International Commercial Arbitration Notes PDF

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These are the notes that I made before the final exams, all materials from lectures and tutorials are included....

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INTERNATIONAL COMMERCIAL ARBITRATION

INTRODUCTION TO INTERNATIONAL COMMERCIAL ARBITRATION There is no actual definition but it can be said that it is “extra-judicial, binding settlement of dispute” Characteristics of arbitration: private (presumed if not otherwise agreed) and non-national method of reaching a resolution, by an individual or group of individuals by the parties and not the states, following a process as agreed subject only to minimal safeguards to ensure due process, with minimal or none court intervention, produces binding award akin to a judgement that can be enforced by a court of law (easier to enforce that a judgement award), alternative dispute resolution. Alternative to what? To doing nothing, to national courts (mistrust of foreign jurisdiction, unfamiliarity of procedures, understating of chosen law), to other ADR methods (expert determination, mediation is not conclusive, rent-a-judge). Why arbitrate? Fairness of awards (bias, privacy, expertise, language, location, enforceability, wider choice of remedies). Disadvantages: no right to appeal, issues with impartiality, lack of legal knowledge, delays. Neutral reasons: cost and speed. Agreements: Institutional, Ad hoc, Specific tribunals (ICSID - investment tribunal, WIPO intellectual property) Rules and laws governing arbitration: national laws (UK English Arbitration Act 1996), international practice, arbitration rules (LCIA, ICC rules, UNCITRAL Arbitration rules), Conventions (New York Convention 1958 - made it substantially easier to enforce a foreign arbitral award than a foreign judgement, commercial matters), Washington Convention 1966 (investment disputes, creates ICSID), Geneva Convention 1927 (recognition and enforcement within EU). Permanent Court of Arbitration: not a court, not permanent and does not arbitrate, but facilitates arbitration and other ADR, operates as a registry for ad hoc arbitration. When an arbitration is international? UNCITRAL Model Law Article 1(3) - the New York Convention applies to 'foreign awards' not necessarily 'international' defined as 'awards made in the territory of a state other than a state where recognition and enforcement are sought'. Baseball arbitration: both parties come up with a conclusion and the arbitrator chooses the best. Lex arbitri - law that govern the arbitration, not law governing the substance of the dispute. Arbitrability: restrictions imposed on arbitrators and contractual parties as to what disputes may or may not be referred to arbitration; harmonisation attempted but never achieved.

What can and cannot be arbitrated? Subject to national laws, each state identifies the matter which are regarded too important to be left to private dispute resolutions - New York Convention 2(a). Matters concerning anti-trust and competition as well as securities, insolvency and IP concerning trademarks and patents and criminal law should not be arbitrable (objective arbitrability). Arbitrability issue may arise pre-arbitration, during arbitration, during the challenge/enforcement proceedings of the award. Subjective arbitrability refers to who is not capable of entering into an arbitration agreement and objective arbitrability refers to what disputes cannot be arbitrated. Also, it is up to the jurisdiction of the tribunal - doctrine of Kompetenz-Kompetenz: is a jurisprudential doctrine whereby a legal body, such as a court or arbitral tribunal, may have competence, or jurisdiction, to rule as to the extent of its own competence on an issue before it. It is also subject to applicable laws like New York Convention Article 2(1). AGREEMENT TO ARBITRATE Agreement to arbitrate: clause or a contract term that demonstrates that parties have agreed to refer a dispute (present or future) to arbitration. Arbitration agreement, once valid, waives the parties rights to take their dispute to national courts and waives Article 6 of the HRC - right to fair and public trial. Validity of arbitration agreement: formal validity (must be in writing, New York Convention Art. 2(1) - each court must recognise "agreement in writing" plus English Arbitration Act s.5 and to stay any proceeding that started in breach of an arbitration and to refer to it- Art. 2(3) , UNCITRAL - option 1 a or option 2: short definition and no form requirement), substantive validity (parties must have agreed to arbitrate, actual intention to arbitrate, arbitrability) and vitiating factors ('null and void, inoperative or incapable of being performed'). However, arbitral contract is separate even if it is incorporated. There is no legal aid or financial aid in arbitration. Problems with interpretation: lack of harmonised approach: if it is not written will it be valid in other countries (restrictive - (Robobar v Finncold - contract was not signed but the delivery of goods started, arbitration not valid) v pro-arbitration interpretation/good faith (Sphere Drake Insurance - there was a contract but not signed, arbitration valid). Just to be safe, it is better to comply with New York Convention or have an agreement that will be recognisable by both countries. Incorporation by reference: not a separate contract but incorporated in standard terms and conditions, allowed under UNCITRAL Model Law, generic v specific reference: if reference to a standard term between the parties, then generic reference will suffice; if reference to a standard terms between the parties and a third party, a specific reference is required. Substantive validity: legal capacity (ability to enter the contract, no invalidating factors), however, an arbitration can be still carried out even if the contract is illegal or became illegal, third party (Dow Chemical v ISOVER - US parent and French subsidiary, the parent company had total control so it should be treated as one and was a party to the arbitration even though it didn't sign the arbitration agreement - intention is key): active participation, clear interest in the outcome, parties "inter-twined", third party as a beneficiary: can enforce the

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contract or estoppel, third parties assignment: determine under the law applicable to the contract, some jurisdiction have a presumption of transfer (UK, France, Germany) and some does not allow it, assignment is not allowed if right to assign is excluded, proceeding have started, one party goes bankrupt. Doctrine of separability: the arbitration agreement is separate from the main contract even if it is incorporated. Conventions are mostly silent except for UNCITRAL Art. 16 (1), however Middle East countries does not give full recognition of this doctrine. Direct effect: the status of the main contract does not affect the validity of the clause unless the same factor affect the clause, different applicable laws to both. Drafting: don't draft them, use institutional model clauses, only change if you want to exclude something. "Null and void, inoperative or incapable of being performed" - Article 2(3) of the NY Convention - the courts can assume jurisdiction. The NYC imposes maximum standard and national states may relax the requirement. However, this argument often fails as national courts, especially pro-arbitration do everything to validate an arbitration agreement. Null and void: fundamental defects - the clause never existed, lack of capacity, the dispute does not refer to a defined legal relationship, agreement entered as a result of duress, misrepresentation, mistake, exclusion of statutory rights or remedies, subject matter not capable of arbitration (Alexander v Anthony International, Best Floor Standing, Meadows Indem) Inoperative: clause was initially valid but it can no longer operate, reasons internal to the clause, clause expired, revoked or cannot operate because of condition precedent not been fulfilled, right to arbitration has been waived (implied as well) (Downing v Al Tameer Establishment), embargo (Iranian Claims tribunal), defective clauses (Nokia v Mazzer reference to ICC but not to arbitration). Incapable of being performed: clause was valid but cannot be put into effect because of reasons external to the clause, unable to arbitrate due to lack of funds (Clout Case), named arbitrator no longer available or an institution ceased to exist (Aminoil v Gov of Kuwait). Other factors affecting validity: ambiguity (not in NYC) - Canadian National Railway v Lovat - 'the parties may refer any dispute to arbitration' - held valid In Gail, the appropriate point of application of the Phrase was determined to be before arbitration proceedings commence or during the arbitration proceedings. If there is a contradiction between the law applicable to the contract and the law of the seat of arbitration in terms of validity of the agreement, the lex arbitri will be the decisive one. ESTABLISHMENT AND ORGANIZATION OF THE ARBITRAL TRIBUNAL The most common approach is that parties will either have 1 or 3 arbitrators and that choose that during drafting the arbitration clause, it can be also implied by the rules of arbitration (UNCITRAL, ICCIA etc.). If parties cannot decide on the number of arbitrators, then the agreement can be found as 'null and void, inoperative or incapable of being

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performed". If there are 3 arbitrators, the majority award is valid. There can be more than 3 arbitrators but it is likely to be in cases involving states (Taba arbitration). Neutrality has a specific meaning and regards to the nationality of the party - other nationality than the parties (there is a presumption of neutrality but the arbitrator doesn't have to be neutral, it is advised unless parties agree otherwise. Lack of neutrality does not mean impartiality and differs from independence - UNCITRAL Model Law Art.11. ICSID Art.38-39 - majority of arbitrator cannot be the nationality of the State. Andersen Consulting v Andersen Worldwide - arbitrator from other states than the presence of the company, the company was in 140 countries. Tribunal: How many arbitrators? s.15(3) EAA, Art. 10(2) UNCITRAL Qualifications? Industry Experience? Availability? How to appoint them (parties can appoint them or leave it for an institution - ICC, LCIA)? Nationality? Independence and impartiality: requirement established in most national laws, arbitration rules and conventions, underpinned by Art 6 of ECHR and Codes of Ethics (IBA Code of Practice), required to run a conflict check, national laws and rules: positive requirement, negative requirement (lack of... as a reason for challenge) or both (directly stating that arbitrator must be independent and impartial and indirectly by allowing an arbitrator to be challenged). When can you challenge the arbitrator? Before, during or after the arbitration. Each party can challenge any arbitrators but they can only do it if a new fact arises, they cannot challenge an arbitrator on the ground previously disclosed. Challenge rules: ICC - Art. 14(1), LCIA - Art. 5(3), UNCITRAL - Art.12. Is there a difference in timing of the challenge? NO: France, England, Switzerland, YES: Germany: after the award was granted only cases of grave and obvious partiality or dependence will annul the award. Process: ICC: 30 days time limit after learning about a fact, reasons: lack of independence or otherwise - every wide scope, no reason for the decision published, but publish 3 general summaries - confidentiality, LCIA: 14 days limit, decision in writing with reasons available only to the parties and arbitrators, redacted decisions published, UNCITRAL (ad hoc): 15 days limit, decided by the appointed authority, ICSID: prompt challenge, decided by remaining arbitrator or the chairman of the tribunal, must be reasoned. Grounds for challenge: ICC Art. 14(1) and LCIA Art.10(1) - impartiality or independence, ICSID Art. 14(1) - lack of ability to exercise independent judgement, UK s.24 - only can be challenged for impartiality, not for lack of independence. Impartiality: refers to actual state of mind, means that the arbitrator is not biased in favour or against one party, predisposed to the issue in the dispute, internal element. Locabail case: We cannot conceive of circumstances in which an objection could be based on religion, ethnic origin, gender, age, class, sexual orientation, however in contract a real danger is personal friendship, animosity, doubt ability to trust, material interest. Duty of disclosure (IBA Guidance 2014) treated as a soft law: non-waivable red relationship list (arbitrator should be disqualified with no doubt), waivable red (sufficient to disqualify but can be agreed otherwise), orange (circumstances similar to red and green but of

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different levels of severity like having some shares, we have to know what percent of the shares is that. If it 3 % of more then it is important), green (circumstances that not require disclosure and cannot give rise to challenge). The real need is to ensure that the arbitrators are not biased but an actual bias is typically impossible to prove, we need to accept apparent bias. Proved bias: Steamship 'Catalina' v Motor Vessel 'Norma' (very rare). Independence: needed to ensure that justice is seen to be done, external element, no actual present or past dependent connection that is likely to affect the arbitrator's judgement. We need to focus on independence that may lead to finding apparent bias: connection to one of the parties (financial or personal) - proximity, how close is the connection, intensity, frequency of interaction, dependence, materiality, connection with one of the counsels (Mustang Enterprise - arbitrator and counsel from the same law firm - affiliation), issue conflict - opinion, publicity (advising two separate, but similar cases - Telecom Malaysia arbitration - conflicting). Timeframe of the connection: relationship 5 years ago, not strong enough to remove - UCIH v Venezuela. Consciously or unconsciously highly negative experiences it may affect a judgement or negative comments - Ecuador case. ATNT Corporation v Saudi Cable - non-executive director plus 474 shares, the position and too little shares to challenge the arbitrator. Test in the UK - EAA - justifiable doubts: R v Gosh: real danger of bias - if a reasonable person might reasonably suspect bias, real possibility, not mere probability. Lockabail: without placing too much reliance on special knowledge, reasonable member of a public. Porter v Magill: fair minded and informed observer might reasonably suspect bias. INDEPENDENCE AND IMPARCIALITY WILL BE ON THE EXAM! RECOGNITION AND ENFORCEMENT OF ARBITRAL AWARDS The arbitral tribunal is under an obligation to render a valid and enforceable award which is tested against the law of the seat of arbitration. Recognition and enforcement of awards will always be under NYC, only states that are not signatories are permitted to rely on their national laws. Decision – result of any conclusion or resolution reached after consideration (may or may not constitute an award) Award – a decision affecting the rights between the parties that is capable of enforcement Partial awards – finally resolves some of the issues in dispute. Full awards – finally resolves all the issues in dispute. Procedural orders – decides on procedural matters but does not determine the outcome of the dispute. Interim orders/interim awards – not awards, do not resolve the dispute. Enforcement of interim awards depend on the national laws e.g.,

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Australia – interim awards are not enforceable as awards India – have enforced some interim awards Where to challenge an award? In national court at the seat of arbitration, at the national courts where to award is sought What can the losing party do with the award? Should comply with the award but if the party does not wish to perform the award they can choose to do nothing (refuse to perform the award and resist any enforcement action) or they can challenge the award unless this right has been excluded and the law of the seat permits such exclusion (France, Switzerland). Court can only enforce assets within the jurisdiction. Grounds for challenge (determined individually by national laws): jurisdictional grounds, procedural grounds and substantive grounds. In Model law the grounds for challenge of an award are essentially the same as for refusing recognition and enforcement. The issue of mistake of law: permitted only in some jurisdictions (UK, s.69 EEA, limited grounds, must be obviously wrong, public policy considerations). The issue of mistake of fact: not public consideration issue, not permitted in the vast majority of jurisdiction even if parties wish to include it in the contract - Hall Street As. v Mattel. Effect of annulment: typically, the awards id 'null and void' either in full or partially at the seat of arbitration and in other national courts - Art 5(1)e NYC - the awards MAY be set aside but very complicated (Chromalloy Gas Turbine v Egypt). Recognition and enforcement: both terms are distinct, awards may be recognised without being enforced (stops the authority to litigate) but an enforced award is by definition recognised. Recognition is a defensive action and proves res judicata (you cannot litigate the same matter twice). Enforcement uses national courts to force the performance of the award. Operates as res judicata as well. Governed by NYC. Award is foreign when it is made in the territory of a state other than were the recognition and enforcement is sough or when it is not considered as a domestic award (Yusuf Ahmed case). NYC only applies to awards that are final. Commercial reservation (40 states): the country will only apply NYC to commercial disputes. "Foreign" is defined by the NYC and "non-domestic" is defined by individual national laws. Refusal to enforce: lack of submission of authenticated original awards or certified copy, lack of the submission of the original agreement but what if it was oral like in France, New Zealand and Scotland (still valid even docs lacked, both parties recognised award - HewlettPackard case)? Substantive grounds: Art. 5(1) and 5(2): 5(1)a -before enforcing the award you have to check with national law (Dallah Real Estate v Ministry of Religious Affairs award enforced in France but not in the UK). Lack of due process - Art. 5(1)b - Kanoria v Guinness.

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INVESTMENT ARBITRATION The greatest advantage in international investment law to investor is access to neutral international dispute settlement. Some form of investor-state dispute settlement (ISDS) is provided in almost every bilateral investment treaty (BIT) and investment contract. BITs also tend to provide for state-to-state dispute settlement between signatories. International arbitration for investment disputes is seen as a major threat to national sovereignty as it bypasses local courts and give more rights for foreigners than to local investors. Role of Domestic Courts: Domestic courts are often undesirable to hear claims because of perceived bias and lack of competence, State immunity may prevent host states from being sued and questioning legality of acts of government. Clauses: 'Fork in the road' - allow investors to choose domestic or international route for disputes, not both, and they can't change their mind - prevent the abuse of proceeding though litigation in multiple fora. Umbrella clause: breach of contract by a state does not give rise to international responsibility by that state, but many BITs allow umbrella clauses to provide that any breach of contract will be viewed as a violation of international law, they also allow use of international tribunal for ordinary commercial contract violations (distinction between commercial act and an act of government). Investor-State Arbitration: third party investor-state arbitration is now used widely, the arbitration is based on consent, consent can be limited to certain issues, arbitration must involve a legal issue, not a political one, arbitral decision has no formal status as precedent but the is a growing body of 'case law'. UNCITRAL Procedural Rules: can be used in ad hoc investment arbitration tribunals, ICSID and UNCITRAL rules are most popular, ICC rules differ form UNCITRAL and are used less often, it has new rules on transparency in investor-state dispute settlement (you can waive the transparency - there is a move towards this direction). Sta...