The factual background to West Tankers has been widely discussed (and is summarised in paragraphs 1 to 14 of the judgment) and there is no need to do so again here. Before the Court of Appeal, West Tankers submitted that judgment be entered under s. 66(2) of the English Arbitration Act 1996 (the “Act”) against the insurers on the terms of a declaratory arbitral award. This was on the basis that such a judgment would allow West Tankers to establish the primacy of the award over any judgment by Italian courts in ongoing proceedings of the same dispute. The High Court held that “[t]he purpose of s. 66 (1) and (2) [of the Act] is to provide a means by which the victorious party in an arbitration can obtain the material benefit of the award in his favour other than by suing on it” and that “[w]here … the victorious party’s objective in obtaining an order under s. 66 (1) and (2) is to establish the primacy of a declaratory award over an inconsistent judgment, the court will have jurisdiction to make a s. 66 order because to do so will be to make a positive contribution to the securing of the material benefit of the award”.

The insurers appealed, arguing that Field J had erred in his construction of s. 66 of the Act, specifically in the meaning of the word “enforced”, and that a declaratory judgment (and in particular a negative declaratory judgment) is incapable of being “enforced” under the meaning of the section. Lord Justice Toulson, in the leading judgment, however agreed with West Tankers that a broader interpretation of the phrase ‘enforced in the same manner as a judgment to the same effect’ in s. 66 is “closer to the purpose of the Act and makes better sense in the context of the way in which arbitration works”. He rejected the insurers’ argument that in the present case the court would not be enforcing an award but only the rights determined by an award as being “an over subtle and unconvincing distinction [that] sits on shaky foundations”, emphasising that “the enforcement of any judgment or award is the enforcement of the rights which the judgment or award has established”. However, Toulson LJ emphasised that the language of s. 66 is permissive and requires the court to determine whether it is appropriate in the situation before it to enter judgment – it is not “an administrative rubber stamping exercise”.

Although Toulson LJ emphasised that the issue before the Court of Appeal “is not a question with a distinctively European flavour”, the consequences of the judgment, and more generally of the approach of the English courts, clearly are (as illustrated earlier in African Fertilisers). It remains uncertain whether the judgment falls under the arbitration exception to the Brussels Regulation 44/2001, thereby underlining the need for reform of the Regulation. As any such reform is likely to take time, there remains the real possibility that the English courts may, before any such reform, be faced with enforcement proceedings under the Regulation of an (inconsistent) judgment of the Italian courts. The questions presented by African Fertilisers remain unanswered for the time being.

Phillip Capper and Christian Blank

White & Case LLP
London

Much to the surprise of many seasoned international arbitration practitioners, the D.C. Circuit vacated a US$ 185.3 million Final Award against Argentina, essentially nullifying a hard-fought, four-and-a-half year arbitration between the parties. The court vacated the Award on the basis that the “arbitral panel rendered a decision . . . without regard to the contracting parties’ agreement establishing a precondition to arbitration,” namely the clause in the Argentina-UK bilateral investment treaty (BIT) requiring claimants to submit disputes to the Argentine courts for 18 months before resorting to arbitration. In the underlying UNCITRAL arbitration, the tribunal had considered whether the dispute was admissible without having been first submitted to the Argentine courts. It ruled that such submission was not essential because it in this case it would have been an exercise in futility: the claimant could not have obtained relief anyway from the Argentine courts, given the Republic’s apparent interference with access to the courts and its punishment of all would-be local court litigants by excluding them from contract renegotiations. The tribunal concluded that in these circumstances, the 18-month provision could not “be construed as an absolute impediment to arbitration,” and therefore deemed BG Group’s arbitration claims admissible.

By contrast, the D.C. Circuit concluded that this entire analysis was misplaced, since in its view the BIT terms—which it analyzed principally by reference to U.S. domestic law on contractual intent to arbitrate, rather than under the Vienna Convention—were clearly designed to require prior recourse to the Argentine courts. The court found that the tribunal had exceeded its powers by permitting direct access to arbitration contrary to that expressed intent. Indeed, the court suggested that under U.S. case law, the tribunal should not have even engaged in an analysis of the feasibility or usefulness of prior resort to the Argentine courts, because as a threshold matter it had no proper authority under the BIT to admit such issues for substantive consideration.

In the most narrow sense, the D.C. Circuit’s decision did not directly repudiate the years of fairly consistent rulings by ICSID and UNCITRAL tribunals with respect to the 18-month local court requirement under similar Argentine BITs. That is because the BG Group tribunal had not relied on the BIT’s most-favored-nation (MFN) clause, upon which prior tribunals had rested their decisions, even though BG Group did argue that point. Nonetheless, the D.C. Circuit’s analysis implicitly suggests that it also might have overturned an MFN-based decision, since by the Court’s logic, the tribunals who rendered those decisions likewise would have had no authority to bypass the BIT parties’ allegedly clear intent to require local court proceedings in all circumstances. If the decision is read in this broader way, it can be seen as impugning the core logic of many prior decisions. This would include Maffezini v. Spain (ICSID Case No. ARB/97/7, 1 September 2000), where the tribunal allowed an Argentine investor to invoke (by way of an MFN clause) the Chile-Spain BIT to avoid the domestic court prerequisite in the Argentina-Spain BIT; Siemens v. Argentina (ICSID Case No. ARB/028, Decision on Jurisdiction, 3 August 2004), where the tribunal permitted a German investor to invoke the Argentina-Chile BIT to proceed directly to arbitration; National Grid plc v. Argentina (UNCITRAL, Decision on Jurisdiction, 20 June 2006), where the tribunal permitted a British investor to invoke a more favorable term in the Argentina-US BIT to avoid 18 months of litigation in the Argentine courts; and several other cases in the same line. Until the D.C. Circuit’s opinion, the jurisprudence appeared to be converging on consensus regarding the 18-month waiting requirement, even though much controversy remained about the broader application of MFN clauses in other, less procedural, contexts.

Now, with one 17-page decision, a national court not only has completely up-ended the result in one major case, but also in the process unsettled what most observers had thought to be a progression towards certainty, predictability and finality with respect to this issue. Much can—and undoubtedly will— be written about the substance of the court’s analysis. But at heart, it serves as a reminder that some degree of uncertainty is inherent in international arbitration in any forum, so long as there is any mechanism for review and challenge of arbitral awards. This is just as true for the “alternative” routes of ad hoc UNCITRAL or non-ICSID institutional arbitration as it is for ICSID arbitration, since all non-ICSID mechanisms allow for national court challenges under the New York Convention, and national courts (once vested of the matter) may be tempted to apply their own national laws, including on core issues such as arbitrability. Arguably, the uncertainty of national court review may be even greater than that of ICSID annulment review, since most national court judges are comparatively unfamiliar with investment treaty jurisprudence and may be less concerned about contributing to the growth of consensus or emerging doctrine. The choice between the two systems, thus, should not be framed as a quest for predictability and finality, but rather as something more fundamental: a decision about which decision-makers will evaluate challenges, and what rules and standard of review they will use in deciding.

By Jean E. Kalicki and Dawn Yamane Hewett

Drawing on US Supreme Court decisions on class arbitration, Professor Abi-Saab finds that there is such a fundamental difference between regular bilateral arbitration and mass proceedings that “special consent” is required for mass proceedings and that this consent cannot be deduced from a simple consent to arbitration.  With respect to ICSID practice, he notes that cases of multi-party arbitration have either proceeded with the consent of the parties or without objection from the respondent.  With respect to mass claims processes in international law, he notes that the practice has been to establish a specific process for the mass claims with the consent of the parties and that the only exception to this uniform practice is the United Nations Compensation Commission, which was established by the Security Council under its Chapter VII powers.

Professor Abi-Saab then turns to a subsidiary objection.  Even if in principle Argentina’s consent to arbitration could be interpreted as consent to mass claims, he finds that the Tribunal does not have the power under the ICSID Convention and Arbitration Rules to adopt procedures for dealing with a mass claims proceeding.  He takes issue with the majority’s distinction between a modification to the arbitration rules without party consent (which, according to the majority, a tribunal may not do) and adopting procedures to address the handling of mass claims (which, according to the majority, a tribunal is entitled to do).  In Professor Abi-Saab’s view, the Tribunal has arrogated itself “the power to set aside, in large measure, the existing Rules of Procedure, and replacing them by another set of rules of its own; acting as a legislator, be it for one case.” (para. 208)

With respect to the concept of admissibility, Professor Abi-Saab appears to affirm that it has a role to play in international arbitration.  He notes that “[g]enerically, the admissibility conditions relate to the claim, and whether it is ripe and capable of being examined judicially, as well as to the claimant, and whether he or she is legally empowered to bring the claim to court.” (para. 18), but goes on to state that “none of these conditions has anything to do with the determination of the scope of consent whether to the general or the  special jurisdiction of tribunals”.  He also notes that “regardless of the classification of the objection as a plea to jurisdiction or to admissibility, the result of the non-fulfilment of the requirements should have been the same, the dismissal of the case.” (para. 25).  He thus takes issue with the approach of the majority, which he views as deciding questions of admissibility in its own discretion based on of its own subjective “balancing of interests” (para. 261).

Although the majority’s decision on consent is certainly controversial, it is sound in principle.  Unlike an arbitration clause in a typical commercial contract, offers to arbitrate in investment treaties are open to the world of qualified investors.  The offer to arbitrate is made to investors with investments.  In principle, this offer to the world should be able to be accepted by a multitude of investors.  If there is consent to arbitrate where one shareholder holds 100,000 shares, why is there not equally consent when there are 100,000 shareholders each holding one share?

Professor Abi-Saab is undoubtedly correct that the existence and scope of a Tribunal’s powers go to jurisdiction.  For example, where an investment treaty provides that a tribunal’s remedial powers are limited to the granting of damages, it would be an excess of jurisdiction for the tribunal to order restitution of property or the specific performance of a contract. However, the Dissent is misguided in finding that the Tribunal exceeded its powers in adapting procedures for a mass claim arbitration.  While it is true that the Abaclat proceedings might diverge from the usual ICSID proceedings, the ICSID Arbitration Rules provide a tribunal significant discretion in how proceedings are organized.  While denouncing the majority’s decision as “replacing” (para. 219) the ICSID Arbitration Rules, the Dissent does not provide any specific examples of where the majority’s proposed adaptation to the proceedings would be contrary to the ICSID Arbitration Rules.  In sum, the Dissent appears to equate what happens in the usual ICSID proceedings with what the ICSID Arbitration Rules require.  For example, the ICSID Rules say very little about the mechanics for taking and considering evidence.

The Dissent expresses valid concerns with the procedures the Majority proposes for the simplification of the examination of claims and whether these procedures satisfy due process.   Nevertheless, it is not possible to say ex ante that simplified procedures for the examination of evidence will necessarily breach the Respondent’s due process rights. The Majority states in conclusion that:

 … the Tribunal remains obliged to examine all relevant aspects of the claims relating to Claimants’ rights under the BIT as well as to Respondent’s obligations thereunder subject to the Parties‘ submissions.  Thus, it is the manner in which the Tribunal will conduct such examination which may diverge from usual ICSID proceedings (para. 533).

Due process is not ignored by diverging from “usual ICSID proceedings”.  The form and mechanics of proceedings are, and should be, a function of the claims to be decided and the evidence to be assessed.  As the Majority notes:

Notwithstanding the high number of Claimants involved, the Tribunal must examine not only the elements necessary to determine its jurisdiction (i.e., the nationality of the Claimants, their status of investor and the existence of their investment, etc.), but also those necessary to establish Claimants‘ claims and relating to the merits of the case (i.e., the existence of a breach by Argentina of its obligations under the BIT, the effect of such breach on Claimants‘ investment, etc.). Thus, the high number of Claimants may not serve as an excuse not to examine such elements and adaptations to the procedure may therefore not affect the object of the Tribunal‘s examination. (para. 529).

The task ahead for the Abaclat Tribunal is gargantuan.  Examining all elements of the claims and ensuring that the Respondent is accorded due process will be extremely time consuming.  Even if one may well wonder if an ad hoc Tribunal of three busy arbitrators is the best mechanism to address this kind of dispute, the majority was correct to find that it can hear a mass claim.

This post is written by Andrew Newcombe as a member of the ITA Academic Council.

Georg von Segesser / Alexandre Mazuranic

The background is as follows:

To build a golf course in Moscow, a Russian company (the “Russian Borrower”) had borrowed 22 million Swedish Crowns from a Swedish bank (the “Swedish Bank”) under a loan agreement entered into on 24 January 1990 (the “Loan Agreement”). The Loan Agreement included an arbitration clause providing for arbitration under the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (“SCC”).

On 19 December 2008 the Swedish bank requested arbitration against the Russian Borrower seeking repayment of a certain capital amount under the Loan Agreement. The Russian Borrower rejected the claim and argued, inter alia, that the Loan Agreement violated then mandatory currency regulations in the former Soviet Union and that the dispute was therefore not arbitrable.

The SCC decided that the seat of the arbitration proceedings should be Stockholm.

The sole arbitrator held in the award, inter alia, that the Russian Borrower had not proved that the Loan Agreement violated then mandatory currency regulations in the former Soviet Union or in Russia and the Russian Borrower was ordered to pay a certain capital amount with interest thereon and compensation for costs.

The Russian Borrower turned to the Svea Court of Appeal and requested, inter alia, a declaration that the award was invalid on the basis that the award included the review of an issue which is regulated in mandatory currency regulations. Hence, the Russian Borrower argued that the issue was not arbitrable and the award should therefore be declared invalid. In the alternative the Russian Borrower requested annulment of the award on the basis that the arbitration agreement was not valid and binding as it violated mandatory currency regulations.

The Russian Borrower argued as follows: Rigorous currency regulations were in force in the beginning of the 1990s, both in Sweden and in the Soviet Union. Import or export of currency without authorization from the proper authorities was not allowed. Nor was the reduction of a loan amount or granting a respite for payment. In Sweden this followed from the Exchange Control Act (Sw: valutalagen (1939:350)) and the Exchange Control Regulation (Sw: valutaförordningen (1959:264)). The provisions were sanctioned by penalty and any currency could be forfeited. Since the Loan Agreement violated these provisions the Loan Agreement was invalid.

Further, the parties could not before or after a dispute had arisen “heal” the invalidity of the Loan Agreement. It was not amenable to settlement. Hence, issues arising out of the Loan Agreement were not arbitrable and no dispute under the arbitration clause could be referred to arbitration. This in turn meant that the arbitration agreement was invalid. The relevant point in time for assessing whether an issue is arbitrable is when the arbitration agreement is entered into.

The Swedish Bank disputed that the award was invalid or that it should be annulled. The issue tried in the award – whether the Russian Borrower had a payment liability under the Loan Agreement – is arbitrable. Further, the question whether an arbitration agreement is valid and binding has to be tried separately. The arbitration agreement is valid and binding under Swedish law which is the governing law of the arbitration agreement. Even though the main agreement may be invalid (which the Swedish Bank disputed) this does not mean that the arbitration agreement is invalid. The currency regulations are of no relevance for the validity of the arbitration agreement.

The Svea Court of Appeal held as follows:

Since the arbitration proceedings had been held in Stockholm it was clear that the arbitration agreement was governed by Swedish law. The question whether the dispute was arbitrable was therefore to be tried under Swedish law and under the Arbitration Act only disputes in respect of which the parties may reach a settlement may be referred to arbitration.

An arbitral award is invalid if it includes the determination of an issue which, in accordance with Swedish law, may not be decided by arbitrators (lack of arbitrability). However, the fact that there is mandatory legislation in a certain area of the law does not automatically mean that disputes in this area are not arbitrable. With respect to international disputes which involve foreign legislation it has to be decided on a case-by-case basis whether the foreign law is such that a voluntary settlement of the dispute before a Swedish court would not be accepted. With regard to economical-political regulations in a foreign state there is often no reason why the mandatory provisions should affect the possibility to settle in Sweden and, hence, the arbitrability under Swedish law. This view is in accordance with an international trend to accept that an international dispute may be settled by arbitration although a corresponding national dispute would not be arbitrable.

The relevant point in time for assessing whether the dispute in question is arbitrable is when the Loan Agreement was entered into, i.e. on 24 January 1990. At that time the parties should be able to foresee the consequences of any lack of arbitrability.

When the Loan Agreement was entered into, Sweden as well as the Soviet Union had mandatory currency regulations. The Swedish Exchange Control Act and Exchange Control Regulation included restrictions on the import and export of foreign currency and securities. The same applied to the purchase and sale of foreign currency and foreign claims. However, there were no restrictions for a Swedish legal entity to enter into a loan agreement whereby a foreign legal entity became indebted. The currency regulations were not aimed at disallowing a creditor-debtor relation as such; but concerned the making of payments cross the borders.

The parties’ claim and debt under the Loan Agreement could not be deemed subject to mandatory legislation in such way that this undertaking was not amenable to settlement. Hence, the parties could reach a settlement regarding this. The issue tried in the award was the debt undertaking; not how any payment should be made. The dispute was thus arbitrable.

Since the mandatory currency regulations did not mean that a non-arbitrable issue was tried in the award the arbitration agreement was valid and binding. This is regardless of whether said currency regulations may entail that parts of the Loan Agreement were invalid.

The ruling of the Svea Court of Appeal seems quite arbitration friendly and is in line with the international trend to maximize the scope of application of an arbitration agreement. The restrictions in the previous currency control regulations in Sweden were narrowly interpreted and the doctrine of separability was firmly adhered to. The currency regulations in the former Soviet Union were not analyzed at all by the Court of Appeal. However, the Court of Appeal seemed convinced that the issue in dispute – whether there is a payment liability under a loan agreement – was not subject to any mandatory currency regulations. Further, the Court of Appeal did not expressly address whether the Swedish law test for arbitrability – that the dispute must be amenable to settlement – should be determined under Swedish substantive law or the lex causae. It has been suggested in Swedish legal doctrine that the question whether the parties are capable of settling the dispute should normally be assessed under the law governing the main contract. If the governing law is foreign law the outcome of that test under foreign law is decisive for the question of arbitrability. In this case it is unclear whether lex causae was Swedish law or any foreign law. The reason why this was not dealt with by the Court of Appeal might be that it had no relevance here as the previous currency regulations, both in Sweden and Russia, did not prohibit debt undertakings per se.

Leave to appeal was granted by the Court of Appeal² and the Russian Borrower has appealed the judgment to the Supreme Court.

Although the Tribunal’s finding that it can hear mass claim has garnered the most interest, various aspects of the Decision have sparked debate.  The Tribunal held that the Claimants’ security entitlements in Argentinean bonds are investments for the purposes of Article 25, ICSID Convention and protected under the Argentina-Italy BIT.  Another controversy arises from the fact that the Decision was issued by the majority of the Tribunal without the simultaneous release of the dissenting opinion. The dissenting opinion, which the Decision states is “Forthcoming”, has yet to be released.

On 15 September 2011, the Argentine Republic filed a request for the disqualification of the majority of the Tribunal (Professors Pierre Tercier (President) and Albert Jan van den Berg), alleging that the two arbitrators could not be relied on to exercise independent judgment.   The disqualification request criticizes the two arbitrators in particularly strident language, arguing that the transmission of the Decision: “(a) without the dissenting opinion of the other arbitrator, (b) without his consent, and (c) without even waiting for a draft of said opinion” together with the majority’s rejection of Argentina’s request for provisional measures “is a manifestation of an absolutely inappropriate conduct” (para. 20).

Although the Decision raises a series of interesting issues (for example, see Sarah Ganz‘s post on the Decision’s treatment of the 18-month litigation requirement in the BIT), in this post I focus on the majority’s distinction between jurisdiction and admissibility, a subject of one of my previous posts.  In its Decision, the majority of the Tribunal (the Tribunal) states that it is appropriate and necessary to distinguish issues relating to jurisdiction and admissibility (para. 248) and that the “guiding thought of the Tribunal for distinguishing issues of jurisdiction from issues of admissibility has been the following cornerstone consideration:

 If there was only one Claimant, what would be the requirements for ICSID’s jurisdiction over its claim? If the issue raised relates to such requirements, it is a matter of jurisdiction. If the issue raised relates to another aspect of the proceedings, which would not apply if there was just one Claimant, then it must be considered a matter of admissibility and not of jurisdiction.” (para. 249)

The Tribunal’s analysis thus takes a two-fold approach.  First, it analyzes the mass claims issue within the context of the Parties’ consent to arbitration (a question of jurisdiction) and second, it analyzes the admissibility of mass claims.

The Decision is perhaps the clearest example of an investment treaty tribunal distinguishing between jurisdiction and admissibility.  The Tribunal highlights at para. 247 that:

 (i)            While a lack of jurisdiction stricto sensu means that the claim cannot at all be brought in front of the body called upon, a lack of admissibility means that the claim was neither fit nor mature for judicial treatment;

(ii)            Whereby a decision refusing a case based on a lack of arbitral jurisdiction is usually subject to review by another body, a decision refusing a case based on a lack of admissibility can usually not be subject to review by another body;

(iii)            Whereby a final refusal based on a lack of jurisdiction will prevent the parties from successfully re-submitting the same claim to the same body, a refusal based on admissibility will, in principle, not prevent the claimant from resubmitting its claim, provided it cures the previous flaw causing the inadmissibility.

With respect to consent, the Tribunal rightly held that if, in principle, it had jurisdiction over one claimant, “it is difficult to conceive why and how the Tribunal could loose such jurisdiction where the number of Claimants outgrows a certain threshold.” Further, it highlighted that “the collective nature of the present proceeding derives primarily from the nature of the investment made.”:

The ICSID Convention aims at promoting and protecting investments, without however further defining the concept of investment and leaving this task to the parties through relevant instruments such as BITs … Thus, where the BIT covers investments, such as bonds, which are susceptible of involving in the context of the same investment a high number of investors, and where such investments require a collective relief in order to provide effective protection to such investment, it would be contrary to the purpose of the BIT and to the spirit of ICSID, to require in addition to the consent to ICSID arbitration in general, a supplementary express consent to the form of such arbitration. In such cases, consent to ICSID arbitration must be considered to cover the form of arbitration necessary to give efficient protection and remedy to the investors and their investments, including arbitration in the form of collective proceedings.  (para. 490).

In conclusion, the Tribunal, rightly held that “the “mass” aspect of proceedings relates to the modalities and implementation of the ICSID proceedings and not to the question whether Respondent consented to ICSID arbitration. Therefore, it relates to the question of admissibility and not to the question of jurisdiction.” (para. 492).

The Tribunal took a purposive approach to the interpretation of the ICSID Convention’s “silence” as to mass claims, holding that it would be “contrary to the purpose of the BIT and to the spirit of ICSID to interpret this silence as a “qualified silence” categorically prohibiting collective proceedings, just because it was not mentioned in the ICSID Convention” (para. 519).

With respect to the adaptations, the Tribunal identified the need to adopt mechanisms to allow a simplified verification of evidentiary materials with respect to each individual claim (para 531) and the manner of the representation of the claimants (paras. 531-532).  In finding that it had the power to adapt procedures to address the “mass claims” aspect of the case, the Tribunal states that adaptations must consider the principle of due process and a must seek a balance between the procedural rights and interests of each party (para. 519).  In assessing that balance the Tribunal considered: (i) under what conditions is it acceptable to change the method of examination from individual to group treatment; (ii) to what extent are Argentina‘s defense rights affected in comparison to 60,000 separate proceedings; and (iii) is it admissible to deprive Claimants of certain procedural rights (para. 539).

Argentina’s had argued that there are strong policy reasons why ICSID is an inappropriate forum to address issues with respect to sovereign debt restructuring.   The Tribunal flatly rejected this argument, rightly stating that “Policy reasons are for States to take into account when negotiating BITs and consenting to ICSID jurisdiction in general, not for the Tribunal to take into account in order to repair an inappropriately negotiated or drafted BIT.”

It its disqualification request, Argentina suggests that the procedural mechanisms set out in the Decision are an unjustifiable limit on Argentina’s right of defence and further evidence of the Tribunal’s alleged lack of independent and impartial judgment (paras. 25 et seq.).   Although Argentina has characterized the majority’s Decision as “egregious” and various Tribunal statements as “shocking” and “absurd”, this hyperbole should seen for what is—a regrettable attempt to appeal a tribunal decision through the guise of a disqualification request.  The majority of the Tribunal’s approach to mass claims is correct in principle and practical, objective and fair-minded in practice.  International arbitration can be an effective and efficient system of dispute resolution because of its ability to adopt flexible procedures to address myriad claims and issues.  The majority’s Decision reflects this approach and will stand the test of time.

Up to now, it was disputed by scholars whether the requirements for witness testimony in state court proceedings also applied in arbitration.

The Court referred to the Swiss Federal Supreme Court’s case law according to which the validity of a witness testimony is governed by the applicable procedural laws. In the absence of specific provisions, it is not required that the transcripts/minutes be read to the witness after his testimony and that the witness signs the transcripts, both of which are requirements for witness testimony before state courts.

The following conclusions can be drawn from the decision:

(i) The witness must be reminded of his/her duty to tell the truth;

(ii) The witness must be made aware of any privileges and of his/her possible right to refuse testimony;

(iii) The witness must be informed of the criminal consequences of perjury.

It is therefore recommended to clearly indicate in a procedural order that witness and expert testimonies or statements by translators and interpreters shall be recorded by court reporters and that the transcripts will be submitted to the parties, but that the transcripts will not be read to nor signed by the witnesses, etc.

(Decision of the Zurich High Court published in ZR 110 (2011) Nr. 27, p. 78 – 84)

Georg von Segesser

One of the greatest concerns voiced by the international business community is that arbitration needs to provide means of granting protective measures, which are often needed urgently. At any stage of the arbitral proceedings, a party to a dispute may need to ensure that the other party takes or refrains from taking certain actions before the dispute has been heard. For instance, one party may wish to prevent the other party from dissipating its assets or destroying evidence, or it may seek to ensure that the other party continues to perform its obligations under an ongoing contract.

These measures may be necessary to ensure that the final outcome of the dispute process is not prejudiced or rendered ineffective because of the way a party behaves. Interim measures provide a remedy or relief aimed at safeguarding the rights of parties to a dispute pending its final resolution. The underlying principle is that no party’s rights should be prejudiced or affected by the duration of adjudication and protection is available through the right to seek interim measures of protection from the arbitral tribunal itself or from the courts.

In international arbitration, arbitral tribunals are generally empowered to grant interim measures of protection. However there are times when parties to arbitration require interim measures on an urgent basis, before the Arbitral Tribunal has been constituted. The constitution of an arbitral tribunal can take some time and during this time the status of things may change substantially and it cannot be taken for granted that disputed assets will not be dissipated. Although ordinarily the rules of arbitral institutions do not prevent a party from requesting an interim measure in court, parties that have agreed on arbitration are often hesitant to go to court, especially in a foreign jurisdiction. Thus, there is a need to provide parties with the option of having such a procedure available during the course of the arbitration, as well as before the constitution of the arbitral tribunal.

In response to this need, the ACICA has updated its Arbitration Rules to include a set of Emergency Arbitrator provisions. The emergency rules, which establish a regime for emergency proceedings, are incorporated into the ACICA Rules, which refers to Schedule 2 where the emergency rules are to be found. These new provisions enable the appointment of an Emergency Arbitrator in arbitrations commenced under the ACICA Rules but before the case is referred to an arbitral tribunal. It is hoped that they will provide businesses with a prompt and efficient option for obtaining urgent interlocutory relief in their cross-border disputes.

The latest version of the ACICA Emergency Arbitrator provisions comes into force on 1 August 2011. By accepting ACICA arbitration, parties accept not only arbitration according to the ACICA Rules, but also to be bound by any decision of an Emergency Arbitrator. By referring to the ACICA Rules, parties also adopt the emergency rules. The power of the Emergency Arbitrator applies to all arbitrations conducted under new ACICA Rules, unless the parties expressly opt out of it in writing. The ACICA Rules do not prejudice a party’s right to apply to any competent court for interim measures.

The ACICA emergency arbitrator rules are designed to be an effective alternative to seeking pre-arbitration emergency relief in court, prior to and after the commencement of arbitration, but before the constitution of the arbitral tribunal.

A request for emergency relief must be made concurrently with or following the filing of the Notice of Arbitration and be communicated to all other parties prior to or at the same time as making application. The party applying must include a statement certifying that all other parties have been notified, or explain the steps taken in good faith to notify the other parties of the application.

In addition to these threshold preconditions, the emergency procedure requires the application to indicate in writing the nature of the relief sought, the reasons why such relief is required on an emergency basis and why the party is entitled to such relief.

The party making the application is also required to pay ACICA’s Emergency Arbitrator Fee upon filing the application, together with the ACICA case registration fee. Payment is a condition for the appointment of an Emergency Arbitrator. ACICA may decide to reduce or increase the costs having regard to the nature of the case, the work performed by the Emergency Arbitrator and ACICA and other relevant circumstances.

The emergency procedure calls for ACICA to use its best endeavours to appoint the emergency arbitrator within one business day of its receipt of an application for emergency relief. The arbitrator will be selected to the extent possible from ACICA’s panel of arbitrators, based on his or her expertise and immediate availability. While the Rules make no provision for the parties themselves to choose the Emergency Arbitrator, they do not preclude ACICA from appointing a person selected by the parties. If the parties agree on an emergency arbitrator, there is no reason for ACICA not to appoint that person subject to that person being suitably qualified and available and able to act in accordance with the Rules.

The ACICA emergency provisions also deal expressly with challenge procedures. A prospective Emergency Arbitrator shall immediately in writing disclose to ACICA any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence. A party who intends to challenge an Emergency Arbitrator shall send notice of its challenge within one business day after being notified of the appointment of that arbitrator and the circumstances disclosed.

An Emergency Arbitrator shall not act as an arbitrator in any future arbitration relating to the dispute, unless otherwise agreed by the parties in writing. As a person has acted as Emergency Arbitrator may be considered biased in any ensuing arbitration, the ACICA Rules contain an express provision in this regard.

When the Emergency Arbitrator has been appointed, ACICA refers the application for interim relief to that Emergency Arbitrator. ACICA does not expressly provide rules about the conduct of the emergency proceedings but, the relevant ACICA Arbitration Rules could be applied to the emergency proceedings, taking into account the urgency inherent in such proceedings. The Emergency Arbitrator should conduct the proceedings in such manner as he or she considers appropriate in the circumstances, provided that the parties are treated equally, which will also cover the resisting party making submissions as and where appropriate as to why emergency relief should not be granted. Each party should be able to present its case as circumstances (and urgency) allow.

The ACICA emergency procedure provides for a time limit within which the decision must be made: any decision on an application for emergency interim relief must be made not later five business days from the date upon which the application was referred to the Emergency Arbitrator. ACICA may extend this time limit upon request by the Emergency Arbitrator.

The Emergency Arbitrator may grant any interim measures of protection on an emergency basis that he or she deems necessary and on such terms as he or she deems appropriate and it may take the form of an award or of an order and must be made in writing and contain the date when it was made and reasons for the decision.
The ACICA emergency procedure generally following the same approach as the ACICA Rules on interim measures.

The Emergency Arbitrator can order a party to:
(a) maintain or restore the status quo pending determination of the dispute;
(b) take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm;
(c) provide a means of preserving assets out of which a subsequent award may be satisfied;
(d) preserve evidence that may be relevant and material to the resolution of the dispute;
(e) provide security for legal or other costs of any party.

The Emergency Rules also require that the party requesting any Emergency Interim Measure satisfy the Emergency Arbitrator that:
(a) irreparable harm is likely to result if the Emergency Interim Measure is not ordered;
(b) such harm substantially outweighs the harm that is likely to result to the party affected by the Emergency Interim Measure if the Emergency Interim Measure is granted; and
(c) there is a reasonable possibility that the requesting party will succeed on the merits, provided that any determination on this possibility shall not affect the liberty of decision of the Arbitral Tribunal in making any subsequent determination.
This provision requires a three-stage test which an applicant must pass in order for the relevant emergency interim measures to be granted. The elements of a successful emergency application for interim measures are compound, meaning that if an applicant fails to establish one element, the Emergency Arbitrator must refuse to grant the emergency interim measure.

The Emergency Arbitrator can also require a party to provide appropriate security as a condition for granting any Emergency Interim Measure. This provision ensures that a respondent does not suffer irreparable harm as a result of the interim measures. It contemplates tribunal-ordered undertakings as to costs and damages, given by the party seeking interim relief in favour of a respondent at the direction of the arbitrator.

Emergency Arbitrator must also promptly deliver a copy of the decision on emergency interim measures of protection to each of the parties and ACICA.

The emergency decision is binding on the parties until the Emergency Arbitrator decides otherwise, a final award has been rendered or the Arbitral Tribunal once constituted, reconsiders, vacates or modifies it. The parties are contractually bound by the Emergency Arbitrator’s decision as long as it stands. As a practical matter, the Arbitral Tribunal subsequently appointed is in any event unlikely to look favorably upon a party that has failed to comply with any prior order or award granted by an Emergency Arbitrator.

After an emergency decision has been issued, the Emergency Arbitrator retains the power to modify or vacate the Emergency Interim Measure for good cause until the constitution of the Arbitral Tribunal. This provision could be significant because it potentially allows for sua sponte modification or vacation of any emergency interim measure ordered by the Emergency Arbitrator.

An Emergency Arbitrator will have no further power to act after the Arbitral Tribunal is constituted. The Emergency Arbitrator’s jurisdiction and powers cease forthwith on the appointment of the Arbitral Tribunal which is not bound by any decision or the reasons of the Emergency Arbitrator. As the Emergency Arbitrator has preliminary powers only, his or her award is contractually binding only as long as the Arbitral Tribunal does not decide otherwise.

Any Emergency Interim Measures issued by the Emergency Arbitrator cease to be binding if the Arbitral Tribunal is not appointed within 90 days from the date of the emergency decision, or the Arbitral Tribunal makes a final award, or the claim is withdrawn, or the Emergency Arbitrator or the Arbitral Tribunal so decides.

The ACICA Emergency Arbitration Rules offer an effective and efficient alternative to a court for the granting of interim measures before an Arbitral Tribunal has been constituted. Despite these new Rules, parties to ACICA arbitral proceedings will inevitably need to continue applying to courts for certain types of interim relief, such as orders against third parties, or where it is necessary for the application to be made ex parte without communication to other parties, for example to freeze funds in a bank account which might otherwise be dispersed. It is undeniable that these new rules will be useful for applicants in other cases, particularly if the courts where the same interim measures would otherwise need to be sought or if its judges are not known to be supportive of arbitration.

Andrea Sturini has been an Intern at Australian International Disputes Centre and the Australian Centre for International Commercial Arbitration in 2011. He has served as Counsel of Milan Chamber of Arbitration for 5 years. In early 2011 he also interned with Singapore International Arbitration Centre.

The take away seemed to be that counsel should be more judicious in what they choose to present to the arbitrators for review. Mountains of documents do not help their cause. Briefs should be snappy, concise, and sensitive to the arbitrators’ limits. Less is more.

One should never be quick to dismiss Landau’s suggestions, but I’m frankly conflicted by his advice. I have no doubt that briefs should be presented in a manner that maximizes the potential for arbitrators to understand and digest the arguments. We are all familiar with situations in which the brief was not written to assist the arbitrators in resolving the case, but rather was written to score points with the client or against the opposing side. It’s good advice to maintain unrelenting focus on the intended audience: the arbitrators.

Does that mean that mountains of documents are inappropriate or counterproductive? It depends. There are pleadings we intend for the arbitrators to read, and there are pleadings we provide for ready reference. There are key documents and there are peripheral documents. I do not expect an arbitrator to be interested in the minutiae, but that does not mean minutiae should be omitted from the record. Why bother with boxes of invoices or gigabytes of email correspondence? Because we know that something could peak their interest, but we don’t know in advance what that something will be. An arbitrator might spot check invoices to verify the veracity of the claims, or search keywords in a particular email correspondence, or be unusually interested in a particular event that gave rise to the dispute. It’s reference material that is there if they need it.

If one thinks of pleadings in terms of concentric circles, there are (1) materials we know arbitrators will read; (2) materials we expect them to read; (3) materials we hope they will read; (4) materials we doubt they will read but are available in the record; and (5) materials we know they will not read and are not produced.

Landau seems to argue that counsel should focus on the inner concentric circles and not bother with peripheral pleadings, which do more harm than good. I’m willing to accept the legitimacy of lawyers producing massive document dumps with no expectation that it will be read, but that is available for ready reference.

In 2000, UEG Araucária, a Brazilian energy company, entered into a series of agreements with several Bechtel entities for the engineering and construction of a $210 million power plant in Araucária, Brazil. Three of the contracts contained identical arbitration and choice of law clauses. The arbitration clause provided that “[a]ny dispute, controversy, or claim arising out of or relating to the Contract, or the breach, termination or validity thereof . . . shall be finally settled by arbitration” under the ICC rules, “except as these rules may be modified herein.” Each of the contracts also had multiple New York choice-of-law clauses, one of which provided that “[t]he law governing the procedure and administration of any arbitration instituted pursuant to [the arbitration clause] is the law of the State of New York.”

In January 2008, the power plant’s steam-turbine generator failed. That September, UEG Araucária submitted a Request for Arbitration to the ICC, claiming breach of contract, negligence, and fraud by Bechtel.

Bechtel responded by filing an action in the New York state court seeking to stay the arbitration and dismiss the claims, claiming that UEG Araucária’s claims were time-barred under New York and Brazilian law. Notwithstanding the arbitration agreement between the parties, as a basis for the state court’s jurisdiction, Bechtel cited section 7502(b) of the New York Civil Practice Law and Rules, which states:

“If, at the time that a demand for arbitration was made or notice of intention to arbitrate was served, the claim sought to be arbitrated would have been barred by limitation of time had it been asserted in a court of the state, a party may assert the limitation as a bar to the arbitration on an application to the court.”

UEG Araucária removed the action to federal district court and filed a counter-application to compel arbitration of the timeliness question. The district court denied UEG Araucária’s motion to compel, finding that the contracts between UEG Araucária and Bechtel evidenced “the parties’ clear intent to select New York law for arbitration procedure . . . including the rule limiting the power of arbitrators to hear preliminary questions of timeliness.” The district court found the claims were indeed time-barred and granted Bechtel’s request for a permanent stay of the arbitration.

UEG Araucária appealed the ruling to the Second Circuit, which reversed the district court’s decision while acknowledging that “the question is a close one.” The court said its task was “to divine whether the parties intended at the time of contracting to have issues of timeliness determined by the arbitrator.” Its analysis would also be informed by the requirement under the Federal Arbitration Act to “construe the parties’ intentions ‘generously’ in favor of arbitrability.”

The appellate court acknowledged an apparent tension between the arbitration clause and the choice-of-law clauses in the contracts between the parties. The arbitration provision “tends to support the view that any disagreements about the contract—which would include disputes about whether a relevant statute of limitations bars arbitration, as well as disputes about who should decide the statute of limitations issues—shall be decided by arbitration.” However, the choice-of-law provisions “cut the other way, suggesting that, because, under New York law, a party can assert a statute of limitations in court as a bar to arbitration, . . . a party is permitted to have a court decide timeliness issues.”

The panel concluded that “the contracts in this case are at least ambiguous as to whether Bechtel and UEGA agreed to permit recourse to C.P.L.R. 7502(b).” As opposed to the broad arbitration clause, the choice-of-law provisions “make no mention of timeliness disputes or of any right of the parties to resort to the courts in any circumstances.” Moreover, as the U.S. Supreme Court recognized in Mastrobuono v. Shearson Lehman Hutton, Inc., “general choice-of-law clauses . . . may be read to address only ‘substantive rights and obligations, and not the State’s allocation of power between alternative tribunals.’” The court concluded that the contracts between UEG Araucária and Bechtel evidenced “no clear statement that a statute of limitations defense should be withheld from the arbitrator.” Lacking such clear intent, the panel resolved the ambiguity in favor of arbitration, and held that the arbitrator, not the district court, should decide the timeliness issue.

The Bechtel decision illustrates how laws like New York’s C.P.L.R. 7502(b), which carve out a particular role for courts in otherwise arbitrable disputes, are of very limited use given the capabilities of arbitrators and the expansive pro-arbitration reach of the FAA. In purporting to provide for an initial judicial role in arbitrable disputes, New York’s § 7502(b) is reminiscent of a former provision in the English Arbitration Act that allowed a claimant that had entered into an arbitration agreement to nonetheless obtain summary judgment in court before the matter was referred to arbitration. That provision, which created an unnecessary judicial barrier to resolution of claims through arbitration, was sensibly deleted in the 1996 revision of the Act. Likewise, it is unclear why a law like § 7502(b) should carve out the particular question of timeliness for a court to review, when a claim as a whole is subject to arbitration. Arbitrators are no less capable of addressing whether a claim is time-barred than they are of resolving any other legal issue.

Moreover, under the FAA as interpreted by the Second Circuit, the applicability of § 7502(b) is so narrow as to render it virtually meaningless. If any choice-of-law provision would seem to allow for application of § 7502(b), the one between Bechtel and UEG Araucária would be it: the agreements provided that New York law would govern not only the parties’ substantive legal rights, but also “the procedure and administration of any arbitration” between the parties. But the court still found that because there was no clear statement that a court should be able to resolve the timeliness issue in particular, the issue was for only the arbitrator to decide.

The Bechtel panel’s reasoning thus raises the question of what, exactly, is left for laws like § 7502(b) to do if even choice-of-law provisions that apply to the arbitral process itself do not allow for resort to them. According to the Second Circuit, for § 7502(b) to apply, the contracts would have had to provide expressly that a court could resolve a limitations question. However, if a contract had such an explicit provision, then § 7502(b) likely would not be necessary at all. After all, even if § 7502(b) did not exist, parties could still draft contractual language that generally provides for arbitration of disputes, but expressly allows a court to resolve any timeliness questions. If parties to an otherwise broad arbitration agreement really want to allow a court to resolve limitations questions, nothing is stopping them from writing that into the agreement without reference to § 7502(b). Thus, laws like § 7502(b) add little; Bechtel’s narrow construal of when § 7502(b) applies effectively limits its application to instances where its existence is unnecessary. This is probably just as well, as any broader application of such a provision might well run afoul of the FAA (although New York state courts have held in the past that § 7502(b) is not facially preempted by the FAA).

More broadly, the Bechtel decision implicates the question whether certain aspects of an arbitration agreement can broaden the judicial role in a dispute. The Second Circuit’s assessment of whether § 7502(b) applied in the dispute between UEG Araucária and Bechtel is something of a mirror image to the question before the U.S. Supreme Court in its 2008 decision in Hall Street Associates, L.L.C. v. Mattel, Inc. In Hall Street, the Court addressed whether parties can agree to expand the scope of post-award judicial review beyond that expressly permitted by the FAA (the answer was no); Bechtel addressed whether a court may adjudicate certain aspects of a claim before the arbitration commences if the governing law of the arbitration agreement provides for it. In both instances, the courts limited the scope of the judicial role considerably, although not to the same degree. Unlike in Hall Street, the Bechtel panel found that parties could, theoretically, agree to have a court adjudicate part of a claim before it is referred to arbitration. This is because federal law does not restrict pre-award adjudications by courts where the underlying arbitral agreements allow for it – unlike the way the FAA, under Hall Street, does confine the bases on which courts may review final arbitral awards, even if the governing arbitration expressly purports to expand such grounds.

Bechtel illustrates that, although the scope of pre-award adjudication is not nonexistent, it is very narrow and requires clear intent by the parties. As Bechtel confirmed, a law like § 7502(b) is only applicable where it is expressly invoked in an agreement; it otherwise is not enforceable as a default rule under a particular governing law. Parties that do want to allow for the possibility of judicial involvement in certain aspects of disputes otherwise subject to arbitration would be well advised to make their particular intentions extremely clear in their agreements.

Finally, the Bechtel panel’s rejection of the application of § 7502(b) could also cause certain observers to sigh with relief. Because of New York’s economic importance and its well developed commercial law, a New York choice-of-law clause is a very common feature of international commercial agreements. When parties draft agreements that contain both New York choice-of-law clauses and arbitration clauses, it is unlikely that they are cognizant of § 7502(b) in particular. It is even less likely that many of them expect and want to supplant the arbitrator’s jurisdiction if timeliness issues ever come up in a dispute between the parties. A contrary ruling in Bechtel might have caused corporate contract drafters to think twice before reflexively choosing New York’s as the governing law of the contract. Thus, the Bechtel panel, in rendering a particular provision of New York law virtually nugatory, might ironically have been doing a favor to New York law more generally.

By Gary Born and Adam Raviv