Ever since the Supreme Court’s 2004 decision in Intel Corp. v. Advanced Micro Devices, Inc. that question has vexed lower federal courts. Although the Supreme Court did not address international arbitration directly, its reasoning appeared to support a broad interpretation that would encompass arbitral tribunals, which likewise act as “first-instance decision-makers” that render “dispositive rulings” subject to limited national court review. Moreover, in describing the scope of Section 1782, the Court found that Congress amended the statute in 1964 to “provide the possibility of U.S. judicial assistance in connection with administrative and quasi-judicial proceedings abroad” and quoted scholarly commentary that defined the term ‘tribunal’ to include “investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.”

In the wake of Intel, federal courts have struggled to apply the Court’s liberal Section 1782 standards to the context of international arbitration. Lower courts are divided on the question of whether a contract-based private international arbitral panel satisfies the statutory definition of “international tribunal.”

A majority have concluded that arbitral tribunals established by private contract are “foreign or international tribunals.” As the federal district court in In re Babcock Borsig AG, 583 F.Supp.2d 233 put it, addressing a Section 1782 petition involving an ICC arbitration, “[t]here is no textual basis upon which to draw a distinction between public and private arbitral tribunals, and the Supreme Court in Intel repeatedly refused to place ‘categorical limitations’ on the availability of § 1782(a).” Under this analysis, the functional approach adopted by the Supreme Court in Intel suggests that contract-based arbitral tribunals are first-instance decision-makers that issue decisions both responsive to the complaint and reviewable in court. As the court in Roz Trading, 469 F.Supp.2d 1221 put it, “it is the function of the body that makes it a ‘tribunal,’ not its formal identity as a ‘governmental’ or ‘private’ institution.”

Other federal district courts have concluded that private arbitral tribunals are not “international tribunals” within the meaning of Section 1782. These courts focus on arbitration as an alternative to litigation, foreclosing a key element of Intel’s analysis: judicial review. “[T]he very narrow circumstances in which [arbitral] decisions may be subject to review does not allow for judicial review of the merits of the parties’ dispute,” opined the federal district court in Norfolk Southern Corp., 626 F.Supp.2d 882. “Accordingly, the ‘arbitral tribunal’ at issue here does not fall within the definition the Supreme Court embraced in its Intel dictum.” Moreover, according to some courts, the fact that the source of judicial authority is derived from private agreement likewise militates against classifying it as a foreign or international proceeding under § 1782. Finally, pragmatic concerns have loomed large in the analysis. As one court put it, “[i]nterpreting § 1782 to apply to voluntary, private international arbitrations would be a body blow to such arbitration, since it would create a tremendous disincentive to engage in such arbitration wherever, as here, such a reading would create substantially asymmetrical discovery obligations.”

Whatever doubts there may be about the application of Section 1782 to contract-based international arbitration, federal courts uniformly agree that an arbitral tribunal established pursuant to a bilateral investment treaty constitutes an “international tribunal” within the meaning of the statute. Since Intel, over twenty federal courts have considered motions to compel Section 1782 discovery in aid of proceedings before treaty-based investment arbitration tribunals. Not a single federal court has held that such arbitral tribunals fall short of the statutory definition of an “international tribunal.”

Rather than take a functional approach that analyzes whether the investment tribunal is a first-instance decision-maker rendering decisions subject to judicial review, these courts either assume that such arbitral panels are “international tribunals,” or focus on the fact that the arbitral tribunal has its origins in a bilateral investment treaty. Although the absence of judicial review in the investment context is even more pronounced than in private commercial arbitration, this factor has not featured in any of the decisions applying Section 1782 to investment arbitration. In short, federal courts take a functional approach in defining an “international tribunal” in the commercial arbitration context, and a formalist approach in the investment arbitration context.

When focused on the content of good faith, the courts in different countries as well as academic commentators seem to be often baffled. Nor in the sources of the lex mercatoria such as the UNIDROIT Principle of International Commercial Contracts, the European Principles of Contract Law, and the United Nations Convention on Contracts for the International Sales of Goods (CISG or the Vienna Sales Convention) can one find a clear definition of the content of the notion of good faith. In order to rationalise good faith jurists have proffered various legal theories ranging from efficiency arguments to formal entitlements in the spirit of solidarity to its conceptualisation in a more specific sense as ‘a true behavioural standard’. This dilemma pervades in international law, in general, and in the emerging case law of international investment law in particular. Therefore, it proves the international arbitrator’s task in an investment dispute all the more difficult as in any other field when it comes to define the concept and to render any decision on the basis of it.

It thus merits a fresh look at the concept of good faith in order to understand its scope and function in a contractual relationship which is the focus of this blog. In order to apply the concept to a particular context good faith could be considered a functional or objective one in the sense of a framework of relationship between the parties to a contract and cooperation being its underlying current. In this respect good faith is a framework concept based on cooperation as its philosophical foundation. In international business-contracting the consideration of mutual interests of the contracting parties in the spirit of cooperative dealing seems to get favour in some quarters as a manifestation of modern trend of collectivism as opposed to the nineteenth century legacy of individualism. Farnsworth, however, observes:

“Good faith performance has always required the cooperation of one party where it was necessary in order that the other might secure the expected benefits of the contract. And the standard for determining what cooperation was required has always been an objective standard, based on the decency, fairness or reasonableness of the community and not on the individual’s own beliefs as to what might be decent, fair or reasonable. Both common sense and tradition dictate an objective standard for good faith performance.” [E. Allan Farnsworth, Good Faith Performance and Commercial Reasonableness Under the Uniform Commercial Code, 30 U. CHI. L. REV. 666 (1963)].

It needs to be stressed that co-operation should not be understood in the sense of familial relationship such as motherly love or brotherly affections, but must be confined to the contractual relationship, hence the notion of good faith as a framework concept, i.e. fidelity to the bargain, as mentioned earlier. As far as the content of good faith is concerned the focus has to be specific in a particular context concerned in the contractual framework to see if the parties have acted in the spirit of cooperation, i.e. ‘good-faith cooperation’ [L Carvajal-Arenas, ‘Good Faith in the Lex Mercatoria: An Analysis of Arbitral Practice and Major Western Legal Systems’ (PhD thesis, University of Portsmouth 2011)]. In numerous domestic court decisions (e.g. United Group Rail Services Limited v Rail Corporation New South Wales and in international judicial (e.g. the North Sea Continental Shelf cases (ICJ), and arbitral decisions [e.g. Wintershall v Qatar (1990), Mechema Ltd. (England) v S.A. Mines, Minérais et Métaux (MMM) (Belgium) (1982)] there seems to be a tendency to give weight to the context in which the concept is to be meant. Article 31 (1) of the Vienna Convention on the Law of Treaties also points out the importance of the context of the terms of the treaty while interpreting it in good faith. Therefore, the content of the concept of good faith is more of a contextual nature than the concept itself understood in the abstract sense. The International Court of Justice observed: “(t)he principle of good faith is ‘one of the basic principles governing the creation and performance of legal obligations’; it is not in itself a source of obligation where none would otherwise exist.” [Border and Transborder Armed Actions Case (ICJ), (Nicaragua v. Honduras), Jurisdiction and Admissibility, Judgment, 20 December 1988, ICJ Rep 69, at 105 (1988)].

One may thus wonder if good faith can be understood in two senses, viz., ‘macro good faith’ and ‘micro good faith’. In respect of the former the abstract notion of good faith in the sense of honesty, fairness, reasonableness signifying its subjectivity may be meant, i.e. ‘macro good faith’ – a horizontal approach, a layer of idea which is generic (i.e. an idea at a higher level of abstraction) and may not be understood the same in different factual patterns as it will depend on its application to them. Thus, from the notional point of view good faith in the macro sense is considered to act as a major interpretative principle. While, on the other hand, it should be appreciated that what appears to be good faith in one context may not appear the same in another context with a different pattern of facts, situations or surrounding circumstances. Thus, the notion of good faith focusing on the particular context concerned – i.e. the vertical approach – may be understood as ‘micro good faith’ which brings with it the sense of objectivity rather than subjectivity understood in the horizontal sense, i.e. ‘macro good faith’. It should be appreciated that the pacta sunt servanda principle, being the foundation of all contracts, is the manifestation of ‘macro good faith’. But ‘micro good faith’ being applied in specific factual contexts may limit the application of the pacta sunt servanda principle in order to conform to it, even in changed circumstances that affect the contract. Therefore, the pacta sunt servanda principle in a contractual relationship may not be applied as an incantation or in the abstract sense, rather it should be assessed in terms of ‘micro good faith’.

In international investment law, substantive standards of treatment (investment treaty provisions) such as ‘fair and equitable treatment’, ‘full protection and security’, ‘protection of legitimate expectation’, ‘transparency’, ‘non-discrimination’, ‘national treatment’ and ‘most favoured national treatment’, etc., are considered fundamentally based on good faith, or manifestations or corollaries of good faith, but their content depends on the specific contexts in which they are applied. Here comes the crunch point when one asks: even if a state literally complies with the foregoing standards in respective cases, will it be always considered to have acted in good faith in its relationship to the other contracting party? Inversely, if a state acts in good faith to comply with its non-investment international treaty obligations relating to human rights, the environment or climate change that may interfere with investors’ rights, will it be implicated in bad faith vis-à-vis the foreign investors? It is difficult to give any straightforward answers to these questions; the answers, however, may be found specifically in the contexts in which the notion of good faith is to be examined. In investment arbitration jurisprudence such a contextual extrapolation seems to be increasingly endorsed rather than the simple meaning attributed to a standard of treatment (e.g., the S.D. Myers, Mondev, ADF, Loewen and Waste Management cases). Often, in order to reflect good-faith cooperation in an investment contract situation the aforementioned standards of treatment for foreign investors may have to be weighed against the state party’s competing public interests, such as the protection of the environment, the promotion and protection of human rights and the securing of the economic development of the host country. There seems to be a growing support for such a stance amongst various stakeholders such as host countries, NGOs, international organizations (the World Bank and the IMF, etc.) and others, though this aspect of international investment law is still in the early stage of development.

The scope and content of the standards of treatment for foreign investors may differ from contexts to contexts entailing the understanding of good faith in the micro sense. As the comments to section 205 of the U.C.C. also states, in a different domain of law though, that “[t]he phrase ‘good faith’ is used in a variety of contexts, and its meaning varies somewhat with the context.” To get a result then it would be advisable to look at the notion of ‘micro good faith’ – a context-based one with the objectivity that underscores the framework of relationship, co-operation being its philosophical foundation. Good faith in a particular situation should thus be understood not as an abstract concept but as a functional or objective one, i.e. in the micro sense, covering all stages of a contract.

We obtained a good result for the client in that case, but for me, the real impact of the case came in the form of an epiphany. I became convinced that Korea had a big future in international arbitration. The reason was as much an accident of history as my taking that first case. The Asian Financial Crisis of the late 1990s had ravaged Korea’s economy. Businesses were failing or on the verge of it, and the major conglomerates that had not collapsed were desperately selling off non-core assets in an effort to stay afloat. This was a buying opportunity for foreign companies willing to accept the risk of the unstable economy. In short: due to hard economic times, there were a lot of M&A deals in a very short period, typically with ICC arbitration clauses. A wave of disputes was, in my opinion, almost inevitable.

However, I found the Korean community at large did not yet share my expectation. Even my own firm management was reluctant when I proposed establishing Korea’s first international arbitration practice group. Fortunately, they decided to support me in my ambition, and I was also able to persuade a younger colleague from the US, John Bang, to join me in founding a practice group. That was 10 years ago.

Today, the landscape has changed. Korea is now a significant user of arbitration, and those at the forefront of the field here are increasingly receiving global recognition and appointments to posts in the major institutions and organizations around the world. I feel grateful that history has born out my instincts. I am grateful to my colleague John for joining me in this venture. And I am grateful for the dedication and support of a fantastically talented team of 16 lawyers (and growing) that have joined our team since its formation.

I am thus immeasurably pleased to present yet another first: Korea’s first comprehensive overview of commercial arbitration in Korea, titled “Arbitration Law of Korea: Practice and Procedure,” and published by Juris Publishing in February 2012. It is the collective work of all the lawyers that comprise BKL’s practice group, and I give due credit to all the hard work that went into its research and drafting.

Although the story of Korea’s rise to prominence in international commercial arbitration over the last decade is known in broad outline to many industry insiders and followers, we nonetheless felt it important to include a fuller picture. Thus, the opening chapter of the book offers an inside view into Korea’s rise to prominence in this field and may contain a number of surprises for readers. For instance, it may not be common knowledge that year after year Korea rivals and even exceeds in even-numbers both of its much larger neighbors, Japan and China, in ICC arbitrations – an important measure of activity in this field. Readers may also be surprised at the many ways in which Seoul is a good alternative to more standard rivals Singapore and Hong Kong as a place for conducting arbitrations. In fact, this may become the reality, as Korea has shifted from an inbound investment locale to outbound, and has seized a top global position in a number of sectors, including shipbuilding and technology. With stronger bargaining power, Korean parties may insist on holding more arbitrations in Korea.

The remaining chapters of the book cover all the areas one would expect: arbitration agreements, arbitral tribunals, arbitration procedures under the rules of the local arbitration institution, enforcement of arbitral awards, and the supportive role of the courts. For those unfamiliar with Korea’s legal system there is even an overview of Korean civil court procedures.

With regard to arbitration practice and procedure, readers will be comforted to find few surprises. Korea (1) is a signatory to the New York Convention, (2) in 1999, was the first Asian country to adopt the UNCITRAL Model Law and (3) has a judiciary that has been consistently supportive of the arbitral process.

Our book also points out a few practices and procedures where Korea stands apart, though there are not many. For instance, requests for provisional attachments can be made ex parte and may be subject to a more lenient standard than some jurisdictions.

Publishing this book has been a satisfying cap to our team’s first decade. It reflects not only our knowledge of the laws and rules, but our practical experience as well. And that experience has been substantial, even in just one decade, for several reasons which may be particular to Korea. First, there is no cultural reluctance to litigate business disputes as you may find in Japan. Second, Koreans are quick to adapt to new trends and once they take hold, they are often widely adopted. And third, there is a business culture that is comfortable with turning things over to the ‘dispute experts’ once things reach a breaking point on the business level. Thus, arbitration has taken hold quickly in Korea and become a standard and accepted part of international business practice. As a result, our team has accrued a wealth of experience in the last decade, and we have tried to reflect that practical experience in the book.

For anyone who is interested in arbitration in Korea – or who finds themselves engaged in one as a party – we hope this book will be a valuable resource.

Conducted by QMUL’s School of International Arbitration and sponsored by White & Case LLP, the 2012 survey aims to examine whether a “harmonised international arbitration procedure is emerging, by canvassing the views of experienced arbitration practitioners from all over the world,” comments Professor Loukas Mistelis, Director of the School of International Arbitration at QMUL.

Entitled “Current and Best Practices in the Arbitral Process,” the survey is the fourth carried out by QMUL since 2006, and seeks to conduct a major investigation into arbitration practices and trends worldwide. Corporate attitudes towards arbitration, recognition and enforcement of foreign awards, and corporate choices in arbitration in key and emerging markets were past survey themes.

There are two significant differences between this survey and those done before. First, this survey concerns the arbitral process itself, rather than corporate user attitudes towards arbitration. Second, this survey reaches out to arbitration counsel and to arbitrators, in addition to inside counsel. This should provide a much broader universe of respondents, along with greater empirical evidence for what actually occurs in arbitration and what works and what does not.

The following topics will be explored in the 2012 survey:

• Arbitrator selection: The preferred methods of selecting arbitrators, experiences in interviewing potential arbitrators and expectations regarding the conduct of such interviews.
• Organising arbitral proceedings: How procedural meetings are convened, the use of the IBA Rules on the Taking of Evidence in International Arbitration, experiences and expectations regarding the role of the tribunal secretary, methods for expediting arbitration proceedings and the use of fast-track arbitration.
• Interim measures and court assistance: The frequency of interim measures applications to tribunals and courts (including security for costs applications), the level of compliance with tribunal-ordered interim measures and the power of arbitrators to order interim measures ex parte.
• Document disclosure: The frequency of document disclosure requests, the standard that applies/should apply for disclosing documents in international arbitration and how to best manage the disclosure process.
• Fact and expert witnesses: The effectiveness of fact witness statements, experiences and views on mock cross-examination of witnesses and witness conferencing, types of expert witnesses most frequently used and the preferred method of appointing expert witnesses.
• Pleadings and hearings: The number and order of delivery of written submissions, methods of expediting pleadings and hearings, duration and mode of hearings and the effectiveness of oral closing submissions and post-hearing briefs.
• Arbitral awards and costs: The frequency of partial, interim and dissenting awards, expectations regarding the length of time to issue an award and experiences and preferences regarding costs allocation.

The questionnaire for this year’s survey can be accessed at www.arbitrationonline.org/survey. Corporate counsel, private practitioners and arbitrators are encouraged to participate.

Those who wish to contribute have until the end of May to complete their responses. Questionnaire responses may be followed by individual interviews for those willing to participate. The report is expected to be launched in September 2012.

By Paul Friedland and John Templeman
White & Case, LLP

This is, of course, very important in order for their CV’s to be given serious attention. It is the document that will open the door to interviews, and employers will not consider applicants who do not have the right professional background, skills, or interests.

But, in having read thousands of CV’s over the years, I have found that those that remain at the top of my desktop pile, and prompt calls for interviews, tend to convey qualities of something more in the applicant: that they will be a good cultural fit for this kind of position, will have a passion for what we do, and that they will be enjoyable to work with.

It’s not easy to get all this across on a single page document, especially when most of it must cover the considerable time spent developing relevant skills and experiences in international dispute resolution. Yet a few applicants manage to do this. How?

Thinking back on the people we’ve hired or retained for internships over the past several years, what I recall of their CV’s – what grabbed and kept attention – was how they boldly and proudly described some element of their lives or past accomplishments.

For example, in the summer of 2011 we received CV’s from two interns that included the following information:

“Was listed in Guinness book of records for most books published by a 12 year-old.”

“Wrote, directed, and acted in one-woman play while at university.”

These short lines, included on the bottom half of each CV, had an effect. They showed the candidates as rounded human beings, already leading interesting lives. You could tell they did things with a passion, set high goals for themselves, were undeterred by obstacles, and would probably be enjoyable to work with. We hired both. Who wouldn’t want to work with the former 12-year old novelist, or the one-woman production?

International dispute resolution is an unusual area, unlike anything else in the practice of commercial law, which I can say without being accused of hyperbole. No case is like the last one, in almost any way. The countries will be different, as will the legal and factual issues and the people involved. Even when there’s an agreed formal process, arbitration, you have to be ready to consider negotiation or mediation as well. And arbitral procedure itself is hardly a straightjacket; it changes depending on place, parties, and arbitrators. You learn as you go.

Employers want to hire people who will be successful. For international dispute resolution, those who flourish are those who can adapt to circumstances that could not have been predicted at the time when they were hired, and who are not afraid of taking on challenges they were never taught in school to expect.

I still remember lines from the CV’s of those we have hired over the past dozen years and that helped convey the candidate might have the right stuff.

“Was a muffin man in New Zealand”, included in the prior work experience section of the CV submitted by a German lawyer at a well-regarded international law firm in Brussels. (Hired for full time position, where he is still flourishing.)

“Worked for children’s organization while a Mormon missionary in Sicily.” (This was the first summer intern we hired; she went on to become a partner at a law firm in California.)

These applicants felt it was important to put these items on their CV’s, as if to say, “there’s more to me than just my legal background. I’ve done things in life. I intend to do more, whether you hire me or not.” You don’t let CV’s like these sink to the bottom of the pile.

In fairness, and as guidance, I should note there are other items that, once a CV has gotten a prospective employer’s attention, will help land that position in international dispute resolution:

- Breadth of relevant interest. Studies or professional background showing experience or interest in different types of dispute resolution: arbitration, civil litigation, mediation, negotiation. It’s all good. The broader, the better.
- Language skills. Speaking more than one language really helps. If you don’t have the languages, it won’t hurt to show that you’re at least trying by taking courses.
- International work experience. Having done anything at all outside of your home country is good to show, if you can.

In the end, though, you want your character to come through. Life experiences and accomplishments outside of the field of dispute resolution may be the best way to do this.

And if you don’t have life experiences to show your adaptability and mental agility, maybe you should get some before embarking on a career in international dispute resolution.

In a recent decision issued on 7 November 2011 on a request for annulment of a partial award on jurisdiction rendered by the Court of Arbitration for Sport (“TAS”), the Swiss Supreme Court recalled and applied its previous jurisprudence on the interpretation of pathological arbitration clauses (Case 4A_246/2011).

The case arose out of a contract between a football club and an agent relating to the transfer of a player. The contract contained a dispute resolution clause which provided that “[t]he competent instance in case of a dispute concerning this Agreement is the FIFA Commission, or the UEFA Commission, which will have to decide the dispute that could arise between the club and the agent.” After a dispute arose between the parties, the agent initiated arbitral proceedings before the FIFA Players’ Status Committee, a body tasked with adjudicating disputes arising from transfers of professional football players. However, on the basis of its internal rules, the Committee declined jurisdiction on the grounds that the agent was a legal person and not a natural person. The agent therefore requested the Zurich High Court (Obergericht) to appoint an arbitrator, which it did. However, the sole arbitrator subsequently found that he did not have jurisdiction on the grounds that the parties had agreed to submit disputes to arbitration under the rules of a sports arbitral institution.

Finally, the agent initiated arbitration before the CAS. In a partial award issued on 17 March 2011, the CAS ruled that it had jurisdiction over the dispute. However, the football club appealed to the Swiss Supreme Court pursuant to Article 190(2)(b) of the Swiss Private International Law Act (“PILA”) to annul the partial award on the ground that the CAS had erroneously held that it had jurisdiction, one of only two grounds available to a party to challenge a partial award (Article 190(3) PILA).

The football club first disputed that the Parties had even agreed to exclude the jurisdiction of the State courts. However, the Supreme Court, interpreting the Parties intentions according to the principle of normative consensus (“Vertrauensprinzip”), found that this was not the case (para. 2.3.1). The Court noted that while the dispute resolution provision did not expressly mention arbitration, the use of the terms “competent instance” and “decide the dispute” could be understood in good faith to mean that any disputes would be decided by one of the two football bodies in a binding manner, to the exclusion of the State courts. According to the Court, the provision did not give rise to doubts which would warrant a restrictive interpretation of the Parties’ alleged intention to exclude the jurisdiction of the State courts.

Of greater interest, however, is the manner in which the Court addressed the football club’s arguments that the arbitration clause was defective to the degree that it was impossible to apply, or alternatively that it had been extinguished by the decision of the FIFA Commission not to accept jurisdiction.

The Court began by setting out the approach in Swiss law to pathological provisions in arbitration agreements, which it defined as provisions which are incomplete, unclear, or contradictory (para. 2.2.3). As the Court explained, as long as such provisions do not relate to essential elements of the arbitration agreement, such as the binding submission of disputes to an arbitral tribunal, they will not in and of themselves lead to its invalidity. Rather, Swiss law requires courts and tribunals to look for a solution, either through interpretation or if need be by means of completing the contract, which respects the fundamental will of the parties to submit their dispute to arbitration. In this sense, Swiss law imposes a broad approach to interpretation of pathological arbitration clauses, once the parties’ intention to exclude State courts in favour of arbitration is established.

On this basis, the Court ruled that the fact that neither institution identified in the arbitration clause could have, according to their own rules, decided on a dispute between the parties, did not necessarily entail the nullity of the entire arbitration clause. According to the Court, the CAS had properly sought to determine whether the designation of the institutions was so essential to the arbitration agreement that the parties would not have agreed to submit their disputes to arbitration had they known that those institutions could not assert jurisdiction (para. 2.3.2). It further found that the CAS’s determination that the parties would nevertheless have agreed to submit their disputes to arbitration was not based on abstract considerations but rather on concrete indications arising from the facts of the case. In particular, the CAS considered that the parties’ designation of two alternative football associations in the arbitration clause indicated that they were not attached to one particular institution, and that, above all, they wanted to submit their dispute to an arbitral tribunal which was familiar with issues surrounding transfers of professional football players.

Having established that the institutions designated by the parties did not constitute essential conditions of their arbitration agreement, the Court turned to determining whether submitting the dispute specifically to the CAS was consistent with the Parties’ intentions. In doing so, the Court sought to correct the partial nullity of the arbitration clause, to the extent possible, by means of filling in the missing elements. The test applied by the Court was to ask what the parties would hypothetically have agreed to had they been aware of the defects in their arbitration clause (para. 2.3.3). After a review of the facts, the Court concluded that the parties would have agreed to submit any disputes directly to the CAS. In reaching its decision, the Court was particularly influenced by the fact that, by designating FIFA and UEFA, both of which are based in Switzerland, the parties indicated their intention to submit their disputes to an arbitral tribunal with seat in Switzerland, and that they intended such disputes to be decided by a sports organisation which was familiar with the football transfer market. In this context, the Court took into consideration that decisions of the FIFA Players’ Status Committee on transfers of players could in fact be appealed to the CAS.

In sum, the Supreme Court’s decision in case 4A_246/2011 is a good example of the broad and flexible pro-arbitration approach which has characterised the Court’s jurisprudence on pathological arbitration clauses in cases in which the parties’ intention to arbitrate is established. Despite being faced with an arbitration clause with clear references to two institutions which could not adjudicate the parties’ dispute, the Court did not find the clause to be invalid as a whole, but rather engaged in an exercise of filling in the missing elements in order to ensure that the fundamental intention of the parties to arbitrate their dispute was upheld. It is also noteworthy that in the first step of its analysis, namely establishing the intention of the parties to submit their dispute to arbitration, the Court did not consider the absence of the words “arbitration” , “arbitral tribunal”, “arbitrator”, or similar terms in the dispute resolution clause (which it itself acknowledged in para 2.3.1), to be decisive.

The declaratory award (on the tribunal’s jurisdiction) was made pursuant to an arbitration agreement contained in a bill of lading for the carriage of African Fertilizer’s cargo from Romania to Nigeria. The English court had given the claimant, Shipsnavo, leave to enforce the arbitration award and to enter judgment again the defendant, African Fertilizers.

The English court had previously issued an injunction restraining African Fertilizer from continuing an arbitration in Romania, as well an interim declaration that such arbitration proceedings, together with court proceedings commenced in Romania, were both in breach of the arbitration agreement.

Shipsnavo had sought an order for enforcement under s66 of the Arbitration Act 1996 because it was concerned that, should African Fertilizer be successful in its Romanian court proceedings, then it would seek to enforce that judgment under Article 34 of the Brussels Regulation 44/2001, notwithstanding the arbitration award. If Shipsnavo had already obtained an English judgment, then it could seek to resist the recognition of an irreconcilable judgment of the Romanian court.

African Fertilizers resisted the application on the ground that the English court had no jurisdiction to make such an order because the material terms of the award were in purely declaratory terms.

First, it argued that enforcement of an award of a purely declaratory nature is not possible (notwithstanding the ruling – albeit on appeal – in West Tankers). Second, it argued that a judgment entered under s66 of the 1996 Act does not constitute a judgment within the meaning of Article 34 of the Brussels Convention, relying on the ECJ case Solo Kleinmotoren v Boch.

The first limb raised questions of the distinction between “recognition” and “enforcement” in the context of New York Convention awards. African Fertilizers argued that the West Tankers decision was incorrect, that Shipsnavo really intended simply “recognition” of their award in order to defend any adverse Romanian court judgment, and enforcement was not appropriate. The court disagreed, aligning itself with the West Tankers decision and giving primacy to the party’s right to the benefit of the award. The court preferred the plain meaning of “enforce” in s66 of the Act, and cited both textbooks and case law in support of its jurisdiction to enforce a declaratory award.

The second limb was also rejected. The court distinguished the Solo Kleinmotoren decision as being a case about a court approved settlement, in which the ECJ held that a settlement agreement recorded in a court order is not a judgment for the purposes of Article 34(3). Beatson J commented that a settlement is essentially contractual, and while the “submission to arbitration is consensual, the outcome of the arbitration and contents of the award are not”. Further, there were public policy considerations. Citing Briggs on Civil Jurisdiction, Beatson J noted that an English court could not give “leave to enforce an arbitral award and then be required to recognise and enforce a foreign judgment which undermined or contradicted that arbitral award”.

However, there are public policy considerations not considered by the court. Shipsnavo’s objective in seeking to enforce the declaratory award was to pre-empt the enforcement of any irreconcilable judgment that may be given by the Romanian court. What happens if the Romanian courts do find in favour of African Fertilizers? The parties could each have irreconcilable judgments from England and Romania, arising from the same agreement.

While the pro-arbitration stance of the English courts is welcome, this approach can result in inconsistent judgments within Europe. It may be that the current proposals to reform the Brussels Regulation will go some way to temper this risk. The European Parliament’s Legal Affairs Committee (LAC) has proposed maintaining the arbitration exception to the Regulation, but with clarifications for the interface between arbitration and the courts. The first reading of the LAC’s report is reported to take place on 18 April 2012 and the process can take several years to pass through the European parliament. Are those reforms appropriate? And meanwhile, are there risks for the health of the inter-twining systems of justice that are arbitration and litigation?

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.

Below is a checklist for when someone – a business client, my boss, or a legal department colleague – has informed me that an arbitration is possible, likely, or has just been filed.

1. Check for any pre-arbitration procedures and assess whether to comply with them

Of course, the first thing any litigator will do when presented with a contractual dispute is to check the contract’s dispute resolution and governing law clauses (assuming they were included). But what if the contract requires certain procedures before a claimant may initiate arbitration? For example, there may be a cooling-off period to negotiate, mediate, or escalate disputes to senior management; or the contract may provide that issues are deemed to be waived unless raised within a certain time period. In addition to investigating how best to comply with these procedures, a party may ask whether to comply. A claimant concerned about the clock (and time bars) may prefer to proceed directly to arbitration if doing so will not have unduly adverse consequences.

2. Consider sending letters before action

In his negotiation best-seller, Getting Past No, William Ury describes the value of keeping an objective distance in negotiations over hotly contested issues. He quotes American humorist Ambrose Bierce, “Speak when you are angry and you will make the best speech you will ever regret.”

This is also true of letters, especially those exchanged by parties just before their dispute reaches an arbitration. It can be useful to try to calm the waters with a balanced and well-reasoned letter that summarizes the dispute, avoids any inflammatory language or characterizations, and makes clear exactly what you are requesting and whether you are open to resolving the dispute through negotiation or mediation before arbitration.

Consideration should also be given to sending the letter under the signature of the party rather than counsel, absent a “without prejudice” disclaimer. Even if it does not unblock negotiations, the letter will still make a better exhibit in the arbitration than the nasty correspondence that may have preceded it.

3. Mitigating risks of internal and external communications on the issues in dispute

When a dispute arises, it is natural for the people involved to speculate about the possible causes and potential consequences, often via e-mail. They should be warned that their informal internal communications may be produced in an arbitration (even if they would not have been subject to production in litigation in the party’s own country). Directing communications to the attention of counsel, or at least keeping counsel informed, may help preserve arguments of privilege, where such documents may be subject to production.

While it may not be feasible to cease corresponding with the opposing side, relevant people in the party’s organization should be advised of the importance of conferring in advance with counsel. This may seem common sense, yet often witnesses will be surprised when see their e-mails or faxes produced by the other side in the arbitration. This does not necessarily mean counsel must take over the drafting process, although sometimes they must do so. Even with minimal involvement, counsel can help avoid having letters sent MS Word file that contain meta data with the identity of each person who contributed to the draft.

4. Document retention notices

Although some jurisdictions (mainly the USA) require lawyers to take positive steps to avoid the deletion of relevant documents (spoilation), it generally makes sense to advise all involved in a dispute to preserve their documents. In an international arbitration, documents will often be more important than any witnesses. Once employees have been advised to retain their documents, they can be gathered and reviewed at a future date.

For small and large organizations, a Document Retention Notice (DRN) can be a simple e-mail to employees believed to have documents (“custodians”) explaining the existence of the dispute, the nature of the documents that should be preserved, and how to preserve them. Some companies use software programs that will automatically send DRNs, update them periodically, and flag for human resources any custodians who may be about to exit the company.

5. Identifying and notifying key employees and witnesses

A good reason for preferring the civil-law style of arbitration over the common law is the preference for contemporaneous documents over witness testimony as evidence. This makes obvious sense for most business disputes, where there will generally be a written record of the parties’ course of dealings. (Given recent research on the unreliability of witness testimony, the preference for documentary evidence probably makes sense for most or all forms of dispute resolution, but that’s beyond the scope of this post….)

Where witness testimony is anticipated, it would be wrong to assume that employee-witnesses will be readily available by the time of an arbitration hearing. They may no longer be with the company (or even alive), and those do remain may feel overburdened or reluctant. Thus, it is important to reach out not only to potential witnesses to help set their expectations, but also to human resources and supervising managers who can take steps to ensure they will be available at the time an arbitration hearing takes place.

6. Notifying insurers or prior owners

This may seem obvious to others, but I include this step on my list because it is too easy to overlook despite its importance. Even when there is doubt over insurance coverage, there is no downside to preserving the right to claim coverage later. Many insurance policies require notification within a short time period after the party becomes aware of a covered event, giving the insurer the opportunity to assume the defense and appoint counsel. Notice can usually be short and skeletal, with just enough detail to explain why coverage may exist.

The same is generally true of a seller’s indemnity. Because business acquisition agreements tend to be more restrictive than insurance policies in the scope and timing of what may be claimed, it is advisable to review and carefully follow any contractual requirements for notifying claims.

7. Preparing for any media inquiries

Despite what one may read about concerns over confidentiality in international commercial arbitration, the truth is that only the parties themselves will have any interest in most contract disputes. Investment arbitration, where broader public interests will often be at stake, is an entirely different matter. For cases that generate public attention and interest, parties should be careful about litigating in the media.

First, they should disabuse themselves of any notion that the media will tell the story as they believe it should be told. Good journalists will always want to have the arguments of the other side to present (no matter how ridiculous they may sound to you), and less qualified journalists will just want to present the dispute, ignoring reality. Second, asserting an aggressive position in the media may constrain the other party to escalate in kind, forcing each side to adopt rigid and extreme positions in public that will undermine any settlement efforts.

Where media inquiries are expected, it usually makes sense to have ready a short, general statement (sometimes called a “holding statement”). This can summarize the party’s position, or simply acknowledge the existence of dispute and the parties’ intention not to comment on it.

8. Briefing management (or the client)

When a dispute is about to reach the point of arbitration, counsel cannot over-communicate about its consequences to the party, including to a company CEO or division president. Counsel should be prepared to field questions of what the arbitration will be about, why the parties have been unable to resolve their dispute, how long the arbitration will take, what it is expected to cost, and what the outcomes could be.

9. Conducting an Early Case Assessment (ECA)

Many companies, my own included, consider an ECA to be an essential tool at the onset of a significant dispute, to be completed within a reasonably short time period and updated periodically as the arbitration progresses. The ECA, which is typically (but not always) performed by external counsel, should include a review of relevant documentation, interviews with witnesses, and discussions with potential experts. It should give a party an early sense of probable outcomes and costs of the arbitration, which may also force more realistic and informed negotiations to take place.

In the words of a wise general counsel for whom I used to work, “what the business leader wants to know is whether the deal I can get today is better than the result that I’ll end up with in arbitration.” A good ECA will do exactly this. Many lawyers lose respect and even client relationships because they limit themselves to saying “it depends”. If you have the courage and competency to translate the uncertainty of an arbitration into terms that a business leader can use, you will have a friend for life.

10. Exploring informal resolution options (negotiation and mediation)

The best resolution of a dispute, at least from a party’s perspective, will usually be no dispute at all. There are often multiple paths to attempting a settlement before reaching the arbitration with the usual default being another round of negotiations between the parties. This may be effective at times, but it may also waste an opportunity to engage in mediation at a critical moment.

If mediation is an option, counsel will want to begin preparing the foundation for it almost immediately. The party itself (its employees and management) will need to understand the process, the reasons for proposing mediation, and have reasonable expectations for an outcome.

A frequently asked question is, when is the right time to propose mediation to the other side? In most cases, the answer is the sooner the better. There is a common misperception among some litigators that mediation is effective only after the case has been sufficiently developed. From an in-house counsel’s perspective, this just sounds like a request to spend more of the client’s money before settling.

As with most checklists, it is likely that important items have been omitted, and hopefully these will be pointed out here so the list can be improved. I should note that my checklist purposely does not include appointing external counsel. The issue merits a separate checklist of its own, which should be for another post….
Note: a version of this checklist appears in International Arbitration and Mediation: A Practice Guide (Kluwer 2010), where it is enhanced and improved by my co-author, John Savage.

It has also been correctly stated that “[w]hether or not concerns about international arbitral efficiency are exaggerated, the international arbitration community must face this discontent and, more importantly, take steps to maintain its legitimacy with its users.”³

The problems of cost and delay in high value disputes are not, however, new subjects. In 1989 Lord Mustill posed the following (largely rhetorical) questions with respect to high value commercial arbitrations:

Do the parties work together to achieve a result which is fair and sensible in commercial terms, or do they not rather seek out every procedural advantage to ensure that they win, regardless of the merits? Do the parties really want a speedy decision, or will not the defendant spin out the arbitration for as long as possible? Are the proceedings any longer imbued by informality, or do they not have all the elephantine laboriousness of an action in court, without the saving grace of the exasperated judge’s power to bang together the heads of recalcitrant parties⁴

Building on the foundations laid in the 1985 UNCITRAL Model Law,⁵ the major sets of arbitral rules have gradually evolved over the last 20 years to clarify: (i) the extent to which parties are obliged to conduct arbitrations in a timely and cost efficient manner; and (ii) the circumstances in which arbitral tribunals may in fact be empowered to bang parties’ heads together.⁶

The most recent step in that evolution was the publication of the revised ICC Rules on September 12, 2011, which come into effect from January 2012.

Article 22(1) of the new ICC Rules states:

The arbitral tribunal and the parties shall make every effort to conduct the arbitration in an expeditious and cost-effective manner, having regard to the complexity and value of the dispute.

Article 22(1) thus contains an explicit contractual obligation on the parties to conduct their arbitration in a ‘proportionate’ manner. More often than not, however, when large sums of money are at stake and experienced counsel are engaged on both sides, at least one of the parties has a rational incentive to ‘intensively litigate’ the dispute, thus increasing costs and causing delays.

Once a dispute has arisen, it is unrealistic to expect either party to act contrary to its self-interest in pursuit of the ‘higher ideal’ of arbitral efficiency. In such situations, time and costs are best kept in check by empowering tribunals to take ‘proportionality’-based case management decisions. The existence of such a power is common to most modern sets of rules, and is contained in Article 22(2) of the new ICC Rules:

The innovation with regard to case management in the new Rules is Article 24, which makes it mandatory for the tribunal to convene an initial “case management conference to consult the parties on procedural measures” which may be held “in person, by video conference, telephone or similar means of communication”. Article 24 also suggests that the tribunal may adopt one or more of the case management techniques described in Appendix IV.

Appendix IV contains a useful summary of case management techniques (such as bifurcation, limiting document requests, and limiting the length and scope of written submissions and witness evidence). It also emphasizes that “[a]ppropriate control of time and cost is important in all cases. In cases of low complexity and low value, it is particularly important to ensure that time and costs are proportionate to what is at stake in the dispute.”

While the case management techniques set out in Appendix IV will be familiar to all experienced arbitration practitioners, the ‘codification’ fulfils at least two important functions. First, it can reasonably be expected that the explicit encouragement to use such techniques will increase their use by less experienced arbitrators. Second, the explicit enunciation of case management techniques serves further to legitimize their use and hence to insulate awards from challenge on due process grounds.

One member of the CCIAG has suggested that “[t]o fix arbitration, practitioners must return the process to its original state as a streamlined option for dispute resolution.”⁷ In practice, it is likely impossible to reverse the trend by which arbitration has absorbed certain features of litigation, but it remains realistic to hope that tribunals (which, unlike the national court judge, will see through a case from beginning to end) will use their case management powers to ensure that the procedure is as streamlined a possible.

Paul Friedland and Paul Brumpton, White & Case LLP