Arbitration - general

1. Arbitration - general • Arbitration = one of the techniques of « ADR » • others are eg mediation, conciliation, expert determination • Informal forms of « contract governance »: in cross-border contracts, creditors often do ot even try state courts (or not evena rbitration), and use e.g. monitoring + reputation management. • 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)

4. (National) arbitration statutes • 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; French case law identifying a French substantive international law of arbitration) • Sometimes separate rules for domestic and transnational arbitration (eg Switzerland; French case law identifying a French substantive internatioanl law of arbitration, Cass. 30 III 2004 in Unikod)

5. Harmonisation of arbitration statutes • Sometimes separate rules for domestic and transnational arbitration (eg Switzerland; French case law identifying a French substantive internatioanl law of arbitration) • 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)

6. Arbitration – (dis)advantages • Reasons for arbitration – advantages and disadvantages • Flexibility of procedure >< 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) >< 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

7. 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 ?)

8. 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) (in Belgium Rome-I is applied ‘overshootingly’, except where national law has a special conflict rule) • 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

9. 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 E&WCA 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)

10. 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

11. 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

12. 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

13. 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)

14. 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). • (continued)

15. Arbitrability & overriding mandatory law • Arbitration of disputes governed by «overriding mandatory provisions »: • 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) • As within the EU, forum clauses cannot be set aside in eg distribution contracts cases, a subsidiary forum clause could help.

16. 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 (‘provisional’ 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)

17. 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, it’s 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

18. 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

19. 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)

20. Arbitration agreement - content Possible content of an arbitration agreement: • Definition of the disputes covered by arbitration • often restrictive interpretation of arbitration clauses: • Clarify whether arbitrator has authority to decide on costs to be borne by the losing party • Possible reference to the procedural rules of an Arbitration Institute: (next slides)

21. 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)

22. 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 (ICDR) • 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)

23. 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)

24. 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).

25. 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)

26. 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)

27. 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)

28. 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)

29. 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)

30. 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 ?

31. Arbitration – enforcement • Enforcement in the country of the award: exequatur can be obtained in simplified proceedings: - on unilateral request (without notice procedure) - merely a « marginal control » of the substance E.g. S. 66 Arbitration Act (Engl & W) • Third party involvement can simplify enforcement

32. Arbitration - enforcement

33. 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.

34. 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)

35. 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