DIFC has its own jurisdiction, separate from the resolution, will prove to be one of the Centre’s key civil and commercial laws of Dubai and the UAE. The attractions. A tangible benefit of this association will be DIFC is operated and administered by the DIFC the ability for users of the Centre to access the LCIA’s Authority, established as a juridical entity attached to extensive database of leading arbitrators. The Centre the Government of Dubai, and has its own will also benefit from the LCIA’s expertise in the independent regulatory authority, the Dubai Financial administration of arbitration proceedings. Services Authority, and judiciary, the DIFC Judicial Authority. With the disapplication of the UAE’s civil Revised arbitration legislation in the DIFC and commercial laws within the DIFC, it has had to develop its own legal and regulatory framework, The DIFC published a draft new arbitration law on its including legislation establishing systems of dispute website on 16 February 2008 (the ‘DIFC Arbitration resolution. Law’), and announced a 30-day consultation period on The DIFC’s existing arbitration law (DIFC Law No 8 its proposals. Currently, the DIFC Arbitration Law has of 2004) was enacted shortly after the establishment of yet to be enacted, but it is expected that the new law the DIFC. It states that contracting parties can only will be implemented within the next few months. adopt the DIFC as the seat of arbitration where one of The authors of this article were closely involved in the parties to the dispute is entitled to bring an action the development and drafting of the DIFC Arbitration before the DIFC courts. As such, under DIFC Law No 8 Law which, as with its predecessor, is based on the of 2004, only disputes that arise between entities based Model Law. However, because of the numerous and in the DIFC, from or relating to contracts executed, extensive changes, the DIFC Arbitration Law will repeal transactions concluded, or to incidents that have and replace the DIFC’s existing legislation in this field. occurred in the DIFC, can be arbitrated in the DIFC. In addition to enlarging the scope of the arbitration This is set to change with the introduction of the regime in the DIFC to enable the Centre to offer its DIFC’s proposed new arbitration legislation. services to parties worldwide, one of the key objectives of the revised DIFC Arbitration Law is to provide the DIFC with a clear, easily intelligible arbitration law that DIFC LCIA Arbitration Centre inspires confidence among its users, in particular, by On 17 February 2008, the DIFC announced the following the Model Law more closely. DIFC Law No 8 launch of the joint DIFC and London Court of of 2004 made several amendments to the Model Law; International Arbitration (LCIA) arbitration some amendments were purely stylistic, but in some institution, the ‘DIFC LCIA Arbitration Centre’ (the instances, what appears to have been a stylistic change

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 43 Current developments has resulted in a substantive change. Where this is the The changing face of arbitration in Dubai case, the DIFC Arbitration Law will generally revert to Alec Emmerson and Christopher Mills the position set out in the Model Law. For example, Clyde & Co, Dubai Article 42 of the revised DIFC Arbitration Law regarding the recognition and enforcement of awards [email protected] • [email protected] is now simpler and tracks the Model Law more closely than its predecessor DIFC Law No 8 of 2004. here are many war stories about arbitration in In addition, certain articles of the Model Law TDubai, as well as stories concerning the (notably Articles 5, 6 and 9) were omitted from DIFC enforcement of final awards in the United Arab Law No 8 of 2004. Provisions dealing with the authority Emirates (UAE). The recognition by the Rulers of a of the court to supervise arbitral proceedings, the growing lack of credibility of the arbitration process has extent to which the court can intervene in arbitral prompted a series of measures that are changing the proceedings and the authority of the parties to request face of arbitration in Dubai. interim measures of relief from the courts, are now clearly dealt with in the DIFC Arbitration Law. The Background DIFC Arbitration Law also now includes an enforcement regime for interim measures granted by a Dubai is one of the seven emirates that make up the tribunal, clarifies which interim measures may UAE, a country formed in 1972. Although Dubai has permissibly be granted by an arbitral tribunal, and in oil reserves, they are limited and currently produce what circumstances the measures may be granted. only about ten per cent of the bpd produced by its A new Article 14 has also been added to the DIFC neighbour, Abu Dhabi, the capital and largest emirate Arbitration Law to expressly provide for the in the UAE. Dubai has, however, always been the confidentiality of arbitral proceedings as a default trading centre of the UAE. Its development over the position, applying unless the parties to the proceedings last decade, particularly, is a well-known phenomenon, have agreed otherwise. This replaces the previous ‘opt- although its original mega projects began more than in’ provision whereby parties wishing for their two decades ago. proceedings to remain confidential were required to By law, the contracts of Dubai government authorities provide accordingly in their arbitration agreement, (which means government departments and either expressly or by reference to the appropriate commercial entities owned by the government) are rules of arbitration. subject to local UAE law and jurisdiction (including arbitration). Foreign companies contracting with government authorities traditionally prefer to refer Prospects for recognition and enforcement their disputes to arbitration rather than the local courts The DIFC Arbitration Law makes it clear that the and generally prefer to have that arbitration DIFC courts are bound by the terms of applicable administered by the Dubai Chamber of Commerce treaties for the mutual enforcement of judgments, (now the Dubai International Arbitration Centre). orders or awards that the UAE has ratified, including the New York Convention. The proposed new law also Dubai International Arbitration Centre includes a provision confirming the application of Dubai Law No 12 of 2004, which provides that arbitral The first major change to occur in arbitration was the awards rendered under the DIFC’s arbitration creation and launch of the Dubai International legislation and ratified by the DIFC courts are Arbitration Centre (DIAC) about two years ago. Rightly automatically enforceable in Dubai, without any need or wrongly, the old Chamber of Commerce Arbitration for review by the Dubai courts. Committee was regarded as being akin to a government With the changes introduced in the UAE Arbitration institution, dominated by local interests and therefore Law and the DIFC Arbitration Law and the softening of not a truly independent institution for administering the UAE Courts’ stance on enforcement, those who arbitrations. Furthermore, the Chamber of Commerce want to arbitrate disputes or enforce awards in the UAE Rules were out of date and out of step with modern in the future may have a brighter outlook. arbitration practice. To counter these concerns, DIAC was formed as an independent arbitration institution with a Board of Trustees, the majority of whom are Notes 1 Patrick Bourke is a partner and the Head of the Middle East foreign and whose members are drawn from the ‘great Dispute Resolution practice at Norton Rose (Middle East) LLP, and good’ of the international arbitration world. The based in Dubai. Dominic Hennessy is an associate in the Dispute trustees undertook the task of updating the rules so Resolution Department of Norton Rose (Middle East) LLP, also based in Dubai. DIAC could stand alongside other established and well- 2 At the time of writing, both the new UAE and the revised DIFC known arbitration centres. arbitration laws have been announced but not yet implemented. It is expected that both sets of legislation will be enacted during the course of 2008.

44 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments

Dubai International Financial Centre (irrespective of the provisions of the contracts they have entered into). This replicates measures for the With the aim of turning Dubai into a world-class protection of employees and consumers found in financial centre, Dubai created the Dubai International English and European legislation. Financial Centre (DIFC). To set up DIFC, the Once the New DIFC Arbitration Law is enacted and Constitution of the UAE had to be amended (which small consequential changes are made to the DIFC required the agreement of the Rulers of both Abu Court Rules, it is likely that the DIFC/LCIA Arbitration Dhabi and Dubai) in order to exclude all of the civil Centre will become a popular seat of arbitration. There and commercial laws of the UAE from DIFC. The are many reasons why this should be so. criminal and anti-money laundering laws and The first is familiarity. The UNCITRAL Model Law is regulations of the UAE do, however, still apply in DIFC. arguably the premier world model for arbitration law Thus, the DIFC does not require its own police force and the LCIA, which will administer arbitrations using and criminal courts. However, in place of the civil and its own staff but employed in the DIFC, is a leading commercial laws of the UAE, DIFC has created and world arbitral institution. continues to develop its own laws and regulations. Secondly, practising common law practitioners, at Laws and regulations are of little use without a least, will be confident that the DIFC Court will support reliable and trusted court system to interpret and the arbitral process in a similar manner to courts in enforce them. The DIFC Court was therefore jurisdictions such as England, Singapore and Hong established with Sir Anthony Evans (a senior former Kong. The court will not interfere or meddle with the English Commercial Judge) as its Chief Justice, and process but will be available to support the parties’ Michael Hwang, a respected Singaporean lawyer and choice of arbitration to resolve their disputes. The arbitrator as its Deputy Chief Justice. Recently, four DIFC Court will only set aside awards on very limited more judges have been sworn in from common law grounds, as set out in Chapter 7 of section 42 of the backgrounds who are specialists in construction, new Arbitration Law. On the application of a party, commercial, shipping and Islamic finance. Two local awards can only be set aside based on the following: the judges, also sworn in, have undergone extensive incapacity of the party or the invalidity of the training over the last two years, including one year in arbitration agreement; lack of notice of the London. appointment of an arbitrator or the proceedings; the When DIFC was established, Law No 8 of DIFC (the award deals with matters outside the terms of the ‘Arbitration Law’) set up the means to establish a DIFC arbitration agreement; or the composition of the Dispute Resolution Scheme. The jurisdiction of the tribunal or the procedure is not in accordance with the Arbitration Law was limited to companies and arbitration agreement (for the full wording see section institutions in the DIFC and contracts between them 42.1(a)(i)–(iv). Additionally, an award can be set aside and parties outside the DIFC, in a similar manner to if the DIFC Court finds that the subject matter of the which the jurisdiction of the DIFC Court was limited. dispute is not capable of settlement by arbitration under DIFC law; the dispute is expressly referred to a DIFC/LCIA Arbitration Centre different body or tribunal for resolution under the New DIFC Arbitration Law or any other provision of DIFC Earlier this year, however, there was a major change law; or the award is in conflict with the public policy of of direction. The DIFC announced that it had formed a the UAE (see section 42.2(b)(i)–(iii)). joint venture with the London Court of International Thirdly, in a regional business environment that is Arbitration (LCIA) to establish the DIFC/LCIA booming, there are more transactions and inevitably Arbitration Centre, which parties can select as their more disputes (and this will accelerate in any economic chosen forum whether they are within or outside the downturn). Many companies and legal advisers in the DIFC and whether they are parties to contracts with a region are waiting for the new Arbitration Law to be DIFC entity or connection. The creation of this centre enacted, following which they will select the DIFC/ requires the repeal of the Arbitration Law and the LCIA Arbitration Centre as their forum of choice. enactment of a new DIFC Arbitration Law (the ‘New Fourthly, in the same way that Dubai’s physical DIFC Arbitration Law’) to enable parties from infrastructure projects have benefited from its anywhere in the world to select the DIFC/LCIA geographic location, the DIFC/LCIA Arbitration Arbitration Centre as their chosen forum. Centre will likely be regarded as a good and well- The public consultation period for this new law connected location for a neutral forum for parties recently closed and the comments received have been around the world. reviewed and considered. The draft law is now being Fifthly, with the growth in numbers of first-class law finalised so that it can be enacted shortly. It is based on firms in the UAE, there is now the legal skill base in the UNCITRAL Model Law, but employees and situ to conduct and advise upon arbitration in the consumers in goods and services transactions will have DIFC/LCIA Arbitration Centre. the right either to arbitrate or litigate such disputes Sixthly, as the UAE is now party to the New York

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 45 Current developments

Convention, enforcement of awards in New York LCIA Arbitration Centre ultimately being supervised Convention states should be straightforward. and supported by the DIFC Court and DIAC by the Seventhly, local dispute enforcement should be local courts in Dubai. The new Federal Arbitration Law, straightforward in the UAE as the DIFC Court will once enacted, should also benefit the conduct of order enforcement or recognition of the award and arbitration of Abu Dhabi and the other emirates. such order will be converted into a judgment of the Dubai Court virtually as a matter of right. Such Conclusion judgment is then enforceable throughout the courts of the UAE under Federal Law. Once the new DIFC Arbitration Law is enacted, which should be within a couple of months, the DIFC/ LCIA Arbitration Centre will become fully effective Does Dubai need two international arbitration centres? and operational. This will provide practitioners Currently, one of the main problems with arbitration and businesses with a familiar arbitral process for in the UAE is a lack of confidence in the finality of the settlement of disputes. The background and awards. At the moment, most of the UAE’s arbitration experience of the judges of DIFC should ensure that law (outside DIFC) is contained in Chapter 3 of the the arbitration that takes place under the auspices Civil Procedure Code, which comprises only 16 articles of the DIFC/LCIA Arbitration Centre is supported, (Articles 203–218). Some of the defects in these where necessary, by the DIFC Court whose decisions provisions include: should be predictable, by reference to precedents from (i) the suspension of the arbitration if a party claims common law jurisdictions. that a document is forged; it is therefore common for parties seeking to delay and to derail the arbitral process to allege that a document or UNITED STATES documents are forged and to refer this to the courts, and fight the matter through First Manifest disregard after Hall Street Instance, Court of Appeal and Cassation; David M Bigge (ii) the suspension of proceedings and involvement of Dechert LLP, New York the court if a witness fails to attend or refuses to answer or obtains evidence from a third party; [email protected] (iii) the referral of the dispute to court if there is no award in six months unless the parties agree on an hile the Supreme Court’s recent discussion of extension; W‘manifest disregard of the law’, in the case Hall (iv) the vagueness of certain provisions in Chapter 3 Street Assoc. L.L.C. v Mattel, Inc.,1 was relatively clear, the which refers disputes to the court; decision has cast doubt among lower courts as to (v) the requirement of the court to ratify awards; whether manifest disregard is still a basis for vacatur (vi) the ability of a party to challenge an award ‘if an under US law. In Hall Street, the court indicated that invalidity occurs in the ruling or in the procedures manifest disregard continues to be a basis to vacate an which influence the ruling’. This provision can be arbitration award under the Federal Arbitration Act interpreted very widely by a losing party giving an (‘FAA’)2 but is derived from the text of the FAA itself, excuse to drag the matter into lengthy court in particular its provisions for vacatur in the event that proceedings. an arbitrator commits misconduct or exceeds her Fortunately, these defects may soon be of historical power, and is not a separate ground to overturn awards. interest only, as the Federal Government is working For most jurisdictions, this does little to change the towards the enactment of new arbitration laws for the manifest disregard test, which is already regarded as a UAE. While these laws were initially based on Egypt’s narrow basis for vacatur linked to egregious arbitrator Arbitration Law, over the last year or so it has been behaviour. Nonetheless, the Supreme Court’s accepted that enacting a Federal Arbitration Law also reasoning has already resulted in widely disparate based upon the UNCITRAL Model Law is better for the interpretations, ranging from holdings that manifest future. disregard is no longer a basis for vacatur at all, to other While some may think that two international courts’ interpretations that manifest disregard remains arbitration centres in one city is one too many, it is an additional basis for vacatur beyond those listed in encouraging that the governments of both the the FAA, despite the Supreme Court’s statements to the Emirates of Dubai and the Federation are moving in contrary. the same direction and in step to bring arbitration law in Dubai and the UAE up to date and to provide a The Hall Street decision choice of effective arbitration centres. It will then be a matter for business and legal advisers to choose the The issue at the heart of Hall Street was whether centre that best suits their purpose, with the DIFC/ parties could contract for greater judicial review of

46 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments arbitral awards than otherwise allowed under the FAA.3 later Supreme Court case First Options of Chicago, Inc. v The parties in Hall Street agreed in their arbitration Kaplan, the court cited Wilko for the proposition that clause that their award could be reviewed by a court for ‘parties [are] bound by [an] arbitrator’s decision not in any legal or factual error. The four grounds for vacatur “manifest disregard of the law”’.10 However, in the and three grounds for modification listed in the FAA course of applying the manifest disregard rule, lower do not include legal or factual error, other than clerical courts disagreed as to whether the Wilko Court had error.4 Following the issuance of the award, the trial fashioned a new basis for vacatur outside of the bounds court in Hall Street found legal error in the arbitrator’s of the FAA, or had merely reiterated, using different analysis and remanded the case back to the arbitrator words, the existing standards for vacatur under the for an award consistent with the court’s reasoning. FAA.11 After several procedural steps irrelevant to the In its Hall Street decision, the Supreme Court sided underlying substantive issue, this decision was appealed with Mattel, holding the FAA provides exclusive to the Supreme Court, with Mattel claiming that the grounds for vacatur and that parties cannot contract for arbitration clause it had signed was unlawful because expanded judicial review of arbitral awards beyond the FAA provides the exclusive grounds for vacating an those grounds. On the question of manifest disregard, arbitration award. the court wrote: Before the Supreme Court, Hall Street argued that ‘[Hall Street’s argument] is too much for Wilko to parties may contract for expanded judicial review of bear. Quite apart from its leap from a supposed awards. As an ancillary argument, Hall Street judicial expansion by interpretation to a private highlighted the Supreme Court’s statement, in Wilko v expansion by contract, Hall Street overlooks the fact Swan,5 that manifest disregard of the law was a basis for that the statement it relies on expressly rejects just vacatur under federal law. 6 Hall Street argued that in so what Hall Street asks for here, general review for an finding, the Supreme Court ‘implicitly recognized’ that arbitrator’s legal errors. Then there is the vagueness the FAA does not provide the exclusive grounds for of Wilko’s phrasing. Maybe the term “manifest vacatur or modification of an award because manifest disregard” was meant to name a new ground for disregard of the law is not one of the FAA’s listed review, but maybe it merely referred to the §10 grounds. Thus, Hall Street argued parties should be grounds collectively, rather than adding to them. Or, free to contractually expand upon the FAA’s list of as some courts have thought, “manifest disregard” vacatur bases.7 may have been shorthand for §10(a)(3) or Mattel countered that the limited bases for vacatur §10(a)(4), the subsections authorizing vacatur when listed in the FAA are exclusive, and that neither parties, the arbitrators were “guilty of misconduct” or nor courts, could expand upon them. In responding to “exceeded their powers.” We, when speaking as a Hall Street’s argument regarding manifest disregard, Court, have merely taken the Wilko language as we Mattel did not argue that Wilko should be overturned. see it, without embellishment, and now that its Rather, Mattel pointed out that the court’s manifest meaning is implicated, we see no reason to accord it disregard statement in Wilko was ambiguous obiter the significance that Hall Street urges.’12 dictum, and that the Wilko Court’s statement about Two conclusions can be drawn from this brief manifest disregard immediately followed the court’s discussion of manifest disregard in Hall Street. First, the conclusion that the ‘[p]ower to vacate an award is court did not overturn or revise its previous statements limited’, citing FAA §10 in its entirety.8 Mattel in Wilko or First Options or any of the lower court concluded that, to the extent that the court had holdings interpreting those cases, choosing instead to previously sanctioned manifest disregard, the context leave Wilko’s statement on manifest disregard ‘as we see of the discussion in Wilko indicates that the court was it, without embellishment’. Secondly, the court simply paraphrasing other provisions in FAA §10. favoured the interpretation of manifest disregard as a Both sides’ arguments have considerable support in ‘shorthand’ for FAA §10 and, in light of its ruling that Wilko and its progeny. Mattel was correct that the the FAA provides the exclusive grounds for vacatur of Supreme Court’s statement on manifest disregard in an award, rejected the argument that manifest Wilko was highly ambiguous. In Wilko, the court was disregard is an additional basis for vacatur. Therefore, it reviewing an arbitration award issued without a written appears that manifest disregard continues to be a basis opinion clearly stating its reasoning. Unless there is a for vacatur under the FAA, to the extent it is evidence written submission of legal reasoning, the Wilko Court of or otherwise supports a finding that an arbitrator held, ‘interpretations of the law by the arbitrators in committed misconduct or exceeded her power. contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in Reaction of the lower courts interpretation.’9 By this short statement, the court seemed to imply, but did not clearly hold, that if an Nonetheless, in the few months since Hall Street was award did provide a written opinion, an award could be decided, lower courts have issued widely divergent vacated for manifest disregard of the law. Indeed, in the interpretations of Hall Street’s meaning with regard to

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 47 Current developments manifest disregard. Most notably, the First Circuit a district court in the same circuit summarised the Hall Court of Appeals stated in the case Ramos-Santiago v Street holding: ‘the Supreme Court has recently United Parcel Service, in a footnote unnecessary to the indicated that [manifest disregard] is really a resolution of the case before it, that in light of Hall shorthand reference to the statutory grounds for Street, ‘manifest disregard of the law is not a valid vacatur listed in sections 10(a)(3) and 10(a)(4) of the ground for vacating or modifying an arbitral award in FAA.’22 cases brought under the [FAA].’13 A district court within the First Circuit later cited Ramos-Santiago to Conclusion prohibit a party’s manifest disregard argument.14 Similarly, a federal district court in Minnesota, in the It seems that much of the confusion among lower case Prime Therapeutics LLC v Omnicare, Inc., offered a courts lies not with the Supreme Court’s Hall Street full analysis of the Hall Street decision, and then posed decision, but in the disparate interpretations of and answered its own question: ‘But does this suggest manifest disregard that developed in the lower courts. that courts can no longer vacate an arbitration award The New York court’s ruling may have been due in part based on judicially-created grounds such as “manifest to the Second Circuit’s recognition of manifest disregard of the law”? After Hall Street, this Court disregard as a paraphrase of FAA §10 in some cases, believes the answer to the question is yes.’15 A judge in whereas the First Circuit’s finding that manifest the Southern District of New York found simply that disregard no longer exists may be owing to its contrary ‘the manifest disregard of the law standard is no longer precedent that manifest disregard was an additional good law.’16 basis for vacatur. On the other end of the spectrum, some courts have In any event, the lower court rulings that treated determined that after Hall Street, manifest disregard manifest disregard as an interpretation of the FAA’s remains an additional basis of vacatur, despite the existing vacatur grounds undoubtedly remain good law Supreme Court’s holding that the FAA grounds are after Hall Street.23 To the extent that cases interpreted exclusive.17 The Court of Appeals for the Fifth Circuit manifest disregard as an additional basis for vacatur, and the Ninth Circuit avoided the topic altogether, those decisions that treat the manifest disregard either expressly declining to address the question of standard as narrow, requiring that the arbitrator’s whether manifest disregard arguments may be made,18 ignorance of the law to be so purposeful or inexcusable or simply stating the standard without elaboration.19 A as to be akin to misconduct, should also remain federal district court in Texas hedged its bets by valuable precedent in applying manifest disregard.24 assessing a party’s manifest disregard argument as both Either way, post-Hall Street, manifest disregard of the law an additional basis for vacatur and as a summary of the remains a viable argument for parties seeking vacatur of FAA’s statutory grounds, ‘out of an abundance of unjust arbitral awards. caution’.20

Surprisingly few courts have taken the Supreme Notes Court’s brief discussion of manifest disregard in Hall 1 128 S. Ct 1396; 170 L. Ed. 2d 254 (25 March 2008). Street at face value. The clearest of these few decisions 2 9 U.S.C. §§ 10–11. was rendered by a New York state court judge, who 3 For a fuller discussion of the issues underlying Hall Street, the decision, and its implications, see George K. Foster and David M. determined both that manifest disregard continues to Bigge, Expanded Review of Awards: A Door Shuts, Others Open?, The be a basis for vacatur under the Supreme Court’s New York Law Journal, 23 April 2008. analysis, and that existing precedent on the issue 4 9 U.S.C. §§ 10–11. remained valuable to the analysis: 5 346 U.S. 427 (1953). 6 See Brief for the Petitioner, Hall Street Assoc. L.L.C. v Mattel, Inc., ‘Although the Court in Hall Street did not settle on its No 06-989, at 24–25. own definition of the term, it rejected the notion 7 Ibid. that “manifest disregard” embodies a separate, non- 8 See Brief for Respondent, Hall Street Assoc. L.L.C. v Mattel, Inc., statutory ground for judicial review under the FAA. No 06-989, at 7–8. 9 346 U.S. at 436–437. Nonetheless... the Hall Street Court appears to have 10 514 U.S. 938, 942 (1995). done nothing to jettison the “manifest disregard” 11 Compare McCarthy v Citigroup Global Markets, Inc., 463 F.3d 87, 91 standard of Wilko. Accordingly, this court will view (1st Cir. 2006) (manifest disregard is additional basis for vacatur); “manifest disregard of the law” as judicial Advest Inc. v McCarthy, 914 F.2d 6, 9 n. 5 (1st Cir. 1990); Merrill Lynch, Pierce, Fenner & Smith, Inc. v Bobker, 808 F.2d 930, 933 (2d interpretation of the section 10 requirement, rather Cir. 1986); with Mitsubishi Motors Corp. v Soler Chrysler-Plymouth, than as a separate standard of review. It seems Inc., 473 U.S. 614, 656 (1985) (Stevens, J. dissenting) (manifest appropriate, however, since the standard has disregard is a general term for FAA §10’s grounds); Amicizia Societa Navegazione v Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805, 808 apparently not been overruled by the Court, to (2d Cir. 1960) (manifest disregard is shorthand for FAA resort to existing case law to determine its §§10(a)(3) and (4)); Kyocera Corp. v Prudential-Bache Trade Servs., contours.’21 Inc., 341 F.3d 987, 997 (9th Cir. 2003) (same). Similarly, six days before the First Circuit Court of 12 128 S. Ct. at 1404, 170 L.Ed.2d at 263-64 (citing First Options). 13 Ramos-Santiago v United Parcel Service, 524 F.3d 120, 124 n. 3 (1st Appeals rejected manifest disregard in Ramos-Santiago,

48 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments

Cir. 24 April 2008). States, this case was the definition of ‘Must See TV’. 14 ALS & Assoc., Inc. v AGM Marine Constructors, Inc., No. 06-10088- The contract at issue involved a clause that required EFH, 2008 U.S. Dist. LEXIS 42642, at * 14 (D. Mass. 2 June 2008). 15 Prime Therapeutics LLC v Omnicare, Inc., No. 08-375 (RHK/JSM), arbitration of ‘any dispute…relating to the [contract’s] 2008 U.S. Dist. LEXIS 41306 (D. Minn. 31 May 2008); see also terms…or the breach, validity, or legality thereof…in Horton Homes, Inc. v Shaner, No. 1061659, 2008 Ala LEXIS 120 accordance with [American Arbitration Association] (Ala. 20 June 2008) (finding that theHall Street court ‘rejected the rules’.1 Preston invoked this provision to gain fees he availability of manifest disregard of the law as a basis for vacating an award in proceedings subject to the FAA’). claimed were due to him from Alex Ferrer. Ferrer 16 Robert Lewis Rosen Associates Ltd v Webb, No 07 Civ. 11403 (RJH), 2008 countered by petitioning the California Labor U.S. Dist. LEXIS 51446 (S.D.N.Y. 7 July 2008). Commissioner for determination, stating that the 17 Fitzgerald v H&R Block Financial Advisors, Inc., No. 08-10784, 2008 U.S. Dist. LEXIS (S.D. Mich. 11 June 2008) (‘[i]n addition to contract was invalid and unenforceable because these statutory grounds, a court may vacate an award if the Preston had acted as a talent agent without the arbitrators have “manifestly disregarded the law”’); Jimmy John’s required licence and that this was in violation of the Franchise, LLC v Kelsey, No. 08-2040, 2008 U.S. Dist. LEXIS 29535 Talent Agencies Act (‘TAA’). (C.D. Ill. 10 April 2008) (after reciting FAA §10 standards, stating ‘[c]ourts will also set aside awards that are “in manifest disregard The issue before the Supreme Court was not who was of the law.”’). right, but rather, who gets to decide who was right, a 18 Rogers v KBR Technical Servs. Inc., No. 08-20036, 2008 U.S. App. private arbitrator or the state labor commissioner. Two LEXIS 12320, at * 5-6 (5th Cir. 9 June 2008) (‘there is no need in laws stood in opposition to one another on this matter, the instant case to determine whether those non-statutory grounds for vacatur of an arbitration award remain good law after and each party was arguing that one of the laws was Mattel’). controlling on this issue. On the one hand, Preston 19 Comedy Club, Inc. v Improv. West Assocs., No. 05-55739, 2008 U.S. argued that the Federal Arbitration Act (‘FAA’) was App. LEXIS 1258 (9th Cir. 17 April 2007). controlling and required that when the parties have 20 Halliburton Energy Servs. Inc. v NL Industries, No. H-05-4160, 2008 U.S. Dist. LEXIS 26299 (S.D. Tex. 31 March 2008). agreed to arbitrate, they must do so in lieu of going to 21 Chase Bank USA, N.A. v Hale, No. 601044/07, 19 Misc. 3d 975 court. On the other hand, Ferrer contended that the (Sup. Ct. N.Y. 31 March 2008). TAA, which assigns all disputes to the state labor 22 Eastern Seaboard Concrete Construction Co., Inc. v Gray Construction commissioner, was the appropriate law for resolving Inc., No. 08-37-P-S, 2008 U.S. Dist. LEXIS 33256 (D. Maine 18 April 2008). this dispute. 23 See Amicizia Societa Navegazione, 274 F.2d at 808. Ultimately, the question at hand was whether ‘the 24 See, eg, Collins v D.R. Horton, Inc., 505 F.3d 874 (9th Cir. 2007) FAA overrides, not only state statutes that refer certain (‘we may not reverse an arbitration award even in the face of an erroneous interpretation of the law. Rather, to demonstrate state-law controversies to a judicial forum, but also state manifest disregard, the moving party must show that the arbitrator statutes that refer certain disputes initially to an understood and correctly stated the law, but proceeded to administrative agency’.2 This was because the TAA as disregard the same.’). structured, appeared to create a loophole for arbitration clauses in contracts, even after arbitration was mutually agreed to by both parties and supported Judge Alex meets the Supreme Court: by the FAA. The court, recognising this discrepancy, held that Preston v Ferrer ‘when parties agree to arbitrate all questions arising Parker Stanhagen and Steven Bazil under a contract, state laws lodging primary Bazil McNulty, Exton, Pennsylvania jurisdiction in another forum, whether judicial or 3 [email protected] • [email protected] administrative, are superseded by the FAA’. The court noted that it had ruled consistently that the FAA was ‘a national policy favoring arbitration’. When parties hen you think of daytime television, you may contract to settle disputes through arbitration it Wthink of tacky soap operas, bad talk shows, and ‘foreclose[s] state legislative attempts to undercut the TV judges. One thing you certainly would not normally enforceability of arbitration agreements’.4 associate with daytime TV is the United States Supreme The decision by the Supreme Court showcases how Court. On 14 January 2008, however, these two favourably courts look upon private dispute resolution dissociative worlds of daytime TV and the US Supreme when it is previously agreed upon by both parties to a Court collided when ‘Judge Alex’ (Alex Ferrer) from contract. The FAA supersedes state law and does not the Fox Television daytime court TV programme found permit legislative attempts to undercut its authority himself a party to a case in the US Supreme Court. The regardless of whether the state law calls for judicial or dispute involved the arbitration clause of a ‘personal administrative alternatives to arbitration. So, while one management’ contract between Judge Alex and Arnold might never think to put daytime TV judges in the Preston, a California attorney, who had worked for same sentence as the US Supreme Court, for at least Ferrer in securing his television programme. The one day, the two related, yet distant, worlds came substance of the case may not have been overly riveting together and supplied us with precedent to add clarity for the typical Judge Alex viewer; however, to those of to the uncertain environment of contractual arbitration us involved with arbitration proceedings in the United clauses.

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 49 Current developments

Notes In January 2001, the Panel held a hearing to 1 Preston v Ferrer, 128 S. Ct. 978 (2008). determine the quantum of Petrec’s damages. At this 2 Ibid. 3 Ibid. hearing, NNPC challenged the Panel’s jurisdiction and 4 Southland Corp. v Keating, 465 U.S. 1 (1984). Petrec’s standing. The predicate for the challenge was a copy of a Texas certificate of incorporation, showing that an entity identified as ‘Petrec International Inc.’ had been incorporated in Texas years after the Fifth Circuit holds lawsuit was an execution of the Agreement and the demand for improper collateral attack on a foreign arbitration. On 9 October 2001, the Panel issued a award ‘Final Award’, holding that Petrec lacked capacity to maintain its claims against NNPC. Ann Ryan Robertson Ajamie LLP, Houston [email protected] Round two - federal court of Switzerland Petrec challenged the Final Award in the federal n the case of GulfPetro Trading Company, Inc. v court of Switzerland on grounds that the award violated INigerian Nat’l Petroleum Corp.,1 the Fifth Circuit Court Swiss arbitration law and public policy. The Swiss court of Appeals ruled on whether a lawsuit, cloaked in upheld the Panel’s decision in April 2002. allegations of bribery and fraud, was, in fact, a collateral attack on a foreign arbitration award that has Round three - Northern District of Texas been upheld at the seat of arbitration. Holding that the suit constituted an impermissible collateral attack on Unsuccessful but undeterred, Petrec next sought the award, the Fifth Circuit Court of Appeals affirmed redress in the courts of the United States by filing a the district court’s dismissal of the suit for lack of lawsuit in the United States District Court for the subject matter jurisdiction. Northern District of Texas, seeking: (i) confirmation of The underlying dispute has a complex factual and the Partial Award (in which the Panel had found in procedural history, involving partial and final Petrec’s favour on some aspects of the question of arbitration awards, the Swiss federal court and two NNPC’s liability); and (ii) a determination of damages. different US federal district courts. The district court dismissed the action for lack of subject matter jurisdiction, reasoning that by seeking confirmation of the Partial Award, Petrec was Round one - arbitration before the Chamber of effectively requesting that the Final Award be set aside Commerce and Industry of Geneva or modified, actions that the court was precluded from In 1993, Petrec International, Inc. (‘Petrec’), a wholly taking by the Convention on the Recognition and owned subsidiary of GulfPetro Trading, Co. Inc. Enforcement of Foreign Arbitral Awards (the (‘GPTC’), and Nigerian National Petroleum ‘Convention’). The court also determined that the Corporation (‘NNPC’) entered into a joint venture doctrines of res judicata and international comity agreement (the ‘Agreement’). Pursuant to the precluded it from revisiting the Swiss court’s decision Agreement, Petrec was to undertake reclamation and not to vacate the Final Award. The Fifth Circuit Court salvaging of slop oil discarded by NNPC in the course of Appeals affirmed the decision of the district court. of its daily operations in Nigeria. The Agreement also called for the creation of a Nigerian company, Petrec Round four - Eastern District of Texas (Nigeria) Limited (‘PNL’), a company to be jointly capitalised and owned by Petrec and NNPC. Petrec and Knocked down, but apparently not out, in September NNPC agreed to submit any disputes arising out of the 2005, GPTC, Petrec, and principals James S. Faulk and Agreement to arbitration. James W. Faulk (collectively, ‘GulfPetro’) filed suit in A dispute arose. In 1998, Petrec initiated arbitration the United States District Court for the Eastern District proceedings, alleging that NNPC had failed to of Texas, naming as defendants NNPC, Chief Sena contribute its share of capital to PNL and that the Anthony, NNPC’s general counsel, Prince Bola Ajibola, Agreement conferred on PNL exclusive rights to all of formerly Nigeria’s High Commissioner to the United NNPC’s slop oil. On 5 July 2000, the arbitration panel Kingdom, Jackson Gaius-Obaseki, formerly NNPC’s comprising Andrew Berkeley, Ian Meakin and Hans Group Managing Director, Robert Clarke, outside Van Houtte (‘Panel’) issued a ‘Partial Award’, finding counsel to NNPC, and the three arbitrators. GulfPetro that: (i) Petrec had standing to pursue its claims; (ii) alleged two broad categories of wrongdoing on the part NNPC had failed to contribute its share of capital to of NNPC, its officials and attorneys, and the arbitrators. PNL; and (iii) the Agreement only required NNPC to First, GulfPetro alleged that NNPC paid a US$25 make enough slop oil available to keep PNL’s million bribe to the arbitrators. Secondly, it alleged that operations viable and profitable. two of the arbitrators had failed to disclose a variety of

50 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Current developments business dealings and ex parte communications with jurisdiction court to apply its full range of domestic NNPC and its attorneys occurring prior to or during law to set aside or modify an arbitral award, the arbitration. secondary jurisdiction courts may only refuse or stay Based on these alleged wrongdoings, GulfPetro enforcement of an award on the limited grounds asserted violations of the Racketeer Influenced and specified in Articles V and VI….[A] United States Corrupt Organizations Act (‘RICO’), the Texas court sitting in secondary jurisdiction lacks subject Deceptive Trade Practices Act, and Texas common law matter jurisdiction over claims seeking to vacate, set fraud and civil conspiracy. As damages, GulfPetro aside, or modify a foreign arbitral award.’4 sought: (i) the costs and expenses of the arbitration The Fifth Circuit acknowledged that the specific and subsequent legal challenges; (ii) lost expenses and allegations of bribery and corruption were separate profits that would have been awarded had the Panel and distinct from the contract dispute that was the rendered a fair award; (iii) reputational injury suffered subject of the arbitration. But, focusing on the harm as a consequence of not prevailing in the arbitration; GulfPetro alleged it suffered, the Fifth Circuit Court of and (iv) lost business opportunities suffered as a Appeals found that the damages GulfPetro sought consequence of not prevailing in the arbitration. constituted an impermissible attempt to set aside or GulfPetro also sought to vacate the Final Award under modify an award in a court of secondary jurisdiction: the Federal Arbitration Act (‘FAA’), 9 U.S.C. § 1 et seq. ‘The harm in this case did not result when the NNPC, Anthony, Ajibola, Obaseki, and Clarke filed a arbitrators failed to disclose business dealings, motion to dismiss, asserting lack of subject matter engaged in ex parte communications with NNPC, or jurisdiction based on the Convention and foreign were bribed. Rather, it resulted from the impact that sovereign immunity, as well as lack of personal these acts had on the Final Award. The relief jurisdiction.2 The district court granted the motion, GulfPetro seeks – the award it believes it should have concluding that under the Convention, it lacked received, as well as costs, expenses, and subject matter jurisdiction to modify or vacate the Final consequential damages stemming from the Award. Although only one of GulfPetro’s claims unfavorable award it did receive – shows that its true explicitly sought to vacate the award, the court objective in this suit is to rectify the harm it suffered determined that the remaining claims were based on in receiving the unfavorable Final Award. Under the the theory that bribery of the arbitrators rendered the framework of the New York Convention, the proper Final Award invalid. Consequently, because GulfPetro method of obtaining this relief is by moving to set sought damages to which it would only be entitled if aside or modify the award in a court of primary the Final Award were vacated, GulfPetro’s entire jurisdiction. Though cloaked in a variety of federal complaint constituted a collateral attack on the Final and state law claims, GulfPetro’s complaint amounts Award.3 to no more than a collateral attack on the Final Award itself.’ Because the federal and state claims were ‘a collateral Round five - Fifth Circuit Court of Appeals attack on the foreign arbitral award, [and] it is the Exhibiting ‘Texas tenacity’, GulfPetro appealed. Convention…that dictates the appropriate Although conceding that its claim seeking vacatur was disposition’,5 the Fifth Circuit held that dismissal for properly dismissed for lack of subject matter lack of subject matter jurisdiction was appropriate. As jurisdiction, GulfPetro, nevertheless, asserted that the for GulfPetro’s ‘arbitration exception’ argument, the district court’s determination that the Convention court noted that its decision was decided on narrow required dismissal of the remaining claims was grounds and ‘only bars jurisdiction over claims that:... erroneous. As a corollary argument, GulfPetro are to be determined to be a collateral attack on a maintained that there was no basis for imposing a foreign arbitration award’.6 subject matter jurisdictional bar and posited three In addressing GulfPetro’s plea that the court policy reasons. First, there was ‘no basis for the notion overlook any limitation imposed on a secondary that a complaint can be dismissed on subject matter jurisdiction because redress was unavailable in the jurisdictional grounds as a collateral attack on an courts of Switzerland,7 the Fifth Circuit observed: arbitral award’. Secondly, dismissal would create an ‘In the interest of finality, every primary jurisdiction ‘arbitration exception’ to federal subject matter undoubtedly will foreclose review of an award at jurisdiction. Thirdly, any limitations imposed on courts some point. It would seriously undermine the of secondary jurisdiction should be overlooked because functioning of the Convention if the fact that the relief was not available in the primary jurisdiction of opportunity for judicial review of an award in the Switzerland. The Fifth Circuit Court of Appeals was not primary jurisdiction has passed could open the door persuaded. to otherwise impermissible review in a secondary In affirming the dismissal for lack of subject matter jurisdiction.’8 jurisdiction, the Fifth Circuit Court of Appeals noted: ‘[A]lthough the Convention permits a primary

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 51 Current developments

Notes 7 GulfPetro argued that it had no means of vindicating its claims of 1 512 F.3d 742 (5th Cir. 2008). bribery and corruption in Switzerland because it had been unable 2 The arbitrators did not join in the motion to dismiss and never to initiate a criminal proceeding against the arbitrators in that appeared in the lawsuit. country. GulfPetro maintained that it was required to initiate a 3 GulfPetro, 512 F.3d at 747. criminal proceeding in order to obtain reconsideration of the 4 Ibid at 750 (citations omitted). Swiss court’s earlier decision. 5 Ibid at 751. 8 GulfPetro, 512 F.3d at 752. 6 Ibid.

Investment treaties

Stabilisation clauses: is there a middle ground between competing interests?

Comments from the AIPN Europe and Africa Region Chapter Meeting and the Special Representative of the Secretary General of the UN’s Consultation Meeting

May Tai Herbert Smith LLP, London [email protected]

ondon played host to two recent conferences on (i) freeze the law of the host state on the day the Lstabilisation clauses: the Association of agreement is made, for the term of the contract; International Petroleum Negotiators (‘AIPN’) Europe (ii) require that the economic equilibrium of the and Africa Region Chapter Meeting on Stabilisation investment project is maintained; and Clauses held on 20 May 2008 and the Office of the (iii) provide that a contract cannot be modified or Special Representative of the Secretary General of the abrogated except by mutual consent of the UN (‘SRSG’) Consultation Meeting on the SRSG’s contracting parties. Report on Stabilization Clauses and Human Rights These clauses are familiar to many transnational held on 22 May 2008. While both conferences focused investors who seek such clauses, governments from on stabilisation clauses, they raised vastly different whom such clauses are sought, financial institutions concerns with regard to the proper role and use of looking for stable investments to finance, and civil stabilisation clauses. The AIPN Regional Chapter societies who express concern over the potential Meeting was attended by industry participants and negative effect such clauses have on the development focused on investors’ business interests in using of human rights. Stabilisation clauses present a human stabilisation clauses. In contrast, the SRSG Consultation rights issue because the clauses aim to maintain the Meeting was attended by participants from civil legal or economic equilibrium of an investment project societies (comprising non-governmental organisations) to the potential detriment of legal developments in and more attention was paid to the human rights labour law, health and safety regulations, implications of stabilisation clauses. environmental protection and other human rights within the host state. This is particularly so for clauses that require the law of a host state to be frozen with Why the sudden interest in stabilisation clauses? respect to an investment project. It can also be an issue, A stabilisation clause is a contractual clause even where a clause only preserves the economic commonly found in private contracts between investors equilibrium of the investment (requiring economic and host states. As its name suggests, a stabilisation compensation for any change in the conditions clause aims to stabilise the terms and conditions of an surrounding the investment), as these clauses make it investment project. It is a common contractual risk less attractive for host governments to implement new management tool that seeks to stabilise an investment human rights standards. Any of these formulations may project in one of three ways: be potentially harmful to human rights developments where they hinder changes in the law either directly or

52 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 investment treaties indirectly by creating substantial economic or financial publication of the contracts, the international disincentives for changing the status quo. community expressed concern over the human rights Stabilisation clauses are also relevant to arbitration implications of such broad stabilisation clauses. In practitioners. As the law on foreign investment response, BP (which led the BTC consortium) gave a protection becomes more crucial for arbitration Human Rights Undertaking in 2003, which recognised practitioners, so does the law on stabilisation clauses. the states’ international human rights obligations by Investors, governments, financiers and civil societies removing from the ambit of the stabilisation clauses look increasingly to arbitration practitioners to review any changes in law reasonably required for the host stabilisation clauses and advise on the scope and state to meet its international human rights, labour, enforceability of such clauses. Further, as investment health and safety, and environmental obligations. agreements often contain arbitration clauses rather Despite the BTC experience, participants at the than give jurisdiction to the local courts of the host Chapter Meeting are of the view that stabilisation state to resolve disputes, if a dispute arises, arbitration clauses (or a mechanism similar to the stabilisation practitioners will be asked to arbitrate over the validity clause) are still necessary for investment projects today. and proper effect of such clauses. As one participant noted, in relation to the suggestion that compensation awarded for expropriation should be more balanced, as it currently favours the investor: Impressions and concerns raised at the AIPN Regional ‘Governments never expropriate the dry wells, they Chapter Meeting only expropriate producing wells’. Three speakers led the discussion at the Chapter Expressed in this way, the participants at the Chapter Meeting. Professor Peter Cameron from the University Meeting demonstrate why the investor’s concern is of Dundee spoke first onContract Stability in the legitimate. Companies seeking stabilisation clauses do Petroleum Industry – from Aminoil to Venezuela. His talk was not want to stop a government’s legitimate ability to followed by a presentation by Matthew Weiniger, legislate and regulate. They merely want to prevent the partner at Herbert Smith LLP, who spoke on Current economic balance of their investment contracts being Issues in Stabilisation Clauses. The third speaker was changed unilaterally. economist Paul Stevens, who proposed a new methodology for determining Compensation Payable for Impressions and concerns raised at the SRSG Expropriation of Oil and Gas Assets. Next was a session on Consultation Meeting how to draft suitable stabilisation clauses. The programme ended with a general discussion. Two days later, on 22 May 2008, the SRSG held the Of interest to many arbitration practitioners are the first of a number of regional consultations on its comments and concerns expressed by the participants Report on Stabilization Clauses and Human Rights. (most of them industry representatives from the oil and The participants ranged from representatives of gas sector). Not surprisingly, the search for certainty financial institutions to private practice lawyers to and predictability in foreign investments is still of members of civil societies. The session started with a paramount importance, and the reason why the brief introduction by Professor John Ruggie, the UN Chapter Meeting was oversubscribed. The participants Special Representative on Business and Human Rights. pointed to instances of resource nationalism taking A second, longer, introduction was given by the author place in Venezuela, Bolivia and other parts of the world of the report, Andrea Shemberg, legal adviser to the as a reason why investors continue to insist on SRSG. The rest of the meeting consisted of comments stabilisation clauses when making long-term from the participants on various aspects of the report, investments in certain parts of the world. Industry including whether and why stabilisation clauses are representatives also mentioned that stabilisation clauses needed and recommendations for the future of were often a prerequisite for obtaining financing for stabilisation clauses. projects in certain jurisdictions. At this meeting, many participants from the civil The SRSG’s Report on Stabilization Clauses and Human society groups were of the view that stabilisation clauses Rights, published on 11 March 2008, has put the are harmful to the development of human rights. The potentially negative effect of stabilisation clauses at the conference participants emphasised the finding in the forefront of discussions on stabilisation clauses. It SRSG Report that there is a disparity between the added fuel to the debate sparked by the well-publicised number and types of stabilisation clauses found in experience of the Baku-Tbilisi-Ceyhan (‘BTC’) contracts with OECD states (few and narrow in scope) pipeline, which is a crude-oil pipeline project running as contrasted with contracts with developing countries through Azerbaijan, Georgia, and Turkey. In summary, (where stabilisation clauses are common and wide as part of the contractual framework for the building ranging in scope). The civil societies argued that this and operation of the BTC pipeline, the BTC finding supports their view that stabilisation clauses are consortium entered into contracts with each of the host not necessary for investments. It was suggested by some states, which included broad stabilisation clauses. On participants that human rights are absolute whereas

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 53 investment treaties economic rights, which stabilisation clauses seek to achieved without understanding the concerns of the protect, are not. Further, it was strongly felt that human rights advocates and vice versa. This is because transnational companies should use their corporate a middle ground (if one can be found) will involve the sphere of influence to further human rights following as a minimum: development in developing countries. This should be (i) better informed investors who will bear in mind accepted as part of the corporation’s social the fluidity of human rights developments and responsibility, as well as part of corporate risk keep track of such developments when making management. investments; The civil society groups expressed their concerns in (ii) better advised governments who need to protect strong terms. Many of these concerns have already their legitimate right to regulate and legislate been taken on board in the SRSG’s Report and will be when negotiating investment agreements; strengthened as a result of this consultation meeting in (iii) legal advisers who understand the concerns of all London and other regional consultations to come. groups involved in the stabilisation clause debate and are able to draft clauses that accommodate such concerns, particularly when they are called Is there a middle ground? upon to draft a clause that balances an investor’s The two meetings, both looking at the same issue, need for economic stability with protecting could not be more different in terms of the concerns human rights; and expressed. Although the ensuing discussion would have (iv) arbitrators who must be well equipped to decide a been very heated, it is a shame that the participants in conflict which involves balancing between an the AIPN Chapter Meeting and in the SRSG investor’s legitimate right to have its stabilisation Consultation Meeting did not participate in the same clause honoured and avoiding a human right meeting. Redress of the investors’ concerns cannot be abuse.

Practitioners’ comments

International sport arbitration: a different ballgame

Ekpedeme Edem International Master in Management, Law and Humanities of Sport, Neuchatel [email protected]

port, however narrow or wide its definition, plays a methods of dispute resolution depending on diverse Ssine qua non role in daily human existence. It is needs and applicable laws. However, sport, with its inter-dependent on other human activities. The power peculiarity, relies on arbitration as its preferred form of of sport to unite conflicting factions, ease pain, better dispute resolution. health, and educate people among other intrinsic This article examines sport-related arbitration, not benefits, cannot be overstated. Now, more than ever, it from the angle of all sports, but from the perspective of plays a pivotal role in society and is therefore worth competitive sports, bearing in mind the examining. That is not to say that sport is a recent commercialisation of sport. Sports have become phenomenon; it dates back to the very existence of international in nature, thanks in part to globalisation man himself. If we take the broad definition of sport to and transportation. The formation of the International include any physical activity, then man, from the first Federation is a reflection of cross-border sport dealings day, was an active sport participant or spectator. including, but not limited to, the transfer of players. Hand in hand with sport is the concept of conflict. It However, law to a large extent, is still very nationalistic, goes without saying that people are different in their though there are efforts to unify legal systems across dispositions, likes and dislikes. With these inherent borders. The concept of state autonomy ensures the differences, comes conflict and a need to resolve these dominance of the domestic nature of law. conflicts; hence the advent of law. There are various The international nature of sport and the domestic

54 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Practitioners’ comments nature of law in a globalised world present a situation boxing could constitute a foul in football. It takes an of practical non-convergence. In an effort to effectively arbitrator with a thorough knowledge of a particular resolve disputes, the Court of Arbitration for Sport sport to draw the thin line between an illegal foul and a (CAS) was formed in 1984. CAS abides by the Code of valid action. When there are disputes on technical Sports-related Arbitration and is overseen by the issues, the need for an arbitrator with the technical International Council of Arbitration for Sport (ICAS). know-how becomes important. By virtue of Article R27 of the Code of Sports-related Specific legal knowledge of sport: sport law is another Arbitration, CAS has jurisdiction over matters related area of law that requires detailed expertise. What to or connected with sports. CAS as a body has two constitutes a rule of the game and what constitutes a arbitration divisions: (i) Ordinary Arbitration Division; rule of law is not necessarily black and white. Where and (ii) Appeals Arbitration Division. It is nearly does one draw the line? This question underscores the impossible to discuss sport arbitration without need for experience and knowledge in a particular mentioning CAS. sport by the arbitrator. The uniqueness of sport arbitration is better Specificity of sport: this is a broad term that has understood by analysing disputes arising from sporting eluded definition.1 Sport is varied, and what is specific events. Sporting events like the Olympics and to swimming may not apply to equestrian sports. These European Football Championships are staged over a differences are even more obvious in the fight against specified period of time. Where progression to an doping. What may constitute doping for a cyclist may event’s next round is based on qualifiers, set schedules not be considered doping for an archer. and timelines, a time-sensitive scenario emerges when a In view of these unusual requirements for sport dispute arises affecting the event. Arbitration is arbitration, ICAS created a CAS ad hoc division in 1996 generally a quicker method of dispute resolution. that settles cases within 24 hours during the Olympics. However, the aforementioned dispute requires Its jurisdiction is not limited to the Olympics, but also consideration of: (i) time constraints; (ii) technical includes the Commonwealth Games and the FIFA know-how; (iii) specific legal knowledge of sport; and World Cup, among others. The ad hoc division is a (iv) the specificity of sport. temporary arbitral body with special arbitration rules. Time constraints: some sporting events have It has been argued that a choice of arbitrators from the progressive rounds of competition within subsequent CAS list is really not a choice at all. However, days. When there is a dispute as to results or other specifically for the ad hoc division at sport events, the factors that affect the outcome of a qualifier and the need for arbitrators with an understanding of next stage is set for the following day, it presents a international sports arbitration cannot be underscored dispute resolution scenario shackled by time enough. constraints. Until there is a clarification of issues, a party will be in a disadvantaged situation. For instance, Notes an athlete who ought to be in the next stage, but who 1 In the case of Andrew Webster v Heart of Midlothian (CAS 2007/ cannot compete because his appeal has not been heard A/1279&1299&1300), though the CAS relied on the specificity of or issues are still unresolved, is disadvantaged. sport as one of the factors for reaching its decision, no definition was given as to what the ‘specificity of sport’ amounted to. Technical know-how: each sport comes with its own technicalities, and what amounts to a fair kick in kick-

IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 55 Practitioners’ comments

Double difficulty for non-signatory parties to multiparty ICC arbitrations

Manuel P Barrocas Barrocas Sarmento Neves, Lisbon [email protected]

enerally, an arbitration clause binds only the domestic arbitration – the arbitration seat, lex causae Gpersons or companies who sign the agreement and lex arbitii, and nationality of the signatory parties containing it. This principle reflects the fact that may all correspond to the nationality of the arbitration arbitration is consensual in nature and dependent seat. upon the parties’ agreement. There are, however, This very point was recently submitted to the ICC exceptions to this principle in the rules of a number of Court in regard to an arbitration pending in Sao Paulo, arbitration institutions, including the ICC. For Brazil. The arbitration was between a Brazilian example, a non-signatory parent company may be commercial aviation company that was a subsidiary of required to participate, either with or without the the GOL Group and a number of Brazilian companies. agreement of the signatories, in an arbitration where The non-signatory third party, Mattlin Patterson Funds, one of the signatories to a contract is or was its was based in the United States. The transaction at issue subsidiary. This is often referred to as the ‘group of in the dispute was the sale of shares in Varig, a Brazilian companies’ doctrine. Similarly, a non-signatory airline. company may be required to participate in an The court decided to follow the signatories’ arbitration if it is the alter ego of an affiliate company, agreement literally and upheld the arbitration seat they which signed the arbitration agreement. This is chose. The ICC Court took no notice of the fact that commonly called ‘piercing the corporate veil’. Finally, the non-signatory party, a US company, had been an arbitral agreement may be held to require non- compelled to participate in an arbitration in a seat signatories to arbitrate when assent to that agreement completely alien to it by signatories who were both may fairly be implied by the non-signatories’ conduct, native to Brazil. In summary, the court deemed the such as actively participating in the negotiation and/or parties’ choice of arbitration seat to be set in stone and executing the contract that is the subject matter of the showed no tolerance or flexibility towards the position dispute. This situation is also usually connected with of the non-signatory party. the group of companies doctrine. The author disagrees with the ICC Court’s position. Where a non-signatory is required to arbitrate, This inflexible approach results in a non-signatory questions may arise as to the amount of input it is party being unprotected and the neutrality of the permitted to have in structuring the arbitration forum potentially being compromised. The non- proceeding. Generally, the non-signatory should be signatory party faces a double difficulty: it is compelled able to choose the arbitrator with the agreement of the to participate in an arbitration not of its choosing, remaining respondents.1 But the ICC Rules do not give often against its will; and it is denied the opportunity to a non-signatory party any power to influence the have its case heard and determined in a neutral arbitration seat if there is a previously chosen location. arbitration seat. The court needs to urgently review its This circumstance, if not considered by the ICC Court, approach and policies in these cases. The intervention is likely to lead to inequality between the parties and of a third party in an arbitration should have a direct will constitute a double burden for the non-signatory. impact on the choice of the arbitration seat. The duty In practice, a non-signatory may be compelled to to ensure the neutrality of the seat for all parties participate in an arbitration to which it never agreed, concerned must prevail over the signatory parties’ without many of the safeguards and rights that are prior choice of seat. The non-signatory is participating afforded to the signatory parties. in the arbitration and is directly impacted by its seat. A non-signatory party, particularly where it is not part Given the increasing tendency to join non-signatories of a group of companies that signed the arbitration in arbitration, the ICC Court should carefully review, agreement, may be forced into the potentially on a case-by-case basis, when it should follow the prejudicial situation of having to accept an arbitration signatory parties’ choice of the arbitration seat if the seat that is hostile to its interests. The independence non-signatory disagrees with that choice.2 This and neutrality of the arbitration seat may be consideration is essential to uphold the ICC’s principles compromised because a foreign party may be and reputation for equality and fairness. effectively compelled to participate in what is truly a

56 IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 Practitioners’ comments

Notes arbitrate, not all of the parties have agreed on the place of 1 See Article 10 of the ICC Arbitration Rules. arbitration, even if the parties who signed the arbitration 2 Article 14 of the ICC Arbitration Rules allows the ICC Court to fix agreement have. The ICC Court has the power under Article 6(2) the place of arbitration where the parties have not done so. It to resolve disputes about the scope or validity of the arbitration could be argued that when a non-signatory is compelled to agreement.

Arbitration Committee web page improvements

he Arbitration Committee web page (www.ibanet. • Access to the full text of the IBA Rules on the Taking Torg/legalpractice/arbitration.cfm) has recently of Evidence in International Commercial been upgraded and more enhancements are planned. Arbitration, including the translations into German Thanks to LexisNexis, the page includes a link to world and Spanish. arbitration news. Updated daily, this feature collects • Link to the current issue of the newsletter. arbitration news from around the globe. • Information about past and upcoming IBA Other features of the page include: Arbitration Committee events, including the 12th • Descriptions of the work of the Arbitration IBA International Arbitration Day that will be held Committee’s Subcommittees and Task Forces. in Dubai on 16 February 2009. • Access to the full text of the IBA Guidelines on More improvements are planned. Committee Conflicts of Interest in International Arbitration, members may send comments or suggestions to including translations into Chinese, Japanese, Polish, Lawrence Schaner, Publications and Newsletter Editor, Portuguese and Spanish. at [email protected].

Arbitration Committee DVD for sale

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IBA Legal Practice Division ARBITRATION COMMITTEE NEWSLETTER September 2008 57 IBA periodicals available for subscription

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