Arbitration March 2010

Arbitration News
Newsletter of the International Bar Association Legal Practice Division VOL 15 NO 1 MARCH 2010
Newsletter Editor Julie Bdard Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square, New York, 10036-6522 United States Tel: +1 (212) 735 3236 Fax: +1 (212) 777 3236 julie.bedard@skadden.com Editorial Board Philippe Bartsch Schellenberg Wittmer, Geneva Kyo-Hwa (Liz) Chung Kim & Chang, Seoul Samaa Haridi Crowell & Moring, New York Ignacio Minorini Lima M & M Bomchil, Buenos Aires Lucy Martinez Freshelds Bruckhaus Deringer LLP, New York
This newsletter is intended to provide general information regarding recent developments in international arbitration. The views expressed are not necessarily those of the International Bar Association.
Terms and Conditions for submission of articles 1. Articles for inclusion in the newsletter should be sent to the Newsletter Editor. 2. The article must be the original work of the author, must not have been previously published, and must not currently be under consideration by another journal. If it contains material which is someone elses copyright, the unrestricted permission of the copyright owner must be obtained and evidence of this submitted with the article and the material should be clearly identied and acknowledged within the text. The article shall not, to the best of the authors knowledge, contain anything which is libellous, illegal, or infringes anyones copyright or other rights. 3. Copyright shall be assigned to the IBA and the IBA will have the exclusive right to rst publication, both to reproduce and/or distribute an article (including the abstract) ourselves throughout the world in printed, electronic or any other medium, and to authorise others (including Reproduction Rights Organisations such as the Copyright Licensing Agency and the Copyright Clearance Center) to do the same. Following rst publication, such publishing rights shall be nonexclusive, except that publication in another journal will require permission from and acknowledgment of the IBA. Such permission may be obtained from the Head of Editorial Content at editor@int-bar.org. 4. The rights of the author will be respected, the name of the author will always be clearly associated with the article and, except for necessary editorial changes, no substantial alteration to the article will be made without consulting the author.
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IN THIS ISSUE
In this issue
From the Co-Chairs Editors note Committee Ofcers Conference reports Madrid Arbitration Committee annual dinner Dispute Resolution Scholarship 12 12 5 8 10 Development of a Model BIT 46 Setting the bar: The Glamis Gold Tribunal sticks to the 1926 Standard for Minimum Treatment of Foreign Investors 49 Moral damages in investment treaty arbitration and Desert Line v Yemen Provisional measures in investment disputes are damages sufcient? 52 55
Options for the resolution of international commercial disputes, including the drafting of dispute resolution clauses 13 Sovereign immunity in international litigation and arbitration Arbitration & litigation: is there a clear winner? Coordinating the chaos a global update on mass claims: can litigation, arbitration and government remedies work together? Investment treaty arbitration Fast-track arbitration: an idea whose time has come? The IBA Guidelines on Conicts of Interest in International Arbitration ve years later Is arbitration failing the reinsurance community? 15 17
There is nothing more permanent than temporary A critical look at ICSID Article 52(5) on stay of enforcement in cases against Argentina 58 Uruguay may face its rst investment treaty claim Country developments Africa and the Middle East 6584 62
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Arbitration in Egypt: the need for a systemic review Khaled El Shalakany The Egyptian Evidentiary Law No 25 of the year 1968 applicability and impact on arbitral proceedings under Egyptian Arbitration Law No 27 of the year 1994 Anne-Marie Storch Establishment of a new regional arbitration institution Africa ADR Shane Voigt and Peter Ramsden Considerations in shifting towards a more inclusive policy to allow nonsignatory third parties into arbitration in cases where there are multiple parties and multiple contracts Essam Al Tamimi and Mohammed Abdrabboh Enforcement of international arbitration awards and potential pitfalls the Dallah Trust case Khawar Qureshi QC Overview of enforcement of domestic and foreign arbitral awards under UAE Law Karim J Nassif The road ahead: the future of arbitration in the UAE Hassan Arab
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Hot topics Open forum on the review of the IBA Rules on the Taking of Evidence in International Arbitration 29 New York Convention workshop Conference report Barcelona Barcelona Arbitration Courts First Congress of Corporate Arbitral Institutions Investment arbitration The Lisbon Treaty and its implications for investment protection Investor-state arbitration, court intervention and the ICSID Convention in Canada 35 31
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Investor-state disputes on the rise in the Arab world 40 Toto Costruzioni Generali S p A v The Republic of Lebanon, ICSID Case No ARB/07/12, Decision on Jurisdiction, 11 September 2009
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INTERNATiONAL BAR ASSOCiATiON LEGAL PRACTiCE DiViSiON
IN THIS ISSUE
Asia Pacic Overview Australia to update arbitration laws Alex Baykitch
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Australias new arbitration regime enhances efciency in arbitration procedures Peter Megens Enforcement and recognition of foreign arbitral awards in China is the rule, not the exception Jessica J Fei A v R: Indemnity costs as the likely price for any unsuccessful challenge to an award in the Hong Kong courts Paul Mitchard QC and Calvin Chan The unique features of Arbitration Law in Japan Haig Oghigian Supreme Court rules on the standard for refusing to enforce arbitration awards allegedly obtained by fraud Byung-Chol (BC) Yoon From backstage into the spotlight: the rise of international arbitration in Korea Kevin Kim, Sue Hyun Lim and James Morrison Pakistani arbitration: towards the Model Law Shahid Jamil Singapore reinforces international arbitration Lawrence Teh Arbitration conference held in Taipei on commercial and treaty arbitrations Ting Sun Europe 113149 Arbitrability, due process and public policy in setting aside proceedings Olivier Caprasse Has the door been opened for substantive amendments to arbitral awards? How a recent decision of the English court erodes the principle of nality of awards CNH Global N V v PGN Logistics Limited & Ors [2009] EWHC 977 Comm Richard Bamforth and Katerina Maidment
Court of Appeal denies enforcement of an ICC award because the defendant was not a party to the arbitration agreement Matthew Weiniger and Joanne Greenaway Commentary on the CEDR Rules for the facilitation of settlement in international arbitration Jacob Grierson The written form requirement for the recognition of foreign arbitral awards in Germany Prof Dr Wilhelm Haarmann New arbitration rules of the German Institution for Arbitration (DIS) Dr Richard Happ and Dr Katrin Haberkamm The German Federal Court of Justice returns to the principle that there is no double exequatur for arbitral awards in Germany Stephan Wilske and Todd J Fox Supreme Court rules arbitral tribunal not required to disclose hearing notes Eelco Meerdink and Niels Dekker An arbitration agreement contained in a contract does not cover the renewal of such contract Alexander Gurkov Impartiality test for arbitrators Roman Zykov Pavan S R L v Leng DOr: The Spanish position on the enforcement of foreign awards when an action to set aside the award is pending at the seat of the arbitration Ana Morales Where theres smoke, theres re? Proving illegality in international arbitration Noradele Radjai New ruling by the Swedish Supreme Court opens the way for judicial review of arbitrators compensation determined by arbitration institutions Christer A Holm Enforcement of foreign arbitral awards in Turkey Bennar Balkaya The arbitrability of shareholder disputes Timur Bondaryev and Markian Malskyy
arbitration NEWSLETTER MARCH 2010
IN THIS ISSUE
Latin America
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North America
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Can governmental entities submit commercial disputes to arbitration? An overview of arbitrability under Argentine law Santiago L Capparelli Multi-party and multi-contract international arbitration in the southern cone Jose Martinez de Hoz Comverse Inc v American Telecommunications Ltda: Superior Court of Justice denies interim relief to secure enforcement of foreign arbitral award pending its recognition Valeria Galindez Impartiality and independence of the arbitrator borrowing and departing from judicial practices Gilberto Giusti and Guilherme Sanchez Impediments and suspicions, critical judicial thinking and local arbitral institution initiatives Fernando Eduardo Serec and Eduardo Rabelo Kent Coes Recent international arbitration developments in the Chilean courts Dyala Jimenez Figueres and Johanna Klein Kranenberg Five years after the enactment of the Model Law, Chilean courts continue to support international arbitration Felipe Ossa and Jacob Stoehr Colombias adoption of the Model Law: almost there? Nicolas Gamboa Morales The future of international arbitration in Ecuador: the boomerang effect Cesar Coronel-Jones The autonomy of the additional award Leonel Pereznieto Castro and James A Graham Federal decisions support arbitration Eduardo Siqueiros T The new Peruvian Arbitration Law of 2008 Carlos A Soto The arbitration pendulum in Venezuela Fulvio Italiani and Jose H Frias Arbitration and the judiciary in Venezuela Pedro Luis Planchart Pocaterra
Vancouver 2010 At the crossroads of international Arbitration Gerry Ghikas, QC What renders an arbitration agreement inoperative: clarication may be coming from the Supreme Court of Canada Barry Leon and Andrew McDougall To harmonise or not that is the question: Whether tis nobler in Canada to ignore the spirit and words of the New York Convention or to take arms against a sea of troubles and by legislating end them Babak Barin Examining the enforceability of arbitration agreements in the context of bankruptcy proceedings Edna Sussman Third-party funding update: New York court narrowly applies champerty law while Florida court holds investors can be liable for costs James M Hosking and Andreas A Frischknecht Aurelis Capital Partners, LP v The Republic of Argentina: A further step in our understanding of the Foreign Sovereign Immunities Act Baiju S Vasani and Daniel Ginzburg Increasing efciency in international arbitration: use of common law dispositive motions Nancy M Thevenin and John A Basinger Arbitrators have the power to award fees and costs notwithstanding contractual provision providing that each party bear its own expenses Phoebe A Wilkinson and Thomas N Pieper New Yorks Federal Court of Appeals addresses jurisdictional requirements for recognition and enforcement of New York Convention Awards Ank Santens and Damien Nyer Manifest disregard of the law after Hall Street Associates: considerations in the enforcement of international arbitration awards rendered in the United States Bruce G Paulsen and Jeffrey M Dine
fRom THE co-cHAIRS
Judith Gill QC
Allen & Overy LLP, London judith.gill@ allenovery.com
Looking forward to an exciting 2010
Guido Santiago Tawil

M & M Bomchil, Buenos Aires, Argentina
guido.tawil@ bomchil.com
s we initiate a new year, we wish to extend to our committee members and colleagues our best wishes for 2010. After a strong end to 2009 with the IBA Annual Conference that took place in Madrid, Spain from 4-9 October 2009 and the 5-6 December 2009 conference co-hosted with the ICC International Court of Arbitration in New Delhi, India, we are once again off to a very exciting start. 13th Annual IBA International Arbitration Day, London By the time that you receive this newsletter, our Committee will be holding its 13th Annual IBA International Arbitration Day on 5 March 2010 at the Lancaster London Hotel in London, England. Under the theme The agreement to arbitrate: what did you bargain for?, distinguished practitioners and academics will address a host of issues such as essential and non-essential elements of the arbitration agreement, pathological clauses, states consent to arbitrate and the impact of administrative law, whether consent can be implied, and courts interference with agreements to arbitrate. The event will also include a lively debate on the issue of whether states are getting what they bargained for in treaty arbitration and a novel interview format, in which attendees will meet three senior gures in the world of international arbitration. We expect our London International Arbitration Day to be a unique and memorable event and look forward to seeing many of you there. Madrid Annual Conference With a record attendance of more than 5,600 lawyers and legal professionals from around the world, the IBA Annual Conference proved once again to be an excellent opportunity to get together and debate relevant issues for arbitration practitioners. More than 650 members of the Arbitration Committee attended the conference, the largest representation of any committee in Madrid. Your Committee hosted ten sessions during the IBA Annual Conference. Five
dedicated sessions addressed current issues in investment treaty arbitration, the relevance of fast-track arbitration in resolving commercial disputes, the status of the IBA Guidelines on Conicts of Interest, important developments in arbitral practice (including the review of the IBA Rules on the Taking of Evidence in International Commercial Arbitration) and the New York Convention workshop with updates and country reports on the global implementation of the New York Convention. The Arbitration Committee also jointly organised with other IBA Committees and Fora ve additional sessions in which we explored options for the resolution of international commercial disputes, including the drafting of dispute resolution clauses; sovereign immunity in international litigation and arbitration; government and judicial responses to transnational remedies for mass claims; the interaction between arbitration and litigation; and whether arbitration is failing the reinsurance industry. As has become a tradition, several parallel arbitration events took place during the IBA Annual Conference with the sponsorship, assistance or participation of members of your Committee. Among those, we would like to note the very successful meeting hosted in cooperation with the Madrid Bar and the Spanish Arbitration Club on 7 October 2009. Among the social events, many of us will always remember our Committee dinner at the Pedro Larrumbe restaurant, where the Tuna of the Universidad Complutense de Madrid and our departing chair, Pierre Bienvenu, delighted us with their musical talents. The Madrid Annual Conference evidenced once more the relevance of personal exchanges and interaction. We would like to extend our special thanks to all the Spanish members of our Committee, headed by our departing Vice-Chair Juan Fernndez Armesto, for their hospitality and hard work, elements that once again proved crucial in order to achieve such success.
arbitration NEWSLETTER MARCH 2010 5
fRom THE co-cHAIRS
New Delhi Conference At the beginning of December, Delhi played host to a very well-attended conference entitled Arbitration in the 21st Century: Making it work. The conference was copresented by your Committee and the ICC International Court of Arbitration, with the support of the IBA Asia Pacic Regional Forum and ICC India. With over 180 participants, the timing, topic and location of the conference attracted an impressive array of speakers and attendees from across the world and an atmosphere of congenial, healthy and learned debate prevailed. Speakers included the Chief Justice of India and other senior judges and advocates of India and from around the world. Plans for Vancouver and Seoul Planning for the next IBA Annual Conference, to be held on 3-8 October 2010 in Vancouver, Canada is now well underway. Your Committee will be hosting, exclusively or jointly with other IBA Committee and Fora, nine sessions. Those sessions will include a Dispute Resolution Section session on The art and science of persuasion, dedicated to examining what it takes and how persuasion should be used in international dispute resolution; a session focused on the resolution of disputes arising out of M & A transactions, to be jointly held with the IBA Corporate and M & A Committee and the IBA Litigation Committee; a session on Arbitration and Insolvency jointly hosted with the IBA Section on Insolvency, Restructuring and Creditors Rights (SIRC); and a joint session with the IBA North American Regional Forum on Third parties in arbitration. What are the limits? that will address the always relevant topic of third party intervention, with particular focus on NGOs, First Nations and the increasing demands for greater transparency and access to arbitral proceedings. Your Committees dedicated sessions will focus on investment treaty arbitration, hot topics in international arbitration, our traditional New York Convention workshop, a session revisiting established practices of arbitral tribunals and a debate on the ideology of international arbitration. The Arbitration Committee will be hosting its 14th International Arbitration Day in
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Seoul, Korea. The event will take place on 4 March 2011. Further information on this conference will be available shortly on the IBA website. Other conferences Planning of other conferences is underway. The Arbitration Committee will be hosting an arbitration conference together with the Mexican Bar and the ICC International Court of Arbitration on current issues in investment treaty arbitration in Latin America to be held in Mexico City on 14 June 2010. Your Committee has also teamed up with the Section on Energy, Environment, Natural Resources and Infrastructure Law (SEERIL) in order to support a regional conference in Lagos, Nigeria on 24-25 June 2010, entitled Resolving International Energy and Infrastructure Disputes. Finally, the Arbitration Committee will be assisting the Milan Arbitral Chamber in hosting a conference that will take place on 19 November 2010, in Milan, Italy on the topic of interaction between arbitration and the courts. Be sure to monitor the IBA website for further information on these events. Review of the IBA Rules of Evidence Since their adoption in 1999, the IBA Rules on the Taking of Evidence in International Commercial Arbitration (the IBA Rules) have gained wide acceptance and support within the international arbitral community, becoming one of the Arbitration Committees major achievements. After almost ten years of use, some minor adjustments needed to be made in order for the IBA Rules to continue reecting best practices and understandings in international arbitration. Precisely because of their success and wide acceptance, any change in the IBA Rules has to be undertaken with particular care. For such purpose, three years ago your Committee created a Rules of Evidence Review Subcommittee entrusted with the task of analysing the IBA Rules and proposing eventual revisions. The Subcommittee submitted its proposed revisions in November 2009, and after minor adjustments by the Arbitration Committee leadership, the draft revised IBA Rules were circulated for public consultation last December. The comments received were duly
fRom THE co-cHAIRS
considered and the resulting document has been submitted for approval of the IBA Council. You will nd a copy of this document on your Committees web page. Members of the Subcommittee were Richard H Kreindler (Chair), David Arias, Mark C Baker, Pierre Bienvenu, Antonias Dimolitsa, Paul Friedland, Nicols Gamboa, Judith Gill QC, Peter Heckel, Hilmar Raeschke-Kessler, Stephen Jagusch, Xiang Ji, Kap-You (Kevin) Kim, Toby T Landau QC, Alexis Mourre, David W Rivkin, Georg von Segesser, Essam Al Tamimi, Guido S Tawil, Hiroyuki Tezuka, Ariel Ye and Amy F Cohen (secretary). We would like to express our gratitude to all the members of the Subcommittee and of the original Working Party that assisted them in this task. Guidelines for Drafting International Arbitration Clauses As mentioned in our March 2009 newsletter, your Committee established in late 2008 a task force in order to consider and, as the case may be, prepare guidelines on arbitration agreements for use by a non-expert audience. The task force has completed its work by submitting proposed Guidelines on Drafting International Arbitration Clauses, which are currently being reviewed by your Committee.
The task force was chaired by Paul Friedland and was composed of Doak Bishop, Karim Hafez, Adriano Chavez Juca Rolim, Carole Malinvaud, Sundaresh Menon, Jean Claude Najar, William Park, Anne-Vronique Schlaepfer, Eduardo Silva Romero, Stephen E Smith and Matthew Weiniger. We thank each of them very much for their hard work in this respect. We extend special thanks to Julie Bdard, the Committees new Publications and Newsletter Editor for accepting the task of coordinating this publication, so well performed by her predecessor, Larry Schaner. This excellent issue conrms that this responsibility is in good hands. As this years Co-Chairs, we would like to express our very special thanks to our outgoing Co-Chair, Pierre Bienvenu, for his extraordinary contributions to the Committee over the past years. We also are very grateful to the other ofcers who completed their terms in 2009. We thank Dushyant Dave, Juan Fernndez-Armesto, Kaj Hobr, Ilya Nikiforov and Julius Ejikonye for their invaluable support and welcome the new ofcers that have joined us this year. A full list of the current ofcers of your Committee can be found on page eight. We send our best wishes to all members for a very happy and prosperous 2010 and look forward to seeing many of you in early March in London.
Past Chairs and co-chairs of the arbitration committee

20072009 Pierre Bienvenu 20062008 Sally Harpole 20052007 Audley Sheppard 20042006 Claus Von Wobeser 20032005 Dominique Brown-Berset 20022004 Bernard Hanotiau 20022003 Henri Alvarez 20012002 Bernardo Cremades 19982001 David W Rivkin 19951998 Wolfgang Kuhn 19921995 Philippe Nouel 19921994 David St John Sutton arbitration NEWSLETTER MARCH 2010 7
EdIToRS NoTE
Onwards and upwards
Julie Bdard
Skadden, Arps, Slate, Meagher & Flom LLP, New York
julie.bedard@ skadden.com
or all the trouble in the world, a glance at the table of contents of this new decades rst edition of IBA Arbitration News shows that many international arbitration practitioners and arbitrators give their favourite subjects a clean bill of health. I hope you will forgive us if the titles of several articles echo one another we tried to avoid the repetition of positive developments, without much success. Given the record length of this issue, which features sixty-eight articles, I will start by thanking the distinguished contributors from thirty-four countries throughout the world for sharing their knowledge and thoughts. New section on investment arbitration I draw your attention to the new section of IBA Arbitration News on investment arbitration, which deals with the Lisbon Treaty and its implications for investment protection; Canadas pending ratication of the ICSID Convention; the rise of investor-state disputes in the Arab world; the jurisdictional ruling against Lebanon involving the attribution of state entities actions to the state; the Colombian model bilateral investment treaty; the Glamis Gold Tribunal ruling on the minimum treatment of foreign investors; the award of moral damages and provisional measures; the stay of enforcement of awards under Article 52(5) of the ICSID Convention; and the possibility of the rst treaty claim against Uruguay. Issues of the day
institutions including the new CEDR Rules for the Facilitation of Settlement in International Arbitration; new arbitration rules from the German Institution for Arbitration (DIS); and the establishment of Africa ADR, a brand new regional arbitration institution. A word of caution Several articles in this edition warn international arbitration practitioners of traps for the unwary including the controversial denial of interim relief to secure the enforcement of an award in Brazil; the ability of state entities to submit to arbitration in Argentina; the possibility of a court order that an arbitral tribunal disclose the informal notes of its secretary; the price to pay for an unsuccessful challenge to an award in Hong Kong; a US court decision permitting arbitrators to award fees and costs despite contractual provisions to the contrary; a new Swedish ruling that allows judicial review of compensation for arbitrators as determined by arbitral institutions; an English decision that may erode the principle of nality of awards and drafting to avoid the possibility that an arbitral award will be subject to appeal on points of law in English courts. The fundamentals Other core issues discussed in this edition continue to be salient for the international arbitration community including the independence and impartiality of arbitrators; questions related to non-signatories to an arbitration agreement; multi-party and multi-contract arbitration in Latin-America; the scope of the arbitration agreement; state immunity; tools to increase efciency in international arbitration; potential pitfalls related to enforcement of arbitral awards; the grounds for judicial review of awards; the standard for refusing to enforce an award allegedly obtained by fraud; due process and public policy in proceedings to set aside an award; the avoidance of double exequatur; and enforcement in the face of annulment proceedings.
A variety of hot topics in the arbitration world are addressed in this issue including the impact of bankruptcy on arbitration; thirdparty funding; the arbitrability of shareholder disputes; supplemental awards; and proving a claim of illegality in international arbitration. There is arbitration-related news from several jurisdictions including favourable enforcement of foreign arbitral awards in China; Australias reform of its arbitration laws; suggestions for improved arbitration law in Egypt; a new arbitration law in Pakistan; and the way forward for enforcement of awards in the United Arab Emirates. Some contributors also bring news from arbitration
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EdIToRS NoTE
Look to the future One contributor looks ahead to the IBA Annual Conference in Vancouver, in October 2010. Others report on, among other things, the modern and stable arbitration regime in South Korea; the enduring support of Chilean courts in favour of international arbitration; Singapores continued and now long-standing promotion of international arbitration; a promising regime in Peru based on its 2008 arbitration law; increasing judicial support for arbitration in Mexico; and Colombia getting closer to adoption of the Model Law. This issue also looks at the rise and fall of arbitration in Ecuador and Venezuela. The Team Allow me to introduce the new editorial team of IBA Arbitration News: Coordinating on the
European front from Geneva, Switzerland, Philippe Brtsch (Schellenberg Wittmer); organising the collection of Asian articles from Seoul, Korea, Liz Kyo-Hwa Chung (Kim & Chang); marshalling the North American articles from New York, USA, Lucy Martinez (Freshelds Bruckhaus Deringer LLP); orchestrating the Latin American production from Buenos Aires, Argentina, Ignacio Minorini Lima (M&M Bomchil); and steering from New York our ambitions in the Middle East where the IBA will for the rst time host its Annual Conference in 2011 Samaa Haridi (Crowell & Moring, New York). We are grateful to Amanda Raymond Kalantirsky, Skadden, Arps, Slate, Meagher & Flom LLP, for her able support to the entire team, and to Andrew Kavesh, Legal Assistant, for his vigilance.
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CommITTEE OffIcERS
Committee Ofcers
Co-Chairs Guido Tawil M&M Bomchil Suipacha 268 12th Floor Buenos Aires C10008AAF Argentina Tel: +54 (11) 4321 7500 Fax: +54 (11) 4321 7555 guido.tawil@bomchil.com Judith Gill Allen & Overy LLP One Bishops Square London E1 6AD, United Kingdom Tel: +44 (0)20 3088 3779 Fax: +44 (0)20 3088 0088 judith.gill@allenovery.com Senior Vice-Chair Mark Friedman Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 United States Tel: +1 (212) 904 6034 Fax: +1 (212) 909 6836 mwfriedman@debevoise.com Vice-Chairs Abby Cohen Smutny White & Case LLP 701 Thirteenth Street NW Washington, DC 20005 United States Tel: +1 (202) 626 3600 Fax: +1 (202) 639 9355 asmutny@whitecase.com Kap-You (Kevin) Kim Bae Kim & Lee LLC 647-15, Yoksam-dong, Kangnam-gu Seoul 135-723, South Korea Tel: +82 (2) 3404 0333 Fax: +82 (2) 3404 7306 kevin.kim@bkl.co.kr Richard Kreindler Shearman & Sterling LLP Gervinusstrasse 17 Frankfurt am Main 60322, Germany Tel: +49 (69) 9711 1681 Fax: +49 (69) 9711 1100 rkreindler@shearman.com Alexis Mourre Castaldi Mourre & Partners 73, boulevard Haussmann Paris 75008, France Tel: + 33 (1) 4073 1642 Fax: +33 (1) 4073 1631 amourre@castaldimourre.com Colin YC Ong Dr Colin Ong Legal Services Suites 2-2 to 208, Gadong Properties Centre Km 3-6 Jalan Gadong, Bandar Seri Begawan, BE4119 Brunei Tel: + 673 (2) 420 913 Fax: +673 (2) 420 911 onglegal@brunet.bn Matthias Scherer Lalive 35 Rue de la Mairie PO Box 6569 Geneva 6 1211, Switzerland Tel: +41 (22) 319 8700 Fax: +41 (22) 319 8760 mscherer@lalive.ch Eduardo Zuleta Gmez-Pinzn Zuleta Abogados SA Calle 67 No 7-35 Ofce 1204 Edicio Caracol Bogot, Colombia Tel: +57 (1) 621 4950 Fax: +57 (1) 621 4992 ezuleta@gpzlegal.com Secretary Lawrence Schaner Jenner & Block LLP 330 North Wabash Chicago, IL 60611 United States Tel: +1 (312) 923 2689 Fax: +1 (312) 840 7689 lschaner@jenner.com Publications and Newsletter Editor Julie Bdard Skadden Arps Slate Meagher & Flom LLP Four Times Square New York NY 10036, United States Tel: +1 (212) 735 3236 Fax: +1 (917) 777 3236 jbedard@skadden.com
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CommITTEE OffIcERS
Website Ofcer David Arias Perez-Llorca Alcala 61 Madrid 28014, Spain Tel: +34 (91) 436 0416 Fax: +34 (91) 436 0430 darias@perezllorca.com Corporate Counsel Forum Liaison Ofcer Javier Rubinstein PricewaterhouseCoopers International Limited 300 Madison Avenue, 35th Floor, New York NY 10017, United States Tel: +1 (646) 471 5096 javier.rubinstein@us.pwc.com Young Lawyers Liaison Ofcer Eduardo Gonalves Barretto Ferreira, Kujawski, Brancher e Gonalves Sociedade de Advogados Rua Dr Eduardo de Souza Aranha, 387, 15 Floor So Paulo 04543121, Brazil Tel: +55 11 3897 0370 Fax: +55 11 3897 0330 goncalves@bkbg.com.br
Conicts of Interest Subcommittee Chair Carole Malinvaud Gide Loyrette Nouel 26 Cours Albert 1er Paris 75008, France Tel: +33 (1) 4075 3666 Fax: +33 (1) 4075 6936 malinvaud@gide.com
Investment Treaty Arbitration Subcommittee Nigel Blackaby Freshelds Bruckhaus Deringer 701 Pennsylvania Avenue NW, Suite 600 Washington, DC 20004-2692, United States Tel: +1 (202) 777 4519 Fax: +1 (202) 777 4555 nigel.blackaby@freshelds.com
Recognition and Enforcement of Arbitral Awards Subcommittee Chair Andrew Foyle One Essex Court Temple, London EC4Y 9AR, England Tel: +44 (20) 7583 2000 Fax: +44 (20) 7583 0118 afoyle@oeclaw.co.uk
LPD Administrator Kelly Savage kelly.savage@int-bar.org
Contributions to this newsletter are always welcome and should be sent to the Newsletter Editor at: Julie Bdard Skadden Arps Slate Meagher & Flom LLP, Four Times Square, New York, NY 10036, United States Tel: +1 (212) 735 3236 Fax: +1 (917) 777 3236 julie.bedard@skadden.com arbitration NEWSLETTER MARCH 2010 11
coNfERENcE REpoRTS - mAdRId
Arbitration Committee annual dinner
Sally Harpole
Sally Harpole & Co, Hong Kong
sallyharpole@ sallyharpole.com
early 300 Committee members enjoyed a lively reception and dinner in Madrids stylish Serrano district, at Pedro Larumbe Restaurant on 8 October. Nouvelle Spanish cuisine followed Spanish wines in a social evening that ended in song and dance, led by the talented Law Faculty Tuna minstrels of Complutense University of Madrid. The surprise Tuna appearance was orchestrated by CUM alumnus and Arbitration Committee member David Arias after Committee CoChair Guido Tawil presented out-going CoChair Pierre Bienvenu with a charango (folk lute from Argentinas north), an expression of appreciation for Pierres outstanding leadership and reminiscent of Pierres earlier years as a rock guitarist cum law student.
After Guidos gracious citation of Pierres many impressive achievements, delightfully sparked with wit and the revelation of Pierres musical talents, Pierre very good-naturedly joined the Tuna procession while strumming his new charango. Committee members spontaneously joined in song with the Tuna, some displaying their Latin dance skills on the stage. Both Pierre Bienvenu and Carolyn Lamm, incoming President of the American Bar Association, addressed the attentive members of the IBA Arbitration Committee. The generous sponsors of the dinner were the Madrid Court of Arbitration, Navigant Consulting and Kluwer Arbitration. Always a welcome Committee tradition, this annual dinner merits a special place in Arbitration Committee history.
Dispute Resolution Scholarship

Flavia Foz Mange, an associate in the arbitration team at Barretto Ferreira Kujawski Brancher e Gonalves (So Paulo, Brazil), was awarded the Dispute Resolution Section scholarship for her paper entitled Parallel litigation/arbitration the timeless conundrum for international practitioners.
12 INTERNATiONAL BAR ASSOCiATiON LEGAL PRACTiCE DiViSiON
coNfERENcE REpoRTS - MAdRId
Options for the resolution of international commercial disputes, including the drafting of dispute resolution clauses
Session Co-Chairs: Antonio Bravo Tabern (Eversheds Lupicinio); Judith Gill (Allen & Overy LLP) Speakers: Angelo Anglani (Ughi e Nunziante); Gilberto Giusti (Pinheiro Neto Advogados); David Joseph (Essex Court Chambers); Christopher Lau (Alban Tay Mahtani & de Silva); Ira Nishisato (Borden Ladner Gervais LLP); Christopher Tahbaz (Debevoise & Plimpton LLP); Miguel Temboury (Madrid Court of Arbitration); Jacomijn van Haersolte-van Hof (Haersolte Hof)
his session presented a debate between supporters and opponents of the proposition that Party autonomy should always prevail. Christopher Tahbaz argued rst in support and suggested reframing the question as whether party autonomy properly understood should always prevail. He described how the concept of party autonomy should be understood in the world of modern commercial disputes and why the desires of the parties regarding dispute resolution, clearly set forth at the time of contracting, should be respected. Tahbaz argued that courts reviewing dispute resolution arrangements should presume parties understand that their agreements involve a balancing of costs and benets, that parties know what they give up and gain by entering into such arrangements, and that courts are not well-suited to secondguess those judgments, particularly when they are made by sophisticated commercial entities. It is a red herring to argue that the inability to bend the rules of courts and other external institutions constitutes a limit on party autonomy: because private parties have no power unilaterally to change the rules of such institutions, their autonomy could never extend to such rules and thus it does not make sense to speak of an inability to
change such rules as a limit. Finally, public policy should not be an ex ante limit on party autonomy, particularly in the arbitration context, because Article V of the New York Convention provides an adequate safeguard in this regard. Christopher Lau argued that party autonomy should always prevail in the selection of dispute resolution processes because properly understood, it is irresistible. Full party autonomy allows parties to choose the forum most suited to hear the dispute, as well as the governing law and the seat they consider most appropriate. Placing limits on party autonomy undermines the foundations of modern arbitration. Lau provided several examples of recent court decisions, which held arbitration clauses to be valid and enforceable even though they appeared to be pathological, giving full credit to the parties intent to arbitrate their disputes. First, the Singapore Court of Appeal in Insigma Technology Co Ltd v Alstom Technology Ltd [2009] SGCA 24, conrmed the validity of a hybrid arbitration clause, whereby parties provided for the application of the arbitration rules of one institution in a proceeding to be administered by another institution. In so doing, the court recognised the need for exibility when interpreting arbitration agreements so as to uphold the underlying and fundamental principle of party autonomy as far as possible in the selection of the kind of arbitration and the terms of arbitration. In the second case, A v B Ltd, Case no: 4A_376/2008 judgment delivered on 5 December 2008, the institution designated in the arbitration agreement did not in fact exist. Rather than conclude that the clause was pathological, the Swiss Federal Supreme Court in 2008 instead upheld the clause as valid nding that the parties must have intended to refer to the Rules of Arbitration of the ICC with the tribunal having its seat in
Lugano. In the third case, Nandan Biomatrix Ltd v D-1 Oils Ltd (Arbitration Petition No 6 of 2007), 11 February 2009, the Supreme Court of India held that the arbitration clause was valid, notwithstanding the bare reference to institutional arbitration in India and the fact that there is more than one arbitral institution in India. Lau noted that limits on party autonomy produce unwarranted insecurity and lack of predictability contrary to the best interests of the business community. If courts have not been prepared to impose limits on the parties freedom to contract and their autonomy in their choice of the dispute resolution process, why should we? Party autonomy should always prevail in the selection of the dispute resolution process. David Joseph argued against the proposition that party autonomy always prevails in the enforcement of dispute resolution agreements. Detailed regulation both in national statutes and international conventions understandably tempers the parties freedom to contract. Parties are not free to contract in any shape or form with regard to the judicial resolution of their disputes. The same is true for arbitration agreements: party autonomy is fettered by the mandatory application of the supervisory arbitration law of the seat. Both the English Arbitration Act of 1996 and the recent decision by the United States Supreme Court in Hall Street Associates, LLC v Mattel Inc, 128 S Ct 1396 (2008) make clear that there are limits to the parties ability to contract with respect to arbitration agreements. Control of dispute resolution agreements in terms of both form and enforcement is also found in the New York Convention, the Brussels I Regulation (see Articles 8-13 on insurance contracts and Articles 15-17 for consumer contracts) and the EC Regulation on Unfair Terms in Consumer Contracts. Indeed, these principles of control are now being examined in the context of the Human Rights Convention, including under its Article 6 which provides for the right to a fair trial, and specically the right to a public hearing before an impartial tribunal within a reasonable time. Whilst the Court of Human Rights in Strasbourg has permitted parties to contract out of the right to a public hearing by means of an agreement to arbitrate, there is a strong argument that the right to a fair process cannot be waived by contract. In sum, the proposition should really be rephrased: party autonomy prevails unless some rule
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of law or statute or convention provides otherwise. Ira Nishisato likewise argued that party autonomy cannot and should not always prevail, highlighting three areas illustrating necessary limits of party autonomy. First, we live in a world of mandatory laws. Examples include regulation relating to banking and capital markets regulation; competition and antitrust; foreign investment and foreign ownership; import/export controls; consumer protection; employment; property rights; and taxation. An arbitration agreement that is not valid under the mandatory laws of the forum, an award pursuant to such an agreement, or even a chosen arbitral procedure that is not in accordance with the law of the forum, may not be recognised or enforced. Secondly, it is well established that arbitral awards may not be recognised and enforced if they are contrary to the public policy of the state in which the enforcement is sought. Public policy embraces principles of justice and fundamental values and varies sometimes greatly from one national jurisdiction to another. What values are fundamental to economic policy in a global economic crisis? Values such as restrictions on foreign investment or ownership may reect public policy choices. Public policy may also be triggered where the application of the governing law chosen by the parties could have the effect of depriving a national of the protection of the laws in the place of arbitration or the prospective place of enforcement. Remedies such as punitive damages, statutory damages, treble damages, legal costs and compound interest are unknown in many jurisdictions and may be contrary to public policy. Thirdly, the tribunal itself may limit party autonomy. Institutional arbitration limits party autonomy through the application of the rules of the institution (though it can also be said that the parties subscribe by contract to the arbitration regime of the arbitral institution they choose to administer their arbitration). It is generally accepted that changes to time limits and other procedural matters set out in an arbitration agreement require the consent of tribunal, and under the ICC Rules, only the tribunal can modify dates in a procedural timetable. All of these considerations constitute reasonable limitations on party autonomy. Jackie van Haersolte-van Hof discussed recent cases and trends in (good) drafting of dispute resolution clauses. Short and
straightforward clauses work best, always bearing in mind that the parties should expressly state that arbitration is the exclusive dispute resolution mechanism. Clauses involving a mix of judicial and arbitration remedies may be useful, but require cooperation between the arbitral tribunals and the courts. Multi-tier clauses should also be kept as short and simple as possible. Van Haersolte-van Hof questioned whether hybrid forms of dispute resolution, such as expert determination, are all they are made
out to be. Furthermore, local standards of recognition and enforcement may differ greatly. A related issue arises with respect to carve-outs from the arbitration agreement. Do non-legal issues exist? Who decides which mechanism prevails? Lastly, van Haersoltevan Hof noted that combination-clauses (referring to arbitration and the courts) come in many shapes and forms. Again, conrming the courts role (such as for interim measures) and limiting it (appeal on issues of law) is best done explicitly.
Daniel Urbas
Borden Ladner Gervais srl/LLP, Montreal
durbas@blgcanada.com
Sovereign immunity in international litigation and arbitration

Session Co-Chairs: Klaus Reichert (Brick Court Chambers); Abby Cohen Smutny (White & Case) Speakers: Barton Legum (Salans & Associes); Isabelle Michou (Herbert Smith LLP); Wendy Miles (Wilmer Cutler & Pickering Hale & Dorr LLP); Anthony Sinclair (Allen & Overy); Jingzhou To (Jones Day); Miguel Virgs (Uria Menndez)
laus Reichert and Abby Cohen Smutny co-chaired the session, a joint presentation of the Arbitration Committee and the Litigation Committee. They introduced the topic and organised the panel presentations from the perspective of civil and common law jurisdictions. The issue of sovereign immunity in international litigation and arbitration is of increased interest given the world economic crisis and the increase in government activity in economic sectors. Barton Legum discussed the potential for investors to waive their recourse to investment treaty arbitration before a dispute arises. He outlined the theoretical issue as to whether it is even possible to waive rights provided for in a treaty between two states, and followed with a discussion of the legal and practical limitations on such waivers. Legum identied six legal limitations to the effectiveness of
the waiver based on jurisprudence developed in the context of waivers in diplomatic protection and human rights: (i) no waiver of state-to-state claim; (ii) annulment of contract by host state annuls the waiver; (iii) existence and adequacy of alternative remedies if investment treaty arbitration is waived; (iv) investor forced to waive recourse because of unequal bargaining power; (v) express provisions in treaty may prevent waiver; and (vi) investors subsequent agreement to accept investment treaty arbitration may modify and supersede the original contract. Legum closed with an overview of two practical limitations on waivers: (i) a foreign investor enjoys treaty protection but a locally incorporated entity is the contracting party; and (ii) an earlier waiver by shareholders may be invalid if the shareholders change. Anthony Sinclair reported on the enforcement of awards against the assets of state entities. It is key to identify relevant state entities and state assets both at the merits phase and at the enforcement phase. Signicant issues arise in terms of formalities, procedure and immunity for the execution of awards against states and state entities. Sinclair offered a number of guiding principles regarding the identication of relevant state entities. For example, under English law, a presumption exists in favour of treating government instrumentalities or state-controlled enterprises as distinct from
the state when they possess a separate legal personality, an ability to trade and enter into private contracts despite being wholly subject to state control. For example, as held in Silvia Seijas et al v Republic of Argentina (2009 US Dist Ct for Southern District of NY 08-2847-cv), the nationalisation and recapitalisation of a national airline did not make an airline the alter ego of the state. The test for identifying a state entity is also found in Walker International Holdings v Rpublique Populaire du Congo [2005] EWHC 2813 (Comm) (LTL 16 December 2005). Sinclair addressed the relevant circumstances to consider when deciding whether an entity should be treated as an instrumentality of the state and explained the distinction between an acta jure imperii and an acta jure gestionis. Finally, he noted that state instrumentality may object to service for a failure to follow diplomatic channels or challenge the award based on lack of jurisdiction. Miguel Virgs asked ve questions from the viewpoint of the litigant looking to commence an action against a state or a state entity: Who should I sue? What claims can I bring? How do I affect service? Which procedures apply? And, if I win, what is next? The list of prospective defendants when taking an action against a state may include the government, a ministry, a department, agency or ofce, a state-controlled entity or enterprise, the head of state, a diplomat or consul or their staff or the armed forces. Virgs cautioned that, while some jurisdictions apply international law directly, other jurisdictions have enacted different domestic statutes. In December 2004, the General Assembly of the United Nations adopted the United Nations Convention on Jurisdictional Immunities of States and their Property. Virgs provided a detailed description of the Convention, including the divide between iure imperii and iure gestionis actions and the important exception for commercial activities (eg, the sale of goods, supply of services, nancial transactions, transactions of industrial, trading or professional nature). Isabelle Michou reported on the current state of French law with reference to the landmark case of Creighton v Qatar (Cour de cassation, Civ 1, 6 July 2000). In particular, she commented on the extent to which a states agreement to arbitrate disputes with a private party would be understood by the French courts as a waiver of immunity from jurisdiction as well as a waiver of immunity from execution against the states assets
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located in France. Michou explained how waivers are an exception to the general rule of immunities that foreign states enjoy in France. There is no legislation on sovereign immunity, but French case law draws from principles of international law. Although France is not a party to any international convention on sovereign immunity, it has taken steps to ratify the UN Convention on Jurisdictional Immunities of States and their Property. French case law may be summarised in four main propositions, which, except for the fourth proposition, were all valid before the Creighton decision: (i) a states agreement to arbitrate is sufcient to remove immunity from jurisdiction; (ii) this agreement can include the exequatur process, which is to be distinguished from execution proceedings; (iii) a waiver of immunity from jurisdiction is different from a waiver of immunity from execution; and (iv) an agreement to arbitrate is not sufcient to constitute a waiver of immunity from execution. In Creighton, the Cour de cassation ruled that Qatar, which had agreed to ICC arbitration, was deemed to have waived immunity from execution by having undertaken to comply with the nal award without delay as set out in Article 24 of the ICC Rules. Some questions remain after Creighton, namely, whether arbitral rules may contain a waiver and whether the ruling in Creighton applies to the ICC Rules only or if it can be extended to the rules of other arbitral institutions. Cases decided after Creighton may curtail its application. For example, one case held that a waiver by a foreign state cannot apply to immunity from execution against property intended for diplomatic activities, even if there is an express waiver in the contract. Wendy Miles addressed the transparency issues raised by sovereign immunity. She alluded to the philosophical debate as to how to reconcile the public interest act of protecting sovereign state secrecy with the need for transparency and accountability of state action in commercial transactions. Three principles are intended to promote public interest ahead of private and individual interests: namely, sovereign immunity, protection of state secrets and freedom of information. First, with respect to sovereign immunity, a tension arises when states, while purporting to use powers designed to safeguard the state in the exercise of public powers of governance, instead advance the states private and commercial activities with citizens or foreign states. Secondly, there
is an evidentiary rule for the protection of state secrets in legal proceedings, known in the United States as state secrets privilege, or in the United Kingdom as public interest immunity or crown privilege. Thirdly, freedom of information protection, which has been implemented in more than 85 countries, provides access to information held by the state. In the context of international arbitration involving a state or state entity, Miles discussed two Canadian cases decided consistently with the IBA Rules for Taking Evidence in International Commercial Arbitration (ss 9(2)(b), 9(2)(e) and 9(5)) and Article 24 of the UN Convention on Jurisdictional Immunities of States and their Property. Jingzhou Tao discussed sovereign immunity from the Chinese perspective. The Peoples Republic of China has traditionally taken the view that state immunity is absolute. Recently, however, it has shown willingness to entertain a more restrictive view of state immunity. China recently has become a signatory to the UN Convention on Jurisdictional Immunities of States and their Property. Some see this as an indication that China has fully endorsed the principle of restrictive
immunity, but China has yet to ratify this convention or formally recognise the theory of restrictive immunity. Tao suggested that, given the important commercial interests of China throughout the world, the principle of reciprocity is likely to lead China to become more liberal with respect to state immunity, particularly if it wishes to protect Chinese investments abroad in places such as Africa and Latin America. Tao mentioned that the Chinese Ministry of Foreign Affairs considers that state-owned enterprises should not enjoy state immunity. Entities acting independently, which have the capacity to sue or be sued, to acquire, possess, own or dispose of property, and which carry out commercial activities, should not enjoy state immunity. Under Chinese law, there are two ways in which sovereign immunity can be waived: expressly, through treaties, bilateral agreements, or diplomatic documents; or implicitly, for instance by participating in court proceedings (eg, by joining the proceedings or submitting a defence). The Chinese Government, however, has made it clear that the act of appearing in court to present the states position on sovereign immunity does not constitute an implied waiver.
Patrick Bourke
Norton Rose (Middle East) LLP, Dubai
Patrick.Bourke@ nortonrose.com
Arbitration & litigation: is there a clear winner?

Session Co-Chairs: Chantal-Aime Doerries (Atkin Chambers); Kaj Hobr (Mannheimer Swartling Advokatbyra) Speakers: Jos Antonio Cainzos (Clifford Chance); Teresa Cheng SC (Des Voeux Chambers); Jean-Claude Najar (GE Capital EMEA); Kenneth B. Reisenfeld (King & Spalding); Anke Sessler (Siemens AG)
his session analysed the respective merits of arbitration and litigation. Chantal-Aime Doerries QC introduced the panel to a full house and highlighted issues such as choice of forum, condentiality, cost, speed and legal certainty.
Teresa Cheng SC considered the parties choice of the place of arbitration and the desire to avoid national courts. The choice of venue also raises questions in terms of the level of supervision of the arbitration process and possible appeals. With respect to the choice of arbitrators, Cheng highlighted the difculties parties encounter because of the restrictions against arbitrators with the same nationality as one of the parties to the dispute, particularly in a world of dual nationality and individuals with rights of abode in a number of different countries. She suggested that a better test may be domicile or the place where the arbitrator ordinarily works. Cheng suggested to remember the 3As (availability, ability and attributes) and to avoid the 2As (arrogant, abrasive). Anke Sessler noted that the concern about availability extends not only to arbitrators but
also to preferred external counsel. Jean-Claude Najar emphasised that cost is the single most important factor for the end user. Companies consider their choice of dispute resolution forum with respect to cost, quality of justice, enforcement and speed of the process. There are situations where the choice of arbitration is self-evident (such as when two parties wish to avoid each others national courts or where the counterparty is a state entity). Another important factor in commercial disputes is condentiality, as parties may not wish to share their disputes with their competitors. One audience member commented that it is occasionally preferable to seek judicial assistance even if there is a loss of condentiality. Najar agreed, emphasising that companies need to identify ahead of time the type of information they wish to keep condential and the ramications in terms of the dispute resolution process. Kenneth B Reisenfeld stated that the perception that arbitration is quicker and cheaper than litigation has been eroded. Indeed, PricewaterhouseCoopers survey found that speed and cost are now perceived as disadvantages of arbitration. Of course, arbitration may be a victim of its own success as increasingly complex cases are now being resolved through arbitration. But a recent survey shows that there are differing expectations about the length of time an arbitration should take to come to a conclusion. Business executives thought it should take three-six months, in-house counsel 12-18 months and external counsel 24-36 months. The differences were even more stark for an expedited hearing: the business executives thought it should take one week, the in-house counsel one-three months and the external counsel six months to one year. Anke Sessler noted that arbitration remains the preferred dispute resolution choice for many cross-border transactions and when comparing national courts, there are also many variables such as court fees, speed of the judicial process, etc. In addition, parties must consider the choice of common law or civil law jurisdictions and its impact on the discovery process. Reisenfeld pointed out that arbitration offers the potential advantages of more limited discovery, a more efcient evidence collection process and no
right of appeal. On the other hand, litigation has the potential advantages of judges with more robust case management powers, the enhanced likelihood of a pre-trial settlement, increased powers to manage the case and a greater ability to effectively handle and manage multiparty cases. Anke Sessler helpfully suggested that parties and counsel should bear in mind the following points: A carefully drafted dispute resolution clause with a simple choice of law is key. Parties should consider: - the potential benets of ADR, mediation and dispute boards; - how best to deal with procedure (eg, whether to bifurcate the proceedings); and - reduce complexity, and if necessary split issues into separate cases. Costs can be reduced by in-house counsel undertaking the preliminary stages. The losing party should bear the costs of the case (in part to deter unmeritorious claims/defences). Kaj Hobr introduced the second part of the session. Jos Antonio Cainzos noted the differing pressures on in-house and external counsel but concluded that both ultimately must deal with the key question will we win?. Directly tied to this question is the expectation of the parties and their perception of the likely approach to, and outcome of, a court case or arbitration, respectively. Teresa Cheng agreed that over time, judges are perceived as predictable in the way they will deal with cases, and therefore a party may have reasonable condence as to how its case will be decided. There were questions from the oor regarding the enforcement of arbitral awards and the panel noted that concerns relating to enforcement are in some cases well founded, including within the United States, although Kenneth Reisenfeld noted that there have been a number of US court decisions clarifying this issue. Whilst they purposely chose not to decide whether there is a clear winner between arbitration and litigation, the speakers helpfully highlighted a number of the key considerations when weighing the respective merits of arbitration and litigation as a mechanism of dispute resolution.
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Sumeet Kachwaha
Kachwaha & Partners, New Delhi
mail@kaplegal.com
Coordinating the chaos a global update on mass claims: can litigation, arbitration and government remedies work together?
Session Co-Chairs: Henri Alvarez (Faskin Martineau DuMoulin LLP); John P Brown (McCarthy Ttrault LLP); Laura K Christa (Christa & Jackson) Speakers: Jos Maria Alonso (J&A Garrigues SLP); Julie Bdard (Skadden, Arps, Slate, Meagher & Flom LLP); Cecilia Carrara (Legance Studio Legale Associato); Daan Lunsingh Scheurleer (NautaDutilh NV); Harrie Temmink (Commission of the European Union); Janet Walker (Osgoode Hall Law School)
ohn P Brown co-chaired the session canvassing the overlap, interplay and conicts between the various remedies available for multijurisdictional mass claims. The speakers discussed whether and how the array of disparate remedies (collective redress and class actions in litigation and arbitration, as well as government regulatory measures for collective redress) could be made to work together to provide an efcient and fair resolution of disputes for all stakeholders in the global marketplace. Discussions touched on how best to foster cooperation between jurisdictions and between regulators and litigators. Laura K Christa, a US class action defence attorney, explained the US rationale for a class action procedure and provided an example of a consumer who suffers monetary harm in a transaction where the resulting damages are too small to merit the ling of a lawsuit. There would seem to be no recourse, unless a procedure was in place that permitted all similarly affected consumers to join together in a single lawsuit, making such lawsuit nancially practical. She explained that courts look closely at the propriety of bringing a particular class action, insuring for example that the lead plaintiffs claim is so typical of the claims of other members of the
class, that a trial of the plaintiffs claim can fairly be said to resolve liability issues for all others in the class. The courts typically refuse to certify a class if it would otherwise have to engage in an individualised inquiry to resolve issues in the case. In jurisdictions now considering similar procedures, some aspects of US-style class actions can be omitted as they are not critical to a class action procedure, such as the principle according to which each side bears their own attorneys fees and the possibility of a punitive damage award. Julie Bdard next addressed the phenomenon of class arbitrations, which became widely known following the 2003 Supreme Court decision in Green Tree Fin Corp v Bazzle, 539 US 444 (2003). The Court held that the arbitrator has jurisdiction to determine whether an arbitration agreement that is silent as to the kind of arbitration permits class arbitration. The US Supreme Court may revisit class arbitrations in Stolt-Nielsen SA v AnimalFeeds International Corp, (2d Cir 2008), for which it granted a certiorari petition on the question whether imposing class arbitration on parties whose arbitration clauses are silent on that issue is consistent with the Federal Arbitration Act. Signicantly, class arbitrations do not concern solely consumers or domestic US transactions. The Stolt-Nielsen case is a good example involving international shipping contracts and parties from Norway, Luxembourg, Japan, Singapore, the United Kingdom, the Netherlands and the Philippines. In response to the growing phenomenon of class arbitrations, many companies have started to include class arbitration waivers in their contracts. Many US cases deal with the issue of whether or not such waivers are enforceable. Canadian courts also have come to grips with class arbitration issues in a number of cases. In international transactions, claimants may seek
to commence class arbitration proceedings to avail themselves of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Harrie Temmink provided an extensive review of the European Commissions initiatives on consumer remedies for collective redress in the European Union. He explained that 16 per cent of consumers le complaints every year, that 50 per cent of consumers are not satised with the manner in which their complaints are handled, but that 20 per cent of consumers will not commence judicial proceedings for less than 1,000, and 50 per cent of consumers will not commence judicial proceedings for less than 200. The current legal framework for collective redress at the national and European Union level is inadequate. Individual judicial redress is not effective due to high costs, complex and lengthy procedures, the risks of litigation and the psychological barrier of commencing a legal action. In contrast, 76 per cent of consumers are willing to seek redress on a collective basis. The European Commission issued a number of studies in this area. It released a Green Paper on consumer collective remedies in 2008 and also held subsequent stakeholder consultations. A number of issues appear not to be contentious (eg, importance of accessible, affordable and effective consumer redress based on compensation of damages; rejection of punitive damages in private litigation; rejection of contingency fees/loser pays principle; coherence of European Union action; any European Union initiative should take into account legal traditions of Member States; a balanced approach between the interests of companies and consumers). Other issues are more controversial (eg, legal basis for European Union action; safeguards against unmeritorious claims; who will be permitted to bring such actions; who will pay for such actions; should there be an opt-in or an opt-out remedy). Daan Lunsingh Scheurleer presented a case regulation where a Dutch court approved a global settlement, bindingboth Dutch and non-Dutch parties. The Shell case concerned an alleged breach of US securities regulation concerning Shells public statements on its oil and gas reserves. Buyers of Shell securities presented their claims after Shell restated the amount of the reserves. Shell settled the matter in two separate settlements: one for US buyers of Shell securities and another for buyers of Shell securities living abroad
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and who had bought the securities outside the United States. The latter settlement was made under the Dutch Act on the Collective Settlement of Mass Claims and approved by the Amsterdam Court of Appeal. Notably, the Court expressly found that it had international jurisdiction to bind the nonUS based purchasers of Shell securities. An English translation of the decision can be found at www.shellsettlement.com. Jos Maria Alonso explained that there is no broadly established class action regime in Spain or most of Latin America, with the exception of Brazil. In 1990, the federal Brazilian legislature enacted the Consumer Defence Code that regulates the procedure for group consumer actions. The general trend so far, both in Spain and Latin American countries, has been for class actions to be permitted only in certain areas and again only for consumers. For example, the Spanish Law on Civil Procedure gives consumers the right to commence judicial proceedings on a collective basis to protect the rights and interests of all consumers who have suffered damage arising from the same act. However, neither the Spanish Civil Procedure Act nor the Spanish Arbitration Law mention the possibility of class arbitration. Cecilia Carrara described Italys recent legislation for class claims, which entered into force in January 2010. The legislation does not address cross-border issues, such as jurisdiction, recognition and enforcement of foreign decisions rendered in class actions proceedings. Class actions will be possible only in specied areas such as consumer claims, claims arising out of alleged breaches of adhesion contracts and unfair commercial conduct. The court must be satised that the party initiating the class action adequately represents the class, and that the matter is appropriately adjudicated on a class-wide basis because all claimants have a similar position. Lawyers will be permitted to support class actions, including using contingency fees. Class action litigation therefore could develop rapidly in Italy. Punitive damages, however, are not allowed. Mediation and/or settlements are not specically regulated, and there is still debate over whether these issues will require further legislative interventions or whether they will be left to party autonomy and out-of-court negotiations/mediations. There is no case law on class arbitrations in Italy, but it appears likely that arbitration clauses contained in consumer contracts
would be considered null and void. Class arbitration, therefore, does not appear to be a viable device to avoid class actions in Italy. Janet Walker offered observations intended to bridge the gap between collective redress as it currently operates in the US and the rest of the world; between the history of the debate on the globalisation of class actions and emerging realities; and between the previous speakers and the remaining subjects for discussion in the session. She noted that while the class action practice is similar in Canada and the United States, some basic features of the civil justice system, such as punitive damages and jury trials, which tend to cause alarm in other legal systems, do not exist and, therefore, do not give rise to concerns in Canadian class actions. Professor Walker encouraged the participants in the session not to dwell on the prospect that the adoption of American-style class actions would necessarily follow from considering seriously the impact that they might have on a more integrated international system of collective redress, but rather to consider what role class actions might play in a plurality of approaches to civil remedies for consumers and other groups affected by mass harms. How might the members of the public in various countries represented at the IBA Annual Conference by the session participants benet from collective redress, either facilitated or enhanced by the operation of class actions? How might the resources devoted to the regulation of the harms addressed be supported or supplemented? After these introductory remarks by the speakers, a case study was introduced involving a company based in Miami, Florida,
which manufactured and marketed headsets. Realising the headsets were defective, the company contacted the affected customers and offered a free replacement. A private law rm in San Francisco, however, led a class action on behalf of all purchasers of the model-T headset seeking an injunction, damages, restitution and punitive damages. Meanwhile, the Florida Attorney Generals ofce opened an investigation into the defective headsets, seeking to enjoin their further sale and to obtain restitution on behalf of those consumers who purchased a defective headset. The company sought a stay of the proceedings on the grounds that the Florida Attorney Generals action would provide consumers with complete relief and, in the alternative, sought an order that the class action be referred to arbitration, because all customers who purchased the headset agreed to terms and conditions that included an arbitration clause. The court refused to stay the action on either ground and ultimately ruled in favour of the class, awarding general damages and signicant punitive damages. The lively discussion between speakers and audience explored such questions as whether the US class action judgment could be granted recognition by courts in other countries; whether it would have preclusive effect on a subsequent action brought by a class member in another country; and whether it could be used or applied by any regulatory or government body in another country as a reason for imposing or withholding sanctions against the company or for awarding any compensation to consumers harmed in that country.
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Investment treaty arbitration

Session Co-Chairs: Juan Fernndez-Armesto (Armesto & Asociados); Stephen Richard Jagusch (Allen & Overy) Speakers: Yas Banifatemi (Shearman & Sterling); James Crawford (University of Cambridge); Brooks Daly (Permanent Court of Arbitration); Sylvia Noury (Freshelds Bruckhaus Deringer LLP); Andrs Rigo Sureda (Former Deputy General Counsel of the World Bank); Eduardo Silva Romero (Dechert LLP); Philippe Sands (Matrix Chambers/University College London);
Marc Veit
Walder Wyss & Partners Ltd, Zurich
mveit@wwp.ch
Epaminontas E Triantalou (White & Case LLP)
his well-attended session was divided into two parts, the rise of so-called issue conicts among lawyers and arbitrators acting in investment treaty arbitration; and the discussion of investment arbitration cases that shook the world. Philippe Sands QC pleaded vehemently against arbitrators acting concurrently as counsel and arbitrator in the eld of investment treaty arbitration. To safeguard the credibility of the investment treaty system, which is under much scrutiny, lawyers active in the eld need to choose between acting either as arbitrator or as counsel. Sands articulated four propositions: (i) investment treaty arbitration is different from commercial arbitration because it involves sovereigns; (ii) a limited number of similar legal issues (such as the denition of investment and investor, the concept of expropriation and unfair treatment, most-favoured nation or umbrella clauses) arise almost in every case; (iii) the investment treaty arbitration system is currently under serious threat with states attempting either to exit from the system or renegotiating their bilateral investment treaties; and (iv) the very legitimacy of the system is under attack. Under these circumstances, it is critical that the system be and be perceived to be efcient, transparent and, of course, legitimate. Sands gave the example of a case where an arbitrator was rumoured to have circulated a draft award to his partners at his law rm for their comments, which, if true, would raise serious concerns. In another situation, counsel relied upon a recent award that he and other arbitrators had rendered
in another case raising similar issues, begging the question whether the award had purposely been drafted in part to facilitate the counsels representation in the later proceedings. Sands met resistance from Yas Banifatemi, who took issue with the proposition that investment treaty arbitration differs in any signicant way from commercial arbitration that may be relevant for issue conict purposes. Indeed, similar if not identical issues also arise in commercial arbitration, including for example, in FIDIC cases (International Federation of Consulting Engineers) or where multiple disputes arise out of the same contract. Rather than adopting a hard-line approach such as Sands, issue conicts should be addressed pragmatically on a case-by-case basis. The IBA Guidelines on Conicts of Interest in International Arbitration are also a useful source of guidance, and they provide answers to the situations described by Sands. Eduardo Silva Romero agreed that issue conicts arise not only in the context of investment arbitrations but also in commercial arbitration, including in situations where an arbitrator has published an article on the issue to be decided. Issue conicts may also arise when one of the parties seeks to rely on an arbitration award that one of the arbitrators has previously drafted. Silva Romero added that when discussing the problem of issue conict, one also has to take into account the parties right to appoint counsel and arbitrators of their choice. Andrs Rigo Sureda pointed out that the role of counsel and arbitrators is different. Lawyers may indeed specialise and shape the law. This does not, and should not, create issue conicts. Sureda further suggested that the participation of arbitrators in unanimous decisions does not create any issue conicts and that views vary widely on the treatment of issue conicts around the world. Brooks Daly joined Banifatemi, Silva Romero and Rigo Sureda and expressed the concern that Sands suggestion would prevent newcomers from becoming arbitrators if they had to do it either full-time or not at all. He explained that, given the difculty of getting appointments as an arbitrator, it is necessary for arbitration practitioners to maintain their counsel practice for an extended period of
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time before they can aspire to a full-time career as an arbitrator. Sands model therefore is hopelessly idealistic and would further contribute to shrink the pool of international arbitrators, which is already too small. Ending the rst part of the session, Stephen Jagusch recalled an anecdote according to which an arbitrator discussed a draft award with his wife, also an arbitrator: This may have produced a better award, but there are obviously issues raised. The second part of the session consisted of the most entertaining presentation of selected cases that shook the world. Members of the IBA Arbitration Committee voted on the cases by ballot. While the list was intended to reveal only the top ten cases, the nal list actually included thirteen cases because some cases came in ex aequo. James Crawford presented the following list: 1. Maffezini v Spain 2. SGS v Philippines and CMS v Argentina 4. Vivendi v Argentina 5. Loewen v US 6. Tokios Tokele.s v Ukraine 7. SGS v Pakistan 8. Amco v Indonesia 9. Lauder v Czech Republic, CME v Czech Republic and Metalclad v Mexico 10. Plama v Bulgaria and World Duty Free v Kenya Crawford, who was a member of the tribunal in SGS v Philippines and the annulment committees in CMS v Argentina and Vivendi v Argentina, rst noted that the list does not reect a uniform selection according to the same criteria. The list also indicates that investment arbitration is polarised on key points of law. For example, the fact that CME v Czech Republic and Lauder v Czech Republic essentially parallel proceedings reached diametrically opposed conclusions shows that arbitrations lead to decisions made by arbitrators based on their own views. The case that raised the least criticism was Vivendi v Argentina. In that sense, it probably should be the true winner on the list. After reviewing the cases, Crawford distilled a number of hot topics in investment treaty arbitration: the role of most-favoured-nation
(MFN) clauses; the link between diplomatic protection and investment protection; the threshold for unfair and inequitable treatment and its relation to the international law on minimum standard of treatment; the denition of indirect expropriation; the interpretation of umbrella clauses; and the role of the government in assuming the risk of default by local joint ventures. Epaminontas E Triantalou analysed the Loewen v US case, the rst NAFTA claim against the United States. While the United States has not lost a single bilateral investment treaty arbitration so far, the Loewen case probably is the case where the United States came closest to losing a case. Triantalou vividly described Mr Loewens ordeal in the US court system by presenting several colourful extracts of the award. The arbitral tribunal rejected Loewens denial of justice claim on the grounds that there was no continuous nationality from the date of the events that gave rise to the claim through the date of the award, and because the claimant had not shown that it had exhausted local remedies a substantive element of its claim for denial of justice. While the tribunals ruling on continuous nationality remains controversial, the legal standard for denial of justice developed by the arbitral tribunal remains of great signicance. Sylvia Noury delighted the audience with her analysis of World Duty Free v Kenya. World Duty Free alleged that Kenya expropriated its duty free concession by improperly appointing a receiver over World Duty Frees Kenyan operations. The owner and chief executive ofcer of World Duty Free volunteered in a witness statement that he had made a personal donation in the amount of US$2 million to the President of Kenya. Later in the proceedings, the claimant tried to preserve the contract by adducing an expert report conrming that such gifts are common practice and part of the etiquette recognising the authority of the leader in the community. The arbitral tribunal ruled that the contract had been procured by a bribe and therefore was unenforceable.
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Fast-track arbitration: an idea whose time has come?

Session Co-Chairs: Mark Friedman (Debevoise & Plimpton); Claus Von Wobeser (Von Wobeser y Sierra SC) Speakers: David Arias (Perez-Llorca); Linn Bergman (Stockholm Chamber of Commerce); Filip De Ly (Erasmus University); Philipp Habegger (Walder Wyss & Partners Ltd); Gabrielle Kaufmann-Kohler (Levy Kaufmann-Kohler); Carolyn Lamm (White & Case LLP); Javier Rubinstein (PricewaterhouseCoopers)
Sunil Abraham
Zul Raque, Kuala Lumpur
sunil@zulraque.com.my
he rst half of the session began with David Arias making the case for fast-track arbitration. Noting that arbitration proceedings are increasingly complex and involve a strong emphasis on discovery and/or e-discovery, Arias added that parties often overstate their case, leading to higher arbitration costs. He further argued that arbitrations are ever more delayed due to the arbitrators inability to accommodate the parties proposed hearing dates. Arbitration, therefore, fails to meet the demand, particularly in the current economic climate, which would require an efcient resolution of disputes. Fast-track arbitration, clearly, is faster and cheaper. Arias dismissed the arguments against fast-track arbitration as ctitious. He denied the notion that there may be any additional risks involved, including with having counsel work under pressure. That being said, he acknowledged that fast-track arbitration may be suited only to certain types of claims. Cinderella arbitrations involving small claims are ideally disposed of on a fast-track basis. Arias suggested that fast-track arbitrations are not used as often as they should because of the unusual demands they place on the parties and their counsel. Ultimately, however, fasttrack arbitration is a better dispute resolution product for clients. Carolyn Lamm presented the case against fast-track arbitration by highlighting two major problems: Fast-track arbitration favours the claimant and infringes the defence rights of the respondent. The claimant has time to prepare and then dump a claim on
the respondent, which, in turn, may not have sufcient time to prepare a proper defence. Fast-track arbitration therefore simply is an unfair mechanism for the resolution of disputes; and It is inappropriate to resolve investment treaty disputes where government agencies, ministries and ministerial ofcers are involved. Experience with arbitrations involving state and state entities suggests that extensive time invariably is required to prepare a proper defence against a claim made by an investor. Lamm further argued that the success of fast-track arbitration depends to a large extent on the experience of the counsel and arbitrators involved, and fast-track arbitration requires a mutual commitment from all parties concerned which may be difcult to achieve in practice. There is no real procedure governing the conduct of fast-track arbitrations and, indeed, arbitral institutions such as the International Court of Arbitration of the International Chamber of Commerce (ICC) and the London Court of Arbitration do not have any fast-track procedures. Fast-track arbitration may also give rise to judicial applications to set aside the award or deny its enforcement on grounds that the unsuccessful party was unable to present its case or the arbitral procedure was not in accordance with the agreement of the parties or law of the country where the arbitration took place (Article V(1)(b),(d) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards). Finally, Lamm noted that the costs savings are, at best, uncertain. Javier Rubinstein described fast-track arbitration as a useful tool from the client's perspective. He explained that if arbitration continues in its present form (ie, lengthy and expensive), there is a substantial risk that users will abandon arbitration as a preferred dispute resolution mechanism. Rubenstein, however, conceded that fast-track arbitration may not be suitable in all cases and should perhaps be used only when time is of the essence and expedited proceedings make economic sense for the parties. Rubenstein further commented that fast-track arbitration
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requires a commitment on the part of the management of the parties to ensure that internal mechanisms are in place to meet the requirements of any proposed fast-track arbitration. Linn Bergman stated that there are two points in time when parties can opt for fast-track arbitration, namely, at the time of the drafting of the agreement or when the dispute arises. In considering what contractual disputes may be suitably resolved using fast-track arbitration, he identied certain nancial transactions, including loan agreements, derivatives, as well as price determination contracts, and pre-closing mergers and acquisitions disputes. He further explained that fasttrack arbitration may be particularly useful to resolve disputes concerning the enforcement of condition precedents or whether a material adverse change clause applies. Such disputes are time-sensitive and demand expedition that only a fast-track procedure can provide. The arbitral institutions that offer fast-track proceedings include the Swiss Chamber of Commerce (SCC), the American Arbitration Association (AAA) and the China International Economic Trade Arbitration Commission (CIETAC). These institutions clearly differentiate between fast-track and regular proceedings. Following a somewhat different approach, the Stockhom Chamber of Commerce and the German Institute of Arbitration (DIS) have issued supplementary rules for expedited proceedings. The Swiss Rules of International Arbitration also allow for expedited arbitrations even if the amount in dispute exceeds CHF1 Million. The Rules of Arbitration of the ICC, for their part, merely state that parties may shorten time periods set in the rules by mutual agreement or with the tribunal's approval. Dr Philipp Habegger also discussed when and how the parties should use fast-track arbitration. He expressed the view that the advantages of fast-track arbitrations are reduced costs, shorter time limits, limited number of submissions and shortening of oral
hearings. Among potential weaknesses are relative legal uncertainty, potential disputes pertaining to the enforcement of time limits, the availability of arbitrators and the right of the respondent to properly present its case. Habegger opined that any determination as to whether fast-track arbitration is appropriate can be made only on a case-by-case basis depending on the nature of the dispute and the expectations of the parties. He noted, however, that the Swiss Rules of International Contracts, AAA and CIETAC rules use a monetary threshold to trigger the application of the fast-track procedure. Habegger emphasised that parties should consider whether fast-track arbitration might be appropriate at the time of the drafting of the agreement. He urged counsel to be familiar with the different fast-track procedures available to the parties under the various arbitration rules. He concluded that while the jury is still out on fast-track arbitrations, the pressure to reduce costs likely will foster an increase in fast-track arbitrations. Indeed, there needs to be more fast-track arbitrations in order for there to be more legal certainty as to how institutions and parties are to deal with fast-track arbitration. Professor Filip De Ly addressed expedited arbitration proceedings from a practical perspective. He rst outlined the reasons why parties more frequently provide for expedited arbitration clauses and the situations in which this is most likely to occur. He then presented three case studies. In the rst case study, the claimant did not push for expedited proceedings and the case took more than three years, notwithstanding the ninety-day period provided for in the arbitration clause. He then discussed two other expedited cases where the proceedings were concluded within three to six months after the constitution of the arbitral tribunal as provided for in the expedited arbitration agreement. He concluded his presentation with the list of factors that facilitate or inhibit the successful completion of an international commercial arbitration under an expedited contractual regime.
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coNfERENcE REpoRTS mAdRId
The IBA Guidelines on Conicts of Interest in International Arbitration ve years later

Session Co-Chairs: Matthias Scherer (Lalive); Audley Sheppard (Clifford Chance) Speakers: Jos Ricardo Feris (ICC International Court of Arbitration); Francisco Gonzlez de Cossio (Gonzalez de Cossio Abogados SC); Shinji Kusakabe (Anderson Mori & Tomotsune); Crenguta Leaua (Tanasecu Leaua Cadar); Ramon Mullerat (KPMG Abogados); Franz Schwarz (Wilmer Cutler Pickering Hale & Dorr LLP); Tatyana Slipachuk (Vasil Kisil & Partners)
Eduardo Damio Gonalves

Barretto Ferreira, Kujawski, Brancher e Gonalves, So Paulo
goncalves@bkbg.com.br
ew topics have raised more debates in recent years than the complex and delicate question of conicts of interest in international arbitration. Matthias Scherer and Audley Sheppard chaired a session dedicated to the impact and limits of the 2004 IBA Guidelines as well as possible suggestions for changes. Inspired by Matthias Scherers introductory remark about the need for common sense when addressing issues of conict of interest, Ramon Mullerat opened the rst part of the afternoon with a synthetic overlook of the ongoing review of the IBA Guidelines. Mullerat advocated the need for restructuring the general standards by regrouping them into ve standards. With respect to the application lists, Mullerat suggested a stricter approach whereby some situations appearing in the Green List should be moved to the Orange List and also some Orange List items should be moved to the Red List (eg, lawyers working at the same rm as their co-arbitrators). Mullerat further suggested that new items should be added to the Red List even if it is not meant to be exhaustive such as the situation where an arbitrator has been employed by one of the parties or the arbitrator has a nancial interest in competitors of the parties. Mullerat concluded by offering some semantic corrections for the sake of uniformity (eg, use case or dispute but not both) and
commenting that it would be useful to dene certain key terms (eg, signicant). To whom the Guidelines may apply? was the question Crenguta Leaua attempted to answer. Leaua noted certain limitations in the Guidelines such as the fact that item 1.4 of the non-waivable Red List only refers to the nancial dependence of the arbitrator vis--vis the appointing party but not the nonappointing party. Leaua also asked whether the Guidelines should be applied differently when the arbitrator is deciding the case on its merits, or rather as an emergency measure or a challenge. Finally, Leaua noted the lack of reference to secretaries of arbitral tribunals in the Guidelines in contrast with the specic reference to appointing authorities (item 3.5.3 of the Orange List). Francisco Gonzlez de Cossio dwelled upon the topic of issue conict. Gonzlez de Cossio rst presented the issue that may arise when the same person acts as a lawyer and arbitrator in cases dealing with similar issues. Such situations occur with some frequency in investment and sport arbitrations. Gonzlez de Cossio advocated a solution based on an ex post analysis of the relevant circumstances as opposed to an ex ante solution. Audley Sheppard and Jos Ricardo Feris chaired the second half of the afternoon describing the experience of the ICC with the IBA Guidelines. During his detailed and most informative presentation, Feris explained that out of 187 challenges presented over the past ve years, only 57 per cent of the situations were covered by the Guidelines. Among those, the most covered were instances where arbitrators or their rms had been involved in prior cases involving the same parties or afliates (items 3.1.4. or 3.1.5). Feris also mentioned some challenges that were raised before the ICC but are not contemplated in the Guidelines such as family ties and relationship with the state (whenever a state is a party to the arbitration). He added the solutions suggested by the Guidelines are less restrictive than the solutions given by the ICC.
26
Nevertheless, Feris emphasised the important role of the Guidelines in developing a culture of disclosure in arbitration. Shinji Kusakabe discussed selected conict of interest issues. Kusakabe rst addressed the situation of the arbitrator who belongs to a law rm and whether the arbitrator should use the same conict check system the rm normally uses to check conicts on clients matters. He also addressed the need for continuous conict checks while the case is still pending in situations where a new partner joins the rm or the arbitrator moves to another rm. The Eastern European experience in dealing with conict of interests in international arbitration, with particular emphasis on Ukraine, was the topic chosen by Tatyana Slipachuk. Slipachuk discussed the unique situation of the participation of state
ofcials in arbitrations. The last speaker, Franz Schwarz addressed the implications of the disclosure of potential conicts not only for the arbitrators but also for the parties. He noted a decision by the Swiss Supreme Court of March 2008, which imposed an obligation on the party going beyond the statement of independence of the arbitrator it had appointed. If doubts should be resolved in favour of disclosure, the problem remains of how to draw the line between material and irrelevant disclosure. Schwartz concluded by raising the issue whether the lack of disclosure of a certain situation by an arbitrator should be taken into consideration in a future challenge as it could be interpreted as a disposition to hide relevant information.
Is arbitration failing the reinsurance community?

Session Co-Chairs: Simon Twigden (Addleshaw Goddard LLP); Lawrence Schaner (Jenner & Block) Speakers: Sharon Daly (Matheson Ormsby Prentice); Francesco De Gennaro (NCTM Studio Legale Associato); Francisco Serrano (J&A Garrigues SL); Hanno Goltz (Oppenhoff & Partner); Ian Hunter (Essex Court Chambers); Peter Rogan (Ince & Co); John M Toriello (Holland & Knight LLP)
he rst part of this session debated the question of whether arbitration is failing the reinsurance community. Simon Twigden and Peter Rogan argued for this motion. Simon Twigden provided some background to this proposal by referring to the fact that arbitration remains the primary method of dispute resolution for the reinsurance industry, not least because most contracts contain standard reinsurance arbitration clauses and, save for exceptional circumstances, the courts will enforce such clauses. Twigden then heavily criticised the existing arbitration process. By mimicking the processes of the courts and becoming
over-legalistic and over-lawyered, arbitration has betrayed its birth right by allowing itself to become as slow, expensive and almost as formal as the court proceedings from which it was intended to offer escape. Moreover, he questioned the benet to the reinsurance community of the lack of transparency that accompanies condentiality; the inability to force consolidation of related proceedings absent the parties consent (including disputes that involve brokers), and the uncertainties created by an inadequate body of precedent. He argued strongly that dispute resolution for reinsurance disputes should be changed and that, for example, a mandatory ADR provision should now be included to bring the wording of reinsurance arbitration clauses into line with other commercial contracts. Peter Rogan seconded the proposal, and focused on two points supporting the motion. First, there is a lack of industry support for reinsurance employees serving as arbitrators. Rogan pointed out that certainly in London, companies like Lloyds Syndicates, insurance companies and brokers will as a general rule not allow their senior employees to act as arbitrators, which is contrary to the spirit of the insurance market wishing to have their
disputes resolved by market arbitration. Secondly, the current restrictions on the right of appeal have had a detrimental effect, in that English law has not been able to evolve and keep pace with the developing practices of the market. This could be simply rectied by what is referred to as a conditional opt in pursuant to which the parties will be deemed to have agreed to appeal if the arbitrators certify that a point of industry interest is involved. The industry would benet from having such point determined in court to have a precedent for the future. Francisco Serrano and Ian Hunter argued against the motion, rebutting the points raised by Rogan and Twigden. Carlos de los Santos/Francisco Serrano argued that the problems attributed to arbitration by the reinsurance community are not intrinsic to arbitration. Rather, the problems arise from the inability of players in the reinsurance market to take advantage of the potential of arbitration: exibility, affordability, speed and tailored procedures. Arbitration was for a long time the preferred method for resolving reinsurance disputes to the satisfaction of the reinsurance community. Why does this satisfaction no longer exist? What has changed? The market has changed. Traditionally, the reinsurance market had few players who all knew each other well and trusted one another. Contracts and arbitration clauses were not negotiated in great detail and when disputes arose, the parties were able to either settle them amicably or agree on procedural rules for the arbitral proceedings, and the reinsurance community is not facing this reality. The reinsurance community should work in two directions: (i) draft a new model arbitration clause, adapted to the new circumstances of the market; and (ii) draft rules of procedure addressing the unique aspects and needs of the reinsurance industry. The second part of the session, moderated by Lawrence Schaner, focused on the alternatives to arbitration as a means of resolving reinsurance disputes, and whether it is time for reinsurance contracts to include a different form of dispute resolution mechanism. The rsttwo speakers, Sharon Daly and Francesco De Gennaro, discussed alternatives that retain arbitration as at least part of the dispute resolution process.The nextspeakers, Hanno Goltz and John Toriello, addressed potential solutions that largelyif not entirely abandonarbitration. Sharon Daly discussedthe possibility of
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requiringmediation as a prerequisite to the commencement of arbitration. She rst commented that arbitration has served the reinsurance industry both in common law and civil jurisdictions, but problems have emerged due to the formality of the process, severe delays, lack of precedents, inability to bring third parties into the process and cost, to name some of the key concerns with the prevailing use of arbitration in the industry. However, Daly suggested that there is no need to throw the baby out with the bathwater, and that the use of stepped dispute resolution clauses requiring the parties to submit to mediation in advance of arbitration should, at least to some extent, address the legitimate concerns in the industry. Mediation is used in common law jurisdictions and often included in primary layer policies. It is a facilitative rather than an evaluative process, which is its selling point. It is condential, cost effective, and driven by commercial sense. Indeed, because it is client-centred it is exible in terms of the process and the potential outcome in ways that arbitration and litigation can never be. The reinsurance market is a sophisticated market with industry professionals who make a living out of evaluating risk, and therefore this process should ideally suit this industry. If mediation is unsuccessful, the parties will have gained a better understanding of the dispute and should also have narrowed the issues, which in turn will make the arbitration faster and more focused. Daly therefore strongly advocated the used of mediation before arbitration. Francesco De Gennaro considered possible changes to make arbitration function better. One potential improvement is changing the process by which arbitrators are selected. In addition, requiring that cases be decided on the basis of law as opposed to market practices may improve arbitrations utility to the reinsurance community. Hanno Goltz raisedthe possibility of establishing specialised courts to handle reinsurance disputes. By way of illustration, he discussed the issues arising under German reinsurance contracts. Reinsurance and retrocession agreements in Germany generally contain an arbitration clause referring disputes to an arbitral tribunal consisting of three arbitrators. Goltz noted that because qualied arbitrators are limited to persons employed or engaged in, or retired from, senior positions in insurance or reinsurance, the pool of potential arbitrators
is rather quite small. Another problem is the lack of precedent and scarce legal literature in the eld of reinsurance. Consequently, arbitral awards in matters of reinsurance in Germany are unpredictable. Mediation, although promoted by the German Courts,is not prevalent. The reason mediation has not become more widespread in Germany is that parties generally attempt to negotiate out of court before resorting to legal proceedings, and thus parties see formal mediation as a repeat of their own previous efforts to settle their dispute. Legal costs ofa proceeding in the court of rst instance do not, on average, exceed the costs of a mediation. Goltz suggested that a possible improvementwould be the creation of specialised chambers for reinsurance litigation.With time, this would create a pool of independent, neutral, legally trained professionals with the necessary
experience and expertise in reinsurance matters. Judgments would be published and become a valuable source for adjudicating reinsurance disputes, which would, in turn, incite the discussion of reinsurance issues in the legal literature, all of which would produce a more reliable basis for legal advice.In addition, this wouldcreate a higher level of predictability inreinsurance disputes and prevent unnecessary litigation or arbitration. John Toriello concluded by covering alternatives to arbitration including (i) litigation and (ii) nonadjudicativeapproaches other than mediation. These approaches may include negotiation, expert determination, early neutral evaluation mini-trials, conciliation, etc.
Andr de A Cavalcanti Abbud

Barbosa, Mssnich & Arago Advogados, So Paulo
andreabbud@gmail.com
Hot topics Open forum on the review of the IBA Rules on the Taking of Evidence in International Arbitration
Session Co-Chairs: Alexis Mourre (Castaldi Mourre & Partners) Eduardo Zuleta (Gmez-Pinzn Zuleta Abogados AS) Speakers: Dominique Brown-Berset (Brown & Page); Michael Bhler (Jones Day); James Castello (King & Spalding); Bernardo Cremades (B Cremades y Asociados); Richard Kreindler Chair IBA Rules of Evidence Sub Committee, (Shearman & Sterling LLP); Toby Landau (Essex Court Chambers); Luca Radicati di Brozolo (Bonelli Erede Pappalardo); Michael Schneider (Lalive)
To change everything in order to keep everything the same. With the quotation of the famous phrase by Tancredi in Lampedusas Il Gattopardo, Alexis Mourre opened the highly informative session he co-chaired with Eduardo Zuleta on the ongoing revision of the UNCITRAL Arbitration Rules, the ICC Arbitration Rules, the IBA Rules on the Taking of Evidence and the European Council Regulation No 44/2001.
Focusing rst on the UNCITRAL Arbitration Rules, Michael Schneider presented a general report on the activities of the Working Group since 2006. The Group consists of 40 Member States, 30 observer states and a number of non-governmental organisations, including the IBA. The Working Group makes all of its decisions by consensus, which is not an easy task. It also seeks to preserve the spirit and substance of the Rules, modifying the provisions only when a need for change is clearly demonstrated. In Schneiders opinion, the Working Group so far has been successful, with the exception of the provisions on provisional measures, which have become lengthy and unwieldy. The Working Group has decided to address the issue of whether the UNCITRAL Rules should include specic provisions on investment arbitration. The nal draft of the proposed new UNCITRAL Arbitration Rules is expected to be ready at the time of the next IBA Annual Conference in October 2010. James Castello presented the counsel perspective on the revision of the UNCITRAL
Rules. Most of the changes aim at avoiding pitfalls in the proceedings, rewarding parties and counsel for seeking an efcient resolution of their disputes and discouraging dilatory tactics. For example, the new version of Article 4 provides that the respondent will have 30 days from the receipt of the notice of arbitration to present a response. Castello also alluded to the heated discussion on the provision on ex parte interim measures, which eventually resulted in a compromise. Toby Landau offered the arbitrators point of view. He questioned whether the Working Group is the best forum, with the best working methods, to decide highly technical points, given that few experienced arbitrators are taking part in the discussion. He commented on a few changes impacting arbitrators rights and duties, such as the enhanced disclosure regime under the new Article 11. He also mentioned some proposed modications regarding the conduct of the arbitration proceedings, such as the new Article 17, which gives arbitrators more powers over recalcitrant parties. The revision of the ICC Arbitration Rules was the subject of the second part of the session. Michael Bhler reported on the operation of the Task Force created by the ICC Commission on Arbitration in 2008 to review the ICC Arbitration Rules. The Task Force, which is chaired by Peter Wolrich, Michael Bhler and Lawrence Craig, is composed of 180 members. Its mission is to review suggestions for revisions made by the Task Force members, national committees, arbitration users, the ICC Court and its Secretariat, and to determine whether the proposed changes are genuinely necessary and useful. Underlying the review is the premise that the main features and universal appeal of ICC arbitration should be maintained, and the Task Force should endeavor to avoid being overly prescriptive. The Task Force may consider ways of introducing case management techniques to reduce time and cost. The ICC Commission on Arbitration will assess the recommendations of the Task Force. Presenting the counsel perspective, Dominique Brown-Berset suggested the addition of a provision on condentiality, which is often included in the Terms of Reference, and a clarication of the rule on consolidation of parallel proceedings. She noted that Article 4 of the Swiss Rules on International Arbitration permits the joinder of a new case with a pending case
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based on the relationship between the cases and the progress already made in the existing proceeding (Article 4 (1)), thus allowing the participation of third parties in pending proceedings (Article 4(2)). Article 4 of the Swiss Rules, which goes further than Article 4.6 of the ICC Rules, has been used successfully in about 13 cases to date. BrownBerset also recommended the inclusion of the Pre-Arbitral Referee Procedure in the Rules, with the possibility for the parties to opt out of this regime. Bernardo Cremades spoke on behalf of arbitrators and criticised the review of the ICC Arbitration Rules as unnecessary. He expressed the view that the ICC Rules work well precisely because they are not overly detailed. In his opinion, arbitrators are trying to act as legislators by constantly producing new rules and guidelines. The arbitration community, however, should focus its efforts instead on effective and tailored case-management in each arbitration proceeding. He questioned the use and scope of arbitrators statements of availability, asking why they target only arbitrators and not also counsel. The third part of the session was an open forum on the review of the 1999 IBA Rules on the Taking of Evidence, presented by Richard Kreindler, Chair of the Subcommittee devoted to the revision process. With due deference to their widely recognised success, the IBA decided to review the 1999 Rules after ten years of existence. The effort takes place against the backdrop of a variety of other reform efforts related to the taking of evidence by other arbitral institutions and groups throughout the world. Kreindler described many of the contemplated changes, some of them considered necessary for the sake of clarication, linguistic consistency or to reect new trends that have developed over the last ten years. For example, it is recommended that the term commercial be deleted from the title of the Rules in order to reect their increasing use in different contexts, including investor-state arbitrations. Another change would be the addition of a principle requiring the parties good faith in evidentiary matters. Other major possible changes relate to the disclosure of electronic documents and more specic guidance on the application of legal privilege when objecting to the production of evidence. Closing the session, Luca Radicati di Brozolo discussed the proposed amendment to the so-called arbitration exception in the
Council Regulation (EC) no 44/2001, which regulates jurisdiction and the recognition and enforcement of judgments in the European Union. Participating in a heated debate over the arbitration exception in the Council Regulation (EC) no 44/2001, the IBA Arbitration Committee Working Group has submitted a paper on the European Commissions Report and Green
Paper. Without previous harmonisation of arbitration laws at the community level, one can expect races to the courthouse and the migration of arbitrations to the most arbitration-friendly European Union countries. The attempt to modify established rules may be a step back rather than a step forward.
Professor Janet Walker

Osgoode Hall Law School of York University, Toronto
jwalker@yorku.ca
New York Convention workshop

Session Co-Chairs: Andrew Foyle (One Essex Court); Paula Hodges (Herbert Smith LLP) Speakers: Andr de A Cavalcanti Abbud (Barbosa, Mssnich & Arago Advogados); David Cairns (B Cremades y Asociados); Eduardo Gonalves (Barretto Ferreira Kujawski Brancher e Gonalves); Sally Harpole (Sally Harpole & Co); Marta Khomyak (Magisters); Andrew McDougall (Perley-Robertson, Hill & McDougall LLP); Reza Mohtashami (Freshelds Bruckhaus Deringer LLP); Patricia Nacimiento (White & Case LLP); Sophie Nappert (Three Verulam Buildings); Felipe Ossa (Claro y Cia); Philippe Pinsolle (Shearman & Sterling LLP); Benedetta Vannini (Cleary Gottlieb Steen & Hamilton LLP).
he Arbitration Committees nal session of the IBA Annual Conference in Madrid was the occasion for the well-attended New York Convention Workshop, this year led by Andrew Foyle and Paula Hodges. The rst half of the session began with Sophie Nappert, the IBA delegate to the UNCITRAL Working Group on International Commercial Arbitration, reporting on the UNCITRAL Project on the Legislative and Judicial Implementation of the Convention. To promote the uniform operation of the Convention, the IBA assisted in 1995 in drafting a questionnaire to survey the way in which national rules facilitate recognition and enforcement of foreign awards under the Convention and whether state parties have included additional requirements in
their procedures. Responses were received from 108 of the 144 Member States, which are now available on the UNCITRAL website. Some broad ndings were submitted in a 2008 Report to the Commission, identifying disparities in limitation periods and implementing legislation, and noting additional exceptions to enforcement included in national legislation. Looking ahead, UNCITRAL plans to establish technical workshops at the regional level to assist states parties. Three speakers then addressed the implications of possible changes to the arbitration exception in the Brussels I Regulation. David Cairns explained that it is best understood as a question of the relationship between proceedings to set aside or to enforce the arbitration award. Courts can choose to refuse to enforce or to adjourn enforcement proceedings pending the outcome of set aside proceedings, or they can choose to determine the validity of the award independently of those proceedings. The rst approach can cause delay and encourage frivolous set aside proceedings and could revive the double exequatur requirement. The second approach can create inconsistency and encourage forum shopping. The issues, which have arisen as a result of idiosyncratic legislation, may be viewed as a matter of whether an award has been annulled based on principles of international arbitration or as a matter of whether to recognise a foreign annulment decision based on principles of judicial comity. Possible solutions include restricting annulment as ground of refusal to enforce, harmonising annulment and enforcement standards, and creating a single system of judicial review for both annulment and enforcement.
Patricia Nacimiento described the second Yukos enforcement decision from Amsterdam in April 2009, (Yukos Capital S r l v OAO Rosneft, Amsterdam Court of Appeal, Case No 200.005.269/01, Decision (28 April 2009)), in which the Dutch court, having resolved to wait for the outcome of set aside proceedings in Russia, then decided to enforce the award despite it having been set aside by the Russian court. The decision has caused controversy, possibly calling into question the use of Russian seats and the wisdom of well-meaning decisions of courts in enforcement proceeding that, in fact, can harm international arbitration. Questions raised include whether the standard in Article V(1)(e) was really intended to be permissive, or whether the option to enforce awards that have been set aside at the seat can create undesirable consequences. Ultimately, the solution lies in the harmonisation of standards for challenging awards in set aside and in enforcement proceedings. Philippe Pinsolle analysed the question of enforcing an award that has been set aside at place of arbitration and discussed TermoRio SA ESP v Electranta SP, 487 F 3d 928, 934 (DC Cir 2007), cert denied, 128 S Ct 650 (2007), which involved the enforcement of a Colombian award in the United States. The Convention clearly provides for the recognition of an award despite a decision to set it aside, and the ability to do so is consistent with the spirit of the Convention. The recent European Union Green Paper to amend the Brussels I Regulation would transfer to the European Union the power to regulate arbitration, in part, by giving Europewide effect to declarations of the validity of arbitration agreements and set aside orders. The approach of the Green Paper is different than the French approach, which recognises the ability of each national court to determine the validity of an award based on its own arbitral law (Putrabali). The second half of the Workshop turned to recent developments. Eduardo Gonalves explained that in Brazil, original jurisdiction to enforce foreign awards has been concentrated in the Superior Court which will harmonise and improve judicial practices because the Superior Court has considerable experience and is more efcient (requiring 14-18 months for contested enforcements). Andr Abbud noted that the Convention only entered into force in Brazil in 2002, but since then 19 out of 25 foreign awards have been enforced. This reects judicial care
32
in limiting objections to those found in the Convention. Despite this, there have been some anomalies. For example, one award was refused enforcement because the agreement was not signed by the parties, despite the lack of any objection during the arbitral process; and in another case, the Court asserted in obiter that foreign awards must be sufciently reasoned to be enforceable. Andrew McDougall reported on the decision in Yugraneft Corporation v Rexx Management Corporation, 2008 ABCA 274 [2008], which is currently before the Supreme Court of Canada and in which a number of arbitral institutions have intervened. This appeal concerns a denial of enforcement by the Alberta courts on the basis that the general two-year limitation period had passed (despite the existence of a ten-year period for domestic awards). Reza Mohtashami reported on an ICC arbitration over the termination of an agency. The losing party appealed to the Qatari courts under Qatari arbitration law. The proceedings in the Qatari courts went well beyond the scope of review found in the Convention raising real concerns about the proper application of the Convention and giving rise to subsequent proceedings to set aside the arbitration award in the courts of the seat in Paris and to enforce the Qatari set aside decision in the United States. Andrew Foyle described the rare case of Dallah Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2009] EWCA Civ 755, in which an English court refused enforcement on grounds that Pakistan was not a party to the agreement and therefore there was no valid arbitration agreement under the Convention. The parties to the agreement, which included a standard ICC, Paris arbitration clause, were Dallah and a trust established by the Government of Pakistan for the purpose of the project. The English court conducted a de novo review of the evidence requiring Pakistan to prove on a balance of probabilities that it was not a party to the agreement. The appeal raises many issues including the question of whether there should be a difference in the standards of review for annulment and enforcement and whether it should matter that the losing party chooses to challenge jurisdiction at the stage of the enforcement but not in the annulment proceeding in the courts of the seat. An application for leave to appeal to the Supreme Court may be under
way and also, possibly, an application to the French courts. Sophie Nappert discussed three cases in which the arbitration tribunal relied in its award on a proposition of law that had not been raised by the parties. The Arbitration Committee of the International Law Association addressed the concept of iura novit arbiter in its 2008 report. The Supreme Court of Finland upheld the principle and declined to set aside an award, but the Qubec Superior Court annulled an award on the basis that a decision based on reasoning not advanced by the parties was a breach of audi alterem partem and a Swiss court annulled a CAS award on a similar basis. Marta Khomyak reported on a judgment of the European Court of Human Rights where the delay of the Ukrainian courts in enforcing an award in favour of a Czech company was found to be a breach of Article 6 of the European Convention on Human Rights (right to a fair trial). Ukraine was held liable and as a result, the claimant was able to fully collect on the award (the Ministry of Justice paid the bill). Sally Harpole reported on a recent refusal by a Chinese court to enforce an ICC arbitral award on public policy grounds. Application of the public policy exception raises concern in cases where enforcement would have economic consequences, such as business closures and job losses. Although the public policy exception is not often applied, earlier this year one Chinese court refused to enforce an ICC award rendered in Paris on
that basis. The dispute involved Serbian and Chinese joint venture parties. Prior to the arbitral decision, the Chinese joint venture party brought an action in a Chinese court. That court froze the joint ventures assets, despite the fact that the Serbian party was not before the court. The arbitrators decided that the Chinese partner had wrongfully initiated the court action, since it excluded the other party and the resulting decision harmed the joint venture. The PRC Intermediate Peoples Court refused to enforce this arbitral award on public policy grounds, on the basis that judicial sovereignty had been violated. The Supreme Peoples Court did not disagree with this ruling in its internal review. Felipe Ossa discussed a recent case where a Chilean court recognised an arbitral agreement even though it was asymmetrical (ie, it gave the defendant the unilateral right to choose arbitration) and incorporated the arbitration agreement by reference to a separate document. Ossa also described another case that is still pending before the Chilean Supreme Court, where a German party is seeking recognition of an ICC award rendered in Paris. The defendant is resisting enforcement based on the existence of annulment proceedings in Paris. The Secretary of the Supreme Court, however, has stated in a preliminary report that the possibility that the award may be annulled is not grounds for refusing enforcement, thus adopting a liberal interpretation of the New York Convention and the UNCITRAL Model Law.
33
coNfERENcE REpoRTS bARcEloNA
Barcelona Arbitration Courts First Congress of Corporate Arbitral Institutions

he Barcelona Arbitration Court (Tribunal Arbitral de Barcelona TAB) organised and hosted the First Congress of Corporate Arbitral Institutions in September at the Notaries Association of Catalonia. Well over 20 arbitral institutions and approximately 100 participants were present at the rst of such an event to be organised in Spain. The Congress keynote speech was delivered by Cyrus Benson (Gibson, Dunn & Crutcher LLP). His lecture addressed the ethical challenges that international arbitration currently faces and how difcult the role of both arbitrators and lawyers can be, particularly considering that they often come from different jurisdictions with different rules of behaviour and ethics. The question is how and to what extent their own rules apply in the international arbitration process, and how conicts should be identied and resolved to preserve a level playing eld. There were also two round tables: the rst analysed arbitration in Spain while the second discussed the forthcoming challenges for arbitral institutions. Both round tables were composed of well-known personalities in the eld of national and international arbitration, covering practitioners, academics and/or members of the judiciary. One important issue addressed was the fact that there is a surplus of arbitral institutions in Spain. On the one hand, this is positive as it creates competition for efciency, but on the other hand it creates confusion for the user. The Congress was brought to a close by the Honorable Ms Montserrat Tura, Minister for Justice of the Generalitat of Catalonia. In her speech, Ms Tura praised the initiative of the Congress in seeking ways to relieve the burdens of surplus litigation in Spain and emphasised that arbitration must not be seen merely as an alternative method of dispute resolution but as one of the best possible methods. Finally, as most of the arbitral institutions of Spain were attending the Congress, the President of the TAB, Mr Jess M de Alfonso, took the opportunity to introduce the Arbitration Carta del Arbitraje (www.tab. es), a document approved by the Executive Board of the TAB in July 2009. It is hoped the Carta will become a common tool in the practice of arbitration in Spain. Mr de Alfonso pointed out that it is the beginning of arbitrations revival, which has gathered a signicant amount of concerns and actions aiming at arousing a greater interest in arbitration. Among the concerns and, therefore, plans of action put forward to make arbitration more widely available, the Carta places great emphasis on the training of lawyers and businessmen. The Carta was supported by all of the arbitral institutions attending the Congress.
Shreyas Jayasimha
AZB & Partners, Bangalore
shreyas.jayasimha@ azbpartners.com
34
INvESTmENT ARbITRATIoN
Dr Patricia Nacimiento
White & Case, Frankfurt
pnacimiento@ whitecase.com
Verena Gross
White & Case, Frankfurt
vgross@whitecase.com
The Lisbon Treaty and its implications for investment protection
he Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community (Treaty of Lisbon, Treaty), which came into force on 1 December 2009, has the potential to dramatically change the legal landscape relating to foreign direct investment owing to and from Europe. The Treaty aims to ensure greater coordination and coherence in European Union foreign policy. Several measures were introduced for this purpose, such as the establishment of a new High Representative for the Union in Foreign Affairs and Security Policy and the establishment of a single legal personality of the European Union in contrast to the old Pillar Model. Although the specic consequences remain unclear, the Treaty also creates the possibility of a new, single European law governing foreign direct investment, and calls into question the future of the many bilateral investment treaties currently in force in European Member States. Investment protection formerly within the competence of EU Member States Before the Treaty of Lisbon entered into force, the protection of investments was within the competence of individual Member States, and the EUs competence was restricted to common commercial policy pursuant to Article 133 of the EC Treaty. In reality, however, the EU has concluded mixed free trade agreements with third states comprising not only matters of commercial policy, but also investments. In that regard, it was therefore difcult in practice to distinguish between the competences of the EU and its Member States. As matters of commercial policy and investment are inextricably interwoven, the European Commission called for the introduction of a European competence for foreign direct investment more than a decade ago.
Lisbon Treaty introduces exclusive EU competence over direct foreign investment Pursuant to its policy goal of coordinated European foreign policy, one important reform of the Lisbon Treaty is the transfer of the exclusive competence for foreign direct investment to the EU. According to Article 207 I of the Treaty on the Functioning of the European Union, foreign direct investment will now form part of the common commercial policy for which the EU competence is exclusive. A harmonised European investment protection-framework is expected to level the playing eld between European Member States for the benet of foreign investors in the EU. The transfer of competence with the Lisbon Treaty, however, is not all-encompassing and is explicitly limited to direct investment. It is widely acknowledged that the term direct investment only refers to long-term investments and does not include portfolio investments. According to the European Court of Justice, the purchase of stocks falls within the category of portfolio investments, if it does not result in foreign management, ownership, legal control or a signicant degree of inuence on the management. The protection of property is not covered by Article 207 I of the Treaty on the Functioning of the European Union either. Pursuant to its Article 345, the Member States system of property shall not be prejudiced, so that questions of expropriation will remain part of the Member States competence. As a result, the competence for investment agreements will be shared between the Member States and the EU. They will therefore have to cooperate where the EU intends to make use of its competence. Current legal investment framework in Europe Should the EU decide to take advantage of its new competence to govern matters relating
to foreign direct investment, in any form, this will have a major impact on the role played by the Member States with regard to global investments. European Member States are signatories to a large number of Bilateral Investment Treaties (BITs). Germany alone has concluded the highest number of BITs worldwide; the UK, France, the Netherlands, Belgium and Luxembourg, Italy and Romania each have entered into more than 80 BITs. Overall, the BITs entered into by EU Member States account for approximately 50 per cent of all the BITs worldwide. The impact will also be remarkable due to the high amount of foreign direct investment outow from EU Member States. In 2008, for example, the FDI outow from the EU amounted to 45 per cent of all FDI outows worldwide. Immediate consequences Competence for foreign direct investment was transferred to the EU without specic preparation and planning. The immediate impact thus will be an uncertain legal situation in the present and immediate future. The BITs present one obvious complication, because under public international law, the BITs concluded by EU Member States will not automatically expire, nor will the EU automatically become a signatory to these treaties. One question that arises after the Lisbon Treaty is whether, from a European law perspective, Member States are obliged to cancel their BITs. The EU, however, is not expected to require cancellation of the current framework of BITs before a substitute framework has been agreed on. Such a framework is unlikely to be established in the near future. In any event, BITs regularly provide that they will remain effective for several years after cancellation. The EU Member States, however, are in principle barred from concluding new BITs as of 1 December 2009. Long-term choices for the EU How far-reaching the implications of this transfer of competence will be depends to a large extent on whether the EU makes use of its new competence at all, and if so, in what form. It remains uncertain whether the new investment treaty/ treaties of the EU will
coexist with the Member States treaties. It also remains unknown whether the EU will opt for numerous bilateral treaties or one single multilateral treaty. The latter option would certainly have the biggest impact. The new competence of the EU is not only about changing the bargaining power of the states involved. The EU may also have a global impact by developing a new model of BITs that could serve as a role model for BITs in other regions. This is most likely to occur if the EU decides in favour of a multilateral approach or at least in favour of introducing a Model BIT as a basis for further bilateral BITs. The inuence of multilateral treaties on BITs is reected for example by the effect of the North American Free Trade Agreement (NAFTA) on the recent development of North American BITs. In particular, the new path that the EU strikes will be a signal for the standard of protection under BITs. The recent North American development towards a signicant restriction of the standard of protection in BITs may be explicitly counter-balanced by the EU if it maintains a high protection standard or even goes beyond the current standard. However, it is difcult to predict whether this will be the case, as the EU not only comprises capital-exporting countries lobbying for high investor protection, but also capital-importing countries such as the Eastern European states. Furthermore, many European BITs currently in force are based on the AbsShawcross Draft Convention model endorsed by OECD Ministers in 1962, at a time when BITs had only started to develop. This European approach does not take into account many social and environmental issues the way modern BITs in other regions tend to do, and this is yet another area where the EU could have a wide inuence. Moreover, the EU also has the chance to become a role model by nding solutions to practical problems that have arisen under European and other BITs. Although there have been many successes during the history of BITs, they have also given rise to criticism for issues such as the problem of conicting awards. The Treaty of Lisbon, therefore, has the potential to largely inuence the global investment infrastructure, but it will be in the hands of the Commission and the Member States to make use of this power.
36
Martin Valasek*
Ogilvy Renault LLP, Montral
mvalasek@ ogilvyrenault.com
Azim Hussain
Ogilvy Renault LLP, Montral
ahussain@ ogilvyrenault.com
Investor-state arbitration, court intervention and the ICSID Convention in Canada

However, arbitrations involving disputes with the federal government or federally owned corporations as parties or involving matters of admiralty or maritime law, are governed by a federal statute.4 Canada is one of the many jurisdictions that have adopted the 1985 UNCITRAL Model Law on International Commercial Arbitration (Model Law). The Model Law is not a treaty, but rather a blueprint proposed by the United Nations Commission on International Trade Law to ensure a uniform legislative system across jurisdictions for the conduct of commercial arbitrations within those jurisdictions. The Model Law signicantly limits the role of courts during the arbitral process. In this respect, all or almost all of the provisions of the Model Law have been adopted by Parliament5 and the provincial and territorial legislatures.6 As for the role of courts after the arbitral process, namely at the stage of enforcing arbitral awards, both the Model Law and the multilateral Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) are relevant instruments of international law. The New York Convention has been ratied by Canada and adopted into domestic legislation by Parliament7 and the provincial and territorial legislatures8 in their respective jurisdictions. As is well-known, the Convention sets out specic grounds based on which a court may annul or refuse to recognise a foreign arbitral award. These are mirrored in the Model Law. Any reasons invoked by the award debtor falling outside those grounds must be refused. Status of the ICSID Convention The ICSID Convention is a multilateral treaty in the area of international investment. The ICSID Convention establishes a system for international arbitration of disputes between foreign investors and host states in respect of their investments. The Convention limits the ability of host states to invoke state immunity. Importantly, by virtue of its distinctive self-enclosed procedural system, the Convention also excludes the possibility of court intervention in the arbitral process
anada signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) on 15 December 2006, but it has not yet been ratied. This means that Canada is not yet a party to the Convention: it is therefore not subject to it, and Canadian nationals investing in foreign contracting states cannot yet benet from its regime. What will be the situation for parties who otherwise benet from the Convention, eg, foreign contracting states and investors from other foreign contracting states, who choose a Canadian location as the venue of their ICSID arbitration?1 Can such parties expect to benet from the ICSID Conventions self-enclosed system? The answer is probably not.2 Because federal and provincial law does not yet reect the ICSID Conventions self-enclosed system, there is a possibility that Canadian courts may intervene in ICSID arbitration proceedings held in Canada or that they may entertain an application to set aside an award rendered in such proceedings. While the federal Parliament has passed implementing legislation, the government has not yet brought it into force, and those provincial legislatures that have passed implementing legislation in their respective jurisdictions have made its coming into force contingent on Canada ratifying the Convention. The federal government has taken the approach that it will seek the support of the ten provinces (and three territories under federal jurisdiction) prior to ratifying the Convention. The benets of the ICSID arbitration process will likely not obtain in Canada, even for parties that are foreign contracting states or investors from other foreign contracting states, until Canada raties the Convention, which is unlikely to occur until all of the ten provinces (and three territories under federal jurisdiction) have passed legislation adopting the ICSID Convention. Legislative framework: Implementation of the UNCITRAL Model Law and the New York Convention Most matters of arbitral procedure in Canada are governed by provincial legislation.3
and provides for the direct enforceability of a nal arbitral award in favour of the foreign investor, without any need for the investor to engage domestic laws on the recognition of arbitral awards and without the host state having the ability to seek to annul or refuse to recognise the award before a domestic court. The ICSID Convention therefore limits the role of courts in arbitrations to which it applies even further than the Model Law and the New York Convention. Canada signed the ICSID Convention on 15 December 2006. Canada will likely not ratify the Convention until all of the provinces and territories have passed implementing legislation. Because Canada has yet to ratify the ICSID Convention, it is not a party to the Convention. The federal government has passed legislation implementing the ICSID Convention but it is not yet in force.9 The government has taken the position that it will seek the support of Canadas ten provinces and three territories prior to ratication.10 The approach of the federal government is consistent with the view that, to the extent that the ICSID Convention touches on certain matters that are generally of provincial jurisdiction, for example arbitral procedure as a matter of the administration of justice in the province, provincial legislation to implement the Convention is required. On such a view, it is only after all the provinces have adopted legislation implementing the Convention, or have agreed to do so, that Canada could ratify the Convention. As a matter of Canadian constitutional law, the federal government cannot override the constitutional division of legislative powers between the federal Parliament and the provincial legislatures through the signature of international agreements.11 Contrary to the above view that the ICSID Convention touches on certain matters that are generally of provincial jurisdiction and that the federal government therefore needs provincial consent before it can ratify the Convention, it may be argued that the Convention does not actually touch on matters that are of provincial jurisdiction because, for example, arbitral procedure can fall within federal jurisdiction if the arbitration in question involves Canada (or a foreign state). The federal Commercial Arbitration Act12 is an example of such an exercise of federal jurisdiction over arbitral procedure. Accordingly, on such a view, the federal government would not need provincial consent prior to ratication. However,
38
Canadian constitutional law would not permit the federal government to designate a province under Article 25 as a constituent subdivision that is party to the ICSID Convention without that province giving its consent and passing implementing legislation. At the time of writing, only four provinces and two territories had passed implementing legislation.13 Moreover, the coming into force of the implementing legislation in each province and territory is contingent upon Canada ratifying the Convention. Whether and when the remaining provinces and territories will enact implementing legislation is unclear. Intervening in ICSID arbitration proceedings or challenging a Canadian ICSID Award before the Canadian courts In practice, therefore, until the Convention is ratied, Canadas signature of the ICSID Convention would likely not have an impact on a Canadian courts interpretation of its jurisdiction under applicable arbitration legislation to refrain from intervening in ICSID arbitration proceedings (involving a foreign contracting state and an investor of another foreign contracting state) or entertaining a challenge of an ICSID award. The interpretation rule according to which Canadian courts must avoid interpreting domestic law inconsistently with Canadas international legal obligations14 would not apply to such a case. When a treaty is to be concluded by formal ratication, as in the present case,15 the signature of a state is not sufcient to express the states consent to be bound.16 Accordingly, an interpretation of the relevant legislation which is contrary to the ICSID Convention would not be inconsistent with Canadas treaty obligations. The signature of the ICSID Convention by the federal government, without more, has no impact on the interpretation of arbitration legislation by Canadian courts. Under the current state of the law, Canadian courts would most likely nd that they have jurisdiction to intervene in ICSID arbitration proceedings or entertain a challenge to any award issued by an ICSID tribunal conducting proceedings in Canada (within the limits imposed by relevant arbitration legislation). Only the full federal or provincial implementation of the ICSID Convention can remove risk of court intervention in an arbitral process where the parties have agreed to the application of the
ICSID Convention and the ICSID Arbitration Rules.

Notes * The views expressed in this article are those of the authors, and do not necessarily represent the views of Ogilvy Renault LLP. An earlier version of this article appeared in the December 2009 newsletter of the Canadian Bar Associations National Section on International Law. 1 Pursuant to Article 62 of the ICSID Convention, the place of ICSID arbitration proceedings is deemed to be the seat of the [International Centre for Settlement of Investment Disputes] (ie, Washington, DC), except as the parties otherwise agree, pursuant to Article 63. 2 In C H Schreuer et al, The ICSID Convention: A Commentary, 2d ed (Cambridge: Cambridge University Press, 2009) at 1245, paragraph 4, Prof Schreuer writes: Therefore, the choice of a place of proceedings is largely a matter of convenience to the parties and to the members of a commission or tribunal. But it is advisable to conduct proceedings in the territory of a Contracting State of the Convention. This would appear necessary to guarantee the noninterference of domestic courts as mandated by Article 26. The courts of a State that is not a party to the Convention would not be bound by the rule of abstention contained in Article 26. 3 Such provincial legislation is based on provincial constitutional jurisdiction over the administration of justice in the province (s 92(14) of the Constitution Act, 1867) and arguably also property and civil rights (s 92(13) of the Constitution Act, 1867). 4 See Commercial Arbitration Act, R S C 1985, c 17, s 5. The federal Parliament has constitutional jurisdiction over more subject-matters than simply proceedings involving the federal government, federally owned corporations, or admiralty/maritime disputes, and it could arguably expand the categories covered in the Commercial Arbitration Act to cover those other subject-matters. It has, however, largely left the matter of arbitral procedure to the provinces. See note 4 above. 5 As the schedule styled Commercial Arbitration Code found in the Commercial Arbitration Act, R S C 1985, c 17. 6 Qubec: Civil Code of Qubec, Book Five, Title Two, Chapter XVIII, and the Code of Civil Procedure, Book VII, Title I; Ontario: International Commercial Arbitration Act, R S O 1990, c I.9, Manitoba: The International Commercial Arbitration Act, C C S M c C151, Nova Scotia: International Commercial Arbitration Act, R S N S 1989, c 234, Newfoundland and Labrador: International Commercial Arbitration Act, R S N L 1990, c I-15, Alberta: International Commercial Arbitration Act, R S A 2000, c I-5, New Brunswick: International Commercial Arbitration Act, S N B 1986, c I-12.2, Saskatchewan: International Commercial Arbitration Act, S S 1988-89, C I-10.2, Prince Edward Island: International Commercial Arbitration Act, R S P E I 1988, c I-5, British Columbia: International Commercial Arbitration Act,
R S B C 1996, c 233, Yukon Territory: International Commercial Arbitration Act, R S Y 2002, c 123, Northwest Territories: International Commercial Arbitration Act, R S N W T 1988, c I-6 Nunavut: International Commercial Arbitration Act, R S N W T (Nu.) 1988, chapter I-6. 7 United Nations Foreign Arbitral Awards Convention Act, R S C 1985, c 16. 8 Qubec: Code of Civil Procedure, Book VII, Title II; Ontario, see note 7 above, Manitoba, see note 7 above, Nova Scotia, see note 7 above, Newfoundland and Labrador, see note 7 above, Alberta, see note 7 above, New Brunswick, see note 7 above, Saskatchewan: Enforcement of Foreign Arbitral Awards Act, 1996, S S 1996, c E-9.12, Prince Edward Island, see note 7 above, British Columbia: Foreign Arbitral Awards Act, R S B C 1996, c 154, Yukon Territory: Foreign Arbitral Awards Act, R S Y 2002, c 93, Northwest Territories, see note 7 above, Nunavut, see note 7 above. 9 Settlement of International Investment Disputes Act, S C 2008, c 8. 10 Foreign Affairs and International Trade Canada, Minister MacKay introduces bill to protect Canadian investment abroad, News release, Ottawa, 30 March 2007. 11 This rule was laid down by the Privy Council in the Labour Conventions Case (Attorney-General for Canada v Attorney-General for Ontario), [1937] A C 326. In her concurring reasons, LHeureux-Dub J of the Supreme Court of Canada reafrmed this rule in the more recent judgment of Thomson v Thomson, [1994] 3 S C R 551 at 611. The majority expressed no disagreement on this point. See also P W Hogg, Constitutional Law of Canada, 5th ed supp (Scarborough, Ont: Thomson Carswell, 2007) at 11-15 11-16 and G van Ert, Using International Law in Canadian Courts, 2nd ed (Toronto: Irwin Law, 2008) at 270. 12 See note 5 above. 13 British Columbia: Settlement of International Disputes Act, S B C 2006, C 16; Newfoundland and Labrador: Settlement of International Disputes Act, S N L 2006, c S-13.3; Saskatchewan: Settlement of International Disputes Act, S S 2006, c S-47.2; Ontario: Settlement of International Disputes Act,S O 1999, c 12 schedule D;Northwest Territories: Settlement of International Disputes Act, S N W T 2009, c 15; Nunavut: Settlement of International Disputes Act, S Nu 2006, c 13. See also R. East, Canada Signs International Convention on the Arbitration of Investment Disputes (2007) 7:1 Canadian International Lawyer at 37-38. 14 A rule often referred to as the presumption of conformity. See the Supreme Court of Canadas judgment in R v Hape, 2007 SCC 26 at paragraph 53. 15 Article 68 of the ICSID Convention and Memorandum on Signature and Ratication, Acceptance or Approval of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. 16 I Brownlie, Principles of Public International Law, 7th ed (Oxford: Oxford University Press, 2008) at 610. This is subject to the exception of provisional application, but the ICSID Convention does not have a provisional application regime. arbitration NEWSLETTER MARCH 2010 39
Investor-state disputes on the rise in the Arab world

fewer than 707 BITs, with the vast majority containing a dispute resolution clause allowing the investor to initiate an arbitration against the host state, commonly before ICSID.2 These gures compare favourably with the total gures of BITs worldwide (2,676 at the end of 2008 according to UNCTAD)3 as Arab states contribute to one quarter of the BITs worldwide (Egypt is the fth most prolic signatory of BITs worldwide at the end of 2008, according to UNCTAD, with no fewer than 101 BITs).4 A breakdown of this gure also provides two interesting pieces of information. The rst is that almost half of these treaties (338) have been signed since 2000, thus showing the pace of the evolution in this area. The second is that 188 such treaties have been signed between two Arab countries, which emphasises the development of economic relations among Arab countries and the related need for treaty protection for foreign investments. The second contributing factor is the attractiveness of the ICSID Convention itself. This Convention provides a comprehensive set of rules for the settlement of investment disputes, including several provisions that are clearly favourable to foreign investors, as discussed above. Of the 22 members of the Arab League, 17 have signed and ratied the ICSID Convention (except for, notably, Qatar, Iraq and Libya). The most recent Arab states to have signed and ratied the ICSID Convention are Lebanon in 2003 and Syria in 2005. The third contributing factor is the increasing awareness of both foreign investors and, to a lesser extent, governments about the availability of the investor-state dispute resolution process and the investment protection stemming from international treaties and international law. The general awareness of the existence and outcome of investment cases, at least those administered by ICSID,5 certainly helps spread the word. Foreign investors have brought many cases against Arab states in the recent past. Twenty such cases have been concluded before ICSID arbitral tribunals, while there are another 11 cases currently pending. Decisions and awards in cases involving Arab states have tackled issues that contribute to the development of
Dany Khayat
International Arbitration, Mayer Brown, Paris
dkhayat@mayerbrown.com
nvestor-state disputes have recently become the focus of growing attention in the Arab world. It is no longer possible to consider the international arbitration scene in the Arab world without referring to the protection that foreign investors may have in a given Arab country under international law or to the arbitration forum that they may have to resort to, frequently the World Banks International Centre for the Settlement of Investment Disputes (ICSID), established by the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, International Center for Settlement of Investment Disputes (Washington Convention), in 1965. Investor-state arbitration under ICSID no longer calls for a detailed presentation. Its three main characteristics, rather appealing to foreign investors, are the following: (i) the undertaking of each contracting state to recognise an ICSID award and enforce the pecuniary obligations imposed by that award within its territories as if it were a nal judgment of a court in that State (Article 54 of the Washington Convention); (ii) the mandatory application, under certain circumstances, of international law to decide a dispute (Article 42(1) of the Washington Convention); and (iii) the existence of a centralised and limited review mechanism of ICSID awards before an ad hoc Committee (Article 52 of the Washington Convention). Investor-state disputes may also be conducted under other rules, notably the UNCITRAL rules, or, in the Arab world, before the Arab Investment Court, established by the League of Arab States Unied Agreement for the Investment of Arab Capital in the Arab States of 1980.1 The development of investor-state arbitrations in the Arab world is the consequence of several contributing factors which will be addressed below. The rst is the increasing number of bilateral investment treaties (BITs) signed by Arab countries providing foreign investors substantial protection for their investments under international law. According to the latest gures released by the United Nations Conference on Trade and Development (UNCTAD), Arab countries have signed no
40
a body of precedent in investment law. These decisions are also relevant in each jurisdiction to assess how international tribunals may interpret and potentially sanction the acts of a given state, its national laws and regulations. The issue of attribution of acts to the state was, for instance, dealt with in several recent awards involving Arab states. In Jan de Nul N V and Dredging International N V v Arab Republic of Egypt, brought before an ICSID tribunal on the basis of the BIT between Egypt and the BelgiumLuxembourg Economic Union of 2002, the arbitral tribunal found that the acts of the Suez Canal Authority vis--vis the investors were not attributable to the Egyptian state.6 In LESI, S p A and Astaldi, S p A v Peoples Democratic Republic of Algeria, the arbitral tribunal, constituted on the basis of the BIT treaty between Algeria and Italy, found that the acts of the National Dams Agency are attributable to the Algerian state.7 A similar conclusion was reached by an arbitral tribunal in respect of the Lebanese Council for Development and Reconstruction in an arbitration initiated under the BIT between Lebanon and Italy in Toto Costruzioni Generali S p A v Republic of Lebanon.8 Several ICSID decisions involving Arab states have also contributed greatly to the development of a body of case law on the determination of complex issues of nationality under international law. Whether in the cases of Champion Trading Company and Ameritrade International, Inc v Arab Republic of Egypt,9 Hussein Nuaman Soufraki v United Arab Emirates10 or Waguih Elie George Siag and Clorinda Vecci v Arab Republic of Arab Republic of Egypt,11 the potential nationalities of the claimants were put in question by the respondent state, resulting in fascinating debates before the arbitral tribunals constituted to hear these cases. Also, the award rendered in Desert Line Projects LLC v Republic of Yemen12 otherwise well-known because it awarded monies to the investor for moral damages, an uncommon nding before ICSID also resolved important issues when the arbitral tribunal conducted a comprehensive analysis of acts obtained under duress, and decided that these acts where unlawful under international law. This latter case, initiated by an Omani company seeking to demonstrate Yemens breaches of the provisions of the BIT signed between Oman and Yemen, reveals one
recent and crucial development in investment treaty arbitration in the Arab world: it was the rst time, in known investment treaty case history, that an Arab company initiated an arbitration against another Arab state. Since the Desert Line case, another case involving an investor from the UAE against an Arab state was recently registered by ICSID, in the matter of MTN (Dubai) Limited and MTN Yemen for Mobile Telephones v Republic of Yemen. The existence of such Arab/Arab investment disputes clearly signals that seeking recourse to investment arbitration and resorting to the protection of bilateral investment treaties is, in the Arab world, no longer a monopoly of investors from traditional capital-exporting countries. It also shows that Arab investors have realised that they too can take advantage of these treaties to protect their investments abroad. Given that there is considerable nancial and entrepreneurial potential in certain Arab countries, these are encouraging developments. It is also one more reason for Arab states to improve their own capabilities in abiding by their undertakings to foreign investors in their BITs. Training must be arranged at various governmental levels, as expertise on every standard of protection under a BIT must exist in all branches of the state. This is an area in which most Arab states could improve.
Notes 1 The Arab Investment Court is not necessarily the most appealing body to resolve an investor-state dispute, if only because the members of this Court are permanent judges appointed by the members of the League of Arab States. The Arab Investment Court became operational only in 2003 when it heard a dispute between a Saudi company and the Tunisian Government. The Court rendered its rst ever decision on 12 October, 2004. 2 One noticeable exception is the bilateral investment treaty signed between Lebanon and Syria in 1997, which arguably does not contain either states consent to resort to international arbitration to resolve investor-state disputes. 3 UNCTAD, Recent Developments in International Investment Agreements (2008June 2009), IA MONITOR No 3 (2009) International Investment Agreements, available at: www.unctad.org/en/docs/ webdiaeia20098_en.pdf. 4 Iraq with only three BITs and Libya with 26 BITs are far behind. 5 Some information also exists on the website of the Permanent Court of Arbitration (www.pca-cpa.org). In a different geographical region, investor-state disputes are also made public by North American Free Trade Agreement, or NAFTA, Member States. arbitration NEWSLETTER MARCH 2010 41
6 Award dated 6 November, 2008 (the awards mentioned in this article can all be found on ICSIDs website (www.worldbank.org/ICSID) or Investment Treaty Arbitrations website (ita.law.uvic.ca). 7 Award dated 12 November, 2008. 8 Decision on jurisdiction dated 11 September, 2009. 9 Decision on jurisdiction dated 23 October, 2003, rendered on the basis of the bilateral investment
treaty between Egypt and the United States. 10 Award dated 7 July, 2004, rendered on the basis of the bilateral investment treaty between the United Arab Emirates and Italy. 11 Award dated 1 June, 2009, rendered on the basis of the bilateral investment treaty between Egypt and Italy. 12 Award dated 6 February, 2008.
Toto Costruzioni Generali S p A v The Republic of Lebanon, ICSID Case No ARB/07/12, Decision on Jurisdiction, 11 September 2009
presence of Syrian troops in the area of the construction site. With its award on jurisdiction of 11 September 2009 (Award on Jurisdiction or Award), the tribunal ruled that it had jurisdiction over many, but not all, of the claims. Interestingly, one of the arbitrators3 voted in favor of [certain sections of the Award] while he dissent[ed] in several respects on the other parts of the decision,4 without specifying the legal grounds for his dissent. Existence of an investment In accordance with investment case law,5 the tribunal accepted Lebanons argument that for an investment to exist, it must not only qualify as such under the Treaty, but it must also satisfy the requirements of the ICSID Convention. Since there is no denition of investment in Article 25 of the Convention, the tribunal referred to prevailing denitions in case law, including inter alia, the four criteria of the Salini test,6 and concluded that they were satised with respect to Totos investment.7 However, the tribunal claried that it d[id] not reach this conclusion strictly on the basis of the Salini test,8 and emphasised that the underlying concept of investment which is economical in nature implies an economical operation initiated and conducted by an entrepreneur using its own nancial means and at its own nancial risk, with the objective of making a prot within a given period of time.9 One of the
Roland Ziad*
Cleary Gottlieb Steen and Hamilton LLP, Paris
rziade@cgsh.com
Karim Youssef
Cleary Gottlieb Steen and Hamilton LLP, Paris
kyoussef@cgsh.com
n 1997, Toto Costruzioni Generali S p A (Toto), a company incorporated under Italian law, concluded a contract with the Lebanese Conseil Excutif des Grands Projets (CEGP) for the construction of a portion of the Arab Highway between Beirut and Damascus (the Contract). Toto completed the construction works late, due to various obstacles, some of which were attributed to the Lebanese Government. Toto initiated proceedings against CEGP before the Lebanese courts, which proved to be very long.1 Negotiations also failed, and Toto initiated arbitration before ICSID, based on Article 72 of the Italian-Lebanese bilateral investment treaty of 7 November 1997, which entered in to force on 9 February 2000 (the Treaty). Toto requested relief for about US$58 million. Lebanon raised a number of jurisdictional objections before the arbitral tribunal composed of Professor Hans van Houtte, Mr Alberto Feliciani, and Mr Fadi Moghaizel, including that: (i) the construction project was not an investment within the meaning of the ICSID Convention because the dispute related to a commercial sale of goods and services whereby remuneration was guaranteed; (ii) the dispute was contractual in nature; and (iii) the claim was time-barred. Other important aspects of the decision on jurisdiction included addressing allegations of violations of customary international law that are not directly covered under the Treaty and the analysis of a sensitive issue relating to the responsibility of the Lebanese state for the
42
main points of contention was the element of risk. The tribunal accepted Totos argument that, although payment was guaranteed, prot was not, nding that a construction contract in which the execution of the works extends over a substantial period of time involves by denition an element of risk.10 Jurisdiction ratione temporis Article 10 of the Treaty provides that the Treaty does not apply to disputes that have arisen before its entry into force. The tribunal rejected Lebanons argument that the claims were time-barred because: (i) the dispute related to claims which dated from before the Treaty entered into force on February 9, 2000;11 and (ii) Lebanons Treaty offer to arbitrate (standing as of the entry into force of the Treaty) precedes the entry into force of the ICSID Convention in Lebanon (2003). The tribunal distinguished between difcults and contestations under the Clauses et Conditions Gnrales, which are part of the Contract, and considered that the dispute arose on 30 June 2004, when Toto decided to have recourse to Article 7 of the Treaty (Settlement of Disputes).12 Regarding the second aspect of the objection, the tribunal held that it is sufcient that the ICSID Convention was in force at the time of the parties consent, which the tribunal also held to be the date at which the offer to submit disputes to ICSID under the Treaty was accepted by the investor, ie, on 30 June 2004 (the date of the letter of intent to submit the dispute to ICSID arbitration).13 Contract claims and treaty claims The tribunal was faced with the question of whether Lebanons failure to observe its obligations under the Contract, including its alleged failure to carry out required site expropriations for the construction, would, if established, also constitute a Treaty breach, which falls within the tribunals jurisdiction under Article 9.2 of the Treaty, commonly referred to as an umbrella clause. The tribunal examined different umbrella clauses that are found in practice and different interpretations given by investment tribunals to these clauses.14 The tribunal then adopted the view, proposed by Professor James Crawford, that umbrella clauses may provide a basis for jurisdiction, but do not change the nature of contract claims.15 These claims remain subject to the contractual jurisdiction
clause and have to be submitted exclusively to the Lebanese courts for settlement. However, the tribunal afrmed that it would have jurisdiction, notwithstanding the jurisdiction clause, over contractual breaches where they also constitute violations of the substantive Treaty provisions.16 In the tribunals view, a violation of the Contract would also constitute a violation of the Treaty,17 by application of the criterion of puissance publique, ie, if the State acts in the context of the performance of the contract as a puissance publique.18 Again, in light of the distinction between the contractual claims submitted to the Lebanese courts and those treaty-based claims submitted to ICSID, the tribunal rejected Lebanons request for a stay of proceedings until a decision is rendered by the Conseil dEtat.19 To justify its rejection, the tribunal referred inter alia to considerations of expediency, and noted that, instead, it expects that the Conseil dEtat will take into account [its] decision with regard to Treaty claims, whenever this would be appropriate.20 The claims that the tribunal decided would proceed include alleged violations of Treaty obligations to promote and protect the claimants investment (Article 2), based in particular on certain changes to domestic legislation that negatively affected taxes and duties owed by Toto. Although the Treaty does not sanction changes in legislation, but merely obliges Lebanon to create and maintain favorable economic and legal conditions,21 the tribunal noted that if Toto could demonstrate that these changes in legislation were discriminatory, unreasonable, or otherwise in violation of the Treaty, the tribunal would have jurisdiction under Article 2, paragraph 3, or other provisions of the Treaty.22 The tribunal also decided that it had jurisdiction to rule on Totos claim23 that Lebanon had breached the Treaty by failing to remove Syrian troops from the contractual sites,24 notwithstanding Lebanons assertion that it did not necessarily have control over the Syrian troops, and that their removal by force was factually impossible and an attempt thereto could have threatened the existence of the country itself.25 Finally, the tribunal refused to assert jurisdiction, under Article 4.2 of the Treaty, over Totos claim that the additional costs that it incurred (amounting to 37 per cent of its total investment) amounted to indirect expropriation, rst, for lack of prima facie
evidence that these costs were not required to fulll its contractual obligations and, secondly, because, in the absence of proof of a taking of property, the alleged acts would merely constitute a contract breach.26 Fork-in-the-road Another obstacle to the assertion of jurisdiction over contract claims was the forkin-the-road clause contained in Article 727 of the Treaty (giving the claimant a choice, inter alia, between resorting to ICSID or to the national courts). Fork-in-the-road clauses are a common feature in recent BITs.28 The clause typically gives the investor a choice between a number of fora, including usually the domestic courts of the host state, the contractual dispute settlement forum provided in the investment contract and ICSID arbitration, but provides that once a choice (of a certain road) is made, that choice is nal. In accordance with the usual application of fork-in-the-road clauses, the Tribunal ha[d] to consider whether the same claim is on a different road,29 in particular, whether the fact that Toto led contractual claims before the Lebanese courts activates the fork-inthe-road, and precludes the ICSID claim. In most cases,30 ICSID tribunals have adopted a restrictive interpretation of these clauses.31 Similarly, the triggering of the fork-in-theroad requires that the same dispute, between the same parties, must have been submitted to more than one jurisdictional option specied in the Treaty. To dismiss Lebanons argument that Totos claims before Lebanese courts would bar claims before ICSID, the tribunal emphasised the difference in the cause of action. [C]ontractual claims founded on the investment contract do not have the same cause of action as Treaty claims,32 even if based on the same facts.33 Whether delays in judicial proceedings constitute a denial of justice Another interesting aspect of the Award is that it asserted jurisdiction to rule on violations of international law that are not specically found in the Treaty. The tribunal relied on the applicable law clause of the Treaty, which provides for the application of rules and principles of international law (Article 7(3)), and devoted a signicant part of its decision to whether it had jurisdiction to deal with claimants denial of justice claim.
44
At the time of the Award, the Lebanese Conseil dEtat had not yet ruled on two cases brought by the claimant in August 2001 under the jurisdiction clause of the Cahier des Clauses Juridiques et Administratives. Toto alleged that this signicant delay (in excess of ve years) constitute[d] a denial of justice under international law that entails the responsibility of Lebanon.34 Toto also argued that the abnormally slow pace35 of the two lawsuits and the obstruction of proceedings36 is inconsistent with the principle of good faith, and hence constitutes a breach of fair and equitable treatment (Article 3.1 of the Treaty).37 In response, Lebanon argued that the delay at hand was not abnormal; the two cases were advancing and thus due process was being respected.38 Here, the tribunal not only answered the question of whether it would have jurisdiction to rule on the denial of justice claims, if established, but it also examined, at some length, whether Claimant presented prima facie evidence of such a breach, and concluded that it did not; it held that it did not have jurisdiction to rule on whether the delays constitute a breach of the fair and equitable treatment standard under the Treaty.39 The tribunal conceded that international law has no strict standards to assess whether court delays are a denial of justice,40 but that failure to render justice within a reasonable period of time may constitute a breach of international customary law.41 It then emphasised the fact that reasonable delay depends on the circumstances and the context of the case, including the complexity of the matter, the need for clarity of decision, and the diligence of claimant in prosecuting its case.42 On this last point, the tribunal did not nd prima facie evidence that Toto had made use of local remedies to speed up proceedings and shorten delays.43 Unlike other ICSID tribunals, the Toto Tribunal dismissed the claimants reference to the case law on due process, under Article 6 of the European Convention on Human Rights, since Lebanon is not a party to this Convention.44 It nevertheless accepted the relevance of the right to a fair trial recognised in the International Covenant on Civil and Political Rights, to which Lebanon is a party.45 The tribunal then recognised that although the delay in question was very long,46 it did not constitute per se a breach of the fair and equitable treatment provision of the Treaty, taking note of a list of special incidents and
circumstances, including the assassination of Lebanese Prime Minister Rak Hariri and the terrorist bombings in 2005, the war with Israel in 2006, the internal ghting between Fatah aI-Islam and the Lebanese army in 2007, and the political crisis of 2008, which undoubtedly were not conducive to the functioning of Lebanons judicial system and affected the proper functioning of Lebanese courts between 2002 and 2008.47
Notes * Roland Ziad and Karim Youssef are members of the international arbitration practice group of Cleary Gottlieb Steen and Hamilton LLP based in Paris. Roland Ziad is a member of the Bar in Paris, New York and Beirut. Karim Youssef is a member of the Bar in Cairo. The views expressed in this section of this article are those of the authors and do not represent the views of Cleary Gottlieb Steen & Hamilton LLP or its clients. 1 Award on Jurisdiction, 11 September 2009, p 165, available at http://icsid.worldbank.org. 2 Article 7 of the Treaty provides that the investor may submit the dispute, at his choice, for settlement to: (a) the competent court of the Contracting Party in the territory of which the investment has been made; or (b) [ICSID]. 3 Mr Alberto Feliciani. 4 Award on Jurisdiction, at p 65. 5 See for eg, Salini Costruttori S p A and Italstrade S p A v Kingdom of Morocco (Salini), ICSID Case No ARB/00/4, Decision on Jurisdiction of 23 July 2001, 42 ILM 609 (2003), p 44. 6 The doctrine generally considers that investment infers: contributions, a certain duration of performance of the contract and a participation in the risks of the transactionIn reading the Conventions preamble, one may add the contribution to the economic development of the host State of the investment as an additional condition. Ibid, at p 52 7 Award on Jurisdiction, p 81. Other ICSID tribunals have decided that construction contracts qualify as protected investments. See, eg, Salini, ICSID Case No ARB/00/4, Decision on Jurisdiction of 23 July 2001, 42 ILM 609 (2003), pp 43-58. 8 Award on Jurisdiction, p 81; citing (at pp 82-83) Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No ARB/05/22, Award of 24 July 2008, where the tribunal noted that [g]iven that the Convention was not drafted with a strict, objective denition of investment, it is doubtful that arbitral tribunals sitting in individual cases should impose one such denition which would be applicable in all cases and for all purposes. At p 313. The Toto Tribunal indicated that it deviate[d] from th[e] commonly followed [Salini] test in a desire to delineate the necessary features of an investment in a way that it consider[ed] more appropriate to the present case. At p 81. 9 Award on Jurisdiction, p 84. 10 Ibid, at p 78.
11 Ibid, at p 88. 12 Ibid, at p 90. 13 Ibid, at pp 92-93. 14 Ibid, at pp 192-99. 15 Ibid, at pp 200-01. 16 Ibid, at pp 214 and 217. The tribunal cited (at p 213), inter alia, Compai de Aguas del Aconquija S A and Vivendi Universal v Argentine Republic (Vivendi v Argentina), ICSID Case No ARB/97/3, Decision on annulment dated 3 July 2002, (41 ILM 1135 (2002); 6 ICSID Rep 340 (2004)). [W]here the fundamental basis of the claim is a treaty laying down an independent standard by which the conduct of the parties is to be judged, the existence of an exclusive jurisdiction clause in a contract between the claimant and the respondent state or its subdivisions cannot operate as a bar to the application of the Treaty standard. At p 101. 17 Ibid, at p 215. 18 Ibid. On the contrary, [w]hen the State acts as an ordinary employer, the contractual jurisdiction clause will be fully operative, and the tribunal will have no jurisdiction. Ibid. 19 Award on Jurisdiction, p 220. 20 Ibid. 21 Ibid, at p 129. 22 Ibid, at p 130. 23 Ibid, at p 110. 24 Ibid, at p 118. 25 Ibid, at p 115. 26 Ibid, at pp 182-86. 27 Article 7(2) of the Treaty provides: The choice made as per subparagraphs a, b, and c herein above is nal. 28 Ch Schreuer, Traveling the BIT Route: Of Waiting Periods, Umbrella Clauses and Forks in the Road, 5 Journal of World Investment & Trade 231, 240 (2004). 29 Award on Jurisdiction. p 211. 30 The Award of 30 July 2009 in Pantechniki S A Contractors & Engineers v The Republic of Albania (Pantechniki v Albania), ICSID Case No ARB/07/21, stands out. The sole arbitrator, Jan Paulsson, refused to hear claims that had the same fundamental basis as those that the Claimant had brought before domestic courts on a contract basis. See, in particular, pp 61-68 of this Award. 31 For eg, in Vivendi v Argentina, ICSID Case No ARB/97/3, Award of 21 November 2000, 40 ILM 426 (2001), the tribunal refused to consider that resort to domestic courts is a choice under the fork-in-theroad provision of the Argentine-French BIT (see in particular, p 55). 32 Award on Jurisdiction, p 214. 33 Ibid. 34 Award on Jurisdiction, p 142. 35 Ibid. 36 Ibid, at p 143. 37 Ibid. 38 Ibid, at p 148. 39 Ibid, at p 168. 40 Ibid, at p 155. 41 Ibid, at p 156. In Vctor Pey Casado and President Allende Foundation v Republic of Chile, ICSID Case No arbitration NEWSLETTER MARCH 2010 45
coUNTRy dEvElopmENTS
ARB/98/2, Award of 8 May 2008, the tribunal held that: labsence de dcision en premire instance sur le fond des demandes des parties demanderesses pendant sept annesdoit tre quali comme un dni de justice de la part des tribunaux chiliens. At p 659. An action of annulment is pending against the award. 42 Ibid, at p 163. See also Pantechniki v Albania, ICSID Case No ARB/07/21, Award of 30 July 2009, at p 102: the fact that procedures before [domestic]
courts were to a signicant degree prolonged by requests for postponements by [Claimants] counsel was an element that the sole arbitrator took into consideration in rejecting the denial of justice claim. 43 Award on Jurisdiction, at pp 167-68. 44 Ibid, at p 157. 45 Ibid, at pp 158-59. 46 Ibid, at p 165. 47 Ibid.
Development of a Model BIT*
Eduardo Zuleta
Gmez-Pinzn Zuleta Abogados S A, Bogot
ezuleta@gpzlegal.com
he Colombian Government, through various ministries, developed policy guidelines for the negotiation of investment treaties that were submitted to the National Council of Economic and Social Policy (CONPES or Consejo Nacional de Poltica Econmica y Social) on 9 October 2001 (Lineamientos de poltica para las negociaciones internacionales de acuerdos de inversion extranjera) (the Guidelines).1 Based on the Guidelines, Colombia issued a model bilateral investment treaty (BIT) in 2006, which was amended in 2008.2 The 2006 original model and the amended 2008 version constitute the current Model BITs for Colombia. In general terms, the Guidelines provide as follows: Denition of investment: Colombia accepts a broad denition of investment based on the notion of assets but excluding loans and transactions relating to foreign debt. Following recent guidelines of the Bank of the Republic, the denition of investment can be extended to cover foreign debt ows subject to these conditions: (i) that the ows are dened as such in the domestic legislation; (ii) that they exclude payments of debt services and transactions relating to foreign trade; and (iii) that the debt ows conform with the Bank of the Republic of Colombias regulations. Labour and environmental issues: The Government of Colombia considers that labour and environmental issues should not be included in its investment agreements. However, it may be willing to accept their inclusion if the other party considers them essential. Under Colombian policies, this inclusion should respect domestic legislation and national migration policies of the host state, should not be linked to any type of sanctions, and should not include any kind
of monitoring or inspection requirements. In the case of environmental provisions, they should respect the international agreements to which Colombia is a party and procure technical assistance. Scope of application: Colombia BITs apply to investments made prior to their entry into force, but so far the Colombian Government has taken the position that the BITs do not apply to events that occurred prior to that date (even if the effects continued after the coming into force of the BIT). Admission of investments: The Guidelines note the difference between the European and US model BITs regarding the admission of investments. According to the Guidelines, while the European model BIT provides that protections apply only after investments are accepted in accordance with domestic law, the US model BIT extends investment protections to the date of entry in the host state, restricting the power of the state to modify conditions of acceptance of the investment. US treaties, however, often contain a list of sectors exempt from the application of the treaty. In its negotiations of bilateral treaties, Colombia has attempted to follow the European model. However, it has gradually accepted the US model in connection with the Free Trade Agreements (FTAs). Colombia is currently encouraging analysis of the consequences of adopting the US model for the negotiation of all investment treaties. For this purpose, the Guidelines indicate the need to consult international experts and to consolidate the list of reservations or exempted sectors prepared by different ministries. If the analysis concludes that consequences are positive and there is consensus within the government, Colombia may embrace the US model completely. Taxation matters: Colombia considers
Andrea Saldarriaga
Gmez-Pinzn Zuleta Abogados S A, Bogot
asaldarriaga@gpzlegal.com
46
that tax matters should be excluded from investment treaties and addressed instead in double taxation treaties. Negotiation: According to the Guidelines, amicable negotiations should be conducted by an interdisciplinary team composed of experts from different ministries and administrative agencies. Both Model BITs reect the above guidelines and correspond to the standard European model treaty with respect to admission of investments. They also account for the concerns expressed by the Constitutional Court in its analysis of BITs. An explanatory note accompanies both models. The note claries the reasons for the inclusion of certain provisions and references the jurisprudence of the Constitutional Court.3 The models provide for standard protection of investments (including fair and equitable treatment, full protection and security, prohibition of arbitrary or discriminatory measures, national and most favoured nation treatment, prohibition of expropriation without compensation and free transfer of funds relating to the investment) and include clarications regarding the scope of these standards (ie, explanation of the type of measures that constitute expropriation). The Model BITs also grant investors recourse to international arbitration for the settlement of disputes with the host state under the UNCITRAL Arbitration Rules, the International Centre for the Settlement of Investment Disputes, or ICSID, Convention and Additional Facility, or any other rules or institutions agreed to by the other parties. In addition, the Model BITs include specic provisions that have already been reected in recent BITs with Spain, Switzerland, Peru and China. These provisions include: Clarication that the treaty does not apply to measures adopted with respect to the nancial sector for prudential reasons, including those measures aimed at protecting investors, depositors, insurance takers or trustees, or to safeguard the integrity and stability of the nancial system. (Article II.5) Statement that the standard of full protection and security will never be higher than the protection accorded to nationals of the host state. (Article III.4.d) With respect to the obligation to guarantee the free transfer of funds relating to the investment, the stipulation that Colombia maintains its central bank and
governmental powers and ability to adopt measures to ensure currency stability and normality in internal and external payments, granting for these purposes powers to regulate the amount of credit and money supply, execution of credit operations and foreign exchange, and the ability to regulate monetary, credit, nancial and foreign exchange. Article V.4 includes a list to exemplify the type of measures under its purview.4 With regard to expropriation, the clarication that non-discriminatory measures enacted for public purposes or social interest or with objectives such as public health, safety and environment protection, do not constitute indirect expropriation. Such measures may constitute indirect expropriation only in rare circumstances, as, for example, when a measure is so severe in the light of its purpose that it cannot reasonably be viewed as adopted and applied in good faith. (Article VI.2.c) The clarication that the contracting parties may maintain and establish monopolies for reasons of public order or social interest. The affected investor, however, should receive prompt, adequate and effective compensation.5 A provision specifying that the BIT does not prevent the parties from adopting, maintaining or enforcing appropriate measures to ensure that the investment activity is conducted in accordance with environmental law. Such measures have to be proportional to the objective sought. (Article VIII) The stipulation that investors exhaust all non-judicial administrative remedies prior to commencing arbitration or submitting a claim under domestic law. Recourse to these remedies should not exceed six months and should not prevent the investor from initiating consultations seeking mediation or conciliation of the claim. (Article IX.1) The requirement that the tribunal rule on the preliminary questions of jurisdiction and admissibility of claims before ruling on the merits. Article IX.13 notes that the Tribunal shall consider whether the claim of the claimants is frivolous and shall provide the disputing parties a reasonable opportunity for comments. Encouraging the contracting parties to cooperate in training for adequate representation in investor-state disputes.
(Article XI.2)6 Colombia, unlike some other countries in the region, is encouraging the signing of BITs. The preparation of the 2006 and 2008 Model BITs and the ongoing monitoring of Colombia BITs and international investment law generally should allow the country to maintain a coherent network of treaties and take advantage of the experience of its neighbours.
Notes * The authors would like to thank Rafael Rincon for his valuable contribution in this article. 1 See: www.dnp.gov.co/archivos/documentos/ Subdireccion_Conpes/3135.pdf. 2 The 2008 Model sheds further light on the powers of the central bank and the government to adopt measures in connection with the free transfer of funds relating to an investment (Article V.4). It also contains a note on the application of the concept date of value to calculate the compensation in cases of expropriation (Article VI.3), extends the cooling-off period from 90 to 180 days (Article IX), and introduces a provision on environment (Article VIII). The 2008 Model includes annex I providing details for notications of the notice of intent and other documents concerning dispute settlement and suggests a clause to encourage the contracting parties to promote cooperation in training for adequate representation in investment-state disputes (Article XI.2). 3 In its analysis of the rst BITs signed by Colombia, the court found that provisions concerning prohibition of expropriation without compensation violated Articles 58 (on expropriation) and 336 of the Constitution (on monopolies). As well, the court held that the
principles of national treatment and most favoured nation should be interpreted in accordance with Article 100 of the Constitution (on the exercise of civil rights). In fact, prior to 1999, Article 58 of the Constitution granted Congress the power to decide when for reasons of equity no compensation was owed in cases of an expropriation. As a result, BIT provisions providing for prompt, adequate and effective compensation in the case of expropriation unlawfully limited the Congressional power. As well, this legal disparity could result in discrimination against Colombians and those foreigners not covered by treaty, since remedies for the denial of compensation would be inapplicable to them. The court also ruled that BIT provisions stating that investments could not be subject to nationalisation or equivalent measures adopted by state parties in order to take control of certain strategic activities or services, violated Article 336 of the Constitution by limiting the Congressional right to establish a monopoly as an arbitrio rentstico for reasons of public or social interest. Additionally, the court noted that the provision stating that treaty protections did not cover people involved in serious (graves) criminal activities was inapplicable, as it should extend the exception to any kind of criminal activity. Finally, while the standards of national treatment and most favoured nation were, in principle, in compliance with the Constitution, the court ruled that their application should be subject to the limitation imposed by Article 100. Article 100 provides that the exercise of civil rights of foreigners be restricted by law to preserve public order. 4 This provision was introduced in the 2008 model. 5 Article VI.6 of the 2008 Model BIT eliminates the reference to compensation for the investor. However, reference to compensation is made in the explanatory note to the Model BIT. 6 This provision was introduced in the 2008 model.
48
Timothy G Nelson*
Skadden, Arps, Slate Meagher & Flom LLP, New York
timothy.g.nelson@ skadden.com
Setting the bar: The Glamis Gold Tribunal sticks to the 1926 Standard for Minimum Treatment of Foreign Investors
ontinuing the United States asyet unbroken string of successes in defending NAFTA investor claims, in Glamis Gold, Ltd v United States (UNCITRAL, 8 June 2009), a NAFTA Chapter 11 tribunal dismissed a Canadian investors challenge to certain US federal and state regulations which affected its ability to operate a California gold mine. In doing so, the tribunal held that the customary international law standard for the minimum treatment of foreign nationals remains the same as that propounded in 1926, when the US-Mexico Mixed Claims Commission decided the case of Neer v Mexico.1 Glamis Gold Ltd (GGL), a British Columbia company, owns certain mining rights over a site known as the Imperial Project in southeast California which is located on US federal lands. In 1994, GGL submitted for federal approval a plan to extract large quantities of gold and silver from the Imperial Project, using open-pit mining techniques.2 Although GGL's plan was judged feasible by federal regulators, it provoked strong opposition from the Quechan Nation, a Native American tribe who objected to the impact of open-pit mining on its heritage.3 Based in part on these objections, in 1999 the Advisory Committee on Historic Preservation (a US federal agency) urged the US Department of the Interior to take whatever legal means available to deny approval for the project.4 Later in 1999, an internal Interior Department legal opinion concluded that the Department had the power either to impose reasonable mitigation measures on a mining plan to prevent undue harm to cultural, historic or other important resources even if those regulatory measures ma[de] the particular operation uneconomic or, if such impairment was particularly undue, to deny a mining plan outright.5 On 17 January 2001, relying on this opinion, the Interior
Secretary denied GGL's plan to mine the Imperial Project.6 Three days after the denial of GGL's proposal, however, President George W. Bush assumed ofce, prompting a reversal of federal policy. In late 2001, the Interior Department, led by a new Interior Secretary, Gale Norton, rescinded both the January 2001 decision denying GGL's application and the 1999 legal opinion on which it was based.7 But GGL's fortune shifted again, as state lawmakers intervened. In 2002, California's state legislature passed a series of bills that eventually halted the Imperial Project, including a law mandating the complete backlling and re-contouring of all surface hardrock mining operations within one mile of any Native American sacred sites.8 California Governor Gray Davis stated that he strongly oppose[d] GGL's project and was determined to stop it.9 California's mining board thereafter also adopted strict backll requirements.10 In an arbitration commenced in 2003, GGL challenged these various laws and regulations as violating NAFTA's investor protections, specically Article 1110 (expropriation) and Article 1105 (guaranteeing fair and equitable treatment), arguing that the federal and state measures had destroyed or impaired its investment in the Imperial Project. After a hearing in Washington DC in 2006, a threeperson UNCITRAL tribunal11 dismissed these claims in June 2009. As to Article 1110, the tribunal found, based on the valuation evidence, that the mandatory backll measures, while reducing the Imperial Project's value, did not impair or destroy its value to such a radical extent so as to be a de facto or indirect expropriation.12 As to Article 1105, both parties accepted that NAFTA's fair and equitable treatment standard had been claried by the NAFTA Free Trade Commission's binding 2001 interpretation, stating that Article 1105 did no more than prescribe[] the customary
international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to [foreign] investors.13 Nevertheless, GGL argued that this was a dynamic standard, capable of prohibiting NAFTA member states from adopting measures that impaired investors' legitimate expectations and/ or were otherwise unfair. In response, the US contended that (i) the customary international law minimum standard remained as elucidated in Neer v Mexico, a 1926 award which held that to constitute an international delinquency, state action should amount to an outrage, bad faith, to willful neglect of duty, or to an insufciency of governmental action so far short of international standards that every reasonable and impartial man would readily recognise it insufciency;14 and (ii) GGL had failed to prove that the minimum treatment standard had become any more onerous since Neer. The tribunal observed that ascertaining customary international law focuses on whether a general custom has been evidenced through state practice accompanied by opinio juris an evident conception that the practice in question is required by or consistent with the prevailing law.15 This process, it noted, is intrinsically different from treaty interpretation, a potentially more autonomous inquiry that often focus[es] solely on the language and nuances of the treaty language itself.16 One of GGL's principal arguments was based on statements made in 2002 by the NAFTA tribunal in Mondev v United States, that the conclusion of more than 2,000 bilateral investment treaties and many treaties of friendship and commerce incorporating a fair and equitable treatment standard, reected both the State practice, as well as the sense of obligation, legal obligation, opinio juris required under customary international law.17 Under the Mondev Tribunals analysis, the fair and equitable treatment standard outlined in those BITs (and arbitral jurisprudence decided thereunder) constituted evidence that customary international law now imposed a higher level of protection that stated than in Neer.18 The Glamis Gold Tribunal took a different view, nding that GGL had not proven any state practice to show a change in customary law since 1926. It considered that although GGL had cited certain arbitral decisions involving BITs that contained a fair and equitable treatment obligation, these
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addressed only the autonomous meaning of those BITs, rather than the content of the customary standard.19 Thus, it held that the standard for nding a breach of the customary international law minimum standard of treatment therefore remains as stringent as it was under Neer.20 The tribunal added two qualications: rst, it observed that a contemporary tribunal applying the Neer test might nd shocking and egregious events not considered to reach this level in the past.21 Second, it held that one aspect of evolution from Neer that is generally agreed upon is that bad faith is not required to nd a violation of the fair and equitable treatment standard, but its presence is conclusive evidence of such.22 Applying the Neer test to the challenged measures, the tribunal considered whether they were egregious and shocking, amounting to a gross denial of justice, manifest arbitrariness, blatant unfairness, a complete lack of due process, evident discrimination, or a manifest lack of reasons.23 It found that they did not. The Interior Department decisions, although based on policies with which GGL disagreed, were not manifestly arbitrary and were supported by reasons.24 California's mandatory backll laws, although apparently prompted by the Imperial Project, were of general application and evidently intended to address a perceived environmental harm.25 Moreover, the measures did not violate any reasonable and justiable expectations because GGL had received no specic assurances about the treatment of the Imperial Project.26 The decision to equate fair and equitable treatment with a customary international law minimum standard was not taken by the Glamis Gold Tribunal (or any other arbitral body); rather, it was a quasi-legislative decision by the three NAFTA Member States, implemented through the FTCs binding 2001 interpretation. Since then, other US investment agreements, including DR-CAFTA, recent FTAs and the current model US BIT text, have also dened fair and equitable treatment by reference to the minimum treatment standard. In conrming that this policy effectively freezes minimum treatment at the Neer level,27 the Glamis Gold Tribunal characterised Article 1105 of NAFTA as a oor, an absolute bottom, below which conduct is not accepted by the international community.28 In contrast, the fair and equitable treatment standard
contained in other BITs is not expressly tethered to the customary international law minimum standard and thus arguably offers broader protection. Commenting on the then UK model BIT, the late F A Mann wrote in 1981: The terms fair and equitable treatment envisage conduct that goes far beyond the minimum standard and afford protection to a greater extent and according to a much more objective standard than any previously employed form of words. A tribunal would not be concerned with a minimum, maximum or average standard. It will have to decide whether in all the circumstances the conduct in issue is fair and equitable or unfair and inequitable. No standard dened by any other words is likely to be material. The terms are to be understood and applied independently and autonomously.29 Of course, if Mondevs reasoning is preferred over Glamis Gold, the fair and equitable standard adopted in the many thousands of BITs over the last three decades could itself be evidence of an elevation of the minimum standard beyond Neer, meaning that the divergence between the customary and treaty standards to which Professor Mann referred may now have evaporated. Future arbitral decisions may therefore reveal whether the Glamis Gold viewpoint is to prevail, and, if so, whether there exists a twotier system of fair and equitable treatment: one under US model treaties such as NAFTA and governed by the Neer minimum treatment standard from 1926; the other arising under other BITs (eg, the Netherlands or UK texts), whose language is arguably not so constrained.
Notes * Mr Nelson is a Partner in the International Litigation and Arbitration practice group of Skadden, Arps, Slate Meagher & Flom LLP. The views expressed herein are solely those of the author and are not those of his rm or the rms clients. The author wishes to express his appreciation to David Herlihy, Counsel in Skaddens London ofce, and Edward van Geuns, a member of the Amsterdam Bar and International Visiting Attorney at Skadden, for their helpful comments. 1 Neer v Mexico, 4 R I A A 60-62 (US-Mexico Mixed Claims Commn 1926). 2 Glamis Gold p 33. 3 Ibid, pp 103-08. 4 Ibid, p 127. 5 Ibid, p 144. 6 Ibid, p 153. 7 Ibid, pp 157-59. 8 Ibid, p 172. 9 Ibid, p 174 (alteration in original).
10 Ibid, p 184. 11 Michael K Young (President), Kenneth D Hubbard (appointed by GGL) and Professor David D Caron (appointed by the US) comprised the Glamis Gold Tribunal. 12 Glamis Gold, pp 358, 534-36. 13 Free Trade Commission Clarications Related to NAFTA Chapter 11 pp B.1-B.2 (31 July 2001). 14 Neer itself was not an investor-state arbitration, but rather a mixed claims commission decision, adjudicating a claim by the widow of a US citizen who was murdered in Mexico and whose murderers were never apprehended or prosecuted by the Mexican state. 4 R.I.A.A. at 60-61. The Mixed Commission held that the non-prosecution of these individuals had not been proven to have been a product of improper state conduct. Ibid, at 62. 15 Glamis Gold, p 602. 16 Ibid, p 607. 17 Mondev v United States, Final Award p 125 (ICSID Additional Facility 11 October 2002); see also Glamis Gold, p 548 (quoting GGLs submissions based on Mondev). 18 See Mondev, pp 114-117 (setting forth reasons why, in its view, customary international law had evolved beyond the Neer standard). 19 Ibid, pp 608-09; see also ibid, p605 (noting that [a] rbitral awards ... do not constitute State practice and thus cannot create or prove customary international law, although they may serve as illustrations of customary international law to the extent they examine and apply it). 20 Glamis Gold, p 22 (emphasis added); see also ibid, pp 614, 616. 21 Ibid, p 613. In adding this qualication, the Glamis Gold Tribunal expressed at least partial agreement with the sentiments expressed by the Mondev Tribunal that in light of legal developments since Neer was decided, it was unconvincing to conne the meaning of fair and equitable treatment and full protection and security of foreign investments to standards of the 1920s, because [t]o the modern eye, what is unfair or inequitable need not equate with the outrageous or the egregious. See Mondev p 117; see also Glamis Gold p 613. 22 Glamis Gold, p 619; see also Mondev, p 117 (a State may treat foreign investment unfairly and inequitably without necessarily acting in bad faith). 23 Ibid, p 627. 24 Ibid, pp 763-771. 25 Ibid, pp 804-829. 26 Ibid, p 622. 27 Ibid, p 604. 28 Ibid, p615. 29 F A Mann, British Treaties for the Promotion and Protection of Investments, 52 Brit Y B Intl Law 241, 244 (1981) (emphasis added).
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Moral damages in investment treaty arbitration and Desert Line v Yemen

Government to build a number of other roads in the country. By late 2003, DLC had substantially completed the construction work, except on two of the contracts. The Yemeni Government, however, refused to pay the amounts agreed. As a result, DLC was unable to compensate some of its subcontractors, and, in 2004, one of these subcontractors and 15 armed individuals interrupted work, threatened DLC personnel, and demanded payment. Later the same month, members of a local tribe on the same site threatened DLC personnel with automatic weapons. Finally, in August 2004, the Yemeni armed forces arrested three DLC personnel on that site, although they were later released. To recover the amounts due under the construction contracts, DLC commenced a domestic arbitration in Yemen against the Yemeni Government, and obtained an award in its favour. The Yemeni Government failed to honour the award and forced DLC to sign a settlement agreement for a much lower sum than was awarded. In 2005, DLC commenced an ICSID arbitration under the Oman-Yemen bilateral investment treaty (BIT) to recover the amounts owed under the domestic Yemeni award. DLC also requested moral damages in the amount of 40,000,000 Omani Rials (approximately US$100,000,000 at 2007 exchange rates), to compensate it for the injury caused as a result of the harassment and intimidation of DLCs employees and executives, including the threats and detention by the Yemeni Government and by armed tribes, and for the injury caused to DLCs credit and reputation. In 2007, the ICSID tribunal held Yemen liable for breach of the fair and equitable treatment standard of the BIT. It ordered Yemen to pay the amounts due under the domestic Yemeni arbitral award plus interest. It also granted DLCs claim for moral damages, including loss of reputation, in the amount of US$1,000,000 without interest.1 In awarding moral damages, the tribunal rst noted that the respondent, Yemen, had not questioned the possibility of
Matthew Kirtland
Fulbright & Jaworski LLP, Washington DC
mkirtland@fulbright.com
Borzu Sabahi
Fulbright & Jaworski LLP, Washington DC
bsabahi@fulbright.com
warding moral damages has a long pedigree in public international law, including a number of awards made by international human rights tribunals in modern times. In investment arbitration, however, only one tribunal had awarded such damages (see Benvenuti & Bonfant v Congo S A R L Benvenuti & Bonfant v Peoples Republic of the Congo, Award dated 8 August 1980, ICSID Case No ARB/77/2). That changed in 2008 when an ICSID tribunal in Desert Line Projects LLC v Yemen, ICSID Case NoARB/05/17, awarded the claimants US$1 million in moral damages (Award dated 6 February 2008). This revived interest on the issue, with extensive discussions ensuing in academic and practitioner forums. In the aftermath of Desert Line, moral damages, or their functional equivalent, have been requested in at least three ICSID cases. In the rst, Funnekotter et al v Zimbabwe (ICSID Case No ARB/05/06, Award dated 22 April 2009), the claimants sought and received what effectively were moral damages. Then, in two cases against Turkey, Europe Cement (ICSID Case No ARB(AF)/07/2, Award dated 13 August 2009) and Cementownia (ICSID Case No ARB(AF)/06/2, Award dated 17 September 2009), the Turkish Government sought to recover moral damages. In both cases, the Desert Line approach was conrmed, but moral damages were not awarded on the facts, although the tribunal did order the claimants to pay the governments fees and costs. Desert Line v Yemen: facts Desert Line arose out of the failure by the Republic of Yemen (Yemen) to abide by a domestic arbitration award between Desert Line Corporation (DLC), an Omani construction company, and the Government of Yemen. In 1997, DLC started building a road in Yemen. Later, at the invitation of the President of Yemen, the company entered into several contracts with the Yemeni
52
obtaining compensation for moral damage in ICSIDproceedings. Then, relying on the Lusitania cases (Opinion, 7 RIAA 32 (1923)) and the International Law Commissions Articles on Responsibility of States for Internationally Wrongful Acts (ILC Articles), the Desert Line Tribunal concluded that, in principle, compensation for moral damages is recoverable, but only in exceptional circumstances.2 The tribunal held that [i]t is also generally recognised that a legal person may be awarded [compensation for] moral damages, including loss of reputation, in specic circumstances only.3 Applying these precepts, the tribunal found: [T]hat the violation of the BIT by the Respondent, in particular the physical duress exerted on the executives of the Claimant, was malicious and is therefore constitutive of a fault-based liability. Therefore, the Respondent shall be liable to reparation for the injury suffered by the Claimant whether it be bodily, moral or material in nature. The Arbitral Tribunal agrees with the Claimant that its prejudice was substantial since it affected the physical health of the Claimants executives and the Claimants credit and reputation. Nevertheless, the amount asked by the Claimant is exaggerated and cannot be allocated in its entirety. The arbitral tribunal considers that, based on the information at hand and the general principles, an amount of US$1,000,000 should be granted for moral damages, including loss of reputation. This amount is indeed more than symbolic yet modest in proportion to the vastness of the project.4 Moral damages: key issues and general principles The duty to compensate moral damages arises from the general reparation obligation in customary international law, set out in the classic Chorzw Factory case (reparation must, as far as possible, wipe-out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed...1928 PCIJ (Ser A) No 17 p 47). The ILC Articles on State Responsibility, Article 31, further clarify that full reparation must by made for the injury caused by the internationally wrongful act of the state, and this injury includes any damage, whether material or moral. In this sense, moral damage includes damage to
personality rights of a natural person such as pain and suffering. It also includes damage to reputation and credit of a person, whether natural or legal. However, it should be noted that if the owners of a legal person, such as a company, recover its fair market value in damages, then, to avoid double-counting, they cannot recover for reputational damage to the company because fair market value already takes this into account through the goodwill component. In investment treaty arbitration, as the jurisdiction of the tribunal partly depends on the nationality of the investor, which could be a company, one question is whether a corporate entity could suffer moral damages. In Desert Line, the claimant sought, among other things, moral damages for the harassment of its employees and executives. The employees and executives, however, were not the investor under the Oman-Yemen BIT and were not before the tribunal as a claimant. Rather, DLC, the company, was the investor-claimant. The employees and executives, thus, did not have standing under the BIT to claim damages, and recovery of moral damages by the company could only be justied if one assumes that injury to the employees and executives was tantamount to the injury to the company. Because the respondent in Desert Line did not challenge the concept of moral damages, this issue was not addressed by the tribunal. Another issue that may arise with moral damages is the concept of fault-based liability. In Desert Line, the tribunal noted that Yemens harassment and detention of the claimants executives, and its failure to protect them against the armed tribes, caused signicant injury to the claimants credit and reputation. These acts, the tribunal held, were malicious and a basis for fault-based liability, which entitled the claimant to the recovery, among others, of moral damages. The notion of fault has of course long been used in various national legal systems. The modern system of state responsibility, however, is an objective one, and does not ordinarily rely on fault, except when fault has been made a condition of state responsibility by the applicable international legal instruments.5 By the same token, requiring fault to award moral damages against a state in an investor-state arbitration should be unnecessary. The Desert Line Tribunals reference to fault, thus, should perhaps be taken as a cautious approach towards awarding moral damages, possibly arising
from the fact that it was the rst BIT tribunal to award such damages. It should be noted that limiting the awarding of moral damages to exceptional circumstances appears at odds with ILC Article 31, which does not set any pre-condition for awarding compensation for moral damages. Post Desert Line: recent cases Funnekotter et al v Zimbabwe The claimants in this case sought and received damages for the disturbances that they had suffered as a consequence of Zimbabwes expropriation of their farms; they had to, among other things, leave Zimbabwe and establish a new life in other parts of the world. On this basis, the tribunal awarded each claimant 20,000 for these disturbances. This amount, although [initially] not characterised as moral damages, appeared to compensate what amounted to moral harm. This conclusion is supported by the fact that the tribunal dismissed the claimants prayer for moral damages (in addition to damages for the disturbances) in the amount of 100,000 per claimant stating that damages awarded for the disturbances had already repaired the moral damages.6 Europe Cement and Cementownia In both of these cases, the Turkish Government, as respondent, sought moral damages (contrast with Desert Line in which the investor sought such damages) against the investors on account of claims that were found to be brought improperly (for lack of jurisdiction) and fraudulently. Applying
the rationale of Desert Line, the tribunals ultimately did not award moral damages, but did condemn the claimants actions and shifted costs.7 In Europe Cement, the tribunal acknowledged that conduct that involves fraud and an abuse of process deserves condemnation. But, it did not award the requested moral damages because it found that the necessary exceptional circumstances such as duress were missing. It concluded: The Tribunal believes that any potential reputational damage suffered by the Respondent will be remedied by the reasoning and conclusions set out in this Award, including an award of costs [in an amount exceeding $4 million. Similarly, in Cementownia, the tribunal held that while the claimant had committed an abuse of process in bringing its claim, such a violation was an insufcient basis to award moral damages. Instead, the tribunal remedied the violation by shifting the costs of the arbitration more than US$5.3 million entirely to the claimant. It remains to be seen how future cases will approach the issue of moral damages, but it appears certain that the issue is continuing to gain traction and that more claims for such damages will be brought, following Desert Line and Funnekotter.
Notes 1 Desert Line, paragraph 291. 2 See note 1 above, paragraph 289. 3 Ibid. 4 See note 1, paragraph 290. 5 See ILC Articles, Article2, comm 3. 6 Funnekotter, paragraphs 138-140. 7 See Europe Cement, paragraphs 177-81 and Cementownia, paragraph 171.
54
Sylvia Noury*
Freshelds, Bruckhaus Deringer LLP, London
sylvia.noury@ freshelds.com
Viren Mascarenhas
Freshelds, Bruckhaus Deringer LLP, New York
viren.mascarenhas@ freshelds.com
Provisional measures in investment disputes are damages sufcient?
n 2009, several arbitral tribunals empanelled under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) issued decisions ordering provisional measures against the Republic of Ecuador (Ecuador).1 Ecuador has indicated that it will not comply with these decisions in at least two cases Burlington and Perenco arguing that such orders interfere with its sovereign rights. Ecuador notied the World Bank of its denunciation of the ICSID Convention on 6 July 2009.2 These cases, and others where provisional measures are ordered against states, raise many interesting issues. In this article, we focus on one argument raised by Ecuador: that ICSID tribunals should not grant provisional measures in investment disputes, since any harm suffered by investors can adequately be compensated by damages. Can provisional measures be ordered when the relief requested is damages? The relief sought by investors in investment disputes ICSID was created to settle investment disputes between investors and states. Arguably, if investors invest to receive a prot, investment disputes could be satisfactorily resolved by the award of the nancial return they claim to have lost. It is perhaps for this reason that ICSID claimants generally seek only monetary damages from the respondent state. Another reason is the practical difculty in enforcing non-pecuniary remedies. Under Article 54 of the ICSID Convention, only pecuniary obligations can be enforced in the courts of ICSID Contracting States.3 Nonpecuniary remedies presumably are sought in reliance on voluntary compliance with an order made by an ICSID tribunal. Noncompliance by a party with such an order will, it is argued, be regarded unfavourably the tribunal when it considers the merits of the case.
The test for provisional measures Generally, in order to grant provisional measures, ICSID tribunals require showings of: (i) serious or irreparable harm to the claimant; (ii) urgency; and (iii) increasingly, necessity of the relief.4 ICSID tribunals are empowered to grant provisional measures to protect any nal relief that might be awarded to a claimant upon the adjudication of the merits of the dispute.5 If a claimant seeks only pecuniary relief in the nal award, then a tribunal may be disinclined to grant certain provisional measures. This is illustrated in ICSID jurisprudence on provisional measures, including Plama6 and several cases involving Ecuador.7 Scenario I: Claimant makes no request for specic performance Plama was a case in which the claimant alleged that various measures taken by the Bulgarian Government in connection with its investment in an oil renery breached the Energy Charter Treaty. The claimant requested that Bulgaria discontinue any pending insolvency proceedings in the Bulgarian courts related to the renery investment, arguing that such proceedings might result in the company being liquidated and sold.8 In rendering its decision, the tribunal sought conrmation that the claimant requested only monetary damages in the nal award. The tribunal concluded that since the claimant had not sought specic performance to operate the renery, it did not have to concern itself with the effect of any liquidation of the company. In reaching this conclusion, the tribunal considered that any local court proceedings would not deprive the claimant of its ability to receive monetary damages from Bulgaria were it successful on the merits.9 In this regard, the tribunal stated: Claimant has not sought restitution or any other relief from this Tribunal which would permit it to continue to operate the Nova Plama renery. What is at issue here
is Claimants right to monetary damages because of Respondents alleged breach of Treaty obligations. [] Because the claims and relief which the Claimant seeks are limited to damages, the scope of the rights relating to this dispute which deserve protection by provisional measures is necessarily limited to the damage claims.10 The claimants request for provisional measures was consequently denied. Had the claimant sought specic performance, the outcome may have been different. Scenario II: Claimant requests but has no right to specic performance In Occidental, the claimant operator of a block of area for oil exploration in the Ecuadorian Amazon did make a claim for specic performance. Occidental was required under certain third party contracts either to ship 70,000 barrels of oil per day or to pay tariffs of approximately US$100,000 per day. Since Ecuador terminated the claimants contract to operate its block, it was no longer possible for it to ship the required amount. Accordingly, it was liable each day for the tariff. In its ICSID claim, the claimant sought, in addition to monetary compensation, the restitution of its rights in the form of specic performance of its concession agreement. In the short term, the claimant also sought provisional measures requiring Ecuador to permit it to ship the appropriate amount of oil per day so that it would not incur further liabilities during the arbitration proceedings.11 The Occidental Tribunal rst considered whether specic performance was available as a remedy to the claimant. Applying international law (under the applicable treaty), the tribunal concluded that where a concession agreement had been terminated, specic performance was no longer possible.12 The tribunal went on to reject the request for provisional measures, noting: Provisional measures are not designed to merely mitigate the nal amount of damages. Indeed, if they were so intended, provisional measures would be available to a claimant in almost every case. In any situation resulting from an illegal act, the mere passage of time aggravates the damages that can be ultimately granted and it is well known that this is not a sufcient basis for ordering provisional measures. []
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The harm in this case is only more damages, and this is harm of a type which can be compensated by monetary compensation, so there is neither necessity nor urgency to grant a provisional measure to prevent such harm.13 Scenario III: Claimant requests and has a right to specic performance What if the remedy of specic performance is both requested and available? This premise was tested in three recent cases against Ecuador: City Oriente, Perenco and Burlington.14 These cases arose from Ecuador's enactment of legislation providing for a windfall prot tax on revenues from oil sales, which the claimants argued violated the terms of their contracts and applicable treaties. The claimants sought various forms of relief in their ICSID claims, including specic performance.15 Shortly after ling for arbitration and following measures by Ecuador to enforce the new legislation (including in the cases of Perenco and Burlington by seizing oil in order to satisfy the claimants tax debts), these investors sought provisional measures, inter alia, enjoining Ecuador from demanding or forcibly collecting payments.16 In deciding these applications, the tribunals rst considered whether the claimants had shown that a right to specic performance existed under Ecuadorian law (applicable under the contracts) and/or international law (applicable under the treaties). The tribunals concluded that a right to specic performance of the contracts existed under Ecuadorian law; unlike Occidentals case, these contracts were still in force.17 As regards the test for provisional measures, the claimants argued that without the requested measures, their investment would be destroyed.18 The tribunal accepted the claimants arguments, ordering in City Oriente and Perenco that Ecuador refrain from instituting or further pursuing any action to collect from claimants any amounts under the relevant legislation.19 The inclusion of specic performance in the request for relief was key to the outcome. In the words of the Perenco Tribunal: The Tribunal notes that Perenco amended its original Request for Arbitration to claim, as one of six heads of relief, orders that the Respondents reinstate fully Perencos rights under the Participation Contracts according to their terms, and do not
further derogate from those Contracts by, among other things, unilaterally amending, rescinding, terminating or repudiating the Contracts or any terms thereof. Thus Perenco specied restitution as a form of relief requested. In the Tribunals judgment, the seizure of Perencos assets, as described above, would seriously aggravate the dispute between the parties and jeopardise the ability of Perenco to explore for and produce oil in Blocks 7 and 21 pursuant to the Participation Contracts.20 The Burlington Tribunal chose another path, ordering that all payments allegedly due should be paid into an escrow account.21 Concluding thoughts The increasing complexity and length of investor-state arbitrations has led to an increase in the number of requests and orders for provisional measures. Approximately half of all provisional measures applications made against states are granted by ICSID tribunals; statistics on compliance are, of course, harder to nd. Requests for provisional measures have the potential to be more politically sensitive than requests for damages in investor-state arbitration. States may challenge the issuance of certain measures by tribunals on the grounds that they interfere with their sovereign rights to legislate and enforce that legislation. On this point, the Perenco Tribunal drew an important distinction: [W]hat the Arbitral Tribunal has suspended through the Provisional Measures are not Ecuadors legislative acts, but rather any compulsory or coercive measure or act by Petroecuador or Ecuador resulting in interference with contractual rights including Claimants right to demand performance of the Contract. It is pertinent to recall that in any ICSID arbitration one of the parties will be a sovereign State, and where the provisional measures are granted against it the effect is necessarily to restrict the freedom of the State to act as it would wish. Interim measures may thus restrain a State from enforcing a law pending nal resolution of the dispute on the merits . . ..22
Notes * Sylvia Noury is counsel in the London ofce and Viren Mascarenhas is an associate in the New York ofce of the International Arbitration Group of Freshelds Bruckhaus Deringer LLP. The views expressed herein are strictly their own and do not necessarily represent those of their rm.
1 See Perenco Ecuador Ltd v The Republic of Ecuador and Empresa Estatal Petrleos del Ecuador, ICSID Case No ARB/08/6, Decision on Provisional Measures, 8 May 2009 (Perenco) and Burlington Resources Inc v Republic of Ecuador and Empresa Estatal Petrleos del Ecuador, ICSID Case No ARB/08/5, Procedural Order No 1, 29 June 2009 (Burlington). 2 See ICSID News Release, Ecuador Submits a Notice Under Article 71 of the ICSID Convention, 9 July 2009, available at: http://icsid.worldbank.org/ICSID/ (last visited 29 December 2009). 3 Article 54(1) of the ICSID Convention States, in pertinent part, Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a nal judgment of a court in that State. 4 See Schreuer et al, The ICSID Convention: A Commentary (2d ed) (Cambridge Univ Press: 2009) at 775-80. 5 Article 47 states, Except as the parties otherwise agree, the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respective rights of either party. See also Schreuer, note 4 above at 797-802. 6 See Plama Consortium Limited v Republic of Bulgaria, ICSID Case No ARB/03/24, Order, 6 September 2005 (Plama) at pp 36, 41. 7 Perenco, Burlington, City Oriente Ltd v Ecuador, ICSID Case No ARB/06/21, Decision on Provisional Measures, 19 November 2007 (City Oriente), and Occidental Petroleum Corporation v The Republic of Ecuador, ICSID Case No ARB/06/11, Decision on Provisional Measures, 17 August 2007 (Occidental). 8 Plama at p 2. 9 Plama at pp 42, 46. 10 Plama at pp 47, 41. 11 Occidental at p 95. 12 Occidental at p 79. It is well established that where a State has, in the exercise of its sovereign powers, put an end to a contract or a license, or any other foreign investors entitlement, specic performance must be deemed legally impossible. 13 Occidental at pp 97, 99. 14 Freshelds Bruckhaus Deringer LLP serves as counsel for the claimant in Burlington. 15 City Oriente at p 17; Burlington at pp 70-72; Perenco at p 46. 16 Burlington at pp 11-15; Perenco at pp 14-16; 24. 17 City Oriente at p 52; Burlington at pp 70-71; Perenco at pp 27, 48. 18 City Oriente at p 52; Burlington at pp 70-71; Perenco at pp 27, 48. 19 City Oriente at p 95 (conrming the provisional measures awarded in the prior decision on provisional measures, City Oriente Ltd v Ecuador, ICSID Case No ARB/06/21, Decision on Provisional Measures, 19 November 2007, at 13); Perenco at p 79. 20 Perenco at p 46. 21 Burlington at 4, p 2 22 Perenco at pp 49 (quoting City Oriente) and 50.
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There is nothing more permanent than temporary A critical look at ICSID Article 52(5) on stay of enforcement in cases against Argentina
Maria VicienMilburn
Ofce of International Standards and Legal Affairs, UNESCO
m.vicien-milburn@ unesco.org
Yulia Andreeva
Debevoise & Plimpton LLP, New York
yandreeva@ debevoise.com
he Argentine phenomenon is well known in arbitration circles. Since the inception of the International Center for Settlement of Investment Disputes (ICSID) in 1965, no state has faced more claims arising from bilateral investment treaties (BITs) than Argentina. Furthermore, no state has shown more resistance to the outcomes of the arbitral process than Argentina, which has persistently sought annulment or vacatur (in non-ICSID arbitrations) of all awards rendered against it. Argentinas systematic requests for a stay of enforcement
In all ICSID annulment proceedings, Argentina requested that enforcement of awards undergoing review be stayed pursuant to Article 52(5) of the ICSID Convention.1 Article 52(5) gives the ad hoc committee considering an annulment request broad discretion to extend a provisional stay of enforcement until an annulment proceeding has run its course if it considers that the circumstances so require. In the earlier cases, CMS and Azurix, Argentina argued that a stay of enforcement would not prejudice investors because ICSID awards have supremacy over Argentine law, and Argentina historically had complied with decisions of international tribunals.2 However, in Enron, Argentina for the rst time took the position that investors had to enforce ICSID awards before its domestic courts.3 It rehashed the same argument before the Vivendi II, Sempra and Continental Casualty ad hoc committees4 and in academic debates, 5 as well as in public correspondence with the US Department of State.6 The six ad hoc committees that ruled upon Argentinas stay of enforcement requests were divided on the issue of whether a provisional grant of stay should be extended,
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and if so, under what conditions. Four of the ad hoc committees maintained the stay of enforcement until the annulment has run its course in CMS, Azurix, Continental Casualty, and, ultimately, Enron. The CMS committee based its decision in part on a written declaration provided by Argentina at the committees request, expressing Argentinas commitment to recognise and comply with the award if upheld on annulment.7 The Azurix committee granted Argentinas stay request without requiring any formal assurances of compliance.8 Faced with Argentinas novel argument that ICSID awards must be subject to domestic enforcement, the Enron committee invited Argentina to change its position and expressly afrm that the award would not be subject to such scrutiny if the annulment were denied.9 Even though Argentina refused to provide the requested assurances, the committee rejected Enrons renewed application to lift the stay. The committee found that the high risk of Argentinas non-compliance was offset by a very high risk that other claimants locked in dispute with Argentina would seek to attach any assets posted as security in the Enron proceeding.10 Finally, in late October 2009, conrming there was no prospect that Argentina would comply with the award as required by the ICSID Convention, the ad hoc committee in Continental Casualty v Argentina nevertheless continued the stay of enforcement unconditionally. It ruled that the stay was justied because of the relatively small amount of the Award and the presence of cross applications for annulment.11 The other two committees granted a conditional stay of enforcement. However, when Argentina failed to comply with the conditions imposed by the committees, the stay was terminated in both cases. The Vivendi II ad hoc committee agreed to maintain the stay of enforcement provided Argentina
submit a formal assurance of compliance with the award undergoing review within thirty days or, failing that, provide a US$196 million bank guarantee within 60 days thereafter. Failing that, the stay of enforcement was to be automatically terminated.12 Since Argentina reportedly did not comply with that order, the stay was lifted.13 The Sempra ad hoc committee rejected Sempras request to lift the stay of enforcement despite a nding that there was no reasonable prospect of Argentina complying with the award.14 However, it ordered Argentina to place US$75 million in escrow as a tangible demonstration that it would honour the award in the event it was not annulled.15 Since Argentina failed to meet the conditions, the stay was lifted in August 2009.16 Despite the ultimate termination of the stay of enforcement in Vivendi II and Sempra, all the ad hoc committees reached a common analytical conclusion: a provisional stay of enforcement will remain permanent unless extreme, not just exceptional, circumstances command its removal. ICSID Article 52(5) discretion interpreted narrowly by the ad hoc annulment committees in the Argentine cases With little guidance from the drafters of the ICSID Convention, the Argentine ad hoc annulment committees crafted their own interpretation of the broad mandate of ICSID Article 52(5), which allows them to stay enforcement of an award pending a nal decision on annulment if they consider that the circumstances so require. In developing this interpretation, the committees disagreed about the nature and scope of the Article 52(5) discretion. The earlier committees in CMS, Enron and Azurix favoured a high threshold, ruling that the lifting of a stay of enforcement before an annulment proceeding has run its course is an exceptional remedy.17 By contrast, the more recent decisions in Vivendi II and Sempra dismissed the presumption in favour of a continuous stay.18 However, as we will show, the two committees departed from that general premise, eventually joining their peers in a narrow exercise of their discretion. Lack of compliance apparently not sufcient to deny a stay of enforcement Examining the circumstances that may warrant the continuation of a stay, the
committees focused primarily on the notion of prospective compliance, ie, Argentinas commitment to recognise an award undergoing review and enforce its payment obligations in the event the award is upheld on annulment. The evolution of this requirement from Argentinas written guarantee in CMS to a nding that no curable prospect of compliance exists in Sempra and Continental Casualty demonstrates (somewhat paradoxically) the gradual lowering of the bar in the face of a mounting record of the states non-compliance. The CMS committee set the bar quite high, holding that to justify an unconditional continuation of a stay, the state must dispel any doubt that it would not honour the outcome of the underlying arbitration.19 The Azurix committee lowered the threshold, ruling that only exceptional circumstances, such as Argentinas denunciation of the ICSID Convention, can disprove compliance.20 The Enron committee found that sufcient doubt must be shown before compliance can even be questioned.21 Although Argentina persisted with its novel theory that ICSID awards must be subject to domestic court scrutiny, the Vivendi II committee offered the state an opportunity to reverse its position in writing.22 Only when confronted with Argentinas repeated and uncompromising afrmation that it has no duty to comply with the award if upheld on annulment, coupled with Argentinas history of non-compliance, did the ad hoc committee in Sempra nally lose all remaining condence in the states commitment to honour the outcome of the arbitration, which could no longer be cured by a written declaration of compliance.23 Even then it gave Argentina a chance to provide a tangible demonstration of its preparedness to comply, unconditionally and in good faith, by placing an amount equivalent to roughly 60 per cent of the award into an escrow account.24 It was not until Argentina failed to meet the conditions imposed by the Vivendi II and Sempra committees that the stay was nally lifted in both proceedings. Despite this indisputable record of non-compliance, and the consequences drawn from it in the other annulment cases, the committees in Enron and Continental Casualty nevertheless chose to maintain the stay unconditionally. The Argentine committees thus showed a high level of tolerance towards the states position taken in violation of its international law obligations under the ICSID Convention. According to those committees, even where
non-compliance is evident, a stay may still be granted on account of economic hardship, a hypothetical threat of attachment by third parties, the small amount of an award, or without any overriding consideration at all. The fact that the Vivendi II and Sempra committees were prepared to maintain the stay in the face of Argentinas negative track record contradicts their own holding that the continuation of stay is an exceptional remedy. In fact, the situation where immediate enforcement may be ordered apparently must be extreme. The committees were prepared to tolerate the states non-compliance up to the point of its actual failure to abide by the committees own orders. Even that may not sufce, as the second decision by the Enron committee demonstrates. Circumstances requiring a conditional stay The Argentine stay decisions are notable for the unanimity with which the committees interpreted their power to impose conditions on a continued stay of enforcement. Although the ICSID Convention is silent on the issue, from the rst decision on a stay of enforcement in Klockner in 1985, through the rst Enron Stay Decision in 2008, the authority of ad hoc committees to order a conditional stay has never been questioned. In Enron, however, Argentina argued that the committee lacks this power, reasoning that the ICSID Convention does not include any express authority to impose conditions.25 It reiterated these arguments before the Vivendi II and Sempra committees.26 The Enron, Vivendi II and Sempra committees were unanimous in nding that the power of ad hoc committees to grant a conditional stay should be set in stone.27 Read literally, however, ICSID Article 52(5) provides for only two options: continue the stay if the circumstances so require or allow immediate enforcement. To that, all ad hoc committees without exception added a missing middle ground, the conditional stay. The fact that no annulment committee has ever used the second option of immediate enforcement demonstrates that the middle ground has become the rule: all an award creditor can reasonably expect is either a permanent stay or a conditional stay that may be lifted in exceptional circumstances. Exercising the unwritten power to order a conditional stay, the Argentine ad hoc committees including Vivendi II and Sempra sealed a departure from the earlier ICSID
60
practice, which was summarised by Paul Friedland in 2004 in a single sentence: a party applying for the annulment of an ICSID award can obtain from an ad hoc committee a stay of the awards enforcement pending its annulment application on the condition that it provide a bond in the full amount of the award rendered against it.28 In 2009, Dietmar Prager pointed to a drastic shift in that practice: That jurisprudence changed in 2004 when ad hoc committees, starting with the committee in Mitchell v DRC, focused more closely on the likelihood that the award debtor would comply with its obligation to pay the award. Over the following years, a series of committees, with one notable exception, concluded that no security was required, so long as the committee had comfort or reasonable assurances that the award debtor would comply with its payment obligation in the event that the award would be upheld.29 The decisions in Vivendi II and Sempra, in part conditioning continued stay of enforcement on the posting of a bank guarantee or a substantial escrow deposit, are consistent with this trend, contrary to what some practitioners view as a gradual return to the earlier practice described by Paul Friedland.30 Unlike the pre-2004 committees that granted full security to award creditors as a matter of course, the Sempra committee did not go as far as to require Argentina to post a bond in the entire amount of the award, even though the very exceptional circumstances warranting the lifting of a stay were present. Likewise, the Vivendi II committee would have been satised had Argentina provided a comfort letter stated in terms required by the committee. An option for Argentina to provide an irrevocable bank guarantee in the amount of the award was offered as an alternative. It was not until Argentinas failure to comply with these orders that the stay of enforcement was lifted in both cases. To conclude, despite some differences in the specic legal tests and the ultimate outcomes, the committees considering Argentinas requests to continue the stay of enforcement until the annulment process has run its course conrmed a new understanding of the Article 52(5) discretion: a stay of enforcement will be continued unconditionally, unless exceptional circumstances require that certain conditions be imposed. The stay may but not necessarily
will be lifted only where said conditions are not met.

Notes 1 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention), available at: http://icsid.worldbank. org. 2 CMS Gas Transmission Company v Argentine Republic, ICSID Case No ARB/01/8, Decision on the Argentine Republics Request for a Continued Stay of Enforcement of the Award, 1 September 2006, pp 19, 20, 23 (CMS Stay Decision or CMS); Azurix Corp v Argentine Republic, ICSID Case No ARB/01/12, Decision on the Argentine Republics Request for a Continued Stay of Enforcement of the Award, 28 December 2007, p 14 (Azurix Stay Decision or Azurix). All ICSID decisions and related correspondence cited in this article can be found at: http://ita.law.uvic.ca. 3 Enron Corporation and Ponderosa Assets, L P v Argentine Republic, ICSID Case No ARB/01/3, Decision on Request for Continued Stay of Enforcement, 7 October 2008, pp 15, 56-58 (Enron First Stay Decision or Enron). 4 See Compai de Aguas del Aconquija S A and Vivendi Universal v Argentine Republic, ICSID Case No ARB/97/3, Decision on the Argentine Republics Request for a Continued Enforcement of the Award, 4 November 2008, pp 24-25 (Vivendi II Stay Decision or Vivendi II) (claimants summary of Argentinas position); Vivendi II, Letters of the Argentine Republic to the Secretary of the ad hoc Committee, 28 November 2008 and 14 January 2009; Vivendis Letter to the Secretary of the ad hoc Committee, 8 December 2008; Sempra Energy International v The Argentine Republic, ICSID Case No ARB/02/16, Decision on Request for Stay of Enforcement, 5 March 2009, pp 33-34 (Sempra First Stay Decision or Sempra); Continental Casualty Company v Argentine Republic, ICSID Case No ARB/03/9, Decision on Stay of Enforcement of Award, 23 October 2009, pp 7, 12 (Continental Casualty Stay Decision or Continental Casualty). 5 See, eg, G Bottini, Counsel in the Ofce of the Attorney General for the Government of Argentina, Recognition and enforcement of ICSID awards, 6 Transtl Disp Mgmt 1 (March 2009). 6 See Siemens v Argentina, ICSID Case No ARB/02/8, United States Submission regarding Articles 53 and 54, ICSID Convention, 1 May, 2008; Argentinas Response to the United States Department of State Letter, 2 June 2008. 7 CMS Stay Decision p 47. 8 Azurix Stay Decision pp 36-39.
9 Enron First Stay Decision pp 102-03. 10 Enron Corporation and Ponderosa Assets, L P v Argentine Republic, ICSID Case No ARB/01/3, Decision on the Claimants Second Request to Lift Provisional Stay of Enforcement of the Award, 20 May 2009, pp 41-43 (Enron Second Stay Decision). 11 Continental Casualty Stay Decision p 16. 12 Vivendi II Stay Decision p 46. 13 Ibid, (ruling that the stay would be automatically lifted if the bank guarantee is not paid). 14 Sempra First Stay Decision pp 104. 15 Ibid, p 105. 16 Sempra Energy International v Argentine Republic, ICSID Case No ARB/02/16, Decision on Sempra Energy Internationals Request for the Termination of the Stay of Enforcement of the Award, 7 August 2009 (Sempra Second Stay Decision). 17 CMS Stay Decision p 38; Azurix Stay Decision p 22; Enron First Stay Decision pp 41, 43. 18 Vivendi II Stay Decision p 38; Sempra First Stay Decision p 27. 19 CMS Stay Decision p 38. 20 Azurix Stay Decision p 39. 21 Enron First Stay Decision p 49. 22 Vivendi II Stay Decision p 46. 23 See Sempra First Stay Decision pp 53, 65-76, 102-04. 24 Ibid, p 104. 25 Enron First Stay Decision pp 15(b), 30. Argentina also raised this arguement in CMS and Azurix, but both committees avoided the issue. See CMS Stay Decision, p 20; Azurix Stay Decision, p 14(f)(iii) 26 Vivendi II Stay Decision p 29(8); Sempra First Stay Decision p 7(h). 27 Enron First Stay Decision p 35; Vivendi II Stay Decision p 37; Sempra First Stay Decision I p 101. 28 Paul D Friedland, Stay of Enforcement of the Arbitral Award Pending ICSID Annulment Proceedings, in Annulment of ICSID Awards (E Gaillard et al eds), at 177 (2004). 29 Dietmar W Prager, Should States be required to post a security as a condition for the stay if enforcement of an ICSID Award during Annulment Proceedings?, 7 October 2009, at: http://kluwerarbitrationblog.com/ blog/author/dietmarprager/. 30 See ibid, for the contrary view that Vivendi II and Sempra represent a return to the earlier practice. See also Alison Ross, Argentina: What can be done?, Global Arbitration Review, 23 November 2009, at: www. globalarbitrationreview.com/news/article/19468/ argentina-done/ (quoting Carolyn Lamms remarks approving of the Vivendi II and Sempra decisions as marking a return to the earlier practice of ordering bank guarantees from states seeking to overturn ICSID awards).
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Uruguay may face its rst investment treaty claim

breaching the concession agreement as well as the bilateral investment treaty, or BIT, signed by Belgium and Uruguay in 1991 and approved by Act No 16,856 in 1997 (the Belgium-Uruguay BIT). In July 2009, notwithstanding Katen Naties complaints, the Uruguayan parliament passed Act No 18,530, which provided for the creation of a new corporation to build and operate the new terminal. The public auction on the corporations shares is scheduled to take place between March and June 2010. Under the Act, in order to enforce antitrust regulations, the shareholders of other operators of specialised terminals, such as Katen Natie, are prevented from participating in the bid process. This prompted an immediate reaction from the Belgian investor, which submitted a formal dispute notice in August 2009 to Uruguays President Tabar Vzquez, the Ministry of Foreign Affairs, the Ministry of Transport and Public Works, and the Ministry of Economy. Katen Natie formally requested amicable negotiations before initiating arbitration proceedings under the BelgiumUruguay BIT provisions. Although Uruguay denies any breach of its contractual and treaty obligations to the Belgian investor and claims that the Constitution of Uruguay prohibits any private monopoly in port operations, in November 2009, it did set up a special committee that will be in charge of conducting the negotiations. The six-month time limit provided for in the Belgium-Uruguay BIT to pursue negotiations will lapse in February 2010 (after the drafting of this article). According to Katen Natie, unless a settlement is reached, it will le arbitration. Although not ofcially conrmed by its representatives, it has been reported that the investor will seek US$500 million in damages. The context: development of BITs in Uruguay The ever-increasing number of BITs pillars in international law on foreign investment is well-documented.2 The often cited raison
Luca Elizalde*
Brigard & Urrutia, Bogot
lelizalde@bu.com.co
Belgian investor has threatened arbitration against the Republic of Uruguay due to its alleged failure to provide fair and equitable treatment. Unless a settlement is reached, the claim would be the rst investment treaty arbitration against Uruguay. This is not good news for the country, of course, but it should not necessarily fear for its international reputation. The facts: Katen Natie acquires control of a port container terminal and subsequently opposes the public auction for the construction and operation of a second container terminal1 In 2001, following a public auction process, Katen Natie, a Belgian multinational company providing logistic and high-tech services for port operations, acquired 80 per cent ownership of Terminal Cuenca del Plata (TCP), a joint venture that would build and operate a specialised container terminal at the port of Montevideo. The government port authority (ANP) retained a 20 per cent ownership of TCP. Later that year, the Uruguayan Government and TCP concluded a concession agreement. In 2008, the Uruguayan Government announced its intention to auction the construction and operation of a second specialised container terminal. Katen Natie subsequently issued public statements opposing that venture and signalling its intention to commence investment treaty arbitration proceedings against Uruguay. The claim: wrongful interference with, and decrease in value of, Katen Naties investment In various press releases and public statements made by Katen Natie, it alleged that the Uruguayan Government, by introducing competition in port operations, impermissibly reduced the inherent value of its investment in TCP, which was based on the assumption that there would be only one specialised terminal. The investor further claims that the Uruguayan Government is
62
dtre of BITs is their alleged effectiveness in stimulating Foreign Direct Investment (FDI) between the contracting parties, by creating a stable and predictable international legal framework to facilitate and protect investment ows. Although the effectiveness of BITs to actually promote FDI has not been conclusively proven3, the fact remains that a vast4 and complex network of BITs does exist and creates enforceable rights for investors and corresponding obligations for host states. BITs provide investors with a powerful fundamental right to commence arbitration proceedings directly against host states, without any need for diplomatic protection or support from the investors home state.5 The explanation for granting this right is that investors and their home states have traditionally felt that their rights and interests are better protected by recourse to international arbitration than by submission of their disputes to domestic courts.6 Consequently, parallel to the growing number of BITs, there has also been a considerable rise in investment disputes based on alleged violations of BIT provisions. By the end of 2008, the total number of known treaty-based cases reached 317, and BITs remain by far the most common type of treaty used by foreign investors to le claims against host states.7 Some have suggested that the increase in BIT claims is a consequence of foreign investors increasingly taking advantage of the legal uncertainty that surrounds the meaning of certain treaty provisions that provide substantial protection to investors, such as fair and equitable treatment, full protection and security, and prohibition of arbitrary or discriminatory measures, among others.8 Uruguay has been no exception to the worldwide BIT trend. After having signed its rst BIT with Germany in 1987, Uruguay subsequently signed 29 BITs, including with China, Finland, France, Israel, Italy, Spain, Sweden, Switzerland, the United Kingdom and the United States of America. Uruguay, however, has never faced an investment treaty claim by any foreign investor. Quite to the contrary, Uruguay has traditionally been most faithful to its international commitments and thus has created a positive reputation that attracts FDI to the country. As far as the case relevant to this commentary is concerned, the BelgiumUruguay BIT is a standard investment treaty that does not differ substantially from other
BITs Uruguay has signed. It contains the substantive standards of treatment that are usually found in such agreements and specically provides in Article 3 that all existing and future investments made by an investor of the other contracting party will be granted fair and equitable treatment within the territory of the host state. Pursuant to Article 11, any dispute concerning investments that arises between an investor of one contracting party and the host state shall, to the extent possible, be settled amicably. If the dispute cannot be settled within six months, it may be submitted, at the request of one of the parties, to the competent courts or administrative authorities of the host state. If no nal decision has been rendered within 18 months, or if such a decision exists but contravenes the provisions of the Belgium-Uruguay BIT or any other rule of international law, the dispute may be submitted to international arbitration. Article 11 expressly states that both Uruguay and Belgium give their irrevocable consent to arbitrate disputes with investors. The investor has the right to choose to commence arbitration before the International Centre for the Settlement of Investment Disputes, or ICSID, under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 18 March 1965 (the ICSID Convention), or before an ad hoc court of arbitration established under the rules of the United Nations Commission on International Trade Law, or UNCITRAL. Contrary to the wording used in other BITs concluded by Uruguay such as BITs with Germany, Italy, Spain, Switzerland and the United Kingdom, which expressly provide that the dispute will be submitted to national courts rst the BelgiumUruguay BIT indicates that the investor has the choice between seeking local remedies before the national courts of the host state before commencing arbitration, or directly commencing international arbitration proceedings. Therefore, there does not seem to be a mandatory exhaustion rule of local remedies before commencing arbitration proceedings. Katen Natie has announced that it will start arbitration proceedings immediately after the six-month period for amicable negotiations lapses. It has not yet indicated whether the arbitration will be conducted before the ICSID or an ad hoc arbitral tribunal.
Conclusion Uruguay has always recognised the importance of local and foreign investments and how they can contribute to its economic and social development. Accordingly, it has tried to create and maintain a favourable investment climate by way of concluding BITs that will protect foreign investors. Against this background, the prospect of an investment arbitration to some extent undermines Uruguays reputation for being a trustworthy country to invest in and for abiding by its commitments to investors. Additionally, investment arbitration is expensive, and taxpayers money would be used to nance the arbitration. For these reasons, arbitration should be avoided whenever possible. On the other hand, BIT provisions are generally broadly worded and therefore lack clarity and precision as to the extent of the substantive and procedural protection granted to investors. In this context, investors may be tempted to interpret BIT provisions for their own benet, alleging there has been a breach of treaty obligations when in fact there is none, and threatening to commence international arbitration to pressure the host state. All things considered and without discussing the merits of the Katen Natie case, Uruguay would be better off avoiding investment arbitration. However, the threat of arbitration should not put a halt to infrastructure projects that the Uruguayan Government, after careful analysis and without breaching any of its obligations towards third parties, deems necessary to develop the countrys economy. The fact that an investor does not agree with governmental decisions does not necessarily mean that the host state is violating treaty obligations. If that is the case, Uruguays reputation should not be negatively affected by the mere existence of an investment treaty claim against it.
Notes * Luca Elizalde (LL M, Kings College London, University of London) is an associate at Brigard & Urrutia (Colombia) and Assistant Professor of Procedural Law at the University of the Republic of Uruguay. She has authored several publications on procedural issues and arbitration and has participated in various conferences and seminars in Latin America, Europe and the United States of America. 1 The facts mentioned in this article are based on press releases and ofcial public announcements made by Katen Natie and government authorities. 2 United Nations Conference on Trade and Development, Bilateral Investment Treaties 1995-2006: Trends in Investment Rulemaking (2007) (New York and Geneva: United Nations Publications). 3 United Nations Conference on Trade and Development, Bilateral Investment Treaties in the Mid1990s (1998) (New York and Geneva: United Nations Publications). 4 According to a recent ofcial survey, the total number of BITs concluded as of the end of 2008 was 2,676 (United Nations Conference on Trade and Development, Recent Developments in International Investment Agreements (2008 June 2009) (2009), IIA Monitor No 3, International Investment Agreements, available at: www.unctad.org/en/docs// webdiaeia20098_en.pdf (last accessed November 2009). 5 Nigel Blackaby, David M Lindsey and Alessandro Spinillo (2002), International Arbitration in Latin America (The Hague: Kluwer Law International), pp 379-380. 6 R Doak Bishop, James Crawford and W Michael Reisman (2005), Foreign Investment Disputes: Cases, Materials and Commentary (The Hague: Kluwer Law International), p 1160. 7 United Nations Conference on Trade and Development, Latest Developments in Investor-State Dispute Settlement (2009), IIA Monitor No 1 (2009), International Investment Agreements, available at: www.unctad.org/en/docs/webdiaeia20096_en.pdf (last accessed November 2009). 8 Bilateral Investment Treaties in the Mid-1990s (1998), pp 53-65; Luke Eric Peterson (2004), Bilateral Investment Treaties and Development Policy-Making, International Institute for Sustainable Development, available at: www.iisd.org/pdf/2004/trade_bits.pdf (last accessed November 2009), p 16.
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AfRIcA ANd THE mIddlE EAST
Khaled El Shalakany
Engineer and Lawyer, Senior and Managing Partner, Shalakany Law Ofce, Cairo
ksh@shalakany.com
Egypt
Arbitration in Egypt: the need for a systemic review
The author writes the following relying on over 22 years of personal experience in the practice of commercial arbitration in Egypt. Because Egypt has been a pioneer in the region in adopting an arbitration law (Law No 27 of 1994) based on the UNCITRAL Model Law, the issues that the author raises here may very well be relevant to other jurisdictions in the region that have followed the Egyptian model. Having attended a recent conference on international arbitration where the author had the privilege of hearing Professor MauroRubino Sammartano, the President of the European Court of Arbitration, address the topic of Arbitration Future in the Euro Mediterranean Space, it appears that some of the problems that were addressed in this section are not limited to our region, and may very well be also symptomatic of even more mature arbitration jurisdictions in Europe.
Outline of Major Problems The qualications and competence of party appointed co-arbitrators (and to a lesser extent the same issue in respect of institutionally appointed arbitrators) This area is currently wholly unregulated. The lack of relevant competence in some instances has in practice shaken condence in the ability of the arbitration process to deliver well reasoned awards. When comparing arbitration with court litigation, we should keep in mind not only the availability of an appeal process in court litigation, but also, of equal importance, the continuous internal review of judges competence that is undertaken within the judiciary (while the same may not be true of arbitrators). Related to the above, manifest errors of law in some arbitration awards In some instances, the extent of such errors is such that they in effect represent a serious distortion/mutilation of fundamental legal principles. In court litigation, the parties always have the ability to appeal at least at one level if not two (cassation). The relative advantages of arbitration (cost and time) have been eroded We nd some arbitrations lasting for years. Arbitrators fees have also spiralled out of control. Judicial interference with the arbitration process before and after the rendering of the award (suspension of the process, etc.) This, to some extent, reects a deeply seated judicial mistrust of the professionalism and validity of the arbitration process itself. Direct governmental interference with the arbitration process For example, a recent Decree by the Egyptian Minister of Justice has the effect of controlling execution in a manner other than that set out in Law 27 of 1994 and, in effect, undermines the whole process in Egypt. By virtue of this Decree, the government has taken the drastic step of controlling the enforcement of arbitration awards by creating an administrative review process that would block the rst step in enforcement, the simple deposit of an arbitration award before the local courts. The review is undertaken by a Technical Ofce set up at the Ministry of Justice. Its decisions are not made public, and there is no right to appear before this Ofce. The Decree, and the way it has been implemented1, is in clear violation of the Egyptian Arbitration Law. The Decree is currently subject to a number of challenges before the Egyptian administrative courts2. The regrettable result is that until this Decree is overturned and adjudged invalid, the whole arbitration process in Egypt, and the gains realised over the past 15 years, are severely undermined. The recent spate of ICSID awards may be a reection of the shortcomings of the process and the inadequacy of governmental response in terms of compliance with international norms We see governments increasingly undermining arbitration awards in agrant breach of even their own legislation.
Starting Point for a Solution: There is a need to instil more condence in the process through: (i) regulation (certication) of arbitrators (which may rely on internationally recognised credentials such as, for example, the Chartered Institute of Arbitrators); (ii) review of arbitrators performance and competence (institutional or otherwise); (iii) perhaps adopting the English model of allowing (at the option of the Parties) appeals before the highest courts (Cassation or its equivalent) on questions of law only; and (iv) increased involvement of judges as arbitrators. Allowing for expedited low cost arbitration to cover less complex cases
Legislative amendments to incorporate some reforms as described above, as well as a putting in place of express provisions to prevent governmental interference with the arbitration process such as the Ministerial Decree referred to above. While the above comments may be viewed as pessimistic, there have also been substantial and very positive developments in respect of arbitration in Egypt over the past twenty years. The point is that we have now reached a stage where it would be very useful to review the whole system and to try to address the problems that have surfaced in practice.
Notes 1 For example, the Technical Ofce now regularly suspends enforcement of arbitral awards if a nullity challenge is pending before the local courts. This in effect usurps the jurisdiction of the court reviewing the nullity challenge, while that court alone, according to Egyptian law, has the authority to suspend enforcement. 2 The author of this article has initiated one such challenge on behalf of a client who has been rendered unable to enforce a favourable award.
This may entail:

(i) increased reliance on sole arbitrator proceedings with a right of appeal; (ii) time limits on issuance of an award; or (iii) stricter regulation of arbitrators fees and institutional costs.
The Egyptian Evidentiary Law No 25 of the year 1968 applicability and impact on arbitral proceedings under Egyptian Arbitration Law No 27 of the year 1994
Anne-Marie Storch
International Legal Consultant, Al Kamel Law Ofce, Cairo
anne.marie@ kamelaw.com
ounted amongst the Middle Eastern and North African countries with the highest rates of foreign investments and excellent trading relations to Europe, America as well as to Asia, Egypt also features a growing number of disputes between foreign and local parties, which are in most cases resolved by arbitration rather than by local courts. This section deals with the Egyptian Evidentiary Law No 25 of the year 1968 (Egyptian Evidentiary Law), and will focus on the impact that certain provisions of the Egyptian Evidentiary Law may have on arbitral proceedings in international commercial disputes. Applicable Scope The Egyptian Evidentiary Law is applicable to international arbitrations governed by the Egyptian Arbitration Law No 27 of the
year 1994 (Egyptian Arbitration Law) by virtue of it being specically cited in the Arbitration Law. The Egyptian Evidentiary Law was amended twice, in 1992 and 1998, although only in regard to the values of certain penalties. One of the peculiarities of the Egyptian Arbitration Law is the very limited reference it makes to the Egyptian Evidentiary Law. Article 37 refers merely to the penalties that the court may impose on witnesses in the arbitration: The President of the Court [], upon request from the Arbitral Tribunal, shall be competent to: 1. Pass judgment against defaulting or intransigent witnesses imposing thepenalties prescribed in Article 78 and 80 of the Law of Evidence in Civil and Commercial matters. Despite this very limited mention of the Law of Evidence in Civil and Commercial Matters, all of its provisions are applicable to the arbitration procedures, provided the
66
law applicable to the arbitration is that of Egypt as well. Since, by virtue of the Egyptian Evidentiary Law, penalties may be imposed on witnesses in arbitration, many of whom might not necessarily be Egyptian nationals, all other provisions that do not have any negative impact on witnesses must consequentially be
applicable as well [majore-ad-minus principle]. Structure By way of a preliminary overview, the table below outlines the organisation and structure of the Egyptian Evidentiary Law:
Part I Part II
General Provisions (Articles 1-9) Written Evidence (10-29) Chapter 1: Ofcial Documents (10-13) Chapter 2: Informal Documents (14-19) Chapter 3: The Request to Oblige the Litigant to Submit the Documents Existing in His/Her Possession (20-27) Chapter 4: Providing the Validity and Authenticity of the Documents (28-29)
Part III Part IV
Testimonial of Witnesses (60-98) Presumptions and the Proof of the Rule Absolute (99-102) Chapter 1: Presumptions (99-100) Chapter 2: Proof of the Rule Absolute (101-102)
Part V
Admissions and the Questioning of Litigants (103-113) Chapter 1: The Admission (103-104) Chapter 2: Questioning of Litigants (105-113)
Part VI Part VII Part VIII
The Oath (114-130) Right of Visitation (131-134) Expertise (135-162)
Burden of proof As a preliminary note, the structure of the Egyptian Evidentiary Law reects that of a Civil Law system, where the general rules applicable in all respects are outlined up front, followed by the set of rules that govern specic matters. For reasons of brevity, the author shall limit the content of this section to the provisions found in Parts I to III of the Egyptian Evidentiary Law. The Egyptian Evidentiary Law starts out in its Article 1 with the most basic and general rule regarding the obligations of the disputing parties to support their legal positions in the course of an arbitration or a lawsuit led under Egyptian Law: The creditor shall have to prove the obligation and the debtor has to prove acquittal thereof. This Article reafrms the basic principle that the creditor is required to prove the existence of the obligation, whereas the debtor shall carry the burden of proof relating to the
fullment of such obligation, which is wellestablished in both civil and common law jurisdictions. There is a very limited exception to this rule, provided for under Article 3 Civil and Commercial Procedural Code of Egypt, Law No 13 of the year 1968, where in the event that a party is claiming against another party without bringing legal action to substantiate its claim, the party against whom the claim is made may resort to legal action in order to compel the claiming party to submit evidence to support its claims. Hence, by virtue of Article 3 Civil and Commercial Procedural Code of Egypt, a shift in the burden of proof may occur. In this context, the existence of the obligation comprises not only the establishment of said obligation, but, furthermore, requires that this obligation must be legally binding on the party from whom fullment is claimed, and that it is or
was due for fullment to the creditor. By way of an exception to the foregoing, it might be worth mentioning Article 45 of the Egyptian Evidentiary Law, according to which the holder of an ofcial document may litigate whoever this document testies against,[] even if the obligation indicated therein is not yet due []. Generally, debts that are not due may not become the object of a claim, since the maturity of the debt is one of the constitutive elements of a claim. With regard to the debtors possibilities to refute the claim by the creditor, the debtors are not limited to the proof of the fullment only which may be assumed from the restrictive wording of Article 1 of the Egyptian Evidentiary Law but may even go back to disputing the origin of the obligation and argue against it, for example, by relying on a matter of incapacity, which would preclude a valid genesis of the obligation in dispute. The same principle applies in respect to other impediments as to the legal validity and enforceability of the obligation, such as the termination of the agreement or contract from which the obligation is said to have arisen. Distinction between civil and commercial matters The rst and foremost observation regarding the Egyptian Evidentiary Law is its applicability to both civil and commercial matters. One of the more signicant restrictions regarding the applicability of the Egyptian Evidentiary Law in arbitral proceedings governed by Egyptian Arbitration Law is inherent in the mostly commercial nature of the disputes. This is because, when dealing with commercial matters as dened in the Egyptian Commercial Code, those provisions of the Evidentiary Law that govern solely civil matters are rendered inapplicable. Based on the foregoing, it is not uncommon that parties object to the commercial nature of the dispute, arguing that the dispute is deemed a civil matter at least for one party, thus rendering inapplicable certain provisions of the Egyptian Evidentiary Law. This holds particularly true with regard to parties who believe that their activities, being only the receipt of equipment or delivery of services against the payment of money, would not be considered commercial in nature. A thorough review and interpretation of Articles 17, 60 and 61 of the Egyptian Evidentiary Law reveal the signicance of
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this basic distinction. Most important for legal counsel when dealing with the rules of evidence under arbitrations subject to the Egyptian Arbitration Law may be to determine, in a rst step, whether the dispute is purely commercial, and if this is not the case, to examine, in a second step, to what extent civil and commercial matters are being treated differently in the case at hand. Purely Civil Disputes A matter is civil in nature if it does not involve a commercial activity as set out in Chapter 1 of the Egyptian Commercial Code, Law No 17 of the year 1999. A good illustration of the importance of the aforementioned distinction lies in Article 60 of the Egyptian Evidentiary Law, according to which: In other than the commercial matters, if the legal claim exceeds in value one thousand pounds, or if it has no xed value, then the testimony of witnesses as to proving its existence or its prescription shall not be permissible, unless there exists an agreement or a context stipulating otherwise. Therefore, the restrictions contained in Article 60 of the Egyptian Evidentiary Law as to the admissibility of witness testimony apply exclusively to civil matters in which the claims value exceeds 1,000 Egyptian Pounds (approximately US$183 or 127). Consequently, any claim against civil parties exceeding 1,000 Egyptian Pounds has to be supported by written documents, whereas witnesses will be allowed to prove a claim valued at 999 Egyptian Pounds against a civil party. One rationale behind this seemingly restrictive use of witness statements or testimony is the protection of civil parties, namely consumers, the debts of which, when exceeding 1,000 Egyptian Pounds, may not be proven by witness statements only, but require mandatory written evidence in support of such claims made against them. Commercial disputes Commercial activities are set out in Articles 4 and 6 of the Egyptian Commercial Code. If exercised by way of profession, these activities are considered as trading according to Article 5 of the Egyptian Commercial Code. Another positivist denition can be found in Article 2 of the Egyptian Arbitration Law, according to which: [a]n arbitration is commercial within the scope of this Law if the dispute arose over
a legal relationship of an economic nature, whether contractual or non-contractual. This comprises, in particular, the supply of commodities or services, commercial agencies, construction and engineering or technical Know-how contracts, the granting of industrial, touristic and other licenses, technology transfer, investment and development contracts, banking, insurance and transport operations, exploration and extraction of natural wealth, energy supply, the laying of gas or oil pipelines, the building of roads and tunnels, the reclamation of agricultural land, the protection of the environment and the establishment of nuclear reactors. As a general rule, all provisions of the Egyptian Evidentiary Law are applicable to commercial disputes, save where the applicability for only civil matters is explicitly stated. Partially commercial disputes Based on this fundamental distinction, it goes without saying that this differentiated treatment of civil and commercial matters must apply to a party only receiving goods and/or services in the course of carrying out its professional activity as trader. This is explicitly stated in Article 17 of the Egyptian Evidentiary Law, whereby [t]raders ledgers shall not be taken as evidence against nontraders. To the extent that the relevant activity consists only of the receipt of services or goods with the aim to use same for commercial matters, the recipient of the items and/or services is also considered a trader. In accordance with Article 3 of the Egyptian Commercial Code, in a scenario in which only one party acts as a trader and the other party pursues private interests in receiving
or providing services or goods, the parties will be treated according to their status. Thus, the restrictions as to the use of certain evidence are not to be applied reciprocally, but unilaterally to the commercial party attempting to prove the value of its claim against the civil party. Difculties might arise in the rather theoretical instance in which one party would receive part of the services or goods in its capacity as trader from a merchant of which a portion is to be used in private matters. In this case, the nature of the dispute may be described as a hybrid of purely commercial and exclusively civil matters, and solutions may depend on the severability of the commercial and civil claims in dispute. Conclusion Contrary to the misleading wording of Article 1 of the Egyptian Evidentiary Law, the burden of proof that lies on the debtor is not limited to establishing the acquittal of the debt only. The debtor may submit evidence to refute the genesis of the obligation as well as establish its unenforceability by way of submission of evidence. In addition, the Egyptian Evidentiary Law poses certain restrictions as to the admissibility of evidence against civil parties. Therefore, it may not always be sufcient to determine only the status of one of the parties in order to qualify the entire dispute as entirely commercial or civil. In particular, counsel for a commercial party should examine with great care whether the dispute is a purely commercial one in order to determine whether certain restrictions apply to only the party for whom they are acting when submitting evidence to be relied upon in an arbitration proceeding governed by the Egyptian Arbitration Law.
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South Africa
Establishment of a new regional arbitration institution Africa ADR
Shane Voigt
Director, Deneys Reitz Attorneys, Johannesburg
SHEV@deneysreitz.co.za
frica ADR has recently, as a result of a resolution taken at a conference in Mauritius by its founder members, namely The Mauritian Chamber of Commerce and Industry (Mauritius), Centro de Arbitragem Conciliaa o e Mediaa o (Mozambique), Centre dArbitrage Du Congo (DRC), The Arbitration Foundation of Southern Africa (South Africa), and The Institute of Directors of Southern Africa, been established as a non-prot dispute resolution administering authority. According to Africa ADRs website (www. africaadr.com), the establishment of Africa ADR is based on the recognition that Africa lacks a dispute resolution authority with a continental reach and that Africa has in effect imported such services from Europe at high cost. What appears to be unique about the Africa ADR concept is that it has venues and facilities in more than one city, namely Port Louis (Mauritius), Maputo (Mozambique), and Pretoria, Johannesburg and Cape Town (the latter three being in South Africa). The place of arbitration is important in determining the jurisdiction of a court that may be approached to recognise or set aside an arbitral award as well as, in cases where the arbitration contract is silent, in determining the procedural law of arbitration. It is normal for the arbitration agreement to nominate a place of arbitration by merely indicating the city where the arbitration is to take place. An international arbitration institution and a city (the place of arbitration) are usually synonymous (eg, the institutions based in Paris, London, and The Hague are well known). Where the rules of an international institution and the contract are silent on language, courts have also interpreted the place of arbitration as being a key pointer as to which language should be used for arbitration. The ve venues provided by Africa ADR for arbitration are particularly interesting in reecting the diversity of Africa in that: the venues fall within the jurisdictions of three countries, namely Mauritius, Mozambique and South Africa, and each country has its own procedural laws and
arbitration legislation. Further, South Africa has, against the advice of its own Law Commission, not yet adopted the UNCITRAL model law although a recent Constitutional Court judgment (Lufuno v Andrews Case CCT 97/07 [2009] ZACC 6), which conrmed that private consensual arbitration is not unconstitutional, should pave the way for change in this regard; three dominant languages are involved, namely French in Mauritius, Portuguese in Mozambique, and English in South Africa. Interestingly, South Africa is perhaps unique in having eleven Constitutionally recognised ofcial languages;1 South Africa is a country of common law tradition, while it can be surmised that the procedural law of Mauritius, with its strong French connection, will almost certainly be inuenced by civil law systems; and South Africa has foreign exchange restrictions (although they are gradually being relaxed). A quick review of the Africa ADR rules shows that they have much in common with the ICC rules, the LCIA rules and the UNCITRAL rules and that international counsel should not be able to claim surprise. For example, Article 5 of the Africa ADR rules requires a relatively detailed notice to commence arbitration in much the same level of detail as the request for arbitration in Article 1 of the LCIA rules. Article 5 of the Africa ADR rules also provides that the respondent has 30 days from receipt of the notice to commence arbitration to submit the answer, while Article 5 of the ICC rules provides that within 30 days of receipt of the request from the secretariat the respondent shall le an answer. Similarly, Article 22 of the Africa ADR rules provides for the Amendments to the Claim or Defence in almost identical terms as Article 20 of the UNCITRAL rules. Likewise, Article 25 on Hearings and Witnesses bears similarity to Article 15 of the UNCITRAL rules. Article 34.3 of the Africa ADR rules provides that the parties waive their rights to any form of appeal, review or recourse in much the same way as Article 26.9 of the LCIA rules. Article 25 of the Africa ADR rules provides
Peter Ramsden
Advocate of the High Court of South Africa, Professional Engineer, Johannesburg
Ramsden@vodamail.co.za
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that all hearings will be held in private unless agreed otherwise. This rule relating to privacy of arbitration is particularly interesting in that the South African constitutional law has recently been claried in this regard. Specically, Section 34 of the South African Constitution provides that: Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court, or where appropriate, another independent and impartial tribunal or forum. It was questioned whether this constitutional rule was a bar to private arbitration. Fortunately, the South African Constitutional Court (Lufuno v Nigel Athol Andrews and Others Case CCT 97/07 [2009] ZACC 6)2 has recently been tasked with this question and has interpreted section 34 of the Constitution as not being a bar to private arbitration. One of the well known advantages of arbitration is that it is private and that trade secrets and condential information used in evidence can be protected.
There is clearly a place for a regional African arbitration institution that understands and reects the African context and that is cost effective for regional disputants. Our hope is that this institution will be the forum of choice for regional dispute resolution and that it will also be a catalyst in furthering the adoption of the Model UNCITRAL Law by African countries with the purpose of promoting transactional legal uniformity and regional competitiveness.
Notes 1 Section 6(1) of the Constitution of South Africa provides that the ofcial languages of the Republic of South Africa are Sepedi, Sesotho, Setswana, siSwati, Tshivenda, Xitsonga, Afrikaans, English, isiNdebele, isiXhosa and isiZulu. 2 See reasons provided in article by P Ramsden, Arbitration News, Newsletter of the IBA Legal Practice Division, Vol 14, No 2 September 2009, p 54. Judgment available on: www.constitutionalcourt.org. za.
Essam Al Tamimi
Al Tamimi & Company Advocates and Legal Consultants, Dubai
e.tamimi@tamimi.com
Middle East
Considerations in shifting towards a more inclusive policy to allow non-signatory third parties into arbitration in cases where there are multiple parties and multiple contracts
a subcontractor, and suppliers, only the employer and contractor may have contracted to resolve any or all of their disputes through arbitration. In this example, the written express agreement to arbitrate is between the employer and contractor only, leaving out all the other parties unless the various parties had entered into a specic agreement to arbitrate. However, as many experienced arbitration advocates have advised, excluding these non-signatories (hereinafter nonsignatories are referred to in this section as third parties) from the reach of the arbitration clause has many drawbacks, including the possibility of multiple irreconcilable awards, both in ndings of fact and on potentially different legal grounds, and through the application of different laws. Although there are many sets of facts one can envision regarding multiple party and multiple contract arbitration, and many issues that may arise, below are some common
Mohammed Abdrabboh
Al Tamimi & Company Advocates and Legal Consultants, Dubai
m.abdrabboh@ tamimi.com
onventional wisdom indicates that parties often agree to arbitrate their claims rather than litigate because arbitration can be less costly, less time consuming and more efcient. It has also, traditionally, been condential to third parties. Unfortunately, however, arbitration often results in a forum that can be a weak mechanism by which to resolve a dispute when it involves multiple parties or multiple contracts. In each specic case, the relevant contract containing the arbitration clause determines, among various other provisions, who the parties bound to the arbitration will be. As a general rule, and under the ICC Arbitration Rules, as an example, only those parties that have contracted and, above all, consented to have their dispute resolved by way of arbitration can participate in the arbitration. For example, in a construction project that involves an employer, a contractor,
scenarios and issues that may arise that we believe are best addressed with a liberal approach to allowing multi-party/contract arbitration to include third parties:1 The parties are different but the contracts contain the same arbitration clause, or the clauses are compatible or perhaps conicting; The parties are different and the contracts do not contain identical or compatible arbitration clauses, or one of them does not contain an arbitration clause and/ or one party elects to go to the national courts; The parties are the same and they have concluded two or more contracts, one without an arbitration clause, or containing a clause that gives jurisdiction to national courts, or another incompatible arbitration clause; and nally; and The parties are the same and the dispute, which arises from a specic contract, stems from connected agreements entered into by the same parties, and one of them does not contain an arbitration clause or contains a clause giving jurisdiction to national courts.2 In many multi-contract and multi-party scenarios, an arbitration agreement that leaves out key or seemingly indispensable third parties may be disadvantageous to one of the parties taking part in the arbitration. Although we cannot examine every scenario, one example seen often in the UAE is when an employer of any given construction project brings a claim that the contractor did not perform pursuant to the contract in regards to the quality of workmanship. In that scenario, it is possible that the party that is actually liable (or should be liable) for the poor quality of workmanship, a subcontractor, is not a party to the arbitration.3 That is disadvantageous to the disposition of the real dispute and perhaps fundamentally unfair to the contractor who may be the one found liable at arbitration. That simplied scenario can be expanded and in many ways can be the tip of the iceberg. For example, the issue of liability could become more complex if the subcontractor has a claim against the contractor, or even a claim against another subcontractor or a supplier.4 If each and every claim had to be resolved individually, only between the parties to a particular contract and/or arbitration clause, this could result in several proceedings that concern the same or similar issues, possibly leading to irreconcilable awards that may not be
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enforceable by any of the parties. Such results tend to frustrate the parties and litigants alike and lend credibility to those who believe the arbitration process is defective.5 Therefore, allowing or extending third parties into arbitration within fact specic circumstances more frequently would likely reduce or limit the number of multiple irreconcilable awards. Many who are involved in arbitration argue that under such fact specic circumstances, extension to bring in or allow third parties already exists, albeit by agreement. However, the widely used concept of extension of the arbitration clause to non-signatories in reality or as practically applied is quite misleading. To date, courts and arbitral tribunals in most jurisdictions continue to base their determination of the issue on the existence of a common intent of the parties and, therefore, they effectively rely on consent. Therefore, we nd that courts and arbitral tribunals constantly apply the same methodology of, rst, determining who are the parties to the arbitration clause and, secondly, who adhered to it, and/or who is eventually estopped from contending that it has not adhered to it. In reality, the end decision becomes whether one should follow the same rules as those applicable to ordinary civil and commercial cases within an arbitration context, or whether one should adopt a more inclusive or liberal approach. For example, under various theories in many western national civil courts, if a party knows of another interested party to their litigation, under many circumstance they would have to bring them into litigation or forever lose the opportunity at a future date. A more liberal approach to permissive and compulsory joinder of third parties should be very seriously considered by courts and arbitral tribunals. More liberally, allowing third parties into arbitration further benets the arbitration process because it would increase the material scope of the arbitration. That would allow arbitration to become more of an effective dispute resolution mechanism, ensuring more completeness and nality in many cases. That would occur because the arbitrators would be able to consider the full magnitude of a multiparty/multi-contract scenario, thus permitting the arbitrators to be in a better position to assess and to determine the pending dispute in a proper context. More liberally including third parties into the arbitration process would also limit the discrepancies
between those parties resolving their disputes in court versus those seeking resolution through arbitration. As seen in the business world in many jurisdictions, the discrepancy between common contract litigants can result in very inconsistent decisions, including within corporate, commercial, property and construction disputes. In that not so uncommon scenario, many parties wishing or wanting to require third parties to join a particular arbitration proceeding do not have a bilateral agreement between them that calls for arbitration of any disputes. Instead, and quite often, in construction contracts, for example, the employer and contractor would have to go to arbitration over the requested work modications, leaving out the subcontractor. Such an outcome is inefcient and illogical because the subcontractor is substantively intertwined in the arbitration because of the aforementioned contract. The ICC and other arbitral institutions may want to consider promoting a set of rules or consider suggesting to courts and arbitral tribunals to more liberally allow third parties that are integral to resolving a dispute between the initial two parties to be included in the scope of the arbitration proceeding. Although in this section we do not propose specic legislation, whether or not one is in favour of multi-party/contract arbitration, serious discussion should be given to the enactment of law(s) permitting third parties to intervene or compel other parties into arbitration with laws similar to those within a majority of Western states and various national courts. Furthermore, liberally allowing third parties into arbitration will better comport with the ideas of fairness and due process. The rights of third parties may not be adequately protected by the parties actually involved in the arbitration proceeding. Conversely, one of the parties to arbitration may not be able to adequately present its case without the presence of a third party. Expanding the denition or application to third parties would be fair in many cases, especially where the parties that entered into the arbitration agreement know or should know that third parties will be integral to the performance of their contract. The potential for multiple irreconcilable awards, the efciency of increasing the scope of arbitration, the need to avoid discrepancy between those related parties within an arbitration dispute who choose for one reason or another not to arbitrate, and
issues of fairness and due process all call for giving due consideration of why and when a third party should be allowed to intervene or participate in arbitration. A more expansive allotment of non-contracting third parties into arbitration would be helpful in reducing some of the aforementioned negative outcomes. In US courtrooms, for example, various rules allow for the intervention or participation of third parties, and arbitration should be allowed to do the same.6 Ideally, that would be accomplished by law where an intervening party may request and state to a tribunal its reasons for the need for the intervention of another party. Except in very narrow and fact specic circumstances, many jurisdictions, including the UAE, do not allow for third parties intervention or participation. Where specic legal authority may be lacking, necessary parties (as argued in this section) should contract or use umbrella provisions to allow for third parties to intervene or participate in arbitration.7 Most state or national court litigation rules could apply to arbitration, especially when they relate to third parties. After all, the purposes of litigation and arbitration are essentially the same, that is, to effectively resolve a specic dispute in an efcient manner.8 It is striking that contrary to what is found in relation to the issue of extension of the arbitration clause to non-signatory companies of the same group, very little concern for good and efcient administration of justice seems to have been expressed in researching relevant case-law relating to many of scenarios we have examined herein, ie, for the unication of connected disputes between parties to various inter-related agreements in one single proceeding.9 We recognise that many advocates in the arbitration eld would voice concern with our suggestions on at least three general premises. First, they would take issue with being forced into arbitration or alternatively having to force another party into arbitration. Next, they may altogether be opposed to arbitration as a mechanism for their dispute resolution because of a strategic preference for a national court in some instances and, nally, if they do agree with our views, they would want to have input on where to arbitrate, what procedural laws would apply, and how many and who the arbitrators will be. We are also mindful that sovereign states might also question de facto abdication of their court powers.
We do not submit that being more inclusive of third parties in arbitration proceedings is an end all idea, nor one that could not use some renement and consideration; we simply urge for legislation that would allow for a more liberal approach to the involvement of third parties in multi-party arbitration. The complexity of todays contracts call for modern thinking and a willingness to revisit traditional legal thought as it relates to arbitration. Many of todays contracts involve multiple parties/contracts usually all intertwined if a dispute were to ever arise. Fairness and efciency dictate that where there is an arbitration agreement, the traditional principles of contract need to be disregarded, and third parties should be allowed to compel other parties/claims and be allowed to participate or intervene in arbitration as well. The complex legal relationships of todays world require new ideas and ways to solve disputes fairly, consistently and efciently and should not be hindered by traditional legal thought.
Notes 1 Bernard Hanotiau, Multiple Parties and Multiple Contracts in International Arbitration, Annual Meeting on the ICC Institute of World Business Law, Paris, France, 8 December 2009. 2 Ibid, at 65. 3 Patrick Bourke & Amanda Greenwood, Solving MultiParty Disputes, October 12, 2009 at: http://cmguide. org/archives/1522. 4 Stavros Brekoulakis, The Relevance of the Interests of Third Parties in Arbitration: Taking A Closer Look at the Elephant in the Room, 113 Penn State L Rev 1165, 1177 (2009). 5 Ibid. 6 United States Federal Rules of Civil Procedure, Rule 19 & 24 (2009). 7 Brekoulakis, see note 4 above, at 1185. 8 Brekoulakis, see note 4 above, at 1184. Dr Mark Hoyle, Regional Head of Arbitration at Al Tamimi & Company, comments that the most effective way of ensuring joinder of all parties in a contractual nexus is by agreement, requiring proper communication and careful drafting of the arbitration clauses and choosing an appropriate proper law. Legislation, he feels, is not the way forward, but some states may look favourably on streamlining the process, as has happened in the past with contractual claims resulting from specic trade disputes. 9 Hanotiau, see note 1 above, at 66.
Enforcement of international arbitration awards and potential pitfalls the Dallah Trust case
Since the English Arbitration Act of 1996 (AA) came into force more than ten years ago, the English courts are generally viewed by practitioners and users alike as having adopted a strong supportive and non-interventionist approach to the arbitral process. Whilst there are some commentators who suggest that the English courts have been too concerned to protectively ring-fence the arbitral process (not least with regard to sparsity of appeals on points of law pursuant to section 69 AA), a recent decision of the English Court of Appeal in the case of Dallah Estate v The Ministry of Religious Affairs Government of Pakistan [2009] EWCA Civ 755 (20 July 2009) has provided an opportunity to consider whether other commentators are right to contend that the English courts still retain excessive power to intervene and thus disrupt the arbitral process.
Khawar Qureshi QC*

Commercial Litigator and International Arbitration Counsel, London and Qatar
kqqc@mcnairchambers.com
n the midst of the global nancial crisis, alternative dispute resolution processes such as arbitration and mediation are coming to the fore all over the world. In the Middle East region, developments such as the establishment in August 2008 of an AAA rules-based arbitration centre in Bahrain, and the setting up in February 2008 of the DIFC/LCIA (Dubai International Financial Centre/London Court of International Arbitration) centre in Dubai, are indicative of an increasing interest in arbitration amongst the regional authorities and commercial parties. The key factors for the success of any arbitral centre include: (i) credibility; (ii) ease of use; (iii) court support for the arbitral process (including expeditious enforcement of arbitral awards); and (iv) cost effective processes and minimal delay. A useful comparison of emerging centres, vis--vis England and Wales, can be made.
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The English Arbitration Act and the New York Convention More than 140 states have ratied and (in theory at least) are required to give effect to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (New York Convention) or pursuant to their domestic laws. Article V of the New York Convention is intended to severely curtail the scope for review of an international arbitral award by domestic courts in a jurisdiction where enforcement and execution of the award is sought (the Enforcing Court). There are compelling reasons to observe that if domestic courts are able to act as a court of appeal or review the substance of an arbitral award, the rationale for arbitration expeditious and effective dispute resolution is seriously undermined. Article V of the New York Convention confers discretion upon domestic courts to refuse enforcement of an arbitration award if any of the following matters are proven: (i) Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in Article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be
recognised and enforced; (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. (ii) Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought nds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country. The most troublesome provision of the New York Convention in terms of the approach adopted by courts in some jurisdictions is Article V(2)(b) the so called public policy exception, which has been interpreted as conferring an almost open-ended authority for review in certain jurisdictions. Section 103 of the AA broadly follows the structure and content of Article V of the New York Convention, and Section 103(2)(a) of the AA was the subject of detailed consideration in the Dallah case. The Dallah case A Saudi Company (Dallah) offered to provide services for Pakistani pilgrims to Mecca, and entered into an MOU with the Government of Pakistan (GOP) in July 1995. Thereafter, in January 1996, the GOP created a Trust entity, and the Trust then entered into an agreement with Dallah dated 10 September 1996 (the Agreement). The Agreement contained an ICC arbitration clause. A dispute arose and Dallah commenced an arbitration on 19 May 1998 whereby it named the Ministry of Religious Affairs of the GOP as the Respondent. The GOP did not accept that it was a party to the agreement and challenged the jurisdiction of the arbitral
tribunal (which sat in Paris). On 26 June 2001, the arbitral tribunal issued a partial award determining that the GOP was bound by the Agreement. On 23 June 2006, the arbitral tribunal awarded Dallah damages and costs totalling around US$20 million (the Award). On 9 October 2006, Clarke J gave Dallah leave to enforce the Award pursuant to Section 101 AA. Aikens J set aside leave to enforce on 1 August 2008. Eleven months later the Court of Appeal upheld Aiken Js decision. The issue The GOP invoked section 103 (2)(b) of the AA (section 103(2)(b)) to resist enforcement of the Award. Section 103 (2)(b) provides as follows: 103 Refusal of recognition or enforcement Recognition or enforcement of a New York Convention award shall not be refused expect in the following cases. (2) Recognition or enforcement of the award may be refused if the person against whom it is invoked proves . (b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made. . . .. The Agreement contained no choice of law clause. In determining the question whether the GOP was bound by the Agreement, the arbitral tribunal had applied those transnational general principles and usages which reect the fundamental requirements of justice in international trade and the concept of good faith in business. Aikens J had accepted the GOPs arguments that, pursuant to section 103(2)(b), this issue needed to be considered with reference to French law at the stage of enforcement of the arbitral award. Aikens J heard evidence from French law experts and carried out an extensive review of the documents before concluding that, as a matter of French law, the GOP could not be considered as being bound by the Agreement (paragraph 73(K) of the judgment). Before the Court of Appeal, Dallah, inter alia, argued that it would be wrong for the English court to re-open the question as to whether the GOP was bound by the Agreement. Dallahs arguments were essentially as follows: the arbitral tribunal had decided this issue, the GOP had not sought
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to challenge the award before the French courts and, moreover, for the English court to permit the GOP to adduce expert evidence as to whether, as a matter of French law, the GOP was indeed bound by the Agreement would generate uncertainty and conict with the rationale for enforcement of international arbitral awards. However, the Court of Appeal considered the New York Convention and section 103(2) of the AA, with reference to two previous cases, which had considered the nature and extent of the discretion provided to the Enforcing Court (Dardana Ltd v Yukos Oil Co [2002] EWCA Civ 543, and Kanoria v Guiness [2006] EWCA Civ 222). At paragraph 58 of the judgment, Lord Justice Moore-Bick observed that section 103(2) of the AA is concerned with the fundamental structural integrity of the arbitration proceedings which meant in turn that the court was unlikely to allow enforcement of an award if it was satised that its integrity was fundamentally unsound. As Lord Justice Rix observed (at paragraph 87 of the judgment),there could hardly be a more fundamental defect than an award against someone who was never party to the relevant contract or agreement to arbitrate. The Court of Appeal conrmed that it was not necessary for the GOP to have challenged the Award before the French courts. Section 103(2) of the AA provided a free-standing right to raise the points of principle enshrined in Article V of the New York Convention before the English courts. Whilst expeditious and effective enforcement of international arbitration awards was necessary, Article V of the New York Convention reected core safeguards to ensure that an Enforcing Court was able to deal with points of fundamental principle. Indeed, the English Court of Appeal left open the question as to whether there might be circumstances where an English court would enable enforcement of an arbitral award even though the courts in the seat of an arbitration had set aside an arbitral award. There is likely to be an appeal from the Court of Appeal decision to the Supreme Court later this year. Concluding observations The Court of Appeal made it clear that section 103(2) of the AA was concerned with fundamental issues which affected the integrity of the arbitration proceedings. The New York Convention marks a considerable concession
on the part of States, whereby they have agreed to provide a passport to an international arbitration award, which would enable its enforcement far more quickly and effectively than decisions of many foreign courts. As such, Article V of the New York Convention contains essential safeguards to ensure that parties are not subject to enforcement/execution measures in circumstances where there is a manifest and fundamental defect in the underlying arbitral proceedings. The Dallah decision conrms the importance of those safeguards, and reects consistently strong English court support for the arbitral process. Thus far, courts in the Gulf Cooperation Council (GCC) region have had relatively very few opportunities to consider issues relating to the arbitral process and enforcement/execution of international arbitral awards. In this regard, a sense of perspective is very important.
Around 6,000 arbitrations take place in England and Wales every year, and the English courts deal with approximately 100 applications per annum relating to such arbitrations (as well as enforcement of international arbitration awards). It is thus understandable that the English courts have been able to develop a clear and consistent body of case law over decades, which enhances party autonomy and supports the arbitral process. The challenge (and opportunity) facing GCC-based arbitral centres and the courts of the region is to provide an effective alternative to established arbitration centres. There are increasing signs that the authorities in the region and the courts are responding positively to embrace this challenge.
Notes * Khawar Qureshi QC specialises in commercial litigation and international arbitration and practices from chambers in London and Qatar.
Karim J Nassif
Partner, Habib Al Mulla & Company, Dubai
karim.nassif@ habibalmulla.com
United Arab Emirates

Overview of enforcement of domestic and foreign arbitral awards under UAE Law
he use of arbitration is, to a considerable extent, driven by the emergence of the United Arab Emirates (UAE)1 as the regional business hub of the Middle East. The UAE has attracted businesses from all over the world for the establishment of distribution centres from which they can serve the entire Middle Eastern region. Large Western European, US or Asian distribution outts are prone to get involved in commercial disputes with their contracting partners from the Middle East and, given the cultural differences between the two, their best bet is to resolve their disputes by arbitration (in case an escalation is inevitable). Fortunately, the UAEs legislation2 rules and court precedents have borne testimony to, in recent years, important developments related to the receptivity of arbitration as a dispute resolution mechanism. Although the road for enforcement of awards has been greatly paved, practitioners are keen to see additional efforts succeed. These include:
(i) a less formal approach by the courts regarding some legal notions such as signature of the award, or capacity and authority to enter into an arbitration agreement, should be taken to facilitate the enforcement of awards in the UAE; (ii) a new arbitration law is to be promulgated (indeed, the UAE is expected to adopt a new arbitration law. While two categories of drafts were being discussed one modelled on the UNCITRAL Model Law (Draft Model Law) and the other, custom made (New Law)3 it appears that shortly and in the course of the year 2010, the latter shall be enacted); and (iii) a differentiation between domestic arbitration and international arbitration should be encouraged to appear, as the current Federal Law on Civil Procedure makes no distinction in this respect. The following paragraphs will shed some light on the enforcement of domestic arbitration awards, the rules pertaining thereto and the
required conditions for enforcement under UAE law.4 Res Judicata The UAE legal system species that, once rendered, an arbitral award becomes res judicata. This means that once an award has been rendered, the parties can no longer refer their dispute to the courts, even with new evidence, unless the award is set aside. However, the enforcement of the award is suspended until the recognition process is undergone.5 Awards subject to recognition or challenge The UAE legal system dictates that only a nal award at the conclusion of an arbitral proceeding can be subject to recognition or challenge. The Draft Model Law and the New Law are in the same spirit. Time-limit for initiating the recognition process or for initiating annulment challenges Unlike the Draft Model Law or the New Law, there are no time-limits under the current Federal Law on Civil Procedure to initiate nullication proceedings. Nor has the Federal Law on Civil Procedure Law set a time-limit to initiate the award recognition process. However, it bears noting that the Dubai Court of Cassation6 has adopted a proactive and progressive position in this respect. Recognition process7 To be enforceable in the UAE, domestic arbitration awards have to undergo a recognition process before the Court of First Instance. For this purpose, the award creditor is required to le an application with the Court of First Instance, following in principle the same procedure as that set out for the enforcement of a domestic judgment. Given that the Court of First Instances initial ruling on the enforcement of an award is subject to the ordinary channels of appeal before the Court of Appeal and the Court of Cassation, the overall recognition procedure may take in excess of one year. Grounds for challenge Before and during the recognition process, a party may seek to set aside an award. The
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extent of the review by the courts under UAE law is exhaustively limited to those cases as laid out in Article 216 or those related to public order.8 In fact, the Dubai Court of Cassation, in two recent decisions,9 classied the grounds for challenges under the following two categories: (i) Grounds linked to the arbitration agreement: non-existent or invalid arbitration agreement; expired arbitration agreement; arbitrators excess of authority in addressing matters outside the scope of the arbitrators mandate (listed in Article 216 of the Federal Law on Civil Procedure); or the infringement of a public order rule (not listed in Article 216 of the Federal Law on Civil Procedure). (ii) Grounds linked to the arbitral proceeding per se: irregular composition of the arbitral tribunal; issuance of the award by a truncated tribunal with no authorisation to do so; failure to dene the dispute in the arbitration agreement; lack of capacity to enter into the arbitration agreement (listed in Article 216 of the Federal Law on Civil Procedure); or due process violations, such as denial of opportunity to present ones case and equal treatment of the parties (provided for under Article 212 of the Federal Law on Civil Procedure), or if the arbitration proceedings become void and such void impacted the award (listed in Article 216 of the Federal Law on Civil Procedure). Similar grounds are referenced by both the Draft Model Law and the New Law. However, the New Law adds: (i) violations of the parties choice of law governing the substance of the dispute; and (ii) annulment of the award in the arbitral seat, as grounds for challenges. An analysis of the recent jurisprudence by the Dubai Court of Cassation, which increasingly ourishes with examples on grounds for challenges, has revealed the following noteworthy decisions: Capacity to enter into an arbitration agreement Capacity concerns the ability of a person (whether an individual or a legal entity having a juristic personality) to conclude and to be a party to an arbitration agreement.10 Where a person lacks such capacity, an arbitral award rendered in a matter involving a party lacking
capacity might be annulled. As a matter of UAE law, this rule is unambiguous. By way of example, in the context of commercial companies law, the Dubai Court of Cassation has held constantly in several rulings and by virtue of Articles 235 and 237 of the Commercial Companies Law11 that a statutory representative of a limited liability company (being the manager) has the full power to carry out the management affairs of the company, amongst which its capacity to enter into an arbitration agreement.12 Authority to agree to arbitration Authority to agree to arbitration concerns the power to conclude such an agreement in the name of and on behalf of another (this refers to the concepts of mandate or agency under UAE law). The Dubai Court of Cassation has ruled that the authority to agree to arbitration and more specically the delegation of powers to a third party to enter into an arbitration agreement in the name of and on behalf of a limited liability company is a special delegation that encompasses this specic right without there being any specic requirement of form.13 In fact, the delegation of authority may be express, implied or apparent; verbal or in writing; and it may be assessed on a case by case basis. This rule of specicity is strictly observed.14 Conditions precedent The Dubai Court of Cassation15 has ruled that contracting parties can subordinate their arbitration to so-called conditions precedent which have to be fullled prior to a referral to arbitration.16 A failure to full the conditions precedent is ruled to be a breach of the pacta sunt servanda principle and, accordingly, a submission for arbitration should be rejected where the relevant condition precedent remains unperformed. Witness testimony and oath taking Witness testimony in arbitration proceedings under the Federal Law on Civil Procedure has to be provided under oath.17 Public order and mandatory rules The Dubai Court of Cassation18 has ruled recently that, although public policy19 is not one of the grounds on which one may
seek the setting aside of an award (because Article 216 of the Civil Procedure Code does not enunciate pubic order as a ground for annulment), domestic public policy should be taken into consideration at the enforcement stage, as it is one of the essential criteria that applies to the enforcement of judgments and awards. But more importantly, the Court of Cassation found in this same ruling that not all imperative (mandatory) rules form part of the public order. Formal defects in arbitral award Article 212 paragraph 5 of the Federal Law on Civil Procedure provides that the award should be signed by the arbitrators. The signature of the chairman is not sufcient in cases where several arbitrators are hearing the dispute. Moreover, the arbitrators shall appose their signatures on both the reasoning and the dispositif; otherwise, the award is considered void.20 The effects of a successful challenge The main effect of a successful challenge is that the award is declared null and void. However, what will be the effect of such a declaration on the arbitrators themselves and on the arbitration agreement? Although the Federal Law on Civil Procedure does not provide other remedies than the annulment of the award, the Dubai Court of Cassation21 has answered this question: the dispute cannot be remitted back to the arbitrators, unless the parties consented to the contrary, as the mission of the arbitrators ends by their rendering of the rst award. The dispute can be referred to the courts, but the referral is not automatic. The court setting aside the award is denied the power to judge the case on the merits once the award is annulled. The aggrieved party should initiate separate proceedings in this respect. Waiver of challenges The Federal Law on Civil Procedure,22 the Model Law and the Draft of the New Law strictly preclude any pre-award waiver of challenges. Finally, and in conclusion, the enforcement of foreign arbitral awards, in principle, follows the enforcement procedure of foreign judgments,23 and those awards will only be enforceable if they satisfy the requirements set out in Article 235 of the Federal Law on
Civil Procedure.24 The UAE has ratied a number of bilateral and multilateral arbitration conventions, which should largely facilitate the enforcement and recognition processes.25 Accordingly, a foreign arbitral award will be enforceable today either under the New York Convention or under the conventions referenced supra.
Notes 1 The UAE is a federation of a total of seven states or emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Umm Al Quwain and Ras Al Khaimah; and which was founded on 2 December 1971. Historically speaking, the UAE legal system is a civil law system which has been strongly inuenced by the Egyptian legal system, which, in turn, is based on concepts and traditions of French and Roman law. As for all jurisdictions of civil law origin, the UAE is governed by a collection of statutory codes, which regulate, inter alia, civil and commercial relationships between natural and corporate/juridical persons across the UAE or the civil procedure code which regulates, inter alia, arbitration proceedings. 2 The law governing arbitration in the UAE is set out in the arbitration-specic provisions of the Federal Law on Civil Procedure (Articles 203 218 of the Federal Law no 11 of 1992 as amended). These provisions are specic to arbitration in the UAE and are of mandatory application in part. 3 The New Law is based on the Egyptian Arbitration Law of 1994; thus, it could be said that, to a certain extent, it is inspired by the UNCITRAL Model Law. 4 As for arbitration in the DIFC, it is governed by the DIFC Arbitration Law. This law is largely modelled on the UNCITRAL Model Law. Judgments issued by the DIFC Court and DIFC awards, once recognised by the DIFC Courts, may be enforced before the Dubai Courts, according to the recent Protocol of Enforcement between Dubai Courts and DIFC Courts, provided they are nal and appropriate for enforcement before the originating court. However, this simple position that is being taken that enforcement of DIFC arbitration awards is straightforward is misleading. In order to understand the scale of this issue, please see the contribution of Dr Habib Al Mulla to the Gulf News on 19 November, 2008. 5 Dubai Court of Cassation, petition no 265/2007, judgment dated 3 February 2008. 6 Dubai Court of Cassation, petition no 121/2008, judgment dated 10 June 2008. In this decision, the Court of Cassation found that although under UAE law, silence is not regarded as an acceptance, not initiating proceedings for setting aside an award for 12 years is considered as an implied waiver of the right to seek annulment, as silence in the face of a circumstance in which an act is called for shall be regarded as an acceptance. 7 The New Law provides that once rendered, an award may be enforced without undergoing a recognition 80
process, but nullication may be sought. 8 There are no appeals or extraordinary means for challenges other than on procedural issues (Article 217 of the UAE Civil Procedure Law). Errors on a point of fact or law do not constitute grounds for appeal, and courts cannot perform judicial review of arbitral awards on the merits. 9 Dubai Court of Cassation, petition no 270/2008, judgment dated 24 March 2009; Dubai Court of Cassation, petition no 32/2009, judgment dated 29 March 2009. 10 Article 203 paragraph 4 of the Federal Law on Civil Procedure provides that agreement on arbitration shall only be valid by a person having capacity to the right in dispute, and Article 216 of the same law provides that the lack of capacity is a valid ground for challenge. 11 UAE Federal Law No 8 of 1984 as amended. 12 Dubai Court of Cassation, petition no 164/2008, judgment dated 12 October 2008; Dubai Court of Cassation, petition no 220/2004, judgment dated 17 January 2005; Dubai Court of Cassation, petition no 537/1999, judgment dated 23 April 2000; Dubai Court of Cassation, petition no 462/2002, judgment dated 02 March 2003. 13 Dubai Court of Cassation, petition no 273/2006, judgment dated 05 March 2007. 14 For instance, apparent authority or agency by estoppel, which results from the conduct of the principal who allows somebody else, in particular an employee, to conduct the business of a company or to act or to negotiate on behalf of the company, is not accepted as a basis for proper authority to arbitrate. In fact, and although the concept of apparent authority theory is accepted under UAE law, the Dubai Court of Cassation has ruled that this theory is of no application to an arbitration agreement (Dubai Court of Cassation, petition no 220/2004, judgment dated 17 January 2005). However, this situation may be remedied via ratication of authority by the principal. The position of the Dubai Court of Cassation (Dubai court of cassation, petition no 220/2004, judgment dated 17 January 2005; Dubai Court of Cassation, petition no 51/2005, judgment dated 28 May 2005; Dubai Court of Cassation, petition no 273/2006, judgment dated 05 March 2007) is that tacit ratication is accepted. But there remains some doubt as to whether the ratication covers the arbitration agreement as well. For instance, the performance of the obligations under a contract which contains an arbitration clause is not considered as a ratication of the arbitration clause (Dubai Court of Cassation, petition no 164/2008, judgment dated 12 October 2008). 15 Dubai Court of Cassation, petition no 124/2008, judgment dated 16 September 2008. 16 For example, mediation or the submittal of a claim to the engineer in construction disputes. 17 Article 211, Federal Law on Civil Procedure. In addition, the witness shall swear an oath, saying I swear by Almighty God that I shall tell the whole truth and nothing but the truth. The oath shall be according to the particular custom of the witnesss
own religion if he so requests. It is worthy to mention that all these requirements are distinct, in that the absence of one element shall result in the voidance of the award. This conservative approach of the Dubai Court of Cassation has been set in the famous Bechtel case, International Bechtel Co Ltd v Department of Civil Aviation of Government of Dubai (Dubai Court of Cassation, petition no 503/2003, judgment dated 15 May 2005), and has been reafrmed since (Dubai Court of Cassation, petition no 322/2004, judgment dated 11 April 2005). 18 Dubai Court of Cassation, petition no 146/2008, judgment dated 09 November 2008. In fact, the court refers to Article 3 of the Civil Code; interestingly, this article provides that (p)ublic order shall be viewed as including such provisions relating to private status such as marriage, inheritance, and lineage, as well as provisions, relating to sovereignty, free trade, distribution of wealth, rules of private ownership and the other rules and foundations upon which society is based, in such a manner as not to conict with the denitive provisions and fundamental principles of Islamic Shariaa. To that end, the rules not pertaining to public order as dened in Article 3, albeit mandatory, should not be taken into consideration in the context of the annulment of an award. This is, in no doubt, a distinctly narrow approach by UAE courts to the denition of the public policy concept. It should be noted that these decisions refer only to domestic public policy and not to any international public policy. 19 Pubic policy or public order are used as a translation of the French legal concept ordre public and the Arabic legal concept . 20 Dubai Court of Cassation, petition no 233/2007, judgment dated 13 January 2008.
21 Dubai Court of Cassation, petition no 263/2007, judgment dated 03 February 2008; Dubai Court of Cassation, petition no 192/2007, judgment dated 27 November 2007. 22 See Article 217 of the Federal Law on Civil Procedure. 23 Article 236 of the Federal Law on Civil Procedure. 24 Article 235 of the Federal Law on Civil Procedure lays down a list of cumulative conditions necessary for the enforcement of a foreign judgment and a fortiori a foreign award. First, there should be reciprocity and equality of treatment regarding the enforceability of the award between the UAE and the country of origin of the award; second, the UAE tribunals should not be competent to hear the dispute, the arbitration proceedings should have been duly served on the parties and the parties should have been present or represented in the hearings; and nally, the award should not be contrary to the UAE public order or morals. 25 The most important one is the New York Convention, which entered into force in the UAE on 19 November 2006. Further multilateral conventions to which the UAE is a party are: (i) the Riyadh Convention on Judicial Cooperation between States of the Arab League; (ii) the GCC Convention for the Execution of Judgments, Delegations and Judicial Notications; and (iii) the Washington Convention on the Settlement of the Investment Disputes between States and Nationals of Other States, also commonly referred to as the ICSID Convention. As for bilateral agreements on judicial cooperation (including the execution of judgments and arbitration awards), the UAE has signed such agreements with: Morocco (2006); Sudan (2005); Syria (2002); Egypt (2000); Jordan (1999); France (1992); China (1984); and Somalia (1972).
Hassan Arab
Partner and Head of Dispute Resolution Department, Al Tamimi & Company, Dubai
h.arab@tamimi.com
The road ahead: the future of arbitration in the UAE
here is no question that arbitration, as an alternative method of dispute resolution, is an important tool in many sectors. Arbitration has been established as the ideal dispute resolution alternative to the formal justice system because of its unique features, and it is now the preferred method of resolving disputes, particularly in the context of commercial transactions. The importance of arbitration in the United Arab Emirates While there is no separate arbitration law in the UAE, the Civil Procedure Code (Law No 11 of 1992, as amended by Law No 30 of 2005) does contain a section on arbitration.
Under that Law, parties are given the freedom to make an arbitration agreement in the form of an arbitration clause in their contract or in a separate agreement. Throughout the 1990s and until recently, arbitration was a relatively new concept for the legal community of the UAE even though it is an age old concept that is dealt with in Islamic Sharia. Arbitration has been the topic of much debate, particularly in terms of the local enforcement of foreign arbitral awards. UAE courts were reluctant to enforce such awards on the basis that they were inconsistent with the rules governing the enforcement of foreign judgments and arbitral awards enumerated in the Civil Procedures Code. As arbitration grew, it became linked with a policy dialogue across various sectors,
especially in the wake of the construction boom that was witnessed in the UAE over the past decade. The growth in arbitration is aimed at attracting foreign investors in order to maintain the trend of economic growth in the UAE (notwithstanding recent market conditions). The UAE reviewed its arbitration policy to cater to the needs of parties who rely on arbitration as an alternative method of dispute resolution rather than litigation. Against this background, under Federal Decree No 43 of 2006, the UAE joined the New York Convention. The signicance of joining the New York Convention The UAEs accession to the New York Convention is a very signicant step in that arbitral awards issued in the UAE now enjoy automatic recognition in the other 142 member states and will be recognised and enforced outside the UAE on a reciprocal basis. Being a party to the New York Convention signicantly enhances the UAEs efforts to attract foreign investors for whom the recognition of foreign arbitral awards is an assurance that they will be free to choose arbitration and the applicable law to settle their disputes, whether in the UAE or abroad. A separate law of arbitration As the UAE enters a new age for arbitration, work is currently underway to draft a new law on arbitration, which was, and remains, an issue of concern not only to legislators but in many private sectors as well. While arbitration is currently dealt with under Articles 203-218 of the Civil Procedure Code (Law No 11 of 1992, as amended by Law No 30 of 2005), the Code is aimed principally at domestic arbitration and not international arbitration although, in practice, contracting parties are free to agree to arbitration. As the UAE continues to progress on all fronts, it is anticipated that new legislation will be introduced to support and complement the growth plan of arbitration. The awaited law is expected to be consistent with most international laws and regulations and will be promulgated shortly. Revision of the rules of the Dubai International Arbitration Centre (DIAC), May 2007 The Dubai International Arbitration Centre
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(DIAC) started applying its new arbitration rules to all disputes referred to arbitration in accordance with the DIAC rules. The new rules were issued by Decree No (11) 2007 upon their approval. These new rules are considered to be among the most modern and developed set of international arbitration rules due to their inclusion of best arbitration practices. The rules are followed by the top arbitration centres worldwide such as the International Chamber of Commerce (ICC) in Paris and the London Court of the International Arbitration (LCIA). The rules also borrow from the UNCITRAL Model Law. The DIAC rules are a modern set of rules for alternative dispute resolution. The new rules provide authority for the arbitral tribunal to make any temporary and urgent orders during an arbitration hearing when so requested by the parties. Previously, arbitrators did not have authority to order interim relief. Article 31 of the DIAC rules, entitled General Provisions, states: Subject to any mandatory rules of the applicable law, at the request of a party, the Tribunal may issue any provisional orders or take other interim or conservatory measures it deems necessary, including injunctions and measures for the conservation of goods which form part of the subject matter in dispute, such as an order for their deposit with a third person or for the sale of perishable goods. The Tribunal may make the granting of such measures subject to appropriate security being furnished by the requesting party. Measures and orders contemplated under this Article may take the form of an interim or provisional award. A request addressed by a party to a competent judicial authority for interim or conservatory measures, or for security for the claim or counter-claim, or for the implementation of any such measures or orders granted by the Tribunal, shall not be deemed incompatible with, or a waiver of, the Arbitration Agreement. Any such request and any measures taken by the competent judicial authority must be notied without delay to the Centre by the party making such a request or seeking such measures.The Centre shall inform the Tribunal thereof. Another key feature of the new DIAC rules is that the parties and arbitrators are free to choose the place for arbitration. It is no longer necessary that the hearings take place in Dubai. Article 20 of the DIAC rules, entitled Place of Arbitration, states:
The parties may agree in writing on the seat of the arbitration. In the absence of such a choice, the seat of arbitration shall be Dubai, unless the Executive Committee determines in view of all the circumstances, and after having given the parties an opportunity to make written comment, that another seat is more appropriate. The Tribunal may, after consultation with the parties, conduct hearings or meetings at any place that it considers appropriate. The Tribunal may deliberate wherever it considers appropriate. The award shall be deemed to have been made at the seat of the arbitration. The new rules provide the basic guarantee that all documents presented in the arbitration proceedings shall be accorded strict condentiality and allow the parties to determine the language of the arbitration. The new rules allow the parties more exibility by respecting their wishes. Article 21 of the DIAC rules, entitled Language, states: Unless otherwise agreed by the parties, the initial language of the arbitration shall be the language of the Arbitration Agreement. In the event that the Arbitration Agreement is written in more than one language, the Executive Committee may, unless the Arbitration Agreement provides that the arbitration proceedings shall be conducted in more than one language, decide which of those languages shall be the initial language of the arbitration. Upon its formation, the Tribunal shall have the power to determine the language or languages of the arbitration having regard to any observations of the parties and all relevant circumstances of the case. The Tribunal may order that any documents submitted in languages other than the language of the arbitration be accompanied by a translation in whole or in part into the language of arbitration. Dubai International Financial Centre Arbitration Law No 1-2008 On 1 September 2008, HH Sheikh Mohammed bin Rashid Al Maktoum, VicePresident and Prime Minister of the UAE, and Ruler of Dubai, issued DIFC Law No 1-2008, which repealed Arbitration Law No 8-2004.1 The new law, coupled with other legislation pertaining to the Dubai International Financial Centre (DIFC), will make the DIFC a highly attractive investment destination,
as the UAE and the Emirate of Dubai in particular become a preferred place for resolving disputes through arbitration. This is owing to the advantages associated with the new law, on one hand; on the other hand, the other important developments that preceded the law were the launch of the DIFC-LCIA Arbitration Centre by the DIFC in partnership with the LCIA in February 2009. DIFC ofcials have advised that the new arbitration law will provide neutral, efcient and reliable dispute resolution services to companies throughout the world and will afrm the status of the Centre as a primary institution that offers a legislative platform for various dispute resolutions that are affordable and through swift action. Overview of the DIFC-LCIA joint venture As mentioned previously, the launch of the DIFC-LCIA Arbitration Centre as a joint venture between the DIFC and LCIA announced in February 2009 is a landmark step. It was the rst time in the Middle East that an international institution such as the London Court of International Arbitration formed a joint venture with a local arbitration centre. Given the current business environment in the UAE, with an economy which, until relatively recently, had experienced unprecedented growth across all sectors, the establishment of the DIFC as a nancial free zone is a unique initiative that is further enhanced by the DIFC-LCIA Arbitration Centre. The joint venture allows the DIFC access to LCIAs network of arbitrators. The DIFC-LCIA Arbitration Centres Arbitration and Mediation Rules are a close adaptation of the LCIA Rules, enhancing the Centres attractiveness as an arbitral seat. Enforcement of a DIFC-LCIA arbitral award is based on the enforcement process for judgments of the DIFC Court. In order to be enforced in Dubai, a DIFC Court judgment is converted by the execution judge into a judgment of the Dubai Court (without a review on the merits of the award). This is then enforceable in Dubai, the other emirates of the UAE, and the other states of the Gulf Cooperation Council, or GCC. To enforce an award, a party needs to obtain a DIFC Court judgment and then enforce that judgment in the usual way. Enforcement of awards outside of the GCC may be achieved under the New York Convention (again, which the UAE ratied in 2006). An arbitral award rendered
under the auspices of the DIFC-LCIA Centre is enforceable in all of the states that are party to the New York Convention. Features of the DIFC Arbitration Law In contrast to the jurisdiction of the DIFC Court, which extends only to companies operating within the DIFC, the jurisdiction of the DIFC-LCIA Arbitration Centre extends to companies, establishments and individuals operating within the DIFC and beyond. The new arbitration law is a general law, and the jurisdiction of the Arbitration Centre is also general (see Article 7 under Part 2 of DIFC Arbitration Law Scope of Application). Since the DIFC is a common law jurisdiction with its own set of laws, which are largely based on English law, and with its own independent court system with judges drawn from the common law world, the DIFC Court can be expected to be supportive of the arbitral process. With judicial interference in the arbitration process being unlikely, it should become easier to enforce any arbitral award. With the DIFC joint venture with the LCIA to launch an arbitration centre, parties availing themselves of the services of the DIFC-LCIA Arbitration Centre will have the ability to choose their arbitrators from the list of certied Arbitrators with the LCIA. This is one of the major advantages of the joint venture between the two arbitration centres. The DIFC is the place of arbitration for parties who opt for the arbitration law of the Centre to govern an arbitration or who do not specify a place of arbitration in their agreement. Furthermore, the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for hearing witnesses, experts or the parties, etc (see Article 27 under Part 5 of DIFC Arbitration Law). The new arbitration law gives the DIFC and the arbitral tribunal broad powers to issue various interim measures to protect
the interest of the parties in arbitration (see Article 24 under Part 4 of DIFC Arbitration Law). A DIFC-LCIA arbitral award ratied by the DIFC Court is enforceable outside the DIFC in accordance with the law concerning the judicial authority of the DIFC Court. Thus, it is enforceable worldwide pursuant to the terms of the New York Convention through the courts of many other New York Convention states around the world. Unless otherwise agreed by the parties, all information relating to the arbitral proceedings shall be kept condential, except where disclosure is required by an order of the DIFC Court (see Article 14 under Part 2). Conclusion To conclude, arbitration as an alternative method of dispute resolution has become a reality in the UAE as leaders and decision makers realise its importance in driving growth. It started with the UAE joining the New York Convention in 2006. Local and foreign awards became more readily enforceable in the courts of the UAE. Arbitration centres embarked on a reform of their rules and laws to bring them in line with the rules and laws of reputable international arbitration centres. This culminated in the issuance of a separate arbitration law, at the federal level, to rectify the current provisions found in the Civil Procedure Code which are obsolete. The efforts of local and federal governments to promote adequate legal mechanisms for arbitration and dispute settlement will boost investor condence and raise the UAEs prole as a preferred arbitration destination on account of its location and economic climate as well as its modern laws and regulations.
Notes 1 DIFC Law No 1-2008 can be found at: http:// difc.complinet.com/en/display/display_viewall. html?rbid=2618&element_id=8998.
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ASIA pAcIfIc
Australia
This issue features two different viewpoints on the upcoming reforms in Australia. The first article, by Alex Baykitch, provides a general overview of theproposed International Arbitration AmendmentBill. The second article, by Peter Megens, highlights changes in international and domestic Australian arbitration rules, particularly focusing on the new expedited processes purporting to enhance efficiency in arbitration proceedings. Alex Baykitch*
Holman Fenwick Willan, Sydney
alex.baykitch@hfw.com
Overview Australia to update arbitration laws

are those set out in Article V of the New York Convention and Articles 34 and 36 of the Model Law. There is, therefore, no longer any question as to whether Australian courts retain some undened discretion to refuse to enforce a foreign award. The Bill makes challenges to arbitrator appointments more difcult by adopting the UK approach to bias, namely, that there is a real danger of bias on the part of that person in conducting the arbitration. This replaces the reasonable apprehension of bias test currently applied. The Bill streamlines the exercise of arbitration jurisdiction which was recently conferred on the Federal Court of Australia. The Bill rejects suggestions that the Federal Court be given exclusive jurisdiction over arbitration matters. Instead, the Bill preserves the jurisdiction of state judges who have, until now, been the principal interpreters of the IAA. It is expected that parties will increasingly use the Federal Courts one-stop shop jurisdiction, especially in enforcing foreign awards, to avoid having to commence parallel enforcement proceedings in multiple state courts. The Bill, in removing the minor legislative uncertainties currently present and in conferring jurisdiction on the Federal Court, promotes greater uniformity in the interpretation and application of the IAA. Further to this end, the Bill requires courts to consider the objectives of the IAA, which include the facilitation of international trade and commerce by encouraging the use of arbitration, the need for international uniformity, and that arbitration is an efcient, impartial, enforceable and timely method by which to resolve commercial disputes and that awards are intended to provide certainty and nality. One issue which remains unresolved is whether or not an arbitral institution will be designated to perform the appointment
ustralia is in the process of updating its arbitration laws. The changes, contained in the International Arbitration Amendment Bill 2009 (the Bill), will make the enforcement of foreign awards easier and arbitrations in Australia more attractive. The Bill follows a review of Australias arbitration regime conducted by the AttorneyGeneral, the Hon Robert McClellandMP, which attracted submissions from experts and the local legal profession including members of the Australian judiciary. The Bill, which is currently before Parliament, is expected to pass in early 2010. The Bill amends the International Arbitration Act 1974 (IAA), which implements the New York and Washington Conventions and adopts UNCITRALs Model Law. In particular, the Bill adopts many of the 2006 amendments to the Model Law, including the more detailed provisions relating to interim measures. The Bill, however, notably fails to adopt the provisions relating to the granting of preliminary orders. The Bill provides a more comprehensive and clearer legislative framework by making the Model Law the exclusive law governing international arbitrations in Australia. Parties no longer have the choice to select the arbitral law of an Australian state or territory or foreign country (parties are still free to adopt the procedural rules of their choice). The Bill allows parties to incorporate provisions relating to condentiality, the death of a party and court-issued subpoenas which have been adapted from the state arbitration laws that will be ousted by the Bill. The Bill removes any legislative uncertainty relating to challenges to arbitrator appointments and awards and refusals to enforce foreign awards. The Bill makes clear that the only grounds for challenge of an award and refusal to enforce a foreign award
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functions under Articles 11(3) and (4) of the Model Law. The most likely institution to be designated is the Australian Centre for International Commercial Arbitration (ACICA). Submissions from experts and professional associations to the AttorneyGeneral supported ACICA being so designated, noting that Hong Kong and Singapore have similar arrangements. The Bill, which was uniformly supported by
the local legal profession, updates Australias arbitration regime in accordance with international best practice and maintains Australias reputation as an attractive and competitive arbitral venue in the Asia Pacic region.
Notes * Alex Baykitch is a partner at Holman Fenwick Willan and Vice President of The Australian Centre for International Commercial Arbitration.
Peter Megens*
Australias new arbitration regime enhances efciency in arbitration procedures

be subject to possibly stringent statutory condentiality obligations), to name just a few. The new Act will also address and correct unfortunate ambiguities in the Australian international arbitration scheme created by decisions such as Resort Condominiums International Inc v Bolwell1 (which held that an Australian court has a residual discretion whether or not to enforce a foreign award on other grounds than just those in the Model Law); Eisenwerk v Australian Granites Ltd2 (which provided that in certain cases the adoption of a set of institutional arbitration rules such as the ICC Rules might exclude the operation of the Model Law); and American Diagnostica Inc v Gradipore Limited3 (which provided a role in certain international arbitrations conducted in Australia for the domestic arbitration legislation). Amendments to domestic arbitration legislation have also been announced, and signicant changes to update and modernise the domestic legislative scheme enacted by the states are also proposed for early 2010. Australias principal international arbitration body is the Australian Centre for International Commercial Arbitration (ACICA). The principal domestic arbitration body is the Institute of Arbitrators and Mediators Australia (IAMA). Both have been very busy reforming their procedures and Rules. Australian Centre for International Commercial Arbitration The ACICA has published its own Model Arbitration Clause and its updated Arbitration Rules.
Mallesons Stephen Jaques, Melbourne

peter.megens@ mallesons.com
ustralia has, in the past year, risen to the challenge in the international arbitration arena in the Asia Pacic region to make itself more relevant as an international arbitration venue and to compete with the other major venues in the region. Amendments to the International Arbitration Act of 1974 Australias international arbitration legislation, the International Arbitration Act 1974, already has many similarities to the Singapore International Arbitration Act and adopts the New York Convention, the UNCITRAL Model Law (1985 version) and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. The Australian Attorney General recently announced that the International Arbitration Act 1974 would be amended to be updated in a number of ways, which include: enhancing and extending the role of the Federal Court so that, amongst other things, one enforcement application in any Federal Court Registry in any state or territory will now result in an award which is enforceable as a judgment of the Federal Court Australia-wide; an adoption of the Amended Model Law of 2006; and provisions dealing with the vexed (in Australia at least) issues of the application of domestic arbitration legislation to international arbitrations (domestic legislation will no longer be applicable) and condentiality of international arbitration proceedings (they will now
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The ACICA Arbitration Rules are based on the UNCITRAL Arbitration Rules. However, the ACICA Rules are revised and updated to provide a more modern, efcient and exible framework for the resolution of commercial disputes. They deal with the composition of arbitral tribunals, the admission of evidence, the remuneration of arbitrators appointed under the ACICA Arbitration Rules and all the other aspects of the arbitration process. Unlike other arbitration rules, the ACICA Rules partially adopt the International Bar Associations Rules of Evidence (IBA Rules), in that the arbitrators must be guided by the IBA Rules, but are free to make directions on evidence that suit the needs of each case. Under the UNCITRAL rules, unless the parties have stipulated that only one arbitrator should be appointed to hear a matter, a full tribunal of three will automatically be appointed. This has obvious adverse cost consequences. In contrast, ACICA has discretion to appoint a single arbitrator if the parties cannot agree. Under the UNCITRAL rules, if the parties are unable to agree on a body of law by which their dispute will be determined, the tribunal must apply complex conict of law principles that can lead to unpredictable and unsatisfactory outcomes. The ACICA rules allow the tribunal to determine the applicable law without having to consider cumbersome conicts theories. The ACICA has now also published its Expedited Arbitration Rules with their accompanying Model Arbitration Clause. As the Expedited Rules say (Rule 3.1): The overriding objective of these Rules, which is to inform the processes, powers and rights here described, is to provide arbitration that is quick, cost-effective and fair, considering especially the amounts in dispute and complexity of issues or facts involved. Under the Expedited Rules, the Notice of Arbitration which commences the arbitration is to include not just the usual general details (of names and addresses of the parties, a copy of the arbitration clauses and so on), but also the Statement of Claim referred to in Article 17 of the Rules. This carries with it a requirement also to include all documents and any witness statements on which (the party) relies. The Respondent, in turn, is to annex to its Statement of Defence the documents and witness statements on which it relies for
its defence (Rule 18.2). The Respondent may include a counter-claim or set-off. The Claimant has fourteen days after receipt of these documents for a responsive pleading. The Statement of Claim and the Statement of Defence are not to be amended without the leave of the Arbitrator. A sole arbitrator is provided for. There is no discovery (rather, a requirement to provide documents with pleadings) and, as witness statements (both lay and expert) are provided with the pleadings, there is no need to have separate witness statements. An oral hearing will occur only in exceptional circumstances. The award is due within four months of the Notice of Appointment of the Arbitrator if there is no counter-claim and set-off, and otherwise within ve months. Because of the tight time limits and processes, ACICA recommends using the ACICA Expedited Arbitration Rules where the amount in dispute does not exceed AU$250,000 (approximately US$220,000), but it is up to the parties to decide if they wish to use the Expedited Rules for amounts over AU$250,000 or in complex disputes. The parties have to choose the Expedited Rules in some way (in their arbitration agreement or otherwise) if the Rules are to apply. The Arbitrator and the parties are to have regard to the IBA Guidelines on Conicts of Interest in International Arbitration as well as the IBA Rules on the Taking of Evidence in International Commercial Arbitration in conducting the expedited arbitration. The Expedited Rules, in effect, contemplate the proposed changes to the International Arbitration Act which the Australian Government currently proposes and will be complementary to the new Act while also working effectively with the current regime. In keeping with the streamlined nature of its Expedited Arbitration Rules, ACICA has also reduced its administration fees in Expedited Arbitrations so that they are signicantly less than for arbitrations under the standard ACICA Arbitration Rules. An Explanatory Memorandum and Guidance Note have been prepared by ACICA for publication on its website and should be available by the time this article is published.
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Institute of Arbitrators and Mediators Australia The IAMA Fast Track Arbitration Rules (IFTAR) have been available to disputants in Australia since 1 June 2007. Similar to the ACICA Rules, the IFTAR contain an overriding objective which governs the conduct of arbitrations under those rules. The Overriding Objective of these Rules is that the arbitration is conducted: (i) fairly, expeditiously and cost effectively; and (ii) in a manner which is proportionate to: - the amount of money involved; - the complexity of the issues; and - any other relevant matter.4 The IFTAR require an arbitration to be completed within 120 days of the commencement of the process and require an arbitrator to deliver the award within 150 days. The rules impose ambitious procedural deadlines, which can be varied to a limited extent only in exceptional circumstances.5
Conclusion Australia is already proactive in the use of alternative dispute resolution, especially arbitration. Reviews of both Australias international and domestic arbitration legislation are now being conducted to make this even more the case. Australias peak arbitration bodies, ACICA at the international level, and IAMA at the domestic level, are focussed on making Australia an even more cost effective and attractive supplier and user of arbitration on an expedited basis.
Notes * Peter Megens is an Adjunct Professor of Law, Murdoch University, and Partner at Mallesons Stephen Jaques, Solicitors, FIAMA, FCIArb, FACICA, FSIA, Chartered Arbitrator. 1 [1995] 1 Qd R 406. 2 [2001] 1 Qd R 461. 3 (1998) 44 NSWLR 312. 4 See Rule 1 of the IAMA Arbitration Rules, 1 June 2007, which incorporate the IFTAR in Schedule 2: www.iama.org.au. 5 See IFTAR, sections 11, 12 and 13.
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Jessica J Fei*
Fulbright & Jaworski LLP, Hong Kong
jfei@fulbright.com
China
Enforcement and recognition of foreign arbitral awards in China is the rule, not the exception
estern practitioners and parties are often concerned about the enforcement of foreign arbitral awards in mainland China, specically whether the Chinese courts will recognise and enforce foreign arbitration decisions against local Chinese parties. These concerns are, to some extent, attributable to Western unfamiliarity with the Chinese legal system, a lack of information about enforcement cases and a few unfortunate experiences with the Chinese courts. In fact, the situation concerning enforcement of foreign arbitral awards in China is much better than many foreign parties tend to assume. Though issues do exist, the Chinese courts have in recent years made great efforts and improved the regime for enforcing foreign arbitral awards. The Supreme Peoples Court of China supervises potential non-enforcement cases China acceded to the New York Convention in 1987. In order to implement the New York Convention, the Supreme Peoples Court of China (the SPC) has issued several directions and guidelines. Among others, in 1995, by its Notice Concerning the Handling by Peoples Courts of Issues Relating to Foreign-Related and Foreign Arbitration Matters, the SPC established an internal prior reporting system to regulate and supervise any non-enforcement of New York Convention awards and other foreign-related awards. In short, while enforcement of awards must be sought in the Intermediate Peoples Court at the domicile of the debtor or where the assets are located, if any Intermediate Peoples Court considers refusing to enforce a foreign-related or foreign arbitral award, it must report the matter to the High Court at the provincial level for approval. If the High Court agrees it must then report further to the SPC (if the High Court disagrees, the award must be enforced without further reporting to the SPC). Accordingly, it is only with the consent of the SPC that a foreign or foreign-related award may be refused
enforcement in China. The SPC Notice therefore has made non-enforcement by local courts much more difcult. Though criticisms remain that the operation of the internal prior reporting system is not transparent or speedy,1 the SPC Notice has demonstrated the pro-enforcement intentions of the SPC, and positive results have been obtained in the overall enforcement rates of New York Convention awards in China as outlined below. From 2000 to 2008 According to the Vice President of the SPC, Wan E-xiang,2 in the eight years from 2000 to 2007, the Chinese courts denied enforcement of foreign arbitral awards only in 12 instances. The reasons for non-enforcement in these 12 cases were as follows:
Number of Cases No arbitration agreement or invalid arbitration agreement Expiry of statute of limitations Notices of proceedings not served upon the losing party The reappointment of arbitrator was not in conformity with the agreed arbitration rules No available assets for enforcement located in China Total (years 2000-2007) 5 4 1 1
1 12
Taking into consideration the vast size of China and the huge number of enforcement applications led with the courts,3 it is fair to say that 12 refusals (strictly 11 as the last one mentioned above was not really a refusal) in eight years is a small number, an average of one or two cases per year in the whole of China, indicating that the Chinese court system has generally been pro-enforcement. In the past two years (2007-2008), the SPC has agreed to deny the enforcement of quite a few foreign arbitral awards based on various grounds, including public policy, issues relating to a truncated tribunal and failure to comply with a pre-arbitration negotiation requirement.
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No abuse of the New York Convention public policy ground for denial of enforcement Public policy and non-arbitrability are the only grounds under Article V of the New York Convention for non-enforcement that potentially involve any substantive review of the foreign arbitral awards by national courts in the place of enforcement. Many outside of China are concerned that the Chinese courts might liberally apply public policy in order to refuse enforcement of foreign awards against Chinese nationals and entities. In fact, the opposite is true. The public policy ground is hardly ever used, and the SPC has been extremely reluctant to approve any refusal based on public policy, though it is common for the parties seeking non-enforcement to allege public policy reasons against the prospective enforcement. To date, there are only two relevant known cases where the SPC has approved nonenforcement of a foreign (or foreign-related Chinese) award based on public interest under Chinese law or public policy under the New York Convention, namely the Heavy Metal case of 1997 (a China International Economic and Trade Arbitration Commission, or CIETAC, award) and the Hemofarm case of 2008 (an ICC award). Heavy metal show cancelled by Ministry of Culture The case of US Production Co Ltd & Tom Hewlett v China Women Travel Agency (a CIETAC award with ref no of CIETAC 0015/1994) concerned a dispute arising from a 1992 music performance contract. The Ministry of Culture prohibited the performance of the US party in China, which suffered losses. A CIETAC tribunal rendered an award in favour of the US party nding a breach of contract by the China Women Travel Agency. The enforcement court was the Beijing No 1 Intermediate Court. As it was a foreign-related award of CIETAC, the case was reported to the Beijing High Court and eventually the SPC for approval. The Court ruled in 1997 that the contract provided that the performance was subject to the approval of the Ministry of Culture, and by performing heavy metal music the performance went beyond the scope of approval of the Ministry of Culture was insensitive to the feelings of the Chinese people The social and public interest of
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our country would be harmed if enforcement of the award was permitted. Enforcement was refused under Article 258 of the PRC Civil Procedure Law, which refers to the Chinese social public interest.4 Hemofarm - joint venture and property preservation orders The dispute arose from a 1995 joint venture contract between Hemofarm DD et al, two Serbian nationals and a Liechtenstein national (Hemofarm) and Jinan Yongning Pharmaceutical Co, Ltd: a Chinese national (Yongning). The contract provided that Yongning would lease machinery, equipment and land to the Chinese joint venture entity (formed by the parties of the arbitration). Disputes were to be resolved through ICC arbitration venued in Paris. From August 2002 to September 2004, Yongning led four suits against the joint venture entity before the Jinan Intermediate Court to request rental payments and the return of some of the leased assets. In the course of the litigation, Yongning applied for property preservation measures and furnished a security as required under PRC law. Hemofarm et al subsequently led arbitration with the ICC in 2004 requesting, inter alia, a declaration that Yongning had breached its contractual and legal obligations by suing the joint venture entity and the property preservation orders had rendered the joint venture unable to operate. Hemofarm et al also sought a declaration that the rental payments ordered by the Chinese court should not be paid. The ICC tribunal agreed that the property preservation measures granted by the Chinese court contributed to the joint ventures failure and awarded damages for lost investment and costs of over US$8 million. In September 2007, the Claimants applied for recognition and enforcement of the ICC award before the Jinan Intermediate Court. Yongning objected to enforcement. The Jinan Intermediate Court and Shandong Province High Court both denied recognition and enforcement under the New York Convention. The SPC agreed: (i) under Article V (1)(c) of the Convention, since the arbitration clause in the joint venture contract could only bind parties to this contract and not the lease contract between Yongning and the joint venture entity, the award therefore went beyond the scope of the arbitration agreement; and (ii) under Article
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V 2 (b), in circumstances where Chinese courts had rendered prior judgments on the lease contract disputes between the joint venture entity and Yongning ruling on the propriety of preservation measures, the ICC award revisiting these issues infringed upon the judicial sovereignty of China and the jurisdiction of the Chinese courts.5 This case is the rst where the SPC has expressly agreed to use the public policy ground for non-enforcement of a New York Convention award, and it shows that the PRC courts are circumspect in their use of the public policy ground for non-enforcement of foreign arbitral awards. The SPC has made clear in prior decisions that the mere fact that a party has acted against the mandatory law of China would not necessarily constitute a violation of public policy in China.6 The SPC has turned down numerous applications to refuse enforcement on public policy grounds in recent years. Award rendered by truncated tribunal denied enforcement In the enforcement case of First Investment Corp (Marshall Islands) v Fujian Mawei Ship Making Co, Ltd and Fujian Shipbuilding Industry Group Co (LMAA award) (SPC reply dated 27 February 2008), a tribunal constituted under the auspices of the London Maritime Arbitration Association adjudicated disputes under a ship building option contract between a Marshall Islands company and a Chinese company in a London venued arbitration. The main claim for non-enforcement concerned the shortlived tenure of one of the members of the tribunal. After the president of the tribunal circulated the rst draft of the award and the Respondents arbitrator submitted a dissenting opinion, he was detained for criminal charges. The president and the other party-appointed arbitrator then lost contact with the Respondents arbitrator. About three months later, they rendered the award as a majority decision, against the Respondents. The Claimant led its enforcement application before the Xiamen Maritime Court. The Xiamen Maritime Court and the Fujian Province High Court duly reported to the SPC their proposed non-recognition and non-enforcement based on Articles V 1 (d) and V 1 (c) of the New York Convention. The SPC held that the arbitrator appointed by the Respondents neither participated in the entirety of the arbitration proceedings
nor attended all of the deliberations regarding the nal arbitral award. Hence, the composition of the tribunal or the arbitration procedures was not in conformity with the parties arbitration agreement and was also in violation of the law of England, the law of the seat of arbitration. The SPC held that the award should not be recognised or enforced pursuant to Article V 1 (d) of the New York Convention.7 Pre-arbitration negotiation requirement prevents PepsiCo from enforcing award In 2005, in proceedings held under the auspices of the Arbitration Institute of the Stockholm Chamber of Commerce, PepsiCo obtained two favourable awards against a local Sichuan partner and the joint venture. These two cases became the rst ones approved by the SPC for non-enforcement on the basis of a failure to conduct pre-arbitration negotiation as required by the arbitration clauses between the parties. PepsiCo v Sichuan PepsiCo 8 and PepsiCo (China) v Sichuan Yunlv Industrial Co Ltd 9 (SCC awards). The arbitration clauses provided for a 45-day negotiation period and a 90-day negotiation period before any party could le for arbitration. The courts found that the Claimant could not prove that the prearbitration negotiation requirement set forth in the parties arbitration agreements had been satised, and therefore the procedures did not comply with the arbitration agreements, justifying a denial of recognition and enforcement under Article V 1 (d) of the New York Convention. Enforcement of China-seated ICC awards questions remain In the Duferco S A v Ningbo Arts & Crafts Import & Export Co decision dated 22 April 2009, the Ningbo Intermediate Peoples Court recognised and enforced a China-seated ICC award, which is the rst known case of a Chinese court agreeing to enforce an ICC award with a China seat. It has been a long debated issue whether ICC arbitrations can be venued in China and whether Chinese courts will enforce ICC awards. But the Ningbo decision may not provide an answer to this question. The Ningbo Intermediate Peoples Court of Zhejiang Province found that the ICC award (Ref 14006/MS/JB/JEM) dated 21 September 2007 rendered in Beijing, China,
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was a non-domestic award under Article I.1 of the New York Convention. The New York Convention therefore governed the recognition and enforcement of the award. The Court found no ground for refusal of enforcement under the Convention. In 2006, in a decision regarding the enforcement of an award under the ICC Rules, Shanghai (Zblin International GmbH v Wuxi Woke General Engineering Rubber Co, Ltd), the Supreme Court concluded: (i) the ICC Shanghai award was a non-domestic award under the New York Convention; and (ii) the recognition and enforcement had to be refused because the ICC Shanghai clause was an invalid arbitration agreement under the law of the arbitration seat, ie, the Arbitration Law of China, which requires a designated arbitration institution as a mandatory element of an arbitration agreement. Although some may welcome the proenforcement efforts of the Chinese courts as evidenced in both the Zblin case and the more recent Duferco case, both of which found that the ICC China award is a non-domestic award under the New York Convention, the non-domestic award argument may not stand. This is because the Arbitration Law of China does not contemplate that arbitrations in China may be administered by a foreign arbitral institution. This is a serious anomaly because it means that, strictly speaking, Chinese courts do not have authority over the annulment of the award (but yet no other court has the right to set aside the award under the Convention). Therefore, it seems more logical to follow the dominant trend in international arbitration and to categorise the awards of arbitrations administered by foreign institution in China as Chinese awards. Since China has made the reciprocity reservation when acceding to the New York Convention, which provides that the State will apply the Convention only to recognition and enforcement of awards made in the territory of another contracting State (emphasis added), the Convention shall not apply. Rather, if the arbitration bears any foreign elements, including when one of the parties in dispute is a non-Chinese party, it should be categorised as a foreign-related Chinese award, which under Chinese laws enjoys treatment similar to that given to a New York Convention award. It should be noted that the recent Duferco case is a lower court decision, and the Supreme Court was not consulted on the
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matter only non-enforcement of foreign or foreign-related awards are reviewed by the Supreme Court. Without any further ofcial clarication from the Chinese legislature or the Supreme Court, it is not advisable for parties to draft an arbitration clause providing for ICC or any other foreign arbitral institution to administer an arbitration with a China seat. Conclusion The various measures taken by the SPC and the generally positive results and statistics on enforcement of foreign arbitral awards over the past twenty years demonstrate the growing acceptance of international arbitration in China (especially bearing in mind the huge number of applications each year and the limited number of refusals). It is also noticeable that the Chinese courts seem to have become increasingly condent in handling international arbitration matters, and will not hesitate to deny enforcement where they believe that genuine grounds for non-enforcement are present.
Notes * Jessica J Fei is Counsel in the International Arbitration Practice Group of Fulbright & Jaworski LLP. Prior to entering private practice, she obtained more than eight years experience working for leading arbitration institutions including CIETAC in Beijing and ICDR/AAA in New York. She is listed on the panel of arbitrators of CIETAC, ICDR, Chinese European Arbitration Centre (CEAC, Germany), Shanghai Arbitration Commission, Wuhan Arbitration Commission and Xiamen Arbitration Commission. 1 According to a SPC judicial interpretation dated 21 October 1998, an Intermediate Court should report its intended non-enforcement matter to the SPC within two months from the date of its acceptance of the application for enforcement. However, in practice, it is reported that it can take much longer and the parties may not know whether the matter is being reported up. There are also stories about nonreporting by the lower court in refusing enforcement of a foreign award. In the authors opinion, such instance might be a result of the lower courts nonfamiliarity with the reporting requirement and the in-experienced counsel of the applicant. 2 Mr Wan E-xiang, speech at the Seminar in Celebration of the 50th Anniversary of the New York Convention on 6 June 2008, Several Issues in the Implementation of New York Convention in China, Journal of International Economic Law, Vol 16, No 1, 2009, Peking University Press. 3 For example, according to a presentation made by a judge of the court to CIETAC, Beijing No 2 Intermediate Court alone (as one of the two Intermediate Courts in Beijing) accepted the
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following number of applications for enforcement of arbitral awards (including domestic, foreign-related and foreign awards): 261 in 2003, 178 in 2004, 74 in 2005, 182 in 2006, 624 in 2007, and 432 in 2008; out of which the following are refused enforcement: 0 in 2003-2006, 1 in 2007 and 4 in 2008. 4 Judicial interpretation of the SPC dated 26 December 1997. 5 Yu Xifu, Judge of Jinan Intermediate Court, ICC Award Refused Recognition and Enforcement Violation of Public Policy, published in Peoples Court Daily, 16 July 2008, see: http://rmfyb.chinacourt.org/ public/detail.php?id=120776
6 See ED&F Mans (Hong Kong) Ltd v China Sugar & Alcohol Group Co (a London Sugar Federation award), 1 July 2003 (SPC disagreed with the public policy analysis of the local courts and ordered the recognition and enforcement of the award), Guide on Foreign-Related Commercial and Maritime Trial, 2004 Book 1, Peoples Court Press at 12. 7 SPCs decision, 27 February 2008. 8 Judgment of Chengdu Intermediate Court, 30 April 2008, ref no 2005 Cheng Min Chu Zi No 912. 9 Judgment of Chengdu Intermediate Court, 30 April 2008, ref no 2006 Cheng Min Chu Zi No 36.
Paul Mitchard QC
Skadden, Arps, Slate, Meagher & Flom, Hong Kong
paul.mitchard@ skadden.com
Hong Kong
A v R: Indemnity costs as the likely price for any unsuccessful challenge to an award in the Hong Kong courts
Calvin Chan
Skadden, Arps, Slate, Meagher & Flom, Hong Kong
calvin.chan@skadden.com
ong Kong has long been one of the leading centres for arbitration in the Asia-Pacic region. One reason, among others, for its popularity as an arbitral situs among both arbitration parties and counsel is the strong support extended by the courts to the international arbitral process. This extends to the enforcement stage, where Hong Kong courts have, and continue to have, a good track record for upholding and enforcing international arbitration awards. This pro-enforcement culture has been manifested in particular in the narrow interpretation and application of the grounds for resisting enforcement under the New York Convention, and (with rare exceptions) exercising the courts discretion in favour of enforcing arbitral awards1. In the 30 April 2009 decision of the Hong Kong Court of First Instance2 in A v R3, the pro-enforcement approach of the Hong Kong courts has been extended to include indemnity cost consequences for a party which fails to mount a successful challenge to an international arbitration award presented for enforcement in Hong Kong. The public policy exception to the enforcement of a New York Convention award cannot be used to re-open the merits The Applicant, a Danish company, obtained an award of US$3 million (together with interest and costs) in an International
Chamber of Commerce (ICC) arbitration in Denmark for breaches of a sales commission agreement (the Agreement) by the Respondent, a Hong Kong company. The Agreement contained a liquidated damages provision entitling the Applicant to US$1 million in damages for each substantial breach of the Agreement by the Respondent, and the award for US$3 million in damages by the tribunal was calculated by applying that provision. The Applicant subsequently applied to the Hong Kong High Court to enforce the award against the Respondent. The Respondent sought to resist enforcement by relying on the public policy exception in section 44 of the Hong Kong Arbitration Ordinance (reecting Article V2(b) of the New York Convention). It argued that the liquidated damages provision in the Agreement, pursuant to which the award for damages was made, was void as a penalty clause under Hong Kong law (as well as under Danish law). Consequently, enforcing the award would require the Respondent to pay an amount substantially in excess of any loss actually incurred and would be contrary to Hong Kong public policy. The Hong Kong High Court rejected this contention nding instead that the enforcement of the award, which was accepted to be in excess of the actual loss sustained by the Applicant (and pursuant to the liquidated damages clause in the contract), would not, in and of itself, be a breach of Hong Kong public policy. In
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arriving at this conclusion, the court said that the public policy exception was a narrow ground for the non-enforcement of arbitral awards under Hong Kong law, as well as in other jurisdictions such as England and Singapore. The court further noted that losing parties often seek to rely on the public policy exception in an attempt to manipulate an enforcing court into re-opening issues on the merits, which have been (or ought to have been) determined in an arbitration, as well as to delay the enjoyment by the winning party of the fruits of a victory. Furthermore, the court was not impressed by the Respondents conduct during the arbitration, namely its decision to discharge its Danish lawyers and not to appear in or contest the arbitration in Denmark. The court found that, having decided not to contest the arbitration proceedings, the Respondent was estopped at the enforcement stage from raising points, such as the penalty clause argument, which should have been taken in the arbitration or before the Danish courts.4 The court therefore saw the use of the public policy exception by the Respondent as an attempt to re-open the merits of the case, which was an abuse of process.5 Accordingly, the court ordered the Respondent to pay the Applicants costs on an indemnity basis. Unlike the assessment of costs on a standard basis in Hong Kong litigation (which generally require the loser to pay approximately 60-70 per cent of the winners costs), the award of costs on an indemnity basis meant that the Hong Kong court could order that all of the Applicants costs should be allowed, except where the amount was unreasonable or costs were unreasonably incurred, with any doubt resolved in favour of the receiving or winning party.6 Indemnity costs order for any unsuccessful challenge to award The court did not stop there. It held that, in the absence of special circumstances, Hong Kong courts would henceforth normally consider awarding costs against a losing party on an indemnity basis for any unsuccessful challenge to an award.7 The courts premise was that parties who elect to participate in an arbitration should comply with arbitration awards. On this basis, a party which has obtained an award in its favour pursuant to an arbitration agreement should be entitled to expect that a national
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court would enforce the award as a matter of course.8 The court viewed appeals against an award, applications to set aside an award and applications for an order refusing enforcement as exceptional events and as a high-risk strategy.9 It therefore found that where a party unsuccessfully made such an application, such party should in principle expect to have to pay a higher proportion of the costs incurred by the successful party than in normal litigation. The courts rationale was that if the losing party were made only to pay costs on a conventional basis, the winning party in the arbitration would effectively be subsidising the losing partys abortive attempt to frustrate the enforcement of a valid award in its favour.10 Furthermore, the court concluded that by mounting an unmeritorious challenge to an arbitration award, a party would be failing to comply with its obligation to further the underlying objectives of the recent reform of the civil justice system in Hong Kong (CJR), in particular the duty to assist the Court in the just, cost-effective and efcient resolution of a dispute.11 The court therefore held that in order to support the CJR and its underlying objectives, and to discourage the bringing of unmeritorious challenges to the enforcement of an award, the court would normally consider awarding costs against a losing party to an enforcement application on an indemnity basis, unless there were special circumstances.12 Comment A number of observations can be made about the decision in A v R. By upholding the narrow approach to the public policy exception (consistent with the approach in other pro-enforcement jurisdictions) and in its warning about the likelihood in the future of awards of indemnity costs for unsuccessful challenges to arbitration awards, the court manifested the strongest possible support for the paramountcy of international awards presented for enforcement in Hong Kong. The decision as a whole therefore reects the strong pro-enforcement stance of the Hong Kong courts with respect to the recognition and enforcement of international arbitration awards. The court viewed any unsuccessful challenge to an arbitration award as a potential waste of time and resources for both the award-creditor and the enforcing court. The decision therefore, in part, also
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reected a desire to give effect to the spirit of the CJR reforms in Hong Kong where the court is expected to discourage unmeritorious challenges as part of the more effective overall management of disputes. Indemnity costs orders are made to censure or penalise the wrongful conduct of one party during proceedings, and generally where proceedings are scandalous, vexatious or an abuse of process, or have been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner.13 However, such conduct may not be a factor in the case of all unsuccessful challenges to international arbitration awards. Although the award of costs is at the absolute discretion of the court in Hong Kong, the approach of awarding costs on an indemnity basis as the default option may unduly penalise an awarddebtor for asserting what it may legitimately and in good faith consider are credible grounds which justify the non-enforcement of an award, notwithstanding that such a challenge may ultimately be rejected by the courts in Hong Kong. On a more fundamental level, the courts wider comments about indemnity costs raises the question of whether a general rule that the losing party be penalised in costs for any unsuccessful challenge to an award is consistent with the overall approach of the New York Convention, and whether the attempt to lay down such a general rule is justied. The court started from the premise that parties have an expectation that, by referring disputes to arbitration, such disputes will be nally settled by a binding arbitration award. It recognised that the nality of arbitration awards (ie, that international arbitration awards are generally not subject to appeal) is a key attribute of the international arbitration process.14 Up to this point, the reasoning is beyond reproach. However, it is not right that a winning party should be entitled to expect that an arbitral award in its favour will inevitably be enforced by a national court as a matter of course. While there is a general presumption in the New York Convention that international arbitral awards are enforceable, this is subject to certain exceptions set out in the Convention, which can be invoked by either the losing party or sua sponte by the relevant national court. The narrow and exclusive exceptions to enforcement embodied in the Convention serve an important function: namely, to protect the integrity of the arbitration process by ensuring that the
award has been rendered in proceedings where due process has been followed and is compatible with international public policy. In this regard, the imposition of what is in essence a penalty (in costs) for all unsuccessful challenges, except those that are brought in truly exceptional circumstances, may be an over-zealous application of the pro-enforcement stance embodied in the Convention. It also may be unnecessary as a preventative tool, given that the vast majority of international arbitration awards are voluntarily complied with by award-debtors. Nonetheless, A v R makes clear that the Hong Kong courts view any challenge to the enforcement of an arbitration award as an exceptional event that should be undertaken only if the losing party can show that it has good reason to believe that it has legitimate grounds for resisting enforcement on the limited exceptions for resisting enforcement under the New York Convention. Otherwise, the price for an unsuccessful challenge may very likely be an order of indemnity costs. Accordingly, parties considering a challenge to an international arbitration award in the Hong Kong courts in the future would do well to think twice before doing so.
Notes * Paul Mitchard QC is a partner, and head of Skaddens Asia-Pacic and European International Litigation and Arbitration practices and the co-head of the global practice. Calvin Chan is a senior associate in the International Litigation and Arbitration group. The views expressed in this article are solely those of the authors, do not constitute legal advice, and do not represent those of Skadden or its clients. 1 Hong Kong adopted the New York Convention (Convention) on 21 April 1977 by virtue of the United Kingdom having acceded on Hong Kongs behalf. After Chinas resumption of sovereignty over Hong Kong on 1 July 1997, China, which also has signed and ratied the New York Convention, applied the Convention to Hong Kong. 2 The Court of First Instance is the rst instance court of the High Court of Hong Kong (Article 81, Basic Law of the Hong Kong Special Administrative Region of the Peoples Republic of China). 3 HCCT 54/2008 [2009] HKEC 788 (Judgment). Accessible at: http://legalref.judiciary.gov.hk/lrs/ common/ju/ju_body.jsp?DIS=65616&AH=&QS=&FN =&currpage=T 4 The courts of Denmark exercised supervisory jurisdiction over the arbitration. 5 Paragraph 61, Judgment. 6 O 62, r 28(4A), Rules of the High Court of Hong Kong. This has the effect of putting the onus on the paying party (ie, loser) to show that the costs claimed are unreasonable.
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7 Paragraph 72, Judgment. 8 Paragraph 67, Judgment. 9 Paragraphs 68 and 71, Judgment. 10 Paragraph 70, Judgment. 11 Paragraphs 69 and 71, Judgment. 12 The court did not elaborate on what would typically constitute special circumstances. 13 Choy Yee Chun (The Representative of the estate of Chan Pui Yiu) v Bond Star Development Ltd [1997] H K L R
D 1327, CA; Bank of China (Hong Kong) Limited v New Nongkai Global Investments Limited (formerly known as Global Town Limited) HCA2062/2003. 14 See eg, PriceWaterhouseCoopers International Arbitration: Corporate attitudes and practices 2006 (nding that 91 per cent of the survey respondents reject the idea of including an appeals mechanism in the arbitration process).
Japan
The unique features of Arbitration Law in Japan
Haig Oghigian*
Baker & McKenzie, Tokyo
haig.oghigian@ bakernet.com
n 2003, Japan completely revamped its century old arbitration law in enacting a new law based on the UNCITRAL Model Law,1 which came into effect on 1 March 20042 (the Arbitration Law). While the Arbitration Law largely follows the Model Law, it is adapted to the Japanese arbitration landscape. This article provides a brief overview of some of the special features of the Arbitration Law and describes in further detail judicial assistance in examination of witnesses in Japanese arbitration proceedings. Special features of the Arbitration Law Settlement capability: In Japan, similar to other civil law jurisdictions, only civil disputes that may be resolved by settlement between the parties may be submitted to arbitration.3 Arbitrator as mediator: Article 38(4) of the Arbitration Law allows the arbitrator to act as mediator but prior written consent from the parties is required. This provision is consistent with long-standing litigation practices in Japan where judges are expected to encourage amicable settlements, as well as the common settlement of arbitration cases through the active involvement of arbitrators. In recognition of the general trend in international commercial arbitration to separate arbitration and mediation proceedings, however, the Arbitration Law requires that the consent of the parties be obtained before the arbitrator can act as mediator. Use of languages other than Japanese: In an effort to make the law fairer, the Arbitration Law provides that the parties are free to agree on the language or languages to be used in the arbitral proceedings. In the absence of such an agreement, the arbitral tribunal
may make such determination.4 The old arbitration law did not address the language issue, and as the determination of language to be used in the arbitration proceedings has great implications for the parties burdens in terms of time and cost, the importance of such a clause was recognised. Consumers and employees: The Arbitration Law contains special provisions concerning consumers and employees. Under the Arbitration Law, consumers can unilaterally cancel an arbitration agreement even when they knowingly entered into it.5 Further, an arbitration agreement contained in an employment contract is deemed null.6 Preservation of judicial control: One of the most signicant features of the Arbitration Law is perhaps the continuance of signicant involvement on the part of the courts. The most obvious question is whether arbitral tribunals may issue interim measures. While other jurisdictions are embracing the idea that the tribunal has a role to play,7 the issue whether the new Arbitration Law should permit arbitral tribunals to order interim measures was one of the most debated during the drafting process. While the Arbitration Law contains supportive language,8 it remains uncertain whether interim measures issued by the tribunal are enforceable.9 The Arbitration Law also allows the court to assist a party in determining the place of arbitration if it is not clearly set out and where there is a possibility that the place of arbitration might be Japan.10 Any party may ask the court to appoint an arbitrator, particularly if either party has a place of business in Japan.11 This option is available to all parties to arbitration as long as a party has a place of business in Japan. Finally, on the positive side of judicial intervention in aid of arbitration, Article 35 of
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the Arbitration Law provides that the tribunal of its own volition or through application by a party may seek the assistance of the court in taking evidence.12 Court assistance in taking evidence Article 35 paragraph 1 of the Arbitration Law provides that: The arbitral tribunal or a party may apply to a court for assistance in taking evidence by any means that the arbitral tribunal considers necessary as entrustment of investigation, examination of witnesses, expert testimony, investigation of documentary evidence (excluding documents that the parties may produce in person) or inspection (excluding that of objects the parties may produce in person) prescribed in the Code of Civil Procedure. Provided, this shall not apply in the case where the parties have agreed not to apply for all or some of these means. The purpose of this Article is simple. An arbitral tribunals power to elicit evidence derives from an arbitration agreement. Its ability to obtain evidence from third parties who are not parties to an arbitration agreement, and whose cooperation cannot be obtained voluntarily, is therefore very limited. This Article permits the use of judicial sanctions to assist in the elucidation of facts in arbitration proceedings. The main questions that arise are: (i) Who can apply Article 35(1) allows application by either the arbitral tribunal or a party to the arbitration proceeding. However, if a party wishes to make an application for court assistance, the approval of the arbitral tribunal is required. (ii) Means of taking evidence Article 35(1) sets out the means of taking evidence that may be applicable, including entrustment of investigation, examination of witnesses, expert testimony, investigation of documentary evidence or inspection prescribed in the Code of Civil Procedure of Japan.13 The general understanding is that this list is exhaustive, and the courts will not assist in the taking of evidence through other means. (iii) Attorney representation Under Article 72 of the Lawyers Law in Japan (Law No 205 of 1949), only attorneys
admitted to the Japanese bar can practice law in Japan. While a partial amendment of the Special Measures Law Concerning the Handling of Legal Practice by Foreign Lawyer allows foreign lawyers to represent a party in international arbitration proceedings in Japan, neither an application for court assistance nor the court proceedings involving the examination of a witness in aid of arbitration is considered as an international arbitration proceeding. Japanese lawyers therefore must be retained for the purpose of an application for court assistance and the examination of a witness in court. Even if they were previously retained in connection with the arbitration proceedings, because the application for court assistance and the ensuing court proceedings are considered to be distinct procedures from the arbitration proceedings, Japanese lawyers should be retained anew for such purposes. (iv) Proceedings conducted by the court If a court grants an application for the taking of evidence, it will do so in accordance with the provisions of the Code of Civil Procedure. The arbitrator(s) is expected to be present and may directly participate in the taking of evidence with the permission of the presiding judge. As the judge(s) has no information of the dispute except the materials submitted to him/her, the judge cannot be expected to raise appropriate questions. Accordingly, in practice, the arbitrator(s) will control the taking of evidence. (v) Appeal The courts decision with regard to whether to accept an application for assistance in taking evidence is appealable.14 Such appeal must be made within two weeks from the time of notication of the decision. Judicial assistance under the Arbitration Law has not been utilised by arbitrators and parties alike. To date, there is only one reported case.15
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Conclusion While in the interest of harmonisation of international arbitration practices a minimalist approach to the UNCITRAL Model Law may be preferable, the Japanese Arbitration Law offers some novel approaches that may generate interest about considering Tokyo as a seat for international arbitrations.
Notes * F C IArb Haig Oghigian is a partner and co-chair of the Litigation and Dispute Resolution group of the Tokyo ofce of Baker & McKenzie. 1 The UNCITRAL Model Law on International Commercial Arbitration, hereinafter referred to as the Model Law. 2 Law No 138 of 2003. 3 Article 13 (1) of the Arbitration Law. This is in harmony with the Model Law, which leaves the issue of what type of dispute may or may not be submitted to arbitration to the laws of individual states (Model Law Article 1(5)). The settlement capability requirement is in line with many civil law countries such as Germany, Switzerland, France, Italy and Sweden. 4 Article 30. 5 Article 3 of Supplementary Provisions of the Arbitration Law. 6 Article 4 of Supplementary Provisions of the Arbitration Law. 7 For example, see Article 23 of ICC Rules of Arbitration, in force as of 1 January 1998. 8 Article 24(1) of the Arbitration Law states that Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order any party to take
such interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute. 9 The uncertainty over the enforceability of interim measures ordered by the tribunal is lessened somewhat by Article 24(2) of the New Arbitration Law, which provides that the arbitral tribunal may order any party to provide appropriate security in connection with such measure. The Japanese Commercial Arbitration Association (JCAA) also blunted the uncertainties regarding this issue by providing, under Rule 48, that the arbitral tribunal may issue interim measures of protection, including the requirement to advance security. 10 Article 8. 11 Article 17 read jointly with Article 8. The application shall be made to the court having jurisdiction over the place of business of a party (Article 8). 12 This corresponds to Article 27 of the Model Law, which provides that the arbitral tribunal or a party with the approval of the arbitral tribunal may request from a competent court of this State assistance in taking evidence. The court may execute the request within its competence and according to its rules on taking evidence. As will be explained, however, this provision may create some issues in terms of legal representation. 13 The Code of Civil Procedure, Law No 109 of 1996. 14 Article 35(4) of the Arbitration Law. 15 It is reported that an examination of a witness held for the assistance of an arbitration proceeding was conducted at the Tokyo District Court. For a more indepth discussion of the issues that should be considered when making an application for court assistance in the taking of evidence, please see Junya Naito, Examination of Witness in Court for Arbitration Proceedings in Japan, (2007) 18 JCAA Newsletter, 5-8.
Korea
Byung-Chol (BC) Yoon*

Kim & Chang, Seoul
bcyoon@kimchang.com
I
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Supreme Court rules on the standard for refusing to enforce arbitration awards allegedly obtained by fraud
against the buyer for breach of a minimum purchase requirement. The agreement was drafted in Korean and included a provision severely restricting the suppliers ability to bring an action for damages. The English version of this agreement, signed 50 days after the execution of the Korean original, did not include the restrictive provision. In the arbitration, the supplier claimed that the English version of the agreement in fact was an amended version of the Korean agreement. The buyer, on the other hand, claimed that the English version of the agreement was a sham agreement that the parties had prepared solely for the purpose of securing bank loans.
n a recent case where the losing party alleged that the arbitration award had been procured fraudulently, the Supreme Court of Korea has issued a noteworthy decision clarifying the standard for refusing to enforce an arbitration award on public policy grounds under the New York Convention (Supreme Court Decision dated 28 May 2009, Case No 2006Da20290). Supply agreement dispute arising under two different versions of the agreement (Korean and English) The arbitration was conducted in Hong Kong pursuant to ICC Rules. The supplier of an exclusive supply agreement sought damages
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Arbitral tribunal found that the later English version of the agreement was valid The arbitration tribunal found that the English version of the agreement was valid and enforceable. In reaching this decision, the tribunal focused primarily on the unreasonableness of the restrictive provision in the Korean agreement and the parties understanding of that provision when the Korean agreement was executed. The tribunal ultimately rendered an arbitration award granting KRW 10 billion (approximately US$9 million) in damages to the supplier, which had sought almost KRW 55 billion. Criminal complaint for forgery Separately, it bears noting that the buyer had previously given the supplier a blank cheque for the purpose of securing any damages resulting from their agreement (ie, to guarantee a buyers payment obligation). During the arbitral proceedings, the supplier wrote KRW 54.9 billion in the blank cheque, which was the amount of damages claimed in the arbitration, and presented the check for payment. This occurred before the arbitral award was rendered. The buyer responded by ling a criminal complaint against the supplier for forgery of securities, arguing that the Korean agreement was valid and binding, and that the supplier claimed a face value far exceeding the damages permitted under the agreement. Despite the arbitral award which upheld the English-language agreement, the Korean court handling the criminal case subsequently held that the supplier was criminally liable because KRW 54.9 billion exceeded the limit on damages under the Korean agreement, and thus effectively recognised the validity of the Korean agreement. Public policy review of the arbitration award The Busan High Court (appellate court) reviewed the arbitration award de novo, including the tribunals ndings of fact. It held that the arbitration award violated public policy (without specifying whether the violated public policy was Korean or transnational) because it had been fraudulently procured based on the suppliers false assertions and evidence concerning the validity and application of the English version of the agreement.
The Korean Supreme Court overturned the Busan High Courts decision and held that the arbitration award was not in violation of public policy. The Supreme Court explained that while courts may independently review the merits of arbitration awards in deciding whether to deny their enforcement under Article 5 of the New York Convention, this review must be limited in scope. Furthermore, the Supreme Court held that the Busan High Court had improperly reviewed the arbitration tribunals decision de novo and erred in denying enforcement. The Supreme Court concluded that a court may not refuse to enforce an arbitration award that was allegedly procured by fraud and in violation of public policy unless the losing party can: (i) establish fraud with clear and convincing evidence; (ii) establish that the fraudulent conduct was not discoverable upon the exercise of due diligence before or during the arbitration, and that it was consequently unable to defend itself against that fraudulent conduct; and (iii) demonstrate that the fraudulent conduct was related to a material issue in the arbitration. The Supreme Court did not nd clear and convincing evidence demonstrating that fraudulent actions had been taken to deceive the tribunal into issuing the arbitration award. Moreover, the buyer was provided ample opportunities to argue and submit evidence on the issue of which supply agreement the Korean agreement or the English version was valid and applicable. Therefore, under these circumstances, the buyer could not reasonably claim that it was unaware of the suppliers supposedly fraudulent conduct and, consequently, had been unable to defend itself against that conduct during arbitration proceedings. The Supreme Courts decision is wholly separate from the fact that the supplier was found guilty of fraud in connection with the blank check. The issue in the criminal matter was not whether the supplier had performed a fraudulent act during the arbitration, but whether the act of requesting an amount of damages exceeding the limit later acknowledged by an arbitration award was illegal in and of itself. Therefore, the Supreme Court reached this outcome regardless of the criminal case, in which the court had concluded that the Koreanlanguage agreement was valid. Based on this ruling, it is insufcient for a losing party to claim that the arbitration award was procured by fraud merely by
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arguing that a foreign arbitration tribunals ndings of fact and application of law were incorrect. Rather, the losing party must establish, by clear and convincing evidence, that the winning party made fraudulent assertions or took fraudulent actions during
the arbitration proceedings that deceived the tribunal into rendering its award.
Note * Byung-Chol (BC) Yoon is a partner and the rms chair of the International Arbitration and Litigation Group at Kim & Chang, Seoul, Korea.
Kevin Kim
From backstage into the spotlight: the rise of international arbitration in Korea
Bae Kim & Lee, Seoul

kevin.kim@bkl.co.kr
Sue Hyun Lim

suehyun.lim@bkl.co.kr
orea is now a market leader in international arbitration in Asia. East Asia is no stranger to international arbitration. While at rst, international arbitration may have been a distant acquaintance in countries such as Korea, today it is a close and familiar friend. Korea, in particular, has embraced international arbitration with open enthusiasm. After becoming a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) in 1973, Korea experienced exponential growth in international arbitration from the 1990s onwards, becoming the rst country in East Asia to adopt the UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law) in 1999 (almost ve years before Japan in 2003). Today, Korean parties are among the most frequent users of international arbitration, not only in Asia, but throughout the world, and Seoul is now firmly on the map in terms of being considered an attractive alternative to some of the more traditional arbitration centers. Arbitrators from Korea, while few and far between even ten years ago, are now commonly appointed by parties and major international arbitration institutions alike. Indeed, in recent times, outsiders have been looking to the Korean experience of international arbitration with increasing interest, in sharp contrast to a past where it was Korea that largely looked outside to the rest of the world. This section will trace some of the major developments and trends which have contributed to Koreas remarkable move from the margins of international arbitration to centre stage, in only a matter of years. It will also discuss future trends which are expected
to support Korea as a leader in international arbitration in Asia and the subject of international attention in the coming years. Growth and development of international arbitration in Korea Tracing the growth of international arbitration in Korea, currently the worlds tenth largest trading nation and the third largest in Asia, is an interesting exercise. Statistics published by international arbitration institutions concerning Korean parties, arbitrators and places of arbitration, such as the International Court of Arbitration of the International Chamber of Commerce (ICC) and the Korean Commercial Arbitration Board (KCAB), are illustrative of a story of growth and development which is replicated in other institutional and noninstitutional arbitration. For example, in 1993, the rst year for which the ICC published statistics specically concerning Korea, there were only seven Korean parties to ICC arbitrations. 1 No place of arbitration was situated in Korea. According to the most recent ICC statistics for 2008, Korean parties are at the top of the tables in terms of number of parties to ICC arbitrations from South and East Asia.2 For example, in 2008, 30 parties were Korean, with 31 being from India, 20 from mainland China (an additional 18 were from Hong Kong and one from Macau), 18 from Singapore and 13 from Japan. The number of arbitrators dramatically increased to ten in 2008, consisting of one sole arbitrator, seven co-arbitrators and two chairmen. Interestingly, in 2008, the place of arbitration was situated in Korea on four occasions: three times by party agreement; and once by the decision of the ICC (which appears to have been the rst such occasion according to published ICC statistics).
James Morrison
james.morrison@bkl.co.kr
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In terms of East Asian parties participating in ICC arbitrations between 1998 and 2008, a total of 286 parties were Korean, 217 were Japanese, and 191 were from mainland China (with a further 109 from Hong Kong and one from Macau). The recent growth trends are also reected by statistics provided by the KCAB, which is the only arbitration institution authorised by statute to provide commercial dispute resolution services in Korea.3 Although it has been active for more than 30 years since taking up its current organisational form in 1980, the KCAB has experienced a signicant surge in case numbers in recent years. For example, in the rst quarter of 2009 alone, there was a 40 per cent increase in the number of new cases led with the KCAB compared to the rst quarter of 2008, while overall in 2009, there was an increase of 21.4 per cent. For 2009, a substantial increase of 66 per cent in international case lings was also recorded. There was also a very signicant increase of 283.8 per cent in the overall value of the disputes in new domestic and international cases led at the KCAB in 2009. Interestingly, a large number of the new cases in 2009 related to disputes arising out of shipbuilding contracts in the aftermath of the economic crisis in late 2008. It should be noted, however, that only one of the international cases administered by the KCAB in 2009 applied the KCABs International Arbitration Rules (as compared to the non-international Arbitration Rules also administered by the KCAB).4 This suggests that there is still some work to be done by the KCAB and the Korean arbitration community in promoting awareness and understanding of the International Arbitration Rules that came into effect in January 2007. The above ICC and KCAB statistics are illustrative of the continuing growth of international arbitration in Korea. Indeed, these statistics recognise more than simply the fact that Korean parties are taking disputes to arbitration with gusto they also conrm that non-Korean parties and arbitration institutions have condence in Korea as a safe place for arbitration, as well as the skill, diligence and neutrality of Korean arbitrators. In terms of the types of disputes resolved in international arbitrations involving Korean parties, our experience has been that the full spectrum of subject matters and amounts in dispute is covered. In particular, since the 1997 Asian nancial crisis and the ensuing restructuring of Korean companies through
mergers and acquisitions with foreign companies, we have experienced an increase in the number of high value post-transaction disputes involving Korean parties. So, what are the driving forces in the regulatory and market environments in Korea behind these trends? And what does the future hold for international arbitration in Korea? Korea has a modern arbitration law that is supported by the judiciary Korea has a modern arbitration law, consistent with international standards and fully supported by the Korean judiciary. The current Korean Arbitration Law, enacted on 31 December 1999, largely incorporates the UNCITRAL Model Law, and Korean courts have been true to the express legislative purpose of protecting arbitration agreements and recognising and enforcing arbitral awards. For example, it has been long established that injunctions aimed at interfering with arbitration proceedings in the presence of a valid and binding arbitration agreement are not permitted by Korean courts.5 Korean courts are also keen to uphold the narrow grounds for refusing the recognition and enforcement of foreign arbitral awards in Korea, there being no case to date in which the Korean courts have refused to recognise or enforce such an award.6 Korea has an active international arbitration community A number of arbitration-specic organisations have been created in close parallel with the growth and development of international arbitration in Korea more generally. These organisations have been pivotal in the promotion and development of international arbitration in Korea and internationally. Of particular note are the Korean Council for International Arbitration, ICC Korea and the Federation of Korean Arbitrators. These organisations are very active, drawing on a membership from a broad spectrum of academics, practitioners and in-house counsel involved in international arbitration, many of whom have substantial experience working with arbitration institutions or acting as an arbitrator or counsel in cases. In recent times, Korean arbitration organisations have played a large role, together with the KCAB, the judiciary, law rms and bar associations in Korea, among others, in hosting some of the most important
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international arbitration conferences in Korea. For example, 2009 was a spotlight year for Korea, with Seoul playing host to the Asia Pacic Region Arbitration Group Conference. This meeting was one of the highlights of the 2009 international arbitration conference calendar, being attended by more than 250 participants from Korea and abroad and addressing the timely topic of Dening Best Practices of International Arbitration for Asia. Seoul also hosted a number of other important conferences in 2009, sponsored by the KCAB, the ICC, the LCIA, and the Australasian Forum for International Arbitration, among others. Importantly, Seoul has been proposed as the host of the IBA Arbitration Day in 2011. If awarded, this will consolidate and conrm Koreas position as an important world-centre for international arbitration. Koreas free trade negotiations indicate future growth in international arbitration As the tenth largest trading nation in the world, Korea has been taking part in the Doha Development Agenda talks on opening service markets and has actively pursued bilateral free trade agreements (FTAs) with its major trading partners.7 Many of the FTAs currently under negotiation by Korea include arbitration as a means of resolving disputes between foreign investors and states. In addition, Korea has been a party to the Convention on Settlement of Investment Disputes between States and National or Other States, also known as the ICSID Convention, since 1967, as well as more than 90 bilateral investment treaties, or BITs, all of which have committed Korea and provided Korean investors with recourse to arbitration in the event of investor-state disputes. As such, it is expected that the trade and investment environment in the future will be ripe for the treaty arbitrations involving Korea and Korean investors. Another signicant consequence of the FTAs has been Koreas willingness to progressively open its legal services market to foreign law rms. Indeed, following these negotiations, Korea has enacted the Foreign Legal Consultant Act (FLCA) which came into force in September 2009. This statute permits foreign law rms to open branch ofces in Korea. While considered to be the rst step towards liberalisation, the FLCA contains certain restrictions. For example, the FLCA only applies to foreign lawyers and law
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rms from jurisdictions with which Korea has entered into FTAs. In addition, the branch ofces of foreign law rms are currently not permitted to employ Korean lawyers, provide advice on Korean law or represent clients in litigation before Korean courts. One promising development from an arbitration perspective, however, is that the FLCA expressly permits foreign lawyers (even from countries without FTAs with Korea) to provide legal advice in Korea with respect to international arbitration. Indeed, for some time now, many Korean law rms have been engaging foreign lawyers in their international arbitration practice, recognising the value that different legal, linguistic and cross-cultural skills and perspectives have in the context of international arbitration. Even within the last 12 months, the effects of Koreas rst steps towards liberalising the legal services market have been seen, with a discernable increase in the number of foreign law rms expressing interest in becoming involved with the international arbitration market in Korea. Conclusion In a relatively short space of time, Korea has moved from the backstage into the spotlight of international arbitration. If current trends are any indication for what the future holds, Korea is going to be one to watch in the coming decade.
Notes 1 ICC International Court of Arbitration Bulletin (Vol 6, No 1, 1995). 2 ICC International Court of Arbitration Bulletin (Vol 20, No 1, 2009). 3 There is no restriction under Korean law on the ability of any non-Korean arbitration institutions to provide the same or similar services in Korea, including to Korean parties. 4 The KCAB International Arbitration Rules are similar to the arbitration rules of many of the major arbitration institutions. For example, under the International Arbitration Rules, parties are not restricted to selecting arbitrators from any preestablished panel of arbitrators maintained by the KCAB (as is the case under the Arbitration Rules of the KCAB). Additionally, the International Arbitration Rules provide for a scale of arbitrators fees, which is higher than the remuneration system for arbitrators under the Arbitration Rules. For more information with respect to the KCAB and both the International Arbitration Rules and the Arbitration Rules see: www. kcab.or.kr/jsp/kcab_eng/index.jsp. 5 Supreme Court Judgment dated 11 June 1996, case number 96ma149. 6 See, for example, Supreme Court Judgment dated
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28 May 2009, case number 2006Da20290, in which the defendant attempted to resist the enforcement in Korea of a foreign arbitral award on the basis of the plaintiffs allegedly fraudulent conduct. The Supreme Court rejected the defendants arguments, ruling that enforcement of a foreign arbitral award may be refused only when: (i) there was compelling and objective evidence of fraudulent conduct that is punishable by law; and (ii) the defendant could not have been aware of such fraudulent conduct, thereby depriving the defendant of the ability to challenge the
case or defend itself in that regard. 7 Currently, Korea has entered into comprehensive FTAs, which are already in effect with Chile, Singapore, India, and ASEAN members. More recently, FTAs have been concluded with the United States and the European Union but have not yet been ratied. In addition, Korea is having ongoing free trade negotiations with Canada, the Gulf Coast Countries, Australia, New Zealand and several Latin American countries. Preparations are also under way for discussions with Japan, China and Russia.
Shahid Jamil*
Michelmores LLP, London
sij@michelmores.com
Pakistan
Pakistani arbitration: towards the Model Law
he Arbitration Bill of 2009 (the Bill) was introduced into the Pakistan National Assembly on 24 April 2009.1 In its Preamble, it aspires to implement the UNCITRAL Model Law on International Commercial Arbitration in Pakistan. Once promulgated, it will constitute a further step forward in the efforts of the Government of Pakistan to build a framework for investor-friendly dispute resolution. Although it purports to implement the Model Law, it is in fact a modied version of the Indian Arbitration Act of 1996 (the Indian Act). Although it is still in draft form, its initiation is a positive sign for international commercial arbitration in Pakistan. It is hoped that it will be passed through the National Assembly and then the Senate fairly quickly and that note is taken of the changes proposed in this paper. My concerns arise from the problems faced in India in the implementation of the Indian Act. The Bill is intended to supersede and build on the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Ordinance of 2009 (REAO), which implemented the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, or New York Convention, into Pakistani law.2 The REAO is a holistic piece of legislation that covers the use of arbitration, conciliation and alternative dispute resolution within and outside Pakistan, including repromulgating a domestic law implementing the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1966, or Washington Convention.3 The Bill also proposes to establish an arbitration and conciliation centre in Pakistan.
This paper will analyse the pros and cons of the Bill regarding certain aspects of international arbitration in Pakistan and also will seek to highlight some of the challenges for international investors that it may pose. The good news The Bill builds on the progress made in the REAO in providing for New York Conventioncompliant provisions and reproduces the REAO in its Part III. Consequently, it preserves the REAOs pro-enforcement provisions regarding arbitration agreements and awards. The Bill addresses the REAOs failure to lay down a criterion for when an award can be characterised as domestic or foreign, moving towards a territorial approach, and it implements nearly identical grounds for challenging both types of awards.4 Accordingly, awards rendered within Pakistan are seen as domestic awards capable of being enforced or set aside (as appropriate) by a Pakistani court while awards rendered outside Pakistan and in a state that is party to the New York Convention are enforceable in accordance with the terms of that convention. Awards rendered in countries that are parties to the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927 (Geneva Convention)5 continue to be enforceable in Pakistan under the Arbitration (Protocol and Convention) Act of 1937 (APC Act). Under the REAO there was a residual risk that awards rendered in a New York Convention country that applied Pakistani substantive law might have been characterised as a domestic award and so be subject to
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the enforcement provisions of the Pakistan Arbitration Act of 1940. This risk arose as a result of the reasoning of the Supreme Court of Pakistan in Hitachi Ltd v Rupali Polyester,6 where the Supreme Court tacitly afrmed (while commenting that it seemed impractical) the theory of concurrent jurisdiction rst enunciated by the Indian Supreme Court in National Thermal Power Corporation v The Singer Company.7 Both Singer and Hitachi were concerned with the interpretation of the APC Act section 9(b) (the savings clause)8, which made the substantive law applicable to an award a determining factor.9 Since both the REAO and the Bill specically omit the savings clause, a strong argument can be made that the legislature has consciously altered the criteria of character determination away from the choice of substantive law and towards a more territorial approach. This argument has also been used in India, where the Indian Arbitration Act of 1996 replaced a similar savings clause contained in the Indian Foreign Awards (Recognition and Enforcement) Act of 1961 (FARE).10 Accordingly, it is likely that all awards rendered outside Pakistan will be recognised and enforced pursuant to, as applicable, the New York Convention or the Geneva Convention. The Bill also covers international commercial arbitrations11 sited within Pakistan. It provides enabling provisions and gives supervisory powers over such arbitrations to Pakistani courts largely in accordance with the Model Law, including giving the parties the power to obtain interim measures before or during arbitral proceedings, section 9; the Chief Justice of Pakistan powers to appoint arbitrators, section 11; Pakistani courts supervisory powers over the appointment and challenge of arbitrators, sub section 11-15; arbitral tribunals the power to rule on their own jurisdiction, Chapter IV of Part II; rules governing the conduct of arbitrations, Chapter V of Part II; court assistance in taking evidence, section 27; powers to arbitrators to decide a case ex aequo et bono or as amiable compositeur if authorised by the parties, section 28; and to apply the substantive law of any country chosen by the parties, section 28. The bad news The Bill copies, without substantive change, the Indian Act. Accordingly, there is a danger
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that it will import the same problems that the international arbitration community has faced in India following a number of decisions of the Indian Supreme Court. The Indian courts have been heavily criticised for their extra-territorial interpretation of the application of the Indian Act. Though Pakistani courts have shown a willingness to independently evaluate Indian precedents that are cited to them,12 Indian judgments, along with judgments from other common law countries, still have persuasive value in Pakistani proceedings. Accordingly, it would be useful if the legislators in Pakistan would review the consequences of some of the Indian cases and try to incorporate into the Bill potential solutions for dealing with the problems under the Indian Act. Part II of the Bill reproduces (with minor modications) Part I of the Indian Act. Both include provisions that apply to arbitrations taking place inside the respective country in which they apply (eg, the domestic courts powers to order interim measures, to appoint arbitrators, set aside, etc). The principal problem with the Bill arises in section 2(2): This Part and Part IV shall apply where the place of arbitration or conciliation is in Pakistan, which is substantially the same as the Indian Act section 2(2): This Part shall apply where the place of arbitration is in India. In Bhatia International v Bulk Trading S A and Another13 and, more recently, Venture Global Engineering v Satyam Computer Services,14 the Indian Supreme Court has interpreted the wording of section 2(2) to mean that Part I of the Indian Act would apply to all arbitrations whether conducted within or outside India. The Courts reasoning has been predicated largely on the fact that the word only is absent after the word shall.15 In interpreting the consequences of this omission, it reasoned in Bhatia that the section mandatorily applied Part I of the Indian Act to arbitrations taking place within India but did not prohibit Part I from applying to arbitrations taking place outside India. Recognising that, as a general principle of Indian law, the jurisdiction of a court needs to be specically excluded either by statute or by contract, the court reasoned that Part I would, therefore, apply to arbitrations conducted outside India unless the parties specically agreed otherwise. Consequently, the court allowed a party to obtain interim measures from an Indian court despite the arbitration taking place outside India. More worryingly, in Venture Global the
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Supreme Court held that Indian courts can set aside foreign awards on the same grounds (eg, patent illegality) as are applicable to domestic awards. To avoid Pakistani courts reaching a similar conclusion,16 it would be sensible to insert the word only into section 2(2) after the word shall. Public policy Another problem arising out of the Indian Act comes from the reasoning of the Indian Supreme Court in ONGC v Saw Pipes Ltd, 17 where an award rendered in India was not enforced on the ground that it failed to correctly apply Indian substantive law.18 The Indian Supreme Court predicated its decision on the Indian Act section 34, which allows a court to refuse to enforce an award contrary to the public policy of India. Section 34 has been reproduced with slight modication as section 34 of the Bill. Accordingly, the Pakistani courts could follow a similar line of reasoning. Pakistani courts have, in the past, largely tried to give a restrictive construction to public policy.19 Accordingly, they will hopefully not try to use the vagueness of the term to imply a generalised supervisory interest in the application of Pakistani substantive law in arbitration proceedings involving foreign parties. Such a result would not be in line with the spirit of the New York Convention. 20 The Bill does attempt to clarify the construction of public policy as applicable to arbitrations taking place within Pakistan, in the explanation to section 34(2). Public policy is to include: an arbitral award the making of which was induced or affected by fraud, misrepresentation or corruption and in violation of condentiality. These are broader grounds than provided in the explanation to the Indian Act section 34(2). The inclusion of misrepresentation and violation of condentiality in the explanation are capable of immense interpretation and should be deleted, or more precisely framed. Conclusion By not clearly preventing the application of Part II of the Bill to arbitrations taking place outside Pakistan, the legislature is going to import the same problems faced by the international arbitral community in India. The application of Part I of the Indian Act to arbitrations taking place outside India
has resulted not only in interim measures being ordered by Indian courts in respect of such arbitrations21 but has also led to the Indian Supreme Court ruling that an award rendered outside India is capable of being set aside by Indian courts.22 Additionally, public policy is a precarious and unpredictable term, and the uncertainty that results from it is only further exacerbated by the denition that the Bill provides in its explanation to section 34(2). These are problems that Pakistan should seek to avoid. It is hoped that these deciencies in the Bill can be cured before it is promulgated.
Notes * The author would like to give special thanks to Peter J Sigler of Michelmores LLP for his input to this paper. An earlier version of this paper has been published in (2009) 75 Arbitration 533-37. 1 A copy of the Bill is available at: www.na.gov.pk/govt_ bills/arbitration_act2009_270409.pdf (accessed on 21 August 2009). 2 For a detailed analysis of the REAO, see Shahid Jamil, Pakistans Implementation of the New York Convention (2008) 74 Arbitration 170-180. Constitution of Pakistan Article 89 deems all Ordinances to lapse after four months of their promulgation. However, the REAO has been repromulgated as an Ordinance a number of times, and its latest incarnation at the time of writing is an Ordinance promulgated on 27 November 2009. It is likely that the Ordinance will continue to be repeatedly re-promulgated until a quorate National Assembly and Senate can be convened that will pass it as an Act of Parliament. Pakistani constitutional convention indicates that the National Assembly and Senate promulgate Ordinances into Acts without substantial changes. 3 Pakistan originally implemented the Washington Convention into its domestic law by promulgating the Arbitration (International Investment Disputes) Ordinance 2006 (recently repromulgated on 27 November 2009). For an analysis of Pakistans implementation of the Washington Convention, see Shahid Jamil, Pakistan and ICSID: A Step in the Right Direction (2007) 73 Arbitration 228-230. 4 The Bill provides in its section 50 that: The recognition and enforcement of a foreign arbitral award shall not be refused except in accordance with Article V of the [New York] Convention. In respect of domestic awards, section 34(2) lays out the following grounds for setting aside: (a) the party making the application furnishes proof that (i) a party to the arbitration agreement was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or arbitration NEWSLETTER MARCH 2010 105
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(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b)the Court nds that (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force; or (ii) the arbitral award is in conict with the public policy of Pakistan. Explanation. Without prejudice to the generality of expression public policy it also includes an arbitral award the making of which was induced or affected by fraud, misrepresentation or corruption and in violation of condentiality. 5 92 League of Nations Treaty Ser 2302. 6 Hitachi Ltd v Rupali Polyester (1998 SCMR 1618). 7 National Thermal Power Corporation v The Singer Company, 80 AIR SC 998 (1993). 8 APC Article section 9(b) is a savings clause: Nothing in this Act shall ... (b) apply to any award made on an arbitration agreement governed by the law of Pakistan. 9 For a detailed analysis of these cases and their applicability under Pakistani law, see Shahid Jamil, Pakistans Implementation of the New York Convention (2008) 74 Arbitration 170-180. 10 Compare the APC Act section 9(b); section 9(b) of Indias FARE has a savings clause identical to the Pakistan APC Act section 9(b): Nothing in this Act shall (b) apply to any award made on an arbitration agreement governed by the law of India. In Centrotrade Minerals and Metals Inc v Hindustan Copper Ltd, 2006(11) SCC 245, the Supreme Court of India held that an award rendered in an international commercial arbitration conducted in any New York Convention country would be a foreign award irrespective of the proper law governing the arbitration agreement. This case is also important as the Indian Supreme Court held that the phrase or under the law of which that award was made used in NYC Article V(1)(e) refers to the law of the country in which the arbitration had its seat rather than the country whose law governs the substantive contract. Additionally, Vikramjit Sen J in Bharti Televentures Ltd v DSS Enterprises Private Ltd CS(OS) No1769/2003 decided on 17 August 2005, 2001 (3) RAJ 433 (Del) 106
para [19]: The deliberate decision not to incorporate section 9(b) of FARE assumes great signicances, and leads inexorably to the conclusion that the factum of Indian laws in the 1996 Arbitration regime, especially Part II thereof, venue/territoriality is all important. 11 The Bill section 2(1)(i) denes international commercial arbitration: international commercial arbitration includes an arbitration relating to certain disputes arising out of legal relationship, whether contractual or not, considered as commercial under the law in force in Pakistan where at least one of the parties is (i) an individual who is a national of any country, or habitually resident in another country other than Pakistan; or (ii) a body corporate which is incorporated outside Pakistan in any other country; or (iii) a company or an association of persons or a body of individuals whose principal ofce or central management and control is exercised from outside Pakistan in any country other; or (iv) the Government of a foreign country. 12 For a good example of this, see Hitachi Ltd v Rupali Polyester (1998 SCMR 1618) where the Pakistani Supreme Court refused to follow the Indian Supreme Courts theory of concurrent jurisdiction set out in National Thermal Power Corporation v The Singer Company. 13 Bhatia International v Bulk Trading S A and Another (2002) 4 SCC 105). 14 Venture Global Engineering v Satyam Computer Services (2008(1) ARBLR1 37 (SC)). 15 Bhatia International v Bulk Trading S A and Another, at paragraphs [21] and [27] the Indian Supreme Court made reference to the fact that Model Law Article 1(2), on which the Indian Act section 2(2) is based, uses the word only and that this word was specically omitted by the Indian legislature. 16 It is possible that the Pakistani courts may rely on the legal maxim expressio unius est exclusio alterius (The express mention of one thing excludes all others) in interpreting section 2(2) of the Bill and reach a different conclusion than the Indian Supreme Court, however, for the sake of clarity, I believe this change should still be made. This maxim has been applied with mixed results by the Pakistani Supreme Court in The Lahore-Sukhekhi Transport Society v The Commissioner of Income Tax, 1973 SCMR 525. Cf Jumshaid Ahmed Khan v S D M/Assistant Commissioner, 1987 PLD 213 and SESSI v Adamjee Cotton Mills, 1975 PLD 32. 17 ONGC v Saw Pipes Ltd 2003 SOL Case No175. 18 In ONGC v Saw Pipes Ltd, the arbitrators had determined that a claim for liquidated damages under Indian law required the proof of some loss contrary to the Indian Contract Act sections 73 and 74. The Supreme Court reasoned that since the arbitrators had failed to consider these sections, they had misapplied Indian substantive law. The court felt that the phrase public policy of India meant that an award could be set aside if it failed to correctly apply Indian substantive law. This wide interpretation has been criticised heavily in international commercial arbitration circles.
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19 In Manzoor Hussain v Wali Muhammad PLD 1965 SC 425, the Pakistan Supreme Court in deciding whether a contract was contrary to public policy under the Pakistan Contract Act 1872 section 23 stated that this section has to be construed strictly and that the court should not invent new categories or heads of public policy. Cf Ali Muhammad v Bashir Ahmad 1991 SCMR 1928 where the Pakistan Supreme Court afrmed the setting aside of an award because it purported to decide a criminal matter whose arbitrability would be against public policy. In The Hub Power Company Ltd v Wapda (PLD 2000 Supreme Court 841), the Supreme Court of Pakistan refused to enforce an arbitration agreement between Hubco (a subsidiary of Britains National Power, set up with World Bank support) and the Pakistani Government, on the grounds that the underlying agreement had been procured as a result of fraud and corruption. In Grosvenor Casino Ltd v Abdul Malik Badruddin (PLD 1998 Karachi 104) Bhagwandas J refused to execute a judgment of the English QBD on the grounds that the judgment decided a matter in respect of gambling debts and that wagering contracts were void under Pakistani law and were also repugnant to principles of Shariah and
as such contrary to the public policy of Pakistan. 20 See International Standard Electric Corp v Bridas Sociedad Anonima Petrolera 1990, 745 F Supp 172 (SDNY) where the US District Court of the Southern District of New York held: Finally we should observe that the core of petitioners argument, that a generalized supervisory interest of a state in the application of its domestic substantive law (in most arbitrations the law of contract) in a foreign proceeding, is wholly out of step with the universal concept of arbitration in all nations. The whole point of arbitration is that the merits of the dispute will not be reviewed in the courts, wherever they be located. Indeed, this principle is so deeply imbedded in American, and specically, federal jurisprudence, that no further elaboration of the case law is necessary. That this was the animating principle of the Convention, that the Courts should review arbitrations for procedural regularity but resist inquiry into the substantive merits of awards, is clear from the notes on this subject by the Secretary-General of the United Nations. 21 Bhatia International v Bulk Trading S A and Another. 22 Venture Global Engineering v Satyam Computer Services.
Lawrence Teh
Rodyk & Davidson LLP, Singapore
lawrence.teh@rodyk.com
Singapore
Singapore reinforces international arbitration*
The International Arbitration Act Singapore has long supported international arbitration. It is a party to the New York Convention and considered adopting the UNCITRAL Model Law shortly after it was promulgated. In 1993, the Law Reform Committee published a report proposing the review of Singapore arbitration laws1. Drawing a comparison with Hong Kong, the then Parliamentary Secretary to the Minister for Law 2 proposed the adoption of the UNCITRAL Model Law to sharpen the competitive edge of the Singapore International Arbitration Centre (SIAC).3 In that report, the Committee also recommended that: (i) the assistance of the courts should be available to enforce interim orders and/ or directions made by arbitrators under the Model Law; and (ii) such procedures as the law allows to provide security for claims to parties engaged in litigation should be made available to parties who choose to arbitrate under the international arbitration regime. The report contained a draft International Arbitration Bill, which by and large was adopted by the Singapore Parliament and which became the International Arbitration Act (the IAA). In 1994, Singapores Economic Committee recommended the development of an international commercial arbitration centre in recognition of international arbitration as a competitive business. Singapore as a venue for international arbitration Since then, arbitration practitioners have observed that, increasingly, international contracts which have no obvious connection with Singapore contain arbitration clauses favouring Singapore as the arbitral venue. Correspondingly, the number of international cases the SIAC has administered has almost doubled since the start of this decade,4 and the number of arbitrations with SIAC oversight5 has also increased.6 In 2009, the SIAC handled close to 150 cases involving claims in excess of S$1.4 billion (approximately US$1 billion).7 Singapores commitment to being one of the worlds major arbitration centres is
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demonstrated in the efforts of institutions like the Singapore International Arbitration Centre8 and Maxwell Chambers,9 the new purpose-built arbitration facility. The establishment of Maxwell Chambers has, in turn, drawn two groups of Queens Counsel and barristers to establish ofces in that facility to meet current and expected demand for top-ight arbitration lawyers.10 Broad judicial support for international arbitration Singapores continued and growing success11 cannot be sustained merely through its promoting12 itself as a venue. In order for Singapore to be seen by others as a participant on the world stage, and being supportive generally of international arbitration and its awards, much depends on the willingness of its courts to support the arbitral process and to avoid appearing to undercut the ability of tribunals to make the substantive decisions on the issues put before them.13 The Singapore courts, recognising the present-day prevalence of arbitration agreements, and judges faced with the questions of when the court should lend its assistance to prospective or ongoing arbitration proceedings,14 have expressed judicial support in two ways: (i) a willingness to grant interim relief in aid of arbitration, including nonSingapore arbitrations; and (ii) reliance on a broad denition of disputes subject to arbitration. Interim relief in aid of foreign arbitrations Until recently, it was assumed by practitioners in Singapore that the grant of interim relief by the Singapore courts in support of arbitrations that were not seated in Singapore was governed by the principles developed in a series of cases beginning with the House of Lords decision in The Siskina,15 where it was said that interim relief would be granted in aid of foreign proceedings if the plaintiffs claim is justiciable in the court asked to grant the interim relief. A claim is justiciable in Singapore if it satises two requirements: (i) the court that is asked to grant interim relief must have jurisdiction over the defendant whether by service of process within the country or permitted service of process outside of the country;16 and
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(ii) the claim must relate to a legal or equitable right or interest... which is enforceable [emphasis added] here by a nal judgment of the High Court.17 This principle was expressly approved in Singapore in at least two Court of Appeal cases.18 The word enforceable is stressed because subsequent House of Lords cases have decided that it was not necessary for the plaintiff to show that the claim would be enforced invariably or inevitably by the court asked to grant interim relief.19 This later House of Lords view was also articulated by at least one Singapore High Court judge.20 Swift Fortune caused concern On 1 December 2006, the Singapore Court of Appeal decided in the Swift-Fortune 21 case that it had no power under the IAA to grant interim injunctions to support arbitrations that were not seated in Singapore. 22 The IAA provisions, the Singapore Court of Appeal said, gave the Singapore court the power only to grant interim relief in aid of arbitrations seated in Singapore. The Singapore Court of Appeal did consider whether the Singapore court had the power to grant interim relief in favour of non-Singapore arbitrations under its general statutory power to grant injunctions in section 4(10) of the Civil Law Act. However, the Court made no denitive decision on the issue because it was not a direct issue in the appeal. The Swift-Fortune case did not decide that the Singapore court had no power at all to grant interim relief in support of a nonSingapore arbitration. However, the case involved an analysis by the highest court in Singapore of the IAA, the main arbitration statute, and gave rise to concern in the local arbitration community that Singapores position on arbitration might be regarded by casual observers to be parochial23 at the expense of it hard-earned reputation as an international arbitration centre. Indeed, at one point in 2008, it appeared to be the case that as a pre-requisite for granting interim relief in support of non-Singapore arbitrations, Singapore courts required a substantive claim not only justiciable in Singapore but to be nally resolved by a judgment in Singapore.24 Return to form with Multi-Code Post Swift-Fortune, the case law appears to be returning to form. In the Multi-Code25
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case, decided on 3 November 2008, the Singapore High Court appears to have answered the question left open in SwiftFortune. It decided that the Singapore court has the ability under its general statutory power to grant injunctions in aid of foreign proceedings. It approached the exercise of its general statutory power in a manner consistent with the Siskina case and, in particular, the principle that there is no need to demonstrate that the substantive claim will end in a Singapore judgment before an interim injunction can be granted.26 The Multi-Code case was encouraging in that it gave hope that if the issue of Singapore courts powers to issue interim injunctions for non-Singapore arbitration was ever raised in the Singapore Court of Appeal, the Court would decide the issue in the afrmative. Consolidation with amendments to the International Arbitration Act On 19 October 2009, the Singapore Parliament passed the International Arbitration (Amendment) Bill27 to give the Singapore Court power to grant injunctive relief irrespective of whether the arbitration it supported was seated in Singapore or elsewhere. In his speech on the Bill,28 the Minister for Law referred to the Swift-Fortune case as the reason for the amendment but also emphasised that the power of the Singapore Court would be restricted to interim measures, such as the making of orders for the giving of evidence by afdavit, the preservation and/or sale and/or evidence-taking of the subject-matter of the dispute, to secure the amount in dispute, to prevent the dissipation of a partys assets and for interim injunctions or any other interim measure. Consistent with Singapores policy of minimal intervention in arbitration proceedings,29 the courts are not empowered to make orders on procedural or evidential matters concerning the actual conduct of the arbitration, such as discovery, interrogatories, or security for costs. These procedural matters continue to be solely within the province of the arbitral tribunal. Broad denition of disputes subject to arbitration Another area of judicial support for international arbitration is found in the denition of a dispute. In the recent case of Tjong Very Sumito,30 the sale and
purchase agreement between the parties provided that all disputes, controversies and conicts arising out of or in connection with the agreement were to be submitted to arbitration. The claimant made an arbitration demand in response to which the respondent, after issuing a bald denial, remained silent. The issue arose whether the actions of the respondent constituted a dispute, such that the dispute ought to be referred to arbitration or whether the claimant could proceed in court on the basis that there was no dispute. In deciding the case, the court reiterated its judicial policy that it will not readily entertain frivolous jurisdictional challenges, nor will it exert a supervisory role over arbitration proceedings. This might encourage parties to impede arbitration proceedings and, in turn, slow down arbitrations and increase costs. In short, the role of the court is now to support and not to displace the arbitral process.31 The court recognised the purpose of the International Arbitration Act was to minimise court involvement in matters that parties have agreed to submit to arbitration.32 Describing the prevailing philosophy to be judicial non-intervention, the court decided to interpret the word dispute broadly and readily found that a dispute existed unless the defendant had unequivocally admitted that the claim is due and payable.33 This effectively limits situations where a claimant may legitimately bring court proceedings instead of arbitration. Conclusion No man is an island. Singapore, despite its geography, is not an island and is dependent on its relations with others and throughout its history has been keen to preserve its position as a member of the international community. The history of judicial support for international arbitration has been, so far, about the importance that Singapore places not only in developing itself as an arbitration venue but also in recognising that part of that development lies in the regard that others have of her as a facilitative participant on the world stage of international arbitration. Long may it continue.
Notes * This article was adopted from the authors earlier article, Singapore Court Support For International Arbitration And Enforcement Of Awards, rst published in the December 2009 special edition arbitration NEWSLETTER MARCH 2010 109
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issue of the Singapore Arbitrator, the newsletter of the Singapore International Arbitration Centre. 1 Law Reform Committee, Sub-Committee on Review of Arbitration Laws, Report dated 31 August 1993. 2 Singapore Parliamentary Debates, Ofcial Report (31 October 1994) vol 63 at cols 625626 (Associate Professor Ho Peng Kee, Parliamentary Secretary to the Minister for Law). 3 SIAC, an independent, not-for-prot organisation, was established in 1991, 8, Singapore International Arbitration Centre, About Us at: www.siac.org.sg/ aboutus.htm <accessed 17 December 2009>. 4 SIAC administered 37 cases in 2000 and 71 cases in 2008, Singapore International Arbitration Centre, Facts and Figures Statistics at: www.siac.org.sg/ facts-statistics.htm <accessed 17 December 2009>. 5 Even though the hearing may not be physically located in Singapore, the SIAC also provides institutional support throughout the arbitration remotely from the Secretariat in Singapore where the Secretariat acts as a central depository of all original documents if the parties so require, see Singapore International Arbitration Centre, Frequently Asked Questions at: www.siac.org.sg/faq.htm <accessed 17 December 2009>. 6 SIAC oversight arbitrations increased from 52 in 2000 to 65 in 2008, Singapore International Arbitration Centre, Facts and Figures Statistics at: www.siac.org. sg/facts-statistics.htm <accessed 17 December 2009>. 7 KC Vijayan, Queens Counsel set up shop in Maxwell Road, The Straits Times (12 December 2009). 8 www.siac.org.sg/. 9 www.maxwell-chambers.com. 10 KC Vijayan, Queens Counsel set up shop in Maxwell Road, The Straits Times (12 December 2009). 11 The Asia Pacic Arbitration Review 2009 ranked Singapore as the top South/East Asian venue for ICC arbitrations (180 arbitrations since 1992), ahead of China (80 arbitrations since 1992) and Hong Kong (64 arbitrations since 1992). 12 Some of the reasons arbitration practitioners give for Singapores popularity are: (i) Singapores reputation for a government and judiciary with high standards of efciency, integrity and transparency, combined with its strong tradition of the rule of law; (ii) the level of infrastructure and support that parties can expect from the SIAC; (iii) the highly qualied and experienced pool of arbitrators, counsel[s] and experts available in Singapore; (iv) Singapores relatively low level of arbitration costs compared to other major centres of arbitration in Europe and the United States; and (v) the convenience of Singapores close proximity to economic powerhouse nations such as India and China. Construction Week Online.in, at:
www.constructionweekonline.in/article-5445-legal_ opinion__arbitration_in_singapore/ <accessed 17 December 2009>. 13 Herbert Smith: Singapore Arbitration, Case Analysis: Are Singapore Courts consistently arbitration friendly? at: www.herbertsmith. com/NR/rdonlyres/7F042A1C-1FDA-451D-9290AC1C02E6CA19/0/Singbrieng_2.pdf <accessed 17 December 2009>. 14 NCC International AB v Alliance Concrete Singapore Pte Ltd [2008] 2 SLR 565 V K Rajah JA at paragraph 1. 15 Siskina v Distos Compania Naviera SA [1979] AC 210. Singapore has a tradition of following English case law closely. 16 The Siskina [1979] AC 210 at 254F-G per Lord Diplock. Indeed, this is the position under statute: see section 16 of the Supreme Court of Judicature Act. 17 The Siskina [1979] AC 210 at 257A-C per Lord Diplock. 18 Teo Siew Har v Lee Kuan Yew [1999] 4 SLR 560; Karaha Bodas v Pertamina [2006] 1 SLR 112 at paragraph 43. 19 Channel Group v Balfour Beatty [1993] AC 334 at 342E-343D; Mercedez Benz v Leiduck [1996] 1 AC 284 at 309A-G. 20 Front Carriers v Atlantic & Orient Shipping Group [2006] 3 SLR 854 at paragraphs 42 to 47. 21 Swift-Fortune Ltd v Magnica Marine SA [2007] 1 SLR 629. 22 Swift-Fortune Ltd v Magnica Marine SA [2007] 1 SLR 629 at paragraph 62. 23 See, for example, Lawrence Boo, Arbitration Law (2006), 7 SAL Ann Rev 51 at paragraph 3.24. 24 Petroval v Stainby Overseas [2008] SGHC 64 at paragraph 13, Tay Yong Kwang J. 25 Multi-Code Electronics Industries (M) Bhd and Another v Toh Chun Toh Gordon and Others [2009] 1 SLR 1000. 26 Multi-Code Electronics Industries (M) Bhd and Another v Toh Chun Toh Gordon and Others [2009] 1 SLR 1000 at paragraph 114, Chan Seng Onn J. 27 This Bill came to be known as International Arbitration (Amendment) Act 2009 when it came into force on 1 January 2010. 28 Singapore Parliamentary Debates, Ofcial Reports vol 86 (K Shanmugam, Minister for Law). 29 Singapore Parliamentary Debates, Ofcial Reports vol 86 (K Shanmugam, Minister for Law). 30 Tjong Very Sumito and Others v Antig Investments Pte Ltd [2008] [2009] SGCA 41. 31 Tjong Very Sumito and Others v Antig Investments Pte Ltd [2008] [2009] SGCA 41 V K Rajah JA at paragraph 29. 32 Ibid. 33 Tjong Very Sumito and Others v Antig Investments Pte Ltd [2008] [2009] SGCA 41 V K Rajah JA at paragraph 69(c).
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Ting Sun*
Asian Center for WTO & International Health Law and Policy, Taipei
r97a41017@ntu.edu.tw
Taiwan
Arbitration conference held in Taipei on commercial and treaty arbitrations

n 16 and 17 October 2009, the 2009 Taipei International Conference on Arbitration and Mediation was held in Taipei, co-hosted by the Chinese Arbitration Association Taipei (CAA, Taipei) and the Asian Center for WTO & International Health Law and Policy of the National Taiwan University (ACWH). The two-day conference featured papers presented by speakers from Australia, Germany, Hong Kong, Japan, Singapore, Sweden, and Taiwan. One area of heated discussion was the recent development of commercial arbitration and mediation in different jurisdictions. In particular, the participants focused on the impact of the nancial crisis on the eld of international arbitration. Based on statistics gathered from various arbitral institutions around the world, such as the Financial Industry Regulatory Authority (FINRA), the International Court of Arbitration of the International Chamber of Commerce (ICC), and the International Centre for Dispute Resolution (ICDR), it is clear that the number of arbitration cases currently being led is on the rise. However, since the number of new contracts in the current market has been lower than in previous years, and investment arbitrations and international trade disputes take time prior to ling,1 it is anticipated that there may be a reduction of cases in the future. The conference also addressed certain measures that are being introduced to make arbitration more time and cost efcient, as users increasingly become cost-conscious and competition for arbitration services increases. Fast-track arbitration rules and the transparency of an arbitrators workload in ICC arbitrations are some examples of such measures.2 But cutting against the efciency of the arbitral process, some parties employ guerrilla tactics, including challenges to arbitrators, counsel or parties and witnesses, to delay arbitration proceedings. Such tactics need to be seriously dealt with by imposing ethical standards or regulations in international arbitration and empowering arbitral tribunals to ensure civility in international arbitration. Another main focus of the conference was the area of corporate governance, including insolvency, in relation to arbitration. The discussion centred on the issue of balancing the conicting policy goals of national insolvency laws and international arbitration proceedings. While most insolvency laws aim to maximise the value of the debtors estate and distribute it equally to creditors, arbitration is governed by the principles of party autonomy and privity between the debtor and the creditor.3 Such different goals may create a signicant issue, for example, as to which law should govern the conict between insolvency and arbitration in a cross-border context, and how the conicting interests should be balanced in practice. One suggested approach lies in generally characterising the relationship between insolvency and arbitration as an issue of the validity of the arbitration agreement forming the basis of the arbitral tribunals jurisdiction. Thus, the arbitral tribunal should look to the law applicable to the arbitration agreement or, alternatively, to the law of the seat of the arbitration to determine the law governing the interplay between insolvency and arbitration. Also, the conference addressed the importance of a strong system of dispute resolution to modern corporate governance. Some participants advocated contemplating the feasibility of such an alternative in order to offer investors a better chance of adopting an effective dispute resolution mechanism and a more comprehensive range of procedures to select according to their specic needs. The third main area of discussion centered on arbitral agreements, and the enforcement and expansion of commercial arbitration. In this regard, the judicial determination of the validity of arbitration agreements in the Peoples Republic of China was discussed in depth. Also, participants discussed judicial disparities in determining the enforceability of foreign awards annulled at the seat of the arbitration and explored the reasons for such disparities. Various approaches to enforcing annulled foreign awards and the need for harmonious and effective interaction between annulment and enforcement of arbitral
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awards were also addressed. In the area of treaty arbitration, participants discussed various issues related to investor-state arbitration. For example, participants discussed consent issues and debated the appropriateness or effectiveness of investor-state disputes being handled by commercial arbitration institutions, and whether adopting the so-called commercial arbitration model created legal and practical constraints for investor-state arbitration under investment treaties. Although there is no theoretical impediment to utilising commercial arbitration to deal with a dispute between a state and an investor, there are certain practical hurdles to overcome.4 Another debate relating to investor-state arbitration focused on whether Chinese bilateral investment treaties afford Chinese investors sufcient protection for their foreign investments.5 These discussions centred around the arbitration decision in Mr Tza Yap Shum v The Republic of Peru, the rst ever case brought by a Chinese investor against a foreign state, in which the tribunal ruled on Perus jurisdictional objections. In another discussion of treaty arbitration, some interesting comparisons were made between the WTO dispute settlement process and national systems of dispute settlement.6 Some parallels were noted, including the treatment of a resulting award and a panel or appellate bodys adopted report at the compliance stage. The predominant WTO dispute settlement mechanism appears to be the functional equivalent of the formal national judicial system, rather than a system of
arbitration and negotiation. The conference came to an end with a heated discussion during the session called Arbitration and International Investment & Trade. This years annual conference will be held on 17-18 September 2010, and will deal, among other topics, with Arbitration on Commercial and Investment, and looking back on the 25th anniversary of the New York Conventions implementation.
Notes * Ting Sun is an assistant at the Asian Center for WTO & International Health Law and Policy (ACWH) and the Chief of Associate Editorial Members of the Contemporary Asian Arbitration Journal (CAA). 1 See, Stephan Wilske, Crisis? What Crisis? The Development of International Arbitration in Tougher Times, 43, 48-52, presented at 2009 Taipei International Conference on Arbitration and Mediation, 16-17 October 2009. 2 Ibid, 52-54. 3 Lars Markert, Arbitrating in the Financial Crises: Insolvency and Public Policy versus Arbitration and Party Autonomy Which Law Governs?, 69, 70, presented at 2009 Taipei International Conference on Arbitration and Mediation, 16-17 October 2009. 4 See Chang-fa Lo, The Legal and Practical Constrains of Using Commercial Arbitration to Handle Investment Dispute, 233, 234-42, presented at 2009 Taipei International Conference on Arbitration and Mediation, 16-17 October 2009. 5 See generally, Nils Eliasson, Investor-State Arbitration and Chinese Investors, 290, presented at 2009 Taipei International Conference on Arbitration and Mediation, 16-17 October 2009. 6 See generally, Yasuhei Taniguchi, WTO Dispute Resolution as Arbitration, 283, presented at 2009 Taipei International Conference on Arbitration and Mediation, 16-17 October 2009.
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Olivier Caprasse
Professor at the Universities of Lige and Brussels; and Hanotiau & van den Berg, Brussels
olivier.caprasse@hvdb.com
Belgium
Arbitrability, due process and public policy in setting aside proceedings

he Belgian law of 27 July 1961 on the unilateral termination of exclusive distributorship contracts concluded for an unlimited period of time grants specic rights to the agent in case of unilateral termination by the principal when the contract has effect in the whole or part of the Belgian territory. Arbitrability: primacy of the lex fori to determine validity of agreement to arbitrate and choice of law Article 4 of the law provides that: The agent who has suffered damages as a result of the termination of a distributorship contract having effect in the whole or part of the Belgian territory, may always initiate court proceedings in Belgium against the principal, either before the court of his own domicile, or before the court of the domicile or seat of the principal. When the dispute is brought before a Belgian court, this court shall only apply Belgian law. Article 6 of the law stipulates that: The provisions of this law shall apply notwithstanding any agreement to the contrary concluded before the end of the distributorship contract. The right to enter into an arbitration agreement after the termination of an exclusive distributorship contract is well established. Also recognised is the parties right to insert an arbitration clause in such a contract to resolve disputes on matters not covered by the law of 27 July 1961. However, there has been much debate on whether parties may validly insert an arbitration clause in their agreement to resolve disputes regarding matters falling under the 1961 law, such as the conditions under which the agreement can be terminated. In the landmark case Audi-NSU v Adelin Petit (Cass B, 28 June 1979, Pas, 1979, p 1280), the Belgian Supreme Court rst ruled, at the stage of enforcement of the award, that Belgian law, as the lex fori, was applicable to the question and that the New York Convention conrmed this. The court further ruled that the parties could not agree on an arbitration clause mandating the application of foreign law before the end of the contract. Following this decision, a debate ensued as to whether the arbitrability of a dispute should be assessed pursuant to the lex contractus or the lex fori (ie, Belgian law) at the stage of the enforcement of arbitration agreements. In a decision rendered on 16 November 2006 (Cass B, 16 November 2006, R D J P, 2007, p 13; R D C, 2007, p 889, and note L MERTENS), the Belgian Supreme Court reafrmed the Audi-NSU decision and extended the principle of the application of the lex fori at the stage of the recognition of the arbitration agreement. Therefore, in Belgium, the arbitrability of a dispute must be assessed by courts pursuant to the lex fori both at the stage of the recognition of the arbitration agreement as well as at the stage of recognition and enforcement of the award. In the specic case of the 1961 law, arbitration agreements are null and void if they provide for the application of a law other than Belgian law to the merits, unless the parties agree to arbitration after the termination of the distributorship agreement. Due process as a ground to set aside the award: impact on outcome not required Article 1704, 2 (g) of the Belgian Judicial Code provides that the arbitral award may be set aside If the parties were not given the opportunity to present their case and their arguments, or if any other imperative rule of the arbitral proceedings has been violated, provided such a violation of the rules had a bearing on the decision. This provision distinguishes between two grounds for setting aside an award: violation of due process, on the one hand, and violation of any other imperative rule of the arbitral proceedings, on the other hand. One may criticise this distinction, more specically the fact that in Belgium a party may obtain the annulment of an award for violation of due process without having to prove any impact of this violation on the outcome of the arbitration.
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However, the distinction remains and has been conrmed by the Supreme Court on 25 May 2007 and relates to due process (Cass B, 25 May 2007, C040281.N; www.cass.be). This decision is noteworthy because it makes Belgian annulment proceedings based on due process quite different from other countries where the party seeking the annulment has to prove the impact of the due process breach on the outcome of the case. Public policy and the setting aside of an award A recent decision of the Brussels Court of Appeals rendered on 22 June 2009 in the famous SNF/CYTEC case (Rev arb, 2009, and note A Mourre) reversed the annulment of arbitration awards based on public policy violations but did not follow a restrictive approach of public policy in doing so. The court had to rule on the appeal against the decision of the Brussels Court of First Instance, which had annulled two ICC awards for breach of public policy (European competition law). As I was, with Bernard Hanotiau, SNFs counsel in those proceedings, I limit myself to the principles involved, which principles Hanotiau and I in fact developed in various publications prior to being involved in the SNF case. In Belgium, awards may not be reviewed on their merits by domestic courts, but Belgiums legislation does permit the annulment of awards which violate public policy (international public policy when the case is international). There is much discussion, as in many other countries, regarding the scope of application of public policy as a tool to review and possibly set aside arbitration awards. Some favour a restrictive conception of the control of public policy. This was the position adopted in the famous Thals decision of the Paris Court of Appeals, where the Court stated that an award should be set aside only in case of agrant, effective and concrete violations of public policy (CA Paris, 18 November 2004, Thals v Euromissile, J D I, 2005, p 357, and note A Mourre). Thals drastically limits the scope of the control based on public policy concerns.
Others, including the undersigned, consider that the control must be real and not necessarily limited to agrant violations of public policy. The Brussels Court of First Instance followed this approach in its 8 March 2007 decision setting aside the awards for breach of public policy (Brussels Court of First Instance, 8 March 2007, Rev Arb, 2007, 305). The court expressly stated that any violation of public policy must be sanctioned by the annulment of the award, and not only agrant, real and concrete violations (terms of the Thals decision). The Court of Appeals, however, reversed the decision, nding that the awards did not breach public policy. While the nal outcome is the opposite of that reached by the Court of First Instance, I do not believe that this is the consequence of the adoption by the Court of Appeals of the restrictive conception of the control of public policy. In fact, the Court of Appeals did not openly choose between the minimalist and the maximalist approach. Indeed, when read carefully, the decision reveals that the court examined concretely whether the awards violated public policy or not. Another important aspect of the Belgian arbitration legislation was at the heart of the decision. Article 1717 (4) of the Belgian Judicial Code deprives parties having no ties with Belgium of the right to seek the annulment of an award rendered in Belgium. Such automatic exclusion has not been received with great enthusiasm by the international community. That is the reason why, in 1998, the law was modied to offer the parties with no ties to Belgium to opt-out of the annulment regime by express agreement. This possibility is only offered to parties lacking any connection with Belgium in the sense of article 1717 (4). An agreement to exclude the set-aside procedure must be express. In the SNF/ CYTEC case discussed above, the Court of Appeals, similar to the Court of First Instance, correctly decided that, as in Switzerland, the reference to arbitration rules providing for the waiver of any possibility of challenge is not an express exclusion.
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Richard Bamforth*
Olswang, London
richard.bamforth@ olswang.com
England
Has the door been opened for substantive amendments to arbitral awards? How a recent decision of the English court erodes the principle of nality of awards
CNH Global N V v PGN Logistics Limited & Ors [2009] EWHC 977 Comm
Katerina Maidment
Olswang, London
katerina.maidment@ olswang.com
n CNH Global N V v PGN Logistics Limited & Ors [2009] EWHC 977 Comm, the tribunal erroneously used the slip rule in Article 29 of the ICC Rules to make a substantive amendment to the award. The claimants challenge to the award for serious irregularity under section 68 of the Arbitration Act 1996 was, however, dismissed by the English court. This article analyses this decision, highlighting the circumstances in which substantive amendments to an award may be allowed and considering the potential erosion of the principle of nality of arbitral awards. Facts: the arbitrators failed to award interest on payments and issued an amended award correcting their error By its award on quantum in an ICC arbitration, the tribunal ordered the claimant to pay damages to the defendant for loss of future prots following the claimants purported termination of a Services Agreement. The damages were calculated with reference to payments the claimant would have made to the defendant had the Services Agreement been allowed to run its contractual course (the Payments). The tribunal failed, however, to award interest on the Payments to the defendant. The defendant therefore applied to the tribunal for the correction of the award, including an amendment to award interest on the damages from the date that the Payments would have been made by the claimant had it not terminated the Agreement. The tribunal acknowledged that its failure to award interest on the Payments had been a substantive error. (It was not merely an omission because the tribunal had expressly awarded post-award interest in the original award.) By an addendum to the award, the tribunal therefore sought to correct the award on the basis of Article 29 of the ICC Rules and awarded interest to the defendant of between 1.5 million and 3 million. Article 29 gives
a tribunal the power to correct a clerical, computational or typographical error, or any errors of a similar nature contained in an Award. The losing party challenges the amended award alleging excess of arbitral powers The claimant challenged the amended award for serious irregularity under section 68 of the Arbitration Act 1996 on the grounds (amongst others) that the tribunal had exceeded its powers by making the substantive amendment, and this was a serious irregularity that caused the claimant substantial injustice because it put the claimant in a position of having to pay substantial interest which it would not otherwise have had to pay under the original award. (An applicant under section 68 must show that (a) a serious procedural irregularity has occurred of the kind listed in the sub-paragraphs to section 68(2), and (b) this irregularity has caused or will cause substantial injustice to the applicant). The amended award was a serious irregularity under the English Arbitration Act The court considered the construction of Article 29 and concluded that the tribunals correction of its failure to award interest was not within the parameters of Article 29 because it was neither a clerical error (that is, an error affecting the expression [of] the arbitrators thought, not an error in the thought process itself) nor a computational error (which would relate to an error of calculation, for example adding additional noughts or simply incorrectly adding up) nor a typographical error nor any other error of a similar nature (which, in accordance with the concept of ejusdem generis which is incorporated into English law, must be something close to clerical, computational or typographical). Indeed, Article 29 of the ICC
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Rules is often referred to informally as the slip rule, which is intended to give the power to correct (only) accidental slips or omissions such as a clerical error. In making the substantive amendment, the tribunal had therefore exceeded its powers, and this irregularity was serious in its effect because it had the result of transforming a position in which the claimant did not have to pay a gure of between 1.5 million and 3 million into one in which it did. The rst limb of a successful challenge to an award for serious irregularity was therefore satised because the tribunals correction of the award fell under sub-paragraph 68(2)(b) (the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction)). This is in contrast to Lesotho Highlands Development Authority v Impregilo SpA & Ors [2005] UKHL 43 in which the House of Lords held that the tribunal, which had awarded damages in a currency not permitted by the arbitration agreement, had incorrectly exercised a power available to it, rather than having exceeded the powers which it did have as was the case in CNH Global v PGN Logistics. The distinction may appear subtle but is material because the latter falls within section 68(2)(b) of the 1996 Act (therefore satisfying the rst limb of the test for a successful challenge to an award under section 68) whereas the former does not. The application to challenge the award in Lesotho therefore failed on the grounds that the tribunals awarding of damages in the wrong currency did not constitute a procedural irregularity. But the amended award did not constitute a substantial injustice The court then went on to consider whether the serious irregularity had caused or would cause substantial injustice to the applicant. The court rejected the claimants framing of the question as a straightforward analysis of whether the irregularity had a negative impact on the claimant (which clearly it did because it increased the amount which the claimant had to pay to the defendant by between 1.5 million and 3 million). In highlighting that the question of substantial injustice had to be looked at in the round, the court referred to an extract of the commentary on the Arbitration Bill by the Departmental Advisory Committee on Arbitration Law in February 1996 (paragraph 280): Having chosen arbitration the parties cannot validly complain of substantial
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injustice unless what has happened simply cannot on any view be defended as an acceptable consequence of that choice. In CNH Global v PGN Logistics, the court was mindful that the irregularity (the tribunals amendment), far from causing substantial injustice, had in fact put the parties in the position that they should have been in and was merely depriving the claimant of a windfall which it had never deserved. The claimant had not therefore suffered substantial injustice as the term is understood in the context of an application under section 68 of the Arbitration Act 1996. Comment: challenges to award remain limited but principle of nality may be eroded The decision in CNH Global v PGN Logistics demonstrates the English judiciarys intention to minimise interference in arbitral proceedings except in very limited circumstances. The high threshold for establishing substantial injustice to the applicant meant that the claimants challenge to the award under section 68 of the Arbitration Act 1996 failed, just as in Lesotho Highlands Development Authority v Impregilo SpA & Ors the House of Lords was unwilling to equate the granting of damages in a currency not permitted by the contract with a procedural irregularity under section 68. It is also the case, however, that the English courts decision in CNH Global v PGN Logistics could be viewed as eroding one of the cornerstones of arbitration, namely the nality of arbitral awards. The effect of the decision is to allow a tribunals substantive amendment to an award, post-issuance, to stand despite the institutional rules under which the arbitration is conducted only allowing the correction of non-substantive errors such as slip ups in mathematical calculations (at least that is the position where the court considers that the amendment corrects the award). Article 29 of the ICC Rules is mirrored in, for example, Article 27.1 of the LCIA Rules, Article 36 of the Swiss Rules of International Arbitration, and Article 30 of the International Centre for Dispute Resolutions Rules. These institutions and others expressly, by their rules, limit the opportunity for post-award substantive amendments. By choosing arbitration, parties accept this risk that the award may contain errors as a quid pro quo for nality of the arbitral
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award which brings with it both certainty and savings in terms of time and expense that may otherwise arise from the threat of multiple layers of appeals. Indeed, in the House of Lords judgment in the Lesotho case, Lord Steyn recognised that errors in arbitral decisions do occur but that this is the bargain which parties make when agreeing to arbitrate their disputes. This is reinforced by the fact that many of the institutional rules which parties adopt exclude the right to appeal from an award on a point of law. (In the recent judgment in Shell Egypt West Manzala GmbH & Another v Dana Gas Egypt Ltd [2009] EWHC 2097, the English court referred to the ICC Rules (Article 28(6)) and the LCIA Rules (Rule 26) as containing wording which, under English law, successfully excludes the right of appeal on a point of law.). It should be noted that in CNH Global v PGN Logistics, the application failed because the court could nd no substantial injustice to the applicant where the irregularity (the amendment) had in fact deprived the claimant of a windfall which the claimant should never have enjoyed and would never have enjoyed, but for the error in the original award. By analogy, if, in the courts view, the amendment had not achieved the right answer, the court may have found that a substantial injustice had been
caused to the claimant and the amended award may have been remitted for further consideration. The irony of the decision in CNH Global v PGN Logistics is that, whilst the English court appeared to advocate only limited judicial intervention in the arbitral process by insisting on a high threshold for a nding of substantial injustice for the purposes of a challenge under section 68 of the Arbitration Act 1996, the decision leaves the door open for the court to make value judgments on the correctness or otherwise of an award. In Lesotho Highlands Development Authority v Impregilo SpA & Ors, Lord Steyn, referring to the Report on the Arbitration Bill by the Departmental Advisory Committee on Arbitration Law in February 1996 (the DAC Report), said that the ethos of the DAC Report was that the parties are entitled to a fair hearing leading to an impartial adjudication. But the idea that section 68 contemplated an adjudication which arrives at the right conclusion would have been wholly out of place in these recommendations. The non-interventionists of the arbitration world would agree.
Note * Richard Bamforth is the Head of International Arbitration and Katerina Maidment a Professional Support Lawyer in Arbitration at Olswang.
Peter J Rees QC
Debevoise & Plimpton LLP, London
pjrees@debevoise.com
Arbitration awards Through the Looking Glass (with apologies to Lewis Carroll)
What the parties did rst The parties, whom we shall call Shell and Dana, entered into a Farm-In Agreement (FIA) for oil and gas exploration in the Nile Delta. They made the contract subject to English law. They agreed that if there was a dispute they would arbitrate in London, England, in accordance with the UNCITRAL Arbitration Rules. Article 32.2 of the UNCITRAL Rules provides: The award shall be made in writing and shall be nal and binding on the parties. The parties undertake to carry out the award without delay. The parties expanded upon this in the arbitration clause in the FIA and wrote: The dispute shall be submitted to the arbitrators in such manner as they shall deem appropriate and the decision of the majority of the arbitrators, rendered in writing, shall be nal, conclusive and binding on the parties, and the judgment upon such decision may be entered in any court of a country having jurisdiction. What the parties did next The parties then had a dispute and, in accordance with the provisions of the FIA, they referred it to arbitration. The dispute was about whether Dana had been in breach of contract, whether Shell had the right to rescind as a result, and whether Shell had actually elected to rescind or had accepted Danas repudiatory breach.
Louise Byrne
Debevoise & Plimpton LLP, London
lbyrne@debevoise.com
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What the arbitration tribunal did The tribunal decided that there had been a breach of the contractual terms specied and that had given rise to the right to rescind the contract. However, it went on to hold that Shell had not accepted the repudiatory breach, nor had it elected to rescind for breach of warranty. Instead, the tribunal found that it had afrmed the FIA and it went on to reject all of Shells claims. What the parties then did Shell, whose claims had been rejected, applied to the Commercial Court in England for permission to appeal the award pursuant to section 69 of the Arbitration Act 1996. Section 69 says: Unless otherwise agreed between the parties, a party to arbitral proceedings mayappeal to the court on a question of law arising out of an award made in the proceedings. In response, Dana applied for an order that the court had no jurisdiction to hear the application, because the parties had agreed in the FIA that there should be no right of appeal. It said that the combination of words nal, conclusive and binding showed that the parties had unequivocally agreed that there should be no ability to appeal the arbitral award. Dana had to accept that the words nal and binding might not be effective to constitute an exclusion provision because there had been a previous case, Essex County Council v Premier Recycling Limited,1 decided by Ramsey J, who had interpreted the words nal and binding as being insufcient to exclude the right of appeal and who had held that a clear intention to exclude this right must be shown either from express words or from the context. But it pointed out the provisions of the UNCITRAL Rules, which simply say nal and binding, had been expanded in the FIA by the addition of the word conclusive and that this pointed more strongly towards an exclusion agreement. It argued that as the parties had gone out of their way to modify the wording it was particularly important to ensure that this additional word conclusive was given meaningful effect. Shell argued that an agreement to exclude a partys right to appeal under section 69 should be in clear terms. It referred to LCIA Rule 26.9 which says: All awards shall be
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nal and binding on the parties. By agreeing to arbitration under these Rules, the parties undertake to carry out any award immediately and without delay; and the parties also waive irrevocably their right to any form of appeal, review or recourse to any state court or other judicial authority. It also referred to ICC Rule 28.6 which says: Every Award shall be binding on the parties. By submitting the dispute to arbitration under these Rules, the parties undertake to carry out any Award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made. It said that this was the kind of language required to exclude the right of appeal. It argued that the word conclusive added nothing to the words nal and binding and was merely synonymous with the latter phrase. The words nal, conclusive and binding, Shell concluded, fell far short of the words that would be needed to exclude the parties right to appeal under section 69. What the judge did The judge was Mrs Justice Gloster. She said that the phrase nal, conclusive and binding as it appeared in the FIA could not be construed as an agreement excluding the parties right of appeal under sections 69. She held that sufciently clear wording is required to constitute such an exclusion, albeit that no express reference to section 69 would be required. Approving the decision in the Essex County Council case, she held that the expression nal and binding in the context of arbitration agreements has often been used to convey the rule that an award creates a res judicata between the parties, but that it does not exclude the right to appeal. She held that the addition of the word conclusive did not mean that the parties agreed to exclude their statutory right of appeal on points of law and certainly not with sufcient clarity to amount to an exclusion agreement. To attribute to the word conclusive the meaning argued by Dana would require the word to work too hard, she said. Gloster J accepted the submission that meaning had to be given to the word conclusive within the FIA, however, she held that all three words, in context, were merely a means of describing the effect of a valid arbitral award on the parties, even in the absence of any agreement excluding the right of appeal.
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She said: An award can be said to be conclusive of issues of fact and law, in that an award prevents a party in a subsequent arbitration or claim from disputing for a second time an issue of fact or law on which he has failed. Moreover an award can also be said to be conclusive in that it precludes a party from reopening in a later dispute individual issues of law or fact which had been necessarily decided by the award . Such words, by themselves and absent any other contextual indicators, are not sufcient, in my judgment, to amount to an agreement to exclude rights of appeal under section 69 of the 1996 Act... She therefore granted permission to appeal. By the way, the case was Shell Egypt West Manzala GmbH & Shell Egypt West Qantara GmbH v Dana Gas Egypt Limited (formerly Centurion Petroleum Corporation).2 And the moral of the story is if you do not want an arbitral award to be susceptible to appeal on points of law in England, then specic language to exclude this possibility will be required. These words
can be in the arbitration rules chosen, but, if not, they need to be in the arbitration clause itself. The UNCITRAL Rules and the ICDR International Arbitration Rules do not contain provisions similar to those contained in the LCIA and ICC Rules, so when drafting arbitration clauses referring to UNCITRAL or ICDR Rules, the specic exclusion of the right to appeal needs to be in the clause itself. Although you might have thought that the words nal, conclusive and binding mean what they appear to say, it is certainly not enough in England. At least that is what English judges (and Humpty Dumpty) appear to say. When I use a word, Humpty Dumpty said, in a rather scornful tone, it means just what I choose it to mean, neither more nor less. The question is, said Alice, whether you can make words mean so many different things. The question is, said Humpty Dumpty, which is to be master - thats all.
(From Through The Looking Glass by Lewis Carroll)
Notes 1 [2006] EWHC 3594. 2 [2009] EWHC 2097 (Comm).
Matthew Weiniger*
Herbert Smith LLP, London
matthew.weiniger@ herbertsmith.com
Court of Appeal denies enforcement of an ICC award because the defendant was not a party to the arbitration agreement
Joanne Greenaway
Herbert Smith LLP, London
joanne.greenaway@ herbertsmith.com
n Dallah Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan,1 the Court of Appeal conrmed a Commercial Court decision refusing enforcement of a French ICC award on the grounds that the Government of Pakistan was not party to the relevant arbitration agreement even after an arbitral tribunal in Paris had ruled otherwise and rendered its award accordingly. The 2008 Commercial Court decision was the subject of considerable attention as it was a rare example of a refusal by the English Courts to enforce an award under the New York Convention. It demonstrates the principle that the enforcing court has autonomy to determine whether an arbitration agreement is valid and whether enforcement should be permitted. A challenge need not be brought to the courts
at the seat of arbitration. It is also noteworthy for the extent to which the case opens up issues of jurisdiction determined by the arbitral tribunal. Background Dallah is a Saudi Arabian company which provides services for Muslims performing the Hajj pilgrimage to Mecca. In 1994, the Government of Pakistan decided to set up the Awami Hajj Trust to invest in real estate projects in Mecca. It entered into a Memorandum of Understanding with Dallah by which Dallah was to acquire land in Mecca and contract with the trust, a separate legal entity, for the use of the land. Dallah and the trust subsequently entered into the contracts, worth US$345 million, for development of housing on Dallahs plot. These contracts
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referred disputes to ICC arbitration in Paris. The trust was established on the basis of a temporary ordinance. When this lapsed the trust ceased to exist. A contractual dispute arose which Dallah referred to arbitration in Paris against Pakistan. The Government of Pakistan, insisting that it was not a party to the contracts and had not been named in the arbitration clause, refused to participate in the arbitration. After obtaining three awards in Paris one partial award on jurisdiction which found that Pakistan was bound by the arbitration agreement, a further award on the merits and a nal award on quantum Dallah initiated enforcement proceedings in London. However, the Government of Pakistan resisted enforcement claiming that the arbitration agreement was invalid. Validity and scope of the arbitration agreement Validity of the arbitration agreement is one of the grounds for refusing enforcement under the New York Convention (Article V) as implemented by the English Arbitration Act (section 103(2)(b))2. This states: Recognition or enforcement of the award may be refused if the person against whom it is invoked proves (b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made. Whilst on the face of it, this provision seems to refer solely to the validity of the arbitration agreement as opposed to its scope, the court adopted a broader view and held that it should be construed to include the issue of whether, in fact, the party against whom the award is invoked is bound by the arbitration clause. Applicable law and its effect on the identity of the parties To determine the question of whether the Government of Pakistan was party to the arbitration agreements, the Commercial Court and tribunal took different views regarding which law applied. They were able to do so since the parties had not specied which law should be applied to the arbitration agreement per se. Whereas the tribunal had applied transnational law, the Commercial Court
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decided that French law should apply, being the law of the seat (as dictated by section 103(2)(b) above). Transnational law would show that Pakistans involvement in the negotiations and performance and termination of the agreement showed that it had consented to be a party to the arbitration agreement. French law, on the other hand, specied that the law of the country where the contract was entered into governed the question of legal capacity to enter into the agreement. Under Pakistani law, the agreement would have needed the signature of the President of Pakistan. Therefore, and having considered all relevant factors pursuant to the applicable French law principles, Mr Justice Aikens held that Pakistan was not a party to the arbitration agreement and refused enforcement of the award. The appeal A full rehearing Dallah appealed in 2009. In disposing of the appeal, the Court of Appeal considered the approach to be taken by a court in determining whether one of the grounds under section 103 of the Act for resisting enforcement of an arbitral award is made out. The court found that such a determination involves a full rehearing of the relevant issues and not merely a review of the tribunals decision. In rehearing the issues, the court conrmed Mr Justice Aikens judgment at rst instance that, as a matter of French law, Pakistan was not a party to the relevant arbitration agreement and therefore enforcement was refused. Although the court recognised that in certain circumstances a court may have discretion to enforce an award notwithstanding the existence of one of the conditions for refusal of enforcement set out in section 103, such circumstances must be limited and it would not be appropriate in this instance. No primacy of the court of the seat Moreover, the court rejected the contention that the supervisory court at the seat of the arbitration has primacy. This nding seems to extend the principle laid out by the well known line of authority (Hilmarton, Chromalloy and Putrabali)3 in which courts enforced awards which had been annulled at the seat of arbitration. It also reafrmed the
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principle which was laid out in the case of Svenska v Lithuania that in order for a party to challenge the enforcement of an award, there is no requirement to have brought a challenge to the court of the seat.4 In so doing, it rejected Dallahs argument that Pakistans failure to challenge the award in France rendered the award nal and conclusive between the parties. No issue estoppel The court examined whether Pakistan was issue estopped from challenging enforcement following the tribunals determination that it had jurisdiction over Pakistan. It concluded that no estoppel existed the parties had not agreed to submit to the tribunal and, as such, it was not a court of competent jurisdiction for these purposes. Conclusions Primarily, the decision of the Court of Appeal is noteworthy for clarifying how enforcing courts should evaluate whether a ground under section 103 of the Act has been made out; it shows that courts can give a wide interpretation of the grounds to resist enforcement. It also conrms that there is no requirement for a party to challenge or appeal an award in the courts of the seat of arbitration before resisting enforcement elsewhere. The underlying Commercial Court decision also highlights the difculties investors may encounter when contracting with states or state owned entities. Parties should always seek local advice regarding the capacity of a state party to enter into commercial contracts. They should ensure they know with whom they are contracting and then ensure that the counterparty remains accountable for the duration of the contract. It is clearly undesirable to be left in a situation, as Dallah was, in which a costly award is obtained, only to discover that it cannot be enforced. Furthermore, to reduce uncertainty as to the interpretation of an arbitration agreement, parties are advised to include where possible an express agreement on the law applicable to the arbitration agreement.
Given the recent publication of the Heidelberg Report5 and the proposals of the EU Commission6 on the Brussels Regulation in the wake of West Tankers,7 the decision in Dallah is also particularly topical. One of the key proposals is to include arbitration within the Regulations system for allocating jurisdiction. This would grant primacy to the courts of supervisory jurisdiction and prevent the situation whereby different courts could come to different conclusions vis-vis enforcement. Following the reasoning in the Dallah case, this would arguably undermine the intention behind the New York Convention and its enforcement regime. Whilst it may be problematic for an enforcing court or even several enforcing courts to reach different decisions from each other and/or from the court of the seat, the Court of Appeal in the Dallah judgment demonstrates that an enforcing court must be granted jurisdiction to properly be able to examine a case.
Notes * Matthew Weiniger is a Partner and Joanne Greenaway is a Professional Support Lawyer in Herbert Smiths International Arbitration Group. Both are based in London. 1 Dallah Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2009] EWCA Civ 755; Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan [2008] EWHC 1901 (Comm). 2 Implementing the second half of New York Convention Article V(1)(a). 3 Societe Hilmarton v Societe OTV (1994) 121 J D I 701, Cass civ 1re, 23 March 1994; In the Matter of the Arbitration of Certain Controversies between Chromalloy Aeroservices and the Arab Republic of Egypt Civ No 94-2339 (31 July 1996); Societe PT Putrabali Adyamulia v Societe Rena Holdings and Societe Moguntia Est Epices Civ 29 June 2007. 4 Svenska Petroleum Exploration AB v Government of the Republic of Lithuania No 2 [2006] EWCA Civ,1529. 5 Study LJL/C$/2005/03, Report on the Application of the Regulation Brussels 1 in the Member States, prepared by Professors Hess, Pfeiffer and Schlosser. 6 Green Paper (COM(2009) 175 nal) and Report (COM (2009) 174 nal). 7 The Attorney General's Opinion as referred to it by the House of Lords in Allianz SpA (Formerly Riunione Adriatica Di Scurta SpA) and others v West Tankers Inc, Case C-185/07.
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France
Commentary on the CEDR Rules for the facilitation of settlement in international arbitration
Jacob Grierson
Jones Day, Paris
jgrierson@jonesday.com
ew would disapprove of the increased use of mediation (and other methods for achieving amicable settlements) in international commercial dispute resolution in recent years. Avoiding litigation or arbitration by negotiating a settlement agreement reduces legal fees, frees up management time for more productive uses and allows parties to continue to work together. Similarly, few would deny that there is still considerable progress to be made in achieving more settlements of international arbitrations.1 It was therefore a very positive step when the mediation specialists CEDR set up an Arbitration Commission to examine ways for international arbitrators to promote settlement more effectively.2 In November 2009, the Arbitration Commission published Rules for the Facilitation of Settlement in International Arbitration (the Rules).3 The Rules will only apply where the parties have agreed that they should do so.4 However, it may be expected that, even where they do not apply, they will still provide guidance on best practice to parties and arbitrators, much in the same way as the IBA Rules on the Taking of Evidence in International Commercial Arbitration have done; and they may also have some inuence on future versions of the rules of arbitral institutions.5 In a nutshell, the Rules provide: (i) That representatives of the parties (in addition to their counsel) should attend the rst procedural conference, at which the arbitral tribunal should explain to the parties the various ways in which they might try to achieve a settlement;6 (ii) That arbitrators should not engage in private meetings or other ex parte communications with any of the parties;7 (iii) But that otherwise arbitrators should take proactive steps to facilitate settlement, including (a) providing preliminary views and preliminary non-binding ndings on the dispute, (b) chairing settlement meetings (ie, acting as mediators) and (c)suggesting terms of settlement;8
(iv) That arbitrators should insert mediation windows into arbitral proceedings when requested to do so by all parties or when the contract contains a mandatory mediation provision which has not been respected;9 (v) That arbitrators should, when deciding on the allocation between the parties of the costs of the arbitration, take into account some aspects of the parties conduct during settlement discussions.10 Although CEDR and its Arbitration Commission are to be commended on launching the debate about the interface between mediation and international arbitration, the Rules do give rise to some areas of concern. This commentary will examine two of those, concerning; (i)the dangers of arbitrators giving preliminary views and preliminary non-binding ndings; and (ii) the disadvantages of arbitrators chairing settlement meetings. It will end on a more positive note, examining the Rules helpful provisions concerning costs and offers to settle. Dangers of arbitrators giving preliminary views and preliminary non-binding ndings Article 5.1 of the Rules provides: Unless otherwise agreed by the Parties in writing, the Arbitral Tribunal may, if it considers it helpful to do so, take one or more of the following steps to facilitate a settlement of part or all of the Parties dispute: 1.1 provide all Parties with the Arbitral Tribunals preliminary views on the issues in dispute in the arbitration and what the Arbitral Tribunal considers will be necessary in terms of evidence from each Party in order to prevail on those issues; 1.2 provide all Parties with preliminary nonbinding ndings on law or fact on key issues in the arbitration;
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Although not entirely clear, it would appear that this part of the Rules allows arbitrators (except where the parties have agreed otherwise) to make known their views: (i) at an early stage of the proceedings, as to what evidence each party will need to adduce in order to prevail on the various issues; and (ii) following the oral hearing, as to the merits of each of the issues (ie, preliminary non-binding ndings). As to the rst technique, there is obviously nothing wrong with arbitrators encouraging parties to focus, at an early stage, on the issues and the type of evidence that will be required for the parties to discharge their burden of proof. Indeed, this is what happens (or at least ought to happen) whenever parties and arbitrators discuss procedural timetables. However, to go any further than this would (in this authors view) be dangerous. Attempting to state what factual evidence will be required for each party to prevail will necessarily require arbitrators to take a view as to legal issues and/or questions of contract interpretation. At an early stage of the proceedings, arbitrators will not yet have had the opportunity properly to consider either of these, and their views may therefore be unhelpful. At best, they give only an indication of the arbitrators current state of mind and the issues on which the parties will need to make a particular effort to convince them. At worst, the arbitrators will not have the humility to admit that their initial views turned out to be wrong in light of fuller argument and further reection. As to the idea of making preliminary non-binding ndings following the hearing, which appears to be based on the German vorluge Rechtsansicht,11 it may be wondered how it helps for arbitrators to make known their views at such a late stage. The costs of the arbitration will have been largely incurred by this time, both in terms of legal fees and wasted management time. Having said this, there clearly is an advantage in the parties retaining control of the nal outcome of the dispute, even once they know what the tribunals decision will be.12 Disadvantages of arbitrators chairing settlement meetings Article 5.1.4 of the Rules provides that arbitrators may: where requested by the Parties in writing,
chair one or more settlement meetings attended by representatives of the Parties at which possible terms of settlement may be negotiated. As explained above, Article 2 of the Rules prohibits private meetings and other ex parte communications with any of the parties.13 This should avoid the main danger inherent in arbitrators switching roles to become mediators: one party will not be able to make allegations to the tribunal which the other party is then unable to rebut simply because it is not aware of the allegation. However, there remain other reasons why arbitrators should not act as mediators, which apply even where there are no ex parte meetings or communications. First and foremost, the presence of the tribunal may dissuade the parties from engaging in principled negotiation14 because the parties will be afraid of abandoning their legal positions before the tribunal. Conversely, the presence of the tribunal may cause the parties to engage in unnatural role-playing to persuade the tribunal of their reasonable conduct during the mediation process, for fear that the tribunal will take such conduct into account in deciding on the allocation of costs after any arbitral award.15 In addition, there is a popular misconception that arbitrators often decide disputes on non-legal grounds, that they try to act as conciliators between the parties and that they tend to split the baby.16 Allowing arbitrators to act also as mediators of one and the same dispute can only add to this concern. How, it will be asked, can an arbitrator who has attended settlement meetings and engaged in a discussion of the parties interests then put all that on one side to decide which of their positions has the greater merit? In response to these criticisms, defenders of the Rules will no doubt point out that Article5.1.4 only allows arbitrators to chair meetings where the parties agree in writing to their doing so. This is of course true. However, parties will in reality nd it difcult to object to a proposal from a tribunal that it (or one of its members) should chair a settlement meeting. Costs, offers to settle and appendix 3 One of the more effective ways for arbitrators to encourage settlement between parties is to impose costs consequences on parties who fail to engage meaningfully in the negotiation/
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mediation process. The question, however, is how best to do this. Is it really productive for arbitrators, once they have taken their decision on the merits, to conduct a postmortem examination as to why the parties were unable to settle their dispute? Indeed, is it even open to arbitrators to do this, where the parties have not waived the right to keep such negotiations secret from the arbitral tribunal?17 With Article 6 of the Rules, CEDRs Arbitration Commission appears to have struck just the right balance by providing that: When considering the allocation between the Parties of the costs of the arbitration, (including the Parties own legal and costs) the Arbitral Tribunal may take into account: 1.1 any offer to settle that has been made by a Party where the Party to whom such an offer has been made has not done better in the award of the Arbitral Tribunal than the terms of the offer to settle; 1.2 any unreasonable refusal by a Party to make use of a Mediation Window;18 or 1.3 any failure by a Party to comply with a requirement to mediate or negotiate in the contract between the Parties which is the subject of the arbitration.19 Article 6.1.1, concerning offers to settle, is based on the English court practice of making payments into court and Part36 offers, which has (to some extent) been transposed into international arbitration practice in the form of sealed offers.20 The idea is that one party, the offeror, makes an offer to settle the dispute to the other party, the offeree. If the offeree accepts the offer within the applicable time-limit then the offer becomes binding and the offeree gets paid its costs of the litigation/arbitration. Otherwise, the offer must be kept secret from the judge/ arbitral tribunal until after the judgment/ award (if any) is rendered. If the terms of such a judgment/award are more favourable to the offeror than those of the offer it had made, the offeree must pay the offerors costs of the dispute as from the date of the offer. In other words, the general rule that costs follow the event is reversed to an extent to compensate the offeror for having made a reasonable offer to settle. It will be seen how this encourages parties to make and to accept reasonable offers to settle, thereby encouraging sensible negotiation. Article6.1.1 does not itself set out the mechanism for offers to settle as described above. That is set forth in a helpful
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appendix3 to the report accompanying the Rules (unfortunately, appendix3 is not referred to in Article 6.1.1 or anywhere else in the Rules). In particular, paragraph2 of appendix3 provides that an offer to settle must contain: (i) a description of all of the terms of settlement, including interest; (ii)the date by which the offer is to be accepted; and (iii) conrmation that the party making the Offer to Settle will pay the reasonable legal costs of the other party or parties to whom the offer is made (including the fees and expenses of the arbitral tribunal and, if applicable, the arbitral institution) up to the time of acceptance of the Offer to Settle. Article 6.1.1 and appendix3 constitute an invaluable addition to the practice of international arbitration. In the past, counsel have been either unaware of the use of sealed offers or else concerned about how such offers would be received by arbitrators both in principle and in practice (ie, how they would actually operate in the context of an arbitration).21 Article6.1.1 and appendix3 ought to put an end to such concerns. There are some areas in which, it is respectfully suggested, appendix3 could be improved: (i) It would be helpful for the offer to settle to specify that it is made pursuant to appendix3 and perhaps also be headed without prejudice save as to costs. This should be one of the requirements of paragraph 2 of appendix3; (ii) Appendix3 does not specify who will decide on the amount of the reasonable legal costs to be paid by the offeror, in circumstances where the offeree accepts the offer. It would be helpful for appendix3 to provide that (where the parties cannot reach agreement on this issue) this will be decided by the arbitral tribunal; (iii) It is not obvious why appendix3 provides for the offeree to bear the costs only where the terms of the award are more favourable to the offeror than those of its offer. Why should the offeree not also be penalised where the terms of the award are the same as those of the offer, as under the English system? Surely the burden should be on the offeree to beat the offer; (iv) It might be helpful for appendix3 to provide that the arbitral tribunal should always decide the issue of costs after it
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has issued its award on the merits of the case, in case one of the parties wishes to draw its attention to an offer to settle.22 These, however, are relatively minor criticisms of what is otherwise a highly commendable procedure for offers to settle, which it is hoped will become as widely accepted and used as the document request procedure contained in the IBA Rules on the Taking of Evidence in International Commercial Arbitration.
Notes * Jacob Grierson is a Barrister (England and Wales) in the international arbitration practice group of Jones Day Paris, and is a CEDR accredited mediator. The views set forth herein are the personal views of the author and do not necessarily reect those of the law rm with which he is associated. 1 Informal statistics, including from the ICC, indicate that only about 50 per cent of international arbitrations settle. 2 The Arbitration Commission is co-chaired by Lord Woolf (whose 1996 report transformed the English civil justice system, inter alia, by requiring courts to take more proactive steps to encourage settlement) and Professor Kaufmann-Kohler (whose article When Arbitrators Facilitate Settlement: Towards a Transnational Standard, Arbitration International, 2009, Vol25(2), p 187, contains an excellent review of this subject). 3 CEDR Rules for the Facilitation of Settlement in International Arbitration, available online at: www. cedr.com/about_us/arbitration_commission/Rules. pdf. The report accompanying the Rules, which (according to the Introduction to the Rules) provides guidance and background information about them, is available online at: www.cedr.com/about_us/ arbitration_commission/Arbitration_Commission_ Doc_Final.pdf. 4 Rules, Article 2.1: whenever the Parties have agreed to apply the CEDR Settlement Rules, the Rules shall govern the steps taken by the Arbitral Tribunal to facilitate settlement of the Parties dispute. The brochure containing the Rules provides sample wording for inclusion in an arbitration clause: in the conduct of any arbitration under this [Agreement], the Arbitral Tribunal shall apply the CEDR Rules for the Facilitation of Settlement in International Arbitration. 5 See report accompanying the Rules, p3.3: The Recommendations in this Report are intended to be of use to arbitrators, arbitral institutions and Parties whether or not the Parties choose to adopt the CEDR Rules. At the conference in London where the Rules were launched, a number of the leading international arbitration institutions were represented. 6 Rules, Article 4. 7 Rules, Article 5.2. The report accompanying the Rules nevertheless contains an Appendix2 entitled Safeguards for arbitrators who use private meetings with each party as a means of facilitating settlement.
8 Rules, Articles 3.2 and 5.1. The arbitrator may, however, only act as mediator or suggest terms of settlement where the Parties agree in writing: Rules Articles 5.1.3 and 5.1.4. 9 Rules, Article 5.3. 10 Rules, Article 6, cited in full and discussed in greater detail in the section on Costs, Offers to Settle and Appendix3, infra. 11 For an explanation of the German approach, see Berger, The International Arbitrators Dilemma: Transnational Procedure versus Home Jurisdiction, Arbitration International, 2009, Vol 25(2), p 217 at pp 222-224. 12 For example, a settlement between the parties can contain creative solutions which the tribunal could not impose by an award. 13 Rules, Article 2: The Arbitral Tribunal shall not: [2.1] meet with any Party without all other Parties being present; or [2.2] obtain information from any Party which is not shared with the other Parties. 14 For the classic explanation of principled as opposed to positional negotiation, see Fisher and Ury, Getting to Yes. 15 See the section on Costs and Offers to Settle, infra, for further discussion of this issue. 16 For discussion of this issue, see Mayer, Reections on the International Arbitrators Duty to Apply the Law Arbitration International, 2001, Vol 17(3), p 235. 17 Under English law, for example, written or oral communications made for the purpose of a genuine attempt to settle a dispute may generally not be admitted in evidence, pursuant to the without prejudice rule. See generally Hollander, Documentary Evidence (9thed), ch 16. This rule applies equally to issues of costs, unless the correspondence is specically marked without prejudice save as to costs. See Halsey v Milton Keynes NHS Trust [2004] 4 All ER 920. For a case where the parties agreed to waive the without prejudice privilege, see Seventh Earl of Malmesbury v Strutt & Parker [2008] EWHC 424 (QB). 18 There is some ambiguity in the words make use of. In the authors view, Article 6.1.2 should only extend to situations where a party refuses to make any use of a mediation window and not to situations where a party fails to make full use of a mediation window. Otherwise, the tribunal would have to delve into the details of the parties negotiations, which is precisely what Article 6 appears to seek to avoid. Unfortunately, no clarication is provided in the report accompanying the Rules. 19 Although not expressly stated, this would presumably also apply where the requirement to mediate or negotiate is contained in a related agreement, so long as it applies to the relevant dispute. 20 See, eg, Sutton & Gill, Russell on Arbitration (23rd ed), pp6-158 et seq. In the English civil justice context, Jackson LJs Final Report on Civil Litigation Costs (released on 14 January 2010 and available at: www. judiciary.gov.uk/about_judiciary/cost-review/ jan2010/nal-report-140110.pdf) has recommended (at recommendation 94) that the attractiveness of Part 36 offers by claimants be enhanced by amending the rules so that Where a defendant rejects a claimants arbitration NEWSLETTER MARCH 2010 125
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offer, but fails to do better at trial, the claimants recovery should be enhanced by 10%. 21 See, eg, Bhler and Webster, Handbook of ICC Arbitration (2nd ed), p 31-89: the use of settlement offers in ICC arbitration is fraught with practical problems. The English system is based on an understanding of the rules and the risks associated with failing to accept an offer. A key element is that the offer is only to be brought to the attention of the
Tribunal after the Tribunal has decided the issues as to liability and the measure of damages. However, to implement the system, the parties have to understand and accept that it is applicable. 22 The offeror can of course always ask the arbitral tribunal to do this, but it may feel reluctant to do so as this would signal to the tribunal that it has made an offer to settle, which it may feel would weaken its case in the eyes of the tribunal.
Germany
The written form requirement for the recognition of foreign arbitral awards in Germany
Prof Dr Wilhelm Haarmann*

HAARMANN Partnergesellschaft, Frankfurt am Main
wilhelm.haarmann@ haarmann.com
he issue arises whether German courts may recognise or enforce a foreign arbitral award if the arbitration agreement underlying the award meets the written form requirement for domestic German arbitral awards under section 1031 of the German Code of Civil Procedure but does not comply with Article II subsection 2 of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). There is a risk that a German court will deny recognition or enforcement in such circumstances. Half-written form sufcient under section 1031 German Code of Civil Procedure The written form requirement for arbitration clauses is less strict under German law than Article II(2) of the New York Convention. An agreement in writing under Article II(2) of the New York Convention includes an arbitral clause in a contract or an arbitration agreement signed by the parties or contained in an exchange of letters or telegrams. By contrast, section 1031 of the German Code of Civil Procedure does not even require the inclusion of the arbitration agreement in an exchange of letters or telegrams. Rather, according to section 1031(2), it is sufcient that the arbitration agreement was contained in a document sent by one party to the other or by a third person to both parties (so-called half-written form), provided that no objection was raised in due time and the content of such arbitration agreement is considered to be part of the contract in accordance with common usage. In practice, the half-written form situation
occurs because, in many jurisdictions, failure to reply to a commercial letter of conrmation is deemed an acceptance (eg, in Denmark and the Netherlands as well as the United States, with some restrictions).1 Therefore, it may be the case that a written offer contained an arbitration clause, and such offer is accepted orally. Such written offer and oral acceptance, provided that no objection was raised in good time and the content of such document is considered to be part of the contract in accordance with common usage, will sufce to meet the written form requirement of section 1031(2) of the German Code of Civil Procedure, but will not full Article II(2) of the New York Convention. Written form requirement under Article VII of the New York Convention If a foreign arbitration agreement fulls the written form requirement of section 1031 of the German Code of Civil Procedure, but not the requirement of Article II(2) of the New York Convention, the question therefore arises whether the German court deciding the request for recognition may rely on the more liberal German provision of section 1031 of the German Code of Civil Procedure. Under section 1061(1)of the German Code of Civil Procedure, courts must refuse recognition and enforcement of a foreign arbitral award if the requirements of the New York Convention are not met. This is in the rst place a reference to Article V(1) (a) of the New York Convention, which provides that recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, if
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that party furnishes proof that the arbitration agreement is not valid. Article II(1) of the New York Convention describes the arbitration agreement as an agreement in writing, dened in detail and subject to the written form requirement set forth in Article II(2). The unavoidable conclusion therefore seems to be that German law incorporates by reference the written form requirement of the New York Convention. Whether the most favoured treatment clause in Article VII of the Convention permits the application of the more liberal German standard However, the most favoured treatment clause found in Article VII(1) of the New York Convention may dictate a different result by permitting recourse to the more liberal approach reected in section 1031 of the German Code of Civil Procedure. Indeed, under Article VII(1), the provisions of the NYC shall not deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon. The question therefore arises whether the New York Convention is a self-contained regime and protects only agreements in writing in accordance with Article II(2)2 or whether a broader interpretation may be adopted particularly in view of the overall aim of the Convention to facilitate recognition and enforcement of awards.3 If Article II(2) of the New York Convention is a self-contained regime, the scope of application of the most-favoured-treatment clause in Article VII(1) is narrow and applies only to arbitral awards, not arbitration agreements. Accordingly, it would not justify the application of section 1031 of the German Code of Civil Procedure on arbitration agreements. Such view is supported by the argument that the written form requirement of Article II(2) would become redundant if a more liberal legal system were permitted to override it.4 However, under the view that the preeminent goal of the New York Convention is to facilitate the recognition and enforcement of awards, Article VII(1) should be given a broad interpretation so as to apply to the written form requirement for the arbitration agreement. The wording of Article VII(1) permits
such a wide interpretation because it refers to national laws not just in connection with arbitral awards but rather in connection with the process of recognition and enforcement of awards. Thus, reference to national laws can also be read to refer to all laws facilitating recognition or enforcement, including those reecting more liberal written form requirements for arbitration agreements. A further argument for this construction of Article VII is that Article V(1)(a) refers to the law governing the arbitration agreement concerning its substantive as opposed to its formal validity. This reading of the New York Convention would be in line with UNCITRALs recommendation that Article II(1) be applied recognizing that the circumstances described therein are not exhaustive.5 The German courts are divided The highest German court competent in arbitration matters, the German Federal Court (Bundesgerichtshof), has indicated that it believes a broad interpretation of Article VII would be correct,6 but has left open whether such interpretation leads to the conclusion that the standard of section 1031 of the German Code of Civil Procedure is applicable. The court signalled in an obiter dictum that the application of section 1031 of the German Code of Civil Procedure has a lot to commend it. However, the court also nds it difcult to justify that conclusion because section 1061(1) of the German Code of Civil Procedure expressly requires that the enforcement of foreign arbitral awards meet the requirements of the New York Convention. Interestingly, a broad interpretation of Article VII of the New York Convention makes the application of more liberal national standards not just possible, it makes the application of these standards obligatory. If the national law refers to the New York Convention standards, as in section 1061(1) of the German Code of Civil Procedure, this may imply that the German legislature did not intend to make use of the opportunity offered by the most favoured treatment clause. The German Federal Court has not indicated yet whether and how this formal consideration might be overcome. Other German courts are divided over the issue of whether Article VII permits the application of the German written form requirement of section 1031 of the German
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Code of Civil Procedure or not. The Higher Regional Court (Oberlandesgericht) Celle adopted the broader interpretation of Article VII7 while the Higher Regional Court Frankfurt am Main held that the narrow scope interpretation of Article VII NYC is correct.8 There is a risk therefore that the German Federal Court will eventually reject the possibility of enforcing a foreign arbitral award if the underlying arbitration agreement does not full the written form requirement of Article II(2) of the New York Convention. Hence, in cases in which this question might become relevant, it may be advisable to choose Germany as the venue of the arbitration rather than to seek recognition of a foreign arbitration award in Germany.
Notes * Prof Dr Wilhelm Haarmann is senior partner of HAARMANN Partnerschaftsgesellschaft and honorary professor at the University of Bamberg. 1 Cf UCC 2-207; Restatement (Second) of Contracts 69. 2 A J van den Berg, International Commercial Arbitration: Important Contemporary Questions, 2003, p 74. 3 Gerold Herrmann, Does the world need additional uniform legislation? (Freshelds Lecture 1998) p217. 4 A J van den Berg (see note 2 above) p 74. 5 See: www.uncitral.org/pdf/english/texts/arbitration/ NY-conv/A2E.pdf. 6 BGH SchiedsVZ 2005, 306. 7 OLG Celle, Beschl. v 14 December 2006 8 Sch 14/05 DIS-Datenbank. 8 OLG Frankfurt a M, Beschl. v 26 June 2006 26 Sch 28/05 DIS-Datenbank.
Dr Richard Happ
New arbitration rules of the German Institution for Arbitration (DIS)
Luther Rechtsanwaltsgesellschaft mbH, Hamburg

richard.happ@ luther-lawrm.com
he German Institution for Arbitration (Deutsche Institution fr Schiedsgerichtsbarkeit, DIS) has recently published two sets of supplementary rules. The supplementary rules for expedited proceedings One of the perceived advantages of arbitration is its reduced length as compared to court proceedings. However, in real life, arbitral proceedings are often lengthy and time-consuming. Proceedings of one to two years in length are far from unusual, but typically not what arbitration users expect. To answer the need of parties who want a speedy resolution of their dispute, the DIS enacted in April 2008 the Supplementary Rules for Expedited Proceedings (SREP).1 These Rules enable the parties to receive an award within six months (with a sole arbitrator) or nine months (with a tribunal of three arbitrators) from the ling of the demand for arbitration. These fast-track rules apply if the parties have adopted them in the arbitration agreement or prior to the ling of the demand for arbitration. The parties cannot agree on their application at a later stage in order to avoid questions on whether the running of deadlines under the DIS standard arbitration rules could be counted against the shorter deadlines contained in
the SREP. Nevertheless, parties to a standard DIS arbitration are free to agree that specic elements of the SREP (eg, shortened time limits for written submissions, limitation on the number of rounds of written submissions or the number of oral hearings) shall apply to their arbitration proceeding. As compared with the standard DIS proceedings, the most important changes are as follows: unless the parties have agreed otherwise, the arbitration is referred to a sole arbitrator, who, unless jointly nominated by the parties, is appointed by the DIS upon request of a party. Furthermore, at the beginning of the arbitration, the arbitral tribunal shall, in agreement with the parties, establish a time schedule to ensure that the proceedings can be concluded within the above-mentioned time limits. Unless the parties agree otherwise, the time limits for the written submissions are shortened to four weeks; there is only one oral hearing, including any taking of evidence, which has to take place at the latest four weeks after the ling of the last written submission, and there are no post-hearing briefs. Subject to the parties agreeing otherwise, the arbitral tribunal may abstain from stating the facts of the case in the arbitral award. The fast-track rules of the DIS go further than Article 32 of the ICC Rules, which only provides for the possibility of shortening the various time limits set out in the ICC Rules.
Dr Katrin Haberkamm
Luther Rechtsanwaltsgesellschaft mbH, Hamburg
katrin.haberkamm@ luther-lawrm.com
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Indeed, there are no detailed fast-track rules under the ICC Rules. Thus, the DIS Rules and especially the SREP should be considered as a serious alternative to the ICC Rules, especially given that DIS arbitration is signicantly less expensive than ICC arbitration. The following statistics on the use of the SREP and the duration of the fast-track proceedings were compiled by the DIS secretariat: one arbitration was initiated under the SREP in 2008, and three in 2009. One of them was closed within six months; the other three are still pending. In one arbitration, the parties recognised that they needed more time. In the other two proceedings, the nine months period (for a three-member tribunal) is still running. The supplementary rules for corporate law disputes The other more recent development at the DIS is a reection of the decision of the German Federal Supreme Court (BGH) dated 6 April 2009 (BGH of 6 April 2009, II ZR 255/08, published with an English summary in SchiedsVZ 2009, p 233), which cleared the path for the arbitration of challenges to shareholders resolutions. Before that decision, it was unclear whether such disputes were arbitrable (see IBA Arbitration News 14/2, New ruling allows for arbitration of challenges to shareholders resolutions). On 15 September 2009, the DIS, in line with the requirements set forth by the BGH, enacted the Supplementary Rules for Corporate Law Disputes (DIS-ERGeS). The key premise of the BGH in its April 2009 decision is that arbitration proceedings must be conducted in a manner comparable to judicial proceedings. This requires certain minimum standards to be maintained, in particular the right of all shareholders to participate in the arbitration. Thus,
according to Article 2 of the DIS-ERGeS, every shareholder must be informed of the commencement of the arbitration and be given the opportunity to participate in the arbitration. The shareholders can either participate in the proceedings as parties or join as intervening parties. Furthermore, the concerned shareholders may participate in the nomination process of the arbitrator according to Articles 7 and 8 of the DISERGeS. If the concerned shareholders do not agree on an arbitrator, the claimant, a respondent party or a third party having joined the arbitration may request the DIS nomination committee to appoint an arbitrator. The BGH has emphasised that for arbitral proceedings to be comparable to state court proceedings, it is essential to avoid contradicting awards rendered by different arbitral tribunals. Consequently, Article 9 of the DIS-ERGeS provides for the consolidation of potential parallel arbitration proceedings. The disputes will be decided by the arbitral tribunal that was rst seized according to their order of receipt by the DIS Secretariat. It is recommended that shareholders revise the arbitration clauses incorporated in their articles of association and modify them to make sure that they comply with the requirements of the case law. Parties are well advised to use the model clause of the DIS, which can be found on its homepage (www. dis-arb.de). These Supplementary Rules for Corporate Disputes were designed for disputes between shareholders of German companies, as they are based on specic requirements of German law. Parties considering their application should carefully review whether the specics of the rules are compatible with the law governing their company.
Notes 1 The fast-track rules may be found on the homepage of the DIS in German and English. See: www.dis-arb.de.
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Stephan Wilske
The German Federal Court of Justice returns to the principle that there is no double exequatur for arbitral awards in Germany
1
Gleiss Lutz, Stuttgart

stephan.wilske@ gleisslutz.com
Todd J Fox
Gleiss Lutz, Stuttgart
todd.fox@gleisslutz.com
n July 2009, the German Federal Court of Justice (Bundesgerichtshof, BGH) overturned its earlier case law and held that the recognition and enforcement of foreign arbitral awards in Germany is only allowed directly and not through the recognition and enforcement of a foreign judgment entered upon the award. Plaintiff prevailed in California arbitration and sought recognition of California conrmation judgment in Germany In the present case, the plaintiff prevailed in an international arbitration in the United States and a California court conrmed the arbitral award, incorporating it into a court judgment according to the doctrine of merger typically followed in common law jurisdictions. The plaintiff subsequently applied to the Regional Court of Berlin (Landgericht Berlin) to enforce the California court judgment (but not the award) against the defendant in Germany. In a 1984 decision, the Federal Court of Justice had held that foreign judgments entered upon an award under the doctrine of merger are independent court judgments that could be declared enforceable under provisions of the German Code of Civil Procedure.2 Under this case law, a party could choose whether to have the award itself or the foreign court judgment entered upon the award declared enforceable in Germany. The Regional Court of Berlin accordingly declared the California court judgment enforceable. However, this decision was then appealed to the Federal Court of Justice, which now reversed the lower court decisions and overturned its own earlier jurisprudence. The Federal Court of Justice nds that the procedures for recognition and enforcement of foreign arbitral awards must be compatible with the New York Convention The Federal Court of Justice took the opportunity to revisit its 1984 decision and determined that it was not compatible with the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(New York Convention), which sets the conditions under which a foreign arbitral award may be declared enforceable in Germany. The court found that its previous decision was also not consistent with the approach taken by European Community law, as the relevant conventions and laws do not allow the recognition of judgments regarding the enforceability of other judgments. The court also pointed out that there are intentionally different prerequisites and competencies within the German legal system for the recognition and enforcement of foreign arbitral awards, on the one hand, and for the recognition and enforcement of foreign judgments, on the other hand. Allowing an exequatur judgment to be declared enforceable would be inconsistent with these different requirements and render them meaningless. Furthermore, the court found that recognition of double exequatur would erode the sphere of application of the New York Convention. Practical consequences It is no longer possible in Germany to pursue the enforcement of a foreign arbitral award by obtaining a declaration of enforceability of a foreign exequatur judgment. Rather, the recognition and enforcement of a foreign arbitral award in Germany must be made directly pursuant to the procedure set forth in the New York Convention. This streamlines and unies the procedure for seeking recognition and enforcement of a foreign arbitral award. Furthermore, it should not pose any burden on award-creditors, since the procedure for enforcement of a foreign arbitral award is typically simpler than that required for enforcement of a foreign court judgment, and the German courts are open to the enforcement of foreign arbitral awards.3
Notes 1 Federal Court of Justice (BGH), Decision of 2 July 2009 (Docket No IX ZR 152/06). 2 Federal Court of Justice (BGH), Decision of 27 March 1984 (Docket No IX /R/83). 3 See, eg, Rtzel/Wegen/Wilske, Commercial Dispute Resolution in Germany (C H Beck, 2005), pp 112, 157.
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Eelco Meerdink
De Brauw Blackstone Westbroek N V, Amsterdam
eelco.meerdink@ debrauw.com
Netherlands
Supreme Court rules arbitral tribunal not required to disclose hearing notes
Niels Dekker
De Brauw Blackstone Westbroek N V, Amsterdam
niels.dekker@ debrauw.com
nlike the Netherlands courts, arbitrators are not required to keep formal minutes of the hearings, and it is not yet common practice in the Netherlands for arbitrators to send the minutes of a hearing to the parties (though arbitrators increasingly have done so in international arbitrations seated in the Netherlands).1 Without minutes, parties may nd it difcult to prove what happened during a hearing, including, for example, in setting aside proceedings. However, in the recent and much debated Knowsley decision,2 the Amsterdam Court of Appeal ordered an arbitral tribunal that had not kept minutes of a hearing to disclose the notes of the tribunals secretary. The Court of Appeal held that the secretarys notes fell within the scope of the legal relationship between the arbitrators and the parties, and that the party requesting the disclosure had a legitimate interest in the notes as relevant as evidence in setting aside proceedings. In a recent decision, the Supreme Court reversed the judgment from the Court of Appeal,3 giving precedence to party autonomy and - where parties have not provided otherwise - to the tribunals discretion in arranging the proceedings. Factual background The English contractor Knowsley SK Ltd subcontracted the Dutch company Visser & Smit Hanab Installatie for parts of the construction of a petrochemical facility in the port of Rotterdam. A dispute over the payment for the works was submitted to arbitration in accordance with the Arbitration Rules of the Netherlands Arbitration Institute (NAI). The three arbitrators appointed a secretary to the tribunal. During the oral hearing on the merits, the secretary took notes, which he kept to himself. There was no arrangement between the parties or otherwise requiring the tribunal to provide a report or transcript of the hearing. No minutes were prepared either. The tribunal issued a nal award against Knowsley.
Knowsley subsequently commenced setting aside proceedings in the district court, claiming the violation of its right to a fair hearing based on events that occurred during the oral hearing. Relying on Article 843a of the Dutch Code of Civil Procedure (DCCP), Knowsley requested that the arbitral tribunal provide copies of the notes of the hearing made by the tribunals secretary. The tribunal denied this request, nding that the notes were condential in nature and the tribunal was under no obligation to provide a copy of the notes. Pursuant to Article 843a DCCP, any person with a legitimate interest may request disclosure of certain documents or records relating to a legal relationship to which he or she is a party, unless exceptions to this obligation exist (eg, for serious reasons, when the holder of the documents has a duty of condentiality by virtue of his position or if one can expect that justice may be served without disclosure of the documents).4 Court proceedings on disclosure Knowsley then led suit in interlocutory proceedings against Mr Van Wassenaer van Catwijck in his capacity as chairman of the tribunal and representative of the other arbitrators.5 Knowsley requested that the court order the chairman to disclose the notes of the tribunals secretary on the basis of, inter alia, Article 843a DCCP. The court of rst instance denied the request, but Knowsley was initially successful on appeal.6 The Amsterdam Court of Appeal held that, although the arbitrators were not under the obligation to prepare minutes of the hearing, the secretarys notes clearly qualied as documents relating to the legal relationship between the arbitrators and the parties, which under Dutch law qualies as an agreement of instruction (overeenkomst van opdracht). According to the Court of Appeal, Knowsley had a legitimate interest in disclosure, and justice would not be served by means of witness testimony about the events that occurred at the hearing in lieu of the production of the secretarys notes.
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The Court of Appeal did consider the chairmans objection that the notes contained a partial account of the deliberations of the arbitrators. The court applied the principle of condentiality of deliberations in chambers (geheim van de raadkamer) and therefore decided that the chairman would only be required to submit notes pertaining to the factual course of events during the hearing. The court held that a third party should be appointed to strike out the passages reecting the personal views and considerations of the secretary or the arbitrators as opposed to a factual account of the hearing. The chairman of the tribunal appealed the decision of the Amsterdam Court of Appeal before the Supreme Court. The Supreme Court subsequently ruled that the Amsterdam Court of Appeal erred in law and reversed its decision.7 The Supreme Court put the autonomy of arbitrators in determining the course of the proceedings rst. Arbitrators are not required by law to provide a written report of a hearing, the Supreme Court held. The NAI Arbitration Rules, which were applicable to the arbitration, did not contain such an obligation either. Accordingly, the arbitrators were not required to submit the informal notes made by the tribunals secretary either. The Supreme Court could have stopped there. Instead, it gave further guidance on the task and responsibility of arbitrators. The Supreme Court held that arbitrators have no accountability towards the parties or duty to provide information other than informing the parties on the intended course of the arbitral proceedings and to give reasons for the decisions made by the tribunal during the course of the arbitration. Continuing its obiter dictum, the Supreme Court held that the nature of the assignment given to arbitrators implies that all procedural decisions, all agreements between the parties and all acknowledged statements of fact, when made during a hearing, must be included in a written report of the hearing, if one of the parties asks the tribunal to make such a report. Accordingly, even though the parties and the arbitrators may not have agreed on the provision of a written report, the arbitrators may be required to draft a written report after all, if decisions, agreements or acknowledgements were made during the hearing, which one of the parties wants to have recorded. This obligation of the arbitrators could not avail Knowsley in the present case, because Knowsley did
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not request such decisions, agreements or acknowledgements to be recorded. Finally, the Supreme Court rmly stated that, having regard to the specic nature of arbitral proceedings, a disclosure request under article 843a DCCP should not interfere with the applicable discretionary powers of the arbitrators to decide on certain procedural matters, such as the decision not to prepare minutes of a hearing. In that regard, the Supreme Court also considered that the general nature of article 843a DCCP is not tailored to the specic characteristics of arbitral proceedings. Comments The different approaches taken by the District Court, the Court of Appeal and the Supreme Court show that under Dutch arbitration law this case could have gone either way. In our opinion, the basic principle of party autonomy should be the main reason to deny the request for disclosure of the notes of the tribunals secretary. We nd that this is in essence, also the approach taken by the Supreme Court. Party autonomy The principle of party autonomy is central to arbitration. Arbitration is attractive, among other things, because it gives parties the ability to arrange the proceedings as they see t (within the boundaries of the applicable arbitration law). If parties do not agree on procedural matters such as the preparation of a transcript or minutes from the hearing(s), this is a procedural matter for the arbitrators to decide. If, in turn, the arbitrators do not provide for the preparation of a transcript or minutes, then these form neither part of the arbitration proceedings nor of the assignment given to arbitrators. Clearly, if the parties wanted any other result, they could and should have provided for it. Best practice Irrespective of the issue of party autonomy, the issue arises whether the preparation of a transcript or minutes and their communication to the parties should be encouraged. We think it should. At a minimum, a basic report giving a factual account of the main substantive arguments and procedural discussions and decisions should be made for each arbitration hearing.
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This arguably constitutes a best practice that the parties or the arbitrators should follow. Under Dutch arbitration law, arbitrators are not required to prepare such a report on the hearing(s) although the Supreme Court slightly blurred the boundaries of this rule by reasoning that arbitrators must always keep written records of procedural events and decisions if requested by (one of) the parties.8 Fortunately, however, tribunals increasingly are preparing such reports, though it is still uncommon for arbitral tribunals seated in the Netherlands, with the exception of some large international arbitrations, to follow the Anglo-American tradition of taking verbatim transcripts of hearings.9 The nature of informal notes of a secretary In addition to party autonomy, another policy argument can be raised against the disclosure of the informal notes of the tribunals secretary, namely the imprecise and potentially inaccurate nature of the notes. Contrary to a formal report prepared by the arbitrators, informal notes taken by a secretary do not necessarily reect an accurate and complete account of the hearing. Indeed, such notes may very well contain a biased description or an incomplete account of the debate because they were not prepared for the purpose of providing a faithful report. If (informal) notes of a tribunals secretary had to be disclosed upon the request of a party, arbitrators would have to make sure that these notes contain a correct account of the hearing (and nothing more). Deliberations in chambers The reference to the condentiality of deliberations in chambers obscures the discussion of whether parties should be allowed to request the disclosure of notes pertaining to the factual course of events during a hearing. To the extent that the secretarys notes of a hearing only provide an account of what happened during the hearing (it is not clear whether this was the case in the Knowsley case apparently the notes also contained references to subsequent discussions between the arbitrators), then the condentiality of deliberations in chambers does not apply. As far as the personal notes of arbitrators are concerned, these obviously may reect personal views and contain thoughts and deliberations on the case, which
would be covered by the condentiality of deliberations in camera.10 That said, the condential nature of the notes taken by the secretary does not necessarily follow from the condentiality of deliberations in chambers. The Supreme Court rightly did not include the issue of deliberations in chambers in its reasoning. A disclosure request as a departure from party autonomy? The issue in this case was whether grounds exist to depart from the principle of party autonomy based on the disclosure requirements of Article 843a DCCP (in a situation where neither the parties nor the arbitrators decided to keep minutes from the hearings) but the secretary did keep informal notes of the hearing. Article 843a DCCP refers to such a broad category of documents (documents that relate to a legal relationship bescheiden aangaande een rechtsbetrekking) that also documents that are not directly part of the instruction by the parties to arbitrators, but do relate thereto, may fall under this provision. The Supreme Court acknowledges this by stating that the informal notes of the secretary are indeed documents that relate to the legal relationship between the parties or between the parties and the arbitrators and their secretary. Article 843a DCCP provides for certain limitations to the requirement of disclosure that offer a certain margin of discretion for the Court (ie, the disclosure must be for serious reasons, the existence of other options to serve justice is a countervailing factor, and the legitimate interests of all parties involved must always be taken into consideration). First and foremost, the starting point should be the principle of party autonomy and the rule that arbitrators determine all procedural matters that have not yet agreed by the parties (or set by the applicable institutional rules). On that basis, we share the view of the Supreme Court that, as a matter of principle, one of the parties should not be able to successfully request the disclosure of notes, when the decision on this matter was left to the arbitrators and the arbitrators decided not to prepare minutes or notes on the hearings. The assignment given to the arbitrators by the parties is specic. The task and responsibility of the arbitrators is to resolve a dispute. Whether the arbitrators fullled this assignment should emerge from the
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procedural orders and the arbitral award, not from hearing notes. In Knowsley, neither the parties nor the arbitrators had agreed to prepare notes or minutes. Separately, the events that transpired at the hearing can be proven afterwards (if necessary) by means of provisional examination of the secretary or the arbitrators as a witness. One could raise the objection that such an examination would bring along more nuisance and take more time for all the parties, and that the disclosure of existing informal notes is more practical. We do not think this argument should prevail. As the parties in Knowsley did not agree on the taking of notes (let alone on the taking of notes by a secretary who had been appointed without their approval), party autonomy (and its consequences) should be the key guiding principle also in this respect: parties should be regarded as having taken the consequence of potential witness examinations into consideration. In addition, witness examination might be necessary even if the informal notes are disclosed, given that they were not taken with a view to being provided to the parties and that it is uncertain whether they indeed reect the events referred to by Knowsley in the setting aside proceedings. An impetus for best practice The judgment of the Supreme Court in the Knowsley case details that parties are able to collect evidence regarding an oral hearing when no formal minutes are made: either by specically requesting the tribunal to keep written records of particular procedural decisions, agreements or acknowledgements during the proceedings, or by means of examination of witnesses afterwards. In either case, the arbitrators may just as well provide notes of the hearing. Accordingly, one would
hope that the case will lead to a change in arbitration practice in the Netherlands and that arbitrators will draw up a basic report or issue formal minutes of hearings more often. Such a change would be welcome.
Notes 1 See A Guide to the NAI Arbitration Rules, Bommel van der Bend, Marnix Leijten and Marc Ynzonides (eds), Kluwer Law International, 2009, p 136. 2 Knowsley SK Ltd v AGJ Van Wassenaer van Catwijck, Amsterdam Court of Appeal, 2 December 2008, LJN BG9050, case no 200.010.430/01 SKG, NJF 2009, 39. 3 Supreme Court decision of 29 January 2010, LJN BK2007 4 Compare, eg, Article 3(3) of the IBA Rules on the Taking of Evidence in International Commercial Arbitration. An extensive discussion on all legal aspects of Article 843a DCCP falls outside the limited scope of this paper. 5 Knowsley SK Ltd v AGJ Van Wassenaer van Catwijck, Amsterdam District Court, 19 June 2008, LJN BD4818. 6 Knowsley SK Ltd v AGJ Van Wassenaer van Catwijck, Amsterdam Court of Appeal, 2 December 2008, LJN BG9050, case no 200.010.430/01 SKG, NJF 2009, 39. 7 Supreme Court decision of 29 January 2010, LJN BK 2007. See also the Conclusion of 30 October 2009 by Advocate General Mr E M Wesseling-van Gent in this case. The Advocate General at the Supreme Court of the Netherlands is an independent advisory ofcer at the Supreme Court, appointed by the state, who delivers an advisory opinion to the Supreme Court on cases pending before it. Although these advisory opinions are advisory in nature, they are often followed by the Supreme Court and are considered to be authoritative. 8 See Supreme Court decision of 29 January 2010, LJN Bk 2007, par 3,5,2. 9 See A Guide to the NAI Arbitration Rules, Bommel van der Bend, Marnix Leijten and Marc Ynzonides (eds), Kluwer Law International, 2009, p 136. 10 See, eg, A Guide to the NAI Arbitration Rules, Bommel van der Bend, Marnix Leijten and Marc Ynzonides (eds), Kluwer Law International, 2009, p 224 and H J Snijders, Nederlands Arbitragerecht, Kluwer 2007, p 274.
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Alexander Gurkov
Egorov, Puginsky, Afanasiev & Partners Law Ofces, Saint Petersburg
alexander_gurkov@ epam.ru
Russia
An arbitration agreement contained in a contract does not cover the renewal of such contract
ground that the dispute was not arbitrable (NYC, Article 5(2)(a)) for the following reason. The ICAC tribunal had ruled in its award that a party is entitled to renew lease contracts. Given that, under Russian law, real estate lease contracts require state registration, the award entailed an obligation on a state agency to perform some actions. The court took the view that arbitration awards should not entail any obligations on state authorities. On that basis, the court ruled that issues necessitating a state registration are not arbitrable. The court of cassation (Federal Arbitrazh Court of the Moscow District) upheld the decision of the court of rst instance. It agreed that the dispute was not arbitrable. The claimant appealed this decision to the Supreme Arbitrazh Court. The Supreme Arbitrazh Court decisions
wo recent rulings of the Presidium of the Supreme Arbitrazh Court of the Russian Federation ruled that an arbitration agreement contained in a contract does not cover the disputes concerning the renewal of such contract, unless the parties agreed otherwise.1 These decisions, however, leave unanswered the recurring issue of the arbitrability of real estate disputes. Russian arbitrazh (commercial) courts have allowed the enforcement of domestic arbitral awards resolving real estate disputes,2 but sometimes they have also held that these issues were not arbitrable.3 The panel of judges of the Supreme Arbitrazh Court attempted to make real estate issues arbitrable.4 However, in its decisions of 19 May 2009, the Presidium of the Supreme Arbitrazh Court of the Russian Federation left the question unanswered. The facts CJSC Kalinka-Stockmann entered into lease contracts with LLC Smolensky Passage and CJSC Mosstroyekonombank (the Lessors). The contracts contained provisions giving Kalinka-Stockmann the right to renew the contracts for a ten-year period until 2018. In 2008, Kalinka-Stockmann made an attempt to renew the contract on the same terms as the original contract, including the same rent as that set in 1998 (under the original contract, the rent was calculated as a percentage of Kalinka-Stockmanns annual turnover). However, the Lessors tried to increase the rent to take into account the fact that, since 1998, market demand and thus rents had substantially increased. The dispute was submitted to an arbitral tribunal under the auspices of the International Commercial Arbitration Court of the Russian Chamber of Commerce (ICAC). On 24 April 2008, the ICAC tribunal rendered an award in favour of KalinkaStockmann, in which it ruled that KalinkaStockmann was entitled to renew the contract on the same terms. The Lessors led an application with the Moscow Arbitrazh Court to set aside the award. The court set aside the award on the
The Presidium of the Supreme Arbitrazh Court upheld the decisions of the lower courts. In its orders referring the case to the Presidium, the panel of judges of the Supreme Arbitrazh Court had stated that the subject matter of the dispute, ie, the lease contract, was of a private nature and the dispute was about a freely transferable private property. The panel of judges concluded that the issue of state registration lied beyond the private dispute of a lease contract renewal and did not make the dispute non-arbitrable. However, in its nal rulings of 19 May 2009, the Presidium of the Supreme Arbitrazh Court did not follow the reasoning of the panel of judges. The Presidium stated that the lower courts had been correct in refusing to enforce the award, but relied on other grounds. According to the arbitration clause, all disputes arising out of or in connection with the lease contract [should] be nally resolved by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian [Federation]. The Presidium decided that the renewal of the lease contract did not fall within the scope of the arbitration agreement. More specically, relying on the arbitration clause and other
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terms of the contract, it held that the parties did not agree that the arbitration agreement covers the renewal of the contract, thereby they limited the scope of the arbitration agreement to disputes arising out of or in connection with the lease contract that expired in 2008. The Presidium did not make any comments as to the opinion of the panel of judges on the arbitrability of issues that involve the state registration of real estate rights. Comments This case calls for the following comments: Unless the parties have agreed otherwise, the renewal of a contract is not covered by an arbitration agreement contained in the original contract, even if the arbitration clause is drafted so as to cover a broad range of disputes. This is because under Russian law, the renewal of a contract constitutes a new contract. An arbitration clause referring all disputes arising out of or in connection with the contract to arbitration does not extend to a new contract. Therefore, an arbitration agreement does not cover the renewal of a contract, unless it provides otherwise. The Presidium of the Supreme Arbitrazh Court refused to comment on the arbitrability of real estate title issues, despite the fact that the panel of judges at the Supreme Arbitrazh Court had raised this question. This question thus remains unsettled.
Notes 1 Ruling of the Presidium of the Supreme Arbitrazh Court of Russian Federation No 17481/08 of 19
May 2009, available at: http://arbitr.ru/bras.net/ lepage.aspx?id_doc=c32ec2ba-e549-44b7-905040f2b3dab736&lename=c32ec2ba-e549-44b7-905040f2b3dab736.pdf; Ruling of the Presidium of the Supreme Arbitrazh Court of Russian Federation No 17476/08 of 19 May 2009, available at: http://arbitr. ru/bras.net/lepage.aspx?id_doc=21e16177-c9944d24-8e70-a2847bcfb8df&lename=21e16177-c9944d24-8e70-a2847bcfb8df.pdf. 2 See, for example, Decision of the Federal Arbitrazh Court of the North-West Circuit, April 05, 2004, Case A42-5554/03-10, in Treteyskiy Sud, No 6(36) 2004, pp 36-38; Decision of the Federal Arbitrazh Court of the West-Siberian Circuit, 8 October 2003, Case o04/5261-1528/o46-2003, in Treteyskiy Sud, No 4(34) 2004, pp 46-48. 3 See, for example, Decision of the Federal Arbitrazh Court of the North-West Circuit, 4 December 2007, Case No A56-44076/200, available at: http://arbitr. ru/bras.net/lepage.aspx?id_doc=2_53_74170114 0&lename=2_53_741701140.pdf; Decision of the Federal Arbitrazh Court of the West-Siberian Circuit, 9 March 2006, Case No o04-786/2006(20237-A45-17), Informational Letter of the Presidium of the Supreme Arbitrazh Court of Russian Federation of 22 December 2005 N 96, in Vestnik VAS No 3, 2006; Letter of the Supreme Arbitrazh Court of Russian Federation of 23 January 2009 No BAC-YMNC-197, in Treteyskiy Sud, No 3(63)2009, pp 76-78. 4 Order of the Panel of judges of the Supreme Arbitrazh Court of Russian Federation No 17481/08 of 3 March 2009, available at: http://arbitr.ru:80/bras. net/lepage.aspx?id_doc=139cf0f4-0326-4939-8de939eb4e22c5f3&lename=139cf0f4-0326-4939-8de939eb4e22c5f3.pdf; Order of the Panel of judges of the Supreme Arbitrazh Court of Russian Federation No 17476/08 of 3 March 2009, available at: http://arbitr. ru:80/bras.net/lepage.aspx?id_doc=18c9cbb2-265041f8-a683-e3663f8e184a&id_src=B6D30B1C6E7712D 2E54B820C0F0CD785&lename=18c9cbb2-2650-41f8a683-e3663f8e184a.pdf.
Roman Zykov
Impartiality test for arbitrators
I
136
Hannes Snellman Attorneys at Law, Moscow

roman.zykov@ hannessnellman.com
n 2007, the Russian Supreme Arbitrazh (State Commercial) Court in OAO NK Rosneft v Yukos Capital Sarl ruled that arbitrators must disclose their connection to the parties counsel at the time of their appointment. The facts of the case suggested that one of the arbitrators had spoken at a conference organised and sponsored by the law rm representing Yukos Capital Sarl. in the arbitral proceedings.1 Russian law stipulates that an arbitrator must disclose any circumstances which may give rise to justiable doubts as to his impartiality or independence.2 Based on such disclosure, a party to the arbitration may
decide whether to challenge the arbitrator. The arbitrators failure to provide such information at the time of his appointment may serve as a ground to set aside the award.3 In the case at hand, the court set aside the award on the ground that one of the arbitrators had failed to disclose circumstances which could give rise doubts as to his impartiality or independence. However, the court did not explicitly say that the participation of an arbitrator in a conference organised and sponsored by one of the parties counsel constitutes per se a circumstance giving rise to justiable doubts as to his impartiality or independence. This
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led to a vivid discussion among practitioners over whether arbitrators are biased if they appear at academic events organised and sponsored by the opposite partys counsel (law rm). There was no subsequent case law regarding this matter until the recent decision of the Court of Cassation of the Moscow Federal Circuit in Erick van Egeraat Associated Architects B V (Netherlands) v Capital Croup LLC (Russia), which involved a similar set of facts.4 In this case, Capital Group LLC requested that the court refuse the enforcement of a Swedish arbitral award (rendered under the SCC Arbitration Rules) on the ground that the co-arbitrator appointed by the claimant was biased because she had once spoken at a conference organised and sponsored by the law rm of the opposite partys counsel. In support of its argument that the co-arbitrator was biased, Capital Group LLC also relied on the fact that the counsel representing Erick van Egeraat had spoken at the same conference. The court rejected Capital Group LLCs argument. It based its ruling on two specic grounds. First, it was established that the law rm had acted only as a so-called information sponsor (promoting the conference among its clients and partners) and had certainly not had any inuence on either the program of the conference or on the speakers list. Secondly, the participation of the co-arbitrator in the conference did not create any dependence on, or commercial interest with, the counsel (law rm). On that basis, the court found that the arbitrator fullled the impartiality requirements set forth by international provisions5 and the SCC Arbitration Rules (which governed the arbitration proceedings). Comments The decision of the Court of Cassation of the Moscow Federal Circuit is timely and welcome as it brings some clarity to the impartiality requirements for arbitrators in Russia. Russian courts had adopted the position that an arbitrators involvement in academic events organised by the law rm of the
parties counsel must be disclosed to the other party and failure to disclose such circumstance is a ground for setting aside the award. Yet, the courts had not answered the main question of whether the mere participation in such a conference biases the arbitrator. The recent decision illustrates that the impartiality test comes down to determining whether there are any interactions creating a dependence or commercial interest between the counsel (law rm) and the arbitrator. It is within the courts discretion to decide whether, in a specic case, any form of sponsorship for a conference in which an arbitrator participated creates such dependence or interest and thus gives rise to justiable doubts as to his impartiality. In this particular case, the court ruled that information sponsorship does not create any special relationship between the counsel (law rm) and arbitrator. Furthermore, the court held that the fact that the arbitrator and counsel had spoken at the same conference does not necessarily give rise to justiable doubts as to his impartiality. The court underlined that the impartiality requirements also depend on the applicable arbitration rules. Thus, in our opinion, any applicable rules or guidelines of the arbitration institution chosen by the parties on the arbitrators impartiality are of signicant relevance in the context of setting aside or enforcement proceedings in Russia.
Notes 1 Ruling of the Supreme Arbitrazh Court of 10 December 2007 No 14956/0, cases No o40-4576/0769-46, o40-4581/07-69-47. 2 Article 12.1 of the Federal Law on International Commercial Arbitration, 7 July 1993, No 5338-1. 3 Article 34.2.1. (3) of the Federal Law on International Commercial Arbitration, 7 July 1993, No 5338-1. 4 Resolution of the Federal Arbitrazh Court of the Moscow Circuit, No KG-A40/8155-09, case No o4051596/09-68-437, 27.08.2009 5 The court did not refer to a specic provision. However, it can be understood that the court was referring to Article 5.1 (d) of the New York Convention, which in turn, in the absence of an agreement between the parties on the matters, refers to lex arbitri, ie, the Swedish Arbitration Act.
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Spain
Ana Morales
Attorney-at-Law, Madrid
ana.moralesramos@ law.nyu.edu
Pavan S R L v Leng DOr: The Spanish position on the enforcement of foreign awards when an action to set aside the award is pending at the seat of the arbitration
the term enforceable. If the terms were considered as synonyms, then the party seeking enforcement would be obliged to obtain a declaration of enforceability from the state where the award was rendered before requesting its recognition and enforcement in Spain. This would be tantamount to the system of double exequatur established by the Geneva Convention on the Recognition and Enforcement of Foreign Arbitral Awards (26 September 1927), which the New York Convention meant to abolish. Likewise, based on a systematic interpretation of the New York Convention and the European Convention on International Commercial Arbitration (Geneva, 1961) (ECICA), the Spanish court rejected the argument that the term binding should be understood as unchallenged. In order to reach this conclusion, the court relied on Article VI of the New York Convention, which expressly allows the courts to put off or suspend the decision on the enforcement of the award until the annulment proceedings have been concluded. However, this postponement is not compulsory and is within the discretion of the enforcement court. On that basis, the Spanish court concluded that the existence of annulment proceedings is not a reason to automatically deny the recognition and enforcement of the award, but that the court retains discretion. Therefore, the words binding award contained in Article V(I)(e) of the New York Convention, when interpreted in conjunction with Article VI, do not mean unchallenged award. Finally, the court stated that the term binding award cannot be understood to mean enforceable award or unchallenged award, but that it should be interpreted as a nal award in the sense of putting an end to the arbitral proceedings. The Spanish court referred to the interpretation given by the Tribunal de Grande Instance de Paris in the case of Saint Gobain v Fertilizer Corporation of India Ltd,2 in which that court stated that an award shall be considered binding, in the sense of the New York Convention, from the
n an apparently unprecedented case in Spain,1 the Court of First Instance No 3 of Rub (Barcelona) enforced a foreign arbitral award while an action to set it aside was pending in France (judgment of 11 June 2007 in Pavan S R L v Leng DOr S A, Auto del Juzgado de Primera Instancia No 3 de Rub de 11 de junio de 2007). Background: Annulment at the Paris seat and enforcement in Italy and Spain The facts of the case were as follows. An ICC arbitral tribunal rendered an award in favour of Pavan S R L, an Italian food processing technology company, in its contractual dispute against Leng DOr, a Spanish snack food company. Leng DOr initiated annulment proceedings at the seat of arbitration in France. At the same time, Pavan S R L tried to enforce the award rst in Italy, where enforcement was refused under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) on the ground that the decision on the challenge of the award was pending, and then in Spain, where the court enforced the award. Leng resisted the enforcement of the award in Spain, arguing inter alia that no award binding on the parties existed, as the award was subject to annulment proceedings in France. The Spanish court therefore faced the question whether an award can be enforced pending a decision on its annulment. The Spanish court nds that a challenged award is nonetheless a binding award subject to enforcement In that context, the Spanish court had to decide whether an award that is subject to annulment proceedings can be considered as binding on the parties within the meaning of Article V(I)(e) of the New York Convention. It concluded that the term binding, which is not dened in the New York Convention, could not be understood as a synonym of
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moment in which it has been duly rendered and the required formalities have been fullled in order to consider it as an arbitral award. The Spanish court followed the French trend to enforce awards regardless of their annulment at the place of arbitration The decision of the Spanish court follows the trend generally adopted by the French courts when faced with the question of enforcing an award set aside by the courts of the seat of arbitration. Indeed, the French Cour de Cassation has allowed the enforcement of foreign awards annulled by the courts at the seat of the arbitration, as for example in the Hilmarton case3 in 1997 and, more recently, in the Putrabali case in 2007.4 By contrast, courts in other jurisdictions, like the United States Court of Appeal, District of Columbia Circuit, in the TermoRio case5 have refused to enforce awards set aside by the competent courts of the country where they had been rendered. In doing so, they have generally relied on the wording of Article V(I)(e) of the New York Convention and preferred to avoid contradictory decisions. The need to modify the New York Convention to address the issue of the enforcement of annulled awards The existence of these two approaches and the conicting results reached by different national courts have been the object of a wide
debate, especially in the context of the 50th Anniversary of the New York Convention during 2008. Leading practitioners have highlighted the need to revise the New York Convention in order to modernise and adapt it to the problems encountered since its drafting in 1958,6 including the issue of the enforcement of annulled awards. However, these proposed changes are far from being agreed upon and uncertainty remains regarding what a particular court will do when faced with the question of enforcing an award that is subject to annulment proceedings. For now, Spain seems to favour the enforcement of foreign arbitral awards even if said awards were challenged.
Notes 1 Decisions from the Spanish lowest courts are generally not published and, therefore, not publicly available. 2 Cour dAppel Paris, 10 May 1971. Compagnie de Saint Gobain-Pont Moresson v The Fertilizer Corporation of India Ltd, 1 YBCA 184 (1976). 3 Cour de Cassation France, 23 March 1994. Hilmarton Ltd v Omnium de Traitement et de Valorisation (OTV). XX YBCA 663 (1995). 4 Cour de Cassation France, 29 June 2007. PT Putrabali Adyamulia v St Rena Holding. 5 United States Court of Appeal, District of Columbia Circuit, 25 May 2007. TermoRio S A E S P v Electranta S P 487 F 3d 928 (D C Cir 2007). 6 See, among others, Albert Jan van den Berg, Hypothetical Draft Convention on the International Enforcement of Arbitration Agreements and Awards: Explanatory Note. Years of the New York Convention: ICCA International Arbitration Conference, publication date 2009. Available at: www.arbitrationicca.org/media/0/12133703697430/explanatory_ note_ajb_rev06.pdf.
Noradle Radjai*
Lalive, Geneva
nradjai@lalive.ch
Switzerland
Where theres smoke, theres re? Proving illegality in international arbitration
n international commercial arbitration, allegations of illegality most often arise in the context of agency or consultancy agreements. The dispute usually arises when the principal refuses to pay the commission, objecting that the agreement was illegal and invalid. In investment arbitration, allegations of illegality are likely to be made by the states against the foreign investors in respect of the establishment or development of the investment,1 although in a recent case,
the allegation of corruption was made by the foreign investor, arguing that the breach by the state of the investment treaty was caused by the investors refusal to comply with demands for bribes by government ofcials.2 Allegations of illegal conduct in international arbitration trigger two key questions: what is the law applicable to the issue of whether a certain act is illegal and what is the standard of proof? This article examines each of these two issues in turn.
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What is the applicable law? The rule: substantive law of the contract Arbitral tribunals confronted with allegations of illegality normally apply the substantive law of the contract chosen by the parties to determine whether a certain act is illegal, except to the extent that applying it would contravene international public policy. Can a foreign mandatory rule apply? It is occasionally argued before arbitral tribunals that a foreign mandatory law should be applied that renders the contract illegal and void. In England, for instance, the fact that a contract is void in the country where it is to be performed would be relevant if English law governs the contract.3 Other countries, including Switzerland, will not apply a foreign law unless the principle forms part of international public policy. Several arbitral tribunals have therefore refused to apply statutes providing for a sweeping prohibition of agents.4 Similarly, in an arbitration where Swiss law was applicable, the respondent alleged that the claimed commission payments were contrary to the US Foreign Corrupt Practices Act (FCPA) as a mandatory foreign law, but the arbitrator ruled that the FCPA was not applicable as it could not prevail in the given circumstances over the choice of Swiss law.5 In one arbitration where the tribunal did apply a foreign law to declare the contract void, the award was subsequently set aside.6 The sole arbitrator considered that the claimants mission under the agreement was contrary to Algerian law, which prohibits the use of intermediaries, whereas Swiss law governed the contract. He declared the contract void on the ground that it contravened an Algerian mandatory rule. The award was set aside by the Cour de justice of Geneva as, unlike corruption, the use of intermediaries did not offend Swiss law. This decision was upheld by the Swiss Supreme Court.7 The problem of the award has been identied as being that the arbitrator did not reach his conclusion on the basis of a transnational public policy rule (such as prohibition of corruption of foreign ofcials) but a local standard. Foreign laws therefore have limited application for determining the legality of a contract. Tribunals have stated, however, that a mandatory foreign law may be applicable if it forms part of transnational public policy.8
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Transnational public policy Examples of international or transnational public policy include prohibitions against agreements to perform criminal acts.9 There is also broad support for an international public policy against bribery of public ofcials, recognised in arbitral case law, national case law and commentary.10 As the tribunal stated in the Westacre case, there is an international public order, which makes bribery contracts invalid and contrary to bonos mores.11 Alleged illegal conduct may therefore also be assessed against such principles of transnational or international public policy. Public policy of the place of enforcement It has also been argued before arbitral tribunals that a contract should be declared illegal and invalid because an award enforcing it would be contrary to the public policy of the country in which the award would be enforced.12 Indeed, there are cases where the alleged underlying illegality of a contract was a bar to the enforcement of the arbitration award on the basis that enforcement would be contrary to public policy at the place of enforcement.13 Choice of law analysis matters where national laws vary on illegality Given the impact of the international anticorruption instruments in place,14 most substantive laws now clearly make corruption illegal. In practice, therefore, there is a convergence of national laws on corruption issues and an emergence of an international public policy standard against corruption. These trends mean that in clear cases, a tribunal should be able to make a nding of corruption regardless of the applicable law. It is in less clear-cut cases, where national laws may vary on what constitutes illegal conduct, where the selection of applicable law will be crucial. In these cases, tribunals are likely to apply the substantive law of the contract unless its application would itself be contrary to international public policy. Tribunals may also expressly refer to principles of international public policy to assess the alleged illegal conduct. To the extent that a foreign mandatory rule forms part of international public policy, it may also be applied. In certain jurisdictions, for example England, parties could argue that
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the alleged conduct is illegal by reference to the law of the place of performance. What is the standard of proof? It is well-established in international arbitration that a high standard of proof is required when it comes to allegations of illegality. It is equally clear that amere suspicion by a member of the arbitral tribunal is entirely insufcient,15 as are allusions not supported by evidence and based on suppositions.16 However, there has been no universal evidentiary standard that has been applied by arbitral tribunals in addressing allegations of illegality. The treatment of allegations of corruption by arbitral tribunals is particularly illustrative and is therefore the focus of the review that follows below. Certainty In the Hilmarton case, the arbitrator concluded that the evidence (witness statements and the amount of the commission) was not sufcient to establish with certainty the existence of illegality.17 A similarly high standard was followed in the Westinghouse case: the arbitral tribunal held that, with respect to the allegation of corruption, a higher standard of clear and convincing evidence would apply.18 Even though evidence existed that Westinghouse intended to bribe President Marcos by paying the local agent, the arbitral tribunal stated that the respondents failed to satisfy their burden of proof, since they neither provided evidence of payments to President Marcos nor proved the existence of an agreement between President Marcos and Westinghouse.19 Investment arbitration tribunals have applied a similarly high standard. In African Holdings v Congo,20 the arbitral tribunal noted that the allegation of corruption was very grave, requiring irrefutable evidence and a particularly high standard of proof, such as the investigation or criminal prosecution of the corrupt act in countries where they are deemed as a criminal offence. In the absence of such evidence, the allegations were dismissed. The standard of proof required will be particularly high in the unusual event that the allegations of corruption form the basis of the investment claim brought by the investor against the host state. This was demonstrated recently in the case of EDF v Romania,21 which
revolved around allegations of corruption made by the foreign investor. EDF asserted that in 2001, when it refused to comply with demands for bribes from senior Romanian Government ofcials, Romania started to expropriate unlawfully its investment and treated its investment unfairly, inequitably, arbitrarily and unreasonably. The tribunal stated that clear and convincing evidence should have been produced by the claimant showing not only that a bribe had been requested from a government ofcial, but also that such request had been made not in the personal interest of the person soliciting the bribe, but on behalf of the government authorities in Romania, so as to make the State liable in that respect. The tribunal rejected EDFs allegations of corruption on the basis that EDF had not satised this high burden of proof. High degree of probability In another case, a slightly lower standard than certainty was applied. Several agency agreements were disputed, but no conclusive evidence of bribery was found to have been provided.22 Nonetheless, a high degree of probability of bribery in respect of one of the agreements was sufcient for the tribunal to declare the contract void under the applicable Swiss law. The tribunals acceptance of a lower standard in this case is probably attributable to the fact that the party accused of corruption refused to disclose bank records of payments to third parties, in relation to the 33.33 per cent commission fee. This was considered to be decisive circumstantial evidence for irregularity of the payments.23 Circumstantial evidence Several arbitral tribunals have considered circumstantial evidence when addressing allegations of corruption.24 For example, ndings of corruption have been made on the basis of corruption being endemic in the relevant region;25 the refusal of an agent to disclose details of its corporate structure and its interventions;26 the speed with which the contract was awarded;27 short duration of consultancy agreement;28 commission based on percentage of the amount of the contracts awarded to the principal;29 and an excessively high commission.30 However, in all of the cases where a nding of corruption was made on the basis of
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circumstantial evidence, the tribunal relied upon a number of factors rather than any single indication. It is the convergence of these indicators that resulted in the arbitral tribunals making a nding of corruption. A tribunal has stated that, in order for circumstantial evidence to prove a fact, such circumstantial evidence must lead to a very high probability.31 In most cases where circumstantial evidence is proffered, this alone is not deemed to be sufcient.32 Timeliness of evidence Parties alleging illegal conduct, must ensure not only that they have the necessary evidence to support their allegations, but also that the evidence is presented in a timely manner. In a recent case that came before the Swiss Supreme Court,33 a party applied to the Swiss Federal Supreme Court for review of a partial arbitral award, on the basis that the agreement had an illicit nature, involving bribery, and produced new evidence in this regard. The court denied the request, on the basis that the evidence was not new and could have been (but was not) produced in the arbitration and therefore the prerequisites for a review were not met. Sufciency of proof is key It is the requirement of sufcient evidentiary proof that will often be a key hurdle in proving illegality in international arbitration. Although no universal evidentiary standard has been applied by arbitral tribunals, the standard of proof is consistently very high in relation to allegations of illegality. Arbitral tribunals regularly require certainty or clear and convincing evidence, both in international commercial arbitration and in investment arbitration. In the less common cases where tribunals have made ndings of illegality on the basis of the slightly lower standard of high probability or on the basis of circumstantial evidence, this can often be attributed partly to the accused partys behaviour, such as refusal to disclose evidence in relation to its alleged misconduct. The high standard of proof therefore continues to be the norm in international arbitration. An arbitrator must establish the facts of the case as they ow from the parties pleadings and the evidence offered. With limited means at the arbitrators disposal to gather evidence, the burden of satisfying this high standard of proof remains squarely on the
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shoulders of the party alleging illegality. The burden will be particularly heavy where a partys allegations form the basis of the claim, as demonstrated by the recent case of EDF v Romania.34 The combination of these factors means that proving illegality continues to be a signicant challenge in international arbitration.
Notes * Noradele Radjai is a solicitor-advocate specializing in international arbitration with the Geneva-based international law rm LALIVE. The author is grateful to Matthias Scherer of LALIVE who provided very helpful comments on earlier drafts. 1 World Duty Free Company Limited v Republic of Kenya (ICSID case no ARB/00/7); SGS Socit Gnrale de Surveillance S A v Islamic Republic of Pakistan (ICSID case no ARB/01/13); Wena Hotels Limited v Arab Republic of Egypt (ICSID case no ARB/98/4); Metalclad Corporation v United Mexican States (ICSID case no ARB(AF)/97/1); Lucchetti S A and Lucchetti Peru S A v Republic of Peru (ICSID case no ARB/03/4). 2 EDF (Services) Limited v Romania (ICSID case no Arb/05/13), Award 8 October 2009. Award and Dissenting Opinion available at: http://ita.law.uvic. ca/documents/EDFAwardandDissent.pdf. 3 Lemena Trading Co Ltd v African Middle East Petroleum Co Ltd [1988] Q B 448 (Q B) (English court will not enforce contract for inuence peddling if it is contrary to foreign law at place of performance). See also Soleimany v Soleimany [1998] 3 W L R 811 CA, discussed further below. 4 Geneva Chamber of Industry and Commerce (CCIG), Award of 23 February 1988, [1988] ASA Bull 136; Ad hoc award (1989), [1991] ASA Bull 239; Westacre v Jugoimport, ICC case no 7047 (1994), [1996] Y B Com Arb XXI 79. 5 ICC case no 9333 (1998), [2001] ASA Bull 757-780 at p 773. See also ICC case no 8459 (1997), Cahiers de larbitrage, Gaz Pal, 14 dcembre 2006 no 348, p 16, where Algerian law governed the contract and it was held that the principles of French law put forward do not form part of public international policy and are not therefore applicable. 6 Hilmarton, ICC case no 5622 (1988), Collection of ICC Arbitral Awards (1991-1995) 220; [1993] ASA Bull 247; [1994] Y B Com Arb XIX 105. 7 Swiss Supreme Court, Omnium de Traitement et de Valorisation (OTV) v Hilmarton Ltd, case no 4P.263/1989, [1993 ] ASA Bull 253. 8 ICC case no 6320 (1992), [1995] J D I 986. 9 Soleimany v Soleimany, op cit at footnote 3. 10 Swiss Supreme Court, Jugoimport-SDPR Holding Company Ltd & Beogradska Banka v Westcare Investments Inc (Westacre case), case no 4P.115/1994, [1995] ASA Bull 711; Westacre v Jugoimport, ICC case no 7047 (1994), op cit at footnote 4; World Duty Free Company Limited v Republic of Kenya (ICSID case no ARB/00/7); Paris Cour dappel, European Gas Turbines SA v Westman Intl Ltd, [1995] Y B Comm Arb 198 at 201 (the arbitral award violates French public policy
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and international public policy as its enforcement in France would give effect to an illicit contract the aim and object of which being trafc in inuence or the payment of bribes.); ICC case no 3916 (1983), [1984] J D I 930; Oscanyan v Arms Co, 103 US 261, 277 (US S Ct 1880) (A contract to bribe or corruptly inuence ofcers of a foreign government will not be enforced in the courts of this country not from any considerations of the interests of that government or any regard for its policy, but from the inherent viciousness of the transaction, its repugnance to our morality, and the pernicious effect which its enforcement by our courts would have upon our people.); Oberlandesgericht Hamm, Judgment of 27 September 2005, [2006] ASA Bull 153 at 157. See Homayoon Arfazadeh, Considrations pragmatiques sur la comptence respective de larbitre et du juge en matire de corruption, [2001] ASA Bull 672; Bernard Hanotiau, Misdeeds, Wrongful Conduct and Illegality in Arbitral Proceedings, in International Commercial Arbitration: Important Contemporary Questions, ICCA Congress Series No 11 (2003) 261; Abdulhay Sayed, Corruption in International Trade and Commercial Arbitration (2004). See also Convention on Combating Bribery of Foreign Public Ofcials in International Business Transactions of 17 December 1997 (OECD Convention), available at: www.oecd.org. 11 Westacre v Jugoimport, ICC case no 7047 (1994), op cit at footnote 4. 12 Unpublished, referred to in Magnus Eriksson, Arbitration and Contracts Involving Corrupt Practices: The Arbitrators Dilemma, [1993] Am Rev Intl Arb, 409. 13 Soleimany v Soleimany, op cit at footnote 3: The English tribunal acknowledged that the parties had been involved in an illicit enterprise but considered the illegality to be of no relevance since, under the applicable substantive law of the contract, any illegality would have no effect on the rights of the parties. However, the English court refused enforcement of the award on the basis that enforcement of an illegal contract would be contrary to English public policy. 14 See, eg, The Inter-American Convention against Corruption, adopted by the Organization of American States (1996), the OECD Recommendation on the Tax Deductibility of Bribes to Foreign Public Ofcials (1996), the OECD Convention on Combating Bribery of Foreign Public Ofcials in International Business Transactions (1997), the Convention on the Fight Against Corruption Involving Ofcials of the European Communities or Ofcials of Member States of the European Union, adopted by the Council of the European Union (1997), the Criminal Law Convention on Corruption, adopted by the Committee of Ministers of the Council of Europe
(1999), the Civil Law Convention on Corruption, adopted by the Committee of Ministers of the Council of Europe (1999), the African Union Convention on Preventing and Combating Corruption, adopted by the Heads of State and Government of the African Union (2003) and the United Nations Convention against Corruption (2003). 15 Westacre v Jugoimport, ICC case no 7407 (1994), op cit at footnote 4; Westinghouse International Projects Company v National Power Corporation, ICC case no 6401 (1991), [1992] Mealeys International Arbitration Report, Vol 7, Issue no 1, Section B, at pp 17-18. 16 Plateau des Pyramides case, SPP v Egypt (ICSID case no ARB/84/3), [1994] Y B Com Arb XIX 51. 17 Hilmarton case, ICC case no 5622 (1988 and 1992), op cit at footnote 6. 18 Westinghouse case, ICC case no 6401 (1991), op cit at footnote 15; See also Ad hoc award of 4 May 1999 in Himpurna California Energy v PT Persero, [2000] Y B Com Arb, XXV 13, at 44: A nding of illegality or other invalidity must not be made lightly, but must be supported by clear and convincing proof. 19 This award was conrmed by the Swiss Supreme Court on 2 September 1993, case no 4P.27/1992 (BGE 119 II 380), [1994] ASA Bull 244. 20 ICSID case no ARB/05/21, Award, 29 July 2008. 21 EDF (Services) Limited v Romania (ICSID case no Arb/05/13), Award 8 October 2009, op cit at footnote 2. 22 ICC case no 6497 (1994), [1999] Y B Com Arb XXIV 71. 23 Ibid. 24 For an in-depth analysis of circumstantial evidence in corruption cases, see Matthias Scherer, Circumstantial Evidence in Corruption cases before International Arbitral Tribunals, [2002] Intl Arb L Rev, Vol 5, pp 29-40. 25 ICC case no 3916 (1981), op cit at footnote 10. 26 Ibid. 27 Ibid. 28 ICC case no 8891 (1998), [2000] J D I 1076. 29 Ibid. 30 Ibid. 31 ICC case no 4145, Second Interim Award of 1984, [1987] Y B Com Arb XII 97. 32 ICC Award of 21 March 1992, [1994] Rev arb 359; ICC case no 6497 (1994), op cit at footnote 22, where the circumstantial evidence was an alleged disproportion between consultants costs and his fee and lack of transparency of consultants group; ICC case no 9333 (1998), op cit at footnote 5; African Holdings v Congo, op cit at footnote 20. 33 Swiss Supreme Court, X v Y, case no 4A_69/2009, unpublished. 34 Op cit at footnote 2.
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Sweden
New ruling by the Swedish Supreme Court opens the way for judicial review of arbitrators compensation determined by arbitration institutions
Background A Swedish arbitral award can only be set aside on limited, formal grounds. This is the reason for the popularity of arbitration in Sweden. However, under section 41 of the Swedish Arbitration Act (1999:116), a party or an arbitrator may bring an action before the Swedish courts challenging the part of the award pertaining to the arbitrators compensation. Such an action must be brought within three months from the date the party received the arbitration award. After this time the award is fully enforceable without exception. The underlying reason for this rule is that the arbitrators decision on their own compensation must be subject to judicial review. The common wisdom in Sweden has been that section 41 does not apply when the decision on the arbitrators compensation that is incorporated into the award has not been made by the arbitrators themselves, but rather by an arbitral institution such as the International Chamber of Commerce (ICC) or the Arbitration Institute of The Stockholm Chamber of Commerce (SCC). These arbitration institutions being independent institutions of the highest reputation, a judicial review of their compensation decisions was considered not to be necessary. The new case law The question whether an arbitration award containing a decision on the arbitrators compensation made by an arbitral institution is subject to review was addressed by Swedish courts in a case involving an SCC arbitration of a German and a Turkish party (NJA 2008, p 1118, ReSoyak Int Construction & Investment Inc/Hochthief AG). The award, which was issued in June 2003, stated that: The costs for the arbitration proceeding, which have been set by the SCC at 208,400.48 plus SEK 59,612.00 shall be borne by the parties with each party paying half of the total costs. The award contained a reference to section 41 of the Arbitration Act.
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Christer A Holm
ADVOKATFIRMAN NORELIDHOLM, Stockholm
christer.holm@ norelidholm.com
The Turkish party brought an action pursuant to section 41 against the arbitrators before the District Court of Stockholm seeking a reduction of the arbitrators compensation. The arbitrators resisted the action, arguing that the compensation decision had been taken by the SCC and not by the arbitrators themselves, that the decision therefore was not appealable, and that the parties were bound by the SCCs decision given that they had agreed to arbitration under the SCC Rules. The arbitrators also relied on the legislative history of the Arbitration Act which explicitly stated that section 41 shall not apply to decisions taken by others than the arbitrators, eg, the ICC. However, both the District Court of Stockholm and the Svea Court of Appeals ruled in favour of the Turkish party, holding that the decision was appealable pursuant to section 41 notwithstanding the contrary comment in the legislative history. This decision was appealed to the Supreme Court, which requested opinions from both the SCC and the ICC. Not surprisingly, both institutions took the position that a compensation decision by an arbitration institution is not appealable. However, the Supreme Court held that, as a general principle under Swedish law, any decision by a third party by means of a term in a contract between two parties is always reviewable by a court of law. The Supreme Court further found that if section 41 were not applicable to compensation decisions made by arbitration institutions (meaning that an action must be brought within three months from the award), such decisions would be appealable without any time limit and thus, would never be enforceable. The Supreme Court ruled that this cannot have been what the authors of the Arbitration Act intended. Thus, in order to subsume a compensation decision taken by an arbitration institution under the three-month rule contained in section 41, the Supreme Court held that, notwithstanding the contrary
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legislative history, section 41 applies to all compensation decisions reected in an arbitration award. Comment The decision of the Supreme Court is at odds with the prevailing Swedish view on the nonappealability of institutional compensation decisions. However, the reasoning of the Court is sound. Also, this ruling establishes a common rule applicable to all Swedish arbitration awards, according to which the
part of the award pertaining to compensation and costs can always be challenged before a Swedish District Court within three months from the date the party received the award, irrespective of whether the arbitrators themselves or an arbitration institution made the decision on compensation. This new ruling should not erode the attraction of institutional arbitration in Sweden. Furthermore, this development is welcome in that it creates a more equal status between ad hoc arbitration and institutional arbitration in Sweden.
Bennar Balkaya*
Balkaya & Balkaya Attorneys at Law, Istanbul
bennar@balkaya.av.tr
Turkey
Enforcement of foreign arbitral awards in Turkey
his article provides a brief historical overview of international arbitration in Turkey and focuses on the enforcement of foreign arbitral awards.
The recognition and regulation of international arbitration in Turkey over the last 60 years Early reliance on domestic standards and use of foreign judgments recognition principles The term arbitration rst appeared in the Code of Civil Procedure (CCP)1 (Articles 516-536), which governs domestic, voluntary arbitration. The CCP, however, does not govern international arbitrations and only applies to domestic arbitrations taking place in Turkey without any foreign element. Furthermore, the CCP does not contain any provisions regarding the enforcement of foreign arbitral awards. Until 1949, the Turkish Court of Appeal did not see t to distinguish between domestic and foreign arbitral awards and held the view that all arbitral awards had to be enforced according to the CCP. The Court of Appeal subsequently changed its approach, holding that foreign arbitral awards had to be enforced according to the procedure applicable to foreign judgments.2 Adoption of the Private International Law and Procedural Law in 1982 Then, in 1982, Law no 2675,3 the Private International Law and Procedural Law Act
(PILA), which contains provisions on the recognition and enforcement of foreign arbitral awards, came into force. Turkey is a party to the 1961 European Convention on International Commercial Arbitration (Geneva Convention)4 and the 1958 New York Convention,5 which was ratied on 2 July 1992 and entered into force on 30 September 1992. Turkey also ratied many bilateral and multilateral treaties and conventions, such as the ICSID Convention and the Energy Charter Treaty, which have their own specic regimes for enforcement and are not discussed in the present article. Signicantly, due to the increase of investments and development of the buildoperate-transfer models, the importance of resolving disputes by arbitration increased, leading in 1999-2000 to the amendments of the Constitution6 and other relevant administrative acts.7 Adoption of the International Arbitration Law in 2001 Also, addressing the need for a legal regime on international arbitration, Turkey enacted the International Arbitration Law, no 4686 (IAL),8 which entered into force in 2001. The IAL is based mainly on the UNCITRAL Model Law on International Commercial Arbitration and the 12th Chapter of the Swiss Federal Statute on Private International Law. However, the Terms of Reference concept is inuenced by the Rules of Arbitration of the International Chamber of Commerce. The IAL applies to disputes which have a
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foreign element (eg, a foreign party) and designate Turkey as the place of arbitration, or to disputes in which the provisions of this Act are designated by the parties or the arbitrator or arbitral tribunal.9 The IAL provides a brand new legal framework in Turkey for international arbitration proceedings, with a view to attracting foreign investors. It regulates the procedures and principles of international arbitration in Turkey and stipulates that unless otherwise provided in this Law, the provisions of the CCP shall not be applied to international arbitration proceedings.10 Enforcement of foreign arbitral awards Enforcement of non-New York Convention awards under the PILA Arbitral awards made in countries that are not parties to the New York Convention are enforced under articles 60-62 of the PILA. However, due to the fact that the New York Convention is widely accepted throughout the world, the PILA is seldom applied in practice. Furthermore, Article 1 of this Act stipulates that the provisions of international conventions to which the Republic of Turkey is a signatory are reserved, meaning that the PILA gives priority to international conventions, such as the New York Convention, with regards to the enforcement of foreign arbitral awards. With a few amendments along the way, the PILA is now consistent with the New York Convention. For instance, while it previously stipulated that only nal and executable foreign arbitral awards were subject to enforcement,11 the current version of the PILA provides that nal and executable or binding foreign arbitral awards may be subject to enforcement.12 There is no need for double exequatur. Nor is there a requirement of reciprocity. The PILA once required reciprocity, ie, a de facto practice or a provision of law enabling the enforcement of nal decisions rendered by Turkish courts in the other state.13 The new PILA abrogated this requirement to bring the Turkish enforcement in line with the New York Convention. Under Article 60 of the PILA, a petition for enforcement of a foreign arbitral award must be led with the Civil Court of First Instance mutually designated by the parties. Failing such agreement, the competent court shall be the court at the domicile of the person in
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Turkey against whom the award is rendered, or in the absence of the domicile, the persons place of habitual residence, and in the absence thereof, the court at the location of the property subject to execution. Article 61 of the PILA stipulates that a party requesting enforcement of a foreign award shall attach the original or duly certied copy of the arbitration agreement or arbitration clause to its request, as well as the original or duly certied copy of the nal and executable or binding arbitral award and the translations of those documents. Article 62 provides the grounds for refusal of enforcement, which are similar to those of the New York Convention.14 Enforcement of New York Convention awards Turkey made two reservations to the Convention. The Convention only applies to the recognition and enforcement of awards made in the territory of another contracting state, and only to disputes arising out of legal relationships, whether contractual or not,that are considered commercial under Turkish law. Article 1(1) of the New York Convention stipulates that It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought. Accordingly, arbitral awards having a foreign element in Turkey with respect to Article 2 of the IAL can also be enforced in Turkey according to the New York Convention. Article 5 of the New York Convention sets out the grounds on which a state court may refuse to enforce an arbitral award. The grounds set out in the rst part have to be established by the party against whom the enforcement is invoked and the second part sets forth the grounds that may be invoked by the court on its own motion. Selected enforcement issues In this section, important precedents of the Turkish Court of Appeal on the enforcement of foreign arbitral awards will be examined. No enforcement of award under invalid arbitration agreement Pursuant to Article 2(2) of the New York Convention, the term agreement in writing shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or
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contained in an exchange of letters or telegrams. The Turkish Court of Appeal has found that the validity of the agreement to arbitrate must be met in order to request the enforcement and therefore has refused to enforce the award, where the buyer did not sign the relevant contract and the existence of the arbitration agreement did not meet the conditions stipulated under Article 2(2).15 Regarding the validity of the arbitration agreement, another important issue in practice is whether a non-signatory is bound by an arbitration agreement that is incorporated by reference. The issue also arises in situations where a party to the arbitration agreement has entered into a separate contract with a nonsignatory incorporating the existing arbitration clause, especially where there is no specic reference to the standard contracts. The Turkish Court of Appeal (19th Civil Chamber) made a ruling on this issue which was later approved by the General Assembly of the Civil Chambers (the General Assembly).16 More specically, it ruled that as there was a general reference to the terms of the Federation of Oils, Seeds and Fats Associations Ltd. (FOSFA) standard contract in the sales contracts, the parties were bound by the arbitration clause contained in the standard contract. Whether the parties choice of Turkish Law in their agreement includes the Turkish Civil Procedural Rules The Turkish Court of Appeal has rendered conicting rulings on the issue whether the adoption of Turkish law as the governing law under the contract includes Turkish civil procedural rules. One case involved an arbitration venued in Zurich, Switzerland, between a Turkish and a Finnish company. The relevant arbitration clause provided that the disputes would be settled under the ICC Rules by three arbitrators and Turkish codes in force would apply to the dispute. In view of the fact that the agreement did not contain a specic reference to Turkish procedural laws, the arbitral tribunal applied Swiss procedural law to the proceedings and Turkish substantive law on the merits. The Turkish Court of Appeal (15th Civil Chamber) denied the enforcement of the award. Upon objection by the defendant, the General Assembly ruled that a general reference to the Turkish codes in force covered both the substantive laws and procedural laws.17 As a result, the General Assembly denied the enforcement on the
ground that the arbitral tribunal had wrongly applied Swiss procedural law. A later case reached the opposite result. The 11th Civil Chamber of the Turkish Court of Appeal, in a case involving an ICC arbitration, where the parties had agreed that the contract would be subject to Turkish laws, found the lack of specic reference to Turkish Procedural Law to be conclusive and that the ICC Rules applied.18 Conclusion International arbitration has a bright future in Turkey. With its new international arbitration law based on the UNCITRAL Model Law the new Turkish PILA and with the wide acceptance of international conventions such as the New York Convention, the ICSID Convention and the Energy Treaty, international arbitration is becoming increasingly popular and the Turkish courts are growing more familiar with arbitration, particularly in the context of the growing number of enforcement cases. The more importance Turkey gives to harmonised legal principles, the more condence this will provide for companies seeking to safeguard their commercial interests and the more attractive Turkey will become for foreign businesses and investors. Turkey is uniquely positioned to become a distinguished centre for international arbitration.
Notes * Bennar Balkaya, LL M, MCIArb, is a member of Istanbul Bar and partner of Balkaya & Balkaya Attorneys at Law based in Istanbul. She specialises in international arbitration, commercial litigation and international trade and is the regional coordinating committee member of the ICC YAF Africa, Middle East and Turkey Chapter, and a committee member of the CIArb European Branch. 1 Ofcial Gazette (OG) dated (dd) 2, 3, 4 July 1927, no 622, 623, 624. 2 Court of Appeal, General Assembly Decision no E126 and K109, and the Decision of the 15th Civil Chamber no 1617-1052 (the Keban Decision). 3 OG, dd 22 May 1982, no 17701. 4 OG, dd 23 September 1991, no 21000. 5 OG, dd 25 September 1991, no 21002. 6 In particular, the Constitution was amended so as to provide that disputes arising out of concession agreements for public services in which the Turkish state is one of the parties would be resolved by arbitration, and that the powers of the Council of State (which is the highest instance for reviewing decisions and judgments rendered by administrative courts) would be limited to giving its opinion within two months on draft legislation, conditions and arbitration NEWSLETTER MARCH 2010 147
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contracts under which concessions for public services are granted (Constitution, articles 125 and 155 (amended by Law no 4446, Articles 2 and 3). For the amendments, see OG, dd 14 August 1999, no 23786. 7 OG, dd 21 December 1999, no 23913, OG, dd 22 December 1999, no 23914, OG, dd 22 January 2000, no 23941. 8 OG, dd 05 July 2001, no 24453. 9 IAL, Aarticle 1. 10 IAL, Article 17. 11 See Law no 2675, Article 43. 12 See Law no 5718 (OG, dd 12 December 2007, no 27 November 2007), Article 60. 13 See Law no 2675, Article 44 (2) and Article 38 (a). 14 It should be noted, however, that while Article 5 of the New York Convention provides that the enforcement
may be refused where a ground for refusing enforcement exists, Article 62 of the PILA provides that the court has to deny enforcement in such a case. 15 Decision of the 19th Civil Chamber no 1999/7119E, 2000/1342K. 16 Decision of the 19th Civil Chamber no 1996/9619E, 1997/4669K, Decision of the General Assembly no 1998/19256E., 1998/279K. The General Assembly is the highest authority which examines conicting decisions of the Civil Chambers and which also examines the civil courts decisions to reinstate against civil chambers decisions of reversal. 17 Decision of the General Assembly no 1999/15-235E, 1999/273K. 18 Decision of the 11th Civil Chamber no 2000/3992E, 2000/4704K.
Ukraine
The arbitrability of shareholder disputes
Timur Bondaryev*
Arzinger, Kyiv
Markian Malskyy
Arzinger, Lviv
here is an increasing number of disputes between shareholders in Ukraine. The recommendations on the practice of the implementation of legislation during litigation proceedings arising out of corporate relations (the Recommendations) issued by the Presidium of the Highest Commercial Court of Ukraine1 have given rise to extensive discussions in legal circles both in Ukraine and abroad. They limit party autonomy as they adopt a rather restrictive approach to the ability of parties to govern their corporate relations and, in fact, put into question the validity and enforceability of shareholder agreements in Ukraine.2 Furthermore, the Ukrainian Commercial Procedural Code3 has been amended by a special law4 which makes corporate disputes non-arbitrable (be they referred to domestic or international arbitration). As a result of this amendment, there is a risk that shareholder agreements containing arbitration clauses will lose their validity. This article focuses on the inuence of the Recommendations on the validity and enforceability of shareholder agreements containing arbitration clauses in Ukraine. The primacy of Ukrainian law over shareholders disputes Under Article 6.1 of the Recommendations of the Highest Commercial Court of Ukraine, the following must be regulated solely by Ukrainian law: (i) the activity of a company having its registered seat in Ukraine; (ii) the relations between shareholders of such a
company and the company itself; and (iii) the relations among the shareholders of such a company as far as they pertain to the activity of the company. Consequently, any choice of law clause that deviates from this principle is null and void. For example, the shareholders of a company incorporated in Ukraine are not allowed to choose a foreign law to govern the validity of their shareholder agreements. Shareholders disputes are not arbitrable Furthermore, Article 6.2 of the Recommendations stresses that disputes relating to corporate governance are not arbitrable. Therefore, any clause purporting to refer such disputes to arbitration is unenforceable. The Recommendations add disputes arising from shareholder agreements to the list of disputes which may not be referred to international arbitration. Until recently, there was no provision in Ukrainian law stating that corporate disputes under shareholder agreements could not be settled by international arbitration. It appears that the Highest Commercial Court of Ukraine may be attempting to keep corporate disputes over shareholder agreements within the exclusive jurisdiction of Ukrainian courts with little justication. Submission of shareholder disputes to foreign law is against public policy The Recommendations provide that regulation of shareholder agreements by
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foreign law infringes Ukrainian public policy, but the legal rationale for this conclusion is unclear based on the current denitions of public policy under Ukrainian law. Article 228 of the Civil Code of Ukraine provides that a legal act infringes public policy if it is directed towards the violation of constitutional rights and freedoms of persons and citizens; or towards the destruction of, damage to, or illegal taking of the property of a natural or legal person, the state, the Autonomic Republic of Crimea, or a territorial community. The Supreme Court has dened ordre public as the legal order of the state, the determining principles and basis of which are the fundamentals of the order existing in the state, namely its independence, integrity, inviolability, essential constitutional rights, freedoms, guarantees, etc.5 The issue arises whether the Recommendations t under any of the existing public policy exclusions that would permit a court to refuse to enforce an arbitral award. Given that public policy is one of the most signicant and most controversial bases for refusing to enforce an international arbitral award,6 the Recommendations appear to take quite a hostile approach by denying the enforceability of shareholders agreements governed by foreign law. Under Article 6.5 of the Recommendations, the shareholders of a company may not contract out of mandatory laws, in particular antitrust regulations. Agreements aiming to limit or eliminate competition on commodity and other markets in Ukraine are null and void. Unfortunately, the Recommendations lack any legal analysis to explain the reasoning or basis for their conclusions. For instance, Article 46 of the Ukrainian Law on International Private Law7 contains a mandatory rule according to which the law applicable to a constituent agreement of a legal entity with foreign participation is the law of the country of incorporation. However, under Ukrainian law, an agreement regarding the foundation of a company is not a constituent document of such company. It was expected that the Recommendations would give the answers to a number of problems related to these confusing legal rules. However, in this instance, it is unclear upon which provisions the Highest Commercial Court of Ukraine based its recommendations.
Conclusion Due to the fact that Ukrainian corporate law is outdated and conservative, and that it does not provide for the most up-to-date corporate structures commonly found in other countries, the conclusion of a shareholder agreement is highly recommended, if not a must. Recent developments in Ukrainian law have considerably inuenced the validity and enforceability of shareholder agreements containing arbitration clauses. Such agreements are now at great risk as they may be held invalid and unenforceable in Ukraine, even if they were concluded before the issuance of the Recommendations in late 2007. This has led to many corporate restructurings, the main purpose of which is the modication of previously concluded shareholder agreements. In order to be able to arbitrate corporate disputes, parties should attempt to structure the main salepurchase transaction through special purpose vehicles in different jurisdictions, so as to avoid the application of the Ukrainian law, which would otherwise operate to void their arbitration agreement or deny enforcement of any favourable arbitral award. This, however, should be taken into account at the early stages of negotiations conducted with Ukrainian business partners.
Notes * Timur Bondaryev is a senior partner, attorney-at-law and Markian Malskyy is head of the branch ofce in Lviv, attorney-at-law, at Arzinger, Ukraine. 1 Recommendations of the Highest Commercial Court of Ukraine of 28 December 2007, No 04-5/14. 2 Although the Recommendations do not constitute a binding legal authority under Ukrainian law, it is rare for lower courts to depart from them. 3 Ukrainian Commercial Procedural Code, No 436-IV of 16 January 2003. 4 Article 1, Ukrainian Law on introduction of changes to particular legislative acts regarding the functioning of arbitration and execution of arbitral awards, No 1076-VI of 5 March 2009. 5 Decree of the Supreme Court, On Practice of Consideration by the Courts of the Petitions on Recognition and Enforcement of the Awards on the Territory of Ukraine of Foreign Courts and Arbitrations and on Setting Aside of the Awards, Rendered in the Course of the International Commercial Arbitration, Supreme Court of Ukraine, No 12 of 24 December 1999, available at: www.scourt. gov.ua/. 6 Gary Born, International Commercial Arbitration:
Commentary and Materials, 2nd Ed, p 815 (2006).

7 Ukrainian law on international private law, No 2709-IV of 23 June 2005.
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Argentina
Santiago L Capparelli
Baker & McKenzie, Buenos Aires
Santiago.capparelli@ bakernet.com.ar
Can governmental entities submit commercial disputes to arbitration? An overview of arbitrability under Argentine law
for express legal authorisation to submit governmental disputes related to federal matters to arbitration has constitutional support. Section 116 of Argentinas Constitution provides the general principle that the government is entitled to resolve its federal disputes before its own courts. Consequently, in order to waive that privilege, the government must do so explicitly by federal law. In Techint, a statute expressly authorised the relevant public entity to arbitrate disputes regarding public construction (Law No 13.064 and its amendments). However, as the Supreme Court noted, an arbitration agreement must in fact exist in order to validly submit potential disputes to arbitration. The Supreme Court found in Techint that the arbitral tribunal lacked jurisdiction, since no arbitration agreement existed. It is unclear whether or not Techint applies to cases where the public entity is acting as a private company, in transactions partially governed by private law. Techint may therefore be distinguishable, and express legal authorisation may not be needed. General arbitrability requirements under Argentine law Until a Federal Arbitration Act is nally passed by Congress in Argentina,4 the question of subject-matter arbitrability is governed by the Procedural Codes in force in the City of Buenos Aires and/or any other province (since arbitration is considered a procedural matter). For example, in the City of Buenos Aires, for a controversy to be arbitrable, the subject matter of the dispute must be capable of settlement by the parties.5 Most of the Provincial Procedural Codes follow a similar approach. For a controversy to be validly submitted to international arbitration, it must: (i) have a monetary nature;6 (ii) be considered international;7 and (iii) not be prohibited by law.8 Although there is no legislative guidance as to when a controversy would be considered
onsidering the increasing governmental involvement in international businesses and the rapid growth of arbitration as an alternative dispute resolution mechanism, two fundamental questions arise for lawyers assisting foreign companies negotiating with Argentinean Governmental counterparts: May Argentine Governmental entities agree to submit disputes to commercial arbitration under Argentine law?1 And if so, under which circumstances? This article offers a brief discussion on the arbitrability of disputes with governmental entities under Argentine law. Arbitrability of disputes with governmental entities For purposes of this contribution, we will assume the term arbitrability refers to the question of whether or not a specic dispute or disputes can be resolved through arbitration under a given law (in this case, Argentine law). Argentina does not yet have federal legislation dealing with international arbitration. Hence, in pursuit of the answer to the above arbitrability question, we must look to the Supreme Court, the ultimate interpreter of Argentinas Constitution, for guidance. Argentine Supreme Court precedents are only binding upon the parties to the instant dispute as opposed to future cases unlike the stare decisis doctrine in the US system but Supreme Court decisions nevertheless are generally followed by Argentine lower courts.2 The Supreme Court has uniformly stated that there are no constitutional constraints preventing governmental entities from arbitrating their disputes with private citizens or entities. If those disputes refer to federal matters, however, legal authorisation to submit to arbitration is required (in re Techint Compaa Tcnica Internacional S A C E v Empresa Nuclear Argentina de Centrales Elctricas en Liquidacin y Nucleoelctrica Argentina S A).3 The need
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international, the following criteria, derived from the United Nations Commission on International Trade Law, or UNCITRAL Model Law on International Commercial Arbitration of 1985 (UNCITRAL Model Law or Model Law), Article I, section 1 (3)(a)(b), should be relevant: (i) one of the parties is a national of a country outside Argentina; (ii) one of the parties has its seat or principal place of business outside the countrys territory; and (iii) the place of execution of the underlying agreement connects the dispute with more than one country. To conclude, under Argentine law, governmental entities can submit disputes to arbitration, provided that they are authorised to do so by federal law. However, it has been argued that under special circumstances when a public corporation is acting as a private company in transactions partially governed by private law such public corporation may submit disputes to arbitration without prior legal authorisation. Nevertheless, the subject-matter arbitrability requirements set forth in section 1 of the National Civil and Commercial Code must be met, namely that the dispute be monetary, international, bear on rights that the parties are able to freely dispose of, and,
of course, that the arbitration of such dispute not be prohibited by law.

Notes 1 This contribution will focus on commercial disputes only, as opposed to investment disputes which are subject to bilateral investment treaties and therefore will not be considered herein. 2 Review of the circumstances where a lower court could depart from the Supreme Courts case law are hereby omitted, since they would largely exceed the scope of this task. 3 Argentine Federal Supreme Court, 8 May 2007, Fallos: 330:2215. See also Fallos: 152:347; 160:133; 194:105 and 235:940, among many others. 4 Repeated attempts were made in order to adopt the UNCITRAL Model Law. 5 Sections 1 and 737 from the National Code of Civil and Commercial Procedure. 6 National Code of Civil and Commercial Procedure, section 1. 7 Ibid, section 1. 8 Ibid, section 1. For example, recent amendment of Consumer Protection Law (No 24.240) provided in section 36 that any controversy related to the nance of purchases for consumer purposes shall need to be resolved by the court where that consumer has his/ her address.
Jos Martnez de Hoz

Prez Alati, Grondona, Benites, Arntsen & Martnez de Hoz, Buenos Aires
JMH@pagbam.com.ar
Multi-party and multi-contract international arbitration in the southern cone

Context: the Argentine gas export system and the 2001 crisis The number of multi-party and multi-contract arbitrations involving natural gas exports from Argentinean companies has increased signicantly.1 This trend will probably continue as energy companies threaten to bring more arbitration proceedings that are likely to involve gas producers, transporters and large users. Almost all of these controversies arise out of the truncated Southern Cone energy integration process. In the late 1990s, Americas southern cone countries (Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay) signed several treaties providing for their energy integration. As a result, a large number of natural gas pipelines were constructed, and multiple parties entered into numerous cross-border gas export contracts. The Argentine social and economic crisis, which erupted in 2001-2002, severely hampered natural gas exports from Argentina to neighbouring countries. Through several regulations, particularly since 2004, the Government of Argentina, in breach of its international and domestic legal commitments, imposed export restrictions and taxes on the export of natural gas. As a consequence, a series of complex conicts arose between natural gas producers/ exporters, transporters and importers, including power generators, distributors and other large users, which led to cross-border arbitration proceedings involving multiple parties and contracts. For the most part, those disputes relate to whether the measures enacted by Argentina constituted a force majeure event. Various other contractual issues are also often involved as well.2 In these complex proceedings, arbitrators, parties and counsel face the difculties arising
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in multi-party, multi-contract and multi-issue arbitrations. This article addresses some of these challenges and available solutions aimed at preserving arbitration as a reliable means of dispute resolution. Common multi-party and multi-contract situations Arbitration is a creature of contract and therefore it is limited by the scope of the relevant arbitration agreement and agreedupon arbitration rules. Typically, neither the arbitration agreement nor the arbitration rules sufciently address multi-party or multicontract disputes. The appointment of the arbitrator(s) is a potential source of conict. In the case of potential parallel proceedings, is it better for the parties to choose their arbitrators separately, or should the same tribunal be appointed for all the proceedings? Is the answer the same even where the second approach would be a breach of a partys right to appoint an arbitrator? Should institutional rules provide that, in the case of either multiparty or intrinsically related proceedings, absent a party agreement, the arbitral institution may appoint all of the members of the arbitral tribunals in the related proceedings? Once two or more arbitral tribunals are established in related proceedings, how should the Terms of Reference (in the case of ICC arbitration) be drafted? Would it be convenient to agree rst to jurisdictional Terms of Reference, without setting in motion the merits discussion until preliminary issues are decided? Should the drafting of the Terms of Reference be coordinated among the different arbitral tribunals? An often repeated scenario involves parallel arbitrations relating to a common transaction or set of facts, in which the defendant seeks to join two or more claims in a single proceeding. Is this possible on grounds that both proceedings involve identical facts or that a common arbitration intent is present? If a request for joinder of claims is denied, what happens next? Should parallel proceedings stay on track at similar speed if the issues are interconnected? Should one of the arbitrations be stayed until some of the key issues are decided in the other proceeding? Also, if lis pendens motions are led, would the lis pendens rule of prima in tempore prima in iure apply? Would it instead be better to
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analyse the circumstances and arguments of each party and, if necessary, to disregard that rule? May an arbitral tribunal validly decide a lis pendens issue? Should a matter of lis pendens instead be decided by the national courts of the seat? Finally, who should pay the costs of the arbitration if, for example, there have been parallel proceedings because one of the parties has (even in good faith) refused to join another proceeding or agree on consolidation? Is that party to be held liable for the increased cost derived from multiple proceedings? Existing answers Both institutional rules and certain national laws have sought to address some of these multi-party and multi-contract issues. Moreover, prominent practitioners have developed scholarly theories and suggested best practices for arbitral institutions to follow. This is particularly the case for the joinder of parties and the joinder of claims, which greatly simplify complex arbitrations involving multiple parties or claims. Joinder of parties Company A sues Company B, and Company B wishes to bring Company C into the arbitration on grounds that Company C is liable. (A request for joinder of a third party is typically made by the respondent, since the claimant has the ability to choose the respondents at the time of ling its request for arbitration). Bernard Hanotiau, Anne Marie Whitesell and Eduardo Silva Romero seem to agree that three sine qua non conditions must be met for the respondent to successfully join a third party:3 (i) signature of the relevant arbitration agreement by the third party; (ii) assertion of claims against the third party; and (iii) a joinder request made before the arbitrators have been appointed or conrmed. In relation to the rst requirement, Hanotiau explains that the third party must have signed the arbitration agreement on the basis of which the request for arbitration has been led.4 He adds, in connection with the second requirement, that the respondent must have introduced claims against the new party: for example, the respondent must make the same claim against the new party as the one that has been raised against
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it by the claimant; or it must introduce a specic counterclaim against the claimant.5 Regarding the third condition, Whitesell and Silva Romero comment that [i]t is clear that a request for the joinder of a new party must be made before the arbitrators have been appointed or conrmed, unless all parties agree to such joinder. This is to ensure that all the parties have had an equal opportunity to participate in the constitution of the arbitral tribunal.6 This practice developed in ICC arbitration because the ICC was willing to change its approach, which has contributed to improved effectiveness of ICC arbitration.7 Under the old approach, only the claimant was allowed to identify the parties to arbitration proceedings.8 Under the new approach, it is not always necessary for a respondent to commence a new arbitration in order to claim damages from a third party, and it is possible to have one tribunal deciding multiple claims and cross claims. This, in turn, has permitted a reduction in parallel proceedings. Joinder of claims Company B sues Company A under Contract X and then, almost simultaneously, Company C also sues Company A on similar grounds or in connection with substantially identical facts, but under Contract Y. Typically, Contracts X and Y form part of a same economic transaction or legal relationship and contain cross references to each other. The question that arises is under which conditions it is feasible, at the request of any of the parties, to join any two (or even more) parallel proceedings. In Hanotiaous opinion: The courts authority to join an arbitration with another arbitration that is already pending depends, pursuant to Article 4(6), on the satisfaction of the following conditions: the joinder is requested by a party; the arbitration proceedings are between the same parties; they are in connection with the same legal relationship; and the terms of reference have not yet been signed or approved by the Court (or, if they have been signed or approved, the claims that are sought to be added must be admissible under Article 19 of the Rules).9 Whitesell and Silva Romero add that the arbitration clauses should be at least
compatible. Arbitration agreements providing for different seats or rules might mean that parties intended to have separate arbitrations.10 The benets of permitting consolidation of proceedings include avoidance of conicting decisions, simplication, and cost reduction. Challenges ahead The development of practices such as the joinder of parties and claims effectively addresses multi-party and multi-contract issues, but much remains to be done. In our view, there are two areas in which further developments are needed. First, in the case of joinder of parties, the requirement that all parties must have signed the arbitration agreement should be softened, as there may be situations where a tacit arbitration agreement exists or there was a common intention to arbitrate that can be derived from the conduct or course of dealing between the parties. Secondly, with respect to the joinder of claims, the ICC Court should be given greater exibility under ICC Rule 4(6) to decide whether two or more proceedings concerning the same legal relationship should be joined in the event that substantially the same parties are involved. In allowing consolidated proceedings, it does not seem strictly necessary that all parties be the same or to limit joinders to include the claims contained in the Request in the [already] pending proceedings. An inexible application of these two requirements is not always satisfactory. A situation may arise where there are two or more related parallel proceedings concerning the same legal relationship and factual background, but which do not involve exactly the same parties or contracts. Still, it is possible that the relevant instruments and parties may be so intertwined as to constitute the same economic transaction or legal relationship in which a common intention to arbitrate can be tacitly or explicitly present. Moreover, the arbitration clauses of the different related contracts may contain relevant cross references (eg, in the case of simultaneous controversies, they may establish which arbitration award shall prevail). In such situations, it might make sense to permit a consolidated proceeding in spite of the fact that not all parties are the same.
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Conclusion Means of dealing with the challenges arising out of multi-party, multi-contract cross-border transactions are manifold. The ICC Court could change its approach, as it has done in the past; arbitration rules could be redrafted; and national legislation could include particular provisions dealing with these issues (as some do). The limitations derived from arbitrations consensual nature can be addressed through innovative and creative developments.
Notes 1 Three arbitrations were initiated in relation to gas exports to Chile and there are another three pending arbitral proceedings involving exports to Brazil. Several other cases are expected due to threats of imminent arbitration. 2 In early 2002, Argentina began enacting numerous measures that rst froze, and later articially depressed, gas wellhead prices. These measures caused a very signicant increase in the domestic demand, and by 2004 Argentina began experiencing gas shortages. As a result, the Argentine Government imposed a number of increasingly stringent restrictions on gas exports that prevented producers/exporters from delivering signicant volumes they had committed under their export contracts. This situation was aggravated by the imposition of very onerous export taxes that violated legal and contract commitments undertaken by the government, as well as international energy integration treaties. These circumstances prompted numerous claims from gas buyers located in Chile, Brazil and Uruguay. The Argentine producers/exporters invoked force majeure as a defence. But the non-Argentine buyers
claimed that the Argentine producers contributed to the gas shortages by not investing sufciently. They also questioned the reliance of the Argentine gas producers on certain commitments undertaken by the Argentine Government when authorising the export of gas volumes on a rm basis through export permits that were not interruptible or revocable due to subsequent changes in the gas reserves of Argentina, (ie, a change in the reserves position of the country could only affect the granting of new export permits). Gas transporters were also affected since they constructed pipelines relying on ship-or-pay provisions to recover their investments. Due to the termination or suspension of gas export supply contracts, disputes arose as to which party should bear the cost of these payments or the transportation cost risk. 3 See Bernard Hanotiau, Complex Arbitrations: Multiparty, Multicontract, Multi-Issue and Class Actions, Kluwer, 2006, pp 164-165. See also Anne Marie Whitesell and Eduardo Silva Romero, Multiparty and Multicontract Arbitration: Recent ICC Experience in Complex Arbitrations, Perspectives on their Procedural Implications, Special Supplement, ICC Ct Bull, 2003. 4 See Bernard Hanotiau, Complex Arbitrations: Multiparty, Multicontract, Multi-Issue and Class Actions, Kluwer, 2006, p 171. 5 Ibid. 6 See Anne Marie Whitesell and Eduardo Silva Romero, Multiparty and Multicontract Arbitration: Recent ICC Experience in Complex Arbitrations, Perspectives on their Procedural Implications, Special Supplement, ICC Ct Bull, 2003, Section I.1.2.2. 7 See Bernard Hanotiau, ibid. 8 See Anne Marie Whitesell and Eduardo Silva Romero, ibid. 9 See Bernard Hanotiau, ibid. 10 See Anne Marie Whitesell and Eduardo Silva Romero, ibid.
Brazil
Comverse Inc v American Telecommunications Ltda: Superior Court of Justice denies interim relief to secure enforcement of foreign arbitral award pending its recognition
The arbitral tribunal had ordered the Brazilian party, American Telecommunications Ltda, to pay certain monies to Comverse. According to Comverse, the Brazilian party had failed to comply with the arbitral award, and there was a serious risk that it would become insolvent. For these reasons, and pending the recognition proceedings, Comverse led a request for conservatory measures seeking an attachment order to seize certain assets of the Brazilian party in order to secure the satisfaction of the award.
Valeria Galndez
Barretto Ferreira, Kujawsky, Brancher e Gonalves Sociedade de Advogados, So Paulo
galindez@bkbg.com.br
I
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n a controversial decision, the Brazilian Superior Court of Justice has dismissed a request for conservatory relief aiming at securing the future enforcement of a foreign arbitral award in Brazil.1 Comverse obtains damages under US ICDR award against Brazilian party and seeks to freeze assets in Brazil Comverse Inc sought recognition of an ICDR award before the Superior Court of Justice.
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The Superior Court nds provisional relief is not available prior to the recognition of the award The Superior Court of Justice dismissed this request exclusively on procedural grounds. The President of the Superior Court of Justice stated that it is impossible for a winning party to seek enforcement of a foreign arbitral award prior to its recognition by the competent judicial authority. Therefore, in his opinion, Brazilian courts cannot issue any preliminary or conservatory measure aiming at securing the enforcement of a nonrecognised foreign arbitral award, particularly where the measure involves the seizure of assets. He further noted that a drastic measure such as the seizure of assets can only be granted in exceptional circumstances, and Comverse in any event had failed to discharge this burden of proof. This is a step back reversing the trend initiated in the Supreme Federal Court This is the rst decision regarding conservatory relief associated with the recognition of a foreign arbitral award following the transfer of jurisdiction on this matter from the Supreme Federal Court to the Superior Court of Justice. It is in sharp contrast to at least two decisions from the Supreme Federal Court, which had issued conservatory measures pending the recognition and enforcement of an award.2 The Superior Court of Justices decision in Comverse Inc v American Telecommunications Ltda is a surprising step back in Brazilian case law, which has been extremely favourable to arbitration.3 The decision of the Superior Court of Justice contradicts the very purpose of a conservatory measure. Like in most civil law countries, under Brazilian law only two conditions have to be met for a judicial authority to grant a conservatory measure: fumus boni iuris (the apparent existence of grounds for the request) and periculum in mora (the existence of risk of immediate damage or irreparable loss). In other words, there is absolutely no need for the requesting party to demonstrate that the legal grounds for the request are uncontroversial, let alone, in the case of a foreign arbitral award, that it is fully valid and binding in Brazil. The arbitral award itself should sufce for a judicial authority to be satised of the apparent existence of a given right, particularly where there has
not been any attempt to set aside the award elsewhere. Proof of the existence of an arbitral award, whether national or foreign, means that it should be treated as res judicata until a further decision stating otherwise is rendered by the competent judicial authority. This special effect attributable only to arbitral awards fully satises the fumus boni iuris condition for conservatory measures. This decision may encourage Brazilian companies to refuse to comply with foreign awards The Comverse decision may undermine the development of international arbitration in Brazil and encourage companies, especially those which have assets in Brazil, to simply refuse to comply with arbitral awards rendered outside Brazil. Recognition proceedings of foreign arbitral awards can last approximately one year. In the meantime, the winning party may be helpless in the face of a situation in which the losing party dissipates its assets rendering enforcement proceedings useless. Dangerous extension to parallel litigation proceedings? The legal reasoning of the Comverse court may also create further difculties in parallel proceedings involving litigation proceedings in Brazil and foreign arbitration proceedings. If an arbitration having its seat in another country is concluded before parallel national court proceedings in Brazil concerning the same issues, the chances are, in view of the reasoning of the Superior Court of Justice, that the national court proceedings will continue until the foreign arbitral award is eventually recognised, which is contrary to the notion of favour arbitrandum. One would hope, therefore, that the Superior Court of Justice will revisit its position in Comverse and resume the extremely positive trend previously followed by Brazilian courts in favour of the enforceability of international arbitral awards.
Notes 1 MC 14795/RJ Comverse Inc v American Telecommunications Ltda, Justice Cesar Asfor Rocha (President), judgment of 4 November 2008, DJ (12 November 2008), available at: https:// ww2.stj.jus.br/websecstj/cgi/revista/REJ.cgi/ MON?seq=4366413&formato=PDF <accessed 13 January 2010>.
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2 Ag Reg in Pet 849-9/DF Daniel Denis v Vicentina Brito Ferreira, Justice Octavio Gallotti (Justice Rapporteur), judgment of 23 February 1994, DJ (22 April 1994), p 8941, available at: www.stf.jus.br/portal/inteiroTeor/ obterInteiroTeor.asp?numero=849&classe=Pet-AgR <accessed 13 January 2010>; and AC 13-1/PR Galaxy Grain Itlia Spa v Oito Exportadora de Cereais e Defensivos Agrcolas and Coopergro Cooperativa dos Produtores e Trabalhadores Urbanos e Rurais de Sorriso Ltda, Justice Marco Aurlio (Justice Rapporteur), judgment of 8 May 2003, DJ (15 May 2003), p 19, available at: www. stf.jus.br/portal/jurisprudencia/visualizarEmenta. asp?s1=000032286&base=basePresidencia <accessed 13 January 2010>. The proceedings for recognition
had not even been initiated when the conservatory measure was led in one of these decisions. 3 See Daniela Monteiro Gabbay, Rafael Francisco Alves, Selma Ferreira Lemes (coordinators), Natlia Langenegger, Natlia Luchini, Maria Ceclia Asperti, Patrcia Shiguemi Kobayashi (researchers), Projeto de Pesquisa Arbitragem e Poder Judicirio, Parceria Institucional Acadmico-Cientca Escola de Direito de So Paulo da Fundao Getulio Vargas (Direito GV) e do Comit Brasileiro de Arbitragem (CBAr) (July-Sept. 2009) 19 Revista Brasileira de Arbitragem, pp 7-30, available at: www.cbar.org.br/PDF/Relatorio_ nal_pesquisa_GV_CBAR.pdf <accessed 28 December 2009>.
Gilberto Giusti
Impartiality and independence of the arbitrator borrowing and departing from judicial practices
Pinheiro Neto Advogados, So Paulo

ggiusti@pn.com.br
he relationship between arbitration and the judicial system gives rise to interesting debates. Both systems should co-exist and complement each other, since they seek the same ideal of justice.1 However, excessive interference of the state judge or of the state procedural law itself can cause what has been called the judicialisation and proceduralisation of arbitration. An important point of contact between these two dispute resolution systems comes from the rules requiring adjudicators (arbitrators or judges) to act impartially and independently. In this respect, the Brazilian Arbitration Law states expressly that the same circumstances requiring judges to recuse themselves or be disqualied, established in the Brazilian Code of Civil Procedure,2 may also apply to arbitrators, as relevant. Notwithstanding the provisions of the Arbitration Law, the inuence of the rules regarding judicial proceedings on the assessment of arbitrators impartiality or independence is, in practice, less far reaching than it seems. As discussed in this article, Brazilian arbitration has its own system for examining situations that may lead to the disqualication of the arbitrator. Common aspects jurisdiction, impartiality and independence Before noting the peculiarities that lead to the different treatment of impartiality and independence in arbitration, it is worth mentioning certain aspects common to arbitration and judicial proceedings.
First, irrespective of whether judges or arbitrators are involved, there can only be true jurisdiction when the fundamental requisites of impartiality and independence are met. This applies both to judges and arbitrators as both requirements arise from the jurisdictional power with which they are vested. As Thomas Clay so aptly puts it, the proceeding is a game played by three and not by two.3 The adjudicator should be equidistant from the parties to the dispute.4 Impartiality is not a condition for the intervention of a third party to settle the dispute, but a condition for its very existence. The requirement of independence vis--vis the parties therefore derives from the very essence of the power to adjudicate.5 How the duties of impartiality and independence are addressed in the Brazilian Arbitration Law The treatment of impartiality and independence in arbitration is distinct from the judicial court rules and practice. Some of the differences are: (i) the events of disqualication for arbitrators are more wide-ranging than the events of recusal and disqualication for judges; and (ii) the duty to disclose potential conicts of interest plays a fundamental part in arbitration. (i) Far-ranging disqualication events In arbitration, the so-called doctrine of natural judge does not apply.6 There is no natural arbitrator, but rather one or
Guilherme Sanchez
Pinheiro Neto Advogados, So Paulo
gsanchez@pn.com.br
156
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more arbitrators chosen by the parties themselves (or even chosen by third parties, if applicable). The arbitrator is appointed to resolve the dispute after it has arisen.7 Accordingly, the actual basis for the disqualication of arbitrators and judges is quite different. In contrast with court judges, the investiture of arbitrators arises from the trust of the parties directly involved in the dispute.8 In a situation in which his impartiality may be questioned objectively for example, in the events established by procedural law the arbitrator may take two positions: (i) consider himself disqualied and decline his appointment; or (ii) disclose to the parties the situation that may justify disqualication, to enable them to decide whether or not they accept his appointment. This second possibility arises precisely from the fact that, in arbitration, the rules on disqualication are not absolute. The rules work, then, to protect the parties, but not as mandatory disqualication provisions, which are understood to mean absolute restriction on the performance of the function of arbitrator, that is beyond the will of the parties. Apart from adopting the same events of recusal and disqualication also applicable to state judges, the Arbitration Law does not adopt any set of specic rules, such as the IBA Guidelines, for example.9 However, cases in which the arbitrator can be disqualied are not limited solely to those expressly provided for in the Code of Civil Procedure. Can an arbitrator act in a case involving a party who is a defendant in a case not related to the arbitration, in which the arbitrator himself, or his rm, is acting? Are there grounds to refuse the appointment of an arbitrator who has been repeatedly nominated by a specic law rm to act in different arbitrations?10 These and several other questions, not referred to in the procedural law, are not matters for dispute in the judicial sphere, but are indeed debated in arbitration. (ii) The importance of the duty to disclose Under these circumstances, the duty to disclose is fundamental in arbitration and not so commonly applicable in court litigation. Article 14, paragraph 1, of the Arbitration Law provides that persons indicated to serve as arbitrators have the duty to disclose, before accepting the function, any fact that indicates a justied doubt as to their impartiality and
independence. The parties must be able to trust the arbitrator, and the rst step to that end is to guarantee that the arbitrator is not withholding any important information from the parties. Failure to perform this duty may even constitute a cause for annulment of the award if the undisclosed fact could be considered to show a lack of impartiality or independence. The identication of facts indicating a justied doubt as to the impartiality and independence of an arbitrator is, of course, quite subjective. Authors like Fouchard, Gaillard and Goldman maintain that all the facts should be disclosed unless: (i) they are known publicly, which makes disclosure unnecessary; or (ii) they do not cause reasonable doubt as to the arbitrators independence.11 Other scholars go further. Thomas Clay states that the duty to disclose should be precise, exhaustive and impervious to anything that might weaken it, such as being widely known, or known for a long time, or the triteness of the fact whose disclosure is being considered. If the arbitrator fails to disclose, whether in good or bad faith, any kind of connection with a party, the other party will then be in possession of a powerful weapon. The best protection against the risk of an attempt to annul the award is, therefore, the proper performance of the duty to disclose.12 Following the general global trend, under the Brazilian Arbitration Law and practice, in case of doubt as to whether certain facts should be disclosed or not, disclosure better serves the interest of a fair arbitration. Once the relevant circumstance is disclosed and accepted by the parties, there will no longer be any suspicion of partiality based on that event. Further, there will be no loophole for claiming invalidation of the award on that account. Conclusion The existence of common features between arbitration and court proceedings as to impartiality and independence cannot lead to the conclusion that the Brazilian Arbitration Law adopted the same system as the Code of Civil Procedure. In fact, there are a series of special features in arbitration that give rise to different treatment of these matters, which arise essentially from the need for the parties
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to have condence in the arbitrators. It would therefore make no sense to limit the events of arbitrator disqualication only to the events provided for in the Code of Civil Procedure. Rather, it is the arbitrators duty to disclose any and all facts that might cause any reasonable doubt as to his independence and impartiality, and thus enable the parties to decide whether or not to accept the appointment.
Notes 1 See B Oppetit: justice tatique et arbitrage poursuivraiente, par des voies distinctes mais complmentaires, le mme idal de justice, in Thorie de larbitrage, Paris, Presses Universitaires de France, 1998, p 23 (free translation: state justice and arbitration pursue the same ideal of justice by different but complementary means). 2 Article 14 of the Brazilian Arbitration Law: Persons who have, with the parties or with the dispute submitted to them, any of the relationships that typify events of disqualication or recusal of judges, are disqualied from acting as arbitrators, the same duties and responsibilities apply to them, as relevant, pursuant to the Code of Civil Procedure. 3 T Clay, lArbitre, Paris, ditions Dalloz, 2001, p 244. 4 Impartiality, while extremely important, is not a value per se, but rather a factor for the cultivation of a fundamental democratic virtue reected in the proceeding, which is equality. The judge must be impartial, so that he may give equal treatment to the litigants throughout the proceeding and in the decision on the cause. (C R Dinamarco, Instituies de Direito Processual Civil, 5th ed, Vol I, So Paulo, Malheiros, 2005, p 220). 5 See note 3 above, T Clay, pp 269-272. To such effect is the afrmation of J D Bredin, according to whom independence is not a virtue but a condition of the freedom to judge, apud J B Lee and M C A Procopiak, A Obrigao da Revelao do rbitro Est Inuenciada por Aspectos Culturais ou Existe um Verdadeiro Standard Universal, in Revista Brasileira de
Arbitragem, Year 4, No 14, p 10. There is no signicant variation in the concepts of impartiality and independence. One of the most accepted distinctions between these two concepts is that: (i) partiality arises when an adjudicator favours one of the parties, or where he is prejudiced in relation to certain aspects of the subject-matter of the dispute; and (ii) dependence arises from relationships between the adjudicator and one of the parties or with someone closely connected with them. See in this regard the IBA Guidelines on Conict of Interest in International Arbitration: www. ibanet.org/Publications/publications_IBA_guides_ and_free_materials.aspx. 6 This is one of the procedural principles upheld by the Brazilian Federal Constitution (Article 5, XXXVII and LIII), which guarantees the existence of a previously competent judicial authority constituted prior to the existence of the dispute. 7 Even in those rare cases where the arbitration clause names an arbitrator, he can only be considered to be appointed upon his acceptance. 8 J B Lee and M C A Procopiak, (see note 5 above, p 14) support the need for universal criteria adapted to arbitrators, since there are important differences between their situation and that of the judges: arbitrators are not permanent judges, apart from which they are chosen and paid by the parties (even if not directly). 9 Nothing, however, prevents the parties from agreeing to adopt the Guidelines. 10 See in this respect Y Derains and E Schwartz, A Guide to the ICC Rules of Arbitration, 2nd ed, Kluwer Law International, 2005, p 128, who mention an understanding of the CCI Court of Arbitration as being reluctant to presume that the arbitrators independence is impaired by repeated appointments. The authors remind us, however, that the question is also subject to a series of particulars, such as the matters involved in the different cases in which the arbitrator is appointed and the number of times the appointment occurred. 11 P Fouchard, E Gaillard and B Goldman, International Commercial Arbitration, Kluwer Law International, 1999, p 581. 12 See note 3 above, T Clay, p 323 free translation.
Impediments and suspicions, critical judicial thinking and local arbitral institution initiatives
Fernando Eduardo Serec

TozziniFreire, So Paulo
fserec@tozzinifreire.com.br
T
158
he cultural and legal background of an arbitrator can often explain the arbitrators assessment of the relevance of issues to be disclosed (or not) to the parties. While in some legal systems, an arbitrator will be encouraged to reveal even the most remote connections to the parties, in others the same circumstances will not give rise to the same concerns about the existence of a potential conict of
interest impacting the arbitration. This article addresses selected issues of independence and impartiality of arbitrators in Brazil. Impediments and suspicions concept and applicable rules In 1996, Brazil enacted its Arbitration Act applicable to domestic and international disputes (Law No 9.307/96), inspired by
Eduardo Rabelo Kent Coes

TozziniFreire, So Paulo
Ercoes@tozzinifreire.com.br
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the New York and the Panama Conventions, as well as the principles laid out by the UNCITRAL Model Law. Section 141 [of the Arbitration Law] addresses issues of independence and impartiality of an arbitrator, providing a legal remedy for violation of the standard of conduct contained in section 13(6).2 The grounds for challenging an arbitrator under section 14 are essentially the same grounds of impediments (impedimentos) and suspicions (suspeio) as for the disqualication of a judge (ie, motion to recuse or disqualify), set forth respectively in sections 1343 and 1354 of the Brazilian Civil Procedure Code. Similar to the disqualifying factors listed under the red list of the IBA Guidelines on Conicts of Interests, an impediment consists of an absolute presumption that the decisionmaker is biased,5 through an objective interpretation of the circumstances giving rise to the challenge. However, following the principle of party autonomy, parties are entitled to waive their right to challenge an arbitrator even in the most severe cases, whereas a judge under the same circumstances would be required to withdraw from deciding the matter. Suspicions, on the other hand, offer a subjective and tentative analysis of the decisionmakers state of mind and do not necessarily lead to the conclusion that an arbitrator is biased in favour of one of the parties or has an interest in the subject-matter in dispute. Suspicions portray a grey area of disqualifying circumstances and are comparable to the orange list of the IBA Guidelines on Conicts of Interests. Ultimately, in response to the condence of the parties invested in the decision-maker, the ideal standard is to have the challenged arbitrator withdrawn from the proceeding whenever he/she lacks the objective conditions to decide the matter with liberty,6 avoiding the issuance of decisions affected by external circumstances. Akin to the IBA Guidelines, an objective examination of the arbitrators appearance of bias is frequently applied in assessing whether, in the eyes of the parties and under the circumstances of the case, justiable doubts arise as to the arbitrators independence and/or impartiality. For instance, grounds for suspicion may result from non-disclosure of previous business relationships or nancial interests between the arbitrator and the parties in connection with the dispute at hand. For the purposes of annulling an arbitral award, however, section 32, II7 of the Brazilian
Arbitration Law does not draw a distinction between suspicions and impediments, which leads to the conclusion that either one may provide grounds for the disqualication of the challenged arbitrator. It is nonetheless important to note the sharp difference between these two categories of potential conict of interests. Inuence of the UNCITRAL Model Law and judicial precedents The UNCITRAL Model Law has signicantly inuenced arbitration law in Brazil. To this end, section 14(1) of the Brazilian Arbitration Law (see footnote 1) clearly adopts the test of justiable doubt8 raised by the circumstances to determine whether an arbitrator is partial. Simply applying the justiable doubt rule, however, may be unsatisfactory because it may cause arbitrators, particularly those with little or no experience in the eld of arbitration, to have doubts as to which facts should or should not be disclosed to the parties. This may instinctively lead the arbitrator to seek guidance from institutions (where institutional arbitration is the case), or to simply reveal his/her uncertainty to the parties. Occasionally, however, awards are rendered in disregard of the duty to disclose, resulting in a challengeable decision by an interested party. In one case,9 an arbitral award was annulled by the State Court of Appeals of Rio Grande do Sul on the basis that the arbitrator had advised one of the parties prior to the commencement of the arbitration but did not recuse himself or disclose this fact to the opposing party. Although arbitration is currently embraced by most courts in Brazil and cases of judicial annulments have become scarcer in recent years, this is a clear sign that courts pay attention to the procedural auspices under which awards are rendered. This type of judicial interpretation is most welcome in Brazil, however, as the adequacy and credibility of decisions is based on condence of the parties and transparency of the decision-maker. With respect to the parties due diligence in presenting a challenge, failure to raise issues of conict of interests at the rst opportunity will generally10 preclude a late attempt to disqualify the arbitrator on conict of interest grounds. For example, in the Saul Chervonagura Trosman v Isidoro Rozenblum Trosman and Terci Participaes Ltda case,11 the State Court of Appeals of Paran rejected the appellants motion to set aside the arbitral
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award on the basis that the appellant was fully aware of the arbitrators connections and prior business dealings with the opposing party at the time of the appointment. The existing standards of conduct under Brazilian law described above fail to offer sufcient guidance to prevent and resolve conicts of interest issues in arbitral proceedings. Brazilian guidelines on conicts of interest However, some of the leading arbitration institutions in Brazil have prepared guidelines on arbitrators conicts of interest. For example, in addition to its Rules,12 the Center of Arbitration of the Brazil-Canada Chamber of Commerce (CCBC) enacted in 2008 a Code of Ethics for arbitrators, which addresses issues of conicts of interest, among others. The National Council for Mediation and Arbitration Institutions (CONIMA) has a Code of Ethics for arbitrators. Furthermore, both the CCBC and CONIMA, and other arbitral institutions, have set up special commissions to adjudicate challenges against arbitrators, thereby increasing the degree of predictability and satisfaction of the parties. In this respect, the positive inuence of the IBA Guidelines is clear,13 as some of the leading arbitration institutions in Brazil tend to resort to these directives in order to unravel complicated issues of conicts of interests. An arbitrators duty to disclose, therefore, is generally perceived as an indispensable requirement in Brazil. Unless waived by the parties (at their own discretion), a reasoned challenge will likely result in the withdrawal of the designated arbitrator. Thus, when in doubt, an arbitrator is encouraged to disclose any facts capable of giving rise to a challenge (as well as to a possible annulment of the award). Similarly, parties should undertake reasonable investigation of any factors potentially compromising the arbitrators aptitude to decide the matter. Again, a Brazilian court, in deciding whether to set aside an award, will take into consideration the parties awareness of the relevant facts and any prior attempts to challenge the arbitrator. This should not, however, be misunderstood as an incentive for groundless and dilatory challenges, potentially frustrating the effectiveness of the arbitral proceeding.
Notes 1 Section 14 - Persons are disqualied from serving as 160
arbitrators should they have with one of the parties or with the subject-matter of the arbitration any relationship falling into the cases of being disqualied as a state judge and, where applicable, they should be held up to the same duties and responsibilities as are set forth in the Code of Civil Procedure. 1 - A person appointed to serve as arbitrator, before accepting the case, shall disclose any circumstances likely to give rise to justiable doubts as to his impartiality or independence. 2 - A party may challenge the appointedarbitrator only for reasons of which he becomes aware after the appointment has been made, unless: (I) - the arbitrator was not appointed directly by the party; or (II) - the reason for the challenge was known after the arbitrators appointment. Section 13, 6 - In the performance of his duty, the arbitrator shall proceed diligently, efciently, independently and shall be free and remain free from bias. Section 134 A judge shall be prevented from acting in contentious or non-contentious proceedings when he or she: I - is a party to the dispute; II has intervened as agent of one of the parties or appointed district attorney in the case, has acted as an expert or deposed as a witness; III is aware of the facts, having rendered a decision or judgment in the case; IV has acted on the behalf of one of the parties as his/her attorney, spouse or relative by blood in direct line, or in collateral line up to the second degree; V is the spouse or relative of one of the parties up to the third degree; VI represents the directive or administrative board a legal entity which is a party to the dispute. Section 135 Grounds for a motion to disqualify a judge based on his/her suspicion of partiality shall arise when: I the judge is a close friend or enemy of a party; II a party is a creditor or debtor of the judge, of his/her spouse or relative by blood in direct line, or in collateral line up to the third degree; III the judge is a heir, donee or employee of a party; IV the judge has received gifts from a party before or during the process, has advised one of the parties on the subject-matter of the dispute, or has provided the necessary means for the payment of costs and fees of the process; V the judge has interests in the judgment of the case in favor of one of the parties. Joaquim T P Muniz, Ana Tereza P Basilio, Arbitration Law of Brazil: Practice and Procedure. New York, Juris Publishing, 2006, p 87. Carmona, Carlos Alberto, Arbitragem e Processo: Um comentrio Lei 9.307/96, 3rd ed, So Paulo, Ed, Atlas, 2009, p 243. Article 32 An arbitral award is null and void if: () II - it was made by someone who could not have served as an arbitrator. Article 12(1) - When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such
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circumstances to the parties unless they have already been informed of them by him. 9 12th Civil Chamber - State Court of Appeals of Rio Grande do Sul - Civil Appeal no 70005797774 (Alcides Severino Milani v Waldoir Vicente Schwerz). Judgment date: 3 April 2003. 10 Exceptionally, a party may le a challenge later during the proceeding if it was not aware of the reasons that could potentially give rise to a challenge when the appointment of the arbitrator was made. It is noteworthy that, if true grounds for a challenge exist or arise during the proceeding, a party may seek the judicial annulment of the award (Article 32, II, Brazilian Arbitration Law). 11 17th Civil Chamber - State Court of Appeals of Paran Civil Appeal no 436.093-6. Judgment date: 11 November 2007. 12 Pursuant to Article 6.2. of the Rules, Any person who may be in following situations cannot be appointed as an arbitrator: a) is a party of the dispute; b) has intervened in the settlement of the dispute, as attorney at law of one of the parties, or has acted as witness, expert, or presented any opinion, legal or otherwise; c) is consort, relative of one of the parties, related by blood or by afnity, in linea recta or collateral, up to the third degree of kindred; d) is consort, relative of one of the parties, related by blood or afnity, in linea recta or collateral, up to the second degree of kindred, of the lawyer or attorney of one of the parties; e) takes part in a directorate or administrative body of a corporation that is shareholder or part to the dispute; f) Is a close friend or enemy of one of the parties; g) Is creditor or debtor
of one of the parties or its consort, or even relatives, in linea recta or collateral, up to the third degree of kindred; h) Is presumptive heir, donee, employer, employee of one of the parties; i) Receives gifts before or after the beginning of the dispute, advises any of the parties about the object of the dispute or provides resources to meet the arbitration costs; j)Is interested in the settlement of the dispute, in behalf of one of the parties; k) Has acted as a mediator or conciliator, before the institution of the arbitration, except if otherwise agreed by the parties. 13 Although there are no judicial precedents applying directly to the IBA Guidelines, it is nonetheless interesting to note Justice Ftima Nancy Andrighis (Superior Tribunal of Justice) views on the inuence of the of the IBAs 1956 International Code of Ethics in Brazilian arbitration: The International Bar Association (IBA) - an association which unites more than ten thousand jurists from fteen different countries - elaborated in 1956 their International Code Of Ethics. Pursuant to its introductory note to the Code of Ethics for International Arbitrators of the IBA, an international arbitrator shall be impartial, independent, competent, diligent and discrete. Although these rules tend to establish a standard of conduct for international arbitrators, they are applicable to our arbitrators as well, since they result from a well succeeded experience to which the credibility of the activities carried out by arbitrators may be attributed (free translation). (Andrighi, Fatima Nancy, O Perl do rbitro e a Regncia de sua Conduta pela Lei de Arbitragem. Available online at: www. bdjur.stj.jus.br. <accessed on 12 April 2009>.
Dyal Jimnez Figueres

Boll Mir & Alvarez Hinzpeter Jana, Santiago
djimenez@bm-ahj.cl
Chile
Recent international arbitration developments in the Chilean courts
In August 2009, the Santiago Court of Appeals issued the rst reported decision by Chilean courts on a request to set aside an arbitral award under the 2004 Law 19.971 on International Commercial Arbitration (ICAL).1 In September 2009, the Supreme Court decided on the recognition of a foreign award in an exequatur procedure. Both cases are emblematic of the deferential attitude of Chilean courts towards arbitration, and international arbitration in particular, and support Chiles ambition to become a centre for international arbitration in South America. The adoption of the 2004 Law 19.971 on International Commercial Arbitration In September 2004, Chile adopted ICAL, a faithful copy of the 1985 UNCITRAL Model Law on International Commercial Arbitration. Before then, international commercial arbitrations seated in Chile were conducted in accordance with the rules applicable to domestic arbitrations. This imposed serious limitations on international arbitration, including aspects regarding the nationality and legal qualications of the arbitrators, and also made awards subject to a variety of judicial recourses.
Johanna Klein Kranenberg

Boll Mir & Alvarez Hinzpeter Jana, Santiago
jklein@bm-ahj.cl
161
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Setting aside under UNCITRAL Model Law grounds Under ICAL, the only recourse to domestic courts available against an international commercial arbitration award rendered in Chile is the set aside procedure under Article 34. The competent court for deciding requests for setting aside an award is the Court of Appeals of the seat of arbitration, which usually will be the Santiago Court of Appeals. The grounds for setting aside awards correspond to the grounds for refusal of recognition and enforcement of an arbitral award under Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, or the New York Convention, which was ratied by Chile in 1975. Recognition and enforcement under New York Convention grounds Articles 35 and 36 of the ICAL provide for the recognition and enforcement of an arbitral award, irrespective of the country where it was made. The grounds for refusal are identical to the provisions of Article V of the New York Convention. In accordance with Article 247 of the Chilean Code of Civil Procedure (CPC), the Chilean Supreme Court is the court with jurisdiction to decide on requests for recognition of foreign awards in an exequatur procedure. There have been two cases of recognition of foreign arbitral awards since the enactment of ICAL.2 On 11 January 2007, the Supreme Court recognised an arbitral award rendered in Argentina for the payment of US$500,000 resulting from the breach of a shareholders agreement. On 15 September 2008, the Supreme Court recognised an arbitral award rendered in Brazil against a Chilean company, Garden House, for breach of a distribution agreement. Supplier Garden House was found not to comply with quality standards regarding products to be distributed by a Brazilian company, Gold Nutrition, and was condemned to pay more than US$1 million, plus interest. Although to a lesser extent in the latter than in the former, the overlap between the New York Convention and the ICAL in the reasoning of the Supreme Court (and the parties) has created some confusion.3 As described below, the Supreme Court, in practice, refers to both sets of standards without establishing a clear hierarchy.
The Santiago Court of Appeals refuses to set aside award against Publicis On 4 August 2009, the Court of Appeals of Santiago denied the application submitted by Publicis Groupe Holding B V and Publicis Groupe Investments B V (jointly the Publicis Groupe or the Publicis respondents) to set aside an arbitral award rendered by a sole arbitrator in an ad hoc arbitration in Publicitaria Sutil y Asociados S A v Publicis Groupe Holding BV and Publicis Groupe Investments B V. The sole arbitrator ordered the Publicis respondents to pay Chilean Peso (CLP) 311,695,000 (approximately US$500,000), plus interest, to Inversiones y Comercial Santa Paula S A (now Ltda) (Santa Paula), in payment for the shares of Publicis Groupe in Publicitaria Sutil y Asociadas (Sutil). The arbitrator also ordered the Publicis Groupe to initiate negotiations in good faith with Santa Paula to purchase an additional 70 per cent of the shares of Sutil, in accordance with the agreement between the parties. The Publicis respondents were also ordered to pay CLP 475,889,090 (approximately US$750,000), plus interest, to Sutil for breach of the agreement. The Publicis respondents breached the exclusivity covenant of the agreement by maintaining direct or indirect participation in at least three publicity agencies in Chile, causing Sutil to lose Visa and Hewlett Packard as clients. (The damages were based on the amounts invested by Visa and Hewlett Packard in publicity during the years 2001 to 2005.) The Publicis Groupe requested that the award be set aside invoking Article 34.2(a) (ii): The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case, as well as the public policy exception of Article 34.2(b)(ii): The award is in conict with the public policy of Chile. The Publicis Groupe claimed that they had not been able to present their case because they were denied the opportunity to object or ask questions about a document used by the expert to calculate damages. For the same reason, the Publicis Groupe claimed that the award violated their right to due process and therefore Chilean public order. The Court of Appeals rejected these contentions as factually incorrect because the document used by the expert had been duly presented in the arbitration and, indeed,
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commented upon by the Publicis Groupe. Furthermore, the Court of Appeals conrmed that the purpose of the ICAL is to provide a special regime for international commercial arbitration and, in particular, limit the intervention of domestic courts to only those situations established by the law. The court also characterised the set aside procedure as extraordinary and stated that its own competence is limited to verifying compliance with the formal requirements established by the law. The Fiscal Judicial, a court ofcial representing the public interest who issues an advisory opinion to the court, conrmed that the public order exception must be applied restrictively to situations in which basic and fundamental rules of the State of Chile are violated. This rst decision of the Court of Appeals of Santiago under Article 34 of the ICAL is an important precedent conrming the limited role of the Court of Appeals in set aside procedures, as well as the restrictive interpretation of the grounds for setting aside arbitral awards. The Chilean Supreme Court recognises a New York ICDR award in favour of Comverse On 8 September 2009, the Chilean Supreme Court4 recognised an arbitral award rendered by a panel of three arbitrators sitting in New York City under the International Centre for Dispute Resolution (ICDR) Rules of the American Arbitration Association. Comverse Inc (Comverse) and American Telecommunication Inc Chile S A (ATI Chile) entered into a distribution agreement in 2004. In 2006, Comverse terminated the agreement and shortly thereafter initiated arbitration under the ICDR Rules against ATI Chile and other related companies for breach of contract. ATI Chile submitted counterclaims. The arbitral award was issued on 29 November 2007. Comverse sought to enforce the award based on the New York Convention, alleging in particular that the award complied with the requirements set forth in Article IV. Comverse presented copies of the translated versions of the award and the distribution agreement, which had been submitted to various ofcial procedures both in New York City and in Santiago, including consular notarisation. ATI Chile objected to the admissibility of the application and the grounds for
recognition of the award. ATI Chile rst invoked Article 303 of the CPC alleging that Comverse was not properly represented due to certain alleged errors in the power of attorney of its counsel and also claimed that the award was not properly translated. ATI Chile also claimed violations of Article V(A)(ii) of the New York Convention and Article 36 of the ICAL, arguing that it had not been afforded an opportunity to present its case. It stressed that since it did not have the same nancial resources as Comverse, it could not afford expert fees and also could not challenge Comverses submission of documentary and witness evidence. ATI Chile also invoked Article V(e) of the New York Convention and Articles 245 and 246 of the CPC5 and argued that the award lacked the necessary nality and authenticity, and that none of the formalities followed by Comverse, including a conrmation decision from the Southern District Court of New York, was sufcient to prove the nality of the award. After hearing both parties, the Supreme Court received the opinion of the Fiscal Judicial who found that there was no evidence of any violation of the New York Convention and ICAL, and that ATI Chile had been given adequate opportunity to present its case during the arbitral proceedings. The Fiscal Judicial explained that the exequatur proceeding is not a revision on the merits. Finally, the Fiscal Judicial added that the conrmation of the Southern District Court of New York complied with Article 246 of the Code of Civil Procedure because it is a judgment of a superior court in the country where the award was rendered. By way of introduction, the Supreme Court summarised the allegations of ATI Chile and then went on to explain the history and the purpose of the exequatur proceeding in the CPC.6 The court stated that where parties chose to arbitrate abroad and under foreign law, the award must comply with the requirements of Articles IV and V of the New York Convention and Article 36 of the ICAL. On the merits, the court found that the objections raised by ATI Chile were unfounded in light of the applicable provisions, ie, the New York Convention, Articles 242 et seq of the Code of Civil Procedure, and Articles 35 and 36 of the ICAL. The submissions of the parties showed that ATI Chile had ample opportunity to present its case, the award was nal according to the law at the place of arbitration, and the authenticity of the award had been adequately proven.7
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Conclusion These recent decisions of the Chilean courts demonstrated deference to the arbitral tribunals and did not assess the merits of the awards, sending a clear message in favour of a restrictive interpretation of the grounds for setting aside and denying recognition of foreign arbitral awards.
Notes 1 Publicis Groupe Holdings B V con Arbitro Don Manuel Jos Vial Vial, Rol No 9134-2007. 2 Max Mauro Stubrin, Jacqueline Stubrin, Daro Fabin Stubrin y Walter Gerardo Stubrin con Sociedad Inversiones Morice SA, Rol No 660-2005 and Gold Nutrition Industria e Comercio con Laboratorios Garden House S A, Rol No 6.615-2007. For the text of the decision and a commentary, see Dyal Jimnez Figueres, Revista Ecuatoriana de Arbitraje, 2009, pp 379-413. 3 See Gonzalo Fernndez and Dyal Jimnez, La evolucin de las normas de exequatur de laudos extranjeros en Chile, in Carlos A Soto
4 5
Coaguila (Director), Arbitraje Comercial y Arbitraje de Inversin, Tomo 2: Convencin de Nueva York de 1958. Reconocimiento y Ejecucin de Laudos Arbitrales Extranjeros (Instituto Peruano de Arbitraje, 2009). Comverse Inc con American Telecommunication Inc Chile S A, Rol No 3225-08. Article 245 of the CPC establishes the requirements that foreign decisions must meet to be recognised by the Supreme Court. Article 246 requires foreign arbitral awards to be recognised by an authority in the place of arbitration. The passage dedicated to this explanation is similar to the dictum in the decision State Street Bank and Trust Company con Inversiones Errzuriz Limitada et al, Rol No 2349-2005 concerning the enforcement of a US court judgment. It bears noting that the Court and the parties almost instinctively applied domestic procedural rules. Even the Fiscal Judicial, who stated that the only provisions applicable were the New York Convention and ICAL, commented on Article 246 of the Code of Civil Procedure and the requirement of double exequatur, which the New York Convention meant to eliminate.
Felipe Ossa
Five years after the enactment of the Model Law, Chilean courts continue to support international arbitration
hile domestic arbitration has enjoyed a long tradition in Chile, international arbitration has taken hold only more recently. Indeed, even though Chile was one of the rst countries in Latin America to ratify the New York Convention,1 it was not until 2004 that Chile enacted the UNCITRAL Model Law in full, taking a crucial step in the development of international arbitration in Chile.2 Looking back after ve years under the UNCITRAL Model Law, Chile is emerging as a regional centre for international arbitration. Since the passing of the Model Law, several arbitrations held under the auspices of the International Chamber of Commerce, or ICC, have been seated in Chile.3 In addition, Chiles primary domestic arbitration institution, the Arbitration and Mediation Center of Santiago (CAM Santiago), opened a special facility for international commercial arbitration in 2006.4 Most importantly, Chilean courts have consistently rendered decisions fostering the development of international arbitration in Chile. This article offers a brief survey of the key Chilean decisions in matters of arbitration over the last ve years. The UNCITRAL Model Law applies broadly The rst relevant ruling by Chilean courts under the UNCITRAL Model Law was to establish the scope and extent of its application. A local court was faced with this issue in 2006 when a party appealed the arbitrators decision to apply the Model Law to arbitral proceedings between a French party and a Chilean party.5 The claimant argued that the Model Law was inapplicable because the parties contract and arbitration agreement were entered into prior to the enactment of the Model Law. The court, however, held that the Model Law is procedural in nature and thus, according to Chilean law regarding retroactivity, applies from the moment it entered into force. The Model Law therefore is applicable to international arbitration regardless of when the arbitral agreement was executed. In support of this conclusion, the court declared that the Model Law is a guarantee of legal certainty to the parties and an example for the international community of the fair and impartial role of the [Chilean courts].
Claro y Cia, Santiago

fossa@claro.cl
Jacob Stoehr
Claro y Cia, Santiago
jstoehr@claro.cl
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Interim measures are available in aid of arbitration Even when Chile is not the arbitral seat, Chilean courts have rendered decisions aimed at supporting the broader goals of arbitration. In a 2005 decision,6 interim relief was successfully requested from a Chilean court in anticipation of arbitral proceedings in Switzerland. A Chilean construction consortium was about to commence ICC arbitration in Zurich against the Chilean subsidiary of a German company. The claimant feared that the Chilean subsidiary would execute bank guarantees against it in Chile if the arbitration was led. The construction consortium sought an injunction from a Chilean court to prevent the execution of the guarantees during the arbitral proceedings. The Chilean court granted the injunction, therefore protecting the future arbitration.7 A similar measure was adopted by another Chilean court more recently, with respect to an arbitration already commenced in Chile, through a decision that expressly relied on Article 9 of the Model Law.8 In a more recent case, an arbitral tribunal seated in Chile granted an interim measure to preserve the outcome of the proceedings, ordering one of the parties not to pursue legal actions outside the arbitration. In this case, a leading Chilean winery terminated its agreement with a Central American distributor. Although the agreement was subject to arbitration in Chile exclusively, the distributor brought a claim for damages before local courts, arguing that the arbitral clause did not preclude the parties from exercising their right to obtain judicial relief. The Chilean winery commenced arbitration proceedings in Chile and requested that the defendant be instructed not to move forward with any proceedings other than the arbitration. The arbitral tribunal granted this provisional measure making express reference to Article 17 of the Model Law.9 Arbitration agreements are readily enforceable In a 2007 decision,10 a Chilean domestic court reafrmed Chiles pro-arbitration position by enforcing an arbitration agreement where the arbitration clause at issue was incorporated by reference and was asymmetrical, giving one party the unilateral right to pursue arbitration.11 The issue arose when a Chilean company brought suit for breach of a
distribution agreement in Chiles domestic courts against both a Chilean company and a company incorporated in the United States. The US defendant objected to the courts jurisdiction based on an arbitration clause included in a general conditions document separate from the distribution agreement, and requested that the parties be immediately referred to arbitration in accordance with the Model Law12 and the New York Convention.13 The court agreed to decide the issue in limine and held that the general conditions were part of the distribution agreement, therefore declining jurisdiction. International arbitration awards issued in Chile are not easily set aside The Santiago Court of Appeals recently addressed the rst request to set aside an international arbitral award rendered in Chile, based on due process allegations.14 The court denied the motion, stating that no violation of Article 34 of the Model Law had occurred and noting that setting aside an award is an extraordinary recourse. The decision is important for parties arbitrating international disputes in Chile because the court recognised the limited scope of set aside procedures, thus assuring the nality of awards. Foreign arbitration awards are recognised and enforced under the New York Convention Enforcing foreign arbitral awards in Chile is becoming a streamlined process with the UNCITRAL Model Law, the New York Convention and Chilean procedural law working in concert to facilitate the goals of international arbitration. A number of recent decisions by the Chilean Supreme Court15 have consistently recognised and enforced foreign arbitral awards and abandoned the formalities once required for enforcement. The court has emphasised that it will not re-evaluate the merits of a dispute previously decided by a foreign arbitral tribunal. Also, the courts recent enforcement decisions have all been issued against Chilean parties, showing the neutrality of the court and its abidance by the rule of law. In its rst reported exequatur proceeding under the Model Law,16 the Chilean Supreme Court enforced an arbitral award rendered in Argentina under a straightforward application of the New York Convention. The
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defendant, relying on domestic procedural rules, contended that the claimant had failed to provide a certicate by a superior court of the seat that the award was nal and enforceable (ie, a double exequatur). The Supreme Court, however, found that the arbitral award was fully and immediately enforceable because all of the requirements cited in Article 4 of the New York Convention [were] met and recognised that foreign arbitral awards have the force of enforceable judicial decisions and their enforcement and recognition can be requested in the same manner as decisions rendered by national courts. The Supreme Court has since rendered at least two additional decisions that conrmed the enforceability of foreign arbitral awards in Chile. In one case,17 the defendant resisted enforcement of the arbitral award rendered in Brazil, alleging violations in the constitution of the tribunal, the awards lack of nality, as well as raising due process and public policy arguments. The court rejected each and every one of these contentions, nding the award to be in conformity with Brazils arbitration law and due process requirements. Likewise, the court held the award nal and binding because the term for appeal of an arbitral award under Brazilian law had expired. The public policy argument related to the tribunals awarding of compound interest, permitted under Brazilian law but allegedly prohibited in Chile. The court held that the parties had agreed to submit their dispute to the laws of Brazil and thus the award of interest fell outside the scope of acceptable review. The court explained that the exequatur process for foreign arbitral awards is not designed to resolve the same facts and law at issue in, and decided by, the foreign award. Following this reasoning in a subsequent case,18 the court claried that its role in enforcing an international arbitral award is to verify the compliance of certain minimum requirements, and not in any way to analyse the intrinsic justice or injustice of the sentence or to use the opportunity to revise what was already resolved. In that case, the defendant attempted to resist enforcement of the award rendered in New York, arguing inter alia that it was not given a chance to present its defence before the tribunal and the petitioner failed to properly certify the award. The court was not persuaded by the argument that the Chilean companys relative lack of nancial means as compared to its US
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counterpart violated Article V(1)(b) of the New York Convention. On the certication issue, the court reiterated that the only requirements to enforce a foreign arbitral award are those established under Article IV of the New York Convention. In the most recent case of enforcement, the Chilean Supreme Court considered whether to enforce a foreign arbitral award while a challenge to the award is pending at the seat. The petitioner in the case obtained an award from an ICC tribunal in Paris and then moved to enforce the award in Chile. At the same time, the defendant commenced annulment proceedings in Paris. The courts secretary issued a report to the court and suggested that the arbitral award be enforced. In its recommendation, the secretary reasoned that the award is binding on the parties, and the possibility that the award may be annulled is not a ground for refusing enforcement based on Article 36(1)(a)(v) of the Model Law and Article V(1)(e) of the New York Convention (although neither the New York Convention nor the Model Law expressly provides for enforcement when annulment proceedings are pending).19 The court accepted the interpretation proposed by the secretary and granted the exequatur, thus adopting a liberal approach in support of arbitration.20 In conclusion, ve years after the enactment of the UNCITRAL Model Law, international arbitration is developing steadily in Chile, bringing it closer to its goal of becoming a leading international arbitration venue.
Notes 1 Chile signed and ratied the New York Convention with no reservations in 1975. 2 Law No 19.971 3 See Statistical Report, International Court of Arbitration Bulletin, Vols 18.120.1. 4 CAM Santiago developed a set of rules specically designed for international arbitration, available at: www.camsantiago.cl/reglamento.htm. 5 This issue arose in two related cases brought by the same party, and the court reached the same decision in both cases: DArcy Masius Benton & Bowles Inc (Chile) Ltda v Otero Lathrop Miguel, File No 865-06, Santiago Court of Appeals, 25 May 2006 and DArcy Masius Benton & Bowles Inc (Chile) Ltda v Carlos Eugenio Jorquiera Malschafsky, File No 88-06, Santiago Court of Appeals, 3 May 2006. 6 Constructora Sidgo Koppers Salfa Limitada v Lurgi, 28th Civil Court of Santiago, File No 5243-05, 26 May 2005. 7 While this approach is similar to how Chilean courts address interim measures in the domestic arbitration context, under the Model Law adopted in Chile the power of the court to grant such measures in
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international arbitration is not expressly provided. In this regard, compare Article 17 of the Model Law with Article 17(j) of the 2006 Amended Model Law, which provides that courts have the same power to issue measures in international arbitration as in court proceedings. 8 Blue Water Maritime v Astilleros Marco Chilena Ltda, 26th Civil Court of Santiago, File No 24011-2009, 24 August 2009. 9 CAM Santiago le No 1136-09, 22 December 2009. 10 Provimin v Danfoss Nessie Water Hydraulics, 21st Civil Court of Santiago, File No 16361-06, 2 November 2007. 11 The clause read: Danfoss reserves the right to decide whether any dispute or difference arising out of or under this contract shall be referred to arbitration, or shall be resolved by legal action. If Danfoss decides that the dispute or difference shall be referred to arbitration, the parties agree to submit to the award to be made by an arbitration court appointed in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce.
12 See Article 8.1 of the Model Law (establishing the recognition and enforcement of arbitration clauses). 13 See Article II and III of the New York Convention (providing for recognition and enforcement, respectively). 14 Publicis v Arbitro MJV, Santiago Court of Appeals, File No 9134-07, 11 August 2009. 15 The Chilean Supreme Court is the court authorised to hear exequatur proceedings. 16 Max Mauro Stubrin, et al v Sociedad Inversiones Morice S A, Supreme Court, File No 6600-05, 11 January 2007. 17 Gold Nutrition Industria y Comercio v Laboratorios Garden House S A, Supreme Court, File No 6615-07, 15 September 2008. 18 Comverse Inc v American Telecommunication Inc Chile S A, Supreme Court, File No 3225-08, 8 September 2009. 19 Some arbitration laws expressly provide for enforcement with set aside proceedings pending. See eg, Article 41.1 of Spains Law No 60-2003 (An award is enforceable even though an application to set aside has been made). 20 Kreditanstalt fur Wiederaufbau (KFW) v Inversiones Errzuriz Limitada (Inverraz), Supreme Court, File No 5228-08, 15 December 2009.
Nicols Gamboa Morales*

Gamboa & Chalela, Bogot
ngamboa@ gamboachalela.com
Colombia
Colombias adoption of the Model Law: almost there?

The Colombian case What is the situation in Colombia? The country has a solid arbitral tradition, and Colombian arbitrators are well known.8 Legislatively speaking, however, Colombia is lagging behind. Law 315 of 1996, the current statute on international arbitration, is, in my view, poorly drafted and gives rise to unnecessary debate and confusion.9 Furthermore, while other countries have modernised their legislation, the Colombian arbitration law has remained unchanged for almost 15 years. In late 2001, there was an attempt to reform Colombian arbitration laws. This effort failed, though, primarily due to erce opposition raised by some governmental actors who considered the submission of the state (and state entities) to arbitration expensive, uncertain and contrary to public interest.10 In addition, the prevailing interpretation of Law 270 of 1996 (Ley Estatutaria de la Administracin de Justicia) so severely curtailed the ability of parties to set up an arbitration procedure as to render it meaningless.11 The reform grounded to a halt, and the old and disperse rules remained in force.12
he UNCITRAL Model Law is widely recognised as one of the keystones of modern commercial arbitration.1 Latin American countries, despite the perception that they are somehow opposed to international arbitration,2 have followed the trend in adopting arbitration laws based on the UNCITRAL text. Mexico,3 and most recently Chile and Peru,4 exemplify the trend to modernise international arbitration in Latin America. In fact, Chile adopted the Model Law verbatim to promote the country as a seat of international arbitrations. Peru is also equipped with a relatively new arbitration legislation similarly promoting such country as a preferred place of arbitration for international disputes.5 In my view, the Chilean and Peruvian aspirations are bound to become real,6 provided, of course, that local courts take a pro-arbitration stance.7 Other countries in the region, such as Guatemala and Nicaragua, also have enacted legislation based on the UNCITRAL Model Law, albeit with perhaps lesser chances of being selected as seats of arbitration.
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Nevertheless, the opposition to arbitration slowly diminished and instead of blaming arbitral panels for awards issued against the state, the authorities began to look into the drafting and performance of state contracts, the real source of potential liability. In 2007, a new arbitration bill was nally introduced to amend the rules on national and international arbitration.13 This document, however, contained some proposals concerning arbitration involving state entities that jeopardised the modernisation process. For example, in domestic arbitrations, Article 39 of the bill provided that awards issued against state entities above US$100,000 (approx) should be reviewed on the merits by the administrative court in the seat of arbitration. With respect to international arbitration, the bill followed the Model Law closely with a few notable exceptions, such as Article 54, which provided not only that the enforcement of international arbitration agreements against state entities required approval from the Ministry of the Interior and Justice, but also that the Ofce of the Attorney General had to be notied of any international arbitration led against a state entity to allow the proper supervision and control of public interests.14 Although the proposed rules protective of state entities arguably made sense in the context of domestic arbitrations, the provisions governing international arbitration raised serious objections. Fortunately, the debate eventually bore fruit and, in 2009, the bill was amended to eliminate the review on the merits of arbitral awards against the state and state agencies. Similarly, on the international side of the project, the authorisation of the Ministry of the Interior and Justice required in order to enforce international arbitration agreements against state entities was removed (the notication to the Attorney General of lings of international arbitrations against state entities was maintained). This bill, which substantially follows the Model Law, is now before Congress for approval. In another signicant development, the Colombian Constitutional Court reviewed several amendments to Law 270 of 1996 and, in decision C-713 of July 15, 2008,15 upheld the constitutionality of most provisions, including some changes to Article 13 allowing private parties to design procedural rules, paying due regard, of course, to the
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constitutional principle of due process.16 After several years of uncertainty, the Model Law therefore seems to have gathered momentum and support. It is encouraging to see that Colombian drafters have nally abandoned the notion that the Model Law is alien to the Colombian legal tradition or that it had to be replaced by a tailor-made statute. In July of 2002, relying for support on the words of Mr Ko Annan, then Secretary General of the United Nations, about the importance of international trade as a catalyst for solid legislation, I suggested in an arbitration seminar held in Bogot that the adoption of the Model Law was the easiest solution. I still feel the same way and hope that in the near future Colombia will be featured on the list of UNCITRAL Model Law countries.
Notes * Law Professor at Universidad del Rosario and Universidad Externado de Colombia, Bogot, Colombia. Lecturer and instructor in arbitration seminars and workshops in Colombia and abroad. Senior partner of Gamboa & Chalela, Bogot, Colombia. Arbitrator and counsel in domestic and international arbitrations. 1 Cf, ie, Lord Mustill, The History of International Commercial Arbitration, The Leading Arbitrators Guide to International Arbitration, Lawrence W Newman and Richard D Hill, Eds, Huntington, New York, Juris Publishing, Inc, 2004, pages 11 to 16. 2 Cf, ie, John P Bowman, The Panama Convention and Its implementation Under the Federal Arbitration Act, The Hague, Kluwer Law International, 2002, pages 11 to 13. 3 Articles 1415 and following of the Commercial Code. 4 Law 19.971 of 2004 (Chile) and Legislative Decree 1071 of 2008 (Peru). 5 ICDR Seminar on Arbitration in Peru and the United States, Lima, November 2009. 6 It must be noted, though, that according to the ICC International Court of Arbitration Bulletin (Vol 20, No 1, 2009), within the top 16 places of ICC arbitrations in 2008 90 per cent of them selected by the parties the only two Latin American countries featured are Mexico (9 times) and Brazil (8 times). 7 See, ie, the Chilean decision of Santiagos Court of Appeals issued on May 2006 in the case of DArcy Masius Benton & Bowles Inc (Chile) Ltda v Miguel Otero Lathrop. 8 In 2008, nine Colombian arbitrators were appointed, reaching the fourth place in Latin America, after Mexico, Brazil and Argentina. ICC International Court of Arbitration Bulletin (Vol 20, No 1, 2009). 9 For example, Articles 1 and Article 2, which does not contemplate the likely event of disagreement between the parties with respect to matters such as applicable law, procedural rules, seat of arbitration, the language of the proceedings, among other issues.
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10 The French policy to restrict the use of domestic arbitration in case of conicts involving the state and its agencies was relied upon without regard to the actual scope of the French policy. 11 The contention was that Article 13 (3) of Law 270 of 1996 only permitted the initiative of the parties on arbitral procedure in those cases where the Colombian Civil Procedural Code lacked specic regulations. Needless to say that there are very few matters unregulated in the procedural statute and, if so, they are not material. Furthermore, Article 6 of the Colombian Civil Procedural Code was amended in 2003 to provide that procedural rules are of public order and cannot be modied or replaced without express legal authorisation. 12 Decree 1818 of 1998 was issued to compile the different provisions related to arbitration (domestic and international). It contains several aws that make its use rather problematic. 13 The new bill did not use the monist approach, which in my view is consistent with the Colombian attitude towards arbitration. 14 This rule can be seen as reiteration of the idea that state entities are generally defendants, because the supervision and control of public interests by the
Attorney General was not contemplated should the state entity be the plaintiff. Moreover, there was no clarity if the notication to the Attorney General only corresponded to international arbitrations sitting in Colombia or if it corresponded to international arbitrations in general. If the latter, it is not clear which system would be used by the Attorney General to supervise and control public interests. 15 Pursuant to Article 241 (8) of the Colombian Constitution, the Constitutional Court must rule, in advance, on the constitutionality of bills on Leyes Estatutarias. Consequently, the proposed amendments to Law 270 of 1996 were submitted to the Court prior to their enactment, which took place by means of Law 1285 of 2009, that is, after the ruling of July 2008. 16 Under Colombian law (Article 112 of Law 446 of 1998), there are three types of domestic arbitration: legal, which follows the procedural rules set forth in the law; institutional, which follows the procedural rules of an arbitration centre; and independent, whose procedural rules are set by the parties. The amendment to Law 270 of 1996 upheld by the Constitutional Court sets forth that domestic arbitrations in which the state or a state agency is a party shall always be legal.
Csar CoronelJones
Coronel & Prez, Guayaquil
ccoronel@ coronelyperez.com
Ecuador
The future of international arbitration in Ecuador: the boomerang effect
The gradual acceptance of international arbitration International arbitration has always been controversial in Ecuador. In fact, submitting a dispute to international arbitration was for a long time considered to be a violation of Ecuadorian public law. This aversion was gradually replaced by a more nuanced approach. In the mid 1970s, a new regime was established that allowed disputes to be submitted to arbitration in foreign jurisdictions as long as this was done pursuant to agreements executed outside Ecuador.1 Still, a favourable perception of international arbitration was not fully attained until 1997, when the Arbitration and Mediation Law was adopted. This law, in force to this day, permitted the free election of language, applicable law, jurisdiction and venue. Arbitration agreements were also allowed in public contracts subject to the prior approval of the Attorney General. The ICSID and BITs boom The ratication of the ICSID Convention in 2001 and the signing of more than forty bilateral investment treaties, or BITs, between 1995 and 2001 greatly strengthened the benecial treatment of international arbitration in Ecuador. Most of these BITs provide for either ICSID or ad hoc arbitration in accordance with the UNCITRAL rules for the adjudication of investor claims. In the last decade, Ecuador has faced more than twenty international arbitrations initiated by foreign investors. The unilateral modication of oil contracts by the Ecuadorian Congress in 2006 (after oil prices skyrocketed in the international markets) gave rise to many of these investor claims. Other well-publicised cases include the arbitrations brought by Occidental and Chevron, alleging breaches of fair and equitable treatment and denial of justice. In sum, Ecuador is one of the most often sued countries in investment arbitration. It has faced 14 claims before ICSID, and at least
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another six claims under the UNCITRAL rules. Arbitration falls into disgrace again with the Correa government Since the new government presided over by Rafael Correa took ofce in January 2007, hostility towards international arbitration has been gradually increasing in Ecuador. It reached a crucial juncture during the National Assembly debates on the approval of the new Constitution (also known as the Montecristi Constitution). In one such debate, an assembly member from Alianza Pas, President Correas political movement, explained the reasons that justied her proposal of the text that eventually became the current Article 422 of the Montecristi Constitution.2 She noted that such provision: embodies an aspiration of great national support which is the result of the many abuses that have deteriorated our juridical sovereignty. The regulation expressly proscribes the celebration of international agreements or treaties that would require the state to relinquish its jurisdiction to international arbitral institutions in contractual or commercial matters. Historically, Ecuador has signed treaties that are considered harmful to the countrys best interests by transferring national jurisdiction and competence, of transnational commercial or contractual relations, to supranational arbitration institutions, in which, it seems, different countries are treated in the same manner as commercial companies. 3 The exceptions to Article 422 of the new constitution which purports to ban arbitration Despite the ambitious goals identied during the debates of the Montecristi Constitution, the scope of the nal regulation is limited. Article 422 only forbids the signature of new international treaties that would provide for arbitration. And there are some important exceptions and qualications to this rule. We will refer to two of them, one of which has already been conrmed and even extended by the Constitutional Court.
Arbitration still available for public contracts including arbitration ex aequo et bono in foreign debt contracts The rst exception relates to public contracts. Article 422 does not prohibit international arbitration for public contracts. In fact, Article 190 of the Constitution expressly recognises arbitration, mediation and other alternative dispute resolution methods for those contracts, as long as two requisites are met, namely, that the arbitration tribunal renders its award at law and not ex aequo et bono, and that the Attorney General grants its approval. An internal government dispute resulted in a Constitutional Court interpretation of Article 422 and its implications. A loan contract between Ecuador and the InterAmerican Development Bank (IDB) included an ex aequo et bono arbitration clause. That contract was brought to the Constitutional Court for interpretation in March of 2009 by the Presidents legal advisor, who had previously disagreed with the Attorney Generals opinion that, according to Article 190 of the Constitution, ex aequo et bono arbitration was not allowed in public contracts because the Constitution only allowed arbitration at law for those contracts. Interpreting Article 422 of the Constitution, the court determined that the ex aequo et bono arbitration clause was valid. It based its conclusion on the third paragraph of Article 422, which provides that, only in foreign debt affairs, the Ecuadorian state will promote arbitral settlements under the guiding principles of transparency, equity and justice. Regional treaty arbitration also survives the constitutional ban The second clause of Article 422 excludes from the constitutional arbitration ban any treaty that would enable international arbitration in disputes with states and citizens of Latin America and handled by regional arbitration institutions. Ecuadorian anti-arbitration trend: the boomerang effect In 2008, Ecuador denounced the ICSID Convention and 12 Bilateral Investment Treaties with other Latin American countries.4 The government through documents submitted by the Minister of Foreign Affairs ofcially stated that the country was currently
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revising its position towards investments. Following an evaluation of the results of the BITs and the impact they have had in the Ecuadorian economy, Ecuadors current administration has concluded that they have failed in their main goal of attracting capital.5 More recently, on 28 September 2009, President Correa addressed a note to the President of the National Assembly (as the Ecuadorian legislature is now known) demanding the denunciation of the BITs that Ecuador has signed with Germany, France, Finland, Sweden, Canada, China, England, the Netherlands, Ireland, Argentina, Chile, Venezuela, Switzerland, and the USA. 6 In his note, President Correa argued that such BITs contain clauses, such as the international arbitration provisions, which violate the new Ecuadorian Constitution and are harmful to national interests. The President also contends that international arbitration tribunals have adopted a peculiar denition of investment and have found Ecuadorian legislative measures to be discriminatory and arbitrary, in total disregard of Ecuadorian law. President Correas intentions of preventing government acts from being reviewed by arbitration tribunals are clear. This goal, however, will be difcult to achieve in the immediate future. The BITs that Ecuador has denounced or intends to denounce protect all investments made before the termination notication becomes effective. Therefore, investors will generally enjoy treaty protection for another ten or fteen years, during which they can validly le arbitration claims if their treaty-rights are violated. It is quite possible that Ecuadors recent initiative to end international arbitration will produce the opposite result. Indeed, there are some indicators that conrm this prediction. For example, arbitration clauses have been included in at least two recent international credit agreements between Ecuadorian public entities and multinational nancial institutions, as well as in other contracts signed by state entities. This indicates that international arbitration is still alive and well as a mechanism to resolve disputes with the Ecuadorian state and state entities.
In addition, the number of investment arbitration claims against Ecuador is far from having diminished and, in fact, has increased over the last few months in parallel with the increasingly hardened positions of the government with regard to some public contracts and concessions. The governments nationalistic discourse against investment treaties may encourage foreign investors to le their claims while BIT protection is still available. Ecuadors actions may therefore have a boomerang effect, bringing about precisely the situation it sought to avoid.
Notes 1 Ecuador Const (1979) Article 16: Contracts signed by the government or its entities with foreign individuals or companies implicitly relinquish all diplomatic claims; if such contracts were signed in Ecuadorian sole the parties are not allowed to submit disputes to international jurisdiction. 2 Article 422 Treaties and international agreements in which the Ecuadorian State relinquishes sovereign jurisdiction to international arbitral institutions, shall not be celebrated in commercial or contractual controversies between the State and private companies or people. Excepted from this rule are the treaties and international agreements between the States and citizens from Latin America that submit the solution of controversies to regional arbitral institutions or to other jurisdictional instances designated by the signatory States. Judges from the States parties to the controversies shall not participate in the resolution of the conict. In cases relating to foreign debt, the Ecuadorian State will promote arbitral settlement of disputes considering the origin of the debt and submitting under the guiding principles of transparency, equity and international justice. Translation of Article 422 of the Montecristi Constitution. 3 Translation of the Congressional debates of the Montecristi Constitution. 4 Ecuadors Minister of Foreign Affairs denounced the BITs with Uruguay, El Salvador, Paraguay, Cuba, Dominican Republic, Nicaragua, Honduras and Guatemala. Such countries were notied of the denunciation on 30 January 2008 5 See denunciation of the Ecuador-Cuba BIT R O 452 23 October 2008. Ofcial Gazette 45223 X 08. 6 Letter No T 4766-SGJ-09-226 of 28 September 2009, from President Correa to the President of the National Assembly.
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Mexico
The autonomy of the additional award
Leonel Pereznieto Castro

Jauregui, Navarrete y Nader, Mexico, D F
lpereznieto@jnn.com.mx
ecent decisions of the First Circuit in Mexico City clarify the regime of additional awards. Article 1451 of the Commerce Code1 establishes that unless otherwise agreed by the parties, a party may request the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award. In order to vacate or enforce such an additional award, the rst federal decision2 in comment sets forth that the judiciary has to scrutinise it formally without a de novo review of the award.3 In other words, the judge must insure only that the additional award indeed adjudicates questions that had been previously omitted without reviewing the merits of the principal award. The second decision underlines that corrective or additional awards cannot modify an existing ruling made in the principal award, as Article 1451 foresees that, on the one hand, a corrective award only can correct in the main award any errors in computation, any clerical or typographical errors or any errors of similar nature, and, on the other hand, an additional award only may correct a failure to decide on certain heads of claim.4 The third and last decision makes clear that unlike corrective or interpretative awards, additional awards are not part of the main award. They are legally independent and, therefore, they may be set aside without affecting the validity of the main award. In effect, article 1457.I.c5 contemplates that if the decisions on matters submitted to arbitration can be separated from those not so submitted or those not having been decided, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside. Taking into account the mentioned disposition, the
tribunal established that there is no unity between the main award and the additional award and therefore there is no obstacle to setting aside the latter without vacating the former. 6
Notes 1 Corresponding to Article 33 of the UNCITRAL Model Law. 2 LAUDO ADICIONAL. SU LEGALIDAD DEPENDE DE QUE SE HAYA DICTADO SEGN LAS REGLAS QUE LO PREVN, RESPECTO DE RECLAMACIONES OMITIDAS EN EL LAUDO DEFINITIVO Y PARA EL EFECTO ES NECESARIO CONOCER SU CONTENIDO, LO CUAL NO SIGNIFICA UN ESTUDIO DE FONDO. Sptimo Tribunal Colegiado en Materia Civil del Primer Circuito. Amparo en revisin 23/2009. Leonel Pereznieto Castro y otra, 12 de marzo de 2009. Unanimidad de votos. Ponente: Julio Csar VzquezMellado Garca. Secretario: Benjamn Garcilazo Ruiz. 3 The 2002 Mecalux decision has expressely banned the de novo review (Primer Tribunal Colegiado del Decimo Quinto Circuito. Amparo en revisin 138/2002; cf Pereznieto & Graham, Tratado de Arbitraje Comercial Internacional Mexicano, Limusa, 2009, n 532). 4 LAUDO DEFINITIVO. CORRECCIN, INTERPRETACIN Y ADICIONAL SON DISTINTOS Y NO PUEDEN REVOCAR LO RESUELTO EN EL PRIMERO. Sptimo Tribunal Colegiado en Materia Civil del Primer Circuito. Amparo en revisin 23/2009. Leonel Pereznieto Castro y otra, 12 de marzo de 2009. Unanimidad de votos. Ponente: Julio Csar Vzquez-Mellado Garca. Secretario: Benjamn Garcilazo Ruiz. 5 Corresponding to Article 34(2)(iii) of the UNCITRAL Model Law. 6 NULIDAD DEL LAUDO ADICIONAL. NO IMPLICA LA NULIDAD DEL DEFINITIVO AL NO GUARDAR UNIDAD CON STE. Sptimo Tribunal Colegiado en Materia Civil del Primer Circuito. Amparo en revisin 23/2009. Leonel Pereznieto Castro y otra, 12 de marzo de 2009. Unanimidad de votos. Ponente: Julio Csar Vzquez-Mellado Garca. Secretario: Benjamn Garcilazo Ruiz.
James A Graham
Lobo & Graham, Monterrey
graham@ lobo-graham.com
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Eduardo Siqueiros T
Barrera, Siqueiros y Torres Landa, S C, Mexico, D F
est@bstl.com.mx
Federal decisions support arbitration

ecent Mexican Federal judicial decisions have consolidated a trend in support of arbitration as an alternative means of resolving commercial disputes. The rst decision ordering enforcement of a foreign award under the 1958 New York Convention is over 30 years old. However, after Mexicos incorporation of the UNCITRAL Model Law into its Federal Commercial Code in 1993, both federal and local courts began to issue more decisions given the recurring attempts to enforce (or annul) awards, or to seek interpretation of the implemented legislation. Most have been favourable to international arbitration, but even when those decisions have been unfavourable, they have been ultimately corrected, or at least provided guidance and legal certainty. During the past 12 months the Supreme Court of Mexico and Collegiate Circuit Courts have rendered decisions that are worthy of note. This article discusses three of them: the rst involves a detailed acknowledgement of arbitration, the second addresses the issue of competence-competence and the third regards enforcement of an award when a claim to annul is simultaneously led. The Supreme Court recognises arbitration fundamentals and even ex aequo et bono arbitration In a recent decision, the Supreme Court (First Chamber, Amparo en revisin 131/2009, 27 May 2009) adopted a series of Tesis Aisladas, which address basic concepts of arbitration, almost in academic form, dening the institution itself and identifying the objective of the parties (ie, resolution of the dispute at law or in equity, under local or foreign law, etc); the competence of the arbitrator under Mexican law; the concept of forced arbitration (when mandated by law, as is the case in labour claims) and intermediate arbitration (when there is a mix of mandatory and voluntary submission to arbitration). The Supreme Court expressly acknowledged the contribution of the UNCITRAL Model Law and the exclusive competence of the Federal Congress to legislate in connection with commercial arbitration under the Mexican Constitution. The Supreme Court accepts that arbitration is a practical institution, which attempts to decongest the intense work of the judiciary through an alternative means in those matters that the parties are free to settle. When parties submit their dispute to the decision of an arbitrator, they expect any judicial intervention to be exceptional. In addressing ex aequo et bono arbitration, the Supreme Court expressly recognised that an arbitrator may disregard legal arguments and issue an award without providing detailed reasons. This decision therefore offers broad support to arbitration as an alternative means for dispute resolution and has been interpreted as such by the courts and the arbitration community. Competence-competence is strong and subject only to judicial determination of defects in the formation of the agreement Another decision which has created some debate relates to the conciliation of two provisions under the UNCITRAL Model Law incorporated into Mexican law dealing with competence-competence, namely the competence of the arbitral tribunal to decide over its own jurisdiction (recognised by Article 1432 of the Commercial Code, equivalent to Article 16(1) of the Model Law) and the instruction to a local court to refer the parties to arbitration when the relevant matter has been subject to an arbitration clause, unless it nds that the agreement is null and void, inoperative or incapable of being performed. (Article 1424, equivalent to section 8(1) of the Model Law (Tesis Jurisprudencial 25/2006. First Chamber of the Supreme Court).) The Supreme Court decided between two conicting decisions rendered by the Sixth and Tenth Collegiate Circuit Courts, both of the First Circuit. It ruled that even though the parties can validly submit their disputes to an arbitrator, since the competence of the arbitrators originates precisely in the autonomy or freedom of the parties to contract, if one party alleges a defect in the formation of that agreement, this threshold issue should be resolved by the judiciary. The court did recognise, however, that the arbitral tribunal could continue in parallel
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to examine the dispute, subject to the courts nal decision. This decision resonates with other potentially negative decisions from other jurisdictions (see, for example, the European Court of Justice ruling on Allianz SpA and Generali Assicurazioni Generali SpA v West Tankers Inc, Case C-185/07, where anti-suit injunctions were found to be in conict with the Brussels Regulations). There is also a concern that threshold jurisdictional decisions might become a recurrent delaying tactic at the start of an arbitration proceeding. An enforcement request can be brought as a counterclaim to an annulment suit Another noteworthy decision deals with the ability of a party to counterclaim enforcement of an award in those cases where the other party has led a motion to annul the award. In this case (Amparo en revisin 274/2008. Maquinaria IGSA, S A de C V, 4 December 2008) the Third Collegiate Circuit Court for the First District court acknowledged that efciencies are achieved by having the
same court adjudicate both the annulment and enforcement requests during the same proceeding, especially given that the causes for annulment and causes for non-recognition and enforcement are identical, except for that which provides for non-recognition when the award is not yet nal because it is subject to annulment. The Circuit Court clearly analysed the issue and concluded that the speed of a procedure is in line with the objectives of the parties who decide to submit their disputes to arbitration. This decision should be examined in conjunction with others that resolved that the judgment of a local court in connection with the enforcement (or annulment) of an arbitral award should be challenged through the two-tier process of amparo (amparo indirecto) (Grupo Radio Centro, S A de CV, Amparo en revisin, 1225/2006). It is apparent that lower level courts, both federal and state, are increasingly aware of the direction given by the higher courts, which foster legal certainty for the parties and their counsel.
Peru
Carlos A Soto*
Muiz, Ramrez, Prez-Taiman & Olaya Abogados, Lima
Csoto@munizlaw.com
The new Peruvian Arbitration Law of 2008

eru may never win the soccer World Cup. The last time it participated was in 1982. But there is no reason to feel sad. Indeed, besides the famous pre-Hispanic archaeological ruins which form part of our historical heritage, Peru shelters enormous biodiversity and undeniably plays a leading role in the eld of gastronomy, as Peruvian cuisine is amongst the best in the world. And in the arbitration eld, Peru should be proud because since September 2008 it has one of the most modern arbitration laws in the world. Over the last few years, the number of arbitration requests has increased signicantly, particularly for domestic arbitration. By way of example, from 1996 through December 2008, the Lima Chamber of Commerce Arbitration Center alone administered 1,513 arbitration proceedings. Furthermore, according to a survey conducted in 2008 by the Ministry of Justice, between 2,800 and 3,000 cases are referred to arbitration each year, and for every institutional arbitration proceeding there are three or four ad hoc arbitration proceedings. Why was it necessary to change a modern arbitration law, which had been enacted in 1996? Peru already had a modern and important arbitration law, which had been promulgated in 1996. This law was based on the UNCITRAL Model Law of 1985 and allowed arbitration to ourish in Peru during the last 12 years. Certainly, one may question why the 1996 law was replaced if it was such a good piece of legislation. The answer is that if something can be improved, then it should. Peruvians are not afraid of change, nor are they afraid of the repeal of laws in order to have them replaced by others that are more useful and efcient.
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Whats new in the 2008 Arbitration Law? The new Peruvian Arbitration Law (approved by Legislative Decree No 1071) was published on 28 June 2008 and came into effect on 1 September 2008. The new law reects: (i) the amendments that the United Nations Commission on International Trade Law (UNCITRAL) made to the UNCITRAL Model Law in 2006; (ii) the innovations introduced by the arbitration laws of Spain, Sweden, Belgium, Germany, England, Switzerland and the United States; and (iii) Perus arbitration experience during the last decade, coupled with the development of local scholars writings and the Constitutional Courts judgments (which have recognised the autonomy of arbitration and the exclusive jurisdiction of arbitrators to resolve disputes referred to arbitration, in addition to having rejected undue interference by judicial or administrative authorities). Among other major changes, therefore, the 2008 law has introduced the following innovations: It follows the monistic approach by regulating domestic and international arbitration as a single unit. It establishes an order of priority with regard to the rules applicable to arbitration proceedings: the parties agreement shall prevail, followed by the institutional arbitration rules or the rules that the arbitration tribunal may deem convenient, and the Arbitration Law on a supplementary basis. It eliminates the ad solemnitatem formality of the signature for entering into an arbitration agreement. Only the parties consent is required. It provides for the extension of the arbitration agreement to non-signatory parties, subject to certain conditions. It conrms the kompetenz-kompetenz principle in order to safeguard the autonomy of arbitration and the powers of the arbitration tribunal to decide any issue that may arise within the arbitration proceeding. It limits the ex post intervention of the Judiciary after the arbitration proceeding has been concluded through the ling of a motion for annulment. It assumes that the general manager of a legal entity is duly empowered to enter into arbitration agreements and represent it in the arbitration proceeding.
To serve as arbitrator in an international arbitration proceeding, it is not necessary to be a lawyer. In a domestic proceeding, when the parties agree to hold a de jure arbitration proceeding, there is no need for the lawyer to belong to any national or international lawyers association. It authorises the Chamber of Commerce to appoint the arbitrators in the absence of agreement between the parties and to decide arbitrator challenges. It authorises the parties to modify or elaborate on the request for arbitration or the answer to the request for arbitration, provided that the relevant matters are included within the scope of the arbitration agreement. It provides that requests for provisional measures should be served upon the other party, unless this could affect the efcacy of the measure. It makes it possible for a party to seek provisional judicial relief in aid of arbitration. It allows the arbitration tribunal to resolve the dispute through a single award or several partial awards. It embraces the international trend to hold de jure arbitration proceedings, unless otherwise agreed by the parties. It provides that the ling of any motion to set aside the arbitration award will not suspend the enforcement of the award. This requirement is aimed at discouraging the ling of frivolous motions for annulment with the goal of delaying enforcement. The party that requests a suspension of the enforcement must furnish a performance bond (joint and several, unconditional and automatically executable bank letter of guaranty). It includes an express provision on the enforcement of ICSID awards in accordance with the Washington Convention of 1965. Both Peruvian and international experts agree that the 2008 Peruvian Arbitration Law is one of the most modern arbitration laws in the world. A 100 per cent Peruvian legal provision: extension of the arbitration agreement to non-signatory parties The possibility to extend the arbitration agreement to non-signatory parties is one of the most important legislative innovations introduced by the 2008 Peruvian Arbitration Law. While international arbitration tribunals frequently deal with requests for extensions,
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the Peruvian law has taken a step forward by devising special rules. Article 14 of the Peruvian Arbitration Law reads as follows: The arbitration agreement applies to those parties whose consent to refer a dispute to arbitration, according to the principle of good faith, as determined by their active participation and decisive involvement in the negotiation, execution, performance or termination of the contract which includes an arbitration agreement or to which the arbitration agreement is related. It also extends to whoever intends to derive rights or benets from the contract, according to its terms. The new arbitration law allows the participation (as claimants or respondents) of individuals who, in spite of not having signed the main contract or the arbitration agreement, are sufciently related to the agreement. Article 14 is not aimed at extending the arbitration agreement to third parties not related to the main contract, but rather to de facto parties thereto, which have explicitly or implicitly consented to the arbitration agreement. Article 14 also permits the extension of the arbitration agreement to individuals who intended to derive rights or benets from the main contract. This would be the case of the beneciary of an insurance contract which, in spite of not having signed the insurance contract, could demand the payment of damages by the insurance company through an arbitration proceeding, or the case of individuals who acquire rights and obligations based on a contractual assignment. The Peruvian challenge: become a host country for arbitration proceedings in the region In order for a country to serve as host country, it is necessary, as rightly stated by Yves Derains, for it to have an adequate legal framework in place, ie, the host country must be a signatory of the New York Convention, have enacted a modern arbitration law, be supported by local judicial authorities and allow arbitrators to freely organise the proceeding, provided that they honour the basic principle of due process. Separately, success requires a positive environment, and
the excessive politicisation and mediatisation of arbitration should be avoided because it is contrary to the independence and unbiased involvement of arbitrators. Perus legal framework is more than adequate. Peru is a signatory of the New York Convention. It also has a modern arbitration law, appropriate accommodation infrastructure and, so far, constitutional and judicial courts have respected the jurisdiction of arbitration tribunals, as proved by a mandatory resolution issued by the Constitutional Court (Case File No 6167-2005-PHC/TC Lima), where that court () recognized the jurisdiction of the arbitration proceeding and the full and absolute competence of arbitrators to try and resolve conicts referred to them (...), with jurisdictional independence and, therefore, without the intervention of any ordinary administrative or judicial authority. Judicial control, if any, must be exercised ex post, that is, a posteriori, through the ling of a motion for annulment, as required under the arbitration law. Finally, the Constitutional Court has clearly acknowledged () the full force and effect of the kompetenz-kompetenz principle (), which authorizes arbitrators to decide on matters which fall within their sphere of competence (), the competence of arbitrators to deal with and resolve, at all times, controversial matters which may arise during the arbitration proceeding, including claims related to the validity and efcacy of the agreement (arbitration clause). To conclude, we invite all of our colleagues who have still not had a chance to visit our country to come to Peru. In addition to the excellent cuisine and the wonders of the city of Cusco and the Machu Pichu ruins not to mention our natural and cultural wealth and our characteristic hospitality a vibrant arbitration community is waiting for you and a modern arbitration law is in place in order for our country to be considered as host country for arbitration proceedings. Welcome to Peru!
Note * Carlos A Soto is the President of the Peruvian Arbitration Institute, Director of the Peruvian Arbitration Review and he is Head of the International Arbitration Practice Group of Muiz, Ramrez, Prez-Taiman & Olaya Abogados.
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Fulvio Italiani
DEmpaire Reyna Abogados, Caracas
taliani@dra.com.ve
Venezuela
Jos H Fras
DEmpaire Reyna Abogados, Caracas
jfrias@dra.com.ve
The arbitration pendulum in Venezuela

(vi) In 1999, Venezuela enacted the Law for the Protection of International Investment (Venezuelan Foreign Investment Law) which provides that controversies arising from foreign investments must be settled through arbitration. (vii) Several Venezuelan statutes also provide for arbitration in specic sectors, including the Venezuelan Labour Law, the Copyrights Law, the Insurance Law, the Oil Law and the Gas Law. This pro-arbitration trend in the 1980s and the 1990s also resulted in the creation of several local commercial arbitration institutions, including the Centro de Arbitraje de la Cmara de Comercio de Caracas (CACC) created in 1989 and the Centro Empresarial de Conciliacin y Arbitraje (CEDCA) created in 1998. The assaults on arbitration since 2002 Since 2002, however, signicant judicial hostility to arbitration has developed, as some Venezuelan courts have consistently denied the validity of arbitration agreements. For example, in an opinion rendered on 25 March 2003 (Decision 476, Consorcio Barr S A v Four Seasons Caracas, C A), the Administrative Chamber of the Venezuelan Supreme Court upheld the decision of a rst instance Court disregarding a clear and express arbitration agreement between the parties. In another opinion issued on 5 April 2006 (Decision 855, Venezolana de Televisin, C A v Elettronica Industriale S P A), the Administrative Chamber of the Venezuelan Supreme Court set aside an arbitral award issued against a Venezuelan state-owned telecom company based on mere formalities of dubious application to the particular case (among other reasons, the Court retroactively applied a provision set forth in the Arbitration Law of 1998 in order to invalidate the arbitration clause). The October 2008 opinion of the Constitutional Chamber of the Supreme Court Nevertheless, the Constitutional Chamber of
rbitration law in Venezuela has recently undergone periods of strong support from public institutions while at the same time suffering periods of hostility by the courts. However, a recent decision by the Constitutional Chamber of the Venezuelan Supreme Court (Venezuelas highest court) has somehow reversed such judicial hostility towards arbitration, recognising the validity of certain fundamental principles of arbitration (although with some caveats), as described in this article. The development of arbitration in the 80s and the 90s The last 20 years have witnessed the gradual development of the Venezuelan legal framework for arbitration. Several milestones evidence this: (i) In 1985, Venezuela ratied the 1975 Inter-American Convention on International Commercial Arbitration. (ii) In 1994, Venezuela ratied the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or the New York Convention, and the 1965 Convention on the Settlement of Investment Disputes Between States and Nationals of Other State, or the ICSID Convention. (iii) Since 1991, Venezuela has signed bilateral investment treaties, or BITs, with over 25 countries providing for the settlement of investment disputes through international arbitration. (iv) In 1998, Venezuela enacted the Arbitration Law, the rst piece of legislation dealing specically with arbitration (prior to this law, arbitration matters were settled by reference to a few provisions contained in the Venezuelan Code of Civil Procedure). The Venezuelan Arbitration Law is based on the UNCITRAL Model Law on International Commercial Arbitration. (v) In 1999, arbitration was elevated to constitutional status.
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the Venezuelan Supreme Court, in an opinion rendered on 17 October 2008 (No 1541) (the 1541-09 Opinion), recognised several fundamental principles of arbitration (albeit with certain caveats). The 1541-09 Opinion was rendered in response to a request for interpretation of the arbitration provisions of the Constitution by representatives of the Attorney General Ofce of Venezuela and Petrleos de Venezuela (PDVSA), Venezuelas state-owned oil company. (i) Right to arbitrate as a constitutional right The Constitutional Chamber held that the Venezuelan Constitution recognises a fundamental right to resort to alternative dispute resolution mechanisms, including arbitration. In addition, the Constitutional Chamber ruled that any statute or judicial decision that constrains or limits the development, promotion and effectiveness of the arbitration is contrary to the Constitution. (ii) Arbitrability of matters involving public policy The Constitutional Chamber also supported the modern view on arbitrability of matters involving public policy. Indeed, the 1541-09 Opinion emphasised that these matters are not necessarily excluded from arbitration, and therefore arbitrators may enforce national public policy: [t]he declaration of a matter as public policy implies the impossibility of the parties to relax or mitigate the protections contemplated by law, which are of a substantive nature; however, the decision to submit to arbitration is just a procedural matter ... Submission to arbitration does not imply a waiver to the protections, rights or guarantees contemplated in public policy laws. (iii) Arbitration as nal and binding dispute resolution mechanism The 1541-09 Opinion upheld the adjudicative function of the arbitral award by providing a nal, binding resolution of the parties dispute (res judicata). (iv) Interim measures The 1541-09 Opinion acknowledged the power of arbitrators to issue provisional or interim measures in aid of arbitration.
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However, as is the case in many other countries, the Chamber claried that arbitrators lack enforcement authority, which remains within the prerogative of the Venezuelan courts. (v) Arbitration agreements with the Venezuelan Government and investment disputes The 1541-09 Opinion clearly recognised the ability of the Venezuelan Government and other public entities to enter into arbitration agreements. The Constitutional Chamber stated that: the submission to arbitration is a manifestation of sovereignty and consolidates the principle of sovereignty, as it recognizes the possibility of the State to submit to arbitration ... it is the responsibility of the State to determine the scope, opportunity and convenience, to submit certain transactions to arbitration... [This possibility] is the result of the unquestionable need of the State to directly or indirectly enter into commercial relations with foreign elements for the development of activities of common interest, which in many cases cannot be carried out by the public administration of the private sector of the State, and for this reason the State not only enters into contracts with foreign companies but also fosters and regulates facilities and conditions for the foreign investment with other States. Thus, within those general conditions that foster and allow foreign investment it is a common and desired practice and necessity for the majority of the investors to submit the potential differences derived from the development of the corresponding economic activities to a jurisdiction which in the opinion of the interested parties does not tend to favor the internal interest of each State and the private entities involved in the dispute. The Constitutional Chamber explained that the recognition of arbitration under the Constitution is the result of a pragmatic approach based on the need to allow the state to submit to arbitration disputes arising from public interest contracts. The 1541-09 Opinion stated that the Republic in the exercise of its sovereignty can determine the terms and conditions under which it will submit to international arbitration since, under the principles of good faith and pacta sunt servanda, a State
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must be sufciently sovereign to honor its promise to submit to international arbitration. According to the Constitutional Chamber, the consent of the state to submit to arbitration can originate from three different sources: (i) a contract containing an arbitration agreement, (ii) a bilateral or multilateral treaty for the reciprocal promotion and protection of investments, and (iii) a provision of Venezuelan law. In line with the above, the Constitutional Chamber clearly acknowledged the validity of arbitration proceedings relating to investment disputes brought pursuant to BITs. The Constitutional Chamber further recognised that a provision of Venezuelan law may constitute sufcient and unequivocal consent of the state to submit to arbitration. However, the 1541-09 Opinion denied that Article 22 of the Venezuelan Foreign Investment Law1 by itself constitutes a general consent of the Venezuelan state to submit foreign investment disputes to arbitration under the ICSID Convention, in the absence of a BIT. The Chamber found that Article 22 does not contain a general offer to arbitrate and is simply a reference to the ICSID Convention, a conclusion that may be of tenuous validity in light of applicable principles of international law. In our view, it is clear that Article 22 of the Venezuelan Foreign Investment Law embodies a general consent by the Venezuelan state to submit foreign investment disputes to ICSID arbitration. (vi) Requirement to post a bond to suspend the effectiveness of an arbitral award pending a nullity proceeding The Constitutional Chamber recognised the right of the winning party to enforce a favourable award as one of the most important aspects of effective judicial protection (Article 26 of the Constitution). Accordingly, the Chamber recognised the validity of the requirement to post a bond to
suspend the effectiveness of an arbitral award pending an annulment proceeding. (vii) Separability The 1541-09 Opinion recognised the principle of separability (ie, that the arbitration agreement is independent from the underlying contract) and that the invalidity or illegality of the underlying contract does not necessarily imply the invalidity or illegality of the arbitration agreement and cannot be used to torpedo an arbitration proceeding. (viii) Competence-competence The 1541-09 Opinion endorses the competence-competence doctrine (Kompetenz-Kompetenz), pursuant to which the arbitrators have the power to rule on their own jurisdiction. (ix) Awards contrary to public policy The 1541-09 Opinion stated that even if the state can validly submit to international arbitration, awards that are contrary to the Venezuelan Constitution are not enforceable in Venezuela (public policy exception).
Notes 1 Article 22 of the Venezuelan Foreign Investment Law provides: The disputes that arise between an international investor, whose country of origin has executed and has in force a treaty or agreement regarding the protection and promotion of investments, or the controversies in respect to which the provisions of the Agreement for the Convention Establishing the Multilateral Investment Guarantee Agency (OMGI-MIGA) or the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) are applicable, shall be submitted to international arbitration in the terms of the pertinent treaty or agreement if it is so established therein, notwithstanding the possibility of using the contentions procedures contemplated in Venezuelan law, when applicable.
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Arbitration and the judiciary in Venezuela

to arbitration and not to the jurisdiction of the trial courts (courts of rst instance). Furthermore, it must be clear that the parties have the legal capacity to enter into the arbitration agreement and have freely accepted to submit disputes to arbitration. Cause of conduct of the parties consistent with arbitration: The parties actions should demonstrate their intent to arbitrate their disputes. The situation of the so-called tacit waiver of arbitration commonly arises. For example, upon the ling of a judicial claim, the defendant appears in court and does not oppose the arbitration clause before the trial court (court of rst instance) in accordance with ordinal 1 of Article 346 of the Code of Civil Procedure. Instead, the defendant answers the merits of the claim, by counterclaiming or by what is called the implied confession (confesin cta). A tacit waiver situation also arises if the defendant has challenged the jurisdiction of the court based on the existence of an arbitration clause, but it has failed to formally le its opposition under ordinal 1 of Article 346 of the Code of Civil Procedure. It is noteworthy that some courts have held that the trial court judge should analyse the validity of the arbitration clause, even though the Commercial Arbitration Act (Articles 7 and 25) empowers the arbitrators to determine whether the clause is valid and whether the parties had the capacity to enter into an arbitration agreement based on the principle of competence-competence. As stated, thus far arbitration in Venezuela has not gained complete recognition. However, some advances have been made recognising the enforceability of arbitration clauses or agreements, even though some conditions and requirements have been imposed by the Supreme Tribunal, especially the Chamber of Political-Administrative Matters of the Supreme Tribunal of Justice. It is hoped that the trial courts (courts of rst instance) no longer stand in the way of the enforcement of arbitration clauses and agreements that were freely entered into by the parties. Additionally, the Supreme Tribunal of Justice should recognise the powers of the arbitrators as established in the Commercial Arbitration Act and the capacity of the parties to submit their disputes to arbitration.
Pedro Luis Planchart Pocaterra

Araque Reyna Sosa Viso & Pittier, Caracas
pplanchart@araquereyna. com
rbitration in Venezuela does not enjoy the full acceptance it should, especially among members of the Venezuelan judiciary. Although the Commercial Arbitration Act has been in effect since 1998 (Ofcial Gazette No 36,430 of 7 April 1998), arbitration in Venezuela has experienced a series of setbacks due to decisions of the lower and appellate courts and by the Chamber of Political-Administrative Matters of the Supreme Tribunal of Justice. Arbitration proceedings have been denied by a number of institutions, in spite of the fact that the parties had agreed to submit disputes to arbitration. The case law of the Chamber of PoliticalAdministrative Matters of the Supreme Tribunal of Justice has evolved, and judges have been willing to nd they had no jurisdiction as a result of an arbitration clause binding on the parties. However, even in cases where the courts have enforced arbitration provisions, especially cases before the Supreme Tribunal, such enforceability has only been recognised subject to certain requisites and conditions. First, in the event a party has chosen to le a claim with a trial court (court of rst instance) in spite of a binding arbitration clause, the other party must le a preliminary motion to dismiss based on the claim being inadmissible due to the courts lack of jurisdiction. In other words, the party to enforce the arbitration agreement must argue that the court should decline to hear the case on the merits based on the arbitration clause. Failing such challenge to the jurisdiction of the court, the counterparty will be found to have waived its arbitration rights in favour of the submission of the case to the trial court (court of rst instance). Secondly, the Chamber of PoliticalAdministrative Matters of the Supreme Tribunal of Justice has established a set of binding requirements that must be met for judges to declare that they lack jurisdiction as a result of the existence of an arbitration clause. A valid and effective arbitration agreement, pact or clause: The arbitration clause must fulll all the legal requirements for such clause to be valid and enforceable from a substantive and procedural point of view under Venezuela law. Those requirements may be summarised as follows: the arbitration clause may not contain contradictions; and it must be clear that the will of the parties is to submit their disputes
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Gerry Ghikas, QC
Borden Ladner Gervais LLP, Vancouver
gghikas@blgcanada.com
Canada
Vancouver 2010 At the crossroads of international arbitration
he Canadian arbitration community looks forward to welcoming friends and colleagues from the Arbitration Committee when the IBA Annual Conference returns to Vancouver, British Columbia in October 2010. Vancouver is a particularly appropriate location to discuss the challenges and opportunities now facing the international community, as we work together to ensure that arbitration continues to be an effective means to resolve international business, trade and investment disputes. Attendees will be reminded not only that Vancouver is one of the most beautiful cities in the world, but also that it is at a crossroads, where diverse Asian, North American and European cultures and traditions converge. Canadas stature in the international arbitration community continues to grow. In the Taylor Wessing Dispute Resolution Report, based on an electronic survey of 300participants worldwide conducted through February, March and April, 2009, Canada ranked third overall, just behind Switzerland and Australia, and ahead of the Netherlands, the UK, Singapore, Germany and USA, based on key indicators of preferred jurisdictions within which to conduct arbitrations. The indicators included adequacy of a body of clear law, availability of competent professionals, integrity of the procedure and the judiciary and the cost of dispute resolution. The survey results are consistent with reports from arbitral institutions. Referring to statistics showing a marked increase in the number of Canadians appointed as arbitrators, a senior ofcial with the ICC Court recently observed that 2009 has been a good year for Canada. Canada was at the forefront in adopting the UNCITRAL Model Law. This was no small feat, as the Model Law had to be enacted not only federally, but also by each of Canadas provincial legislatures. The same is true of the New York Convention to which Canada has long been a party. More importantly, with leadership and direction from the Supreme Court of Canada, Canadian courts now consistently apply
principles of party autonomy, separability, competence-competence and judicial deference. In recent decisions, the Supreme Court has decided that: intellectual property disputes are arbitrable (Desputeaux v Les Editions Chouette (1987) inc, 2003 SCC 17, [2003] 1 S C R 178), the substantive right conferred by an arbitration agreement prevailed over the procedural right to bring class proceedings in the absence of an over-riding provision in consumer protection legislation (Dell Computer Corp v Union des consommateurs, 2007 SCC 34, [2007] 2 S C R 801; and Rogers Wireless Inc v Muroff, 2007 SCC 35, [2007] 2 S C R 921) and courts should not engage in an investigation of non-documentary evidence or protracted inquiries to determine whether an arbitration agreement is null and void, inoperative or incapable of being performed when asked to stay court proceedings, but rather should refer those issues to the arbitrators (Dell Computer Corp v Union des consommateurs, 2007 SCC 34, [2007] 2 S C R 801). Recently, the Court granted leave to appeal from a somewhat controversial decision of an Alberta court that the two-year limitation period for enforcing domestic arbitration awards should also be applied to international awards sought to be enforced in Alberta (Yugraneft Corp v Rexx Management Corp, 2008 ABCA 274; leave to appeal granted [2008] S C C A No 326). As each important issue of international arbitration law is decided, the Supreme Court of Canada draws on its experience and expertise as the nal appellate court for both common law and civil law matters, and engages in extensive comparative analysis of legal developments in other jurisdictions. One interesting feature of Canadas arbitration landscape is the absence of any dominant native international arbitral institution. Typically, experienced Canadian international arbitrators will have extensive experience with ad hoc arbitration as well as many kinds of institutional arbitration. Although the ADR Institute of Canada Inc
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is active in the administration of domestic arbitrations, there is no Canadian parallel to, for example, the SIAC or AAA/ICDR. The British Columbia International Commercial Arbitration Centre (BCICAC) has a substantial book of domestic arbitrations and administers some international cases, but funding issues have restricted its growth; as an institution, the BCICAC itself is now at a crossroads will it remain primarily a domestic institution or will it attempt to spread its wings as was envisioned when it was conceived? The absence of a single native international arbitration institution has made the development of an international arbitration prole for Canada and for Canadian arbitrators more challenging, but it has the benet that Canada and Canadians are not aligned with or unduly inuenced by any single institution; even at the institutional level, Canada is neutral turf. The Arbitration Committee of the Canadian Chamber of Commerce is a seventy-strong committee of experienced international arbitration practitioners from across the country, and includes not only a group of internationally established luminaries, but also many other less wellknown but very experienced and capable international arbitrators and rising stars. The Arbitration Committee serves as the Canadian national committee for the ICC, but its mandate goes well beyond its relationship with the ICC. Canada has been referred to as the Switzerland of North America. There is some merit to this characterisation, but it tells only half the tale. Canada has very distinct historical roots and often a very different international outlook from its North American neighbours. The nation evolved to statehood without revolution, building on the foundation of two founding cultures English and French. Many Canadians are bilingual, and increasingly multilingual, as the country continues to be populated by waves of immigrants. Canada long ago embraced the model of a cultural mosaic, encouraging
diversity. Thus, although Montreal has a distinctly French air, like Toronto it also has other strong ethnic communities. Vancouver faces the Asia-Pacic, and is home to thriving Asian and South Asian communities. These are multi-cultural, international cities, very different in outlook and ambience from many other North American cities. At the same time, Canada occupies similar geography to the United States and spans all but one of the same time zones (alas we have no counterpart to Hawaii). The two neighbours are closely linked by air, rail and highway, and cross-border business is brisk. Canadians and Americans are different in many ways, and they do not always agree, but they understand one another. There is a wealth of subject matter and industry expertise in Canada. For example, there is aerospace and pharmaceutical expertise in Qubec, manufacturing and nance expertise in Ontario, oil and gas expertise in Alberta and mining and technology expertise in British Columbia. Canadian engineering, mining, construction and energy companies are active around the world. Canadian arbitrators and courts are familiar with these and many other industries. In recent decades, Canadian-trained lawyers have been in high demand by international law rms. Most Canadian lawyers have two university degrees, an undergraduate degree and a post-graduate degree in law, and will have supplemented seven years of university education with a year of on-the-job articling. Although several international rms have modest outposts in Canada, the major dispute resolution rms are not closely aligned with international rms. One should never underestimate the importance of creature comforts, when one contemplates the prospect of a oneor two-week hearing in a foreign city. As IBA members will discover when they visit Vancouver in October, there is a good reason why Vancouver is consistently rated as one of the top two or three most livable cities in the world.
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Barry Leon*
Perley-Robertson, Hill & McDougall LLP, Ottawa
bleon@perlaw.ca
What renders an arbitration agreement inoperative: clarication may be coming from the Supreme Court of Canada
Andrew McDougall
Perley-Robertson, Hill & McDougall LLP, Ottawa
amcdougall@perlaw.ca
recent Canadian case attracting attention in the international arbitration community is Seidel v Telus,1 a case from the British Columbia Court of Appeal (BCCA) on its way to being heard in the Supreme Court of Canada (SCC). This case will provide a unique opportunity for the SCC to rule on what makes an arbitration clause inoperative, language that appears in the escape clause in both domestic as well as international arbitration legislation in Canada, the latter for the most part adopting the UNCITRAL Model Law. The Telus case involves a mobile phone contract renewal containing an arbitration clause. The arbitration clause provided for all disputes between the parties to be arbitrated. The consumer, Michelle Seidel, commenced a class action against the mobile phone service provider, Telus Communications Inc (TCI), for breach of contract and for deceptive and unconscionable practices under the British Columbia Business Practices and Consumer Protection Act.2 Relying on two recent SCC decisions referred to below, TCI applied to have the class action stayed in favour of arbitration. The Court of rst instance, the Supreme Court of British Columbia, held that the arbitration agreement was inoperative in light of the class action and dismissed the request to stay. The BCCA reversed the lower courts decision and stayed the lawsuit in favour of arbitration. In November 2009, the SCC granted Seidels request for leave to appeal. While the case relates to a domestic dispute under British Columbias domestic arbitration statute, the British Columbia Commercial Arbitration Act,3 the SCCs decision could prove important for international arbitration. The key words of the relevant provision of the British Columbia domestic arbitration act are identical to the words in Article 8(1) of the UNCITRAL Model Law. Article 8 of the Model Law reads as follows: A court before which an action is brought in a matter which is the subject of an arbitration agreement shall refer the parties to arbitration unless it nds that the agreement is null and void, inoperative or incapable of being performed. (Emphasis added)
The rst two subsections of section 15 of the British Columbia domestic arbitration statute read as follows: Stay of proceedings 15(1)If a party to an arbitration agreement commences legal proceedings in a court against another party to the agreement in respect of a matter agreed to be submitted to arbitration, a party to the legal proceedings may apply, before or after entering an appearance and before delivery of any pleadings or taking any other step in the proceedings, to that court to stay the legal proceedings. (2)In an application under subsection (1), the court must make an order staying the legal proceedings unless it determines that the arbitration agreement is void, inoperative or incapable of being performed.4 (Emphasis added) Subsection 15(2) (and Article 8(1) of the UNCITRAL Model Law) thus provides that, where there is an arbitration agreement and a party commences legal proceedings, a court is required to stay the action unless the agreement is void, inoperative or incapable of being performed. Section 15 of British Columbias domestic arbitration act was interpreted by the BCCA in 2004 in MacKinnon v Money Mart Co.5 In MacKinnon, the BCCA held that certication of a class action could render an arbitration clause inoperative. Leave to appeal to the SCC was not sought. In 2007, the SCC decided in two cases, Union des consommateurs v Dell Computer Corp6 and Muroff v Rogers Wireless,7 that, under the laws of Qubec, a class action is a procedural vehicle that does not modify or create substantive rights.8 The court held that arbitration clauses do create substantive rights and that the substantive rights created by an arbitration agreement cannot be modied by the procedural provisions applicable to class actions. The effect of this decision is that where the parties have provided for disputes to be arbitrated, the procedural mechanism of a class action and arguably other kinds of procedural mechanisms cannot be used to trump the substantive right to arbitration. An arbitration clause means that the lawsuit will be stayed and the dispute will be resolved
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via arbitration as provided for in the contract: not through further class action procedures and not by way of a form of class arbitration. Therefore, a class action does not serve to make an arbitration clause inoperative. In the Telus case, the judge at rst instance ruled that the arbitration laws in Qubec and British Columbia were different enough that the SCCs decisions in Dell and Rogers were not applicable to British Columbia and in any event did not effectively overrule the BCCA decision in MacKinnon. However, the BCCA disagreed and held that Dell and Rogers overruled MacKinnon, staying Seidels class action. The BCCA found that the arbitration laws in British Columbia and Qubec had broad similarities and that the technical differences that do exist are not material to whether the analysis in Dell and Rogers extends to British Columbia.9 The SCCs decision in the Telus case could be important for international arbitration. Its decision on the meaning of the words that are the escape clause in the UNCITRAL Model Law as well as in the British Columbia domestic arbitration act could either narrow the window for a court to refuse to refer a dispute to arbitration, or enlarge it to the point that lower courts will have a green light to drive a truck through it. What can we expect from the SCC on this issue? If the consistent pro-arbitration
theme emanating in at least the past decade from Canadas highest Court and leading provincial appellate Courts in Canada is any indication, we can expect that the SCC will give Canada and indeed all Model Law jurisdictions around the world a well reasoned explanation of why there is a narrow rather than a wide escape clause in provisions such as Article 8(1) of the Model Law; that is, why a court has only a narrow basis to decline to refer parties to arbitration when they have agreed to arbitrate their disputes.
Notes * Partners, International Arbitration Group, PerleyRobertson, Hill & McDougall LLP/slr (www.perlaw. ca). The authors are grateful to articling student Megan Wallace for her invaluable assistance in drafting this article. 1 Seidel v Telus, 2009 CarswellBC 608, [2009] B C W L D 2020 (Telus), leave to appeal to S C C granted, 2009 CanLII 61381 (S C C). 2 Business Practices and Consumer Protection Act SBC 2004, Chapter 2. 3 Commercial Arbitration Act, RSBC 1996 Chapter 55. 4 Ibid. 5 MacKinnon v Money Mart Co, 2004 BCCA 473, 50
B C L R (3d) 291 (MacKinnon).

6 Union des consommateurs c Dell Computer Corp [2007]2 S C R 801 (Dell). 7 Muroff v Rogers Wireless, [2007] 2 S C R 291 (Rogers). 8 Telus, at paragraph 14. 9 Telus, at paragraphs 14 and 15.
Babak Barin*
I
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To harmonise or not that is the question: Whether tis nobler in Canada to ignore the spirit and words of the New York Convention or to take arms against a sea of troubles and by legislating end them
Limitations Act. The Alberta Court of Queens Bench and the Court of Appeal held that the two-year discoverability limitation period that applies to all claims for remedial orders in Alberta applied to the Russian award and thus, Yugraneft was statute-barred from enforcing it. Before the Supreme Court, Rexx and others submitted that the New York Convention (which along with the UNCITRAL Model Law is incorporated in Albertas International Commercial Arbitration Act) requires international arbitration awards to be enforced in accordance with local rules of procedure and that local limitation periods are part of those rules of procedure. Rexx
BCF LLP, Montreal

bbarin@bcf.ca
n December 2009, the Supreme Court of Canada heard the case of Yugraneft Corporation and Rexx Management. The facts are quite simple. In a Russian seated arbitration under the auspices of the International Commercial Arbitration Court (ICAC) of the Chamber of Commerce and Industry of the Russian Federation, a panel of three arbitrators rendered an award for payment of money in favour of Yugraneft. About three and a half years later, Yugraneft tried to enforce the award in the Province of Alberta pursuant to that provinces international commercial arbitration law. Rexx protested by relying upon, among other grounds, prescription under Albertas
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also argued that pursuant to Article III of the New York Convention, procedures to enforce international arbitral awards must not be substantially more onerous than those imposed on the recognition or enforcement of domestic awards. Hence, according to Rexx, a two year limitation period that could get increased to ten years (depending on the discoverability date) when Albertas domestic Arbitration Act provides for a two-year limitation period for domestic awards with no provision for discoverability is substantially less onerous than the one imposed on domestic arbitral awards. Article III of the New York Convention reads: Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards. [Emphasis added] Like elsewhere in the world, the law of international commercial arbitration in Canada has been signicantly inuenced by two United Nations documents: the New York Convention and the Model Law. There is nothing in the New York Convention, the Model Law or Albertas Limitations Act that establishes a limitation period for the recognition and enforcement of foreign arbitral awards. Canada is a federal state comprising ten provinces (Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Qubec and Saskatchewan) and three territories (Northwest Territories, Nunavut and Yukon). The basis for the division of powers between the provinces legislatures and the Parliament of Canada is the Constitution Act, 1867. While commercial arbitration is not a subject covered in the Canadian Constitution, the Constitution does confer exclusive legislative competence in relation to Property and Civil Rights in the Province and The Administration of Justice in the Province to the provinces. At the hearing before the Supreme Court, the nine sitting judges (three from Qubec, three from Ontario, and three from the other parts of Canada) were told that a signicant
number of countries around the world have limitation periods ranging from two to thirty years. For example, it was submitted that the United States has a three-year limitation period that applies to the recognition and enforcement of foreign arbitral awards, while England and Wales and Northern Ireland have a six-year limitation period. It was also submitted that while the situation under French law is unclear, in China a two-year period seems to apply. One of the interveners also indirectly told the Court that it was alright for Canadas ten provinces and three territories to have different limitation periods for the recognition or enforcement of New York Convention awards. After all, Canada is the second largest country in the world. But if the United States Canadas largest trading partner and the country with which it has the longest common border has one limitation period for the recognition or enforcement of all foreign arbitral awards brought into it pursuant to the New York Convention, does it make sense for Canada to have a collection of different limitation periods? True, federal arbitration law in the United States has a broader scope than in Canada, and Canadian federal power in relation to the regulation of trade and commerce has not developed in the same way as in the United States. But what about the impact of the reciprocal enforcement of judgments statutes that exist in the Canadian common law provinces? What happens if a party unsuccessful in having its foreign award recognised in Alberta because of that provinces Limitation Act applies to the courts of the neighboring province, British Columbia (where prescription for the recognition or enforcement of foreign arbitral awards for the payment of money is ten years), or alternatively to a competent court in the State of Montana, gets judgment in BC or in Montana, and then turns around and applies for the enforcement of the BC or Montana judgment in Alberta using Albertas Reciprocal Enforcement of Judgments Act? Surely the respondent cannot cry res judicata in the circumstances and even more surely, there will be no prescription defence to the enforcement of the BC or Montana judgment in Alberta. For the purposes of Albertas reciprocal legislation, the states of Montana, Idaho and Washington are reciprocating jurisdictions. Federal and provincial politics aside, there is no doubt that Canada is a signatory to the New York Convention; there is no
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doubt that Canada ratied the New York Convention on 12 May 1986 and there is no doubt that the Government of Canada is the only authority competent in Canada to enter into an international convention or treaty (such as the New York Convention) and to declare it to have the force of law for Canada as a whole. Hence, in my book at least, the proper interpretation and application of the New York Convention in Canada requires that Contracting State in Article III means Canada, the rules of procedure of the territory where the award is relied upon means the rules of procedure of the ten provinces and three territories of Canada, and domestic arbitral awards means domestic arbitral awards rendered anywhere in Canada, taken as a whole. To comply with its obligations under Article III of the New York Convention, Canada as a whole must recognise and enforce foreign arbitral awards (including in all of its provinces and territories), subject only to the grounds for refusal in Article V. Canada as a whole must do so in accordance with the rules of procedure of the province or territory where the award is being relied upon (for example, in Qubec by way of a motion pursuant to Article 88 C C P (a demand in a suit/Demande en cours dinstance) or in Alberta by way of an application pursuant to Rules 394 & 395 of the Alberta Rules of Court or an action). In addition, Canada as a whole must not impose substantially more onerous conditions or higher fees or charges on the recognition and enforcement of New York Convention awards than those imposed on the recognition and enforcement of domestic arbitral awards rendered anywhere in Canada (ie, in any one of its provinces and territories). This means that if in British Columbia there is a ten-year limitation period for the enforcement of domestic and foreign arbitral awards (where the award in question contemplates the payment of money or the return of personal property), then the limitation period applicable to a New York Convention award brought into Canada, through Alberta, cannot be less than the longest limitation period which applies to the enforcement of domestic arbitral awards anywhere in Canada, and specically, not less than the ten-year limitation period that British Columbia and Qubec currently apply to the enforcement of domestic awards rendered in those provinces. Otherwise Canada will be in breach of its obligations
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under Article III of the New York Convention by having imposed [a] substantially more onerous [condition] [] than [is] imposed on the recognition or enforcement of domestic arbitral awards. Article I of the New York Convention states: This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought []. Surely, the words state, contracting state and territory must mean something under the New York Convention, and surely the proper and good faith interpretation of the New York Convention as required by Article 31(1) of the Vienna Convention on the Law of Treaties (ie, in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose) requires that in Canada, contracting state means Canada and domestic arbitral awards means domestic awards rendered anywhere in Canada taken as a whole. The fundamental debate here is in no way affected by the presence of the so-called federal clause in the New York Convention. That rather awkwardly written provision does not really add anything to anything, and in any event, the respect for compliance with Article III is not something new that is being required of the provinces and territories of Canada today. The agreement to be bound by and the respect for the letter and spirit of the New York Convention were conrmed in 1986 when Canada ratied the New York Convention. In Shakespeares Hamlet, the protagonists tragic soliloquy ends with: Thus conscience does make cowards of us all, and thus the native hue of resolution is sick lied oer with the pale cast of thought, and enterprise of great pitch and moment with this regard their currents turn awry and lose the name of action. -- Soft you now, [] be all my sins remembered. Who knows what the cry for harmonisation in Canada for the recognition or enforcement of New York Convention awards will lead to in the years to come. Like many other controversial issues in this country, a reste voir.
Note * Admitted to practice law in Qubec, Ontario, Alberta, England and Wales.
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Edna Sussman*
SussmanADR LLC, New York
esussman@ sussmanadr.com
United States
Examining the enforceability of arbitration agreements in the context of bankruptcy proceedings
he increase in bankruptcy lings in the wake of the recent economic downturn and the conicting decisions in Europe as to the enforcement of arbitration clauses when bankruptcy intervenes prompt our interest in what happens to international arbitration agreements in the context of bankruptcy proceedings in the United States. As reported by the Ofce of Administration of the US Courts, in the 12-month period ending 30 June 2009, there was a 35 per cent increase in bankruptcy lings in the US compared to the 12-month period ending 30 June 2008.1 Business bankruptcy lings rose 63 per cent while non-business lings rose 34 per cent.2 Chapter 11 lings, pursuant to which debtors can reorganise their affairs, rose 91 per cent during that period.3 The bankruptcy ling of Elektrim in Poland generated conicting decisions in the Swiss and English courts as to the effect of a Polish law which invalidates arbitration agreements upon a bankruptcy ling and discontinues any pending arbitrations. Applying Swiss general conict of law principles, the Swiss court held that Polish law determines the effect of the bankruptcy on a Polish company.4 Under Polish law, upon bankruptcy Elektrim lost its capacity to be a party to an arbitration agreement; accordingly the Swiss court afrmed the decision of the arbitral tribunal seated in Switzerland that it had no jurisdiction over Elektrim.5 Addressing precisely the same issue in a London Court of International Arbitration (LCIA) arbitration that designated England as the seat of the arbitration, the English High Court decided the matter by reference to the EU Insolvency Regulation which directed the application of the law of the Member State in which that lawsuit is pending (Article 15 of the Regulation).6 Finding that this provision applies equally to suits pursued in arbitration as in court litigation, the court looked to English law, the place where the arbitration was pending. Since there is no provision under English law as there is under Polish law voiding an arbitration agreement upon the commencement of a bankruptcy proceeding,
the court afrmed the decision of the tribunal allowing the arbitration to proceed. In light of the bankruptcy ling statistics in the United States and these recent European decisions we review the principal cases that address what happens to arbitration agreements in the context of a bankruptcy proceeding in the United States. The short answer: it is difcult to predict.7 The tension between the underlying policies The US Federal Arbitration Act (FAA) provides that arbitration agreements shall be valid, irrevocable, and enforceable, save upon grounds as exist at law or in equity for the revocation of any contract.8 The Supreme Court has repeatedly stated that questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.9 To accomplish the goals of the FAA, namely the enforcement of private agreements to arbitrate and encouragement of efcient and speedy resolution, the courts must rigorously enforce agreements to arbitrate even if the result is piecemeal litigation, at least absent a countervailing policy manifested in another federal statute.10 A principal purpose of the Bankruptcy Code11 is to allow the bankruptcy court to centralise all disputes concerning all property of the debtors estate so that the reorganisation can proceed efciently, protecting creditors and reorganising debtors from piecemeal litigation and supporting the power of the bankruptcy court to enforce its own orders.12 The US Court of Appeals for the Second Circuit recognised the inherent tension between these statutes in commenting that there will be occasions where a dispute involving the Bankruptcy Code and the FAA present a conict of near polar extremes as bankruptcy policy exerts an inexorable pull towards centralization while arbitration policy advocates a decentralized approach towards dispute resolution.13 The US Supreme Court has emphasised that the preference for arbitration is
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particularly strong in the context of international agreements.14 However, in deciding whether a US bankruptcy court should defer to an arbitration agreement, the US courts have not differentiated between agreements that are wholly domestic and those that are international. As the court said in In Re of United States Lines, in addressing the question of arbitration in the context of a bankruptcy, the Arbitration Acts mandate may be overridden by a contrary congressional command even where arbitration is sought subject to an international arbitration agreement.15 The US courts apply the same analysis to both domestic and international arbitration agreements in the context of bankruptcy proceedings. The unpredictable conclusions of the courts In Shearson/American Express Inc v McMahon16 the Supreme Court discussed the question of how courts should review challenges to an arbitration clause where such challenge is based on an argument that the arbitration agreement should not be enforced because of the applicability of another federal statute. In that case the court addressed whether claims brought under 10(b) of the securities laws and under RICO must be sent to arbitration in accordance with the terms of an arbitration agreement. The court held that to overcome the federal policy favouring arbitration the burden is on the party opposing arbitration to show that Congress intended to limit or prohibit waiver of a judicial forum for a particular claim. The court said that this intent will be deducible from the statutes text or legislative history from an inherent conict between arbitration and the statutes underlying purpose.17 There is general agreement in the case law that there is no expression of a congressional intent to override the FAA in the text or legislative history of the bankruptcy laws, although as discussed below, this conclusion has been questioned. Accordingly, the third prong of the Supreme Court test, whether there is an inherent conict between arbitration and the statutes underlying purpose has been the test applied by the courts. The seminal decision applying this principle was issued by the US Court of Appeals for the Third Circuit in Hays and Co v Merrill Lynch Pierce Fenner & Smith Inc.18
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The court held that the trustee charged with administering the bankruptcy estates affairs is bound to arbitrate all of its claims that are derived from the rights of the debtor as of the commencement of the case but not bound to arbitrate other claims that are statutory rights created by the bankruptcy code.19 The court then considered whether, having found that the trustee is bound to arbitrate certain rights, the court had discretion to refuse to enforce the arbitration clause contractually provided for the enforcement of those rights. The court held that an arbitration clause should be enforced for a non-core proceeding unless it would seriously jeopardize the objectives of the [Bankruptcy] Code.20 Where a trustee seeks to enforce a claim inherited from the debtor in court, the court perceived no adverse effect on the underlying purpose of the Code from enforcing arbitration.21 The Hays decision has been cited often for the proposition that where a party seeks to enforce a non-core pre-petition contract claim derived from the debtor, a court does not have discretion to deny enforcement of an otherwise valid arbitration clause.22 As US courts generally begin the analysis of whether to compel arbitration in a bankruptcy proceeding by determining whether the proceeding is core or non-core, a brief explanation of that dichotomy is necessary. The core/non-core distinction had its genesis in the Supreme Court decision in Northern Pipeline Construction Company v Marathon Pipeline Company,23 in which the court struck down the provision of the 1978 Bankruptcy Act which gave broad powers to the bankruptcy courts. The court found that the statute vested authority in Article I bankruptcy courts to decide cases that, without party consent, constitutionally could only be heard by Article III courts. To address this issue, the US Congress in the amendments to the Bankruptcy Code in 1984 divided claims into core and non-core, giving bankruptcy judges authority to hear and determine all core proceedings arising under title 11 or arising in a case under Title 11.24 Non-core matters are only related to the bankruptcy proceeding. With respect to noncore matters the bankruptcy judges can only recommend ndings of fact and conclusions of law to the district court. The Bankruptcy Code provides a non-exclusive list of core proceedings.25 As the list is not exclusive, the courts have developed additional frameworks for the core/non-core analysis.26
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Extensive case law and confusion over the distinction between core and non-core has followed. Indeed, the difculties in deciding whether a matter is core or non-core has been described by one commentator as a most difcult area of constitutional law, in which the precedents are horribly murky, doctrinal confusion abounds, and the constitutional text is by no means clear.27 Following the Hays discussion of the issue of non-core disputes, the US Court of Appeals for the Fifth Circuit in In Matter of National Gypsum28 dealt with the question of how arbitration agreements in core proceedings should be handled. The court was urged to adopt a position that categorically nds arbitration of core proceedings to be inherently irreconcilable with the Bankruptcy Code. The Court refused to adopt this position, nding that doing so conates the inquiry required by McMahon and is too broad.29 The court stated that not all core proceedings are premised on provisions of the code that inherently conict with the FAA or jeopardise the objectives of the Bankruptcy Code. The court held that nonenforcement of an otherwise applicable arbitration provision turns on the underlying nature of the proceeding, ie, whether the proceeding derives exclusively from the provisions of the Bankruptcy Code and, if so, whether arbitration of the proceeding would conict with the purposes of the Code.30 The Second Circuit, in its decisions in In Re United States Lines, Inc31 and MBNA American Bank, N A v Hill,32 similarly concluded that arbitration of core proceedings does not necessarily conict with the Bankruptcy Code. Rather that determination requires a particularized inquiry into the nature of the claim and the facts of the specic bankruptcy.33 Some years later, in In Re Mintze,34 the Third Circuit claried its holding in Hays stating that the decision applied equally to core and noncore proceedings and that a review under the McMahon standard is required for both. The analysis as to the arbitration clause in bankruptcy proceedings thus raises both the complexity of deciding whether the proceeding is core or non-core and the complexity of deciding whether referring the proceeding to arbitration would jeopardise the objectives of the bankruptcy code. Complicating the situation even further, some courts have challenged the basic premise that the Bankruptcy Code does not itself evidence Congressional intent to override the FAA. For example, in In Re White
Mountain Mining Company35 the US Court of Appeals for the Fourth Circuit followed the precedents discussed above in reaching its holding. However, the court suggested that, at least with respect to core proceedings, it could be argued from the statutory text that in granting bankruptcy courts jurisdiction over core proceedings arising under title 11 Congress reveal[ed] a Congressional intent to choose those courts in exclusive preference to all other adjudicative bodies, including boards of arbitration, to decide core claims.36 Conclusion The case-by-case approach adopted by the courts and the difcult analysis required where the matter is not clearly core and integral to the bankruptcy has led to a lack of predictability and costly and timeconsuming litigation to determine whether a dispute will be arbitrated or resolved as part of the bankruptcy proceedings. Indeed the extensive litigation that can take place over the enforceability of arbitration clauses in bankruptcy proceedings in the United States can deprive the parties of the common goals of both legal regimes: efciency, speed, and avoidance of costs. Until such time as the US Congress or the Supreme Court step in to simplify the task and create a more predictable litmus test, there will be little certainty in many cases as to whether an arbitration agreement, domestic or international, will be enforced in a bankruptcy in the United States.
Notes * Edna Sussman, an arbitrator and mediator, is a principal of SussmanADR LLC and is the Distinguished ADR Practitioner in Residence at Fordham University School of Law. She chairs the Arbitration Committee of the Dispute Resolution Section of the American Bar Association and is the chair-elect of the Dispute Resolution Section of the New York State Bar Association. She serves on the arbitration and mediation panels of the ICDR, AAA, CPR, CEAC, WIPO, US ECR and FINRA and the mediation panels of the federal, state and bankruptcy courts in New York. She can be reached at esussman@ sussmanADR.com or though her web site www. SussmanADR.com. 1 Administrative Ofce of the US Courts, News Release 13 August 2009, available at: www.uscourts.gov/Press_ Releases/2009/BankruptcyFilingsJun2009.cfm. 2 Ibid. 3 Ibid. 4 Vivendi S A and Elektrim Telekomunikacja Sp v Deutsche Telekom AG, First Civil Law Department Zurich, decided on 31 March 2009, docket no. 4A_428.2008. arbitration NEWSLETTER MARCH 2010 189
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5 Ibid. 6 Jozef Syska, as Administrator of Elektrim S A and VivendiUniversal S A. [2009] EWCA Civ 677 decided on 9 July 2009 applying Council Regulation (EC) No 1346/2000 on Insolvency Proceedings. 7 For an overview on the subject, see 8 Norton Bankr L & Prac, 3d 169:4 (2009). 8 Federal Arbitration Act, which comprises Chapter 1 of Title 9, is codied at 9 U S C 1-16 (2000). See 2. 9 See eg, Gilmer v Interstate Johnson Lane Corp., 500 U S 20, 26 (1991). 10 Dean Witter Reynolds Inc v Byrd, 470 U S 213, 221 (1985). 11 11 U S C 101 et seq. 12 See eg, In Re United States Lines, 197 F. 3d 631, 640 (1999). 13 Ibid, at 640 (citations omitted). 14 Scherk v Alberto-Culver, 417 US 506, 520 (1974); Mitsubishi v Soler Chrysler-Plymouth Inc, 473 US 614, 639 (1985). For a discussion of the importance of arbitration in the context of international transactions, see Edna Sussman, Unintended Consequences of the US Arbitration Fairness Act Threaten US Business, 18 Am Rev of Intl Arb, 455 (2009). 15 In Re United States Lines, 197 F. 3d 631, 639 (1999). See also, Lindsay Bestereld, Parties to International Commercial Arbitration Agreements Beware: Bankruptcy Trumps Supreme Court Precedent Favoring Arbitration of International Disputes, 2006 J Disp Resol 273 (2006). 16 Shearson/American Express Inc v McMahon, 482 U S 220 (1987). 17 Ibid, at 227. 18 Hays and Co v Merrill Lynch Pierce Fenner & Smith Inc, 885 F.2d 1149 (1989). 19 Ibid, at 1154. 20 Ibid, at 1161. 21 Ibid.
22 For cases citing Hays for this proposition, see eg, In Re Crysen/Montenay Energy Co 226 F.3d 160, 166 (2d Cir 2000) (Bankruptcy courts generally do not have discretion to decline to stay non-core proceedings in favor of arbitration); In Re Electric Machinery Enterprises Inc, 479 F.3d 791 (11th Cir 2007). 23 Northern Pipeline Construction Company v Marathon Pipeline Company, 458 U S 50 (1982). 24 28 U S C 28 U S C 157. 25 Ibid, at 157 (b) (A)-(O). 26 See eg, the test applied by the Second Circuit in In Re U S Lines Inc, see note 15 above at 63 (whether a proceeding is core depends on whether (1) the contract is antecedent to the reorganization petition; and (2) the degree to which the proceeding is independent of the reorganization. Proceedings can be core by virtue of their nature if either (1) the type of proceeding is unique to or uniquely affected by the bankruptcy proceedings, or (2) the proceedings directly affect a core bankruptcy function). Other US circuit courts of appeal have their own variations. 27 Jason C Matson, Running Circles Around Marathon, The Effects of Accounts Receivable as Core or Noncore Proceedings in Article III Courts, 20 Emory Bankr Dev J, 451 (2004). 28 In Re Matter of National Gypsum, 118 F. 3d 1056 (5th Cir. 1997). 29 Ibid, at 1067. 30 Ibid. 31 In Re United States Lines, Inc, see note 15 above. 32 MBNA American Bank, N A v Hill, 436 F.3d 104 (2d Cir 2006). 33 Ibid, at 108. 34 In Re Mintze, 434 F.3d 222 (3d Cir 2006). 35 In Re White Mountain Mining Company, 403 F.3d 164 (4th Cir 2005). 36 Ibid, at 168.
James M Hosking
Third-party funding update: New York court narrowly applies champerty law while Florida court holds investors can be liable for costs
Chaffetz Lindsey LLP, New York

james.hosking@ chaffetzlindsey.com
T
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hrough third-party funding, an entity underwrites all or some of the costs associated with litigation or arbitration, typically in exchange for a share of any successful outcome. Perhaps because of the presence of an active plaintiffs bar and the availability of contingency fees, this model has been slow to take root in the US. However, this initial reticence to embrace third-party funding seems to be waning.1 Moreover, international arbitration cases are seen as particularly well-suited to the nancial products available today. Those watching developments in the US will be interested to note two recent cases that
provide relatively rare judicial commentary on third-party funding. While both decisions arose from litigation matters, they should also provide useful signposts in the international arbitration context.2 Love Funding: An assignment of rights does not violate the doctrine of champerty where the acquirer has a pre-existing proprietary interest in the subject matter of the claim The recent opinion by the New York Court of Appeals in Trust for the Certicate Holders of the Merrill Lynch Mortgage Investors, Inc
Andreas A Frischknecht
Chaffetz Lindsey LLP, New York
andreas.frischknecht@ chaffetzlindsey.com
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Mortgage Pass-Through Certicates v Love Funding Corp3 focuses on a challenge to the validity of the assignment of a claim in the context of purchasing distressed debt. In addressing that issue, the states highest court also commented on the scope of New Yorks statute codifying the old English common law doctrines of maintenance and champerty. That statute, in summary, provides that a corporation or association may not solicit, buy or take an assignment of, or be in any manner interested in buying or taking an assignment of . . . any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon.4 Background on maintenance and champerty Maintenance has been dened as assistance to a litigant in pursuing or defending a lawsuit provided by someone who does not have a bona de interest in the case,5 while champerty is a form of maintenance that involves the unlawful maintenance of a suit in consideration of a bargain for some part of the thing involved.6 The rules governing champerty vary signicantly from state to state within the US, ranging from an outright prohibition on champertous arrangements,7 to the application of a narrower form of the champerty doctrine,8 to outright abolition of the traditional champerty defence.9 In some states, entering into a champertous relationship may even be a criminal offence.10 In the specic context of third-party funding, some courts have explicitly held that litigation funding arrangements do not run afoul of state champerty law,11 while others have reached the opposite conclusion.12 A few have also attempted to regulate certain forms of litigation funding.13 In any event, anyone contemplating such an arrangement must analyse the specic state laws and local attorney rules of professional conduct.14 The dispute in Love Funding The case arose out of a dispute between a trust representing certain Merrill Lynch investors (the Trust) and Love Funding Corporation (Love Funding), a mortgage loan originator. Pursuant to an April 1999 Mortgage Loan Purchase Agreement (MLPA) between Love Funding and Paine Webber, Love Funding arranged a US$6.4 million mortgage loan (the Arlington Loan) in July 1999. As part of a larger package of
loans, Paine Webber subsequently sold the Arlington Loan to Merrill Lynch in November 1999. The loans were then pooled, securitised and sold to investors, and Merrill Lynch assigned all of its rights to the Trust. In 2002, the Trust demanded that UBS (which had since acquired Paine Webber) repurchase a number of loans, including the Arlington Loan, that had been negatively impacted by defaults. The parties subsequently engaged in lengthy litigation before settling their dispute in September 2004. As part of the settlement, UBS assigned to the Trust all of its rights against Love Funding pursuant to the original MLPA with Love Funding. The Trust then sued Love Funding under the original MLPA. Following a bench trial, the federal trial court judge ruled in Love Fundings favour that the assignment of UBSs claims against Love Funding to the Trust violated New Yorks champerty statute.15 In short, the court concluded that the champertous nature of the assignment was evidenced, inter alia, by: (i) the Trusts belief that it could recover more in a lawsuit against Love Funding than by pursuing a cash settlement with UBS; and (ii) the possibility that, pursuant to the Love Funding MLPA, the Trust might seek indemnication for UBSs legal fees incurred in litigating against the Trust.16 The critical issue is the purpose behind the acquisition of rights that enabled the acquirer to bring suit On appeal,17 the US Court of Appeals for the Second Circuit (the Second Circuit) determined that the case presented issues that were not clearly answered by established New York precedent and therefore certied the following questions to the New York Court of Appeals:18 (1) whether New Yorks champerty statute applies only to transactions where the assignees sole purpose is to engage in champerty, or whether it also applies where champerty is the assignees primary purpose; (2) whether a party commit[s] champerty when it buys a lawsuit that it could not otherwise have pursued if its purpose is thereby to collect damages for losses on a debt instrument in which it holds a preexisting proprietary interest;
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(3)(a) whether a party commit[s] champerty when, as the holder of a defaulted debt obligation, it acquires the right to pursue a lawsuit against a third party in order to collect more damages through that litigation than it had demanded in settlement from the assignor; and (3)(b) whether the answer to question 3(a) [is] affected by the fact that the challenged assignment enabled the assignee to exercise the assignors indemnication rights for reasonable costs and attorneys fees. The Court of Appeals answered questions 2, 3(a) and 3(b) in the negative and determined that it was unnecessary to answer the rst question. In declining to answer the rst question, however, the Court agreed with the Second Circuit that the question of whether champerty was the assignees sole or merely primary interest in entering into the transaction was, at least in this case, not critical. Instead, the critical issue was the purpose behind [the Trusts] acquisition of rights that allowed it to sue Love Funding.19 In this respect, [i]f, as a matter of fact, the Trusts purpose in taking assignment of UBSs rights under the Love [Funding] MLPA was to enforce its rights, then, as a matter of law, given that the Trust had a preexisting proprietary interest in the loan, it did not violate the champerty statute.20 In accordance with the Court of Appeals opinion, the Second Circuit has since remanded the case to the district court for entry of judgment in favour of the Trust and a calculation of damages, concluding as a matter of law that the trial record does not permit the Trusts acquisition of UBSs rights under the Love MLPA to be held champertous in violation of New York Judiciary Law 489(1).21 In reaching the conclusion that UBSs assignment of rights to the Trust did not violate New Yorks champerty statute, the Court of Appeals summarised the historical background to the New York champerty statute, emphasising its narrow scope.22 The court referred to the doctrine of champerty as being limited in scope and largely directed toward preventing attorneys from ling suit merely as a vehicle for obtaining costs.23 According to the court, the statute still prohibits the purchase of claims with the intent and purpose of bringing an action [such] that [the purchaser] may involve parties in costs and annoyance, where such claims would not be prosecuted if not stirred
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up.24 While identifying such a scenario is likely to be fact-intensive, the court was unequivocal that the champerty statute does not apply when the purpose of an assignment is the collection of a legitimate claim.25 On its face, the Court of Appeals opinion further shrinks the reach of the champerty doctrine. Abu-Ghazaleh v Chaul: Non-party investor can be liable for attorneys fees and costs While funders may take heart from the Love Funding decision, a 2 December 2009 Florida state appellate court ruling may strike a raw nerve. In Abu-Ghazaleh v Chaul,26 the District Court of Appeal for the Third District reversed the trial court to nd that an investor who had funded an unsuccessful litigation could be liable for attorneys fees and costs. The case was remanded to determine the amount of the award. The underlying litigation arose from a dispute in which shareholders of a Mexican corporation brought suit against the purchasers of two of the Mexican companys subsidiaries, alleging that the purchasers had committed civil theft. A jury eventually returned a verdict in favour of the defendants. As a result of collateral litigation in New York, the successful defendants discovered that the plaintiffs claim was being funded by a Mr van Diepen and CSI Financial Investments Company, Inc (the Investors). The defendants then led motions for recovery of attorneys fees and costs, as permitted under the relevant Florida statutes, against the unsuccessful plaintiffs and also the Investors. The trial court denied the motion. The appellate court reversed the trial court,27 holding that the Investors, although not named as parties to the litigation, were still parties for purposes of the statutes because on the face of the investment agreement, they nanced and controlled the litigation. Specically, the Investors stood to receive a percentage of any award and reimbursement of expenses. Moreover, they had to approve ling the lawsuit, selecting counsel, retaining witnesses and payment of counsels bills. The Investors also had the power to veto any settlement offer. The court thus found that the Investors had such control as to be entitled to direct the course of the proceedings, and were therefore to be treated as part[ies] to the suit28 for purposes of awarding costs.
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What do these cases mean for the future of third-party funding? The Love Funding decision can be read as applying only to the specic scenario of assigning claims in the context of buying and selling distressed debt. Moreover, its precedential value may be further circumscribed by the courts focus on a situation in which the assignee has a preexisting proprietary interest in the underlying subject matter of the claim (although the subject matter of the claim here was extended to the Arlington Loan and not just the Love Funding MLPA). Therefore, depending on the specic structure employed, the case should have no direct bearing on most forms of pure litigation funding. Nevertheless, the opinion is signicant as a pronouncement by New Yorks highest court that the champerty statute should be construed narrowly and not so as to interfere with the assignment of a right to collect on a legitimate claim. Similarly, the impact of the courts opinion in Abu-Ghazaleh may be limited to the context of statutory awards of attorneys fees and costs in the Florida courts. Such awards are rare in the US, and professional funders (unlike the Investors in Abu-Ghazaleh) are unlikely to underwrite a claim that is so weak as to result in a costs award. Interestingly, however, the issue of whether third-party funders should be liable for costs has already been grappled with in non-US jurisdictions where costs awards are more common. The English Court of Appeals, for example, opined in 2005 that in certain circumstances, a litigation funder may be held liable for costs to the extent of the funding provided.29 There, too, the degree of control the funder exercised over the litigation was held to be an important consideration in determining potential costs liability. As the third-party funding market matures in the US, there will undoubtedly be more judicial attention given to such arrangements. In the meantime, cases like Love Funding and Abu-Ghazaleh provide useful guidance on the direction in which the law is developing.
Notes 1 See, eg, Jonathan D Petrus, Legal and Ethical Issues Regarding Third-Party Litigation Funding, Los Angeles Lawyer 16 (November 2009); Anne Urda, Legal Funding Gains Steam But Doubts Linger, Law360 (27 August 2008). 2 To date, it appears that there are no reported cases in which a US court has had to address any challenge
to an arbitration award that is the product of a third party-funded claim. But see Fausone v US Claims, Inc, 915 So.2d 626 (Fla Ct App 2d Dist 2005) (upholding conrmation of arbitration award in favour of litigation funders claim for recovery of unpaid amounts under funding agreement). 3 13 N Y.3d 190, 2009 WL 3294928, N Y Slip Op 07323 (N Y, 15 October 2009) (hereafter Love Funding). 4 N Y Judiciary Law 489(1). 5 Rancman v Interim Settlement Funding Corp,99 Ohio St.3d 121, 123, 789 N E.2d 217, 219 (Ohio 2003). 6 Coopers & Lybrand v Levitt,384 N Y S.2d 804, 807 (N Y App Div 1st Dept 1976). 7 See, eg, Rancman, 99 Ohio St.3d at 125, 789 N E.2d at 221 (Except as otherwise permitted by legislative enactment or the [Ohio] Code of Professional Responsibility, a contract making the repayment of funds advanced to a party to a pending case contingent upon the outcome of that case is void as champerty and maintenance.) (but subsequent legislation permits certain forms of litigation funding);Schwartz v Eliades,113 Nev 586, 589, 939 P.2d 1034, 1036(Nev 1997) (To maintain the suit of another is now, and always has been, held to be unlawful, unless the person maintaining has some interest in the subject of the suit.) (quoting Lum v Stinnett, 87 Nev 402, 408, 488 P.2d 347, 350 (Nev 1971)). 8 See, eg, Odell v Legal Bucks, LLC,192 N C App 298, 309, 665 S E 2d 767, 775(N C Ct App 2008) ([North Carolina] Courts have held for at least a century that an outsiders involvement in a lawsuit does not constitute champerty or maintenance merely because the outsider provides nancial assistance to a litigant and shares in the recovery. Rather, a contract or agreement will not be held within the condemnation of the principle[s] ... unless the interference is clearly ofcious and for the purpose of stirring up strife and continuing litigation.) (internal quotation omitted, alteration in original). 9 See, eg, Osprey, Inc v Cabana Ltd. Pship, 340 S C 367, 382, 532 S E.2d 269, 277(S C 2000) ([W]e abolish champerty as a defence. We are convinced that other well-developed principles of law can more effectively accomplish the goals of preventing speculation in groundless lawsuits and the ling of frivolous suits than dated notions of champerty.); Saladini v Righellis,426 Mass 231, 235, 687 N E.2d 1224, 1226-27(Mass 1997) (We . . . no longer are persuaded that the champerty doctrine is needed to protect against the evils once feared: speculation in lawsuits, the bringing of frivolous lawsuits, or nancial overreaching by a party of superior bargaining position. There are now other devices that more effectively accomplish these ends.). 10 See, eg, Maine Rev Stat Ann 516 (2009); Mississippi Code Ann 97-9-11 (2009). 11 See, Anglo-Dutch Petroleum Intl, Inc v Haskell,193 S W.3d 87(Tex Ct App 1st Dist. 2006). 12 See, eg, Rancman, 99 Ohio St.3d, at 125, 789 N E.2d at 221 ([A] lawsuit is not an investment vehicle. Speculating in lawsuits is prohibited by Ohio law. An intermeddler is not permitted to gorge upon the arbitration NEWSLETTER MARCH 2010 193
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fruits of litigation.). 13 See, eg, Ohio Rev Code Ann. 1349.55 (2009) (permitting non-recourse litigation advances). 14 See, eg, N Y State Bar Assn, Comm on Profl Ethics, Op 769, at *2-3, 2003 WL 23099781 (2003) (attorneys are permitted to negotiate agreements with litigation-funding companies on behalf of their clients in personal injury matters, provided that the agreements are legal under New York law and the attorney discloses potential conicts of interest and threats to the attorney-client privilege, and provided that the attorney either disclaims any endorsement of the litigation funding arrangement or alternatively advise[s] the client of the costs and benets of the proposed transaction, as well as possible alternative courses of action). 15 Trust for Certicate Holders of Merrill Lynch Mortg Investors, Inc v Love Funding Corp,499 F Supp.2d 314 (SDNY 2007). 16 Ibid, at 322-323. 17 Trust for Certicate Holders of Merrill Lynch Mortg Investors, Inc v Love Funding Corp, 556 F.3d 100 (2d Cir 2009). 18 The procedure by which the federal appellate court can certify questions of law to the New York Court of Appeals is invoked only rarely. See NY Constitution, Article VI, 3(b)(9) and 22 NYCRR 550.27. 19 Love Funding, 13 N Y.3d at 198. 20 Ibid, at 202.
21 Trust for Certicate Holders of Merrill Lynch Mortg Investors, Inc v Love Funding Corp, --- F.3d ---, 2010 WL 59276, *7 (2d Cir 11 January 2010). 22 Ibid, at 199. 23 Ibid, at 199 (citing Bluebird Pnrs, L P v First Fidelity Bank N A, 94 N Y.2d 726, 734 (N Y 2000)). 24 Ibid, (citing Wightman v Catlin, 98 N Y S 1071, 1074 (N Y App Div 2d Dept 1906)). 25 Ibid, at 201. 26 Abu-Ghazaleh v Chaul, Nos 3D07-3128, 3D07-3130, 2009 WL 4283085 (Fla Ct App 3d Dist 2 December 2009). 27 The appellate court found that the Investors could be liable under the general Florida statute for recovery of attorneys fees and under the civil theft statute. Ibid, at *2-3. But it further found that the Investors had not been served with an offer of judgment to be held liable under that statute. Ibid. The appellate court also declined to reverse the trial courts denial of defendants motion for discovery to investigate the extent of the Investors involvement in the litigation, as there was already adequate information regarding this issue on the face of the agreement by which the investment was made. Ibid. 28 Ibid, at *2 (citing Visoly v Security Pac Credit Corp, 768 So.2d 482, 489 (Fla Ct App 3d Dist. 2000) (holding that shareholders of, and counsel to, a party could fall within the statute)). 29 Arkin v Borchard Lines Ltd & Ors (No. 3) [2005] EWCA 655 (Eng C A).
Baiju S Vasani
Aurelis Capital Partners, LP v The Republic of Argentina: A further step in our understanding of the Foreign Sovereign Immunities Act
against Argentina based on breaches of the bondholder agreements. However, as a consequence of the strictures of the United States Foreign Sovereign Immunities Act (FSIA),3 early enforcement attempts were unsuccessful because they attempted to seize property that was immune from execution under the [FSIA] or property that did not belong to the Republic.4 On 21 October 2008, Argentine President Cristina Fernandez de Kirchner announced that the countrys retirement system would be restructured. In broad terms, from 1993 until 2008, Argentinas social security system had been bifurcated into a government-run plan called the Distribution System and a private plan called the Capitalisation System. Under the Capitalisation System, Argentine workers contributed funds to individual accounts administered by private corporations who issued payments and benets to the workers in exchange for management fees. Some of the Capitalisation System funds were held in
Crowell & Moring LLP, New York

bvasani@crowell.com
Daniel Ginzburg
Crowell & Moring LLP, New York
dginzburg@crowell.com
n 15 October 2009, the United States Court of Appeals for the Second Circuit handed down its decision in Aurelius Capital Partners, LP v The Republic of Argentina,1 in a longrunning dispute between the Republic of Argentina and Argentine debt bondholders.2 The case has signicant implications in the areas of sovereign debt default and the enforcement of judgments and arbitral awards against states, including investor-state arbitral awards. The Argentine pension system In 2001, in the midst of an infamous nancial crisis, Argentina defaulted on debt payments to an assortment of bondholders. Because Argentina had waived its sovereign immunity in order to entice potential purchasers to acquire Argentine debt instruments in the rst place, many of the bondholders obtained United States court judgments
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New York, where the administrators invested the assets to grow the pool of benets. In 2007, the Argentine Congress decided to allow Capitalisation System participants to switch to the government-run Distribution System. As part of that decision, the Congress created the Sustainability Guarantee Fund (SGF), which received and administered the funds of workers who had switched from the Capitalisation System to the Distribution System. The law that established the SGF explicitly stated that its assets could be used solely for the purpose of providing social security benets. Then, on 21 October 2008, a proposal was made in the Argentine National Congress to re-unify the Distribution System and the Capitalisation System and to transfer all Capitalisation System funds to the SGF. This law, too, expressly provided that the SGF funds could only be used for the benet of Argentine workers. The bondholders obtain a district court order blocking the repatriation of pension funds to Argentina On 29 October 2008, ruling on a motion by bondholders Aurelius Capital Partners and Blue Angel Capital to authorise United States Marshals to serve writs of execution regarding the pensions funds, Judge Griesa of the United States District Court for the Southern District of New York instead issued an order blocking the repatriation of all Capitalisation System funds in the United States some US$200 million. The following month, plaintiffs in 72 other actions obtained various forms of orders preventing the release of the funds. The central theory behind the actions was that, based on the legislation enacted by the Argentine Congress, the funds would, for all intents and purposes, belong to the Argentine Government and, because the government had waived sovereign immunity, the plaintiffs would be able to execute their judgments against the funds. On 12 November 2008, the Republic of Argentina, as well as SGF and the private corporations, appearing on a limited basis as interested parties, moved before Judge Griesa to vacate the various orders obtained by the plaintiffs. They argued that: (i) it had no interest in the funds managed by the Capitalisation System or by the SGF; (ii) the SGF is an agency or instrumentality separate from the government, and its assets cannot be seized by the governments creditors; and
(iii) the property managed by the private corporations is used for a non-commercial purpose, ie, pension benets, and cannot, pursuant to the FSIA, be seized by creditors.5 For their part, the bondholders contended that the proposed measures sought to nationalise the private social security system and/or that the funds would be used primarily to purchase securities issued by Argentina. In either case, all funds previously managed by the private corporations would become the property of the government and turn out to be accessible to creditors because they were being used for a commercial activity, which is expressly exempted from the sovereign immunity afforded by the FSIA.6 Without ruling on the parties arguments, the District Court maintained the status quo and directed the parties to engage in discovery for the purpose of determining, inter alia, the interrelationship between the government, the newly restructured social security system and the use made of the social security funds.7 On 9 December 2008, the proposed legislation was enacted into law and mandated that funds previously administered by private corporations be transferred to the SGF. The new law further provided that the funds could only be used to make social security payments, and the funds invested only in Argentine securities. Two days later, the District Court issued an order granting writs of execution to the bondholders. Judge Griesa found that the SGF was a political subdivision of Argentina and, by virtue of its waiver of sovereign immunity, Argentinas assets were subject to attachment and execution. The court also determined that the funds were being used for a commercial activity in the United States because they were invested with the private corporations in the hope of turning a prot and because the transfer to the SGF was taken primarily to benet Argentina, ie, to use the funds for various governmental purposes, not necessarily related to social security.8 The Second Circuit reverses and nds the SGF funds are not subject to attachment and execution On appeal by the Argentine Republic, the Second Circuit reversed the District Court attachment orders and released the SGF funds. The court summarised United States law on the attachment of sovereign funds. As a general matter, United States
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property of a foreign state is immune from attachment unless it ts within one of the limited exceptions provided by the FSIA. The exception applicable here authorises attachment and execution against sovereign property located in the United States only when the property is used for a commercial activity in the United States.9 The court rst held that the FSIA requires that the property in the United States: (i) belongs to a foreign state; and (ii) has been used for a commercial activity at the time of the attachment. Distinguishing the situation of SGF, the court noted that the FSIA does not contemplate attachment of foreign property that will be used or could potentially be used for a commercial activity. Thus, the court found that, although the parties had focused their brieng on the interrelationship between Argentina and the SGF, the primary issue was whether the attached funds were being used for a commercial activity in the United States on the effective date of the Argentine laws decreed transfer of the funds from the private Capitalization System to the SGF.10 The court recited the language of the statute, which states: The property in the United States of a foreign state has to be used for a commercial activity in the United States (emphasis added). The court noted that none of the parties suggested that the managing corporations were acting on behalf of Argentina. In the courts opinion, before the funds could be subject to attachment, they had to have been used for a commercial activity while in the hands of the Republic. However, the mere transfer to a governmental entity of legal control over an asset, was held not to constitute a commercial activity under the FSIA. Therefore, the Second Circuit held that the District Court abused its discretion when it issued the attachment orders.11 The Second Circuit declined to decide factual issues related to whether: (i) the SGF is an entity separate from Argentina; (ii) the disbursement of social security payments qualies as commercial activity; and (iii) the District Court acted properly in issuing the attachment orders while the funds were still in control of the private corporations. The ramications for judgment holders and potential litigants The Second Circuits decision undoubtedly puts a damper on distressed bondholders
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(and potentially other plaintiffs) possibility of recovery against the Republic of Argentina in the foreseeable future. Indeed, the Second Circuit noted that it understood the frustration of the plaintiffs who are attempting to recover on judgments they have secured.12 Nevertheless, the court felt compelled to enforce the terms of the FSIA. This decision may affect successful claimants in cases against the Republic of Argentina under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID). There are currently 28 ICSID cases pending against the Republic of Argentina (out of 121 total pending ICSID cases), along with over a dozen other cases in which nal awards have been issued. Up to this point, Argentina has steadfastly refused to honour ICSID awards against it.13 The ICSID Convention provides for the automatic enforcement of ICSID awards in the territories of the Conventions signatories.14 In the United States, for example, under the statute that implements the ICSID Convention, 22 U S C 1650a, ICSID awards have the same status as a decision of a court of general jurisdiction of a US state and must be given full faith and credit throughout the United States.15 Had the Second Circuit upheld the decision of the District Court, holders of nal ICSID awards could have sought enforcement of these awards through the self-sustained mechanism of enforcement under the ICSID Convention and United States law. Now, however, these parties are forced back to the drawing board in their search for recoverable Argentine assets.
Notes 1 Judges Walker and Wallace (9th Circuit, sitting by designation), who were in agreement, rendered the decision. The third member of the original panel, Justice Sonia Sotomayor, was elevated to the Supreme Court on 8 August 2009. 2 All references are to Aurelius Cap Partners, LP v The Republic of Argentina, 584 F.3d 120 (2d Cir 2009). 3 28 U S C 1602. 4 Aurelius Capital Partners, 584 F.3d at 124 (citations omitted). 5 Ibid, at 125-26. 6 Ibid, at 125. 7 Ibid, at 126. 8 Ibid, at 126-27. 9 Ibid, at 130. Parenthetically, the FSIA applies regardless of whether, as here, the sovereign has waived its immunity. This requirement follows clearly from a plain reading of the statute, which states that not only does the sovereign have to possess property
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in the United States, but also that a United States court must nd that it is used for commercial activity at the time that the writs of execution are issued. Ibid.; see also 28 U S C 1610(a). 10 Aurelius Capital Partners, 584 F.3d at 130. 11 Ibid, at 131.
12 Ibid, at 132. 13 See Argentina seeks diplomatic exit from ICSID suits, 12 October 2007 at: www.bilaterals.org/article. php3?id_article=9950. 14 See ICSID Convention Article 54(1). 15 See 22 U S C 1650a.
Nancy M Thevenin*
Baker & McKenzie, New York
nancy.m.thevenin@ bakernet.com
Increasing efciency in international arbitration: use of common law dispositive motions
John A Basinger
Baker & McKenzie, New York
john.a.basinger@ bakernet.com
hile much has been said about the litigisation of international commercial arbitration, it is undeniable that the process of arbitration has beneted from tools employed in common law litigation. Take, for example, the pretrial or prehearing conference and order, or the cross-examination of witnesses. One such tool, which has not been widely adopted, but perhaps should be, is the use of dispositive motions, such as motions to dismiss, for summary judgment or judgment as a matter of law (also known under US law as a motion for a directed verdict). In common law, motions to dismiss are based on the legal sufciency of the plaintiffs pleading, and motions for summary judgment are granted on the parties submissions where the judge decides that, based on those submissions, judgment should be granted purely as a matter of law for one of the parties. A directed verdict or a trial motion for judgment as a matter of law, on the other hand, is granted during the trial where one of the parties fails to meet its burden of proof. Most practitioners would agree that if a case can be decided on the parties submissions, then it would be efcient and cost-effective for the parties if the case were decided on that basis, without requiring a nal evidentiary hearing. While many international arbitral rules provide for the ability to decide a case on the parties written submissions (see, eg, LCIA Arbitration Rules Article 19.1 and ICC Arbitration Rules, Article 20(6)), the difference between those provisions and dispositive motions in litigation is that in common law litigation practice, either party can request a dispositive ruling on their submissions even if the other party objects, ie, requests a trial. If a case can be decided on a dispositive ruling, then requiring the parties to prepare for and participate in a nal hearing is wasteful and inefcient. Nevertheless, many
arbitrators are reluctant to terminate a case before a nal hearing, particularly over the objection of one of the parties. This reluctance stems from fears that the resulting award may be vulnerable to attack under Article V of the New York Convention. That is, the losing party may argue that it did not get an opportunity to present its case. Such fears have led to several inefciencies in the process, for which arbitration has been criticised. This is one of the reasons for the oft-heard recommendation for proactive arbitrators. This article will discuss the relatively recent trend of several arbitral rules and statutes to provide for the summary disposition of claims and examine a recent case in which this mechanism was successfully employed. Rule 18 of the JAMS Comprehensive Arbitration Rules and Procedures provides that [t]he Arbitrator may permit any Party to le a Motion for Summary Disposition of a particular claim or issue, either by agreement of all interested Parties or at the request of one Party, provided other interested Parties have reasonable notice to respond to the request. A similar provision was adopted in section 15(b) of the Revised Uniform Arbitration Act,1 which provides that [a]n arbitrator may decide a request for summary disposition of a claim or particular issue if all interested parties agree; or upon request of one party to the arbitration proceeding if that party gives notice to all other parties to the proceeding, and the other parties have a reasonable opportunity to respond. JAMSs International Arbitration Rules, Article 20.3, omits express reference to summary disposition, providing simply that [t]he Tribunal may in its discretion . . . direct the parties to focus their presentations on issues the decision of which could dispose of all or part of the case. The ICDRs International Arbitration Rules have the same provision in Article 16(3). Notwithstanding the lack
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of express reference to summary disposition in the JAMS International Arbitration Rules and the ICDRs International Arbitration Rules, arbitrators and courts have found those rules, and others in international arbitration, sufcient to permit summary disposition, even over the objections of a party.2 While not advocating for the take-noprisoners approach often attributed to US-style litigation or its extensive motion practice, undoubtedly, international arbitration can benet from the controlled use of a procedure, such as that of motions for summary disposition, with the aim of expediting the resolution of these disputes when it is appropriate to do so. One example of a recent case in which an arbitrator used summary disposition is in Matthew v Papua New Guinea, ICDR Case No 50 145 T 00332 06 (led 1 August 2006). In that case, the Claimant, Michael Z Matthew, initiated arbitration proceedings against the Independent State of Papua New Guinea (PNG) under the ICDRs International Arbitration Rules. The proceedings were held before a sole arbitrator, Philip D ONeill, Jr. The governing law was New York and the place of arbitration was New York City. Notably, Matthew, counsel for both sides, and the arbitrator all those involved in the arbitration except for PNG were US nationals or residents familiar with US-style litigation practice. Though not ofcially labeled as such, the resolution of this case resulted from the use of motions for summary disposition on two separate occasions, effectively and quickly resolving a case that would have otherwise been unnecessarily expensive and time consuming for all involved. The claims Essentially, Matthew sought damages of US$50 million alleging that PNG had entered into a mandate by which Matthew was to be the sole representative to attract North American foreign direct investments in PNG through, inter alia, a proposed sovereign bond offering. Matthews compensation was to be in the form of a commission. It was undisputed that the bond offering did not take place. Nevertheless, Matthew asserted claims against PNG for breach of contract, or in the alternative, for compensation on the basis of quantum meruit. PNG sought summary disposition of the claim for breach of contract on the basis that
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the alleged mandate failed to comply with the provisions of New Yorks Statute of Frauds applicable to nancial intermediary contracts. Upon reviewing the parties submission on this point of law, the arbitrator issued a partial award dismissing the claim for breach of contract.3 In the Scheduling Order, the arbitrator directed the issuance of sworn witness statements and any exhibits to be relied upon in support of or as defence against Matthews remaining claim for quantum meruit. Importantly, Matthew was to present his afrmative case rst, with PNGs evidence to follow in sequential memorials.4 After receiving Matthews memorial and submissions, PNG sought summary disposition of the claim for quantum meruit based on the fact that Matthews proffered evidence included no competent evidence of the value of his alleged services, an essential element for a claim of quantum meruit under New York law.5 To establish the value of the services, Matthew relied exclusively on statements allegedly made by PNGs prime minister, contained in Matthews own afdavit.6 The arbitrator examined Matthews submissions and determined that the evidence submitted was wholly insufcient under the governing law to support a claim for quantum meruit. Consequently, the arbitrator issued a nal award dismissing Matthews case against PNG.7 Application for vacatur in US court Matthew petitioned the federal district court for the Southern District of New York to vacate the nal award, arguing that the arbitrators decision in advance of a formal hearing constituted misconduct by refusing to hear evidence pertinent and material to the controversy under 9 U S C 10(a)(3) and further constituted an act in manifest disregard of the law under 9 U S C 10. PNG counter-moved for an order conrming both the nal award and the interim award.8 The district court conrmed both awards, nding that the arbitrators resolution of the case on Matthews pleadings, without a nal hearing, did not deprive Matthew of a fundamentally fair arbitration process, as is required to vacate an award based upon an arbitrators failure to consider evidence.9 In this respect, the district court noted that the ICDRs Rules not only permitted the presentation of evidence in written form, they also permitted an arbitrator to conduct the
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arbitration in whatever manner he considers appropriate, provided that the parties are treated with equality and that each party has the right to be heard and is given a fair opportunity to present its case.10 Interestingly, in the nal award, the arbitrator analogised PNGs request for a nal award after the submission of Matthews brief, as a motion for a directed verdict in litigation.11 Matthew contended that the arbitrator had acted in manifest disregard of the law by misapplying the legal standard under US federal procedure for a directed verdict. The district court disagreed, nding that use of the term was by analogy only and that the standards applicable to a directed verdict were not required to be applied in an arbitration nor was there a showing that the arbitrator had outed any applicable legal principle.12 In analysing Matthews petition to vacate the nal award, the district court noted that the award made clear that the arbitrator had considered Matthews evidentiary submissions in making the nal award and concluded that Matthews evidence provided no basis for an award in his favour.13 Because Matthew had failed to demonstrate that the nal award reected arbitral misconduct or manifest disregard of applicable law, the district court conrmed the award. Conclusion If arbitration is simply another forum for deciding disputes, there is no clear reason why the mechanisms used in litigation to manage and streamline these proceedings cannot be used in international commercial arbitration. This is especially the case where a matter can be expeditiously resolved if the issues in dispute deal with clear legal principles, such as statute of frauds, statute of limitations, res judicata or collateral estoppel. A tool such as a motion for summary disposition is especially needed in investorstate disputes, where proliferation of these cases and the expense involved in prosecuting or defending these claims has led to further outcries against the inefciency inherent in requiring a case to go to a nal evidentiary hearing when certain dispositive issues could have been decided earlier. Partly for this reason, in 2006, the ICSID Arbitration Rules were amended to allow for the early determination of preliminary issues that can be dispositive of the case.14 To summarise, while aspects of US-style litigation, such as excessive discovery, can
indeed be blamed for contributing to some of the inefciencies currently seen in international commercial arbitration, we must be careful so as not to throw out the baby with the bath water. Some tools used in common law litigation specically, the ability to request dispositive rulings should and can be carefully tailored to help promote international arbitration as an efcient and effective means of resolving international commercial disputes.
Notes * Nancy M Thevenin is special counsel in Baker & McKenzies International Arbitration Practice Group and coordinates the practice group worldwide. John A Basinger is a partner in Baker & McKenzies New York ofce. He represented Papua New Guinea in Matthew v Papua New Guinea, No 09 Civ 3851 (LTS), 2009 US Dist LEXIS 117274 (SDNY 9 December 2009), discussed herein. 1 The Uniform Arbitration Act (UAA) was promulgated by the National Conference of Commissioners on Uniform State Laws (ULC) in 1955 and forms the basis of the arbitration law in most US states. The UAA did not have a provision allowing for the summary disposition of claims, but the Revised Uniform Arbitration Act (RUAA), promulgated by the ULC in 2000, includes one. As of 2009, thirteen (13) US states have adopted the RUAA and four (4) US states are considering its enactment. 2 See, eg, Matthew v Papua New Guinea, No 09 Civ 3851 (LTS), 2009 U S Dist LEXIS 117274 (SDNY, 9 December 2009) (conrming award on summary disposition under ICDR International Arbitration Rules as discussed below), appeal led (2nd Cir 6 January 2010); Intercarbon Bermuda, Ltd v Caltex Trading & Transp Corp, 146 F R D 64 (SDNY 1993) (conrming award on summary disposition without reference to particular arbitral rules); Grifn Indus, Inc v Petrojam, Ltd, 58 F.Supp.2d 212 (SDNY 1999) (conrming award on summary disposition under Society of Maritime Arbitrators, Inc Arbitration Rules). 3 See Matthew v Papua New Guinea, Interim Award, 6 August 2008, at 2-9. 4 See Matthew v Papua New Guinea, Final Award, January 16, 2009, at 1-2. 5 Ibid, at 2-6 6 Ibid, at 4. 7 See ibid. 8 Matthew v Papua New Guinea, No 09 Civ 3851 (LTS), 2009 U S Dist LEXIS 117274, at *3 (SDNY December 2009). 9 Ibid, at **9-10. 10 See ibid. 11 Ibid, at *9. 12 Ibid. 13 Ibid, at **9-10. 14 See Articles 41(3) and 41(5) of the ICSID Arbitration Rules.
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Arbitrators have the power to award fees and costs notwithstanding contractual provision providing that each party bear its own expenses
Phoebe A Wilkinson*
Chadbourne & Parke LLP, New York
pwilkinson@ chadbourne.com
n ReliaStar Life Insurance Co of New York v EMC National Life Co (ReliaStar), 564 F.3d 81 (2d Cir 2009), a US appellate court in New York afrmed an award for attorneys fees, arbitrators fees and costs as a sanction for failing to arbitrate in good faith, despite a provision in the underlying contract that each party would bear its own expenses. The court held that the contract provision at issue a version of the American Rule under which each party pays its own fees and costs applied only as long as the parties had conducted the arbitration in good faith. Once the arbitrators found that a party had failed to do so, they were free to assess fees and costs against that party in order to sanction it, as the contract provision did not explicitly proscribe such powers in the context of such a nding of bad faith. While the decision involved a domestic US arbitration seated in New York, it raises important issues for the international practitioner involved in New York arbitrations and potentially for disputes governed by New York law. Factual and procedural background At issue in ReliaStar were two identical coinsurance agreements between ReliaStar Life Insurance Company (ReliaStar) and EMC National Life Company, also known as National Travelers Life Company (National Travelers). Each contract specied that any disputes between the parties would be resolved by arbitration and that [e]ach party shall bear the expenses of its own arbitrator and related outside attorneys fees, and shall jointly and equally bear with the other party the expenses of the third arbitrator.1 The parties had agreed that any dispute would be resolved by New York law and, where applicable, the Federal Arbitration Act (FAA). National Travelers initiated arbitration proceedings in connection with its desire to terminate the agreements. ReliaStar opposed termination. In August 2006, following discovery and a two-week hearing, the arbitration panel entered an interim decision directing National Travelers to pay ReliaStar more than US$21 million past due under the coinsurance agreements. The majority of
the panel, without explanation, also awarded ReliaStar its attorneys fees, arbitrators fees and costs. Following further brieng by the parties, the panel issued a nal decision in October 2006, awarding ReliaStar US$3.2 million in fees and nearly US$700,000 in costs. The panel explained that it viewed National Travelers conduct in the arbitration as lacking good faith.2 The parties complied with all aspects of the award, except for the part that awarded ReliaStar fees and costs. ReliaStar petitioned a federal district court to conrm the nal arbitration award, and in response, National Travelers moved to vacate the portion of the award regarding fees and costs, arguing that the award exceeded the arbitral panels authority in light of the contractual provision in which each party had agreed to bear its own expenses. The lower court, the United States District Court for the Southern District of New York, agreed with National Travelers and vacated the part of the arbitration award that had directed National Travelers to pay ReliaStars fees and costs. ReliaStar appealed. The appellate decision In a 2-1 decision the United States Court of Appeals for the Second Circuit reversed the lower court and remanded with the direction that the lower court enter a new judgment conrming the arbitration award in all respects. The court reviewed whether the panels award of fees and costs exceeded the authority granted to it under the agreement, and determined it had not, for a number of reasons. First, the court found that the parties arbitration agreement was sufciently broad to confer equitable authority on the arbitrators, who have discretion to order such remedies as they deem appropriate,3 including to sanction bad faith. The court reasoned that such authority inheres in the comprehensive arbitral authority,4 even though the contract did not specically integrate Rule 43 of the Commercial Rules of the American Arbitration Association ([t]he arbitrator may grant any remedy or relief which the Arbitrator deems just and
Thomas N Pieper
Chadbourne & Parke LLP, New York
tpieper@chadbourne.com
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equitable within the scope of the agreement of the parties), or otherwise explicitly confer such authority.5 Next, the court analysed the contract provision in which each party had agreed to bear its own expenses to determine if the parties had intended to limit the panels authority to award fees and costs in the event the panel made a nding that a party had failed to conduct the arbitration in good faith. The court acknowledged that arbitrators may not exceed the power granted to them by the contract itself, but explained that the provision at issue restated the American Rule that each party would bear its own costs and fees, and pointed out that under New York law bad faith is a well-recognised exception to that rule.6 In addition, the court noted that under New York law there is a covenant of good faith and fair dealing implicit in every contract, and hence, the provision prohibiting fee-shifting applied only so long as the parties arbitrated in good faith. Despite the absence of any mention of good faith in the contract, or any other evidence of the parties intentions, the court held that the section at issue is fairly understood to reect the parties agreement as to how fees are to be borne in the expected context of good faith dealings.7 In conclusion, the court held that a more explicit statement would be necessary to manifest any intent to override the bad-faith exception to the American Rule and to preclude the arbitrators from awarding attorneys and arbitrators fees as a sanction for bad faith conduct.8 The court rejected National Travelers argument that the contract provision at issue would be superuous if it were merely a restatement of the American Rule. Instead, the court countered that parties might choose to reference the American Rule for many reasons that have nothing to do with the arbitrators sanction authority for example, as a clarication for arbitrators who come from jurisdictions employing the English Rule, under which a losing party can be directed to pay the arbitration fees and related costs.9 The court emphasised that as sophisticated commercial entities, the parties could have clearly stated their intention to exclude an award of fees and costs from the broad range of sanctions generally available to arbitrators upon an identication of bad faith. Having failed to do so, the parties were bound by the arbitrators award. In dissent, Judge Pooler argued that the arbitral award plainly contradicts an express
and unambiguous term of the contract. Specically objecting to the majoritys reference to an arbitrators inherent authority to sanction bad faith, the dissent noted that the majority was disregarding and contradicting a basic governing principle of arbitration law an arbitrators authority is circumscribed by the agreement of the parties a consensual arrangement meant to reect a mutual agreement to resolve disputes outside of the courtroom.10 The dissent concluded that the contract provision stating that each party would bear its own costs and fees fully divested the panel of the authority to award such fees and costs as a sanction for bad faith.11 Lessons learned for the international practitioner Although ReliaStar was a domestic arbitration, the reasoning and holding of the case could apply to an action seeking to vacate a New York international arbitration award, and potentially to any arbitration governed by New York law. As such, a New York court will likely uphold an arbitrators sanction for bad faith conduct, including attorneys fees, unless parties have clearly divested the arbitrator of such authority. If parties wish to limit an arbitrators authority to award fees as a sanction for bad faith, they must do so explicitly in their arbitration agreement. Of course, whether such a provision would be upheld could involve questions of public policy, and in any event might depend on the subject matter of the contract at issue, as, by way of example, New Yorks Uniform Commercial Code specically states that the obligations of good faith . . . prescribed in this Act may not be disclaimed by agreement .12 But even if the court would uphold such a limitation, is this a sound or realistic option? Removing from the arbitrator the potential sword of assessing sanctions against one side also eliminates the shield against bad faith conduct by the other side. Moreover, if parties limit an arbitrators ability to award attorneys fees as a sanction, what are (and what should be) the consequences when one party fails to arbitrate in good faith? As the ReliaStar majority noted, the underlying purposes of arbitration, ie, efcient and swift resolution of disputes without protracted litigation, could not be achieved but for good faith arbitration by the parties.13 ReliaStar is a reminder that careful consideration must be given to the substantive
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law of the contract, as well as the arbitral law of the seat of the arbitration, which would be the likely venue for any challenge to or enforcement of the award. This case should also be viewed in the context of decisions such as Hall Street Associates LLC v Mattel, Inc, 552 U S 576 (2008), which show that there are limits to what parties can contractually agree to in arbitration agreements.14 The parties may confer powers upon the arbitral tribunal only within the limits of the relevant laws.15 These laws, ie, the law governing the arbitration agreement and the law governing the arbitration itself (lex arbitri), may limit the arbitrators powers or broaden them.
Notes * The authors wish to thank Maureen K Schad for her assistance with this article. 1 ReliaStar, 564 F.3d at 84. 2 Ibid, at 85.
3 Ibid, at 86. 4 Ibid, at 87 no 2. 5 Ibid, at 87. 6 Ibid, at 88. 7 Ibid, (emphasis in the original). 8 Ibid, at 89. 9 Ibid, at 88. 10 Ibid, at 94 (citing InterChem Asia 2000 Pte Ltd v Oceana Petrochemicals AG., 373 F Supp 2d 340, 358 (S D N Y 2005)). 11 Ibid, at 90. 12 N Y U C C 1-102(3). 13 564 F.3d at 87. 14 In Hall Street, the United States Supreme Court held that the judicial review provisions of the FAA are exclusive and that parties are not free to draft an arbitration provision which purports to give federal courts a broader scope for review of arbitration awards than that set forth in the FAA. 15 See Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 5-04 (4th ed, 2004).
Ank Santens*
New Yorks Federal Court of Appeals addresses jurisdictional requirements for recognition and enforcement of New York Convention Awards
White & Case LLP, New York

asantens@whitecase.com
Damien Nyer
White & Case LLP, New York
dnyer@whitecase.com
question that has given rise to debate in the United States is whether a court asked to recognise or enforce an arbitral award under the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) must rst satisfy itself that there exists some basis for asserting jurisdiction over the award debtor or its property. The Due Process Clause of the US Constitution provides that no person shall be deprived of life, liberty or property without due process of law. In the area of civil litigation, US courts have interpreted this Clause to mean that jurisdiction can be maintained over a non-resident defendant (whether an individual or a corporation) only if that defendant has certain minimum contacts with [the forum] such that maintenance of the suit does not offend traditional notions of fair play and substantial justice.1 The issue is whether this constitutional jurisdictional requirement often referred to as the minimum contacts test is applicable in proceedings to recognise or enforce arbitral awards under the New York
Convention, given that Article V of the Convention sets out the grounds on which recognition and enforcement of a foreign arbitral award may be refused and does not list lack of jurisdiction.2 The majority of US courts that have grappled with this issue have concluded that the minimum contacts test does apply to proceedings under the New York Convention.3 However, the point was hitherto left unresolved in New York, because the highest federal court in the state the United States Court of Appeals for the Second Circuit (the Second Circuit) while noting the issue in a 2003 decision, had avoided resolving it.4 In the recent case of Frontera Resources Azerbaijan Corporation v State Oil Company of the Azerbaijan Republic,5 the Second Circuit has now conrmed the applicability of the jurisdictional due process requirement to proceedings to recognise and enforce arbitral awards under the New York Convention. However, the Second Circuit went on to hold that foreign states and their agents are not persons within the meaning of the Due Process Clause and cannot, therefore, raise lack of minimum contacts with the United States as a defence to recognition
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and enforcement of a New York Convention award. Facts The case arose out of a nancing and revenue sharing agreement (the Agreement) between Frontera Resources Azerbaijan Corporation (Frontera), an oil exploration company based in the Cayman Islands, and the State Oil Company of the Azerbaijan Republic (SOCAR), the national oil company of Azerbaijan. Pursuant to the Agreement, Frontera was to explore, develop, rehabilitate, and manage certain oil deposits in Azerbaijan, and to deliver and sell the produced oil to SOCAR. In 2000, a dispute arose regarding SOCARs payment obligations under the Agreement. Alleging that SOCAR had defaulted on certain payments, Frontera sought to sell oil outside of Azerbaijan. SOCAR instructed Azerbaijani customs authorities to stop Fronteras export of oil and seized the oil. Frontera commenced arbitration under the SCC Rules in Stockholm in accordance with the Agreement. SOCAR participated in the proceedings, and the arbitral tribunal issued a nal award in 2006, ordering SOCAR to pay US$1,240,784 plus interest. Frontera sought to enforce the award in the United States Court for the Southern District of New York (the SDNY). SOCAR resisted enforcement on the basis that, inter alia, the court lacked jurisdiction over it or its assets. Holding The SDNY held that it had to determine rst whether it had jurisdiction over SOCAR or its property, before it could analyse whether the award should be recognised and enforced pursuant to Article V of the New York Convention. The SDNY further held that it was required to examine whether exercising jurisdiction would comport with the Due Process Clause, for two reasons. First, while the Second Circuit had not yet resolved this issue, other federal courts of appeals had held that the minimum contacts analysis applied in the context of a petition to enforce an arbitral award under the New York Convention.6 Secondly, the Second Circuit had held in 1981 in Texas Trading & Milling Corp v Federal Republic of Nigeria7 that foreign states are entitled to the protections of the Due Process Clause, and this holding was binding on the SDNY.
To determine whether jurisdiction over SOCAR existed, the SDNY applied the minimum contacts test and examined whether SOCARs contacts with the United States were sufcient for it to exercise jurisdiction over SOCAR.8 Frontera argued that SOCAR had entered into several production sharing contracts with US oil companies and had received major funding from a bank syndicate including a US bank. The court concluded that these contacts were insufcient. The court then stated that, in the absence of minimum contacts, quasi in rem jurisdiction may be exercised over the defendants property in the forum to collect on an award.9 However, no such quasi in rem jurisdiction over SOCARs property existed, because Frontera could not point to specic assets of SOCAR within the jurisdiction over which the court could assert jurisdiction. Thus, the SDNY refused to enforce the award, on the basis of lack of jurisdiction over SOCAR or its assets. The Second Circuit reversed. The Second Circuit agreed with the SDNY that jurisdiction over the award debtor or its property is a prerequisite to the recognition or enforcement of an award under the New York Convention. The Court explained that Article V [of the New York Convention]s exclusivity limits the ways in which one can challenge a request for conrmation, but it does nothing to alter the fundamental requirement of jurisdiction over the party against whom enforcement is being sought.10 However, the Second Circuit went on to hold that foreign states are not entitled to the benets of the Due Process Clause. The court overruled its contrary holding in Texas Trading, recognising that since that decision in 1981 the case law in the US had marched in a different direction.11 Noting that the US Supreme Court had held that US states are not persons for purposes of the Due Process Clause, the Second Circuit explained that foreign states should not be in a more favourable position. Thus, foreign states cannot rely on the absence of minimum contacts with the United States to resist enforcement of a New York Convention award. SOCAR is not a sovereign state, however, but rather a corporation wholly owned by a foreign state. The Second Circuit held that, if the Azerbaijani Government exerted sufcient control over SOCAR to make it an agent of the state, then SOCAR lacked due process rights, like Azerbaijan.12 The
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court remanded the case to the SDNY for a determination in the rst instance as to (i) whether SOCAR is an agent of Azerbaijan (in which case it is not entitled to the protections of the Due Process Clause), and, if not, (ii) whether SOCAR, as a state-owned foreign corporation, is entitled to the protections of the Due Process Clause.13 Comments The Frontera decision is signicant in that it makes clear that, in New York and other states within the Second Circuit,14 lack of jurisdiction over the person or property of the defendant can be raised as a defence to recognition or enforcement of an award under the New York Convention, a point which the Second Circuit had hitherto left unresolved. This means that, in order to have a New York Convention award recognised or enforced by a federal court in New York, the award creditor will need either to show that the award debtor has certain minimum contacts with the United States or to point to specic assets in New York (eg, a bank account) out of which the award can be satised. This approach is in line with fundamental and long-established US principles on jurisdiction, decisions by other federal courts of appeals that have addressed the issue, and the recommendations in a report of the Association of the Bar of the City of New York.15 Yet eminent authors have suggested that such an approach might put the United States in violation of its treaty obligations under the New York Convention, which limits non-recognition/enforcement to a narrowly-drafted list of defences.16 To a foreign audience, this approach, which is at odds with the practice of other countries, may appear as an idiosyncrasy of US arbitration law.17 While signicant, the holding in Frontera that jurisdiction over the person or property of the defendant is required for the recognition and enforcement of a New York Convention award will not, in practice, lead to lack of recognition and enforcement in many cases. As noted, US courts have recognised two bases of jurisdiction that can satisfy the constitutional due process requirement. The rst is in personam jurisdiction based on the award debtors contacts with the forum. The second is jurisdiction quasi in rem based on the presence within the forum of assets of the award debtor against which the award can be enforced (without the need for a connection
204
between the assets and the dispute).18 In most cases, at least one of these tests is satised. In fact, one may wonder why a party would ever seek recognition or enforcement of an award in a jurisdiction where neither the award debtor nor its assets is present. One explanation is that the award creditor may expect that the award debtor will, at some point in the future, have assets in the jurisdiction. By obtaining early conrmation of the award, the award creditor would avoid a potential time bar the US Federal Arbitration Act imposes a three year statute of limitations that runs as of the making of the New York Convention award19 and would be ready to attach swiftly any future assets in the jurisdiction. Another explanation is that the award creditor may suspect that the award debtor already has assets in the jurisdiction and may hope to be able to locate those assets through jurisdictional or other discovery.20 Although not unreasonable in a major nancial centre such as New York, these courses of action are, for the reasons set forth in this note, not open to the award creditor under the current state of the law. The second aspect of the decision the denial of due process protection to foreign states was probably foregone. As noted, the US Supreme Court had held earlier that the several states of the United States are not persons for the purpose of the Due Process Clause and questioned whether foreign states were.21 Other courts considering the issue in recent years had taken the hint and found that the minimum contact analysis was not applicable to foreign states.22 The full implications of this aspect of the decision, which removes an important jurisdictional hurdle in proceedings against foreign states and thus further opens up New York courts to such proceedings, remain to be determined.
Notes * Ank Santens is a partner, and Damien Nyer an associate, in the International Arbitration Group of White & Case LLP. 1 Intl Shoe Co v Washington, 326 U S 310, 316 (1945) (quoting Milliken v Meyer, 311 U S 457, 463 (1940)). Once the court determines that adequate minimum contacts with the forum exist, it must then determine whether it is reasonable to exercise jurisdiction. Asahi Metal Industry Co, Ltd v Superior Ct of California, 480 U S 102, 113-14 (1987). 2 Article V reads: 1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and
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4 5
7 8 9
enforcement is sought, proof that: (a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. 2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought nds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country. See, eg, Telcordia Tech Inc v Telkom SA Ltd, 458 F.3d 172, 178-79 (3d Cir 2006); Glencore Grain Rotterdam B V v Shivnath Rai Harnarain Co, 284 F.3d 1114, 1121 (9th Cir 2002); Base Metal Trading v OJSC Novokuzmetsky Aluminum Factory, 283 F.3d 208, 212 (4th Cir 2002); and Base Metal Trading v OJSC Novokuzmetsky Aluminum Factory, 47 Fed.Appx. 73, 76 (3d Cir 2002). Dardana Ltd v A O Yuganskneftegaz, 317 F.3d 202, 20607 (2d Cir 2003). Frontera Resources Azerbaijan Corporation v State Oil Company of the Azerbaijan Republic, 2009 WL 3067888 (2d Cir 2009) (Frontera II). Frontera Resources Azerbaijan Corporation v State Oil Company of the Azerbaijan Republic, 479 F Supp 2d 376, 380 (SDNY 2007) (Frontera I) (citing to the cases listed in note 3 above). 647 F.2d 300 (2d Cir 1981). Frontera I, 479 F.Supp. 2d at 386-87. Ibid, at 387-388 (citing to a footnote in the US Supreme Courts landmark decision in Schaffer v Heitner, 433 U S 186 (1977) and a SDNY case which held, relying on the said footnote, that no minimum contacts analysis must be conducted in an action to recognise and enforce a New York Convention award based on quasi in rem jurisdiction, ie, on the presence in the forum of property out of which the award
can be satised. CME Media Enterprises B V v Zelezny, 2001 WL 1035138, at *3-*4 (SDNY 2001) (CME Enterprises)). 10 Frontera II, 2009 WL 3067888, at *4. 11 Ibid, at *5. 12 Ibid, at *6. 13 Ibid, at *7. 14 Connecticut and Vermont. 15 International Commercial Disputes Committee of the Association of the Bar of the City of New York, Lack of Jurisdiction and Forum Non Conveniens as Defenses to the Enforcement of Foreign Arbitral Awards (2005), www. nycbar.org/pdf/report/ForeignArbitral.pdf. Ms Santens has been a member of this Committee since 2007. She did not participate in the elaboration of the cited report, which was authored prior to her membership. 16 William W Park & Alexander A Yanos, Treaty Obligations and National Law: Emerging Conicts in International Arbitration, 58 Hastings L J 251, 255 (December 2006). 17 Note that the issue does not arise in most other countries because they do not generally require minimum contacts of the defendant or its property with the forum for the exercise of jurisdiction to decide a dispute on the merits. As a result, minimum contacts are a fortiori not required for the exercise of jurisdiction to enforce a judgment or award. 18 As set out in note 10 above, it appears that, in New York, no minimum contacts analysis must be conducted in an action to recognise and enforce a New York Convention award based on quasi in rem jurisdiction. In Frontera II, the Second Circuit did not take issue with this nding in Frontera I (though the Court, admittedly, did not explicitly endorse it). 19 9 U S C 207 (Within three years after an arbitral award falling under the [New York] Convention is made, any party to the arbitration may apply to any court having jurisdiction under this chapter for an order conrming the award as against any other party to the arbitration.). 20 Note that the lower court in Frontera specically held that it could not grant jurisdictional discovery where the award creditor sought to base its enforcement action on quasi in rem jurisdiction because it is the existence of property that provides the basis for [quasi in rem] jurisdiction, and in the absence of minimum contacts, the Court cannot exercise jurisdiction beyond the known assets based on petitioners speculation that other assets might exist. Frontera I, 479 F.Supp. 2d at 388 (citing to CME Enterprises, 2001 WL 1035138, at *5). 21 South Carolina v Katzenbach, 383 U S 301, 323-24 (1966) (States of the Union are not persons for purposes of the Due Process Clause.); Republic of Argentina v Weltover, Inc, 504 U S 607, 619 (1992) (assuming, without deciding, that a foreign state is a person for purposes of the Due Process Clause but referring to South Carolina v Katzenbach). 22 See, eg, Price v Socialist Peoples Libyan Arab Jamahiriya, 293 F.3d 82, 96 (D C Cir 2002).
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Bruce G Paulsen
Manifest disregard of the law after Hall Street Associates: considerations in the enforcement of international arbitration awards rendered in the United States
Seward & Kissel LLP, New York

paulsen@sewkis.com
Jeffrey M Dine
Seward & Kissel LLP, New York
dine@sewkis.com
n March 2008, the United States Supreme Court handed down its decision in Hall Street Associates, LLC v Mattel, Inc,1 holding that a provision in an arbitration agreement providing for judicial review of the arbitration award for error of law was not enforceable in a proceeding to vacate the award under the Federal Arbitration Act (FAA).2 The court held that sections 10 and 11 of the FAA, which list specic grounds for vacating or modifying an arbitration award, provide the exclusive grounds for judicial review of arbitration awards in such a proceeding. The decision immediately vitiated provisions in arbitration agreements providing for judicial review of errors of law by arbitrators where conrmation or vacatur is sought under the FAA.3 More broadly, it also threw into question the continued existence of the doctrine of manifest disregard of the law, under which United States courts may vacate an arbitration award in the limited circumstance where the arbitrator knowingly and actually ignores the law.4 The issue raised but not resolved by Hall Street is whether manifest disregard of the law is a judicially created grounds for vacatur (and thus invalid), or whether it is a shorthand expression for application of a statutory ground (and thus still available to US courts). Arbitrators will be found to have manifestly disregarded the law when: (i) they ignore clear and plainly applicable law; (ii) they improperly apply the law, leading to an erroneous outcome; and (iii) the governing law was made known to the arbitrators by the parties within the arbitration.5 Although parties often invoke the claim of manifest disregard, the burden on the party asserting it is very high, and manifest disregard only very rarely forms the basis for vacatur of an award. In the Second Circuit Court of Appeals, for example, the claim succeeds less than ten per cent of the time it is raised.6 Since the decision in Hall Street, a number of federal circuit courts of appeal have addressed the question of whether the manifest disregard doctrine still exists, with differing answers.
A brief overview of the FAA and international arbitration Because the FAA provides an efcient mechanism for enforcement of international arbitration awards rendered in the United States, the decision in Hall Street is of importance to the international practitioner. Chapter 2 of the FAA (9 U S C 201-208) is the mechanism by which the United States enforces the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (New York Convention).7 Chapter 2 of the FAA provides a gateway to the United States federal court system for the recognition and enforcement of foreign and domestic awards arising out of a commercial relationship that is either (i) not entirely between United States citizens or (ii) between United States citizens but involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.8 Where its prerequisites are met, Chapter 2 grants federal courts jurisdiction over proceedings to compel arbitration, to appoint arbitrators, and to conrm awards within three years of issuance.9 The court in which a motion is brought to conrm10 an award under Chapter 2 of the FAA shall conrm the award unless one of the grounds specied in Article V of the New York Convention applies.11 Under Article V 1(e) of the New York Convention, awards issued in the United States (unlike foreign awards) are subject to vacatur, modication or correction on the same grounds as other domestic awards.12 An award may be vacated under section 10(a) of the FAA: (1) where the award was procured by corruption, fraud or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufcient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their
206
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powers, or so imperfectly executed them that a mutual, nal, and denite award upon the subject matter was not made.13 The manifest disregard doctrine and Hall Street None of these provisions directly addresses the problem of arbitrators making a ruling that is entirely contrary to clear law applying to the dispute. Under United States law, the doctrine of manifest disregard covers this circumstance. In Hall Street, the parties to litigation in a federal court agreed to arbitration of part of the case. The parties agreement to arbitrate included a provision that the arbitrators award would be subject to vacatur, modication or correction where the arbitrators conclusions of law are erroneous.14 The arbitrator issued an initial award in favour of defendant Mattel. Plaintiff Hall Street successfully contended in the district court that the arbitrator had committed legal error (but not that the arbitrator had manifestly disregarded the law). The district court vacated the award, and the arbitrator issued a new award in favour of Hall Street. The district court upheld the new award, and Mattel appealed to the Ninth Circuit. That court held that the provision for expanded judicial review for error of law was unenforceable, and reversed the district court, ordering that the original (and legally erroneous) arbitration award be conrmed, unless grounds existed under sections 10 or 11 of the FAA for vacatur or correction.15 Hall Street ultimately appealed to the United States Supreme Court. The Supreme Court, in a majority opinion by Justice Souter, emphasised that, under section 9 of the FAA, a court must conrm an arbitration award unless it is vacated, modied or corrected as prescribed in 10 and 11.16 Based on that imperative and restrictive language, the court held that sections 10 and 11 provide the FAAs exclusive grounds for expedited vacatur and modication.17 Thus, under the FAA, a judges power to vacate, modify or correct an award cannot be expanded by agreement of the parties or by judicially-created standards. Hall Street had argued that sections 10 and 11 are not exclusive, and that an earlier Supreme Court decision, Wilko v Swan,18 had recognised manifest disregard of the law as an additional ground for vacatur. In Wilko, the Supreme Court had noted that the
interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation.19 Hall Street argued that Wilko had recognised an extrastatutory ground for vacatur, so that sections 10 and 11 of the FAA were not exclusive. Hall Street argued that if manifest disregard constituted additional grounds for vacatur, then agreement of the parties to review of the arbitrators interpretation of the law could also constitute grounds for vacatur. The Supreme Court rejected that contention. First nding that the abovequoted language from Wilko itself excluded review for error of law, the Court in Hall Street described the Wilko courts statement as vague, and continued: Maybe the term manifest disregard was meant to name a new ground for review, but maybe it merely referred to the 10 grounds collectively, rather than adding to them. Or, as some courts have thought, manifest disregard may have been shorthand for 10(a)(3) or 10(a)(4), the subsections authorizing vacatur when the arbitrators were guilty of misconduct or exceeded their power.20 The ambiguity left unresolved by the Supreme Court in Wilko and Hall, then, is whether arbitrators manifest disregard of the law ignoring known, clear and plainly applicable law constitutes a violation of the FAA itself, or whether it is an extra-statutory (and now unavailable) grounds for vacatur. The ambiguity in the Supreme Courts analysis has left subsequent courts room to consider and analyse the issue, resulting in a a split among the circuit courts that have addressed the issue. The Second, Sixth and Ninth Circuits have continued to recognise the doctrine of manifest disregard. Those courts have taken up the Supreme Courts musing that manifest disregard may be a shorthand for section 10(a)(3) or (4) that the arbitrators committed misconduct or exceeded their power in the course of the arbitration.21 Under this analysis, parties to an arbitration agreement do not agree in advance to submit to arbitration that is carried out in manifest disregard of the law.22 Arbitrators therefore exceed or imperfectly execute their powers in the narrow circumstance where they reject or ignore controlling law.23 The First and Fifth Circuits have invalidated the doctrine of manifest disregard altogether.24 The Fifth Circuit, reviewing
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the history of that Circuits adoption of the manifest disregard doctrine, determined that it had been dened in that circuit as a nonstatutory ground for vacatur, [and] it is no longer a basis for vacating awards under the FAA.25 Post-Hall Street considerations for the international practitioner As noted above, Chapter 2 of the FAA provides an effective mechanism for parties to international arbitrations seeking conrmation of their award in the United States. For parties seeking conrmation of such an award, the decision in Hall Street may affect the choice of venue for a conrmation proceeding. When seeking conrmation of an award rendered in the United States, the practitioner may prefer to seek conrmation in a region where the doctrine of manifest disregard is not available, currently being those courts within the First and Fifth Circuits.26 Parties negotiating arbitration agreements who wish to obtain review for errors of law by the tribunal have limited choices. One option is to allow appeal to an arbitration appeal panel, a separate arbitration set up solely for review. To obtain judicial review, however, the parties might seek to opt out of the FAA entirely and choose a governing law and/or seat of arbitration (not just for the agreement but also for its enforcement)27 that permits judicial review of arbitration awards for errors of law. The Supreme Court in Hall Street made it clear that its holding applied only to enforcement of arbitration awards under the FAA. Where the parties may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable, agreements for expanded judicial review may be enforced.28 The California Supreme Court, for example, post-Hall Street, held that the arbitration agreements providing for judicial review of the merits are enforceable under the California Arbitration Act.29 It remains to be seen how other courts in the US will address the issues raised by Hall Street, and how they will resolve the difcult issues raised when arbitrators rule in contravention of established law.
Notes 1 128 S Ct 1396 (2008). 2 Title 9 of the United States Code. 3 In contrast, English law, for example, permits appeals 208
from arbitration awards on questions of law in certain circumstances. Arbitration Act 1996 69. 4 See, eg, Telenor Mobile Communications, AS v Storm LLC, 584 F.3d 396, 407-08 (2d Cir 2009); Stolt-Nielsen SA v Animalfeeds Intl Corp, 548 F.3d 85, 93 (2d Cir 2008), cert granted, 129 S Ct 2793 (2009). 5 Duferco Intl Steel Trading v T. Klaveness Shipping A/S, 333 F.3d 383, 389-90 (2d Cir 2003); see, eg, DMA Intl, Inc v Qwest Communications Intl, Inc, 585 F.3d 1341, 1344 (10th Cir 2009) (manifest disregard is willful inattentiveness to governing law); Comedy Club, Inc v Improv West Assocs, 553 F.3d 1277, 1290 (9th Cir 2009) (arbitrator must recognise applicable law and proceed to ignore it for the doctrine to apply). 6 Stolt-Nielsen SA, 548 F.3d at 92. 7 9 U S C 201. 8 9 U S C 202, 203. Chapter 1 of the FAA does not itself grant original jurisdiction to the federal courts; a party seeking to enforce or vacate a domestic award must nd independent grounds for jurisdiction. Hall Street, 128 S Ct at 1402. State courts apply Chapter 1 of the FAA where its statutory prerequisites are met. 9 Chapter 2 does not provide jurisdiction, however, over proceedings to stay arbitration or vacate an award. The party against whom a proceeding to conrm an award made in the United States is brought may seek to vacate the award. 10 See 9 U S C 6, 208. 11 9 U S C 207. In addition, at the time it brings the motion, the moving party must also supply the authenticated award or a certied copy, and the original or a certied copy of the agreement to arbitrate, and translations as needed. New York Convention Article IV. 12 Yusuf Ahmed Alghanim & Sons, W L L v Toys R Us, Inc, 126 F.3d 15, 21 (2d Cir 1997). 13 9 U S C 10(a). The grounds for modication are evident material miscalculation, evident material mistake in the description of any person, thing or property in the award, where the arbitrators make an award on a matter not submitted to them, or [w]here the award is imperfect in a matter of form not affecting the controversy. 9 U S C 11. 14 Hall Street, 128 S Ct at 1400-01. 15 The Ninth Circuit had not long before reversed its position on the enforceability of contractual provisions for expanded judicial review. Kyocera Corp v Prudential-Bache Trade Servs, Inc, 341 F.3d 987, 1000 (9th Cir 2003). 16 Hall Street, 128 S Ct at 1402. 17 Ibid, at 1403. 18 346 U S 427 (1953). 19 Ibid, at 436-37. 20 Hall Street, 128 S Ct at 1404. 21 Comedy Club, Inc, 553 F.3d at 1290 (We have already determined that the manifest disregard ground for vacatur is shorthand for a statutory ground under the FAA, specically 9 U S C 10(a)(4).); Coffee Beanery, Ltd v WW, L L C, 300 Fed Appx 415, 419 (6th Cir 2008) (In light of the Supreme Courts hesitation to reject the manifest disregard doctrine in all circumstances, we believe it would be imprudent to cease employing such a universally recognized
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principle.); Stolt-Nielsen, 548 F.3d at 95. Sixth Circuit cases subsequent to Coffee Beanery express doubt concerning the continued existence of the doctrine in dicta, but come to no conclusion. Martin Marietta Materials, Inc v Bank of Oklahoma, 304 Fed Appx 360, 362 (6th Cir 2008); Dealer Computer Servs., Inc v Dub Herring Ford, 547 F.3d 558, 561 n 2 (6th Cir 2008). 22 Stolt-Nielsen, 548 F.3d at 94-95 & n 8 (citing earlier cases considering manifest disregard as within sections 10 and 11 of the FAA). 23 Ibid, at 95. 24 Citigroup Global Markets Inc v Bacon, 562 F.3d 349 (5th Cir 2009); Ramos-Santiago v United Parcel Serv, 524 F.3d
120 (1st Cir 2008) (after Hall Street, manifest disregard is not a valid ground for vacating or modifying an arbitral award in cases brought under the FAA). 25 Citigroup, 562 F.3d at 355. 26 The First Circuit includes the United States District Courts for Maine, Massachusetts, New Hampshire, Rhode Island and Puerto Rico. The Fifth Circuit includes the United States District Courts in Texas, Louisiana and Mississippi. 27 Mastrobuono v Shearson Lehman Hutton, Inc, 514 U S 52(1995). 28 Hall Street, 128 S Ct at 1406. 29 Cable Connection, Inc v DIRECTV, Inc, 44 Cal 4th 1334, 1364 (2008).
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