The CA in Keeneye reversed the much-discussed decision of the Hong Kong Court of First Instance (“CFI“) to refuse enforcement of a PRC arbitral award on grounds of public policy. The CFI had held that the conduct of an arbitration in which one of the arbitrators and the General Secretary of the Xian Arbitration Commission acted as mediators (a so-called “arb-med” procedure) was tainted by apprehended bias. The CFI therefore refused enforcement of the award on the basis that it would be against the public policy of Hong Kong, pursuant to section 40E(3) of Hong Kong’s old Arbitration Ordinance (Cap. 341) (which was then in force, but has since been superseded by section 95 of the new Arbitration Ordinance, Cap. 609).

The CA allowed Gao and Xie’s appeal against the CFI decision, and approved the enforcement of the award in Hong Kong on two principal grounds.

First, Keeneye had failed to raise any objection to the “arb-med” procedure during the arbitration itself, and had therefore waived its right to do so in the enforcement proceedings. This decision was underpinned by the governing arbitral rules (the Xian Arbitration Commission Arbitration Rules), which specifically provided for waiver of the right to object in such circumstances. (Similar rules on waiver exist in many institutional rules, including Article 28.1 of the HKIAC Administered Arbitration Rules, Article 39 of the new ICC Rules (which came into effect on 1 January this year), and Article 36.1 of the SIAC Rules.) On this point, the CA also emphasised the principle that a party may not keep a complaint about impropriety or bias “up his sleeve” for potential use at a later stage.

Secondly, the “arb-med” procedure adopted in the arbitration did not disclose apprehended bias giving rise to an issue of public policy in any event. This part of the CA’s decision may come as a surprise to some, given the striking factual circumstances in this case. These included the facts that (i) the mediation took place in the form of a private meeting over dinner at the Xian Shangri-la Hotel, (ii) the mediation was not held in the presence of both parties, and (iii) the mediators appeared to make a settlement proposal on their own initiative. However, in reaching its conclusion that there was no apprehended bias, the CA indicated that due consideration should be given to how mediation is typically conducted in the jurisdiction of the seat (here, the PRC). In this regard, the CA placed considerable weight upon the fact that the local court in Xian (which had supervisory jurisdiction over the arbitration) had refused an application to set aside the award – citing with approval English authority that such circumstances will be a “very strong policy consideration” for the court to take into account in deciding whether or not to enforce an award.

According to the CA, the test for determining what is contrary to public policy in Hong Kong is whether the relevant matter is contrary to “fundamental conceptions of morality and justice” in Hong Kong. Thus, if the procedure is acceptable practice in the jurisdiction in which it took place, it will not be in breach of public policy in Hong Kong unless it was so serious as to be contrary to fundamental conceptions of morality and justice.

Although this “when in Rome” approach might seem slightly troubling at first sight, the conclusion of the CA appears to be the right one. In particular, when a party consents to arbitration in a particular jurisdiction, it agrees to be bound by the rules and procedures of that seat. Whilst there is a public policy ceiling on adopted procedures beyond which the enforcing courts will be unwilling to cross, this outer limit will be narrowly construed in practice. For those engaging in “arb-med” procedures in the PRC (where practices often differ significantly from those in Hong Kong and other jurisdictions), the Keeneye judgment may provide some comfort that the mediation procedure will not in itself threaten the enforceability of any award in Hong Kong on the basis of public policy.

The CA’s recent judgment is likely to generate much (further) discussion about the development of arb-med in Hong Kong. Whilst the judgment acknowledges that arbitrators can act as mediators in the course of arbitration proceedings (a practice which is recognised expressly in section 33 of Hong Kong’s new Arbitration Ordinance, Cap. 609), the acceptable boundaries of that role in Hong Kong are far from clear. Moreover, the concept as a whole can be rather alien to common law lawyers.

It is suggested that parties and counsel should keep an open mind to the possibility of adopting arb-med in the light of the pivotal role such procedures have played in the settlement of disputes in other jurisdictions. That said, for a number of reasons (including the fact that arbitrator-mediators are compelled by Hong Kong’s arbitration legislation to disclose to all parties any confidential but materially relevant information they learned during private caucus sessions), it is likely that arb-med procedures in Hong Kong will favour an evaluative, rather than a facilitative, approach (with appropriate waivers from the parties). Such an approach would avoid the risk of any subsequent complaint about ex parte communications between a party and the arbitrator-mediator – as was featured in Keeneye.

It remains to be seen which direction the development of arb-med in Hong Kong will take. In the meantime, the Keeneye judgment serves as a powerful reminder to parties to raise any objections they may have to the arbitral procedure promptly. Failure to do so may result in a waiver of the right to object at a later date, including in the context of enforcement proceedings.

Justin D’Agostino, Martin Wallace and Ula Cartwright-Finch

In Bhatia, the court held that the Indian courts could intervene to order interim measures of protection even in relation to arbitrations seated outside India. The court’s jurisdiction was invoked by a party seeking interim measures of protection in relation to an ICC-administered arbitration seated in Paris. Although section 9 of India’s Arbitration Act expressly empowers Indian courts to grant interim relief, this provision is contained in Part I of the Act which was designed to apply only where an arbitration is seated in India. The Supreme Court was thus faced with a situation where it could not order interim measures of protection since the arbitration clause provided for a Paris seat. Faced with this legal hurdle, the Supreme Court adopted a result-driven approach and held that the general provisions of Part I would also apply also to offshore arbitrations, unless the parties impliedly or expressly excluded the applicability of the Act.

The ratio in Bhatia was subsequently extended to permit the Indian courts to reopen and set aside awards rendered in arbitrations seated outside India, and even appoint arbitrators in such arbitrations. The judgment has been subjected to much criticism in India and beyond for authorising Indian courts to exercise long-arm jurisdiction and for introducing substantial uncertainty in offshore arbitrations involving Indian parties. Indeed, in a sign of judicial discomfort with the broad scope of the Bhatia ruling, the Supreme Court itself and various High Courts in the country have subsequently sought to narrow down the scope of the decision. They have also displayed a greater willingness in recent years to infer implied exclusions of the Indian Arbitration Act in relation to arbitrations seated outside India.

Nevertheless, in order to mitigate the risk of excessive judicial intervention, it has now become standard market practice in India-related international commercial transactions to exclude the application of Part I in arbitrations seated outside India.

Although legislative intervention has been proposed to remedy the ill-effects of the Bhatia ruling, most recently in a Consultation Paper circulated by the Indian Ministry of Law and Justice, such attempts have failed to take off in any meaningful way.

In these circumstances, the Supreme Court’s decision to reconsider its own ruling in Bhatia is a welcome step. The court also adopted a refreshingly novel approach by inviting interested parties to intervene in order to assist the court as amicus curiae. In response to this invitation, LCIA India, the Singapore International Arbitration Centre and the Nani Palkhivala Arbitration Centre have all intervened in the proceedings.

The hearing commenced this week with observations from the court to the effect that (i) it was of the prima facie view its earlier judgment in Bhatia International should be reconsidered, and (ii) it was keen to ensure that foreign investors should not be deterred by the prospect of long-winded litigation in relation to India-related commercial contracts. The court also indicated it was in favour of recommending to Parliament that all matters relating to enforcement of awards be heard directly by the Supreme Court which would cut through the delays caused by enforcement issues having to pass through multiple layers of the Indian court system (as is presently the case).

The Indian Supreme Court has been criticised (sometimes unfairly) in the past for being arbitration-unfriendly. In Bharat Aluminium v Kaiser Aluminium, it now has an excellent opportunity to change that perception, and firmly put the development of Indian jurisprudence on a pro-arbitration trajectory.

(Promod Nair is a partner at J Sagar Associates in Bangalore)

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.

Overview

The new Ordinance will be of considerable interest (and importance) to all parties and practitioners dealing with or considering arbitration in Hong Kong. In this blog we provide a brief overview of certain key features of the new regime including:

1. the abolition of the distinction between ‘domestic’ and ‘international’ arbitration (and the transitional provisions which apply in the context of domestic proceedings);

2. the influence of the Model Law;

3. the availability of interim measures (including the basis on which the Hong Kong Courts may grant interim measures in support of foreign arbitral proceedings);

4. the new codified obligation of confidentiality;

5. the promotion of alternative dispute resolution (including the specific provisions of the Ordinance relating to so-called ‘med-arb’ and ‘arb-med’); and

6. the particular provisions which apply with regard to the enforcement of arbitral awards (including awards rendered in Mainland China).

1. Abolition of the distinction between domestic and international proceedings

One of the most significant changes introduced by the new legislation, and one which will be celebrated by most practitioners and parties alike, is the abolition of the dual regime for ‘international’ and ‘domestic’ arbitrations. Under the previous legislation, and in keeping with the practice adopted in many other major arbitral centres (including Singapore), a distinction was drawn between ‘international’ and ‘domestic’ arbitrations, with different provisions of the previous Arbitration Ordinance (Cap. 341) applying accordingly.

In practice, what this new reform means is that practitioners no longer need concern themselves with analysing the characteristics of the parties and the dispute in order to work out which particular provisions apply to any given arbitration. Instead, the intention is that all arbitrations in Hong Kong will be governed by a single unified regime based on the Model Law, and the drafting of arbitration agreements seated in Hong Kong need not differentiate international from domestic proceedings.

There is a caveat to this. Under pressure from certain sectors (most notably the construction industry), Hong Kong legislators chose to retain the key features of the ‘domestic’ regime in a series of ‘opt-in’ provisions set out in Schedule 2 of the new Ordinance. These will apply in place of certain of the Model Law-based provisions, where parties so choose. These specialised ‘opt-in’ provisions include, for example: (i) the ability of the courts to determine preliminary points of law; (ii) appeals to the courts allowed on questions of law arising from arbitral awards; (iii) challenges to awards permitted on grounds of serious irregularity; and (iv) provision for the consolidation of arbitrations or hearings. These features may, of course, be of use to many users of arbitration depending on their particular circumstances, but a distinguishing feature of the Hong Kong legislation (and one which sets it apart from other jurisdictions, notably England & Wales) is that these are ‘opt-in’ provisions; parties will only be subject to the greater court intervention prescribed under Schedule 2 if they expressly provide for this in their arbitration agreement.

A further caveat which is important to note – albeit one which is transitional in nature – is that the various ‘opt-in’ provisions set out in Schedule 2 will apply automatically to all arbitration agreements which provide for ‘domestic arbitration’ and which are entered into before or within six years of the new Ordinance coming into effect. In the longer term, however, it is anticipated that parties in the construction industry will be the primary users of the ‘opt-in’ system, albeit that other international parties may choose to avail themselves of this regime should they wish.

2. The influence of the Model Law

As noted above, the drafters of the new Ordinance have opted to rely heavily on the internationally-recognised and accepted framework of the Model Law. The new Ordinance generally follows the Model Law’s headings and chapters, which, in turn, mirror the chronological steps of a typical arbitration procedure. The Ordinance states clearly which features of the Model Law have been adopted (whether in whole or in part) and which aspects of the Ordinance are unique to Hong Kong.

The fact that the Ordinance draws heavily on the Model Law is a positive development which reflects Hong Kong’s position as a leading centre for arbitration. The Model Law (which was last updated in 2006) establishes certain minimum standards for national arbitration legislation. Amongst other things, the Model Law describes the (limited) circumstances in which domestic courts should be permitted to intervene in the arbitral process, confirming that arbitral tribunals are empowered to grant a wide-range of interim measures and rule on their own jurisdiction (the principle of kompetenz-kompetenz). The Model Law also provides that parties should be free to agree upon the procedure of any arbitration (subject to certain fundamental safeguards) and provides an outline framework which can be adopted in the absence of agreement (including provision for what is to happen in the event of default by any party). These features can all be found in the new Hong Kong Ordinance.

It would not be correct, however, to suggest that the Ordinance follows the Model Law slavishly. In certain instances, the language of the Model Law has been modified in order to impose a slightly different standard. For example, Article 18 of the Model Law provides that parties should have a “full” opportunity to present their respective cases, whereas the equivalent provision in the Hong Kong Ordinance (Section 46) provides that parties should have a “reasonable” opportunity to do so. In other instances, the provisions of the Model Law have been replaced entirely with bespoke clauses which reflect the peculiarities of arbitration in the region (the regime for the enforcement of arbitral awards being one such example, as described in greater detail below). Generally speaking, however, Hong Kong has adopted many of the salient features of the Model Law with little or no amendment. In that respect, the new Ordinance can be said to reflect best international practice.

3. Interim measures

One of the central themes underpinning the new legislation is the notion of minimal court intervention, with provisions of the new Ordinance vesting as much power as possible with arbitral tribunals. Adopting the Model Law’s provisions regarding interim measures, arbitral tribunals seated in Hong Kong are able to grant temporary measures, for example, to preserve assets or evidence, or to maintain or restore the status quo – and the Ordinance expressly confirms that this power includes the granting of injunctions. In addition, and again in line with the Model Law, Hong Kong arbitral tribunals can award preliminary orders preventing parties from frustrating any interim measure.

Separately, arbitral tribunals seated in Hong Kong are empowered inter alia to award security for costs and direct the discovery of documents or delivery of interrogatories – retaining the ‘general powers’ of an arbitral tribunal provided under the previous regime. Moreover, and an important feature of the new legislation, arbitral tribunals may make peremptory orders, which in other jurisdictions are a useful but underused resource of arbitral tribunals, specifying time limits for parties’ compliance in order to assist with the enforcement of their orders or directions.

Section 45 of the Ordinance also empowers the Hong Kong Courts to grant certain interim measures in support of arbitral proceedings – whether seated in Hong Kong or not – albeit that the Courts may decline to grant such relief if it is considered more appropriate for the interim measure sought to be granted by the arbitral tribunal. Furthermore, the Hong Kong Courts may only grant interim measures in support of proceedings seated outside of Hong Kong if: (a) the arbitral proceedings are capable of giving rise to an arbitral award which may be enforced in Hong Kong; and (b) the interim measure sought belongs to a type or description of interim measure which may be granted in Hong Kong.

4. Confidentiality

A feature of the new legislation likely to prove attractive to many parties is the inclusion of express provisions in relation to confidentiality. Although confidentiality is often perceived as a major advantage of arbitration, it is not always guaranteed. In certain jurisdictions (including, for example, Singapore and England & Wales) an obligation of confidentiality is said to be ‘implied’ into the arbitration agreement between the parties, albeit that the precise boundaries of this obligation are somewhat uncertain. In other jurisdictions, notably Australia, the concept of imposing any obligation of confidentiality in arbitral proceedings by law has been rejected by the national courts.

The new Hong Kong Ordinance expressly prohibits parties from disclosing any information relating to the arbitral proceedings or the award, subject to the usual exceptions regarding disclosure to professional advisors or disclosure required by law. In addition, and marking another significant change from the previous regime, the default position under the new Ordinance is that court proceedings relating to arbitration are to be conducted in closed court. Parties with arbitrations seated in Hong Kong can therefore assume that duties of confidentiality will bind their proceedings without the need for any additional drafting in this regard.

5. Mediation

A further specialised feature of the new Ordinance, and one which has been borrowed and enhanced from the old regime, is that express provision is made for both ‘med-arb’ (where a mediator is appointed to try and resolve the dispute before arbitral proceedings are commenced) and ‘arb-med’ (where the arbitral tribunal assumes the role of mediator part way through the proceedings in an effort to bring about an early settlement). These provisions follow the spirit of the recent Civil Justice Reform in Hong Kong in promoting ADR (at present, if a litigant in the Hong Kong courts fails unreasonably to engage in mediation, they face potentially adverse costs consequences) and set Hong Kong apart from other leading arbitration centres.

Under the Ordinance, a member of an arbitral tribunal is permitted to serve as a mediator after arbitration proceedings have begun, provided that all parties give their written consent. The Ordinance provides that, in these circumstances, the proceedings are to be stayed in order to afford the mediation the maximum chance of success – although if the mediation fails, the arbitrator-mediator is required to disclose to all parties any confidential information obtained during the mediation which he considers to be “material to the arbitral proceedings”. This latter requirement may deter some parties from engaging in frank discussions during any mediation (particularly during any caucus sessions with the arbitrator-mediator), which may impede the effectiveness of the overall process. Furthermore, parties should also be wary of anything which might jeopardise the enforceability of a subsequent arbitral award; whilst the Ordinance states that the existence of the ‘arb-med’ process will not in itself give rise to a ground for challenge if the relevant provisions of the legislation are respected, recent case law from the Hong Kong Courts illustrates that awards may be set aside on grounds of public policy if the ‘arb-med’ process is conducted in such a manner as to create an impression of bias (Gao Haiyan v Keeneye Holdings Ltd [2011] HKEC 514).

6. Enforcement of arbitral awards

One final feature of the new Ordinance which is worth flagging concerns the regime for the enforcement of arbitral awards, which departs from the provisions of the Model Law in favour (largely) of the enforcement procedure established under the previous regime. The key point is that arbitral awards are enforceable in the same manner as a court judgment but leave of the court is required. Moreover, separate provisions in the new Ordinance distinguish between: (i) awards rendered in Mainland China; (ii) awards rendered in New York Convention states (referred to in the Ordinance as “Convention Awards”); and (iii) other awards (e.g. awards rendered in Taiwan). Whilst the evidentiary requirements are the same for all three categories of award (the party seeking enforcement must produce an original or certified copy of both the award and the underlying arbitration agreement), the rules which govern enforcement will depend on the place in which the award was rendered. For example, subject to certain limitations, awards rendered in Mainland China may not be enforced in Hong Kong if an application for enforcement is also outstanding on the Mainland (Section 93 of the Ordinance). These features illustrate that, whilst the Hong Kong Ordinance largely reflects international practice, there are certain aspects of the legislation which are tailored to the particular circumstances of the region.

Conclusion

Hong Kong is already a major centre for international arbitration in Asia. As the gateway to China, enjoying the rule of law and New York Convention signatory status, Hong Kong is a natural option for international parties looking to trade in the region. The reforms introduced by the new Ordinance, couple with the recently promulgated HKIAC Administered Arbitration Rules and the opening by the ICC of a branch of its Secretariat in Hong Kong, are likely to enhance further Hong Kong’s position as a major hub for dispute resolution in the Asia-Pacific region and as an important centre for international arbitration more generally.

Justin D’Agostino, Simon Chapman and Ula Cartwright-Finch
Herbert Smith

Georg von Segesser

Sweden has a long-standing tradition as a seat for international arbitration and the Swedish legal framework has generally been perceived as arbitration friendly. In 2005 that perception was somewhat damaged when the Svea Court of Appeal, in Case No. RH 2005:1 (The Titan Corporation v. Alcatel CIT SA), held that the arbitral award in question could not be challenged before the Swedish courts. The seat of arbitration was in Sweden and the Swedish Arbitration Act was applicable, but apart from these elements the arbitration had no further connection to Sweden. The Svea Court of Appeal considered the challenge proceedings to lack Swedish judicial interest.

The court’s decision was appealed, but unfortunately, the dispute was settled between the parties before potentially reaching the Supreme Court. Commentators heavily criticized the Svea Court of Appeal’s judgment under both Swedish and international legal doctrine – we have ourselves criticized the Svea Court of Appeal’s judgment in an article in a Swedish law review (Juridisk Tidskrift) – inter alia because the judgment lacks conformity with international arbitration law.

In November 2010 (Case No. NJA 2010 p 508; The Russian Federation v. RosInvestCo UK Ltd) the Supreme Court emphasized – with reference to the internationally recognized arbitration principle of party autonomy – that the parties to an arbitration agreement are free to select the applicable law to be applied in arbitral proceedings. The applicable law is usually derived from the seat of arbitration, which is typically stated in the arbitration agreement. If the parties have agreed that the seat of arbitration is in Sweden, the Swedish Arbitration Act applies. Consequently, the Supreme Court held that when the seat of arbitration is in Sweden and the Swedish Arbitration Act applies, Swedish courts are deemed to have judicial interest in the case and are therefore competent to try a challenge against an arbitral award. Thus the Titan Case no longer represents good law.

The Supreme Court’s judgment was welcomed and well received by the Swedish arbitration community. Several other 2010 Supreme Court judgments further accentuated the international perspective in arbitration cases.

Supreme Court Case No. NJA 2010 p 317 (Korsnäs AB v. AB Fortum Värme) concerned a dispute over the potential disqualification of a party-appointed arbitrator due to the fact that he had been appointed as arbitrator on numerous occasions by the law firm acting as counsel for one of the parties. Both the Svea Court of Appeal and the Supreme Court relied upon (among other sources of law) the IBA Guidelines on Conflicts of Interest in International Arbitration, notwithstanding that these guidelines had not been previously agreed upon by the parties. A similar determination had earlier been made by the Supreme Court in Case No. NJA 2007 p 841.

In Korsnäs, the Supreme Court held that appointment of the same person as arbitrator on numerous occasions by the same law firm can constitute a circumstance that may diminish confidence in the arbitrator’s impartiality. As a result, the arbitrator might be disqualified. However, the court must also consider the extent to which the person has been appointed as arbitrator by other law firms. Pursuant to the legal framework, an arbitrator’s failure to disclose circumstances that might have constituted disqualification is not an independent ground for challenge of an arbitral award; neither the Swedish Arbitration Act nor the IBA Guidelines contain any remedies in respect to an arbitrator’s failure to disclose this fact. Instead, in cases where the impartiality of an arbitrator is particularly difficult to ascertain, the effect ought to be that the arbitrator’s failure to disclose certain circumstances may lead to the disqualification of the arbitrator. This was, however, not the case in Case No. NJA 2010 p 317.

In addition, certain statements made by the Supreme Court in Case No. Ö 2782-10 (Tupperware Nordic A/S v. The Bankruptcy Estate of Facht Distribution AB) must be perceived as arbitration friendly. The case concerned an agreement designating a certain court to settle disputes between the contracting parties. The Supreme Court concluded that the legal principles regarding such agreements are equivalent to the principles applicable to arbitration agreements. An arbitration clause included in a main contract is considered to cover any dispute in relation to the main contract. The scope of the arbitration clause may however be limited by its wording. A standard arbitration clause gives the arbitral tribunal the right to try any invalidity of the main contract as long as the invalidity rests upon a contractual basis.

These 2010 judgments clearly illustrate that the Swedish Supreme Court considers it to be of great importance for the courts to accentuate the existence and applicability of international arbitration law principles. This generous approach towards both national and international arbitrations will further establish Sweden as an attractive forum for international arbitrations.

Anders Reldén, Mattias Nilsson and Linda Kahver

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

In ALC v ALF [2010] S.G.H.C. 231 (“ALC v ALF”), the High Court revoked the issue of a subpoena that had earlier been granted on an ex-parte basis (as is usually the case) on the grounds that the issue of the subpoena had been an abuse of process.

ALC v ALF is a case that fell within the domestic arbitration regime and was governed by the Arbitration Act (Cap 10) (the “Arbitration Act”). Nonetheless, the Court’s observations would likely apply in the international context, given the similarities between the Arbitration Act and the legislation governing international arbitrations, namely the International Arbitration Act (Cap 143A) (the “International Arbitration Act”).

The issue of a subpoena was sought by the defendant in ALC v ALF, this following immediately after the arbitrator’s decision to deny, after a full hearing, the defendant’s request that the plaintiff’s witnesses provide sworn testimony attesting to the adequacy of the discovery. The arbitrator did reserve the parties’ rights to present further submissions if it should turn out that discovery was inadequate.

Notwithstanding the arbitrator’s ruling, the defendant proceeded to apply for a subpoena in the Singapore High Court for the same purpose – to require an employee of the plaintiff to attend the hearing to give evidence regarding the adequacy of the plaintiff’s discovery.

In its decision to revoke the subpoena, the Court noted that the parties had agreed to a procedure where only the witnesses agreed to by the arbitrator would attend the hearing. The court considered the terms of the procedural order issued by the arbitrator, and found that the parties had clearly agreed that the arbitrator would have final say as to the calling of witnesses to the hearing.

The Court ruled that the defendant ought to have sought direction from the arbitrator before calling the plaintiff’s employee as a witness. The Court held that the defendant’s attempt to circumvent this arrangement was premature, improper and constituted an abuse of process.

ALC v ALF reaffirms the prior decisions of the Supreme Court that upheld the policy of minimal curial intervention in the arbitral process. The Court specifically held that recourse should be had to the parties’ contractual arrangement and agreement on procedures before seeking curial intervention.

The judgment does leave open for consideration the position where there is no applicable contractual arrangement or agreement on procedures – in such an event, should a party still seek the consent of the arbitral tribunal? In some cases, rules and/or legislation answer the point – see e.g., Article 27 of the UNCITRAL Model Law and section 43(2) of the English Arbitration Act 1996. Under the Arbitration Act (or indeed, the International Arbitration Act), the position remains undecided. Section 30 of Arbitration Act (and section 13 of the International Arbitration Act) does not expressly provide that an arbitral tribunal should be consulted before applying to court for a subpoena.

Whilst the judgment in ALC v ALF is undoubtedly correct on the facts, one questions whether the Court would have ruled in similar fashion had there been no agreement on directions relating to the calling of witnesses. Would the Court still have abided by the policy of minimal intervention?

The second decision in this posting concerns the powers of the Courts to order pre-arbitral discovery. In Equinox Offshore Accommodation Ltd v Richshore Marine Supplies Pte Ltd [2010] S.G.H.C 122 (“Equinox”), the Singapore High Court denied an application for pre-arbitral discovery.

The plaintiffs in Equinox had sought pre-arbitral discovery from the defendant to ascertain the viability of commencing arbitration proceedings against the defendant for overcharging the plaintiff under a commission arrangement. This discovery was sought pursuant to a provision in the agreement that allowed the plaintiff to inspect the records of the defendant. The self-same agreement had an arbitration clause.

The Court ruled that legislation did not confer on the Courts the power to order pre-arbitral discovery. Neither did the Court have inherent jurisdiction to grant such discovery. The Court again placed emphasis on minimal interference – if parties had chosen arbitration as their mode of dispute resolution, the entire conduct of the arbitration proceedings should be left to the arbitral tribunal. This ought to extend to pre-arbitral discovery as well.

The decision itself raises interesting questions. Among other issues, it would follow from the decision that the Courts do not have the power to grant pre-arbitral discovery against third parties for the purposes of ultimately commencing arbitration proceedings between the contracting parties – this may be a matter that needs to be addressed by agreement (if not also by legislation).

In fact, the Court in both ALC v ALF and Equinox gave primacy to the contractual agreements and arrangements between the parties. The Court in Equinox echoed the sentiment in ALC v ALF and observed that it “surely is for the parties to make the necessary contractual provision for such a pre-arbitral process of discovery”.

In conclusion, these recent decisions highlight the Singapore Courts’ careful refrain from undue interference in the arbitral process, and ought to be welcome in this regard. There is now greater clarity in the scope of the Courts’ powers in providing interim relief in aid of arbitration and parties should consider this when drafting their arbitration agreements. A failure to do so could leave parties without a proper recourse, given the Courts’ approach to applications for interim relief.

By Nandakumar Ponniya and Dian Chen

The ICC partial award had been quashed by a 12 February 2009 judgment of the Court of Appeal of Paris, because the chairman of the arbitral tribunal, a well-known international arbitrator who is part of one of the world’s largest law firms, had failed to disclose certain links between his firm and one of the parties’ group.

Tecnimont had however raised before the Court an estoppel argument based on the fact that the arbitrator had already been unsuccessfully challenged before the ICC Court of Arbitration for the very same grounds that were invoked before the Court of Appeal, and that such challenge was belated pursuant of Article 11(2) of the Rules for having been made more than 30 days after the date when the party making the challenge had been aware of the facts upon which it was based. According to Tecnimont, the consequence was that the challenging party (Avax) was precluded from objecting to the independence and impartiality of the arbitrator.

The Court of Appeal, however, did not accept this argument on the basis that the grounds for challenge would in fact not have been known to Avax before the award was rendered.

The French Supreme Court (Cour de cassation), in a judgment handed down on 4 November 2010, disagreed with such findings and held that “almost all the adduced [grounds for challenge] were included in the request for challenge notified on 14 September 2007 [to the ICC]”.

As a consequence, the Supreme Court held that the Court of Appeal had modified the terms of the dispute, in breach of article 4 of the French Code of Civil Proceedings.

Article 4 provides that “the subject matter of the dispute is determined by the parties’ allegations”; the case law of the Supreme Court consistently holds, in this respect, that a Court of Appeal which bases its decision on facts different from those submitted by the parties violates Article 4. In this case, the annulment decision rendered by the Court of appeals of Paris is quashed, but the matter is remitted to the Court of appeals of Reims, which will have to decide on the validity of the award.

The Supreme Court does not express any view as to the existence of a bias such as to justify the setting aside of the award for lack of independence and impartiality of one of the arbitrators, which constitutes in French law an irregularity in the constitution of the arbitral tribunal [Article 1502-2 of the French Code of Civil Proceedings].

As a consequence, the conclusion reached by the Court of Appeal of Paris, according to which the links between the arbitrator’s law firm and one of the parties constitutes a conflict of interest, is not criticized as such. In this respect, certain authors have wondered whether the Court of Appeal’s decision should be understood as implying that any failure to disclose relevant circumstances should as such justify a challenge (Th. Clay, rev arb 2009-3, p. 193). We do not believe that to be the case, and the reference by the court of Appeal to a “conflict of interest” simply means that the circumstances in dispute were such as to cast serious doubts in the eyes of a reasonable and informed third party as to the arbitrator’s independence and impartiality. From this perspective, the Court of Appeal findings as to the existence of an appearance of bias is, in our view, consistent with previous case law as well as with the established international arbitration practice as embodied the IBA Guidelines on conflicts of interest in international arbitration (General Standard 2.b).

Neither has the Supreme Court expressed any views as to whether non-compliance with the procedure established by the applicable institutional rules should have any bearing in setting aside proceedings.

Nevertheless, by holding that all the grounds for the challenge in dispute were present in the application made to the ICC, the Supreme Court implies (as the ground for annulment of the Paris court decision would otherwise be deprived of any relevance) that the Court of Appeal should have examined and decided Tecnimont’s argument that such challenge was belated and that Avax should therefore be considered as having waived its right to challenge.

The Court of Appeal decision, in this respect, was highly unsatisfactory. If the parties accepted institutional rules setting time-limits for challenges, why should such time-limits not be enforced by the judge? (see my 19 May 2009 blog; see also in the same sense, Th. Clay, case note op. cit., p. 196). Institutional rules accepted by the parties are incorporated in the arbitration agreement and are as such binding upon the parties. As a consequence, a breach of a provision such as the thirty-days time-limit provided in Article 11 (2) of the ICC Rules of arbitration should be treated as a waiver of the right to challenge, which waiver should prevent any later request to set aside the award on the same grounds.

It is equally unsatisfactory that the decision made by the institution on the challenge be thrown in the waste basket by the judge. Much time is devoted by the parties in arguing these matters before the institution, and institutions carefully weight the parties’ arguments to decide the challenge in the most appropriate manner. In this respect, the IBA recommendation that equal standards be applied to challenges at all stages of the proceedings in order to determine whether grounds for disqualification of an arbitrator exist or existed should be recalled. The facts and circumstances alone are relevant to that effect, and not the current stage of the proceedings or the consequences of the withdrawal (IBA Guidelines, Explanation to General Standard 3(d)). As a consequence, there would be no impediment for the Court of Appeal in setting aside proceedings to give due consideration to the reasons why a challenge was rejected by the institution.

The problem is, of course, that the ICC, like other institutions, does not provide reasons for its challenge decisions. This matter is currently being discussed in the context of the ongoing revision process of the ICC rules of arbitration. Some institutions do provide reasoned decisions, including ICSID, DIS, VIAC, LCIA, NAI and PCA. Reasoned decisions may certainly add to the burden of institutions, and in some instances slightly delay the process; they, however, add confidence in the arbitral process and, more importantly, provide the court in setting aside proceedings with useful information that it can rely on.
Going further, one can wonder whether it is satisfactory to re-litigate before the judge the same challenge discussed before the institution. Would it not be more appropriate to treat challenge decisions rendered by arbitral institutions as if they were awards? Institutional decisions on challenges are in theory of an administrative nature, and they therefore have no res judicata. The nature of those decisions can however be discussed for, at the difference other decisions made by arbitral institutions, they arguably meet the standard of jurisdictional decisions as adopted in many jurisdictions: they are made by a neutral third party (the arbitral institution) and they settle a dispute of a legal nature (whether grounds for disqualification of an arbitrator exist).

Certainly, admitting the jurisdictional nature of such decision would further increase the time and costs of the arbitration, as such an evolution would imply that the parties be granted a reasonable opportunity to present their views before the institution. However, it would spare the parties the burden of litigating twice the same issues. One could imagine that such “challenge awards” could be in turn be the subject of an immediate and expeditious judicial review. Such an evolution may require some amendments to the applicable arbitration laws, but the effort is probably worth making as it would avoid the risk, which is perfectly illustrated by Tecnimont, of having to throw away years of arbitral proceedings and millions of dollars in legal costs, which risk is even compounded when, as in Tecnimont¸ the annulled award resurrects like Lazarus out of its cave, until when it may again disappear if the Court of appeals of Reims decides that the award should be quashed anyway…

Alexis Mourre

The leading example of legislative backlashes against international and foreign law is a proposed amendment to the Oklahoma State Constitution (1). Grandiosely titled the “Save our State Amendment,” the proposed amendment would purport to forbid Oklahoma State courts from “look[ing] to the legal precepts of other nations or cultures” or from “consider[ing] international law or Sharia Law.” The full text of the proposed amendment is available here.

The “Save our State Amendment” overwhelmingly passed in the Oklahoma House on 18 May 2010 (91 for – 2 against) and in the Senate just six days later, on 24 May 2010 (41 for – 2 against, 5 excused). The proposed amendment would provide:

“The [Oklahoma] Courts …, when exercising their judicial authority, shall uphold and adhere to the law as provided in the United States Constitution, the Oklahoma Constitution, the United States Code, federal regulations promulgated pursuant thereto, established common law, the Oklahoma Statutes and rules promulgated pursuant thereto, and if necessary the law of another state of the United States provided the law of the other state does not include Sharia Law, in making judicial decisions. The courts shall not look to the legal precepts of other nations or cultures. Specifically, the courts shall not consider international law or Sharia Law. The provisions of this subsection shall apply to all cases before the respective courts including, but not limited to, cases of first impression.” (2)

The proposed amendment is to be submitted to a referendum of Oklahoma voters, likely in November 2010. News sources predict that the amendment will be adopted by a large margin.

If Oklahomans adopt the amendment, what will it mean (putting aside questions of validity under the U.S. Constitution)? This is not an issue that has drawn the attention of the amendment’s sponsors, whose interest appears limited to stoking parochial bias and fear. Still, if adopted, courts will have to interpret the legislation.

One obvious area where the amendment may have application is conflict of laws. The amendment specifically provides that Oklahoma courts may not “consider” either international or Sharia law, and may only apply the law of sister states in the United States “provided the law of the other state does not include Sharia Law.” That fairly clearly excludes application of, for example, the law of states which have adopted Sharia law – presumably in cases where there is a contractual choice-of-law clause, as well as in cases where there is not. Although principles of international law are less likely to arise in commercial litigation, particularly in state courts, in those instances where they do (e.g., some human rights litigation, cases raising issues concerning foreign territorial boundaries), the Oklahoma amendment would appear to preclude application of those principles. Exactly how the amendment’s prohibition against the application of international law relates to the amendment’s preliminary acknowledgment that Oklahoma courts must apply federal law (which, under well-settled U.S. precedent, includes international law) is not addressed by the amendment or its drafting history.

There is a further issue, of greater practical importance, particularly if the amendment’s approach were adopted outside Oklahoma. Under the amendment, may an Oklahoma court apply any foreign law, as distinguished from international or Sharia law? In addition to providing that Oklahoma courts may not consider international and Sharia law, it also prohibits Oklahoma courts from “look[ing] to the legal precepts of other nations or cultures.” A serious argument could be made that this text forbids the application of foreign law in Oklahoma courts – including, for example, in tort, contract and other commercial disputes. Thus, if a dispute arose under a contract with a choice of law clause selecting foreign law (e.g., French or Russian), there is a substantial argument that the amendment would forbid application of French or Russian law; the argument is at least as strong in tort or contract cases where no choice-of-law clause existed. In neither case, the argument would run, could an Oklahoma court apply “the legal precepts of other nations.”

Choice of law issues in most contexts are, under domestic U.S. law, governed by state (not federal) law. That would appear to make the amendment’s prohibition against application of foreign or Sharia law fully applicable in Oklahoma courts – absent some constitutional basis for invalidating the amendment (discussed below). Moreover, although the amendment applies, by its terms, only in Oklahoma state courts, at least arguably, U.S. federal courts in Oklahoma would be obliged to adopt the same rules as state courts in matters ordinarily governed by state law.

It is also not clear how the Oklahoma amendment might impact the recognition and enforcement of foreign judgments which are based on the application of foreign (or international) law by a foreign court. At least arguably, recognition of a foreign judgment would involve the indirect application of foreign (or international) law and, thereby, run afoul the Oklahoma amendment. For example, is a judgment from Egypt or Saudi Arabia capable of recognition in an Oklahoma court under the Oklahoma amendment? In the United States, the recognition of foreign judgments is largely the subject of state law and, as a consequence, the amendment would again appear prima facie to apply to the recognition and enforcement of foreign judgments in Oklahoma state and federal courts. Arguably, similar conclusions would apply to forum selection agreements providing for litigation in a foreign forum (particularly a forum where the Sharia might be applicable).

The impact of the proposed Oklahoma amendment on international arbitration would appear to be much more limited – reflecting in part the superior legal regime applicable to international arbitration, as compared to other means of dispute resolution. In particular, the Oklahoma amendment would not seem to preclude a party from enforcing a foreign award or international arbitration agreement, even if the award applied foreign or international law. The New York Convention and Federal Arbitration Act (Chapter 2) impose federal standards for most aspects of recognition of Convention awards and agreements, in either state or federal courts. The Oklahoma amendment would likely (very likely…) be preempted by the Convention and the FAA.

The immediate practical consequences of the amendment are limited. Oklahoma is not a forum for appreciable amounts of international commercial litigation and, if the amendment is adopted, Oklahoma choice-of-court and choice-of-law clauses will become (even) less common. In practical terms, few international disputes of any consequence are likely to be affected by the amendment.

There is also a substantial argument that various aspects of the Oklahoma amendment run afoul of constitutional limitations under the U.S. Constitution. As noted above, under well-settled U.S. authority, international law is both part of the law of the United States and is treated as federal law. As such, international law preempts, or supersedes, contrary state law and, if the Oklahoma amendment were interpreted to forbid application of international law in Oklahoma courts, it would likely be invalidated.

The amendment’s prohibition against application of foreign or Sharia law raises more complex U.S. constitutional issues. The prohibition may well run afoul of restrictions on state involvement in national foreign relations, imposed by a series of U.S. Supreme Court decisions from the mid-20th century. Singling out the laws of particular foreign states (e.g., Sharia law, which is the foundation of several foreign states’ law) and prohibiting their application in U.S. courts arguably violates these constitutional prohibitions by inserting state legislatures into matters of U.S. foreign relations. Finally, if the amendment is applied to prohibit application of any foreign law, it arguably would violate limitations imposed by the federal due process clause on choice-of-law decisions of state courts – although the existence and contents of such limits is a highly disputed topic.

One might be tempted to dismiss the “Save our State Amendment” as a local eccentricity without practical consequence. Unfortunately, that conclusion is premature. Similar legislative proposals are presently being considered in the Arizona State House and Senate Judicial and Rules Committees. The Arizona bill provides that “[a]ny decision or ratification of a private agreement that is determined, on the merits, by a judge in this state who relies on any body of religious sectarian law or foreign law is null and void, is appealable error and is grounds for impeachment and removal from office.” The full text of the Arizona House bill is here. Although predictions are always risky, one suspects that similar legislative proposals will surface in other states and, eventually, the U.S. Congress.

More broadly, and of even greater practical concern, the Oklahoma amendment is not unrelated to the so-called “Arbitration Fairness Act,” currently pending in the U.S. Congress. Versions of that legislation would invalidate broad categories of agreements to arbitrate consumer, employment, franchisee, and “civil rights” disputes. These legislative proposals are all designed to enhance the litigation options of local constituencies by guaranteeing a more favorable local forum applying local protections – including where parties (in an international commercial agreement) have agreed to resolve their disputes by arbitration. That result is very difficult to square with U.S. commitments under the New York Convention (and the Inter-American Convention). The Convention permits derogation from Article II’s obligation to recognize international arbitration agreements only in limited instances of disputes that are not capable of settlement by arbitration. Article II’s exception cannot easily be expanded to accommodate the proposed Act’s sweeping invalidation, in all circumstances, of broad categories of international arbitration agreements.

The Arbitration Fairness Act parallels the Oklahoma amendment in an even more troubling fashion in its treatment of the separability presumption and the doctrine of competence-competence. Both principles are universally-recognized, in national and international arbitration instruments, judicial decisions, arbitral awards and commentary from all of the world’s leading legal systems. Indeed, U.S. courts played a central role in developing both doctrines (for example, in the Supreme Court’s classic decision in Prima Paint).

Despite that, versions of the proposed Arbitration Fairness Act would abrogate both the separability presumption and the competence-competence doctrine in the context of international arbitration agreements (including in agreements outside the context of consumer, employment and franchise disputes). If adopted, this approach would violate the parties’ express and implied agreements in most international contexts — including where institutional rules, agreed to by the parties, adopt both doctrines; where foreign law, applicable to the agreement to arbitrate, adopted one or both principles; and where parties impliedly intend for these international principles to apply, which is true in virtually all international commercial contexts. By denying effect to the parties’ agreements on these issues, the Arbitration Fairness Act would also violate U.S. commitments under the New York (and Inter-American) Convention – preferring parochial domestic law and constituencies to the United States’ international engagements under Article II of the New York Convention and parallel provisions of the Inter-American Convention, in a manner uncomfortably reminiscent of the Oklahoma amendment.

It remains to be seen whether the legislative instincts that inspired the “Save our State Amendment” will spread in their most virulent form to Washington, DC. The likelihood appears slim. Nonetheless, if the Arbitration Fairness Act is ultimately passed in its current form it would violate U.S. treaty commitments – under the New York Convention – and depart from universally-accepted principles of international arbitration law. The possibility of this occurring remains uncertain and the risk of jingoistic federal legislation appears even more remote. But that conclusion is by no means certain. To put the question in practical terms, what odds would one have given twelve months ago for adoption of something like the “Save our State Amendment” in Oklahoma or anywhere else?

(1) 2010 Okla. Sess. Law Serv. Hs. Jt. Res. 1056 (West).
(2) The Oklahoma Attorney General has since supplemented the initially proposed Preliminary Ballot Title (the question that will be posed to the voters as a referendum) to explain to the voters what international law and Sharia law comprise: “This measure amends the State Constitution. It changes a section that deals with the courts of this state. It would amend Article 7, Section 1. It makes courts rely on federal and state law when deciding cases. It forbids courts from considering or using international law. It forbids courts from considering or using Sharia law. .International law is also known as the law of nations. It deals with the conduct of international organizations and independent nations, such as countries, states and tribes. It deals with their relationship with each other. It also deals with some of their relationships with persons. The law of nations is formed by the general assent of civilized nations. Sources of international law also include international agreements, as well as treaties. Sharia Law is Islamic law. It is based on two principal sources, the Koran and the teaching of Mohammed.” Letter from the Office of the Attorney General for Oklahoma State to the Oklahoma Secretary of State, the Speaker of the Oklahoma House of Representatives, and the Senate President Pro Tempore of Oklahoma, dated 4 June 2010, Re: Preliminary Ballot Title for State Question No. 755, Legislative Referendum No. 355.

By Gary Born and Noelle Berryman