Arbitration - general

1
Arbitration - general

• Arbitration one of the techniques of  ADR 
• others are eg mediation, conciliation, expert
  determination
• Sometimes  dispute escalation clauses  or
   multi-tier (arbitration) clauses  first
  negotiation, then mediation/conciliation, then
  litigation (arbitration or courts)
• E.g. in art. 20 FIDIC Red Book first a  Dispute
  Adjudication Board  (DAB), then ICC Arbitration.

2
Arbitration - general

• Types of arbitration
• Arbitration based on international public law, eg
  ICSID (supra)
• Arbitration based on national law, this chapter
• Double nature
• On the one hand on a contractual basis (more
  correctly 2 contracts 1 between the parties
  and 2 with the arbitrator(s))
• On the other hand jurisdictional as to
• its procedure (procedure is analogous to
  judicial procedure), and
• its effects
• 1 impact normal judge has lack of
  jurisdiction
• 2 the arbitral decision is a jurisdictional
  decision (res iudicata) and not merely a
  contractually binding decision even if not
  enforceable yet (auctoritas, not yet potestas)

3
(National) arbitration statutes

• Where arbitration is based upon national law
  (esp. rules on judicial organisation and
  procedure) the national law of the  place of
  arbitration  contains the conflict rules wich
  refer to the applicable national law on (aspects
  of) arbitration (to be distinguished from the
  question of the law applicable to the case
  itself)
• Topics of (national) arbitration statutes are
• 1) the conflict of law rule and
• 2) substantive rules, such as rules concerning
• the arbitration agreement,
• the arbitrability (disputes able to be settled by
  arbitration),
• the arbitral procedure,
• the supervision by (national) courts,
• the effects of the award (recognition,
  enforcement),
• the annulment of the award.
• Sometimes separate rules for domestic and
  transnational arbitration (eg Switzerland)

4
Harmonisation of arbitration statutes

• Partial harmonisation of the arbitration statutes
  (successful Uncitral model law ICL 1985, revised
  2006, incorporated in many national statutes)
• National statutes e.g. in Belgium in Judiciary
  Code (revised 2013) in France in CPC UK
  Arbitration Act 1996 in US Federal Arbitration
  Act (FAA) 1925, etc.
• Treaties on recognition and enforcement abroad
  see the NY Convention 1958 (successful)
  (predecessor Geneva Convention 1923/1927)

5
Arbitration (dis)advantages

• Reasons for arbitration advantages and
  disadvantages
• Flexibility of procedure gtlt uncertainty
• Parties can choose seat, number of arbitrators,
  language, division of costs
• Confidentiality (no public character of
  procedure)
• Higher costs for a single instance (arbitratrors
  to be paid) gtlt Single instance, in principle no
  appeal, usually quicker (not always)
• Arbitrators usually more specialised than judges
  in the type of dispute
• Internationally easier to obtain recogition and
  enforcement than for foreign judgments (success
  of NY Convention, infra)
• Not every type of relief can be granted by
  arbitrators
• Not automatically enforceable
• Difficult to oblige third parties to join (but if
  linked contracts also provide for arbitration,
  arbitration may be easier)
• In jurisdictions with class actions avoid class
  actions

6
Arbitration questions of contract law

• The arbitration agreement (agreement which
  obliges the parties to use arbitration in case of
  dispute and makes the future award binding for
  the parties)
• - can be a separate agreement (ad hoc),
• - or a clause in a wider agreement
• Possible issues (on following slides)
• Formation (offer acceptance)
• Validity and invalidity as a contract
• Legal capacity of the parties to conclude such an
  agreement
• Arbitrability of the issues to be settled (i.e.
  can the issue be settled by arbitration ?)

7
Arbitration agreement formation validity

• The formation and validity of the arbitration
  agreement are in principle determined by the lex
  contractus (proper law) of the arbitration
  agreement, also called lex arbitri
• Conflict rule for the lex arbitri? In most places
  of arbitration (countries) the conflict rule is
  1 choice of law (express or implied), 2
  (subsidiary) place of arbitration (lex fori) or
  closest connection (chosen seat being an
  important element EWCA in Sulamerica, 2012)
• The lex arbitri (lex contractus) of an
  arbitration clause in a wider agreement is
  determined separately from the lex contractus of
  the contract of which it is a part

8
Arbitration agreement formation validity

• What do most applicable laws/statutes (lex
  arbitri) provide?
• The formation and validity of the arbitration
  agreement must be judged separately from that of
  the contract it is part of (autonomy or
  separability of the arbitration clause) (cfr.
  French Cass. 7 May 1963 Gosset or SC US 1967 in
  Prima Paint v Flood Conklin in the UK S.6
  Arbitration Act and EWCA 2012 in Fiona Trust v.
  Privalov)
• Effect where the clause is valid, only the
  arbitrator decides the validity of the rest of
  the contract
• Where one element of the arbitration clause is
  invalid, the rest of the clause remains valid (eg
  arbitration clause specifying an arbitral forum
  that does not exist)

9
Arbitration agreement formation validity

• What do most applicable statutes (lex arbitri)
  provide?
• No or only few specific rules the rules of
  general contract law on formation and validity
  normally apply (Implied consent by a third party
  in Cass.Fr. 26 Oct. 2011 CMN / Fagerdala)
• Sometimes invalidity of unilateral optional
  arbitration clauses (eg Russia California Appeal
  Court 19 March 2013 Compton comp. for forum
  clauses Cass.(Fr.) 26 Sep 2012 but deemed valid
  in Belgium, UK, Germany, Italy, Spain)
• Some specific rules, e.g. validity of agreement
  for arbitration of disputes governed by
   overriding mandatory provisions  discussed
  after arbitrability

10
Arbitration agreement - capacity

• Conflict rule
• Often (but not in common law) a separate conflict
  rule as to the law applicable to the legal
  capacity of the parties, referring to the
   personal law  of each party
• What do most applicable statutes decide as to the
  capacity required for an arbitration agreement ?
• In principle the same restrictions on capacity as
  in the case of a settlement agreement (eg minors,
  insolvent party, ...)
• Sometimes additional restrictions on the capacity
  for arbitration agreements, such as restrictions
  to authority granted to agents, directors,
  receivers (in bankruptcy), public agencies,
  etc... to dispose of the rights at stake

11
Arbitration agreement arbitrability

• Conflict rule as to the issue of arbitrability
• often a cumulative conflict rule leading to more
  than one law applicable. Enforcement may require
• arbitrability under the law of the place of
  arbitration
• arbitrability under the law applicable to the
  issue to be settled
• arbitrability under the law of the country of
  enforcement.
• see art. V.2.a. NY Convention.
• E.g Belgian conflict rule (as stated in Cass. 16
  Nov 2006 Van Hopplynus, and Cass. 14 Jan. 2010
  Sebastian) refers to the application of the
  Belgian law on arbitrability in all disputes
  where the Belgian courts have jurisdiction

12
Arbitrability and public policy

• Arbitrability may be limited in matters governed
  by rules of public order, but in general
• 1 a dispute is arbitrable even if rules of
  public policy apply
• 2 the arbitrators may and must apply rules of
  public policy that are relevant for the dispute
  (e.g. a party invokes that a contract is void
  because contrary to competition law), and
• 3 the judicial control takes place a posteriori.
• Comp.
• Cass. B. 2 Feb. 1973
• ECJ in Eco Swiss / Benetton (1999) competition
  law is part of the public policy exception in
  exequatur procedures (a posteriori control)
• SC.US in Mitsubishi Motors v. Soler
  Chrysler-Plymouth (1985) arbitrable
• However, the arbitration agreement may
  nevertheless be invalid (see next slide) (better
  to tackle the problem not merely a posteriori)

13
Arbitrability overriding mandatory law

• Arbitration of disputes governed by overriding
  mandatory provisions  where parties can waiver
  their right only after the dispute has arisen,
  they cannot on beforehand be bound to
  arbitration, unless the arbitrators are required
  to apply these mandatory provisions irrespective
  of the otherwise applicable law.
• Applications labour law, some consumer
  contracts, rules protecting distributors or
  commercial agents
• Belgian case law conditional arbitrability
  disputes concerning termination of
  distributorship or commercial agency on Belgian
  territory (Belgian Distributorship Act 1961 and
  Commercial Agency Act 1995) are not arbitrable
  unless requiring the arbitrators to apply these
  provisions of national law (Cass. 28 June 1979
  Cass. 14 Jan 2010 distributorship Cass. 3 nov
  2011 agency).
• Comp. German case law, OLG München 17 May 2006
  (likely danger that foreign tribunal will not
  apply the mandatory provision arbitration clause
  combined w/ choice of foreign law is presumption
  of likeliness). BGH 5 Sep 2012 (forum clause in
  agency contract)
• Comp. English High Court in Accentuate (2009)

14
Arbitration who judges the validity ?

• Who judges the validity and scope of the
  arbitration agreement ?
• The nominated arbitrator has in principle
  jurisdiction over the questions of validity of
  the arbitration agreement, legal capacity to
  refer to arbitration, and arbitrability
  (competence-competence)
• (but subject to a possible annulment of the
  award by the court of the place of arbitration)
• Also jurisdiction over the interpretation of the
  arbitration agreement whether the dispute or
  action is covered by the arbitration agreement.
  Cfr. SCotUS 10th June 2013, Oxford v. Sutter The
  arbitrator's construction holds, however good,
  bad, or ugly.
• The otherwise competent national court has also
  jurisdiction to judge the validity of an
  arbitration agreement invoked by a party to deny
  the jurisdiction of that court
• The party contesting the validity has no
  obligation to participate in the proceedings
  ( Dallah -principle, UKSC 2010)
• (to this competence, Brussels-I does not apply)

15
Effects of a valid arbitration agreement

• Effects of a (valid) arbitration agreement
• - arbitrators have jurisdiction over the dispute
  referred to arbitration
• - every other judge lacks jurisdiction. This has
  to be invoked  in limine litis 
• - within the substantive scope of the
  arbitration agreement, its up to a second
  arbitrator to judge whether an earlier arbitral
  award has res iudicata concerning the new claim
  (in the US Belco-rule, 2d Cir 1996)
• - the court of the place of jurisdiction has
  certain powers in relation to arbitration
  proceedings in that place (infra). The law of
  that place may provide the possibility of an
  anti-suit injunction prohibiting the other party
  to pursue court proceedings instead of
  arbitration (eg UK SC 2013 in Ust-Kamenogorsk)
  (but not against proceedings before courts in the
  EU, ECJ in West Tankers)
• - provisional meausres next slide

16
Effects of a valid arbitration agreement

• Effects of a (valid) arbitration agreement
  (cont.)
• Courts may still take provisional and protective
  measures (summary proceedings),
• Parties may still take protective measures (e.g.
  conservatory seizure) after permission of the
  state judge where such permission is required
• Insofar as there is no Emergency Arbitrator
  appointed with this task (cfr. New ICC rules)
• In the new Belgian Act concurrent
  jurisdiction arbitrator/courts

17
Effects of a valid arbitration agreement

• Effects of a (valid) arbitration agreement
  (cont.)
• Effects for successors ?
• - assignee will normally be bound (see Ch.
  assignment)
• - administrator in bankruptcy in principle bound
  (eg Belgium), but not necessarily always (eg a
  case under Polish law accepted by the Swiss SBG
  31 March 2009)

18
Arbitration agreement - content

• Possible content of an arbitration agreement
• Definition of the disputes covered by arbitration
  (often restrictive interpretation of arbitration
  clauses)
• Possible reference to the procedural rules of an
  Arbitration Institute
• (next slides)

19
Arbitration agreement - content

• Possible reference to procedural rules - (1) of
  an Arbitration Institute
• Specialised (sector specific) international
  arbitration institutions (e.g. commodity
  arbitrations, WIPO, T.A.S. C.A.S Lausanne for
  Sports ARIAS (Insurance and Reinsurance
  arbitration society UK)
• General international arbitration institute ICC
  has a Court of Arbitration that supervises
  arbitral proceedings (intervenes in nominations,
  payment of costs, control of formal validity of
  award, respect for time schedule)
• National arbitration institutions and similar
  next slide
• the PCA (Permanent Court of Arbitration) in The
  Hague (NL), specialised in disputes of public
  international law (s. infra)

20
Arbitration agreement - content

• National arbitration institutions and similar,
  main institutions
• LCIA (London Court of international
  arbitration)(an English company)
• CIETAC (China international Economic and Trade
  Arbitration Commission)
• Swiss Chambers Arbitration Institution (Swiss
  rules)
• SCC (Stockholm Chamber of Commerce)
• Paris Arbitration Rules
• VIAC (Vienna International Arbitral Centre)
• Cepina (Belgium)
• AAA (American Arbitration Association) and its
  International Centre for Dispute Resolution
• DIAC (Dubai International Arbitration Centre)
• DIS (German Institution of Arbitration)
• KLRCA (Kuala Lumpur Regional Centre for
  Arbitration)
• MKAS (Moscow International Commercial Arbitration
  Court)
• SIAC (Singapore International Arbitration Centre)

21
Arbitration agreement - content

• Possible reference to procedural rules (2)
• In case of ad hoc arbitration, parties have to
  regulate these matters themselves in the
  agreement (supplemented by default rules of the
  arbitration statute)
• Intermediate solution arbitration according to
  the UNCITRAL Arbitration rules (version 1976
  revised 2010) detailed rules, eg also
  possibility of nominating ad hoc an  appointing
  authority . Since 2010, the PCA (Permanent Court
  of Arbitration) is the indirect appointing
  authority by default, i.e. will appoint the
  appointing authority if parties have not agreed
  upon one (art. 6 Uncitral)
• The PCA also has its own rules for cases where a
  state or international organisation is involved
  (consolidated in the PCA Arbitration rules 2012)
  (dealing more in detail also with issues of
  international public law)

22
Place of arbitration

• Determination of the place of arbitration (seat).
  The seat is a legal notion it links the
  arbitration procedure to a specific country (but
  does not oblige the arbitrators to conduct
  procedures there). Relevance
• - determines which court is competent to
  supervise the arbitration, to decide an action
  for annulment of the award, etc.
• - determines the conflict of law rules
  indicating the law applicable to the arbitration
  
• - provides the default procedural rules (infra)
  but arbitrator not bound if not imperative
• - localises the arbitral award (this will eg
  determine whether it is localised in a country
  that has ratified a Treaty on recognition and
  enforcement of arbitral awards).

23
Arbitration agreement content

• Determination of the number of arbitrators (in
  many countries must be uneven)
• Possibly rules on challenging impartiality
  (unless left to the court)
• Choice of the language(s) of the procedure
  (language of the submissions may be relevant
  also for evidence)
• Choice of the law applicable to the arbitration
  agreement (supra)
• (NB. Choice of the substantive law to be applied
  to the dispute, but this is strictly speaking not
  part of the arbitration agreement itself)

24
Arbitration conduct of proceedings

• Appointment of the arbitrators
• If 3 arbitrators, usually one nominated by each
  party, the 3rd ( umpire ) is either nominated
  by both of them together or by the arbitration
  institute
• Multi-party arbitration Uncitral has specific
  rules on appointment (also some national statutes
  do and some rules of arbitration institutions)
• Acceptance by the arbitrator(s) requires
  independence and impartiality duty to disclose
  possible conflicts of interests. Possible
   challenge  of an arbitrator.
• Art. 1686 Belgian Jud.C esp. in case of
   repeat arbitration Cass.Fr. 20 Oct. 2010 X v.
  Prodim Logidis
• See IBA Guidelines on Conflict of Interest in
  Internat. Arbitration
• Agreement on fees expensens arbitrators (in
  case of institutional arbitration under
  supervision of the Institution)

25
Arbitration conduct of proceedings

• Possible arrangements at the start of
  proceedings, often in  terms of reference 
• - definition of the dispute and the claims of
  the parties (esp. a  Statement of claim )
• - establishment of a timetable / calendar
• - possible appointment of an administrative
  secretary (see ICC note 1995/2012)
• - manner in which parties will present their
  arguments, disclose documents, present evidence,
  etc.
• As to taking evidence, parties could refer to
  the IBA-Rules on taking evidence (1999, revised
  2010) (compromise between continental and
  american traditions)
• If not already in the terms of reference,
  possible  case management conference  (required
  in new ICC rules)

26
Arbitration procedural rules

• Procedural rules (incl. rules on supervision by
  state court)
• Law applicable to the procedure ? (also called
  lex curia)
• Law indicated by the conflict rule of the place
  of arbitration conflict rule usually refers to
  the lex fori, i.e. rules of the place of
  arbitration. Arbitrator may deviate if not
  mandatory.
• Some countries have separate procedural rules for
  international arbitration or refer to such rules,
  eg when the ECICA is ratified (European
  Convention on International Commercial
  Arbitration 1961, 31 ratifications, paneuropean)

27
Arbitration procedural rules

• Procedural rules determine
• the basic rules for the proceedings (classical
  rules such as adversary character, possibility to
  decide in absentia (by default), whether partial
  awards possible, whether dissenting opinions may
  be made public, duty to motivate award,
  notification of the award, ...)
• the rules on taking evidence and on valuation of
  proof
• in which cases the state court can help /
  intervene
• E.g. parties can ask a court order where the
  arbitrator has no authority, eg for an Actio ad
  exhibendum (order to produce documents)
• E.g. replacement of arbitrator(s)
• In case of institutional arbitration, Institution
  may have the power to check the award as to its
  form (scrutiny), not substance (eg ICC rules art.
  27)

28
Challenging the arbitral award

• In principle no appeal (unless agreed) some
  arbitration rules provide an optional appellate
  procedure (eg new AAA rules)
• Challenging in court action for annulment
  according to the rules of the place of
  arbitration
• In most countries only limited grounds for
  annulment (no valid arbitration agreement, no
  fair trial (incl. arbitrator not independent),
  award ultra petita) (for Belgium, see art. 1717
  3 Jud.C (version 2013))
• Eg Cassation (Fr) 20 Oct. 2010, Somoclest
  v. DV construction.
• In some countries annulment can be excluded
  contractually if none of the parties is domestic
  (CH, B, Sweden) (rare in practice)
• Effect of setting aside same arbitrators, new
  arbitrators, state court ?

29
Arbitration enforcement

• Enforcement in the country of the award
  exequatur can be obtained in simplified
  proceedings (marginal control)
• Third party involvement can simplify enforcement

30
Arbitration - enforcement
31
Arbitration enforcement abroad

• Enforcement on the basis of the NY Convention
  1958 in member states of that Convention (149 in
  2013)
• Sphere of application territorial or
  non-domestic test in art. 1
• Simplified proceedings (exequatur of the state of
  the place of arbitration is not required, only in
  state of enforcement)
• National law determines whether appeal is
  possible against de decision on exequatur, and if
  appeal suspends enforceability or not.
• NB. Cases on NY Convention published in Yearbooks
  Commercial Arbitration.

32
Arbitration enforcement abroad

• NY Convention
• Art. 5 - only limited grounds for refusal
  (exceptions), esp.
• (1a) Lack of capacity of a party
• (1a) Invalidity of the arbitration agreement
  according to the lex contractus)
• (2a) Arbitrability of the dispute is excluded by
  the lex contractus, the lex fori of the place of
  arbitration or the lex fori of the place of
  enforcement
• (2b) Contrary to public policy of receiving
  country
• (1c) Jurisdiction exceeded (ultra petita)
• Esp. the public policy exception is widely used
  by some countries, eg Russia practice
  statements of the Supreme Arbitrazh Court (new
  version 2013, Information Letter no. 156)

33
Arbitration enforcement abroad

• Enforcement in other countries (than the place of
  arbitration)
• Enforcement can also take place on the basis of
  
• ECICA,
• other multilateral conventions,
• bilateral conventions,
• possibly national law