International Commercial Arbitration Neil Eustaquio

Jesse Neil Cruz Eustaquio Notes; ALS2014B; International Commercial Arbitration; Atty. Rico-Pamfilo and Atty. Jun Bautista

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ATENEO DE MANILA UNIVERSITY SCHOOL OF LAW International Commercial Arbitration Course Outline Second Semester, School Year 2013-2014 Atty. Rico-Pamfilo and Atty. Jun Bautista

I. OVERVIEW 1. Introduction

Redfern & Hunter, Redfern and Hunter on International Arbitration, 2009, Chapter 1 [except sections 1.126 to 1.151, 1.178 onwards]

A. xxx B. Why Arbitrate?

a. Introduction b. the Main Reasons

1.89 There are two main reasons. The first is neutrality; the second is enforcement. As to neutrality, international arbitration gives the parties an opportunity to choose a neutral place for the resolution of their dispute and to choose a neutral tribunal. As to enforcement, an international arbitration, if carried through to the end, leads to a decision which is enforceable against the losing party not only in the place where it is made but also internationally, under the provisions of such treaties as the New York Convention.

c. Additional reasons 1.94 There are other reasons which make arbitration an attractive alternative to litigation, of which at least four are worth listing.

i. Flexibility ii. Confidentiality

iii. Additional powers of arbitrators There may be situations in which, somewhat unusually, an arbitral tribunal has greater powers than those possessed by a judge. For example, under some systems of law, or some rules of arbitration, an arbitral tribunal may be empowered to award compound interest, (114) rather than simple interest, in cases where the relevant court has no power to do so. In an article which, amongst other things, looks at the history of awards of interest, a leading commentator concludes: ... where compound interest would provide a fair and reasonable element of compensation to the innocent victim of a contract breaker, it is increasingly awarded by international commercial arbitrators either as trade usage, re gle materielle de droit internationalor under an expressly agreed provision e.g. Article 26 of the LCIA Rules. In Switzerland and England, as with other European countries hospitable to international arbitration, the award of such compound interest is not contrary to public policy, ordre publicor other mandatory law ... (

iv. Continuity of role Finally, there is a continuity of role in an arbitration, since the arbitral tribunal is appointed to deal with one particular case and to follow it from beginning to end. This enables the arbitral tribunal to get to know the parties, their advisers, andthe case as it develops through the documents, the pleadings, and the evidence. It should speed the process; and the familiarity with the case which is engendered may facilitate a settlement of the dispute.

d. Perceived disadvantages of arbitration


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1.99 Not everything in the garden is lovely. Arbitration has its critics. A glance at the arbitration journals, or a day at one of the many seminars and conferences on arbitration, will show that amongst the matters that are most frequently criticised are: (1) the costs of arbitration; (2) limits on arbitrators' powers; (3) the difficulty of bringing multi-party disputes before the same tribunal or (4) joining third parties; (5) conflicting awards; and (6) what is generally referred to as the judicialisation of international arbitration. These are now discussed in turn.

i. costs of arbitration ii. delay

iii. limits in arbitrators powers iv. multi-party arbitrators/bi-polar arbitrators v. non-signatories

vi. consolidation vii. third-parties

viii. conflicting awards ix. judicialization

i. Alternative Dispute Resolution (General)

Republic Act No. 9285, April 2, 2004 SECTION 1. Title. - This act shall be known as the "Alternative Dispute Resolution Act of 2004." SEC. 3. Definition of Terms. For purposes of this Act, the term: Alternative Dispute Resolution System means any process or procedure used to resolve a dispute or controversy, other than by adjudication of a presiding judge of a court or an officer of a government agency, as defined in this Act, in which a neutral third party participates to assist in the resolution of issues, which includes arbitration, mediation, conciliation, early neutral evaluation, mini-trial, or any combination thereof;

ii. Meaning of arbitration a. Section 3(d), RA 9285

SECTION 3. Definition of Terms. For purposes of this Act, the term: (d) Arbitration means a voluntary dispute resolution process in which one or more arbitrators, appointed in accordance with the agreement of the parties, or rules promulgated pursuant to this Act, resolve a dispute by rendering an award.

iii. Relationship between arbitration and the Courts International commercial arbitration is a hybrid. It begins as a private agreement between the parties. It continues by way of private proceedings, in which the wishes of the parties play a significant role. Yet it ends with an award that has binding legal force and effect and which, on appropriate conditions, the courts of most countries of the world will recognise and enforce. In short, this essentially private process has a public effect, implemented with the support of the public authorities of each State and expressed through that State's national law. This interrelationship between national law and international treaties and conventions is of vital importance to the effective operation of international arbitration. (Refern & Hunter, 2009)

iv. International Conventions a. Convention on the Recognition and Enforcement of Foreign

Arbitral Awards 1958 (The New York Convention 1958) Objectives:


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Recognizing the growing importance of international arbitration as a means of settling international commercial disputes, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) seeks to provide common legislative standards for the recognition of arbitration agreements and court recognition and enforcement of foreign and non-domestic arbitral awards. The term "non-domestic" appears to embrace awards which, although made in the state of enforcement, are treated as "foreign" under its law because of some foreign element in the proceedings, e.g. another State's procedural laws are applied. The Convention's principal aim is that foreign and non-domestic arbitral awards will not be discriminated against and it obliges Parties to ensure such awards are recognized and generally capable of enforcement in their jurisdiction in the same way as domestic awards. An ancillary aim of the Convention is to require courts of Parties to give full effect to arbitration agreements by requiring courts to deny the parties access to court in contravention of their agreement to refer the matter to an arbitral tribunal. State Notes Signature Ratification,

Accession(*), Approval(), Acceptance() or Succession()

Entry into force

Philippines (a), (c) 10/06/1958 06/07/1967 04/10/1967 (a) This State will apply the Convention only to recognition and enforcement of awards made in the

territory of another contracting State. (b) With regard to awards made in the territory of non-contracting States, this State will apply the

Convention only to the extent to which those States grant reciprocal treatment. (c) This State will apply the Convention only to differences arising out of legal relationships, whether

contractual or not, that are considered commercial under the national law. Source: http://uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html

b. Convention on the Settlement of Investment Disputes between States and Nationals of States 1965 or ICSID Convention or Washington Convention

ICSID is an autonomous international institution established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States with over one hundred and forty member States. The Convention sets forth ICSID's mandate, organization and core functions. The primary purpose of ICSID is to provide facilities for conciliation and arbitration of international investment disputes. Source: https://icsid.worldbank.org/ICSID/Index.jsp

v. UNCITRAL Model Law on International Commercial Arbitration [ML Appendix A, R.A. 9285]; 2006 amendments

The Model Law is designed to assist States in reforming and modernizing their laws on arbitral procedure so as to take into account the particular features and needs of international commercial arbitration. It covers all stages of the arbitral process from the arbitration agreement, the composition and jurisdiction of the arbitral tribunal and the extent of court intervention through to the recognition and enforcement of the arbitral award. It reflects worldwide consensus on key aspects of international arbitration practice having been accepted by States of all regions and the different legal or economic systems of the world. Amendments to articles 1 (2), 7, and 35 (2), a new chapter IV A to replace article 17 and a new article 2 A were adopted by UNCITRAL on 7 July 2006. The revised version of article 7 is intended to modernise the form requirement of an arbitration agreement to better conform with


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international contract practices. The newly introduced chapter IV A establishes a more comprehensive legal regime dealing with interim measures in support of arbitration. As of 2006, the standard version of the Model Law is the amended version. The original 1985 text is also reproduced in view of the many national enactments based on this original version. Source: http://uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration.html

a. international Art. 3(1) of ML CHAPTER I. GENERAL PROVISIONS Article 1. Scope of application1 (1) This Law applies to international commercial2 arbitration, subject to any agreement in force between this State and any other State or States. (2) The provisions of this Law, except articles 8, 9, 17 H, 17 I, 17 J, 35 and 36, apply only if the place of arbitration is in the territory of this State. (Article 1(2) has been amended by the Commission at its thirty-ninth session, in 2006) (3) An arbitration is international if:

(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or (b) one of the following places is situated outside the State in which the parties have their places of business:

(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement; (ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or

(c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.

(4) For the purposes of paragraph (3) of this article:

(a) if a party has more than one place of business, the place of business is that which has the closest relationship to the arbitration agreement; (b) if a party does not have a place of business, reference is to be made to his habitual residence.

(5) This Law shall not affect any other law of this State by virtue of which certain disputes may not be submitted to arbitration or may be submitted to arbitration only according to provisions other than those of this Law.

b. commercial Footnote to Art 1(1) ML The term commercial should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1 Article headings are for reference purposes only and are not to be used for purposes of interpretation. 2 The term "commercial" should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business co-operation; carriage of goods or passengers by air, sea, rail or road.


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transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business co-operation; carriage of goods or passengers by air, sea, rail or road.

2. National legislation in Arbitration i. Single/unified regime: e.g. England, India

ii. Separate domestic and international regimes: e.g. Philippines, Australia, Singapore, New Zealand, Canada

iii. Multiple regimes: domestic, foreign related and international: e.g. China

iv. Relevant legislation: a. The Arbitration Law, RA 876 b. ADR Act of 2004, RA 9285

Art 1(3) ML international

(3) An arbitration is international if:

(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or

(b) one of the following places is situated outside the State in which the parties have their places of business:

(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;

(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or

(c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.

Scope of Application what is international under Model Law? Vanol Far East Marketing Pte Ltd v Hin Leong Trading (Pte) Ltd [1997]

3 SLR 484 [Notes: Only the (1) contract of carriage, (2) nomination of the vessel/proper shipping instructions, (3) opening of the letter of credit, and the (4) tender of payment and documents had Singapore as the place of performance. The (1) provision of cargo in conformity with the fob contract, (2) the licensing, authorizations, & formalities, (3) insurance coverage on cargo, (4) acceptance of vessel by oil terminal, (5) Tender of nor once vessel an arrived ship, (6) acceptance of nor, (7) berthing of vessel at place of delivery stipulated in fob contract (8) delivery of cargo on board the vessel (9) acceptance of cargo and/transfer of risks (9) procurement of bill of lading had Korea as the place of performance.] Christopher Lau, Judicial Commissioner (JC), dismissed the appeal by Vanol rejecting its claim that Singapore is the place where a substantial part of the obligations of the commercial relationship is to be performed under 5(2)(b)(ii) of the the International Arbitration Acts of 1994. [He wrote: I am not however persuaded that the payment and nomination obligation of the applicants, which are important obligations, solely determine the issue has to be examined in detail ]

Mitsui Engineering & Shipbuilding Co Ltd v PSA Corporation Limited and Keppel Engineering Pte Ltd [2003] 1 SLR 446


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5(3)(a) of the Internation Artbitration Agreement of 1994 provides that (a) if a party has more than one place of business, the place of business shall be that which has the closest relationship to the arbitration agreement; An instance of such close relationship would be that a contract, including an arbitration clause, is fully negotiated by the branch or office in question, even if it is signed at another place (e.g. the principal place of business.) As for the negotiations, I was of the view that it was the head offices Mr. Shirai who was in charge of negotiations. It is who is in charge of negotiations and not the number of people involved in the negotiations that is important. The place of negotiations and execution of the Consortium Agreements is less important given that Mr. Shirai had from time to time flown from Japan to Singapore. I also took into account the fact that Mitsuis address, and not in Singapore, was used for the Consortium Agreements and more importantly, that any formal communication to Mitsui was to be sent to its head office

v. Special Rules of Court on Alternative Dispute Resolution (October 2009)

3. Distinction between Rules of Arbitration and Law i. UNCITRAL Rules (1976) (2010) (for ad hoc arbitration) and

UNCITRAL Model Law 4. Institutional and ad hoc arbitrations (Redfern & Hunter)

C. What Kind of Arbitration?

a. Introduction

1.152 Any arbitration, wherever it is conducted, is subject to the mandatory rules of the lex arbitrithat is to say, the law of the place of arbitration. Generally, however, these mandatory rules will be broad and non-specific. They will say, for instance, that the parties must be treated with equality, (173) but they will not go into the details of how this is to be achieved, in terms of the exchange of statements of case and defence, witness statements, documents, and so forth. For this, more specific rules will be required; and here, the parties have a choice. Should the arbitration be conducted ad hocthat is, without the involvement of an arbitral institutionor should it be conducted according to the rules of one of the established arbitral institutions?

b. Ad hocarbitration 1.153 An ad hocarbitration is one which is conducted pursuant to rules agreed by the parties themselves or laid down by the arbitral tribunal. (174) Parties to an ad hocarbitration may establish their own rules of procedure (provided that the rules page "52"they devise treat the parties with equality and allow each party a reasonable opportunity of presenting its case). Alternatively, and more usually, the parties may agree that the arbitration will be conducted (without involving an arbitral institution) according to an established set of rules, such as the UNCITRAL Rules. This ensures a sensible framework within which the Tribunal and the parties can devise detailed rules; and it saves spending time and money in drafting a special set of rules. 1.154 However, if the case is important enough (and in particular if a State or State entity is involved) it may be worth negotiating and agreeing special rules, which take into account the status of the parties and the circumstances of the particular case: for example, the right to restitution may be expressly abandoned in favour of an award of damages. Such a specially drawn set of rules will usually be set out in a formal Submission to Arbitration, which will be negotiated and agreed once a dispute has arisen. Amongst other things, it will usually confirm the establishment of the arbitral tribunal, set out the substantive law and the place (or seat) of the arbitration, and detail any procedural rules upon which the parties have agreed for the


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exchange of documents, witness statements, and so forth. It may also provide for the Tribunal to be assisted by an administrative assistant. (175)

c. Ad hocarbitrationadvantages and disadvantages

i. Advantages

1.155 A distinct advantage of an ad hocarbitration is that it may be shaped to meet the wishes of the parties and the facts of the particular dispute. For this to be done efficiently and effectively, the co-operation of the parties and their advisers is necessary; but if such co-operation is forthcoming, the difference between an ad hocarbitration and an institutional arbitration is like the difference between a tailor-made suit and one that is bought off-the-peg. The greater flexibility offered by ad hocarbitration means that many important arbitrations involving a State party are conducted on this basis. Many of the well-known arbitrations under oil concession agreements (including the Sapphire, Texaco, BP, Liamco, and Aminoilarbitrations) were ad hocarbitrations. (176)

1.156 There is much to be said in favour of ad hocarbitration where the sums at stake are largeand in particular, perhaps, where a State or State entity is involved, and issues of public policy and sovereignty are likely to arise, since in an ad hocarbitration, it is possible for an experienced tribunal and counsel to devise a procedure (177) page "53"which is sensitive to the particular status and requirements of the State party, whilst remaining fair to both parties.

ii. Disadvantages

1.157 The principal disadvantage of ad hocarbitration is that it depends for its full effectiveness on cooperation between the parties and their lawyers, backed up by an adequate legal system in the place of arbitration. It is not difficult to delay arbitral proceedingsfor instance, by refusing to appoint an arbitrator, so that at the very outset of the proceedings there will be no arbitral tribunal in existence, and no book of rules available to deal with the situation. (178) It will then be necessary to rely on such provisions of law as may be available to offer the necessary support. (179) It is only when an arbitral tribunal is in existence, and a proper set of rules has been established, that an ad hocarbitration will proceed as smoothly as an institutional arbitration, if one of the parties fails or refuses to play its part in the proceedings.

d. Institutional arbitration

1.158 An institutional arbitration is one that is administered (180) by a specialist arbitral institution, under its own rules of arbitration. There are many such institutions. Amongst the better known are the ICC, the International Centre for Dispute Resolution (ICDR), (181) the International Centre for Settlement of Investment Disputes (ICSID), and the LCIA. There are also regional arbitral institutions (for instance, in Beijing and Cairo) and there are Chambers of Commerce page "54"with an established reputation, including those of Stockholm, Switzerland, and Vienna. (182) 1.159 The rules of these arbitral institutions tend to follow a broadly similar pattern. (183) They are formulated for arbitrations that are to be administered by the institution concerned; and they are usually incorporated into the main contract between the parties by means of an arbitration clause. The clause recommended by the ICC, for instance, states:

All disputes arising in connection with the present contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by


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one or more arbitrators appointed in accordance with the said Rules.

1.160 In common with other institutional clauses, this clause is a convenient, short-form method of incorporating into the contract between the parties a detailed book of rules, which will govern any arbitration that may take place in the future. If, at some future stage, one party proves reluctant to go ahead with arbitration proceedings, it will nevertheless be possible for the party or parties who wish to bring a claim to do so effectively, because there will be a set of rules to regulate both the way in which the arbitral tribunal is to be appointed and the way in which the arbitration is to be conducted and carried through to its conclusion.

e. Institutional arbitrationadvantages and disadvantages i. Advantages

1.161 Rules laid down by the established arbitral institutions (for instance, those of the ICC, the ICDR, ICSID, and the LCIA) will generally have proved to work well in practice; and they will have undergone periodic revision in consultation with experienced practitioners, to take account of new developments in the law and practice of international arbitration. As already mentioned, the rules themselves are generally set out in a small booklet. Parties who agree to submit any dispute to arbitration in accordance with the rules of a named institution effectively incorporate that institution's book of rules into their arbitration agreement. 1.162 This automatic incorporation of an established book of rules is one of the principal advantages of institutional arbitration. Suppose, for instance, that there is a challenge to an arbitrator, on the grounds of lack of independence or impartiality; or suppose that the arbitration is to take place before an arbitral tribunal of three arbitrators and the defending party is unwilling to arbitrate and fails or refuses to appoint an arbitrator? The book of rules will provide for this situation. It will also page "55"contain provisions under which the arbitration may proceed in the event of any other default by one of the parties. The ICC Rules, for instance, stipulate that:

If any of the parties, although duly summoned, fails to appear without valid excuse, the Arbitral Tribunal shall have the power to proceed with the hearing. (184) In a default situation, such rules are of considerable value.

1.163 Another advantage of institutional arbitration is that most arbitral institutions provide trained staff to administer the arbitration. They will ensure that the arbitral tribunal is appointed, that advance payments are made in respect of the fees and expenses of the arbitrators, that time limits are kept in mind, and, generally, that the arbitration is run as smoothly as possible. If an arbitration is not administered in this way, the work of administration will have to be undertaken by the arbitral tribunal itselfor by a registrar or tribunal secretary appointed by the tribunal for that purpose. 1.164 A further advantage of institutional arbitration is where the institution itself reviews the arbitral tribunal's award in draft form, before it is sent to the parties. Such a review, which is undertaken with particular attention to detail by the ICC, serves as a measure of quality control. The institution does not comment on the substance of the award, or interfere with the decision of the arbitral tribunal, but it does ensure that the tribunal has dealt with all the issues before it and that its award also covers such matters as interest and costs (which are frequently forgotten, even by experienced arbitrators). 1.165 Finally, the assistance which an arbitral institution can give to the parties and their counsel in the course of the arbitral proceedings is not to be underestimated. Even lawyers who are experienced in the conduct of arbitrations sometimes run into problems that they are grateful to


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discuss with the arbitral institution's secretariat. ii. Disadvantages 1.166 Under some institutional rules, (185) the parties pay a fixed fee in advance for the costs of the arbitrationthat is to say, the fees and expenses of the institution and of the arbitral tribunal. This fixed fee is assessed on an ad valorembasis. If the amounts at stake in the dispute are considerable, and the parties are represented by advisers experienced in international commercial arbitration, it may be less expensive to conduct the arbitration ad hoc. (186) On the other hand, the ability page "56"to pay a fixed fee for the arbitration, however long it takes, may work to the parties' advantage (and to the disadvantage of the arbitrators, in terms of their remuneration). 1.167 The need to process certain steps in the arbitral proceedings through the machinery of an arbitral institution inevitably leads to delay in the proceedings. Conversely, the time limits imposed by institutional rules are often unrealistically short. A claimant is unlikely to be troubled by this, since a claimant usually has plenty of time in which to prepare its case before submitting it to the respondent or to the relevant arbitral institution, and so set the clock running. However, a respondent is likely to be pressed for time, particularly in a case (such as a dispute under an international construction contract) which involves consideration of voluminous documents and where the claim that is put forward may, in fact, prove to be a whole series of claims on a series of different grounds. 1.168 Although extensions of time will usually be granted, either by the institution concerned or by the arbitral tribunal, the respondent is placed in the invidious position of having to seek extensions of time from the outset of the case. The respondent starts on the wrong foot, so to speak. The problem is worse if the respondent is a State or State entity. The time limits laid down in institutional rules usually fail to take account of the time which a State or State entity needs to obtain approval of important decisions, through its own official channels. In the ICC Rules, for example, the time limit for rendering a final award is six months, although this may be (and generally is) extended by the ICC. (187)

i. Role of institutions ii. Institutional Rules

iii. Relevant Institutions/facility/associations (examples): a. Arbitration Institutions

(a) Philippine Dispute Resolution Centre, Inc (PDRCI) (b) Singapore International Arbitration Centre (SIAC) (c) ICC International Court of Arbitration in Paris (ICC)-

First established as an arbitration branch of ICC in 1923.

(d) American Arbitration Association(AAA) they have more than 33 offices throughout the United States. The AAA was founded in 1926. International cases of AAA are handled by International Centre for Dispute Resolution (ICDR)

(e) China International Economic and Trade Arbitration Commission (CIETAC)

(f) London Court of International Arbitration(LCIA) (g) Japan Commercial Arbitration Association (JCAA)\

b. Associations (a) Institute of Arbitrators and Mediators Australia

(IAMA) (1975) (b) Arbitrators and Mediators Institute of New Zealand

(AMINZ)


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(c) Asia-Pacific Regional Arbitration Group (APRAG) (d) Chartered Institute of Arbitrators (CIArb)

5. UNCITRAL Model Law Jurisdictions List available at www.uncitral.org; also indicates which jurisdictions have adopted 2006 Model Law

6. Overview of the Arbitral Process i. Arbitration agreement/clause

ii. Dispute iii. Reference to arbitration iv. Constituting the tribunal v. Preliminary meeting

vi. Applicable law, procedure vii. Settling the schedule

viii. Dealing with documents ix. Hearings x. Award

xi. Enforcement/challenge

II. FRAMEWORK OF LAWS APPLICABLE TO THE ARBITRATION 1. Laws which may impact an arbitration

i. Law governing the parties capacity to enter into an arbitration agreement (personal law)

ii. Law governing the agreement to arbitrate iii. Law governing the procedure of the arbitration the curial law of the

arbitration or the lex arbitri iv. Law governing the underlying commercial contract (Dicey & Morris:

proper law) v. Law governing the supportive and enforcement measures

2. Lex Arbitri Vs. Venue Vs. Procedural Rules Vs. Substantive Law

Section 30, RA 9285

SEC. 30. Place of Arbitration. - The parties are free to agree on the place of arbitration. Failing such agreement, the place of arbitration shall be in Metro Manila, unless the arbitral tribunal, having regard to the circumstances of the case, including the convenience of the parties shall decide on a different place of arbitration. The arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts, or the parties, or for inspection of goods, other property or documents.

Art 20 Model Law Article 20. Place of arbitration (1) The parties are free to agree on the place of arbitration. Failing such agreement, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. (2) Notwithstanding the provisions of paragraph (1) of this article, the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of goods, other


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property or documents. [Note: CLOUT 480: The Court found that the place of arbitration was neither agreed upon by the parties, nor was it determined by the arbitrator in accordance with section 1043 (article 20 MAL), as required by section 1054 (3) (article 31 (3) MAL). The award merely stated the arbitrators address. Under these circumstances, the Court defined the place of arbitration to be the actual, effective place of arbitration. Only if no particular place could be determined, the place of the last oral hearing was considered the place of arbitration.

Union of India v McDonnell Douglas Corp [1993] 2 LLR 48}


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[To emphasize: (2) the fact that Indian law was the proper law {law to govern the rights and obligations arising out of their commercial bargain but also the rights and obligations arising out of their agreement to arbitrate} of the arbitration agreement did not necessarily entail that the law governing the arbitration proceedings themselves was also Indian law, unless there was in that agreement some effective express or implied term to that effect.] {Queens bench ruled that English courts have supervisory jurisdiction of the English Courts.} {Today, there is no such supervisory jurisdiction considering the substantive provisions of the New York Convention.}

PT Garuda Indonesia v Birgen Air (OM 600001/2001;Unreported, 11 Sep 2001 Woo Bih Li JC)

Jurisdiction: Singapore; Date: 2002 Court: Court of Appeals The facts giving rise to the institution of this Originating Motion were largely undisputed. The appellant (Garuda), an Indonesian company, and the respondent (Birgen), a Belgium company, entered into an agreement dated 20 January 1996 whereby Birgen agreed to lease one DC 10-30 aircraft to Garuda for use by pilgrims to Saudi Arabia for the Hajj (the lease agreement). The lease agreement expressly provided that the governing law would be the law of Indonesia and that disputes arising therefrom were to be referred for arbitration in Jakarta. The arbitral tribunal consisted of Dr Clyde Croft, as Chairman, and Professor Priyatna Abdurrasyid and Professor Nurkut Inan as co-arbitrators. From February 1999, the tribunal, through its Chairman, Dr Croft, sought to set dates for the hearing of the arbitration. Dr Croft proposed that the hearing of the arbitration be carried out in Singapore rather than in Zurich. lawyers for Birgen agreeable, inter alia, that "Jakarta is not an appropriate place for the hearing and accepts the tribunals proposal to sit in Singapore." !tribunal had decided that this matter will be heard on 4, 5 and 6 August 1999 in Singapore". On 10 June 1999 Gani Djemat & Partners (Gani Djemat), lawyers for Garuda, wrote indicating, inter alia, that they agreed that "the hearing to take place on 4, 5 and 6 August 1999 in Singapore." Garuda filed a Notice of Originating Motion (OM) in the High Court in Singapore to set aside the Final Award and the Addendum, and for various other reliefs. Issues: There were, therefore, three main issues before us. First, whether there was an agreement between the parties, in the light of the correspondence referred to above, followed by the actual hearing of the arbitration in Singapore, to alter the place of the arbitration from Jakarta to Singapore. Second, whether Singapore was the place most clearly connected with the arbitration


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and whether this was the most appropriate forum to hear the application in the OM. Third, whether there was a material non-disclosure on the part of Garuda in their application for leave to serve out of jurisdiction and, if this were the case, what should be the consequence thereof.

Article 20: Place of arbitration (1) The parties are free to agree on the place of arbitration. Failing such agreement, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. (2) Notwithstanding the provisions of paragraph (1) of this Article, the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among members, for hearing witnesses, experts or parties, or for inspection of goods, property or documents."

It should be apparent from Article 20 that there is a distinction between "place of arbitration" and the place where the arbitral tribunal carries on hearing witnesses, experts or the parties, namely, the "venue of hearing". The place of arbitration is a matter to be agreed by the parties. Where they have so agreed, the place of arbitration does not change even though the tribunal may meet to hear witnesses or do any other things in relation to the arbitration at a location other than the place of arbitration. citing Redfern & Hunter:

"Finally, as I mentioned at the outset, it seems clear that the submissions advanced below confused the legal seat etc. of an arbitration with the geographically convenient place or places for holding hearings. This distinction is nowadays a common feature of international arbitrations and is helpfully explained in Redfern and Hunter at p.69 in the following passage under the heading The Place of Arbitration:

The preceding discussion has been on the basis that there is only one place of arbitration. This will be the place chosen by or on behalf of the parties; and it will be designated in the arbitration agreement or the terms of reference or the minutes of proceedings or in some other way as the place or seat of the arbitration. This does not mean, however, that the arbitral tribunal must hold all its meetings or hearings at the place of arbitration. International commercial arbitration often involves people of many different countries. In these circumstances, it is by no means unusual for an arbitral tribunal to hold meetings -or even hearings in a place other than the designated place of arbitration, either for its own convenience or for the convenience of the parties or their witnesses ... It may be more convenient for an arbitral tribunal sitting in one country to conduct a hearing in another country for instance, for the purpose of taking evidence ... In such circumstances, each move of the arbitral tribunal does not of itself mean that the seat of the arbitration changes. The seat of the arbitration remains the place initially agreed by or on behalf of the parties." (emphasis added). It will be seen that the English concept of "seat of arbitration" is the same as "place of arbitration" under the Model Law.

Contract clauses:

Clause 16.9: Arbitration In the event that a commercial controversy or claim .... such controversy or claim shall be settled by arbitration held before a board of three qualified arbiters. The parties agree that such arbitration shall be held in Jakarta, Indonesia and conducted in the English language in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. (emphasis added). 6.1 The place of arbitration is Jakarta, Indonesia.

. Garuda seemed to have placed great emphasis on the fact that the hearing of the arbitration was held entirely in Singapore and nowhere else. But an arbitration proceeding does not comprise only of the oral hearing and the submission. It encompasses an entire process,


15

commencing from the appointment of the arbitrator or arbitrators to the rendering of the final award. While both Amazonica and Union Bank of India {cited by Garuda} did not involve the Model Law, and could be distinguished on that basis, the real differentiating feature there lies in the fact that in both those cases the relevant clauses were far from clear. We have alluded to that before. But in the instant case, the lease agreement was abundantly clear: the lease agreement was to be governed by Indonesian law and the place of arbitration was Jakarta, which must also mean that the arbitration proceedings were subject to Indonesian law.

Case 6 Sch 2/99 (Germany: Higher Regional Court Dsseldorf, 2000) CLOUT Case 408 A/CN.9/SER.C/ABSTRACTS/35

Case 408: Art. 1(2), 20, 34 MAL Germany: Higher Regional Court Du sseldorf; 6 Sch 2/99 place of arbitration 23 March 2000 The decision, arising out of an action to set aside an award, concerns the determination the place of arbitration. Although the award made reference to the sole arbitrators domicile in Du sseldorf, the Court declined its jurisdiction because it concluded the award was a foreign arbitral award. The parties disputed the value of two business partnerships after the withdrawal by one of the parties. In the course of the negotiations over the value of the two partnerships, the parties agreed on a particular expert to conduct an appraisal. Both parties declared in separate written statements that they would accept the decision by the expert, acting as a single arbitrator. Though the parties exchanged several drafts of an arbitration agreement, no formal agreement was ever signed. After an unsuccessful settlement attempt in Du sseldorf, the arbitrator undertook an audit of the partnerships at their places of business in Zurich, Switzerland. Further negotiations took place for more than two years. Finally, upon motion of the Claimant, the arbitrator rendered an arbitral award. The Respondent filed an application to set aside the award before the Court where the award was executed. The Court declined its own jurisdiction to rule on the validity of the award. It held that the arbitral award at issue was not a German domestic arbitral award but a foreign arbitral award. The Court based its decision on the German arbitration law that was in effect until December 1997, since the new provisions, adapted from the MAL, became effective after the arbitration proceedings had commenced. Applying the standard of the previous law, the Court considered that the award was foreign because, according to the draft arbitration agreements exchanged by the parties, both parties intended the dispute to be decided under Chapter 12 of the Swiss Federal Statute on Private International Law. Moreover, the Court also held that it lacked jurisdiction under the current arbitration law. According to section 1025 (1) German Code of Civil Procedure the provisions on arbitration only apply if the place of arbitration is situated in Germany. This rule also applies to the proceedings for setting aside an award pursuant to section 1059 (adapted from article 34 MAL). The Court found that the place of arbitration was neither agreed upon by the parties, nor was it determined by the arbitrator in accordance with section 1043 (article 20 MAL), as required by section 1054 (3) (article 31 (3) MAL). The award merely stated the arbitrators address. Under these circumstances, the Court defined the place of arbitration to be the actual, effective place of arbitration. Only if no particular place could be determined, the place of the last oral hearing was considered the place of arbitration.


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In the case at issue, all relevant actions the auditing and the subsequent negotiations with both parties took place in Zurich {Switzerland}. Therefore, and regardless of where the award itself was issued, the effective place of arbitration was not situated in Germany.

3. Importance of Lex Arbitri from Redfern & Hunter; Chapter 3

a. Introduction 3.34 An international commercial arbitration usually takes place in a country that is neutral, in the sense that none of the parties to the arbitration has a place of business or residence there. (28) This means that in practice the law of the country in whose territory the arbitration takes place, the lex arbitri, will generally be different from the law that governs the substantive matters in dispute. An arbitral tribunal with its seat in the Netherlands, for example, may be required to decide the substantive issues in dispute between the parties in accordance with the law of Switzerland or the law of the State of New York or some other law, as the case may be. page "173"Nevertheless, the arbitration itself, and the way in which it is conducted, will be governed (if only in outline) by the relevant Dutch law on international arbitration. 3.35 This difference between the lex arbitri (the law of the place or seat of the arbitration) and the law governing the substance of the dispute, was part of the juridical tradition of continental Europe, but is now firmly established in international commercial arbitration. (29) 3.36 It is right that there should be a distinction between the lex arbitriand the substantive law of the contract. Where parties to an international arbitration agreement choose for themselves a seat of arbitration, they usually choose a place that has no connection with either themselves or their commercial relationship. They choose a neutral place. (30) By doing so, they do not necessarily intend to choose the law of that place to govern their relationship. (31) Indeed, as well as choosing a place of arbitration, they may well choose a substantive law that has no connection with that place. 3.37 If the parties do not make an express choice of the place of arbitration, the choice will have to be made for them, either by the arbitral tribunal itself or by a designated arbitral institution.

b. What is the lex arbitri? 3.39 It is appropriate, at this stage, to consider what is meant by the lex arbitri. The question was posed rhetorically by a distinguished English judge: What then is the law governing the arbitration? It is, as the present authors trenchantly explain, a body of rules which sets a standard external to the arbitration agreement, and the wishes of the parties, for the conduct of the arbitration. The law governing the arbitration comprises the

{1} rules governing interim measures (eg Court orders for the preservation or storage of goods), the {2} rules empowering the exercise by the Court of supportive measures to assist an arbitration which has run into difficulties (eg filling a vacancy in the composition of the arbitral tribunal if there is no other mechanism) and {3} the rules providing for the exercise by the Court of its supervisory jurisdiction over arbitrations (eg removing an arbitrator for misconduct).

c. The content of the lex arbitri


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3.40 Each State will decide for itself what laws it wishes to lay down to govern the conduct of arbitrations within its own territory. Some States will wish to build an element of consumer protection into their law, so as to protect private individuals. For example, the Swedish Arbitration Act 1999 provides (38) that an arbitration agreement with a consumer involving goods or services for private use is invalid if made before a dispute arises. Again, for example, the Swedish Act provides that the arbitral tribunal must set out in its award its decision as to the fees payable to each of the arbitrators; (39) and the arbitral tribunal must notify the parties of the steps that may be taken to appeal to the district court against this decision. (40) 3.51 The concept that an arbitration is governed by the law of the place in which it is held, which is the seat (or forum or locus arbitri) of the arbitration, is well established in both the theory and practice of international arbitration. The arbitral procedure, including the constitution of the arbitral tribunal, shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place. (52)

i. Curial support ii. Setting Aside of Award

iii. Nationality of the Award (Enforcement)

4. Substantive law in arbitration Article 28(2) ML

CHAPTER VI. MAKING OF AWARD AND TERMINATION OF PROCEEDINGS Article 28. Rules applicable to substance of dispute

(1) The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. Any designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of laws rules.

(2) Failing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.

(3) The arbitral tribunal shall decide ex aequo et bono3 or as amiable compositeur4 only if the parties have expressly authorized it to do so.

(4) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.

Conflict of law rules - Dicey and Morris, The Conflict of Laws (13th

ed), recommends the following rules: !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

3 Ex aequo et bono (Latin for "according to the right and good" or "from equity and conscience") is a phrase derived from Latin that is used as a legal term of art. In the context of arbitration, it refers to the power of the arbitrators to dispense with consideration of the law and consider solely what they consider to be fair and equitable in the case at hand. 4 Clauses in arbitration agreements allowing the arbitrators to act as "amiables compositeurs", permit the arbitrators to decide the dispute according to the legal principles they believe to be just, without being limited to any particular national law. The resulting arbitral awards are frequently based on equity or on the lex mercatoria. The arbitrators are authorized, as "amiables compositeurs", to disregard legal technicalities and strict constructions which they would be required to apply in their decisions if the arbitration agreement contained no "amiable compositeur" clause. "Amiable compositeur" clauses in arbitration agreements are expressly permitted by art. 28(3) of the UNCITRAL Model Law on International Commercial Arbitration 1985 (infra), as well as in both domestic and international arbitration procedures.


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Rule 145 The term proper law of a contract means the system of law by which the parties intended the contract to be governed, or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real connection.

Sub-rule 1. When the intention of the parties to a contract, as to the law governing the contract, is expressed in words, this expressed intention, in general, determines the proper law of the contract.

Sub-rule 2. When the intention of the parties to a contract with regard to the law governing the contract is not expressed in words, their intention is to be inferred from the terms and nature of the contract, and from the general circumstances of the case, and such inferred intention determines the proper law of the contract.

Sub-rule 3. When the intention of the parties to a contract with regard to the law governing it is not expressed and cannot be inferred from the circumstances, the contract is governed by the system of law with which the transaction has its closest and most real connection.

Compagnie dArmement Maritime SA v Compagnie Tunisienne de

Navigation SA [1971] AC 572 (per Lord Wilberforce)


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III. THE ARBITRATION AGREEMENT Redfern & Hunter, Redfern and Hunter on International Arbitration, 2009, Chapter 2 [2.01 to 2.105; for reference only Sections 2.106 onwards]

A. Overview

a. Introduction Nevertheless, the consent of the parties remains the essential basis of a voluntary system of international commercial arbitration. (4)

b. Categories of Arbitration Agreements An arbitration clause looks to the future, whereas a submission agreement looks to the past. The first, which is most common, is usually contained in the principal agreement between the parties and is an agreement to submit future disputes to arbitration. The second is an agreement to submit existing disputes to arbitration.

c. International Conventions d. International Standards

B. The Validity of an Arbitration Agreement a. formal validity the need for writing b. a defined legal relationship c. a subject-matter capable of settlement by arbitration

C. Parties to an Arbitration Agreement a. Capacity

i. Natural Persons ii. Corporations

iii. States and State Agencies b. Third-parties to the Arbitration Agreement

i. Piercing the Veil within groups of companies ii. Assignment, Agency, and Succession

1. Assignment 2. Arbitration Agreements concluded by agents 3. Succession and Novation

c. Joinder and Intervention D. Analysis of an Arbitration Agreement

a. Scope i. forms of wording

b. Basic Elements i. a valid arbitration agreement

ii. the number of arbitrators iii. establishment of the arbitral tribunal iv. ad hoc or institutional arbitration v. filling vacancies in the tribunal

vi. place of arbitration vii. governing law

viii. default clauses ix. language x. multi-tier clauses

xi. other procedural matters c. Separability d. Summary


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[Optional reading hereonout. For reference only.]

E. Submission Agreements a. Introduction b. Drafting a Submission Agreement

i. An Illustration F. Arbitrability

a. Introduction b. Categories of Dispute for which questions of arbitrability arise

i. patents, trade marks, and copyright ii. antitrust and competition laws

iii. securities transactions iv. insolvency v. bribery and corruption

vi. fraud vii. natural resources

c. Conclusion G. Confidentiality

a. Privacy and Confidentiality i. Article 21 Hearings

ii. Article 25.4 b. Confidentiality the classical postion c. Confidentiality the current trend d. the award e. Confidentiality in investor State arbitrations f. Revisions to rules of arbitration

i. LCIA Rules ii. The WIPO Arbitration Rules

g. Conclusion H. Defective Arbitration Clauses

a. Inconsistency b. Uncertainty c. Inoperability d. Repudiation and waiver of arbitration agreements

I. Multi-party Arbitrations a. Introduction

i. several parties to one contract ii. several contracts with different parties

b. Class arbitrations c. String arbitrations d. Concurrent hearings e. Court-ordered consolidation f. Consolidation by consent

i. under an arbitration agreement ii. under institutional rules

1. Types

Ad hoc submission Separate arbitration agreement

what arbitration clause submission agreement looks to future past usually contained in the principal not contained in the principal


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agreement agreement agreement to submit to future disputes existing dispute what ad hoc arbitration institutional arbitration tribunal created by the parties exisiting institutional mechanism

2. Definitions of arbitration agreement UNCITRAL Model Law Art. 7

Option I Article 7. Definition and form of arbitration agreement (As adopted by the Commission at its thirty-ninth session, in 2006) (1) Arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (2) The arbitration agreement shall be in writing.

(3) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means. (4) The requirement that an arbitration agreement be in writing is met by an electronic communication if the information contained therein is accessible so as to be useable for subsequent reference; electronic communication means any communication that the parties make by means of data messages; data message means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy. (5) Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other. {Wow, just have exchange of statements and you now have an arbitration agreement.} (6) The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract.

Option II Article 7. Definition of arbitration agreement (As adopted by the Commission at its thirty-ninth session, in 2006) Arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Excerpt from the UNCITRAL Model Law (as updated, 2006) Explanatory note: 2. Arbitration agreement 18. Chapter II of the Model Law deals with the arbitration agreement, including its recognition by courts. a. Definition and form of arbitration agreement 19. The original 1985 version of the provision on the definition and form of arbitration agreement (article 7) closely followed article II (2) of the New York Convention, which requires that an arbitration agreement be in writing. If the parties have agreed to arbitrate, but they entered into the arbitration agreement in a manner that does not meet the form requirement, any party may have grounds to object to the jurisdiction of the arbitral tribunal. It was pointed out by practitioners that, in a number of situations, the drafting of a written document was impossible or


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impractical. In such cases, where the willingness of the parties to arbitrate was not in question, the validity of the arbitration agreement should be recognized. For that reason, article 7 was amended in 2006 to better conform to international contract practices. In amending article 7, the Commission adopted two options, which reflect two different approaches on the question of definition and form of arbitration agreement. The first approach follows the detailed structure of the original 1985 text. It confirms the validity and effect of a commitment by the parties to submit to arbitration an existing dispute (compromis) or a future dispute (clause compromissoire). It follows the New York Convention in requiring the written form of the arbitration agreement but recognizes a record of the contents of the agreement in any form as equivalent to traditional writing. The agreement to arbitrate may be entered into in any form (e.g. including orally) as long as the content of the agreement is recorded. This new rule is significant in that it no longer requires signatures of the parties or an exchange of messages between the parties. It modernizes the language referring to the use of electronic commerce by adopting wording inspired from the 1996 UNCITRAL Model Law on Electronic Commerce and the 2005 United Nations Convention on the Use of Electronic Communications in International Contracts. It covers the situation of an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another. It also states that the reference in a contract to a document (for example, general conditions) containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract. It thus clarifies that applicable contract law remains available to determine the level of consent necessary for a party to become bound by an arbitration agreement allegedly made by reference. The second approach defines the arbitration agreement in a manner that omits any form requirement. No preference was expressed by the Commission in favour of either option I or II, both of which are offered for enacting States to consider, depending on their particular needs, and by reference to the legal context in which the Model Law is enacted, including the general contract law of the enacting State. Both options are intended to preserve the enforceability of arbitration agreements under the New York Convention. 20. In that respect, the Commission also adopted, at its thirty-ninth session in 2006, a Recommendation regarding the interpretation of article II, paragraph 2, and article VII, paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done in New York, 10 June 1958 (A/61/17, Annex 2). The General Assembly, in its resolution 61/33 of 4 December 2006 noted that in connection with the modernization of articles of the Model Law, the promotion of a uniform interpretation and application of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done in New York, 10 June 1958, is particularly timely. The Recommendation was drafted in recognition of the widening use of electronic commerce and enactments of domestic legislation as well as case law, which are more favourable than the New York Convention in respect of the form requirement governing arbitration agreements, arbitration proceedings, and the enforcement of arbitral awards. The Recommendation encourages States to apply article II (2) of the New York Convention recognizing that the circumstances described therein are not exhaustive. In addition, the Recommendation encourages States to adopt the revised article 7 of the Model Law. Both options of the revised article 7 establish a more favourable regime for the recognition and enforcement of arbitral awards than that provided under the New York Convention. By virtue of the more favourable law provision contained in article VII (1) of the New York Convention, the Recommendation clarifies that any interested party should be allowed to avail itself of rights it may have, under the law or treaties of the country where an arbitration agreement is sought to be relied upon, to seek recognition of the validity of such an arbitration agreement.

New York Convention Art. II Article II 1. Each Contracting State shall recognize an agreement in writing under which the parties


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undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. 2. The term agreement in writing shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. 3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

3. in writing and written agreement Art. 7 Model Law, supra Art. II New York Convention, supra Consmaremma-Consorzion tra produttori agricoli Societa Cooperativa

v Hermanos Escot Madrid SA (Tribunal Supremo, Spain) Yearbook Com Arb XXVi (2001) p 858

Consmaremma bought certain goods from Escot through its brokers. The brokers sent Escot sales confirmation no. 025/95 on August 30, 1995. The sales confirmation contained a clause referring all disputes to arbitration at the Chamber of Arbitration of Paris and further referred to Form no. 13 Paris FOB Maritime, which also contains a clause for arbitration at the Chamber of Arbitration of Paris. A dispute arose between the parties. An arbitral panel of the Chamber of Arbitration of Paris rendered an award in favor of Consmaremma on August 22, 1997. Cosmaremma sought enforcement of the award in Spain. The Supreme Court granted the enforcement, holding that, although the sales confirmation, which was signed only by Cosmaremma and the brokers, was not a written agreement to arbitrate, it appeared in the award that the parties had later concluded a contract to complement the contractual relationship that had arisen under the sales confirmation. As this later contract, which explicitly referred to the sales confirmation, was signed by both parties, the Supreme Court held that there was an agreement in writing as required by the Convention. [Note: Excerpt from the Explanatory Note to the 2006 UNCITRAL Model Law: It follows the New York Convention in requiring the written form of the arbitration agreement but recognizes a record of the contents of the agreement in any form as equivalent to traditional writing. The agreement to arbitrate may be entered into in any form (e.g. including orally) as long as the content of the agreement is recorded. This new rule is significant in that it no longer requires signatures of the parties or an exchange of messages between the parties.]

II ZR 37 3/98 (Germany SupCt: Bundesgerichtshof) CLOUT Case 406: A/CN.9/SER.C/ABSTRACTS/35

Case 406: Art. 7 UNCITRAL Model Law (MAL) April 2000 The decision by the Federal Supreme Court concerns the binding effect that an arbitration clause in the statute of an association can have on members that have not consented to it. Although the ruling is based on provisions of the German Code of Civil Procedure in force before the adaptation of the UNCITRAL Model Law (MAL), the decision is also relevant to cases decided pursuant to the MAL. The plaintiff is a member of the registered association for the breeding of German Shepherd dogs. The Association, the defendant in these proceedings, introduced an arbitration clause into its


25

rules through a majority vote by its members without Plaintiffs assent. When a penalty was imposed on the Plaintiff by the Association, the Plaintiff filed a claim in the Regional Court (LG Augsburg). The Court declined jurisdiction because of the arbitration clause contained in the rules. On appeal, the Higher Regional Court of Munich affirmed the decision (OLG Mnchen, 30 U 709/97; 09. February 1999). The Federal Supreme Court reversed and remanded the case to the Higher Regional Court. The Supreme Court stated that the provisions of the Civil Code of Procedure in force before the adaptation of the MAL applied, since the arbitration clause had been included into the statute when these provisions were still in force. The Court held that while an arbitration clause could generally be introduced into the rules of an association under 1048 (now 1066) of the German Code of Civil Procedure, this did not necessarily mean that a member of the Association would automatically be subject to the clause if it was later added without its assent. The Court stressed that the rights to be judged by ones lawful judge and to have recourse to state courts were constitutional rights. These constitutional rights could only be waived by a conscious decision based on the free will of the concerned party. The members who had assented to the arbitration clause had made this conscious decision. However, the dissenting members had not. A waiver of the mentioned constitutional rights could only be construed if a member still chose to remain a member of the Association even though it had the possibility of resigning its membership. The Court, however, emphasized that such a construction could not be contemplated in the case of an association whose members were not in a position to decide about their membership free from economic, social or other constraints. Since it was not possible to breed German Shepherd dogs outside the Defendants Association, the factual consequences of resigning its membership would have been unbearable for the Plaintiff. Accordingly, the fact that the Plaintiff had remained a member of the Defendants Association could not be construed as a waiver of its right to have recourse to state courts. Case 407: November 2000 The decision of the Federal Supreme Court of Germany (Bundesgerichtshof) concerns the question on which grounds a declaration of enforceability of an award on agreed terms may be refused. The case arose out of a contract for the sale of shares by the Applicant to the Respondent. When a dispute arose, the parties started arbitration proceedings which resulted in a settlement recorded in the form of an arbitral award on agreed terms pursuant to section 1053 (1) of the German Code of Civil Procedure (ZPO) (adapted from Art. 30 MAL). In this settlement, the parties agreed that the Applicant would transfer all of its remaining shares to the Respondent. The price had been determined on the basis of a balance sheet audit. The Applicant transferred the shares and the Respondent paid two thirds of the agreed price. When the remaining third was not paid, the Applicant moved for a declaration of enforceability before the competent Higher Regional Court. In defence, the Respondent submitted that the balance sheets presented by the Applicant had been falsified. The Higher Regional Court ruled that a damages claim based on the falsification of the balance sheets did not justify interference with a valid award and declared the award enforceable. On appeal, the Federal Supreme Court reversed and remanded the case to the Higher Regional Court for further trial. The Federal Supreme Court held that grounds for the setting aside of the award under section 1059 (2) ZPO, which would lead to a denial of a declaration of enforceability under section 1060 (2) ZPO, could not be ruled out on the basis of the facts established by the Higher Regional Court.


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The Court found itself barred from considering whether an avoidance of the settlement might justify a refusal of enforcement under section 1059 (2) (1) (b) ZPO [ML. Art. 36 (1) (a) (iv)] since that ground was not properly invoked by Respondent. It furthermore held that the enforcement of the award could also not be resisted on the basis of section 1059 (2) No.2 lit.b, ZPO, a violation of the ordre public. Under German law a violation of the ordre public is assumed if one of the grounds which justify a reopening of a case under section 580 ZPO exists. Criminal acts, as alleged by Respondent, only justify a reopening of a case according to section 581 ZPO if they already resulted in a conviction which was not the case. The Court held, however, that in analogy to the provisions of section 1059 of the Code of Civil Procedure, an award may also be set aside if it is based on a wilfull and intentional violation of public policy pursuant to section 826 of the German Civil Code. According to the submissions by the Respondent, this was the case here. Therefore, the Supreme Court remanded the case to the Higher Regional Court for further trial in order to ascertain the relevant facts. [Note: This is a case of vitiated consent through fraud by falsification of financial statements. Enforcement of the award was thereby set aside.]

APC Logistics Pty Ltd and Phoenix International Freight Services Limited v. CJ Nutracon Pty Ltd and Multisource Network Corporation, Federal Court of Australia, Queensland District Registry, 16 February 2007, VID 978 of 2006

Freight forwarders APC Logistics Pty LTD and Phoenix International Freight Services Limited (collectively, the applicants) entered into a contract with CJ Nutracon Pty Ltd (the first respondent) and Multisource Network Corporation (the second respondent) for the transportation of machinery and equipment from the United States to Australia. A dispute arose in respect of charges the applicants claimed from both respondents and of a claim the second respondent had against the first respondent arising out of their contractual arrangements relating to the carriage of the goods. 331On 12 September 2006, the parties held a meeting in Los Angeles. At that meeting, according to the applicants, the parties orally agreed to undertake mediation and, if mediation was not successful, to refer the dispute to arbitration, both to be conducted in the United States. According to the second respondent, that agreement was only in principle. On 22 September 2006, the first respondent reached an agreement with the applicants that was recorded in an Interlocutory Settlement Deed. The Deed provided that the first respondent 26ecogniz to persuade the second respondent to undertake alternative dispute resolution. To this aim, the first respondent sent a draft arbitration agreement to the second respondent, combining mediation and arbitration. The second respondent recommended in reply that the two methods be split and the focus be put on mediation. On 6 December 2006, the first respondent and the second respondent participated in a mediation meeting in which the applicants did not appear. The second respondent subsequently filed a request for arbitration. In the meantime, proceedings were commenced in the Federal Court of Australia, Queensland District Registry. The applicants and the second respondent sought an order from the Court staying proceedings pending arbitration. The Federal Court, per Kiefel, J, denied the request, holding that there was no arbitration agreement in writing between the parties within the meaning of the 1958 New York Convention. The Court examined the correspondence among the parties and concluded that though an agreement can be validly reached through an exchange of correspondence, in the present case there was no confirmation or acceptance by the parties that they agreed on all terms of a dispute resolution mechanism and considered themselves bound to perform it. [Note: Although even an exchange of correspondence may be deemed a written arbitration


27

agreement, such correspence should still show consent.] [Class notes: Would have been way easier if the agreed on an arbitration clause before the dispute arose. This case is an example.]

UNCITRAL Model Law 2006 Art. 7, supra 4. Elements of a Valid Arbitration Agreement

Redfern & Hunter, Law & Practice of International Commercial Arbitration, Chapter 2, Section 2.11 to 2.12

2.11 In seeking to establish the international requirements, the starting point has to be the New York Convention. This has been described as the single most important pillar on which the edifice of international arbitration rests, (16) and one which perhaps could lay claim to be the most effective instance of international legislation in the entire history of commercial law. (17) Under the Convention each Contracting State undertakes to recognise and give effect to an arbitration agreement when the following requirements are fulfilled: (1) the agreement is in writing; (2) it deals with existing or future disputes; (3) these disputes arise in respect of a defined legal relationship, whether contractual or not; and (4) they concern a subject-matter capable of settlement by arbitration. (5) the parties to the arbitration agreement must have legal capacity under the law applicable to them; (6) the arbitration agreement must be 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. In the words used earlier in the New York Convention (in Article II(3)), the agreement must not be null and void, inoperative or incapable of being performed. 2.12 These {first} four {i.e., (1)-(4)} are positive requirements of a valid arbitration agreement, laid down in Article II(1) of the New York Convention. {The} further two requirements {(5) and (6)} are, in effect, added by the provisions of Article V(1)(a), (19) which stipulates that recognition or enforcement of an award may be refused if the party requesting refusal is able to prove that the arbitration agreement was made by a person under incapacity, or that the agreement was invalid under the applicable law. 2.68 There follows a note of the key elements of an arbitration clause, including those that may usefully supplement a model clause. Since these key elements have already been discussed, either in this chapter or in the preceding chapters, the note is brief.

i. A valid arbitration agreement

2.69 First, there must be a valid arbitration agreement. In particular it must be made clear, as it is in the model clauses, that the parties intend that any and all disputes between them shall be finally resolved by arbitration. Examples of defective clauses, in which such an intention was not made clear, are given later in this chapter. ii. The number of arbitrators 2.70 In an international commercial arbitration there should be an uneven number of arbitrators; and it is suggested that, in general, three at most will be sufficient. (120) The system of appointing only two arbitrators, with an umpire or referee to adjudicate between them if they cannot agree, may be appropriate for arbitrations within a defined trade or commodity association, but is impracticable for the generality of international commercial arbitrations.


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iii. Establishment of the arbitral tribunal 2.71 This important subject is dealt with in Chapter 4.

5. Clauses which give a choice The Dai Yun Shan [1992] 2 SLR 508

The plaintiffs, a Canadian Company with a representative office in Singapore, had shipped cargo on board the Dai Yun Shan (the vessel) for carriage from Singapore to Guangzhou, China. On arrival, the cargo was discharged into warehouses. The cargo was eventually released by the defendants agent on presentation by the consignee of a copy rather than the original bill of lading and a letter of indemnity. The plaintiffs did not receive payment for the cargo and commenced proceedings in rem against the defendants. as owners of the vessel. The defendants applied to stay all proceedings pending arbitration in the Peoples Republic of China or pending reference to the courts in China, relying on a choice of forum clause (cl.2) in the bill of lading. The clause provided that all disputes arising under and in connection with the bill of lading would be determined by Chinese law in the courts of, or by Arbitration in China. Pending the hearing of the application for stay, the defendants applied, inter alia, for security for their costs of the application for stay. Security for costs was awarded. The defendants application for stay was granted by the registrar for terms that the defendants provide security in the amount of the bail bond. The plaintiffs appealed against the stay. The defendants cross-appealed against the conditions for stay. The plaintiffs argued that there cannot be any dispute on the liability of the defendants for releasing the cargo without production of the bill of lading. One of the questions of the court was whether the dispute was one required to be referred to arbitration under the Arbitration (Foreign Awards) Act (Cap10A) (the Act.) Held: Dismissing both the appeal and the cross-appeal: (1) So long as the claim is not admitted, a dispute exists. (2) If the arbitration agreement in cl.2 of the bill of lading falls within 4 of the Act, then the court shall make an order of stay but may impose conditions. Since under cl.2 the plaintiffs have a choice of either proceeding to arbitration in China or prosecuting their claim in the Chinese courts, the dispute is not once that is required to be referred to arbitration. Therefore the Act does not apply to the dispute. [Note: Arbitration not mandatory. Therefore the stay was denied.] (3) In this case, the applicable law in the law of China, the evidence of misdelivery is in China and the parties have agreed to have all disputes determined in China. There is no evidence that the defendants are seeking a procedural advantage. (4) The defendants application for security for costs was limited to the costsof the application for a stay. By doing so, they have not taken a step in the proceedings.

Guangdong Agriculture Co Ltd v Conagra international (Far East) Ltd [1993] ADRLJ 100

The plaintiff contracted to buy and the defendant to sell certain goods. The contract contained an arbitration agreement. The plaintiff alleged short and delayed delivery and sought summary judgment in respect of the short delivery claim under R.S.C., Order 14. The defendant sought a stay to arbitration. It was not disputed that the arbitration agreement was governed by the UNCITRAL Model Law. There were two issues before the court: (1) whether, upon construction, the arbitration agreement was too uncertain to be enforceable; (2) whether there was a dispute between the parties capable of being referred to arbitration.


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Held: (1) The parties by their contract showed a clear intention to go to arbitration. Any uncertainty over the number of arbitrators to be appointed could be resolved, failing agreement, under the provisions of the Model Law. (2) [Yes, in order to proceed to arbitration.] The wording of Article 8(1) of the Model Law was different from that in Section 6A of the Arbitration Ordinance and 1 of the Arbitration Act of 1975, on which section 6A was based. Under Article 8(1) of the Model Law, it was unnecessary for the court to examine the nature and extent of the dispute between the parties. A non-admission of the claim was sufficient for the matter to be referred to arbitration. It was for the arbitrator to examine the merits for each side. [Note: Read this case again. Was not able to find: what was the clause which gave a choice?]

William Co v Chu Kong Agency Co Ltd [1993] 2 HKC 377 The plaintiff brought a claim in the high court for damages under the Hague-Visby Rules for damage to its cargo on board a vessel under a bill of lading issued by the first defendant but not signed by the plaintiff. The bill of lading contained a clause that all disputes shall, in accordance with Chinese law, be resolved in the court of the Peoples Republic of China or be arbitrated in China. After the dispute had arisen, there was correspondence between the parties solicitors, and an affidavit by the plaintiffs solicitor, all of which made references to that clause. The defendants also argued that the points of claim of the plaintiff were based on the bill of lading. Further, the bill of lading contained clauses excluding or limiting the carriers liability beyond the limits laid down in the Hague-Visby Rules. It was accepted that the UNCITRAL Model Law applied. The defendants applied for a stay of proceedings in favour of arbitration in China, or on the grounds of a Chinese exclusive jurisdiction clause or forum non conveniens. Held, allowing the defendants application: (1) Although the clause provided for either litigation or arbitration, it was not void for uncertainty. Under the clause, the claimant in a dispute had a choice, which would be binding on the defending party, either to seek arbitration or litigation in China. The plaintiffs choice of litigation in Hong Kong was not a method within the contract and was invalid. {This case was decided in 1992. Hong Kong was ceded by the British to China in 1997. Hong Kong was then not yet a special administrative region of China.} It was therefore open to the defendants to choose. The defendants had opted for arbitration by seeking a stay under Article 8 of the Model Law and were prima facie entitled to stay. (2) Correspondence contemporaneous with or which post dated the arbitration agreement, could be a record of the agreement within Article 7(2) of the Model Law. The materials before the court showed that the plaintiff agreed to arbitration through its solicitors in the correspondence and affidavit. Such material contained a record of that agreement. and could further be described as a statement of case an defense. This was so even though the materials did not refer to arbitration as such but only to the choice of law and jurisdiction clause. Article 7(2) had therefore been complied with. Dictum of Mayo J in Hissan Trading Co v. Orkin Shipping (Comm L 39/92) not followed. (3) Article 8 of the Model Law was mandatory in terms. Once the court was satisfied there was an arbitration clause within Art. 7(2) of the Model Law, the court should not concern itself with how the arbitrations would treat the terms of the bill of lading. The choice of law was a matter for the Chinese arbitrators. The fact that they would probably apply the terms of the bill of lading which were more generous to

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International Commercial Arbitration Neil Eustaquio