Arbitration and Company Law: an Introduction Diederik De Groot

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EUROPEAN COMPANY LAW 122 JUNE 2015, VOLUME 12, ISSUE 3 Table of Contents

Editorial 125 Arbitration and Company Law: An Introduction Diederik De Groot

Arbitration and Company Law in Austria 128 Christoph Liebscher

Arbitration and Company Law in Belgium 132 Dirk Van Gerven & Maxime Berlingin

Arbitration and Company Law in England and Wales 138 James Carter & Sophie Payton

Arbitration and Company Law in France 144 T. Alexander Brabant, Maxime Desplats & Serena Salem

Arbitration and Company Law in Germany 151 Frank Roth Arbitration and Company Law in Italy 154 Diego Corapi Arbitration and Company Law in the Netherlands 160 Harmen De Mol Van Otterloo Arbitration and Company Law in Sweden 166 Kristoffer Löf & Andreas Steen Report

173 Report of the 5th CECL-Conference on Banks in Europe: Regaining Trust and Securing Continuity Tom Dijkhuizen

Columns

179 Survey of Legislation and Case Law, November and December 2014 & January and February 2015

Paul Jager

EUROPEAN COMPANY LAW 123 JUNE 2015, VOLUME 12, ISSUE 3 Legal Periodicals: A Selection 181 Stephan Rammeloo Book Review

182 Donald S. Bernstein (ed.), The International Insolvency Review, London: Law Business Research Ltd., 2nd ed., 2014, ix + 483 pp.; ISBN 978-1-909830-25-7. £ 225

Bob Wessels

JUNE 2015, VOLUME 12, ISSUE 3 124 EUROPEAN COMPANY LAW EDITORIAL Arbitration and Company Law: An Introduction

DIEDERIK DE GROOT, ADVOCAAT AND PARTNER AT DLA PIPER NEDERLAND N.V. IN AMSTERDAM (THE NETHERLANDS)*

This special edition of ECL is about arbitration and company law. private codification a large body of best practices has emerged that At first sight, the pair makes strange bedfellows. Company law create a flexible and widely accepted procedural framework for deals with the formation, organization, operation and governance international arbitration. These efforts have paid off well. In a 2006 of companies. Corporate disputes can be survey jointly undertaken by PwC and Queen Mary University of broadly divided into contractual disputes, London among in-house counsel of major multinational originating from contracts relating to the corporations, 73% of the respondents preferred arbitration to solve formation or operation of a company on international commercial disputes. The vast majority of disputes the one hand, and on the other what may that are referred to arbitration are disputes between companies. be labelled ‘institutional’ disputes. Companies are the main users of the arbitration system. Disputes ‘Institutional’ disputes invariably involve referred to arbitration almost invariably involve commercial the (statutory rather than contractual) contracts. rights of shareholders, directors and other So, why then is it that arbitration and company law are thought stakeholders against each other and to make strange bedfellows? The alleged strangeness is found in the against the company. Most legal systems feature specific procedures ‘institutional’ corporate disputes mentioned above. Often such for squeeze-outs, the protection of minority shareholders, and typical ‘institutional’ disputes turn out to be the exclusive province remedies to enforce rules of corporate governance, and to review of state courts. They are strictly off-limits to arbitration. The and control corporate decisions. However, there is no such thing as pattern of forbidden areas varies across jurisdictions. The key a standard package in this respect. Despite harmonization in the notion here is arbitrability. This notion provides the leitmotiv in EU, company law is still largely a matter of national law. So, the contributions that follow. As a matter of legal principle, any systems of company law vary considerably. ‘Institutional’ remedies legal dispute should be just as capable of being settled by an and actions typically derive from legislative measures that result arbitral tribunal as by a national court. The fundamental from public debate over public concerns. Arbitration, on the other equivalence of arbitration and litigation is firmly enshrined in hand, is essentially a private dispute resolution system. It is an many national arbitration laws. However, there are exceptions to alternative to litigation in the national courts. The perceived this basic equivalence. By virtue of rules of national law, certain advantages of arbitration include flexibility of the procedure and categories of subject matters and certain types of disputes are set the selection of experienced and expert arbitrators by the parties, apart as the exclusive domain of the national courts. They are confidentiality of the proceedings, and finality of the decision. excluded from arbitration and hence not arbitrable. This is largely Private justice may come at a price, but the fact that proceedings so because of the essentially private, non-public nature of are often quicker – usually one instance without possibility of arbitration. Arbitrability is a complex legal notion. For reasons of appeal – has a positive effect on overall costs. International legal history, its theoretical underpinnings and scope of application arbitration has the added advantages of an almost global reach of vary from one system of national law to another. Arbitrability is enforcement (152 states adhere to the 1958 New York Convention not static, but dynamic. It is the product of ongoing historical which provides for easy recognition and enforcement of foreign development. This development is marked by an international arbitral awards) and cultural neutrality of the chosen forum. Each tendency towards liberalization to the effect that the barriers of jurisdiction has its own arbitration law that applies to arbitrations arbitrability are steadily being pushed back and parties are in that jurisdiction. Yet, since the 1980s there has been a marked increasingly allowed to freely select arbitration as their preferred tendency toward global harmonization of arbitration laws. forum. Moreover, as a result of international instruments and creeping

* E-mail: [email protected].

De Groot, Diederik. ‘Arbitration and Company Law: An Introduction’. European Company Law 12, no. 3 (2015): 125–127. © 2015 Kluwer Law International BV, The Netherlands Although notions of arbitrability differ widely, certain common the existence of absolute rights by their very nature have an erga elements may be identified. The first element is the statutorily omnes effect. This means that such judicial decisions can be imposed forum. Statutes may contain a provision that disputes enforced against whomever, including parties who were not arising under that statute must be settled exclusively by means of a involved in the original dispute. Not surprisingly, courts apply the specific type of litigation, or before a specific court or erga omnes effect to exclude disputes involving such ‘absolute (administrative) tribunal. These statutes are usually associated with rights’ (not only to be found in property law, including intellectual the modern welfare state; they are created to protect groups that property law, but also in company law) from arbitration. These are deemed weaker from a social or economic perspective, such as disputes are confined to litigation in the state courts, because consumers, employees or tenants. Such choices are largely legal- interested parties may always join a pending legal action to protect political. However, the choice may also be based on policy their (third party) rights. Some legal systems even offer specific concerns to set up specific courts (or new chambers within existing third-party remedies against – the enforcement of – court courts) or (administrative) tribunals to deal with specific decisions involving ‘absolute rights’. In arbitration – essentially a categories or types of disputes because of the legal or subject creature of contract – things are fundamentally different. matter related expertise that is supposedly required. Tax and patent Arbitration starts with an arbitration agreement. The principle of matters are typical examples of this trend. privity of contract works against third parties. Outsiders – not The second element is the civil law notion of free disposition of bound by the arbitration agreement or otherwise implied in the rights. In order to be able to waive a subjective right or to enter arbitration proceedings – do not have a right to join a pending into a valid compromise or settlement relating to that right, such a arbitration whatever their legal interests in the outcome thereof. It right must fall within the category of subjective rights that a is the legal position of third parties claiming a legitimate interest person (or legal entity) can freely dispose of. This free disposition that serves to justify this specific lack of arbitrability. Litigation is can be blocked by, for example, an explicit statutory provision held to offer adequate protective devices that are absent from (Continental Civil Codes contain several provisions to that effect). arbitration. It also happens that free disposition is impliedly barred by public From this quick tour d’horizon, it is clear that all of the above- policy considerations. Such considerations do not need to be mentioned elements are strongly intertwined; they all relate to spelled out in statutory provisions; they are bound up with the entrenched legal notions that have respectable historical pedigrees. foundations of the relevant system of private law. As a corollary, Although some elements have a distinct civil law flavour, common disputes that relate to such inalienable rights may not be referred law jurisdictions show similar concerns. Yet, things have changed to arbitration (as a private justice system). These disputes are to over the years. Two well-known examples are worthwhile remain the exclusive domain of litigation. mentioning. In 1974, in Scherk v. Alberto-Culver (417 US 506 That brings us to the third element: public policy. Public policy (1974)) the US Supreme Court ruled that disputes under the US is an even more fundamental legal notion. It evades easy Securities Act were arbitrable. In 1985, in Mitsubishi Motors Corp. definition. Large parts of the private law system are affected by this v. Soler Chrysler Plymouth Inc. (473 US 614 (1985)) the Supreme notion, which provides a kind of legal safety valve. Depending on Court held that claims under antitrust laws were capable of being the legal setting, public policy arguments may be relied upon to resolved by arbitration. A similar outcome is found in the 1999 serve as either a shield (to ward off unwanted consequences) or a European Court of Justice decision in Eco Swiss v. Benetton (Case sword (to vindicate a just solution). Typical examples of affected C-126/97). Arbitrators may solve EU competition law issues areas are family law (including divorce; although sometimes relating to contracts. Their award, however, can be reviewed by an alimony disputes may be referred to arbitration), insolvency and EU state court within the existing framework of an action for bankruptcy, major parts of the law relating to intellectual property setting aside or annulment of the award (the so-called Second rights (more particularly the vesting and validity of such rights), Look). So, things have indeed changed and they continue to and parts of employment law and company law. It is precisely change. In the international arena, arbitration has become the because of the public consequences of private proceedings preferred form of dispute resolution. This happened not because (divorce, bankruptcy, invalidity of a patent or trademark) that arbitration is perfect (nobody has ever claimed that), but because some types of disputes or claims are reserved for the national arbitration is rightly perceived as a rational and efficient alternative courts. These matters can apparently not be entrusted to privately to state court litigation with sufficient built-in safeguards to appointed judges, or so it is generally held. guarantee an outcome that meets the requirements of procedural The final element is another traditional legal distinction dating and substantive justice. Trust must of course be earned. As back to Roman law. It is the distinction between rights that a developments show, a perceived initial distrust of arbitration has creditor may enforce against his debtor(s) (the so-called ‘relative given way to its acceptance. In turn, this has resulted in a gradual rights’), and rights that may be upheld against any other party (the lowering or even elimination of the barrier of arbitrability. The so-called ‘absolute rights’). Judicial decisions that create or confirm question now is whether this development also manifests itself in

JUNE 2015, VOLUME 12, ISSUE 3 126 EUROPEAN COMPANY LAW the area of company law, more particularly with respect to disputes standing invitation to (other) shareholders to become a party to involving ‘institutional’ remedies and actions. arbitration proceedings about, e.g., the validity of a shareholders The contributions to this special edition all deal with the topic decision. Considering the contents of this volume, this debate is by of company law and arbitration. Their focus is on the above- no means limited to the Netherlands. Now that arbitration has mentioned question. The key notion is arbitrability, i.e., the idea come of age, arbitral tribunals should also have the power to void that certain disputes cannot be referred to arbitration. In legal or set aside corporate decisions. From a legal-political point of theory and case law, all elements of arbitrability are in turn relied view, there can be no reason to withhold this power from upon, showing that these elements are really communicating arbitrators. Arbitrators are equally well-equipped and well- vessels. The Dutch situation provides a typical illustration of this informed to deal with third-party effects in a responsible manner point. Under Dutch company law, any interested party may apply as judges and justices in state courts. Withholding this power from to the courts for the voidance or setting aside of shareholder arbitrators also undermines the attraction of arbitration, as decisions. Such court decisions are by their nature ‘absolute’ in that disputes may get fragmented in that – in spite of an arbitration the voidance or setting aside affects all parties (irrespective of agreement – one set of claims is dealt with by a tribunal, while the whether they participated in the litigation). In its 2007 Groenselect remaining ones must be referred to litigation. decision (HR 10 November 2006, NJ 2007, 561), the Netherlands The contributions that follow are limited to arbitration as the Supreme Court (Hoge Raad) ruled that arbitrators do not have this alternative to litigation. Depending on definitions, arbitration is power. This remedy is exclusively in the hands of the national sometimes deemed to belong to ADR (Alternative Dispute courts. The Supreme Court’s principal arguments are the erga Resolution) and sometimes not. Its main ADR rival is of course omnes effect and the position of (interested) third parties. These mediation. Because of its entirely different focus and legal setting, arguments are actually two sides of the same coin. This outcome mediation of ‘institutional’ company law disputes presents has sparked a public debate. It is suggested that in many cases the additional problems of its own. These problems are considerable. number of interested parties (shareholders, for example) is actually For that reason, a line had to be drawn and in due time, another quite limited. If and when their interests are duly taken into special edition may be devoted to mediation and company law. account (by giving them proper access to the debate), the resulting This special edition contains eight contributions written by arbitral award should indeed have the inevitable erga omnes effect. experts in the field. The editor is very grateful for the unstinting This line of argument makes perfect sense. Arbitration is support of the contributors. Their contributions deal with – in sufficiently flexible to satisfy this condition of access. Moreover, alphabetical order – Austria, Belgium, England and Wales, France, suitable worded arbitration clauses may be added to the Articles of Germany, Italy, the Netherlands and Sweden. Association of a company. This type of clause may be seen as a

EUROPEAN COMPANY LAW 127 JUNE 2015, VOLUME 12, ISSUE 3 COLOPHON

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EUROPEAN COMPANY LAW 122 JUNE 2015, VOLUME 12, ISSUE 3