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

For those who may have missed the previous blog posts,² these proceedings occurred further to an application to set aside a partial arbitral award rendered under the auspices of the International Chamber of Commerce, initiated by a Greek company J&P Avax SA against an Italian company Société Tecnimont SPA. Tecnimont had concluded a subcontract agreement with Avax for the construction of a propylene factory located in Greece. A dispute between the parties arose and Tecnimont instituted ICC proceedings in Paris pursuant to the arbitration clause contained in the subcontract agreement.

At the time of his appointment in 2002, the Chairman was ‘Of counsel’ at a global law firm with an office in Paris. In his declaration of independence, the Chairman disclosed that the Washington DC and Milan offices of his firm had previously worked with the parent company of Tecnimont in a concluded matter in which he had never been involved.

During the proceedings, Avax’s counsel became aware that the Chairman’s law firm was assisting a company that was later acquired by the parent company of Tecnimont. Avax then unsuccessfully challenged the Chairman’s appointment before the ICC Court of Arbitration in September 2007. The ICC dismissed the challenge for undisclosed reasons and Avax continued to participate in the arbitration while reserving its rights. A partial award on liability was rendered in favour of Tecnimont on 10 December 2007, with further information regarding the links between the Chairman’s law firm and Tecnimont’s affiliated companies coming to light thereafter.

Subsequently, Avax filed an application to set aside the award with the Paris Court of Appeal.

On 12 February 2009, the Paris Court of Appeal annulled the award and held that the arbitrator was under a continuing obligation to inform the parties of any matter that could cast reasonable doubts on his/her impartiality and independence. The Paris Court rejected Tecnimont’s argument that Avax’s application to set aside was inadmissible because it had already unsuccessfully challenged the Chairman before the ICC on the same grounds and that such challenge was in any event waived as it was made beyond the time limit of 30 days required by the ICC Rules on challenging arbitrators. The Paris Court of Appeal found that Avax had only been notified of relevant facts and circumstances after it challenged the award and after the partial award was delivered. They left open the questions of whether the ICC Rules bind the court and whether the party had waived its right to challenge the award by failing to adhere to the time limitation imposed by the ICC Rules.

The Cour de cassation³ reversed this decision, holding that almost all of the grounds for challenge were already included in the request for challenge filed with the ICC in September 2007. The Cour de cassation considered that the Paris Court modified the terms of the dispute by relying on facts that came to light after the partial award rather than relying on those submitted by the parties, a breach of Article 4 of the Code of Civil Procedure. Consequently, the Supreme Court remitted the case to the Reims Court of Appeal to decide on the validity of the award.

The Reims Court of Appeal first considered that the setting aside application was admissible because the failure to challenge the Chairman within the ICC time limitation did not prevent Avax from applying for the award to be set aside. The Reims Court of Appeal then annulled the award due to the Chairman’s failure to spontaneously and comprehensively disclose that his law firm had advised Tecnimont and related companies during the time of the proceedings.

This decision confirms: (I) the inapplicability of the ICC Rules at least for challenging arbitrators before French courts once an award is rendered and (II) the French courts’ attitude of broadening the scope of the arbitrator’s duty to update and disclose conflicts of interests.

I. The Inapplicability of the ICC Time Rules for Arbitrator’s Challenge

Article 11 of the ICC (1998) Rules provides that challenge of arbitrators must be brought within 30 days from when the party became aware of facts and circumstances giving rise to the challenge. The reasons for the ICC decisions on arbitrators’ challenges are not provided or published. That rule has not been modified by the recent revision of the ICC Rules, despite discussions on the benefits of publishing decisions concerning challenges of arbitrators.

As the Cour de cassation‘s decision that the Paris Court of Appeal modified the terms of the dispute was of a procedural nature, the Reims Court of Appeal’s view on the admissibility of the application to set aside was much anticipated.

Indeed, some commentators argued that the only motive that could justify the Cour de cassation putting forward this procedural flaw is that its correction would have an impact on the admissibility of Avax’s claim. The Cour de cassation therefore has ruled on a technical issue only to enable a future reversal of the Paris Court of Appeal’s decision. It is probably not by coincidence that the designated court is chaired by Dominique Hascher, former general counsel of the ICC Court of Arbitration and previous judge at the 1st Chamber of the Paris Court of Appeal.

On this occasion, the Reims Court of Appeal was expected to provide some explanations as to the consequences of not filing the application within the time limit set forth in the ICC Rules.

Both the Reims Court of Appeal and the Paris Court of Appeal accepted that some facts were revealed after the ICC decision on Avax’s challenge. Thus, the ratio decidendi of the case stands in its analysis of the consideration given by French courts to the ICC Rules.

The Reims Court of Appeal’s conclusions are straightforward: challenges before the ICC Court and review of an award by a judge are separate proceedings and do not serve the same purpose; the two applications are before different authorities; and the judge that deals with the award is not required to abide by the ICC time limit to challenge arbitrators. The ICC decision is of an administrative nature and does not have res judicata effect. Furthermore, the appellate judges found that the party has not waived its right to challenge the award as the party raised the issue and reserved its rights whenever possible during the arbitration proceeding. This decision means that, once an award is rendered and notwithstanding the ICC’s decision or the failure of the parties to comply with the ICC Rules on challenges during the proceeding, the judge has full liberty to decide whether arbitrators’ independence may be called into doubt provided the party shows that it did question the independence of the arbitrator and therefore did not waive its rights to challenge.

Although many commentators support efforts to ensure impartiality and independence, this case has already been criticised by some commentators for the court’s lack of consideration as to the ICC Rules with respect to time limits for challenges of arbitrators. Some view that ICC Rules should not have been so easily bypassed given that they represent contractual obligations that bind the parties and arbitrators. Another concern is that allowing the challenge to go forward means the party receives an opportunity to re-litigate the same issue before different bodies.

It is true that this case represents a rare disregard of the ICC Rules by the French courts. Nevertheless, it is the first time that the French courts deliberated the parties’ agreement to abide by the ICC Rules with respect to that specific issue. The party could have also challenged the arbitrator by virtue of Article 11 after the new information was disclosed but did not do so. However, the Article 11 time-limit is internal to the ICC procedure for arbitrators’ challenging and cannot be imposed on French courts once the award has been rendered. Moreover the party made clear that it reserved its right to challenge the arbitrator before the court. This does not imply that the Reims Court of Appeal has denied the will of the parties. Rather they deemed that failure to respect the ICC procedural time limit did not prevent recourse before national courts after the award is rendered.

II. The Broad Scope of the Arbitrators’ Disclosure Obligations

The appellate judges concluded that information concerning the links provided by the Chairman had developed throughout the course of the proceedings. The relationship between the Chairman’s law firm and one of parties to the arbitration went beyond the information disclosed in 2002 by the Chairman and was not revealed in due time.

In that respect, the Reims and Paris Courts of Appeal had similar interpretations. However, the Reims judges further elaborated on the meaning of the duty of disclosure. The Court found that arbitrators have a continuous obligation to disclose not only personal circumstances that may call their independence into question, but also factual circumstances involving the law firms to which they belong throughout the proceedings. Notwithstanding the arbitrator’s position in the firm, the obligation to disclose covers other files handled by other branches of the law firm irrespective of the subject matter of the dispute or the amount of fees invoiced for these other files. Thus, a certain degree of objectivity was required from the arbitrator, beyond his/her personal connections. After reviewing each specific link, the Court concluded that the failure to inform the parties of these facts or the incomplete information given to the parties created reasonable doubts as to the independence of the Chairman.

The Reims decision demonstrates the importance of continuous and strict conflicts checks by arbitrators, after their appointment and throughout the proceedings. This ruling is in line with the French case law on the continuation of the duty of disclosure.⁴ Indeed, under the new Article 1456 of the French Code of Civil Procedure, an arbitrator is under the duty to ‘disclose any circumstances that may affect his or her independence or impartiality’ and ‘also shall disclose promptly any such circumstance that may arise after accepting the mandate.’

This decision also confirms a current trend in French case law that broadens arbitrators’ duty of disclosure, e.g. with respect to the number of appointments of an arbitrator by one of the parties as well as to the existence of a business relationship between an arbitrator and a party’s counsel. However, this is the first time an award is annulled on the basis of connections with other offices of the arbitrator’s international law firm, rather than the arbitrator’s personal connections.

Arbitrators involved in proceedings seated in France are under a duty to continuously investigate potential conflicts and ensure that conflicts databases are regularly updated. As companies frequently change ownership and affiliates, clients should also be requested to clarify precisely their corporate structure and line of control and communicate any changes to their lawyers. Some commentators have criticised the lack of cost-efficiency of such refinement of conflict checks and updates system. The Reims Court of Appeal decision adds to the responsibilities of arbitrators but serves to ensure that arbitrators sitting in international arbitration tribunals in France remain independent and impartial throughout the proceedings. This development is crucial to maintain the credibility and quality of international arbitration.

The duty to disclose is also in harmony with the colour coded IBA Guidelines on Conflicts of Interest in International Arbitration, addresses the issue of an arbitrator’s law firm’s involvement with one of the parties. Arbitrators must disclose if their law firms are rendering services to one of the parties or affiliates without creating a significant commercial relationship and without the involvement of the arbitrator. While the rendering of services must be disclosed, it does not per se amount to a conflict of interest under the IBA Guidelines. The individual circumstance would have to be further examined.

The French courts’ approach on this matter does not differ, as the Court of Appeal specified that the facts that the matters dealt with by the law firm were unrelated to the dispute submitted to arbitration and that the amounts billed by the firm with respect to the other files was nominal and did not create an impact. Specifically, the Court stated: ‘Once a client relationship is established, that relationship is not only financial: the independence of an arbitrator is not judged depending on the scale of the fees received by his/her law firm from a party.’

Applying the IBA Guidelines, the arbitrator in the Tecnimont case would have been under the same duty to disclose his law firm’s representations of affiliates of one of the parties. However, the law firm’s representations may or may not lead to an annulment of the award as the facts would still have to be analysed under the IBA Guidelines to determine if they create a justifiable doubt as to the arbitrator’s impartiality and independence. Similarly, the Reims Court of Appeal would not automatically annul the award for failure to disclose all this information but will also analyse each specific link between the law firm and the parties to arrive at its conclusion. As the judges indicated: ‘(…) the review court’s responsibility is to assess the impact of the non-disclosure and to determine whether or not it could have caused a reasonable degree of doubt, in the minds of the parties, as to the alleged lack of impartiality.’

A pourvoi en cassation or recourse has been lodged against the Reims decision with the Cour de cassation and it is uncertain whether the Cour de Cassation will adopt the Reims Court of Appeal’s view of the ICC Rules.

By Laurence Franc-Menget and Vanina Sucharitkul, Herbert Smith LLP

In its decision 4A_574/2010 of 21 March 2011 the Swiss Federal Supreme Court dealt with a dispute that had arisen among the former members of a disintegrated law firm. One of the lawyers initiated the contractually agreed arbitration process against his former partners, but ultimately neither side paid the cost advances set by the arbitral tribunal. The arbitration did not move further. Some years later the same lawyer commenced court proceedings, taking the view that the courts were competent as the arbitration agreement had become inoperative. The Supreme Court recalled that the option to declare an arbitration agreement inoperative is not open if neither party pays the advance. In this case, the arbitration clause remains valid. Moreover, it remains in any event valid for disputes that are distinct from the one before the arbitral tribunal. In the case at hand, the factual matrix included circumstances that had come to light only four years after the arbitration had come to a halt due to the parties’ failure to pay the cost advances. Although the prayers for relief remained the same in the law suit subsequently initiated before the state courts, the dispute was thus distinct from the one in the arbitration.

In June 2010, the United Nations Security Council adopted new and tighter sanctions against Iran aiming at stopping Iran’s nuclear program (UN Security Council’s resolution 1929 of 9 June 2010). Based on this resolution the United States, the European Union and several other important countries (including Australia, Japan, Canada) implemented even broader sanctions against Iran. Those sanctions consist of strict economic and financial embargos banning imports from and exports to Iran, and also contain a blacklist of Iranian companies and individuals with whom trade is prohibited.

In August 2010, Switzerland transposed the UN resolution into Swiss national law by amending the existing Federal Ordinance of 14 February 2007 on Measures against the Islamic Republic of Iran. On 19 January 2011 Switzerland also tightened its sanctions against Iran by adopting a new Federal Ordinance (the “Ordinance”) which replaced the 2007 Ordinance. It came into effect on 20 January 2011 and, in principle, aligns Switzerland’s position with that of the UN.

The (new) Swiss Sanctions: The Federal Embargo Act (“EmbA”) is the legal basis for Swiss sanctions against foreign countries. Pursuant to Articles 1 and 2 EmbA, the Swiss Government can enact coercive measures imposed by the United Nations, by the OSCE, or by Switzerland’s most important business partners aiming to ensure the respect of public international law, namely compliance with human rights.

The Ordinance imposes a strict ban on export of so called dual use goods, technologies, and software (i.e. products and technologies normally used for civilian purposed which may also have a military application). Furthermore, since it is assumed that Iran finances the enrichment of uranium through the revenues of its oil and gas sector, the export restrictions also encompass goods that may be used in this sector. Furthermore, any financing of or shareholdings in Iran’s oil and gas sector is prohibited.

The Ordinance also affects Switzerland’s financial sector and contains e.g. a prohibition for Swiss (re-)insurance companies to contract with Iranian individuals or entities. Likewise, the law proscribes Swiss banks from transacting with Iranian banks. Furthermore, any money transfer to or from an Iranian individual or company over CHF 10’000 must be reported to Switzerland’s State Secretariat for Economic Affairs (the “SECO”); transfers exceeding CHF 50’000 even require a prior authorization from the SECO. The Swiss financial institution executing the transfer must file the request for authorization. Where that institution is not based in Switzerland, the Swiss beneficiary or the party ordering the money transfer must report it and seek prior authorisation. The SECO will grant a request if the money transfer does not violate the Ordinance or any other Federal Acts applying to the proliferation of armaments. Finally, the Ordinance also provides for a long blacklist of Iranian individuals and companies whose assets in Switzerland have been frozen and with whom any kind of transaction is prohibited.

Any violation of the Ordinance is punishable by imprisonment of up to one year or a fine of up to CHF 500’000.

Some Issues Arising under Swiss Law:

a. No bar to arbitration- The effect, if any, of a sanction on arbitration agreements is determined by the (arbitration) law at the place of arbitration. The nullity of the contract containing the arbitration agreement does not necessarily lead to the nullity of the arbitration agreement. Under Swiss arbitration law, all claims with a monetary value are arbitrable (Article 177 Private International Law Act), irrespective of whether the underlying contract is void or enforcement would be prohibited by international sanctions (Decision of the Swiss Federal Supreme Court Fincantieri v OTO Melara in ASA Bulletin 1993, 58 regarding sanctions against Iraq).

b. Illegality/Impossibility- Even if arbitration is possible, the claim may fail on the merits. Article 20 of the Swiss Code of Obligations (“CO”) sets forth three grounds on which a contract can be null and void: First, the contract is impossible to perform, second it has an illegal content, or third it violates bonos mores. A contract is illegal if its content, its conclusion or its purpose is incompatible with mandatory provisions of Swiss law. A contract must be lawful at the moment the parties conclude it. As a consequence, even if a dispute arises at a time when the contract is no longer unlawful (e.g. because the embargo was lifted), the contract remains null and void (Decision of the Swiss Federal Supreme Court 102 II 401 of 21 December 1976). This is, however, controversial and some scholars opine that in such circumstances, the illegality is cured (Claire Huguenin in Basle Commentary to the Swiss Code of Obligation I, 4th edition 2007 to Article 19/20 CO, N 16 with further references).

As to the impossibility of performance, it might arise from factual or legal circumstances. It is therefore not necessary that a given performance obligation under a contract be factually impossible so long as the law prohibits such performance, provided that the law is of permanent nature. Situations of temporary impossibility do not cause the nullity of the contract but are considered as being a situation of default under Swiss law. Most embargos are of temporary nature and therefore tend to cause default situations rather than a permanent impossibility. However, in a decision dating back to 1955, the Swiss Federal Supreme Court accepted embargos as possible causes for (permanent) legal impossibility (Decision of the Swiss Federal Supreme Court 81 II 613 of 13 December 1955). As a consequence, embargos such as that provided for by the Ordinance may give rise to a legal impossibility.

c. Supervening impossibility- If a contract becomes unlawful after its conclusion (“supervening impossibility”) by operation of a law enacted subsequently, the law cannot retroactively invalidate the contract (Decision of the Swiss Federal Supreme Court 100 II 105 of 28 March 1974). While impossibility ab initio under Article 20 CO renders a contract null and void ex tunc, an intervening impossibility merely exempts the obligor from its performance obligations as of the moment when the impossibility intervenes (Article 119 CO). Parties are free to include risk allocation clauses in their contract which apply in the event of international sanctions or provide for a mere suspension of performance in a force majeure clause (instead of extinction of the obligation as provided for by Article 119 CO).

As is the case with initial impossibility, likewise a supervening impossibility must be of a permanent nature, which may not hold true for most embargos. Nevertheless, as already outlined, Swiss courts have accepted payment restrictions imposed by Switzerland as a potential cause of legal impossibility. In a case involving a Swiss (national) embargo on exports of certain types of machines that could be potentially used in the production of nuclear weapons, the Swiss Federal Supreme Court ruled that the enactment of embargo qualified as a supervening legal impossibility within the meaning of Article 119 CO. The Supreme Court specified, however, that the seller of such goods may still be held liable for any damages resulting from non-performance if he knew or could have known about the future embargo at the time the contract has been entered into (Decision of the Swiss Federal Supreme Court 111 II 352 of 3 September 1985).

As stated, certain Swiss legal scholars consider that a temporary embargo does not constitute a legal or permanent impossibility within the meanings of Articles 20 and 119 CO, respectively, but merely a default situation. In this context, the award in ICC arbitration no. 7575 is of interest (Reported in Journal de droit international 2010, p. 1377). As the relevant embargo (against former Yugoslavia) was no longer in place, the arbitral tribunal found that there was no obstacle to the future performance of the contract. Another interesting question examined by the arbitral tribunal was whether interest continued to accrue during the embargo. The tribunal considered that interest was due and served to redress currency devaluation.

by Matthias Scherer (mscherer@lalive.ch) and André Brunschweiler (abrunschweiler@lalive.ch) @ LALIVE

Sports arbitration, however, gives rise to a specific concern with respect to the issue of consent. Often, athletes find themselves before arbitral tribunals whose jurisdiction was not directly chosen by them, but to which they are attracted for the sole reason that they signed an agreement with a federation which submits its disputes to arbitration. Courts, and in particular the Swiss Supreme Court, have seldom held arbitration agreements by reference in the sport context to be contrary to due process. The stated reason, to which the author adheres, is that arbitration representing the functional equivalent of judicial process, an athlete cannot be deemed to enter into an engagement violating its personality rights (and in particular Article 27 of the Swiss Civil Code) when entering into an arbitration agreement. Moreover, the recourse to arbitration is often in the best interest of the federations, by ensuring an harmonious case law, and of the athletes, by ensuring in particular a speedy resolution of their disputes.

Nevertheless, the situation changes when, as a result of the entering into an arbitration agreement by reference, a party looses his right to see his matter decided by a judge.

A 2009 decision of the Swiss Supreme Court raises this specific issue.

In a decision 4A_600/2008 dated February 20, 2009, the Supreme Court had to consider a challenge of a decision of the CAS which deemed an appeal withdrawn after the appellant failed to pay the advance on costs.

The facts of the matter arise out of a claim filed with the International Football Federation by a football club against the club’s former coach, whereby the club claimed EURO 400,000 to the coach for early termination of the employment agreement. The coach, alleging that the sum had already been paid, concluded that the claim be dismissed.

The Commission of the Player’s Status considered that proof of payment had not been brought with satisfaction and condemned the defendant to pay the amount plus interests.

The defendant appealed this decision before the CAS. The CAS acknowledged receipt of the appeal and brought the attention of the parties to the fact that they would have to pay an advance of costs. About a month later, the CAS informed both parties that the advance on costs had been set at CHF 19,000 each, and asked to be paid this amount by 15 September 2008. While the appellant paid this amount within the deadline, the appellee did not. On September 25, 2008, the CAS set the appellant another deadline until October 10, 2008 to pay the advance on costs. The letter of CAS reminded the appellant that “in the absence of payment within the said time limit, the appeal will be deemed withdrawn”.

On October 15, 2008, the CAS reminded the appellant that the deadline had passed and asked him to provide evidence of payment of the advance on costs. Counsel for appellant replied that the advance on costs would be paid shortly.

On 12 November 2008, the advance on costs having not been paid, the CAS send a fax to the parties informing them that the appeal was deemed withdrawn and that a closing order would be sent shortly.

On 13 November 2008, appellant’s counsel sent a confirmation of payment to the CAS and asked to be informed of the continuation of the proceedings. Attached to this correspondence was a letter dated 12 November 2008 of the appellant requesting his bank to wire CHF 19,000 on the CAS’ account.

By order of 18 November 2008, the President of the CAS Appellate Chamber [verify terminology] declared the proceedings closed. On 20 November 2008, the CAS received a notice of credit informing it that the appellant had paid CHF 19,000 on its account.

The CAS order of 18 November 2008 was challenged before the Supreme Court. The CAS took position to dismiss the challenge on the ground that the order was not an award. The Supreme Court admitted the challenge but rejected it on the merits.

One of the grounds raised by the appellant was the fact that the CAS had been excessively formalistic in holding the appeal as withdrawn although the advance on costs had been received, albeit late. Because of the CAS dismissal, the appellant was loosing any chance not to pay EURO 400,000 a second time. The Supreme Court dismissed however this argument, holding that it was not excessively formalistic for the CAS to withdraw the appeal when it was conditioned upon the payment of an advance on costs and when the appellant had been duly informed of the amount of the advance and of the deadline for payment.

Although this decision did not receive much attention, it raises difficult issues of due process which go beyond the sole issue of consent. Here, the defendant lost an opportunity to have his case heard by the CAS. The CAS, in this case, would have been the first instance external to the FIFA and thus truly independent.

I do not know what happened to the dispute afterwards, and in particular if the defendant tried to bring the matter before a state court, and more importantly whether a state court would have heard an issue already decided by the FIFA.

In light of the circumstances of the case, and in particular of the CAS’ numerous attempts to see the advance of costs paid, I do not believe that it can be blamed for the outcome of the case, in particular in light of the negligence displayed by counsel for the defendant.

But the matter remains unsettling, particularly if the defendant consented to arbitration by reference. In this case, not only did the defendant not choose to bring the matter to arbitration, but also, because of this imposed dispute resolution mechanism, ended up without the possibility to have his dispute reviewed by a court of independent jurisdiction. This result seems to be pushing the limits of the constitutionally guaranteed right to an access to a judge.

The new law clarifies the role of French courts. The President of the Paris Court of First Instance (Tribunal de grande instance de Paris) has been attributed the official title of “support judge” (“juge d’appui”), a term first introduced in scholarly works and used in case law, and now has sole jurisdiction to “support” international arbitration proceedings in case of related procedural disputes (Article 1459). This centralisation of power with the Paris Court is designed to ensure consistency in decisions.

Consistent with the previous law, this “support judge” has jurisdiction when the place of arbitration is France, or the parties have chosen to apply French procedural law. In addition, the “support judge” now also has jurisdiction if the parties have expressly agreed to refer their procedural disputes to French Courts or where one of the parties is exposed to a risk of denial of justice (Article 1505), which is a noteworthy innovation. French case law had previously upheld the jurisdiction of the President of the Paris Court of First Instance as “support judge” of an international arbitration between two foreign parties, in order to avoid denial of justice (NIOC case, dated 1 February 2005). In this case, the French Supreme Court noted, as one of the grounds for its decision, that there was a link, even if remote, with France. The new law goes further still. The “support judge” has jurisdiction in case of a risk of denial of justice, without there needing to be a link with France, thus granting universal jurisdiction to the “support judge”.

The new law also clarifies the respective powers of national courts and arbitral tribunals to take conservatory or provisional measures. Before appointment of the arbitral tribunal, national courts have sole jurisdiction to order such measures. Once constituted, arbitral tribunals have jurisdiction to take conservatory or provisional measures during arbitration proceedings, with the exception of conservatory seizures or judicial securities which are within the exclusive jurisdiction of national courts (Article 1468).

Further, the law introduces new rules governing the production of evidence. Arbitral tribunals are entitled to order parties to produce evidence subject to penalties should they fail to do so (Article 1467). Parties to the arbitration may, upon leave of the arbitral tribunal, request the “support judge” to order a third party to produce documents relevant to the case (Article 1469).

Another aim of the new law is to reinforce recognition and enforcement of arbitration awards and, therefore, provide more certainty to the parties relying on arbitration to settle their disputes.

Thus, according to the new law, “by way of a specific agreement the parties may, at any time, expressly waive their right to bring an action to set aside” the arbitration award (Article 1522). The parties’ waiver under this provision (which applies only to arbitration agreements entered into after 1 May 2011) does not affect their right to appeal a court decision to enforce the award in France (exequatur).

To accelerate enforcement of awards, the new law provides that any claim to set aside an award must be filed within one month of notification of the award (Article 1519) (three months for a foreign party), instead of one month (or three months) of service of the judgment enforcing the award (jugement d’exequatur) under the previous law.

The new law also facilitates proceedings for court enforcement (exequatur) of the award. It no longer requires a certified translation of the award or the presentation of the original copy of the award (Article 1515).

Finally, and importantly, to minimise unnecessary delays, the existence of court proceedings to set aside an arbitration award no longer stay the enforcement of the award, unlike under the previous law. Instead, the arbitral award is provisionally enforceable, unless the party against which the award is sought to be enforced applies for a stay of the award with the Court of Appeal. However, this party would have to demonstrate that enforcement of the award would be highly detrimental to its rights (Article 1526). The purpose of this provision – which will apply to awards rendered after 1 May 2011 – is to discourage parties from initiating frivolous annulment proceedings to delay the enforcement of awards.

These new provisions are by no means an exhaustive description of the new arbitration law. They are though illustrative of how the new law confirms France’s desire to remain a pro-arbitration jurisdiction.

Christophe von Krause and Paul Giraud

The law allows for the establishment of local ADR providers (which would be private, not-for-profit corporations jointly formed by a local Bar Association and a local Chamber of Commerce) and are accredited by a Mediation Certification Committee, under the auspices of the Ministry of Justice. Mediators are certified following examinations before the relevant Committee.

The entire mediation process is confidential and no transcripts can be taken during the process; the mediator is free to communicate with the parties as needed in each case however the information obtained from one party cannot be shared with its adversary without the former party’s consent.

Following the completion of the mediation process, a report stipulating the outcome must be drafted, including the parties’ and the mediator’s details, a reference of their agreement to mediate and of course the outcome of the mediation, whether successful or not. The report must be filed at the relevant civil court of first instance with locale jurisdiction, and once court-certified, it becomes enforceable as equivalent to a judicial court order. The preservation of strict confidentiality and the special provisions pursuant to which submission to mediation stops the clock in relation to the applicable statute of limitations, are some of the important aspects of this new law for ensuring mediation is indeed user-friendly and hopefully becomes a popular means of resolving disputes in Greece, out-of-court.

Further, another distinctive parameter relates to the mediator’s compensation, which is on an hourly rate basis and pro-rated at a fee cap of 24 hours total, in order to ensure mediation remains a viable option for resolving disputes, that does not burden the parties financially or in any other way and offers them the option of expedited, low-cost resolution of cross-border disputes.

The great significance of this new development is that it bridges a gap where it existed earlier in relation to the solid establishment of mediation as an ADR procedure in Greek jurisdiction and it alleviates the pressure from a bogged-down judicial system with an extensive case-load as it is. It is hoped that this new law will turn the page to a new era in ADR in the Greek jurisdiction.

If time permits, I may do another list for 2011. But, first I thought I’d take a look back at last year’s list and offer a brief update on those cases. Rather, than do all of the heavy-lifting here, I’ll direct readers of this blog to relevant reporting in my Investment Arbitration Reporter newsletter (not to be confused with Kluwer’s ITA newsletter) where appropriate. (You won’t need a subscription to view the articles that are referenced below, as we’ll make them publicly available.)

Without further ado, here’s a run-down of the ten cases from last year.

Suez, Vivendi, Anglian Water, et al. v. Argentina

In August, decisions on liability were finally rendered, holding Argentina liable for breaching investment protections owed to a Who’s Who of foreign investors in that country’s water and sewage sector. However, for those interested in the running debate about the coherence or fragmentation of public international law, the decisions may be something of a disappointment. While the arbitrators found breaches of Argentina’s bilateral investment treaty obligations, they gave short shrift to Argentina’s invocation of international human rights law obligations in its defence of these claims. Check out our reporting for a fuller run-down of what happened.

Fraport v. Philippines

Next on last year’s list was Fraport’s bid to annul an ICSID jurisdictional decision which had grounded the company’s bid for compensation over an expropriated airport terminal. In 2007, a divided tribunal ruled that the company’s claim should fail due to the fact that the claimant had quietly circumvented local laws designed to limit foreign control of the terminal project.

Well, tell your friends that you read it on the internet: Fraport got an early Christmas present on December 23rd when an ICSID annulment committee annulled the 2007 ruling. The annulment paves the way for a new arbitration, and one imagines that this will land on ICSID’s doorstep early in the new year. Keep an eye on the IAReporter newsletter for the fuller story on this one.

Brandes Investment Partners v. Venezuela

Last year, we noted that a decision should be forthcoming by a panel of arbitrators in a telecoms nationalization claim whose viability hinges on the ambiguous-looking arbitration clause in a domestic investment protection statute. Yeah, that’s a mouthful. But you’ve got time to digest it because, as of this writing, a decision in the Brandes case is still awaited.

Mind you, a different ICSID panel weighed in earlier this year with a notably restrictive interpretation of the same statute at issue in the Brandes case. Our report on that dimension of the Mobil v. Venezuela case is here. Now it remains to be seen what the Brandes tribunal makes of the ruling in the Mobil case.

El Paso v. Argentina

Nothing new to report here. El Paso turned to arbitration against Argentina back in 2003, alleging that the country’s handling of an earlier financial crisis triggered breaches of protections owed to El Paso. Arbitrators are still dotting their ‘I’’s and crossing their ‘t’’s on this long-anticipated decision. El Paso must be thoroughly demoralized given that the most likely outcomes are A) a dismissal of its case or B) a “victory” followed by a protracted annulment process.

AES v. Hungary

There is rather more to report in relation to another claim highlighted in last year’s list. AES was one of three foreign power producers to sue Hungary for allegedly failing to respect the terms of long-term power purchase agreements. However, in September, arbitrators handed down a verdict in favour of Hungary, finding no breaches of the country’s obligations under the Energy Charter Treaty. A fuller accounting of the case can be read here.

Foresti and others v. South Africa

A group of foreign miners drew international headlines when they alleged that South Africa’s Black Economic Empowerment program – and the country’s new BEE-inspired mining regime – had breached protections owed under South Africa’s bilateral investment treaties.

As was noted last December, the politically contentious dispute seemed to be fizzling out after the claimants signaled that they were prepared to lay down their arms. However, the claimants and South Africa could not agree on the peace terms, so it fell to arbitrators to hold a hearing and issue an award which drew a line under the case. Read all about it here.

RosInvestCo v. Russian Federation

On December 19, 2010, we reported that an arbitral award in one of three pending Yukos-related arbitrations against Russia had been quietly rendered back in September. The ruling had remained under lock and key until the Russian Federation moved earlier this month to set aside the award. Here’s our quick run-down of what happened, but keep an eye on our newsletter for a full accounting of the award’s holdings.

Chemtura v. Canada

Canada walked away victorious after arbitrators ruled in August of 2010 that a U.S. chemical company had failed to make out any of its claims under the North American Free Trade Agreement (NAFTA). The case had been watched nervously by public health advocates as Chemtura was attempting to second-guess Canada’s phase-out of the controversial agro-chemical, lindane. But, in the end, Canadians were left only with a hefty legal bill – not an arbitral edict requiring them to put a teapoon of lindane on their morning oatmeal. See this report for the crux of the tribunal’s ruling.

Chevron v. Ecuador (Round One)

While a bruising multi-front legal fight over liability for Amazonian oil pollution gathered pace last year, arbitrators also weighed in with a ruling on a less-publicized under-card battle between the two combatants: Chevron corporation and the Republic of Ecuador.

In what could be a hefty victory for Chevron, arbitrators ruled that Ecuador was liable for delaying the judicial resolution of a series of contract disputes. As we made clear in an analysis of the arbitral ruling, the tribunal appeared to break new ground in ruling that an international tribunal can step into the shoes of domestic courts that are failing to deliver justice in a timely fashion.

Libananco v. Turkey


Various claimants came out of the woodwork to sue Turkey following that country’s winding up of the Uzan family business empire. Libananco, a Cyprus-based entity, has long maintained that it has the most credible claims. The off-shore company insists that it held stakes in two valuable electricity concessions prior to their being taken over by the government. With all of the other known arbitration claims brought by shell-companies now having been dispatched on jurisdictional grounds, a ruling in the Libananco case is the only thing left to be written.

However, if Libananco should prevail, it will have to contend with a recent ruling by a New York judge that any ICSID arbitration winnings must accrue to the benefit of those who suffered a Billion Dollar fraud at the hands of the Uzans. See our story here.

Luke Eric Peterson
Editor
http://www.InvestmentArbitrationReporter.com

On a domestic level, the establishment of a sound legal system is the prerequisite for a stable framework within which a community can operate. To build a sustainable framework not only requires know-how and experience, but also the unyielding resolution to promote change. Such a system should cater to the state’s and its population’s needs, but should also reflect international standards as, from a public international law perspective, a state’s ability to act on the international stage usually depends on the degree of recognition afforded to it by the international community.

Europe’s youngest state is currently undergoing the process of optimising its legal system and gaining international recognition. Kosovo’s declaration of independence on February 17, 2008 was the subject of intense political debate, but the country has made substantial efforts to position itself within the international community. Kosovo’s political leaders have recognised the importance of attracting foreign investments and the resulting requirement to provide a stable framework for resolving disputes.

Therefore, Kosovo has started to negotiate and conclude its first bilateral investment treaties (BITs) as an independent nation. In 2010, the first BIT was completed with Belgium and Luxembourg. Other treaties, such as the Austria – Kosovo BIT, are currently in the process of ratification. Additionally, Kosovo has a BIT with Albania originating from the time when it was a UN Protectorate. The time frame for establishing a reliable investment protection framework, based on major numbers of BITs, of course depends largely on Kosovo’s recognition as a state by the international community. It remains to be seen how the recently rendered ICJ Advisory Opinion, concluding that the Kosovo declaration of independence did not violate international law, will influence this development in the long term.

Since 29 June 2009, Kosovo is also a party to the ICSID convention. In addition, Kosovo has passed a number of domestic laws and regulations relating to and dealing with the promotion of foreign investments. Its arbitration law was passed in 2007 and is based largely on the UNCITRAL Model Law in its version before the 2006 amendment.

Furthermore, given the present absence of a greater number of BITs, Kosovo has undertaken to close the gap in foreign direct investment protection by setting down principles of protection in a domestic legislative act. The Law on Foreign Investment 2005 offers investors substantive protection, relying on terminology that is well known from international investment treaties. Examples include provisions on fair and equitable treatment, and full and constant protection and security. Also, it refers to various arbitral mechanisms for dispute resolution, including arbitration under the ICSID Convention. Finally, it explicitly stipulates the state’s obligation to enforce awards rendered in these arbitration proceedings in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), “regardless as to whether or not that convention is otherwise binding on Kosovo”. At the moment, Kosovo is not a party to the New York Convention. It can be expected that, given the state’s efforts in creating a reliable environment for arbitration, the question of accession to the New York Convention will be raised in the near future.

In cooperation with the United States Agency for International Development (USAID), the state is currently also pursuing further means of establishing an effective local alternative dispute resolution (ADR) system. The overall goal is to promote ADR as a whole in Kosovo and to create a framework for the swift enforcement of contractual rights. Specific steps planned for the near future include the establishment of a permanent arbitral institution in alliance with the Kosovo Chamber of Commerce as well as the creation of training programs for judges, practising lawyers, and law students in order to provide a broad base of specialist expertise within the country.

On an overall level, Kosovo is ambitiously striving to establish an investment protection and arbitration system. Kosovo has clearly recognised the importance of foreign direct investment for building a growing economy. It has a modern arbitration law and provides unusually high standards of investment protection on the basis of domestic legislation. Its recent ratification of the ICSID Convention and its fervent pursuit in negotiating and concluding BITs are strong evidence of this. However, its role as a seat for international arbitration in the future will depend considerably on the international enforceability of awards rendered within its territory and, ultimately, on its performance and reception on the international political stage.

The ECICA originates from 1950s, when the idea was originally proposed, but it wasn’t concluded until 21 April 1961 and entered into force in 1964. At the moment, it has 31 members, including most EU states and several non-EU members such as Russia.

In today’s international arbitration practice, the ECICA’s significance is best known in regard to the same issue governed by the NYC: the enforcement of arbitral awards. The ECICA itself does not provide means of enforcing arbitral awards. Rather, in an enforcement context, it serves as a supplement to the NYC in cases which entail the successful challenge of the award to be enforced.

More specifically, the ECICA stipulates a limitation of Art V(1)(e) NYC by setting out that the successful setting aside of an award, in the country in which it was made, does not automatically constitute a ground for refusal of enforcement. Rather, successful setting aside proceedings are only relevant if the award was set aside based on one of the reasons set out in Art IX (1) ECICA. These are almost identical to the grounds for refusal of enforcement provided in Articles V(1)(a) to V(1)(d) of the NYC. Both contain the reasons of party incapacity, invalidity of the arbitration agreement, violation of due process (lack of notice and right to be heard), an excess of the authority of the arbitrator (including partial enforcement of those parts of an award which are covered by the arbitrator’s authority) and finally, an irregularity in the composition of the arbitral tribunal or the arbitral procedure.

However, the ECICA does not refer to the grounds of lack of arbitrability and violation of public policy. Therefore, if an award has been set aside in the country of origin on the basis of these reasons, the enforcing state’s courts may not refuse enforcement of the award on this basis. Even though several countries have adopted a similar or even more favorable regime into their national laws, this facilitation of enforcement is widely considered the ECICA’s most prominent feature, and national courts of the member states have relied on it repeatedly in the past, in favor of enforcement.

Two other issues regulated by the ECICA have mostly remained unappreciated in the past. Firstly, the ECICA explicitly provides that legal persons of public law can validly conclude arbitration agreements. This term has a wide scope and includes public corporations, the state itself and any of its independent state agencies as well as any federal states. This provision overrides any contradictory law within the home state’s jurisdiction. However, it is possible for contracting states to make a reservation on this issue. So far only Belgium has made use of this possibility.

Secondly, the ECICA contains provisions that may help overcome the problem of defective (sometimes referred to as “pathological”) arbitration agreements. While the application of national arbitration laws would often lead to the invalidity of such clauses, the ECICA provides a mechanism for determining certain details of ambiguous and unclear arbitration agreements. This mechanism assists with the decision of whether the parties to an arbitration agreement have to refer their dispute to ad-hoc or institutional arbitration and, in case of institutional arbitration, which institution a dispute must be referred to.

Considering this, the question arises as to why the ECICA often seems to be considered a peculiarity of no more than academic interest. On the one hand, it provides for a limitation of the refusal of enforcement of arbitral awards. On the other hand, it constitutes a tool for overcoming problems that have been, and may continue to be, the subject of controversy and lengthy discussions. The most likely explanation for this lack of appreciation is the convention’s limited scope of application. It depends not only on both the state of the award’s origin and the state of enforcement being members of the ECICA, but also requires that all parties to an arbitration agreement must have their place of residence or seat in a contracting state. Coupled with the fact that the convention has been ratified only by 31 states (most notably, Switzerland not being amongst them), this is most certainly the ECICA’s gravest limitation.

It remains to be seen whether these limitations, coupled with the modernisation of national arbitration laws, which often already incorporate features of the ECICA, will cause the ECICA to become an oddity, buried in oblivion, or whether new initiatives will lead to some form of rebirth of the features of the convention. This could either be through a (new) European legal instrument on arbitration or, on a broader scale, by means of adoption into a truly international (i.e. world-wide) instrument, such as the NYC. In this regard, it is interesting to note that the Hypothetical Draft for a new NYC by Albert Jan van den Berg (available, amongst other sources, online here on Kluwer Arbitration at http://www.kluwerarbitration.com/document.aspx?id=KLI-KA-0946036-n) picks up on the feature of limiting the effect of a successful challenge on the enforceability of the award. Based on the goal of modernizing the 50-year-old NYC, the grounds for refusal of enforcement have been considerably rephrased and tidied up. Notwithstanding this, the limitation of relevance of a successful challenge in the draft corresponds to that provided for in the ECICA. Setting aside of an award in the state of origin does not constitute a ground for refusal of enforcement if it is based on a violation of public policy (which is deemed to include matters of arbitrability).

It is subject to speculation and considerable dispute whether, when, and to what extent, this attempt at straightening out the wrinkles of the NYC will be successful in the future. If it is, and if it does indeed incorporate the enforcement-feature of Article IX ECICA, the European Convention on International Commercial Arbitration will, in its present form, most likely become a relic of the past.