international law quarterly 2012 spring issue

72
See “International Arbitration Clause,” page 60 See “2012 ICC Rules of Arbitration,” next page IN THIS ISSUE: A PUBLICATION OF THE FLORIDA BAR INTERNATIONAL LAW SECTION www.floridabar.org  •  www.internationallawsection.org THE INTERNATIONAL LAW Quarterly Spring 2012 Vol. XXX, No. 2 The International Law Quarterly Negotiating and Drafting an International Arbitration Clause with a Focus on Latin America: A Primer By Richard C. Lorenzo and María Eugenia Ramírez, Miami, Florida Over recent years, international commercial arbitration has gained worldwide acceptance as one of the preferred means of international dispute resolution. Recent advancement in Latin America’s receptivity towards international ar- bitration, however, requires a new focus on the way businesses and counsel negotiate and draft the arbitration sections of their agreements. These developments warrant a fresh look into the main issues that parties should address when negotiating and drafting an arbitration clause in a transaction connected to Latin America. This article will examine the various aspects of an Vol. XXX, No. 2 Spring 2012 The 2012 ICC Rules of Arbitration By Kate Wilford, London, England The arbitration rules of the International Chamber of Commerce (“ICC”) are the most widely used in the world. In the 2010 Inter- national Arbitration Survey on Choices in In- ternational Arbitration, 1 50% of respondents named the ICC as their preferred arbitration institution, followed by the London Court of International Arbitration (“LCIA”) (14%) and American Arbitration Association/International Centre for Dispute Resolution (“AAA/ICDR”) (8%). When asked which arbitration institution they had used most frequently over the past five years, 56% of respondents named the ICC, again followed by the LCIA and AAA/ICDR, each with 10% of the responses. Given the popularity of the ICC Rules, there was no immediate need to revise the version in force since 1998. Nevertheless, the ICC decided to revise the 1998 Rules before it became absolutely necessary to do so. Given widespread perception that ICC arbitrations are often more expensive than arbitrations under other institutional rules, one inevitable consideration behind the revisions was to improve the speed and the cost efficiency of the arbitral process. The revisions also sought to bring the ICC Rules up to date. Some revisions were as simple as introducing gender-neutral lan- guage (e.g., “President” rather than “Chairman”), Special Litigation & Arbitration Issue The 2012 ICC Rules of Arbitration ....1 Negotiating and Drafting an International Arbitration Clause with a Focus on Latin America: A Primer .........................................1 Message from the Chair ...................3 From the Editor ................................4 World Roundup.................................5 The Role of the International Arbitrator from a Civil Law Perspective ..................................15 International Frauds and Ponzi Schemes............................23 Counterclaims by Respondent States in Investment Arbitration: Two Recent Cases Leave Counterclaiming States Frustrated Again ..........................27 Litigation Note.................................32 Ill-Defined Boundaries? The Scope of Arbitral Authority in the United States ..........................................33 Section Scene ................................36 Damages Claims Following Antitrust Violations in European Markets ...38 Sovereign Bonds and the Struggle to Limit Article 25 of ICSID...............41 Arbitration in Poland— A Modern Approach and Vivid Development ...............................45 Avoiding Litigation in France by Properly Terminating Contractual Relationships ...............................51 What’s Driving the Global Growth of Mediation in Business and Commerce? .................................55 arbitration clause that should be understood, analyzed, and considered when negotiating and drafting an international arbitration clause in a Latin American-related transaction involving one or more U.S. parties. Institutional vs. Ad Hoc Arbitration Of primary importance when drafting an arbitration provision is deciding whether the arbitration should be ad hoc (i.e., conducted without any pre-selected institutional admin- istration or supervision) or institutional (i.e.,

Upload: santiago-cueto

Post on 26-Oct-2014

345 views

Category:

Documents


3 download

DESCRIPTION

International Arbitration is the focus of the Spring 2012 issue of the International Law Quarterly published by the Florida Bar's International Law Section. Editor Alvin Lindsay of Hogan Lovells delivers another extraordinary issue featuring leading international attorneys from across the globe.

TRANSCRIPT

Page 1: International law Quarterly 2012 Spring Issue

See “International Arbitration Clause,” page 60

See “2012 ICC Rules of Arbitration,” next page

In ThIs Issue:

a publication of the florida bar international law section

www.floridabar.org  •  www.internationallawsection.org

THE INTERNATIONAL LAW

Quarterly

Spring 2012Vol. XXX, No. 2 The International Law Quarterly

negotiating and Drafting an International Arbitration Clause with a Focus on Latin America: A Primer

By Richard C. Lorenzo and María Eugenia Ramírez, Miami, Florida

Over recent years, international commercial arbitration has gained worldwide acceptance as one of the preferred means of international dispute resolution. Recent advancement in Latin America’s receptivity towards international ar-bitration, however, requires a new focus on the way businesses and counsel negotiate and draft the arbitration sections of their agreements. These developments warrant a fresh look into the main issues that parties should address when negotiating and drafting an arbitration clause in a transaction connected to Latin America. This article will examine the various aspects of an

Vol. XXX, no. 2spring 2012 The 2012 ICC Rules of Arbitration

By Kate Wilford, London, England

The arbitration rules of the International Chamber of Commerce (“ICC”) are the most widely used in the world. In the 2010 Inter-national Arbitration Survey on Choices in In-ternational Arbitration,1 50% of respondents named the ICC as their preferred arbitration institution, followed by the London Court of International Arbitration (“LCIA”) (14%) and American Arbitration Association/International Centre for Dispute Resolution (“AAA/ICDR”) (8%). When asked which arbitration institution they had used most frequently over the past five years, 56% of respondents named the ICC, again followed by the LCIA and AAA/ICDR,

each with 10% of the responses. Given the popularity of the ICC Rules, there

was no immediate need to revise the version in force since 1998. Nevertheless, the ICC decided to revise the 1998 Rules before it became absolutely necessary to do so. Given widespread perception that ICC arbitrations are often more expensive than arbitrations under other institutional rules, one inevitable consideration behind the revisions was to improve the speed and the cost efficiency of the arbitral process. The revisions also sought to bring the ICC Rules up to date. Some revisions were as simple as introducing gender-neutral lan-guage (e.g., “President” rather than “Chairman”),

Special Litigation & Arbitration Issue

The 2012 ICC Rules of Arbitration ....1

Negotiating and Drafting an International Arbitration Clause with a Focus on Latin America: A Primer .........................................1

Message from the Chair ...................3

From the Editor ................................4

World Roundup .................................5

The Role of the International Arbitrator from a Civil Law Perspective ..................................15

International Frauds and Ponzi Schemes ............................23

Counterclaims by Respondent States in Investment Arbitration: Two Recent Cases Leave Counterclaiming States Frustrated Again ..........................27

Litigation Note .................................32

Ill-Defined Boundaries? The Scope of Arbitral Authority in the United States ..........................................33

Section Scene ................................36

Damages Claims Following Antitrust Violations in European Markets ...38

Sovereign Bonds and the Struggle to Limit Article 25 of ICSID ...............41

Arbitration in Poland— A Modern Approach and Vivid Development ...............................45

Avoiding Litigation in France by Properly Terminating Contractual Relationships ...............................51

What’s Driving the Global Growth of Mediation in Business and Commerce? .................................55

arbitration clause that should be understood, analyzed, and considered when negotiating and drafting an international arbitration clause in a Latin American-related transaction involving one or more U.S. parties.

Institutional vs. Ad hoc ArbitrationOf primary importance when drafting an

arbitration provision is deciding whether the arbitration should be ad hoc (i.e., conducted without any pre-selected institutional admin-istration or supervision) or institutional (i.e.,

Page 2: International law Quarterly 2012 Spring Issue

Page 2 Spring 2012The International Law Quarterly

See “2012 ICC Rules of Arbitration,” page 65

The International Law Quarterly is prepared and published by the

International Law Section of The Florida Bar.

Nicolas Swerdloff, MiamiChair

Richard C. Lorenzo, MiamiChair-elect

C. Ryan Reetz, MiamiSecretary

Peter A. Quinter, MiamiTreasurer

Edward M. Mullins, MiamiImmediate Past Chair

Mark R. Weiner, TampaCLE Chair

Alvin F. Lindsay, MiamiEditor-in-Chief

Angela Froelich, TallahasseeProgram Administrator

Lynn M. Brady, TallahasseeLayout

Elizabeth Ortega Media Contact,

ECO Strategic [email protected]

Articles between 7 and 20 pages, double-spaced, involving the various disciplines affecting international law may be submitted via email in MS Word format (with the use of endnotes, rather than footnotes). Please contact [email protected] for submissions and for any questions you may have concerning the Quarterly.

DeADLIne FOR neXT Issue Is 20 AuGusT 2012.

2012 iCC RuLEs oF aRBitRation, from previous page

while some revisions introduced new provi-sions that allowed applications for interim relief to be made to an emergency arbitrator or that facilitated multi-party and multi-contract arbitration.

The 2012 Rules2 came into force on 1 January 2012 and, with the exception of the emergency arbitrator provisions,3 apply to all ICC arbitrations commenced after that date unless the parties’ arbitration agree-ment specifies that the parties will submit the arbitration to the rules in force on the date of the arbitration agreement.4

Who Administers Arbitrations under the new ICC Rules?

Under the 1998 Rules, a practice arose whereby some parties to arbitrations, par-ticularly in Asia, sought to gain the benefit of having the arbitration conducted in ac-cordance with the ICC Rules but without the cost commonly associated with ICC arbitration. They therefore entered into “mix-and-match” arbitration agreements providing that the arbitration would be con-ducted under the rules of the ICC but ad-ministered by another institution. The most well-known example of such a “mix-and-match” clause was Insigma Technology Co. Ltd. V. Alstom Technology,5 where an arbitration clause providing for ICC arbi-tration to be administered by the Singapore International Arbitration Centre (“SIAC”) was upheld by the Singapore courts.

The ICC responded by including a new provision in the 2012 Rules stating that the ICC Court is “the only body authorized to administer arbitrations under the Rules, including the scrutiny and approval of awards rendered in accordance with the Rules.”6 While the ICC’s intent is clear, it remains to be seen whether this provision will be effective in practice. Some parties wishing to avoid the cost associated with ICC arbitration may attempt to contract out of this new provision.

emergency Arbitrator Provisions

One of the most significant changes in the 2012 Rules is the introduction of a procedure allowing applications for urgent

interim or conservatory measures to be submitted to an emergency arbitrator prior to the constituting of the tribunal.7 This procedure is intended as an alternative to applying to the national courts at the seat of the arbitration.8 Prior to the introduction of the 2012 Rules, a party to an ICC arbitra-tion requiring urgent interim or conserva-tory relief could either apply to a national court for that relief or apply to the ICC for the appointment of a pre-arbitral ref-eree. In practice, however, the ICC’s pre-arbitral referee procedure was rarely used.9 In the meantime, other institutions were developing more sophisticated pre-arbitral procedures: the Stockholm Chamber of Commerce (“SCC”) introduced emergency arbitrator provisions in its revised arbitra-tion rules that came into force on 1 January 2010,10 and SIAC followed suit six months later.11 The 2012 Rules therefore follow a growing trend in international commercial arbitration towards giving parties the op-tion to apply to an emergency arbitrator for urgent interim or conservatory relief.

Applications under the emergency arbi-trator provisions are to be submitted to the ICC Secretariat,12 together with payment of the $40,000 fee, consisting of $10,000 for ICC administrative expenses and $30,000 for the emergency arbitrator’s fees and expenses.13 This amount may be increased at any time during the emergency arbitrator proceedings if so decided by the President of the ICC Court.14 If the President of the ICC Court is satisfied that the emergency arbitrator provisions apply, a copy of the application will be transmitted by the ICC Secretariat to the responding party.15 The respondent will therefore be on notice of the application, negating the possibility of an ex parte injunction.

These provisions impose a new role on the President of the ICC Court, who effectively becomes a gatekeeper for ap-plications for emergency measures. The President of the ICC Court will also appoint the emergency arbitrator, usually within two days of receipt of the application by the ICC Secretariat.16 Once the emergency arbitrator has been appointed, he or she will establish a procedural timetable in as short a time as possible, usually within two days

Page 3: International law Quarterly 2012 Spring Issue

Page 3 Spring 2012 The International Law Quarterly

Message from the ChairLooking back on the Bar year, I am proud of the successes the section has achieved and wish to

thank, on behalf of the section’s Executive Council, the many section members who made them possible. In particular, we owe the section’s accomplishments to our committee leaders, whose hard work gave us thought-provoking and entertaining programs and publications, including the International Law Quarterly, throughout the year.

We are especially proud of the section’s flagship International Litigation and Arbitration Con-ference, which celebrated its tenth anniversary on 23 and 24 February 2012 at the J.W. Marriott Marquis in downtown Miami. As it always has, the conference drew speakers from around the globe—including the Coordinator for Legal Affairs to the Executive Office of the Dominican Republic and the Secretary of Legislative and Judicial Affairs for the Dominican Republic—who

spoke on a range of engaging topics, including the future of investor-state arbitration and recent Alien Tort Claim Act Cases. See the photos from this conference in the Section Scene at pages 36 and 37.

The International Litigation and Arbitration Conference was just one of several fascinating conferences the section sponsored. Last October, the section held the International Income, Estate and Gift Tax Conference at the Conrad Hilton in Miami, which offered a full day of cutting-edge tax issues geared to attorneys engaged in cross-border transactions. October also brought section members together for the Midyear Meeting at the offices of Hogan Lovells in Miami. And in November, more than 160 attendees and speakers, including Justice Noronha from the Brazilian Superior Tribunal of Justice, gathered in São Paulo for the Section’s International Business Transaction Conference, held in conjunction with the International Centre for Dispute Resolution and the American Chamber of Commerce in São Paulo.

With the 7th Annual Florida Bar International Law Section Pre Vis-Moot Competition held at the University of Miami School of Law in February, the section continued its proud tradition of mentoring law students. The section awarded scholarships to the Florida law schools while the Miami International Arbitration Society and the Chartered Institute of Arbitrators donated special prizes. In addition, section members volunteered at the Pre-Moot, serving as arbitrators, hearing arguments from six Florida law school teams and the Loyola University College of Law in New Orleans. Special congratulations go to the teams from the University of Florida and Nova Southeastern University, who tied for first place at the Pre-Moot, and to the teams from the University of Miami and Stetson University, who took second and third place in Vienna at the Vis Moot.

Section members never stop learning, and those unable to get out of the office could take advantage of several online CLE webinars on international law topics, including “What to Do When the Export Laws of the United States May Have Been Violated”; “Managing U.S. Discovery ‘Assistance’ in International Arbitration”; “Five Ways Corporations Can Limit Their International Liability Exposure”; “Managing Criminal Exposure Under the FCPA and Other Laws Impacting International Trade”; and “Ethics Considerations in International Dispute Resolution.” You can still purchase CDs of these webinars online, by fax or by mail. Please visit The Florida Bar’s website for complete order information.

The section is especially grateful to Alvin F. Lindsay, who again served this year as the Editor-in-Chief of the ILQ—and to the rest of the ILQ editorial staff—who continued to provide section members and all readers a variety of articles on the latest international legal topics by authors from all over the world.

Finally, the section is especially appreciative of its many generous sponsors, whose contributions help make all of this great work possible.

I’m proud to have been part of yet another great year for the section, and look forward to Richard Lorenzo, the incoming 2012-2013 Chair, bringing us an even better one next year.

Nicolas Swerdloff, 2011-2012 ChairHughes Hubbard & Reed, LLP

N. Swerdloff

Page 4: International law Quarterly 2012 Spring Issue

Page 4 Spring 2012The International Law Quarterly

See “From the Editor...” page 22

I frequently re-ceive correspondence from people around the world who let me know they are avid readers of the ILQ and incredibly im-pressed by the nature and scholarship of its articles. Knowing this

is solely a reflection of the quality and en-thusiasm of our authors and issue editors, I began to think that we needed to do more by way of acknowledging those persons who have truly made this publication great. The idea of an annual Editors’ Choice Awards was born.

Of course, the problem with this is that every article is good, because we simply don’t publish those that are not. But in consultation with Mimi Hobbs, our superb copy editor, we were able to come up with five articles that were truly memorable either because they represented a con-summate exegesis on a particular topic, or because they were somehow bold and thought provoking.

We also selected winners for best “spe-cial issue” editor and best “focus-on issue” editor. These special and focus-on issues have become a signature element of our publication. They provide a deep under-standing of the many topics that are em-braced by the subject of international law and serve as lasting references with long shelf lives. Perhaps many of our readers don’t fully understand that each of these “special editions” has a designated editor who is largely responsible for finding and committing authors for that issue. Often the authors brought to us by the issue editors are at the pinnacle of their fields, so we felt it critical to also celebrate these issue edi-tors who make our quality articles possible.

Given that I have been with the ILQ for almost three years, and that it would be un-fair to limit the first awards to just the past four issues, we felt justified in selecting

the first annual winners from all the issues during my time as editor-in-chief.

With that said, it is with great apprecia-tion that we now announce the winners of the first annual International Law Quar-terly Editors’ Choice Awards:

Best Articles:nicholas Ware: China Factory Investiga-tion Ride Along, Fall 2010 Special China Issueomar K. ibrahem: Unchartered Waters: The Kishenganga River Project Dispute and Arbitration under the Indus Water Treaty, Winter 2011 Special International Litigation and Arbitration IssueRafaela Vianna: Ethanol: Sweetening the Deal Between the U.S. and Brazil, Fall 2011 Special Brazil IssueKimra Major-Morris: The Quest for Intellectual Property Protections in the Digital Age, Winter 2012 International Intellectual Property Focus-On Issuenadia B. ahmad: High-Speed Public Pol-icy for Algae-Based Biofuel as a Viable Energy Alternative—Improving Florida-China Relations Through Sustainable Col-laboration, Winter 2012 International Intel-lectual Property Focus-On Issue

Best special Issue editors:Mikki Canton: China, Fall 2010Quinn smith: Brazil, Fall 2011

Best Focus-On Issue editor:Penelope B. Perez-Kelly: International Intellectual Property, Winter 2012

Please join me in congratulating these esteemed colleagues. We hope they will inspire others to write and edit for future is-sues of this great publication. We anticipate that these awards will be presented each year at The Florida Bar Annual Conven-tion and that future awards will likely in-clude recognition for the dedicated regional

editors of our highly praised new World Roundup feature.

This special Litigation & Arbitration Issue

Our international litigation and arbitra-tion special issues have become an annual event. As always, there is much to report. One of the significant developments in the field was the recent revision to the ICC Rules of Arbitration that have remained un-changed since 1998. Kate Wilford brings us a thorough review of the changes and how they significantly affect the practice.

But to get to arbitration, of course, the parties must agree to it, and many who practice from the “dispute” side might not fully understand the intricacies of draft-ing an arbitration provision. Fortunately, Richard C. Lorenzo and María Eugenia Ramírez provide us with the definitive cookbook on negotiating and drafting an international arbitration clause.

German authors Karl Pörnbacher and Dr. inken Knief then provide an insightful article on international arbitration from a civil law perspective, which will be es-pecially critical for lawyers trained in the common-law culture to understand.

tucker Ronzetti, a top practitioner and former editor-in-chief of the University of Miami Law Review, was gracious to provide us with a timely article on interna-tional frauds and Ponzi schemes—invest-ment scams that are regrettably becoming all too common.

From Paris, thomas Kendra, writes on one of the interesting conundrums in investment arbitration, the ability of re-spondent states to counterclaim against investors.

Our friend and regular contributor, Gus-tavo J. Lamelas, then updates us on the critical doctrine of competence-compe-tence and the scope of arbitral authority in the United States.

London contributors nicholas Heaton

A. Lindsay

From the editor . . .

First International Law Quarterly editors’ Choice Awards

Page 5: International law Quarterly 2012 Spring Issue

Page 5 Spring 2012 The International Law Quarterly

Africa

By Pierre M. Gaunaurd [email protected]

south Africa proposes change in labeling rules for Israeli imports.

South African Trade and In-dustry Minister Rob Davies recently published a notice for

comment adjusting the rules for the labeling of products coming from Israel. As reported by Hareetz and The Telgraph, the proposed changes prohibit any product originating in “occupied” areas such as the West Bank from being labeled as “made in Israel.” Dr. Davies, defended the rule change, stating that the move was meant to help consumers and that the South African government rec-ognizes Israel only along its original 1948 borders. Israel’s South African Ambas-sador, Dov Segev-Steinberg, described the act as “discriminatory.” The public has sixty days from the 10 May notice to comment.

Malawi devalues its currency, un-pegs it from the dollar.

The Malawi central bank, under the di-rection of new president Joyce Banda, devalued the nation’s currency in April in an attempt to satisfy international donors and make its markets more competitive. Un-pegging Malawi’s currency, the kwa-cha, from its previous exchange rate of 165 kwacha to one U.S. dollar, is expected to attract positive attention from organiza-tions like the IMF, which had a strained relationship with the East-African coun-try’s previous leadership. After the 50% devaluation, the currency’s rate stands at approximately 253 kwacha to one dollar.

International court sentences former Liberian President.

This May, over six years after his arrest, former Liberian president Charles Taylor, 64, was convicted and sentenced for war crimes by the Special Court for Sierra Leone. As reported by NPR, the crimes included aiding and abetting rebel soldiers in Sierra Leone that were terrorizing local populations with murder, rape, mutilations,

and enslavement. Mr. Taylor was sentenced to fifty years in prison. This is the first successful prosecution of a former head of state since the end of World War II.

Africa sees 27% surge in FDI.According to the 2012 Africa Attractive-

ness Survey, published by Ernst & Young, Africa as a whole experienced a 27% in-crease in foreign direct investment (“FDI”) between 2010 and 2011. In a further sign that African economies are demanding the attention of global investors, the report finds that seven African countries will be among the world’s ten fastest grow-ing economies between 2010 and 2015. This increasing clout in the marketplace is already being felt within the continent where intra-African FDI, as reported by the survey, rose 42% since 2007.

Asia – ChinaBy Mikki Canton [email protected]

Loans from China come with strings attached.

To Europe’s—and perhaps the world’s—dismay, China has avoided buying European debt and prefers to invest its

money where the return is more immedi-ate. Indeed, China’s interest in investing in major projects in North and South America gives no sign of waning. Just last week, top leaders from China and Chile engaged in successful goodwill diplomatic talks to fortify trade and focus on greater economic cooperation. Chile’s rich copper resources are the object of China’s interest. China’s investment strategy, however, is not limited to in emerging global economies that pos-sess the natural resources and commodities that China lacks.

While it is true that the Chinese gov-ernment, through its government-owned banks, continues to lend to and invest in countries all over the world, the modus operandi emerging should raise flags and give some cause for concern. No longer are Chinese banks going the traditional route of lending to foreign countries to

finance infrastructure projects that these countries otherwise would not be able to afford. Examples of past Chinese lending for railroads, bridges, and processing plants abound—many in Brazil. The scary twist is that Chinese banks are more and more tying mega-loan contracts to mandates that overseas projects being built with Chinese money employ Chinese companies and workers. That Chinese companies and workers will displace a significant portion of the locals naturally follows. This has been a political and diplomatic sore point between China and Brazil and is becoming a real possibility in the United States.

China Development Bank, a state-owned policy bank and a major lender to local gov-ernments in China for commercially viable internal projects, most likely will lend U.S. corporation Lennar $1.76 billion to turn former San Francisco military sites and nearby areas into a mega residential and commercial mixed-use project. The catch is that China Development Bank wants its very own China Railway Construction Corporation to do the project’s major—and lucrative—infrastructure work.

No longer is China simply lending and investing money. Given the dire conditions of the global economy, China is truly in a win-win position. At the end of the day, China is all about China and has but one goal: to put back into China what comes out of China. And then some.

Australia

By Peter anagnostou [email protected]

Australia marine parks exclude industry.

Australia will create the world’s largest network of ma-rine parks, making approxi-mately one-third of Australian

waters off-limits to fishing, oil and gas ex-ploration. The forty-four new marine parks, which include the Coral Sea and the south-west coast of Western Australia, are part of the new marine reserves announced by the Australian Government on 14 June 2012.

Commercial fishing businesses are set

Page 6: International law Quarterly 2012 Spring Issue

Page 6 Spring 2012The International Law Quarterly

World Roundupto receive up to $100 million dollars in compensation, but Sunfish Queensland chief executive Judy Lynne believes the ban on commercial use will result in more foreigners fishing illegally.

Australian Conservation Foundation and Environment group Pew described the ma-rine reserve plan as a “turning point” in marine protection but warned that certain areas outside the marine parks are still at risk to threats of oil spills.

Australian trade deal could weaken tobacco fight.

Concerns have emerged that a new trade agreement among the U.S., Australia and several other Pacific nations could weaken Australia’s defences against challenges to its planned tobacco packaging laws. Nego-tiations over the Trans-Pacific Partnership have been taking place behind closed doors for more than two years. On 14 June 2012, however, a key chapter was leaked, reveal-ing that Australia has refused to agree to a system of tribunals whereby foreign com-panies could arbitrate in third countries.

Australia’s objection to investor-state dispute settlement provisions is already on the public record, but Australia’s de-termination not to concede to foreign-settlements procedures is understood to be also partly due to tobacco giant Philip Morris’s initiation of a claim for arbitration against the Australian Government’s new tobacco labelling laws, to be introduced later this year.

The Trans-Pacific draft agreement con-tains an ISD clause that is strongly sup-ported by the U.S., provoking intense dis-cussion at the most recent major negotiating session in Texas last month. During the negotiations, 100 retired judges, academ-ics, lawyers and MPs from the U.S., New Zealand, Canada, Singapore and Australia wrote an open letter to the negotiators urg-ing all governments to follow Australia’s example by rejecting the ISD clause. While holding “diverse” views about the treaty, they claimed to be united in not wanting replicated in the TPP the foreign-investor protections included in many recent FTAs and BITs. They based their opposition “on concerns about how the expansion of this

regime threatens to undermine the justice systems in our various countries, and funda-mentally shift the balance of power between investors, states and other affected parties.”

In contrast however, Sergey Ripinsky, a legal affairs officer at UNCTAD, noted that “unless the countries all agree to translate the TPP into domestic law . . . companies wouldn’t be able to enforce TPP investor protections, except through state-state dis-pute resolution, which could lead back to politicisation of disputes.”

Canada

By Lucius smejda [email protected]

new “thin” capitalization rules proposed.

In its 2012 budget, the Ca-nadian government proposed modifications to “thin” capi-talization rules that should

prompt Canadian-resident corporations owing debt to certain foreign entities to review their capital structure carefully. Canadian thin-capitalization rules were designed to discourage the disproportionate capitalization of domestic entities through debt funding by foreign persons owning shares representing 25% or more of the vot-ing rights or the total value of the Canadian entity. Prior to the 2012 budget, Canadi-an-resident corporations were allowed to deduct interest payments to such foreign shareholders on any debt not exceeding a 2:1 ratio over equity.

Canada’s new thin-capitalization regime provides that for fiscal years ending after 28 March 2012, interest accrued on any debt in excess of the 2:1 debt-equity ratio shall be re-characterized as a dividend paid to the foreign shareholder, thus triggering non-resident withholding tax obligations. For tax years starting after 28 March 2012, the allowed maximum debt-equity ratio will be lowered to 1.5:1, and the new re-gime will be extended to include debts owed by partnerships having a domestic corporation as a member.

Caribbean

By sandy Jones [email protected]

Private property changes underway in Cuba.

Cubans gained the right to buy and sell private property last November in an attempt by Raul Castro to jumpstart the

communist country’s faltering economy. This first move toward privatization since the 1959 revolution began with the legal-ization of car sales and has expanded to the housing sector. While only Cuban citizens and permanent residents may own land in the country, many Americans are entering the housing market through contacts in Cuba. Until now Cubans were forced to re-main in the family home and able to relocate only through housing swaps and marriage. Though Castro admits the current economic system is not working, the Cuban President says he intends to keep Cuba a socialist state and will use regulation and taxation to prevent citizens from amassing wealth.

Cayman Islands plans a cluster of technology parks.

The Cayman Enterprise City (“CEC”), a grouping of separate technology parks planned by the Cayman Islands, is be-ing billed as a “Strategic Gateway to the Americas” for knowledge-based industry. The country hopes that the first-of-its-kind Special Economic Zone will lure Fortune 500 companies through:• a favorable tax system;• work permit exemptions;• currency pegged to the U.S. dollar;• a ten-day streamlined setup;• import duty exemptions; and• intellectual property protection.

The CEC development, to be located in Grand Cayman, will feature innovative and sustainable architecture and will focus on biotech, global commodities and derivatives, internet and technology, media, outsourcing, and international academics. Manufacturing activities, industrial activities, and trade within the Cayman Islands are prohibited in

Page 7: International law Quarterly 2012 Spring Issue

Page 7 Spring 2012 The International Law Quarterly

order to insulate local businesses.

A VAT tax for st. Lucia.St. Lucia is believed to be the last Eastern

Caribbean nation to introduce a value-added tax (“VAT”). St. Lucia’s Governor General believes a new system of taxation will reduce inequity found in the existing tax structure. The tax will apply evenly throughout the supply chain based on the percentage of value added at each stage. When a good or service is imported into the nation, the importer will be responsible for VAT. The expected implementation date is 1 September 2012.

Jamaica considers revamping insolvency law.

For the first time since 2004, Jamaica is pondering a change to the bankruptcy code to improve direct foreign investment in the country as well as investor confidence. According to the Doing Business Project, Jamaica’s 2012 ranking for “resolving its insolvency” dropped from 26 to 28 among 138 economies. The average time it takes to shut down a business is only 1.1 years, as opposed to the average of 3.3 years for Latin America and the Caribbean. The re-covery rate is 34.6 cents on the dollar higher than the average in Latin America and the Caribbean. Though these numbers do not seem to invite a redraft of the bankruptcy law, the existing law has had a stigmatiz-ing effect. Critics say the law needs to be updated with rehabilitation in mind. Dr. Christopher Tufton, the newly appointed head of the Caribbean Policy Research Institute (CaPRI), plans to prioritize an in-depth examination of insolvency laws in the Caribbean.

Central America

By Daniel Cervantes [email protected]

Commercial arbitration in nicaragua on the rise.

In April of this year, the Ni-caraguan Foundation for Eco-nomic and Social Development (FUNIDES) presented its re-

port, “Practice of Commercial Arbitration in Nicaragua,” prepared by consultant Elsy Marenco. The report analyzes the state of commercial arbitration in Nicaragua and finds that the use of arbitration under national rules is on the rise. The report discusses a generally favorable legal framework for arbitration in Nicaragua and identifies chal-lenges such as perceptions of arbitration being costly and time consuming. The re-port also analyzes the approval of arbitral awards and provisional remedies pursuant to the Nicaraguan Code of Civil Procedure. Finally, ways to increase the use and benefits of arbitration in Nicaragua are also proposed.

Costa Rican “March of the Invisibles” seeks civil rights.

In a movement called “Marcha de los Invisibles” (“March of the Invisibles”), several thousand people in San José, Costa Rica, marched the streets in June demand-ing rights for homosexuals, the establish-ment of a secular state, the approval of in vitro fertilization, and immigration rights. Regarding in vitro fertilization, reports indicate that Costa Rica is the only west-ern hemisphere country that prohibits the practice. In September, the Inter-American Court of Human Rights, headquartered in San José, will analyze a complaint alleging human rights violations for the prohibition of in vitro fertilization.

ICsID arbitration panel rules that Canadian miners may proceed with arbitration against el salvador.

Canadian company Pacific Rim and the government of El Salvador have been in a long-fought arbitration battle in which Pacific Rim seeks millions of dollars in damages for violations of the country’s foreign investment laws as a result of the government’s refusal to issue permits that Pacific Rim needed to operate the El Do-rado gold-mining project. In June 2012, a panel of arbitrators under the World Bank’s International Centre for Settlement of In-vestment Disputes (ICSID) denied El Sal-vador’s jurisdictional objections and held that the arbitration would proceed under El Salvadorian Investment Law, not the

Central America Free Trade Agreement (CAFTA).

Panama experiences economic growth in the first quarter.

Panama’s Comptroller General report-ed a 10.6% economic growth in the first quarter from a year earlier, which was reportedly fueled by government spending on infrastructure, such as a $1.5 billion subway line for the capital and the $5.25 billion Panama Canal expansion project.

Moody’s drops Belize’s credit rating, again.

For the second time this year, Moody’s Investors Service has downgraded Be-lize’s credit rating. Moody’s cited “the government’s deteriorating capacity and willingness to service its external debt as well as Moody’s assessment of investor losses in the event of a debt restructur-ing.” Moody’s also stated that “Belize faces weak short-to-medium-term growth prospects, accumulating contingent fiscal liabilities and a questionable outlook for debt sustainability.”

european union

By santiago Cueto [email protected]

Corporate downsizing in France comes under increased legal scrutiny.

Companies looking to re-duce the ranks of their em-ployees in France are facing

increased exposure to litigation in labor courts. While downsizing in France has always been a complex process—requir-ing compliance with mandatory rules set out in the French Labor Code—the new regulatory regime is making it much more difficult for companies in France to restruc-ture their operations.

In several recent decisions, courts have held that dismissed employees can chal-lenge the economic rationale behind any downsizing initiative. If a company fails to present a valid economic motive (based either on financial losses or on an absolute

Page 8: International law Quarterly 2012 Spring Issue

Page 8 Spring 2012The International Law Quarterly

World Roundupneed to remain competitive) for downsiz-ing, dismissals will be reversed. In such a case, employees will be entitled to re-instatement and/or damages, as well as payment of back wages and social secu-rity contributions. Profitable multinational companies will come under the most scru-tiny.

Amendment to Commercial Code clarifies limitation of liability for damages in Czech Republic.

The Czech Commercial Code was recently amended to clarify the law on contractual limitation of damages. Article 386(1), which regulates limitation of li-ability for damages, was modified to clarify and liberalize the scope of its effect. The amended provision enables parties to mod-ify liability in several different ways for damage caused by a breach of contractual obligations. The only express restriction in this provision is that parties cannot limit or exclude liability for damage caused intentionally. Widely viewed as a posi-tive change in Czech commercial law, the amendment brings an end to the provision’s ambiguity and provides more flexibility to contractual relationships.

Mandatory mediation in Italy successfully implemented.

The introduction of mandatory media-tion in Italy has significantly reduced the number of cases ultimately tried in Italian courts. Italy was one of the first EU mem-ber states to implement the EU Mediation Directive (2008/52/EC). The Mediation Law (Legislative Decree 28/2010) requires the mediation of most disputes before a case can be brought in civil court (or as a condition of continuing legal proceedings, if they have already been started). The mandatory provisions caused an upsurge in requests for mediation, totaling more than 90,000 between March 2011 and March 2012.

The response in business circles and from institutions has been very favorable, reflecting the view that mediation is a vital means of minimizing the case load of the Italian court system.

new spanish law permits sale of real estate in bankruptcy before liquidation.

Spain’s Parliament recently enacted a key provision (Act 38/2011) of the In-solvency Act to simplify and speed up bankruptcy proceedings in connection with the disposition of real estate. In the wake of the global financial crisis, many credi-tors were left without recourse due to the rapid decline in real-estate values during the pendency of a bankruptcy proceeding.

The amendment to the Insolvency Act lifts certain barriers to the sale of real es-tate in two ways. First, the new provision relaxes the requirements that prevented receivers from selling real estate without court approval. Second, the amendment permits the sale of property subject to special privileges at a price lower than that agreed when the relevant security was created, provided that it matches the market value. These more relaxed require-ments of the new law are counterbalanced by a waiting period for the submission of competing offers.

German appeal court limits importers’ product-liability exposure.

A recent decision in the Hamm Court of Appeal limits the product-liability exposure of importers or “quasi-manufacturers.” The case involved a German motorcycle dealer-ship that purchased motor scooters from a German wholesale dealer that had imported the scooters from China. The dealership was subsequently held liable for damages sustained by a purchaser. The dealership filed an indemnification action against the importer. The court held that the importer had not violated its duty of care under the German Civil Code.

In holding that importers could not be held responsible for hidden defects, the court stated that, while an importer has a general duty to detect product hazards, such duty will (in the absence of any obvious indications of potential hazards) usually be limited to an external visual inspection of the product.

India

By sumeet H. Chugani [email protected]

India adds Mainland China, hong Kong, and Macao to its official list of new York Convention Countries.

On 19 March 2012, India’s Department of Legal Affairs of the Ministry of Law and Justice declared China, along with its Special Administrative Regions (“SARs”) of Hong Kong and Macao as territories to which the New York Conven-tion applies for purposes of the Arbitration and Conciliation Act of India of 1996. This declaration is vital to China and its SARs, since India only enforces awards made in territories identified in India’s Official Gazette. This addition makes China, and especially Hong Kong, a formidable new situs for international arbitration.

Vodafone takes legal action over tax proposal in India.

Vodafone, one of the largest international investors in India, has initiated legal pro-ceedings against the Indian government over India’s new retroactive tax that could cost the company more than $2 billion. Vo-dafone’s move comes after implementation of India’s new legislation that retroactively taxes overseas transactions involving local assets. Vodafone’s actions are the first step towards international arbitration, which will necessarily involve extensive negotia-tions between India and the Netherlands. The proceedings are projected to take up-wards of two years.

supreme Court upholds constitutionality of Right to education Act.

The Indian Supreme Court has struck down a challenge made by private schools to the Right to Education Act of 2010. Currently operational in nineteen states around India, the Act envisages free and compulsory education for all underprivi-leged children between the ages of six and fourteen. The decision further requires that

Page 9: International law Quarterly 2012 Spring Issue

Page 9 Spring 2012 The International Law Quarterly

one-fourth of admissions in all schools, including private institutions, be reserved solely for economically disadvantaged students.

India’s Insurance Regulatory and Development Authority (IRDA) releases new draft guidelines.

In an effort to strengthen India’s health insurance industry, the IRDA has promul-gated new terms and conditions for health insurance, including outlining age of entry, claim settlement periods and specific rea-sons for claim denial. Pursuant to the new guidelines, companies must provide health insurance for all employees up to sixty-five years old. In an effort to reduce instances of claim repudiation on flimsy grounds, the new guidelines also require written reasons for claim denial by insurance companies.

President approves Finance Bill 2012.

On 28 May 2012, the Finance Bill of 2012 received Presidential assent. With this move, the Finance Bill has been enacted into law, giving the Indian government the go-ahead to garner tax revenues from all indirect trans-fers of shares—including a large sum from the controversial Vodafone tax matter. The Finance Bill includes retrospective changes to the income tax law, which bring into In-dia’s tax net all indirect share transfers. The tax-revenue implication of the Financial Bill is estimated at RS 40,000 crore.

India, Bahrain sign new tax information exchange agreement.

India and Bahrain have signed a tax in-formation exchange agreement (“TIEA”) to bolster economic cooperation between the two nations. Signed during Prince Salman Bin Hamad Al-Khalifa’s most recent visit to India, the agreement seeks to further increase trade—currently valued at more than $1.7 billion a year—between the two nations. In addition to the TIEA, delega-tions from India and Bahrain have entered into numerous memoranda of understand-ing aimed at promoting the nations’ mutual commercial and industrial interests.

India increases iron ore export duties.

A formal order issued by the Indian government will increase export duties of iron ore from 20% to 30%, in an effort to conserve domestic supplies for its own steel industry. The increased tariff level will impact India’s mass exportation of iron ore to China, the commodity’s main purchaser.

Korean Peninsula

By Patrick M. talbot [email protected]

south Korea: Korea-u.s. FTA comes into play.

The Korea-U.S. Free Trade Agreement (“KORUS FTA”), still somewhat controversial in some sectors of Korean soci-

ety, was implemented on 15 March 2012. About 80% of U.S. industrial goods, in-cluding agricultural equipment, auto parts, construction equipment, and consumer goods, can now be imported into Korea duty-free from the U.S.

In contrast to Korea’s longstanding ac-cess to U.S. consumer markets—through such well-known manufacturers as Sam-sung, LG and Hyundai—exposure of Ko-rean markets to U.S. consumer goods is new and a bit controversial. So far, U.S. auto imports into Korea have been sluggish possibly due to various consumer percep-tions. European auto sales, especially from German suppliers, remain strong (Korea entered into an earlier European FTA). Some sectors of Korean society are still politically opposed to the FTA, raising new concerns about “Mad Cow Disease” from imports of American beef. Others are con-cerned about the novelty of investor-state dispute (ISD) resolution clauses. On the other hand, several scholars and Korean suppliers are generally optimistic of the benefits of free trade for Korea’s growth, and Korean controversies with the FTA seem less frequent.

The U.S. also remains generally opti-mistic about the expected benefits of the KORUS FTA for U.S. exporters over the

long term. Such benefits include stronger protection of intellectual property rights and access to Korea’s legal services mar-ket. As of April 2012, at least seven U.S. law firms had applied for licenses to open offices and begin providing foreign legal consultation services.

Significant numbers of smaller Korean companies are evidently not taking ad-vantage of the FTA as much as initially expected, according to surveys. This may be due to difficulties experienced in trying to comply with the Rules of Origin and Certificate of Origin (“COO”) procedures, which are apparently more cumbersome than counterpart rules under the European FTA. Rules of Origin may be particularly problematic for Korean textile exporters, many of whom use raw materials or com-ponents from third countries, such as China. COO issues continue to be an area of con-cern impacting the success of this FTA.

north Korea: Regime change breeds speculation.

After dictator Kim Jung-il died of an ap-parent heart attack in December 2011, his youngest son, Kim Jong-un, took over as leader of the communist country. Specu-lation abounds as to what this means for politics, stability, and commercial enterprise in the region.

Kim Jong-un is young (late 20’s) and was partly educated in Switzerland. These and other factors led some, at least initially, to embrace a more optimistic view of North Korea’s future, anticipating gradual eco-nomic liberalization, improved human rights, increased trade, and even steps to-ward eventual reunification. Political and military events of the past five months do not seem to lend much support to this initial optimism. For example, North Korea con-tinues to make occasional military threats against South Korea. An April 2012 missile launch, however, failed dramatically. In response to the launch, the U.S. withheld significant amounts of food aid. On 4 June 2012, the North, apparently offended by the South’s hard line on politics and “smear-ing” of some of its civic events, retaliated by pointing missiles at several South Ko-rean news agencies and threatening to use

Page 10: International law Quarterly 2012 Spring Issue

Page 10 Spring 2012The International Law Quarterly

World Roundupthem at any time.

In addition, North Korea was recently cautioned by the International Telecommuni-cation Union (ITU) a U.N. organization, for jamming GPS signals in South Korea in April and May, an act that caused hundreds of ships and commercial airplanes to divert courses or rely on back-up navigational equipment. In the meantime, some Chinese companies are reportedly violating UN Resolution 1874 (2009) in support of an arms embargo, by selling banned materials to North Korea for the building of intercontinental ballistic missiles. Change does not seem imminent.

Some analysts believe this military flex-ing may amount to no more than a show of strength to the external world and to Kim Jong-un’s internal military leadership to secure his control. Some also say that Kim Jong-un is smart enough to realize he needs to pursue economic reforms gradually, as most of his country is struggling simply to survive. They suggest he still may seek a course similar to China’s economic lib-eralization but would have to do so very carefully.

Mexico

By a. Renee Pobjecky [email protected]

Mexico and Brazil renegotiate MeRCOsuR economic Complementation Agreement no. 55 (“ACe 55”).

On 19 March 2012, Brazil and Mexico signed the Fourth Additional Protocol to Appendix II of Economic Complementa-tion Agreement No. 55 (“ACE 55”), estab-lishing quotas on Mexico’s exports of auto-motive vehicles to Brazil, beginning on that date and extending through 18 March 2015. Mexico agreed to the temporary limits on vehicle exports in order to assuage Brazil’s concern over their recent trade imbalance. In a related move, Nissan has already an-nounced plans to accelerate investment in a new plant in Rio de Janeiro. Argentina is also putting pressure on Mexico to re-negotiate the conditions agreed to by both

countries for the automotive sector under the same agreement, which regulates tariff-free trade between Mexico and southern cone South American countries. To date, Mexico has openly rejected any talks of renegotiating with Argentina.

Mexico attracts foreign investment away from China.

A recent JP Morgan report reveals that even though China’s manual-labor market is consistently cheaper, there has been a considerable reduction in the salary dif-ference between Mexico and China. As a result, Mexico is attracting greater direct foreign investment in such areas as aero-space, medical supplies, medical services and software. Several Asian auto manu-facturers have announced the creation of assembly plants in Mexico. Other factors that help Mexico’s competitive position include the depreciation of the Mexican peso, the low cost of a qualified labor force, a strategic location and the existence of free-trade agreements.

new trade and tax agreements approved by Mexico.

On 19 January 2012, three decrees were announced by the Mexican Department of Foreign Relations. The first decree, which has been approved by the Mexican Senate, allows for free trade between the United Mexican States and the Republics of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. The second decree, also endorsed by the Mexican Senate, approves the Commercial Integration Agreement between the United Mexican States and Peru. The final decree was entered into with the Republic of Singapore and will prevent double taxation and income tax evasion.

The WTO sides with Mexico in dispute over u.s. dolphin-safe tuna labeling.

The United States will appeal a World Trade Organization decision that ruled U.S. dolphin-safe tuna policies are overly restric-tive. The ruling favors Mexico, which for two decades has argued that its northern neighbor’s policies on importing tuna have shut them out of the U.S. canned tuna mar-

ket. Sales of Mexican tuna in the U.S. have been barred since the policy requiring a “dol-phin safe” label was implemented in 1991.

Middle east

By omar K. ibrahem [email protected]

Dow chemical wins $2.16 billion arbitration award against Kuwaiti state-owned company.

The International Chamber of Commerce (ICC) awarded

Dow over $2 billion in damages against Petrochemical Industries Co. (“PIC”), a Kuwaiti state-owned entity. The dispute arose in 2008 when PIC canceled a planned plastics joint venture with Dow after pres-sure from Kuwaiti parliament members due to the global recession. According to Dow’s attorneys, the arbitration award is one of the largest ever.

Terms of Iraq’s latest energy licensing auction forbid deals with Kurdistan.

The terms of Iraq’s latest energy licens-ing auction includes a clause in the final model contract that permits the Iraqi Oil Ministry to cancel contracts if a successful signatory signs an oil deal with the Kurdis-tan Regional Government without obtain-ing prior approval from the Oil Ministry. The move comes after Iraq barred Exxon Mobil from taking part in the upcoming licensing round after Exxon signed a deal with the Kurdistan Regional Government without approval from the Oil Ministry.

Iraq and Kuwait discussing arbitration to resolve disputes over Port Mubarak construction.

Iraq and Kuwait are deadlocked over the location of Kuwait’s construction of Port Mubarak. Iraq believes the proposed port would block its waterway or strangle shipping lanes from Iraq’s southern ports in Basra, as well as compete with Iraq’s own proposed mega-port of Fao. Iraqi officials recently indicated they were open to Ku-wait’s suggestion of arbitration by neutral

Page 11: International law Quarterly 2012 Spring Issue

Page 11 Spring 2012 The International Law Quarterly

parties if the two countries are unable to resolve the dispute.

Gulf Cooperation Council (“GCC”) okays draft rules on IPOs and securities listings.

The Gulf Cooperation Council (“GCC”) ministerial committee has approved draft rules on initial public offerings (“IPOs”) and unified rules for listing of securities (stocks, bonds, sukuk and mutual fund units) on the GCC markets and has referred them to the Supreme Council for endorse-ment and implementation. GCC officials believe the unified rules are an important step forward in unifying the market policies and regulations in GCC states to achieve integration of GCC financial markets.

Russia and the Confederation of Independent states

By anna V. tumpovskiy [email protected]

ICAC award annulled where arbitration clause provided for resolution of disputes under ICAC rules but did not specify the use of an ICAC tribunal.

On 13 March 2012, the Moscow Circuit Commercial Court affirmed a lower court’s decision to annul an award from the Inter-national Commercial Arbitration Court at the Russian Chamber of Commerce and Industry (the “ICAC”) because the arbitra-tion clause in question provided for resolu-tion of disputes under the ICAC rules but did not specify the use of an ICAC arbitral tribunal. The courts therefore found that an ad hoc arbitral tribunal—rather than an ICAC tribunal—acting under the rules of the ICAC should have been used to resolve the dispute.

The ICC model clause, it should be noted, provides in pertinent part: “All dis-putes . . . shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.” According to the Moscow Circuit Commercial Court’s decision, it ap-

pears such a clause could be interpreted as providing for an ad hoc arbitration under the ICC Rules.

Optional arbitration clauses, such as those used in financing and real estate transactions to assure that a lender secures the best recourse available, are scrutinized in Russia, especially when only one of the parties has a right to opt out of arbitra-tion. According to a recent ruling by the Supreme Arbitrazh Court (Supreme Com-mercial Court in Case No. ВАС-1831/12 of 28 March 2012), however, a clause giving only one of the parties the right to choose a forum is contrary to the fundamental prin-ciples of equal access to justice. The case will now be heard by the full Presidium of the Supreme Arbitrazh Court.

Reciprocity may require the enforcement of foreign court judgments in Russia in the absence of generally applicable law providing for such enforcement.

Pursuant to the Arbitrazh Procedure Code (Commercial Procedure Code), foreign judg-ments may be enforced on the basis of a federal law or an international treaty. There is, however, no generally applicable law providing for enforcement of foreign judg-ments, and there are few international trea-ties (particularly with Western European and North American states) providing for recognition and enforcement of judgments. Recently, the Moscow Circuit Court con-firmed a lower court’s decision to enforce several orders of the English High Court and recognize (without enforcement) the judg-ment of the High Court in the same case (Case No. А40-119397/11-63-950). The court held that several multilateral agreements between EU states and the Russian Federation, as well as the general international law principle of reciprocity, implicitly required enforcement of judgments of EU courts,

Government procurement disputes are arbitrable in Russia.

A German contractor terminated a pro-curement contract that contained a dispute resolution procedure. Claimants, consist-ing of several state agencies, argued in

both the Moscow Arbitrazh Court and the Ninth Appellate Arbitrazh Court that the arbitration clause in the contract was not enforceable and that any disputes arising out of such contracts should have been resolved by state commercial courts under the applicable Russian law on government procurement. In rejecting that argument, the courts found that the purpose of the provi-sion referring government procurement disputes to state commercial courts was to allocate jurisdiction between the Russian state courts (that is, between commercial courts and courts of general jurisdiction). The courts further explained that commer-cial disputes are generally arbitrable, and a specific and clear exclusion is necessary to render a commercial dispute non-arbitrable.

ICsID rules that the Turkey-Turkmenistan BIT required submission of investors’ claims against Turkmenistan to the national courts before the initiation of international arbitration proceedings.

On 25 May 2012, ICSID released a deci-sion in Kilic Insaat Ithalat Ihracat Sanayi ve Ticaret Anonim Sirketi v. Turkmenistan (ICSID Case No. ARB/10/1) finding that the Turkey-Turkmenistan BIT required submission of the dispute in question to the national courts before the initiation of international arbitration proceedings. The tribunal specifically noted, however, that it has yet to decide on the effect of non-compliance with this condition.

south America: Brazil

By Quinn smith [email protected]

new Code of Civil Procedure appears imminent.

After passage in the Bra-zilian Senate, a new Code of Civil Procedure (“CPC”) ap-

pears to be on the verge of replacing the prior version approved in 1973. The Brazil-ian House of Representatives is consider-ing several amendments, but the general

Page 12: International law Quarterly 2012 Spring Issue

Page 12 Spring 2012The International Law Quarterly

World Roundupconsensus is the new CPC will pass and go to the President for signature. The new CPC will likely maintain the status quo regarding the enforcement of arbitration awards, but there are some potentially big changes regarding appeals. Currently, there is a strong push to restrict the stay of proceedings that normally comes after an appeal from the first instance court. Such a change could significantly alter parties’ strategies and shorten the litigation process.

Brazilian Government continues to increase reporting requirements on offshore assets.

The National Monetary Council recently announced new reporting requirements for Brazilian individuals and companies with offshore assets. When applicable, Brazilians must annually report assets in excess of $100,000 and quarterly report assets over $100,000,000. The term “as-sets” is interpreted broadly. The Council’s move continues a recent trend of exercising greater control over offshore assets. In the past, many Brazilians sent assets overseas without any declaration and while these assets have increased, payment of taxes on these assets has not.

south America:northern Cone

By Daniel E. Vielleville [email protected]

Constitutional reform in furtherance of the peace process in Columbia.

Last June, the Colombian Congress approved a consti-tutional reform geared towards

establishing a proper legal framework with which to open negotiations with the ir-regular armed groups still operating in that country. The reform would create two new—albeit temporary—constitutional norms: Articles 66 and 67. Primary features of this reform are: (1) the potential adop-tion of transitory legal instruments aimed towards ending the domestic armed conflict in Colombia; (2) the safeguarding of vic-tims’ rights to truth, justice and reparation;

(3) the requirement that special consider-ations extended by law to armed forces and governmental agents be adopted within the framework of a peace agreement and subject to the armed groups’ demobiliza-tion; (4) the establishment by law of a Truth Commission; (5) the adoption of guidelines for the investigation and prosecution of human rights violations, genocide and war crimes, including the possibility of waiving criminal prosecution or adopting alternative sanctions subject to fulfillment of certain conditions; (6) the exclusion of groups—outside Colombia’s internal conflicts or members of these conflicts who continue to commit crimes—from receiving the benefits of the transitory justice regime; and (7) the exclusion from future political activities those participat-ing in gross human-rights violations or genocide. The proposed reform must still go through further review by Colombia’s Constitutional Court to become official.

Collective actions and injunctions in Venezuela.

On 7 June 2012, the Constitutional Chamber of the Supreme Tribunal of Ven-ezuela (“TSJ”) declared itself competent to entertain a lawsuit filed by Venezuela’s Public Defender on behalf of all victims who received breast implants manufactured by the French company Poly Implant Pro-thèse (“PIP”). In 2010, this manufacturer was ordered by the French health authori-ties to withdraw its implants as conse-quence of numerous complaints by custom-ers regarding ruptures or breaks. Under its own statute, the TSJ has jurisdiction over actions seeking remedies in connection with collective rights when the alleged facts concern a matter of national impor-tance. The Public Defender has exclusive standing to prosecute these collective ac-tions, as occurred here. More importantly, the Public Defender sought an injunction against the distributors, health centers and physician involved in the surgeries using the PIP implants. The TSJ considered re-ports issued by French and Spanish health authorities concerning the risks associ-ated with not removing already-fractured implants from patients and, in light of the

imminent risk to the patients, it ordered the distributors, health centers and physician who participated in the mammoplasties to replace the implants as soon as possible and at their own cost, pending the final outcome of the case.

Venezuela’s controversial new labor statute.

Last April, President Hugo Chavez de-creed a new Labor Law. The new regime contains several controversial reforms among its many changes, including its application to workers hired in Venezuela to provide services abroad. Further, the re-gime applicable to contractors is modified so that these persons are given the benefits applicable to regular employees if more fa-vorable. The new law also prohibits the use of third parties or contractual arrangements to avoid complying with the labor regime, including the use of subcontractors, inter-mediaries or work entities. Additionally, the new legislation increases the compensa-tion payable for termination of employment for causes not attributable to the employee and provides for substantial and enhanced benefits to employees in special situations like pregnancy, adoption, sick leave, etc. Finally, the new law opens the possibility of piercing the corporate veil to protect employees.

south America:southern Cone

By Julio Barbosa [email protected]

Argentina nationalizes YPF, the country’s largest oil company.

On 16 April 2012, Argentine President Cristina Fernandez de Kirchner took control of

YPF Sociedad Anonima, the country’s largest oil company, seizing 51% of the shares from Repsol, Spain’s largest com-pany. The Argentine government accused Repsol of underinvesting in the company since it took it over in 1999. The seizure prompted criticism from Spain, the Eu-ropean Union, the United States and even

Page 13: International law Quarterly 2012 Spring Issue

Page 13 Spring 2012 The International Law Quarterly

some Latin American leaders. Despite the Spanish government’s threats of retaliation, the Argentine Congress swiftly approved the government bill to nationalize YPF, and on 4 May 2012, President Kirchner enacted the so-called “YPF Nationalization and Oil and Gas Self-sufficiency Law,” for-mally expropriating Repsol’s YPF’s stock. The expropriation reduced Repsol’s stake from 57.43% to 6.43%, and the Argentine government divided the expropriated 51% between the national government and the country’s provincial governments.

On 15 May 2012, The Washington Post reported that Repsol sent a letter to Argen-tine President Cristina Kirchner notifying her that the controversy should be resolved by the World Bank’s International Cen-ter for Settlement of Investment Disputes (“ICSID”). “Repsol said the notification represented the formal start of legal ac-tion to have the nationalization declared illegal and Argentina obliged to reverse the decision and, or, compensate for it.” Repsol has said its 57% stake is worth $10.5 billion, according to the valuation criteria in Argentine takeover law. On the other hand, Argentine’s Deputy Economy Minister Axel Kicillof said that the country will make its own assessment of the value of YPF after analyzing the company’s “se-cret information.” According to the ICSID rules, the sides have six months to negotiate a solution before petitioning for arbitration.

As a result of the nationalization, Spain has decreased its multimillion-dollar im-ports of Argentine bio-diesel, and Standard and Poor’s has downgraded Repsol’s credit rating to BBB-.

Chile: record foreign investments in 2011.

According to data published by The Econ-omist, foreign direct investment projects authorized by the Chilean government hit a new record of $13.8 billion in 2012 (around 6% of estimated GDP—4% above the 2010 figure). Most of the investments are in min-

ing ventures, which reached $9.7 billion or 70.1% of the total. The largest investor is Barrick, a Canadian company that received approval for a $4 billion participation in the Cerro Casale gold and copper mining proj-ect and $800 million to develop the Zaldívar copper mine. Other Canadian and Japanese companies also obtained approval for their investments in mining ventures.

The Chilean services sector accounted for 16.7% of the authorized foreign invest-ments in 2011, and companies from Spain and Switzerland have projects to invest in banking and insurance services. “Utilities (electricity, gas and water) accounted for 5.9% of authorized investments, transport and communications 3.3%, industry 2.8% and other sectors 1.2%.” According to the newspaper, the Chilean government is now focusing on attracting foreign investment from Asia—particularly from China which, along with Hong Kong, accounted for less than 1% ($1.2 billion) of the total stock of foreign direct investment in 2011.

united states

By Peter a. Quinter [email protected]

u.s.-Colombia Trade Promotion Agreement takes effect.

The U.S.-Colombia Trade P r o m o t i o n A g r e e m e n t (“CTPA”) went into effect on

15 May 2012. Similar to the North Ameri-can Free Trade Agreement (“NAFTA”) and the U.S.-Dominican Republic and Central American Free Trade Agreement (“DR-CAFTA”), this agreement provides for immediate free trade benefits by eliminat-ing customs tariffs for most merchandise trading between the United States and Colombia. Major product categories ex-ported from Colombia to the United States, especially Florida, include coffee, cut flow-ers, bananas, and crude oil. Of course, the

imported merchandise must “originate” in one country to be imported duty free into the other country. The origination rules must be followed carefully, and the U.S. or Colombian importer must obtain a Certificate of Origin from the foreign manufacturer or exporter and then declare the merchandise subject to the CTPA to obtain the duty free benefits. Florida is one of the top trading destinations for Colombia with multiple daily flights by Avianca, American Airlines, Jetblue, and Spirit Airlines. Ocean cargo is much more significant, with numerous carriers calling at PortMiami, JAXPORT, Port Everglades, and Port of Tampa.

u.s. Government seizing bank accounts of u.s. exporters in Florida.

WARNING! Dozens of bank accounts in Florida, mostly in Miami, have been seized in 2012 by the Drug Enforcement Administration (“DEA”) or the Depart-ment of Homeland Security Investigation (“HSI”) from exporters of merchandise to Latin America. The problem is not with the U.S. seller or even the foreign buyer, but with the method of payment for the merchandise. DEA and HSI monitor what they describe as the black-market peso exchange. Payments from these casas de cambios for exported merchandise to Latin America make the payment suspicious because the DEA and HSI believe these “money exchange houses,” where there is a better-than-the-official monetary exchange rate for U.S. dollars, also are used by the drug traffickers. Hence, any money from these casas de cambios is mixed with drug money, and any payments to U.S. export-ers would be considered laundered money subject to seizure for violation of 21 USC § 981 and 18 USC § 1956. Fortunately, there is an administrative process for return of the money and an asset-forfeiture judicial process in the courts, as well.

Visit the Florida Bar website at: www.floridabar.org

Page 14: International law Quarterly 2012 Spring Issue

Page 14 Spring 2012The International Law Quarterly

We are pleased to announce

Peter Quinter & Melissa Groisman steinfeldhave joined the firm.

Peter will lead the newly formedCustoms & International Trade Law Group

and Melissa has joined as an associate in that group.

PRACTICING IN THE AREAS OF U.S. Customs Law, FDA Law, International Trade, Import Regulations and Export Compliance.

PeTeR QuInTeR MeLIssA GROIsMAn sTeInFeLD Florida Bar Board Certified in International Law

E-MAIL: [email protected] E-MAIL: [email protected] DIRECT: 305-416-6960 DIRECT: 305-913-6772 CELL: 954-270-1864 CELL: 305-527-3971 SKYPE: Peter.Quinter1 SKYPE: Melgrois vCard vCard

Miami Office Fort Lauderdale Office 1221 Brickell Avenue, Suite 1600 401 East Las Olas Boulevard, Suite 1850 Miami, FL 33131 Fort Lauderdale, FL 33301 BLOG: GRCUSTOMSLAW.COM

The Customs and International Trade Law Group assists individuals and companies located in the United States and around the world with understanding and complying with the complex Federal regulations affecting international trade. Our practice focuses on U.S. Customs law, FDA law, Homeland Security, import regulations and export compliance.

We are aggressive advocates, strategists, and partners with our clients, which include domestic and foreign manufacturers, importers, exporters, trading companies, customs brokers, and freight forwarders. We work all over the country, assisting our clients with investigations, audits, detentions, seizures, and penalties by U.S. Government agencies, especially by:

• U.S.Customs&BorderProtection(CBP) • AlcoholandTobaccoTaxandTradeBureau(TTB) • U.S.Food&DrugAdministration(FDA) • U.S.DepartmentofHomelandSecurity(DHS) • U.S.ImmigrationandCustomsEnforcement(ICE) • BureauofIndustryandSecurity(BIS) • OfficeofForeignAssetsControl(OFAC) • DirectorateofDefenseTradeControls(DDTC) • TransportationSecurityAdministration(TSA)

Because this area of the law is unique and heavily regulated, we use a broad range of lawyers and other professionals to represent you. Our commitment to this area of law is demonstrated by the fact that Peter Quinter, the head of our Customs and International Trade Law Group, currently serves as the Chair of the Florida Bar Customs Committee, the Vice-Chair of the American Bar Association’s Customs Law Committee, and the Chair of the American Bar Association’s International Transportation Committee.

About GrayRobinson, P.AFounded in 1970, GrayRobinson is a full-service law firm providing legal assistance across the state of Florida. With more than 260 attorneys and 10 offices from Tallahassee to Key West, GrayRobinson proudly provides legal assistance for Fortune 500 companies, emerging businesses, lending institutions, local and state governments, developers, entrepreneurs and individuals. Throughout the years, GrayRobinson has continued to stay ahead of the curve with a firm commitment to creativity and innovation.

For more information, visit www.gray-robinson.com.

Page 15: International law Quarterly 2012 Spring Issue

Page 15 Spring 2012 The International Law Quarterly

The Role of the International Arbitrator from a Civil Law Perspective

By Karl Pörnbacher and Dr. inken Knief, Munich, Germany

IntroductionA substantial amount of legal writing ex-

ists on the disparities between the civil law system and the common law system in the conduct and management of international arbitration proceedings. This article does not seek to evaluate which constitutes the better approach to dispute resolution. Both the common law and the civil law systems have their strengths and weaknesses. The reality is that both systems are, in principle, equipped to produce a fair and efficient resolution of a dispute, fully complying with dictates of due process.

This article outlines the role of the international arbitrator from a civil law perspective, particularly a continental European—notably German, Swiss or Austrian—perspective. For potential par-ticipants in an international arbitration, it is important to be aware of this perspective, as it may serve as a point of consideration in the constituting of the arbitral tribunal, the choice of the seat of arbitration and the formulation of the parties’ expectations regarding the conduct and management of the proceedings. As we will set out below, civil law systems contain a number of useful procedural tools that have proven to improve the time and cost efficiency of judicial proceedings significantly and are thus apt to counter the widely criticized de-velopment of international arbitration into some kind of costly and time consuming “offshore litigation.”1 Parties to an inter-national arbitration have the opportunity to profit from those techniques, thereby combining the best of both worlds. In the following pages, we will first examine what is called the “common law – civil law divide”2 and give a brief overview of the underlying civil law and common law concepts. In a second step, we will analyze the basis and extent of the international ar-bitrator’s broad procedural discretion with regard to the conduct and management of arbitral proceedings. We will then, third, address the arbitrator’s exercise of his or

her procedural discretion and outline some of the most important civil law procedural tools serving considerations of time and cost efficiency.

The Common Law – Civil Law Divide

The purported “common law – civil law divide”3 found in writings on international arbitration is also associated with the dif-ference between the adversarial system and the inquisitorial system. While from a civil law perspective, the common law judge’s or arbitrator’s role has been characterized as that of a “benevolent bystander, until the time of the award,”4 common law practitio-ners have described the civil law judge as “constantly descending to the level of the litigants as an examiner, patient or hector-ing, as counsellor and advisor, as insistent promoter of settlements.”5

Although the distinction between com-mon law and civil law is important for ana-lytical reasons, more recent legal writing has, however, rightly emphasized that the sharp divide depicted in earlier publica-tions does not exist.6 Indeed, it is difficult to make out a uniform civil law or common law system. By way of example, it would be incorrect to state that there is one civil law system throughout continental Europe. Each state on the European continent has its own legal system, and the differences between them in terms of substance and procedure are far reaching.7 While the same

in name, common law systems of different countries are all but uniform.8

Further, the terms “civil law system – inquisitorial system” and “common law system – adversarial system” do not do justice to the individual legal system. For example, the German legal system, con-sidered as representative of civil law sys-tems, cannot, upon closer look, be qualified as an inquisitorial system. German civil procedure is fundamentally based on the so-called Beibringungsgrundsatz, leaving it solely to the parties to present the facts supporting their claims.9 In civil proceed-ings, the judge’s power to investigate the facts ex officio is very limited—essentially reduced to the right to ask clarifying ques-tions and to indicate if the court finds that certain issues have not been sufficiently substantiated. Those principles come close to the those of an adversarial system.10

Notwithstanding the difficulties in dis-tinguishing one common law and one civil law system, there are important conceptual differences between the systems, specifi-cally with regard to the role and function of the judge. As these differences reflect also on the role of the arbitrator, parties should be aware of those differences as they might have important consequences for the whole of the arbitral process—from the composi-tion of the arbitral tribunal to the further conduct of the proceedings, notably the taking of evidence.

The judge’s role in civil law systems

Broadly speaking, in the civil law world, specifically from the perspective of Ger-man, Austrian or Swiss law, judges take a more proactive role than in common law systems. The judge generally plays the central role in the management and the conduct of the proceedings. While in a civil law process, it is upon the parties to sub-stantiate their case and proffer evidence for the facts they deem relevant, it is the judge who steers the taking of evidence. He or she will carefully review the case prior to the

Page 16: International law Quarterly 2012 Spring Issue

Page 16 Spring 2012The International Law Quarterly

RoLE oF intERnationaL aRBitRatoR from previous page

hearing in order to determine which facts are relevant to the outcome to the dispute and should therefore be subject to the tak-ing of evidence. By way of a procedural order, the judge will then identify those relevant points and call the witnesses (pre-viously adduced by the parties). If the judge determines that expert advice is needed, he or she may initiate the appointment of an expert. The judge also examines the wit-nesses before granting the parties the right to ask further questions. Attorney question-ing is then often brief.

Importantly, under the civil law tradi-tion, in accordance with this proactive role, the judge may also encourage an amicable settlement of the dispute. Some jurisdictions—for example, the German legal system—even provide that it is the judge’s obligation to do so. To that end, Section 278(1) of the German Civil Code of Procedure states that “[t]he court shall encourage an amicable settlement of the dispute or of parties of the dispute in each stage of the proceedings.” Section 278(2) provides that, generally, “[f]or the purposes of arriving at an amicable resolution of the legal dispute, the hearing shall be preceded by a conciliation hearing.”

The judge’s role in common law systems

In the common law tradition, the judge’s role and function is fundamentally dif-ferent. The adversarial system as known under common law is characterized by the principle of judicial unpreparedness (“The judge who opens his mouth closes his mind,”11 and “The judge should not descend into the arena … to have his vision clouded by the dust of conflict.”12). The role of the judge is thus reduced to monitoring the parties’ arguments and witness exami-nations and ensuring compliance with the applicable procedural rules, notably with the principles of a fair trial.13

Thus, the taking of evidence is entirely with the parties. Every party is respon-sible for its witnesses, the disclosure of evidence, knowledge of relevant law, and expert testimony. The judge’s power to ex-clude witness evidence, put questions to the

witnesses, prescribe the order of witnesses, or give directions regarding which pieces of evidence should be submitted, is very limited.14 Thus, counsel for the parties play the most important role in the oral hearing.

Under common law systems, the pro-motion of settlement is traditionally con-sidered incompatible with the role of the judge because it is seen to comprise im-partiality. Settlement proposals may even constitute a ground for a challenge. Further, common law authorities fear that that the parties might disclose information during settlement negotiations that they otherwise might not have revealed.15

The International Arbitrator’s Procedural Discretion in the Conduct of the Arbitral Proceedings

The position of the international arbitra-tor is again a fundamentally different one. While the role of the national judge is predetermined by the applicable national law—the lex fori—the international arbi-trator is no state organ and therefore not bound to a lex fori prescribing his or her role in or conduct of the proceedings.16 Analysing the role of the international arbitrator must therefore be performed by other terms of reference.

Specifically, the international arbitrator’s role in the arbitral process must be viewed against the nature of the arbitral process and the parties’ underlying agreement to arbitrate. Indeed, it is a fundamental fea-ture of arbitration that, in the absence of the parties’ agreement on such matters, the arbitrator enjoys broad discretion to deter-mine the arbitral procedure. Even where such authority is not expressly recognized, it is internationally accepted as an implicit part of the parties’ agreement to arbitrate and as an indispensable precondition for an effective arbitral process.17

The international arbitrator’s procedural discretion under international arbitration conventions and national arbitration statutes

The arbitrator’s broad procedural dis-

cretion is regarded as one of the major virtues of international arbitration because it ensures a degree of cultural neutrality that a local court, bound to the lex fori, would never be able to offer.18 Further, it is this broad procedural discretion that enables the arbitral tribunal to tailor the proceedings to the particular needs of the specific case and the parties’ cultural expectations.19 The only practical limitation on this power is respect for due process; namely, the parties’ right to be heard, the right to present their cases, and the right to equal treatment.20

International arbitration conventions confirm the arbitral tribunal’s wide author-ity to determine the arbitral procedure in the absence of party agreement. By way of example, Article IV (4)(d) of the European Convention on International Commercial Arbitration explicitly provides that in the absence of such agreement, the tribunal “may establish directly or by reference to the rules and statutes of a permanent arbitral institution the rules of procedures to be followed by the arbitrators.” The New York Convention implicitly acknowledges the tribunal’s procedural powers in Ar-ticles V(1)(b) and (d).21 Article III of the Convention, however, expressly requires giving effect to the parties’ agreement to arbitrate, which also includes the parties’ authorization to the arbitrators to conduct the arbitration in the manner they deem appropriate.22

Consistent with international conven-tions, Article 19 of the UNCITRAL Model Law provides for the arbitral tribunal’s broad procedural discretion in the conduct of the proceedings:

(1) Subject to the provisions of this law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings. (2) Failing such agreement, the Arbitral Tribunal may, subject to the provisions of this law, conduct the arbitration in such a manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence.

The vast majority of arbitration statutes have followed the Model Law, expressly

Page 17: International law Quarterly 2012 Spring Issue

Page 17 Spring 2012 The International Law Quarterly

providing for the broad procedural discre-tion of the arbitral tribunal.23

The English Arbitration Act 1996 ex-plicitly paves the way for the arbitrator to adopt an inquisitorial, rather than an adversarial, approach in the conduct of the proceedings. Pursuant to the Act, the arbi-trator has the mandatory duty to “act fairly and impartially as between the parties” as well as “to adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.” Further, the Arbitration Act provides that the arbitrator is to decide “whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law.”24

The arbitrator’s autonomy under institutional arbitration rules

Institutional arbitration rules contain similar provisions providing for broad pro-cedural discretion of the arbitral tribunal.

According to Article 25(1) of the ICC Rules 2012, restating the former Article 20(1) of the ICC Rules 1998, “[t]he arbi-tral tribunal shall proceed within as short a time as possible to establish the facts of the case by all appropriate means.” The wording of Article 25(1) of the ICC Rules was deliberately chosen by the drafters to avoid imposing the procedural practices of any particular legal system on the partici-pants in ICC arbitrations.25 The matters to be settled “by all appropriate means” are such questions as the nature and sequence of the parties’ further written submissions, the rules that should govern the production of evidence, including its materiality and weight, and the calling and examination of witnesses.26

Other institutional rules—with civil law and with common law backgrounds—con-tain provisions to the same effect, affording the arbitral tribunal the freedom to proceed by all appropriate means.27 By way of ex-ample, Article 16 of the AAA International Arbitration Rules provides that “[s]ubject to these Rules, the tribunal may conduct the arbitration in whatever manner it considers appropriate, provided that the parties are

treated with equality and that each party has the right to be heard and is given a fair opportunity to present its case.”

The IBA Rules on the Taking of Evi-dence in International Arbitration 2010 (“IBA Rules”), containing procedural guidelines for international arbitrations, in its Preamble expressly provides that the rules are not intended to limit the flex-ibility inherent in the arbitral process. As has been confirmed in the commentary to the IBA Rules:

The Working Party recognised that there is not a single best way to conduct all international arbitrations, and that the flexibility inherent in international arbitration procedures is an advantage. Therefore, the Working Party felt that it was important to note specifically, in para. 2 of the Preamble, that the IBA Rules of Evidence are not intended to limit this flexibility. Indeed, as noted in that paragraph, the IBA Rules of Evidence should be used by parties and arbitral tribunals in the manner that best suits them.28

The exercise of the Arbitrator’s Discretion

While the international arbitrator’s wide discretion in the conduct of the arbitral process is considered one of the major ad-vantages of international arbitration, it also entails a certain risk. Notably, international authorities have criticized international ar-bitration as some kind of “U.S.-American offshore litigation” with avalanches of submissions, as well as time delays and exorbitant costs:29

[T]here is a tendency towards convergence on the adversarial system of the common law. The parties are given much more leeway than would be granted by a civil law judge to make submissions and to adduce evidence. It is not uncommon that parties are invited to submit three rounds of briefs without the arbitral tribunal giving any direction as to which aspects of the case it considers relevant and on what particular issues the parties should elaborate.30

This criticism goes to the heart of in-ternational arbitration, as time and cost

efficiency is one of its major virtues and indeed one of the reasons for the parties’ decision to submit the dispute to arbitration in the first place. International authorities and arbitral institutions have therefore un-dertaken considerable efforts to improve the cost efficiency of arbitral proceed-ings. As we will see below, the civil law techniques serving the same purpose are a useful source of instruction.

Time and cost efficiency as key considerations for management of the arbitral process

In response to growing criticism in re-cent years, most arbitral institutions, both with a common law and a civil law back-ground, have given priority to developing techniques to ensure the time and cost efficiency of international arbitration. The ICC Commission’s Report on “Techniques for Controlling Time and Costs in Arbitra-tion” is one example of such efforts. Other institutions, such as the Centre for Efficient Dispute Resolution, have initiated similar projects.31

As a result of such efforts, arbitral insti-tutions emphasize the necessity of proac-tive management and conduct of the pro-ceedings, which is seen as key to reducing time and cost inefficiency.32 Against that background, the new Article 24(1) of the ICC Rules makes it compulsory for the tribunal to convene a case-management conference at an early stage to clarify the issues in dispute and identify appropriate procedures.33 Even before their revision, the ICC rules were known to provide a more active role for an arbitral tribunal in managing and conducting the proceedings than might be customary in common law jurisdictions.34

But even institutional rules with a com-mon law background acknowledge the benefits of a proactive approach to the con-duct of arbitration, specifically with regard to the taking of evidence. For example, Article 16(3) of the AAA International Arbitration Rules expressly authorizes the arbitral tribunal to direct the order of proof and to exclude evidence.35 The IBA Rules, explicitly promoting an “efficient and economical [conduct of the] taking of

RoLE oF intERnationaL aRBitRatoR from previous page

Page 18: International law Quarterly 2012 Spring Issue

Page 18 Spring 2012The International Law Quarterly

in achieving the overall objective of effi-cient conduct of the proceedings and may equally serve the parties as a point of con-sideration when choosing the arbitrators or when formulating procedural expectations in the arbitral process. Each of the follow-ing elements can be, and are customarily, combined with common law elements, such as the taking of evidence on the basis of written witness statements, subject to cross-examination.

How far an arbitrator will apply such techniques will depend on personal style, experience, time management, the com-plexity of the case and other factors. The following considerations explore the set of tools a civil law arbitrator may want to employ where appropriate and where borne by the parties’ consensus.

Tight case management

As we have seen, the role of the arbitrator from a civil law perspective is a proactive one. The arbitrator actively steers the arbi-tral process, thereby avoiding wasteful and costly battles over each and every aspect

evidence” in its preamble, take a particu-larly progressive approach, encouraging the arbitral tribunal “to identify to the Parties, as soon as it considers it to be ap-propriate, any issues: (a) that the Arbitral Tribunal may regard as relevant to the case and material to its outcome; and/or (b) for which a preliminary determination may be appropriate.”36

Civil law tools used for an efficient management of the arbitral proceedings

As we have seen, the civil law of pro-cedure—here from a German, Austrian and Swiss perspective—generally favors a more proactive approach than common law procedure to the conduct and management of judicial proceedings, such approach notably serving considerations of cost and time efficiency. To that end, the civil law of procedure offers a number of procedural tools proven to save time and costs without compromising justice. Some of those civil law procedural tools are discussed below. These tools may serve arbitral tribunals

of the case, even if irrelevant to the reso-lution of the dispute. In order to achieve this objective, and due to an increased emphasis on written proceedings, an expe-rienced civil law arbitrator will familiarize himself or herself with the details of the parties’ submissions from the outset of the proceedings.

For complex cases, the arbitrator will ideally schedule an early case-management conference, dedicated to identifying, to-gether with the parties, the pertinent issues of the case and crafting, again jointly with the parties, a procedural timetable serving the specifics of the individual case. In less complex cases, civil law arbitrators may intervene after a first round of submissions, either issuing written directions or, alterna-tively, scheduling a first hearing (following the model of a “Früher Erster Termin” un-der German law, or a “Referentenaudienz” under Swiss law). Such hearing would nor-mally be dedicated to identifying the rel-evant issues of the case, both factually and legally, and determining further procedural steps. Those further steps may consist of

RoLE oF intERnationaL aRBitRatoR from previous page

Aballí Milne Kalil, P.A. is a Miami legal boutique, now in its nineteenth year, which focuses its practice on international commercial litigation, international business transactions, tax and estate planning, and domestic real estate transactions. The firm’s attorneys are fluent in a number of languages including English, Spanish, Portuguese and French, and have connections with a strong network of capable lawyers across the United States, Europe, Latin America and the Far East.

www.aballi.com

Page 19: International law Quarterly 2012 Spring Issue

Page 19 Spring 2012 The International Law Quarterly

RoLE oF intERnationaL aRBitRatoR from previous page

another round of submissions. Depending on the individual case, however, the arbi-trator may also order a segmentation of the proceedings; e.g., a first phase dedicated to the critical legal issues and a second phase dedicated to witness and expert evidence.

The preparation for such early hearings may indeed be burdensome for the parties (and the arbitrators). Overall, however, ear-ly deliberations have proven to save time and costs, as later unnecessary exercises are avoided. In general, one can expect tight case management from a civil law arbitra-tor involving, where appropriate, proce-dural directing that points the parties early in the proceedings to the relevant matters. As previously noted, the extent to which the arbitrator intervenes in the proceedings will, of course, be determined by a variety of factors, such as personality, experience, complexity of the case, etc.

The relevance method – Die Relationstechnik

One of the main tasks of the civil law arbitrator, as stated above, is to determine the relevant issues to be resolved. The determination of those issues is important for two reasons. First, as previously noted, an experienced arbitral tribunal taking a civil-law-oriented approach will, where appropriate, provide early guidance to counsel regarding the relevant legal and factual issues of the case. Second, from a civil law angle, only those facts that are pertinent for deciding the dispute need to be established.37 Irrelevant facts should not be subject to the taking of evidence.

The most important tool in determin-ing which facts are relevant to the case at hand is the so-called relevance method (“Relationstechnik”)—a common tech-nique applied by German, Swiss and Aus-trian judges alike.38 The relevance method is, however, neither a new technique nor a technique reserved to the civil law world. Recent writing has proposed a return to the basics of dispute resolution, called the “Town Elder Model,” starting with the fundamental question of whether a certain issue is relevant for the resolution of the dispute.39 This model closely resembles the

civil law relevance method. The relevance method, in a first step,

assumes for analytical purposes the truth of claimant’s factual submissions and ana-lyzes whether those, in combination with the undisputed facts, provide sufficient grounds for claimant’s case (“Schlüssig-keit”). After completion of this first step, the arbitral tribunal can identify the perti-nent legal requirements and whether claim-ant has met those. Then, in a second step, the judge assumes the truth of respondent’s factual allegations and assesses whether those facts, again in combination with the undisputed facts, rebut any or all of claim-ant’s claims (“Erheblichkeit”). From this step, the judge (or arbitrator) can derive those facts that are relevant to the resolu-tion of the dispute; i.e., those that can affect the outcome of the case.

The relevance method helps the arbitral tribunal determine the truly critical legal issues and facts and thereby expedite the proceedings.40 German arbitrators observe that “experience indicates that a proper implementation of the Relevance method will in many cases result in a one-day hear-ing (and sometimes even less).”41 Dealing with a civil law arbitral tribunal, one can assume that the arbitrators will, by their legal education, tacitly apply the relevance method during all phases of the proceed-ings, notably in the preparation of proce-dural and evidentiary orders.

Efficient taking of evidence by the relevance test

Under a civil law system counsel will nominate witnesses and experts in order to support their allegations and meet their burden of proof, but it is upon the judge to decide which witnesses will be heard and which other evidence is to be considered. In state court proceedings, such decision is made according to a strict relevance stan-dard. Only such witness or expert evidence that is (1) disputed by the other side, and (2) of relevance for deciding the dispute (to be determined by application of the relevance method) will be admitted and subject to the taking of evidence.

In international arbitrations, even civil-

law-oriented tribunals will be more re-luctant to reject evidence offered by the parties. In order to avoid a challenge, some tribunals will find it easier to simply admit whatever evidence is proffered. Where supported by the parties, however, a careful admission of evidence that is relevant to the outcome of the dispute constitutes a useful tool in the conduct of arbitration proceed-ings, limiting the taking of evidence to the crucial issues of the case. Of course, arbi-trators are to find the right balance between rejecting adduced evidence and the right to be heard. Experience shows that civil law tribunals are willing and able to make such decisions, thereby providing substantial time and cost savings to the parties.

The use of procedural orders

The main tool of the proactive arbitra-tor is the procedural order. Indeed, parties dealing with a civil law tribunal will likely be confronted with more procedural orders than they would be in more common-law-oriented arbitrations. Under the tribunal’s broad procedural discretion, such proce-dural orders may focus on any procedural or substantive law question.

The procedural order containing direc-tions and instructions with regard to the critical legal or factual questions of the case (“Hinweisbeschluss”) is one useful tool for making the proceedings more efficient. Such order might list which factual or legal questions have not yet been sufficiently ad-dressed by the parties. The order might also contain a preliminary assessment on certain legal issues, particularly where those work as determiners for further proceedings.

Another useful tool is an evidentiary order (“Beweisbeschluss”). As we have seen above, one of the features of civil-law-oriented arbitrations is that it is the arbitrator who may, in the absence of the parties’ agreement on such matters, steer the taking of evidence—calling witnesses (previously offered by the parties), indi-cating where expert evidence would be needed, determining the order of witnesses, or rejecting certain evidence irrelevant to the resolution of the case. Frequently, an evidentiary order will be issued in prepara-

Page 20: International law Quarterly 2012 Spring Issue

Page 20 Spring 2012The International Law Quarterly

RoLE oF intERnationaL aRBitRatoR from previous page

tion of an evidentiary hearing, detailing the factual issues to be proven and specifying which previously submitted pieces of evi-dence will be taken to determine whether those facts are true.

In so far as procedural orders contain a first assessment of certain questions, the ar-bitrator should seek to ensure that this pre-liminary assessment does not compromise the arbitrator’s duty to remain impartial. The arbitrator must therefore constantly reassess his or her view in the course of the arbitration. Under this precondition, there are no concerns with regard to a preliminary assessment by the tribunal, as even explicitly provided for in Article 2(3) of the IBA Rules. To the contrary, such preliminary assessments may not only help to structure the legal issues in the course of the arbitration but may also contribute to a transparent decision-making process. This, in turn, may increase the parties’ ac-ceptance of the award.42

Limited disclosure

Another area of disparity between com-

mon law and civil law procedures is the extent of disclosure in international arbitra-tion. Common law systems usually impose an obligation on the parties to grant to the other side wide-ranging access to relevant documents. Under U.S. laws, such rele-vance is broadly defined as any information that may affect the outcome of the claim, including information and evidence that is disadvantageous to the disclosing party’s own claim.43

By contrast, civil law jurisdictions know only very limited obligations to disclose relevant information to the other side. This is generally based on the concept that each party produces the documents upon which it relies to support its case. If those docu-ments are not provided, the court may order the production of a specific document. Such power is, however, rarely used, and a civil law court would find that the burden of proof has not been met in most cases. Subject to the obligation not to mislead the court, there is no obligation to provide evidence that might be detrimental to one’s own case or supportive of the opponent’s

case.44 German law has widened document

production somewhat by amending Sec-tion 142(1) of the German Code of Civil Procedure, now providing that courts can order the production of documents that are in possession of a party or a third party and on which one party relied in support of its position. Prior to the amendment of Section 142, under German law there was in principle no ground to order a party not bearing the burden of proof to produce a document. Under the new Section 142, a party can be ordered to produce a docu-ment irrespective of the burden of proof.45 Interestingly, while German law widened the scope of document production in 2002, English law has undertaken a reform to narrow the scope.46

Acknowledging that the truth lies in the middle, the IBA Rules on the Taking of Evidence are common-law oriented in the sense that they allow for document disclosure; only, however, to a limited extent. This reflects the consensus between common law and civil law legal systems.

Astigarraga Davis is a boutique law firm focused on international and other business disputes. The firm has an extensive cross-border practice, its lawyers having handled business disputes emanating from virtually every country in the Western Hemisphere as well as elsewhere in the world. Its clients include primarily multinational companies, financial institutions, other public and non-public companies, as well as sovereign states and their instrumentalities. The firm’s strengths focus on international arbitration, international litigation and financial services litigation including creditors’ rights, bankruptcy, and class actions. It has an international arbitration practice handling cases before the major international arbitral institutions, including the International Chamber of Commerce and the International Centre for Dispute Resolution. As a testament to its dedication to its clients, in 2011 the firm was presented with the Outstanding Client Service award for the Chambers Latin America region. With its international network of lawyers worldwide, the firm manages complex disputes in foreign jurisdictions for its clients, including in developing and executing strategies for multi-jurisdictional cases and high-profile controversies, particularly in Latin America and the Caribbean. The firm has an asset recovery team that seeks to pursue fraudsters and corrupt officials around the world to recover misappropriated assets, particularly from fraudulent transactions originating in Latin America and the Caribbean.

701 Brickell Avenue, 16th Floor, Miami Florida 33131 U.S.A. Tel: 1-305-372-8282 www.astidavis.com Contact: José Astigarraga Email: [email protected]

Page 21: International law Quarterly 2012 Spring Issue

Page 21 Spring 2012 The International Law Quarterly

As the commentary to the IBA Rules notes, while “the expansive American or English-style discovery is generally inappropriate in international arbitration,” “there is a gen-eral consensus, even among practitioners from civil law countries, that some level of document production is appropriate in international arbitration.”47

A request for document disclosure under the IBA Rules requires that (1) the relevant documents are sufficiently described for identification; (2) the documents are “rel-evant” to the case and “material” to its outcome; and (3) the documents are not in the control of the requesting party but may reasonably be assumed to be in control of the other party. Yet, the IBA Rules contain no guidelines as to the key requirements of “relevance to a case,” and “materiality to the outcome.” The extent of disclosure pro-ceedings will notably depend on whether the tribunal is willing and able to apply the prerequisites “relevant” and “material” in a more narrow civil-law-oriented sense.

From our experience, the majority of tribunals composed of civil law arbitra-tors will grant a disclosure request only to the extent that the requesting party bears the burden of proof for the fact allegedly evidenced by the requested document. This seems a fair balance, allowing for document disclosure but only to a sensible extent, thereby avoiding an overly time consuming and costly disclosure exercise.

Facilitation of settlement

As noted above, the common and the civil laws of procedure take a substan-tially different stance as to the question of whether a judge or arbitrator may assume the role of a settlement facilitator. Under common law legal traditions, settlement proposals may even constitute a ground to challenge the proposing arbitrator as such efforts are seen to compromise impartiality. By contrast, some civil law jurisdictions even oblige the judge to foster an amicable settlement.48

In light of these substantially different views on the question of whether the arbi-tral tribunal may function as a settlement facilitator, most national arbitration statutes

RoLE oF intERnationaL aRBitRatoR from previous page

and institutional rules remain silent on the subject.49 Yet, major arbitral institutions consider the promotion of settlement an important measure toward increasing the efficiency of the arbitral proceedings. To this end, one of the ICC’s recommenda-tions to control and reduce time and costs in arbitration is the arbitrator’s role in the facilitation of settlement.50 Further, the CEDR Commission on Settlement in International Arbitration makes detailed recommendations to the participants of international arbitrations as to how they can achieve an amicable settlement.51

From the experience of civil-law-orient-ed court and arbitration proceedings, the fear of a potential bias resulting from the arbitrator participating in and promoting settlement negotiations seems overrated.52 In some cases, a settlement may be a sen-sible and an efficient solution to the parties’ conflict. The parties, together with the arbitral tribunal, should therefore explore in advance whether to allow the arbitral tribunal to engage in settlement facilita-tion activities. The majority of civil-law-oriented tribunals will be willing to give a preliminary view of the case and, where desired, develop a settlement proposal.

Concluding RemarksAs we have seen, the civil law approach

to arbitration provides for a number of useful procedural tools designed and proven to improve the time and cost ef-ficiency of arbitral proceedings without compromising justice. In view of those considerable advantages, parties involved

in an international arbitration should be aware of those techniques and explore the civil law approach as a possible standard for their arbitration. For international par-ties, what first appears to be a compromise in the choice of the seat of arbitration and the composition of the arbitral tribunal might well turn out as an advantage.

Karl Pörnbacher is a partner at Hogan Lovells’ Munich office and is head of the firm’s German arbitration practice. The focus of his work is on national and international arbi-tration and alternative dispute resolution.

Dr. Inken Knief is a senior associate within the arbitration group of Hogan Lovells in Mu-nich. Her practice is in the area of internation-al arbitration, under various institutional rules and national ar-bitration regimes.

Endnotes:1 See, e.g., Siegfried H. Elsing, Procedural Effi-ciency in International Arbitration: Choosing the Best of Both Legal Worlds, SchiedSVZ 114, 117 (2011).2 See John M. Townsend & Siegfried H. Elsing, Bridging the Common Law – Civil Law Divide in International Arbitration, Arb. int. 59 (2002). 3 See Townsend & Elsing, supra note 2; see also

ADVeRTIse In The ILQ!

Contact

Elizabeth Ortega ECO Strategic Communications

[email protected]

AD RATES

per issue

$125 quarter page$250 half page$500 full page

I. Knief

Karl Pörnbacher

Page 22: International law Quarterly 2012 Spring Issue

Page 22 Spring 2012The International Law Quarterly

Elsing, supra note 1; Christian Borris, Common Law and Civil Law: Fundamental Differences and their Impact on Arbitration, Arb. And diSp. reS. L. J., 92, 93 et seq. (1995); Piero Bernardini, The Role of the International Arbitrator, 20 Arb. int’L 113, 117 (2004); Roland Berger, Herausforderungen für die (deutsche) Schiedsgerichtsbarkeit, SchiedSVZ 289, 292 (2009); Luc Demeyre, The Search for the Truth: Rendering Evidence under Common Law and Civil Law, SchiedSVZ 247 (2003). 4 Claude Reymond, The President of the Arbitral Tribunal, 9 icSid reV. For. inV. L. J. 1, 2 (1994). 5 Benjamin Kaplan, et al., Phases of German Civ-il Procedure, 71 hArV.L.reV. 1193, 1443, 1472.a (1958).6 Borris, supra note 3; see also Claude Reymond, Civil Law and Common Law Procedures: Which is the More Inquisitorial? A Civil Lawyer’s Response, Arb. int’L 357 et. seq. (1989)7 Demeyre, supra note 3; GAry born, internA-tionAL commerciAL ArbitrAtion, Vol. II, 1788 (2009).8 See also born, supra note 7, at 1786.9 Borris, supra note 3; see also born, supra note 7, at 1789 (“Further, civil law procedures are frequently no less adversarial than common law procedures.”).10 Borris, supra note 3, at 92, 94; see also Klaus Gerstenmaier, The “German Advantage” – Myth or Model?, SchiedSVZ 21, 22 (2010) (“The German system of civil litigation is an adversarial system, almost as much adversarial as is the US-system.”).11 Jones v. Nat’l Coal Bd., 2 ALL ER 155 (1957).12 Yuill v. Yuill, 1 ALL ER 183, 189 (1945).13 Elsing, supra note 1, at 114, 118.14 Philipp Riesenkampff, Die Beweisbarkeit der

RoLE oF intERnationaL aRBitRatoR from previous page

Übermittlung unverkörperter Willenserklärungen unter Abwesenden, in DeutschlanD, Österreich unD englanD 92 (2009).15 Elsing, supra note 1, at 114, 118.16 Bernardini, supra note 3.17 born, supra note 7, at 1758.18 Elsing, supra note 1, at 114, 117.19 See also born, supra note 7, at 1786.20 Bernardini, supra note 3.21 See also born, supra note 7, at 1759.22 born, supra note 7, at 1759.23 See, e.g., Section 1041 of the German Code of Civil Procedure; Section 594 of the Austrian Code of Civil Procedure; Section 34 of the English Arbitra-tion Act; Article 1460 of the French Code of Civil Procedure; Article 24.1 of the Swiss Federal Statute on Private International Law. 24 English Arbitration Act, Section 34(2)(g). 25 See Frederic Eisemann, Le nouveau règlement d’arbitrage de la Chambre de Commerce Internatio-nale, 1 Droit et pratique Du commerce int’l, 355, 362 et seq. (1975) (“ICC arbitrators come from all parts of the world. Some are used to the oral and adversarial system of the common law countries. Others are more accustomed to the written and inquisitorial system as practiced on the European continent. The fundamental differences between the two systems explain, indeed justify, the concision of the provisions relating to the conduct of the proceedings.”).26 yVeS derAinS & eric A. SchwArtZ, A Guide to the icc ruLeS oF ArbitrAtion, 272 (2005).27 See, e.g., art. 14 LCIA Rules; art. 15.1 Swiss Rules; art. 19.1 SCC Rules; art. 24.1 DIS Rules; art. 20.1 Vienna Rules.

28 Commentary on the revised text of the 2010 IBA Rules on the Taking of Evidence in International Arbitration 1999, IBA Working Party & 2010 IBA Rules of Evidence Review Subcommittee, 3 et seq. [hereinafter Commentary].29 Elsing, supra note 1, at 114, 116; see also Berger, supra note 4; Gerstenmaier, supra note 10; David W. Rivkin, Towards a New Paradigm in International Arbitration: The Town Elder Model Revisited, Arb. int’L 372, 375 et seq. (2008); pieter SAnderS, Quo VAdiS ArbitrAtion, Kluwer Law Int’l 99, 22 et seq. (1999).30 Elsing, supra note 1.31 See also Report of the Commission of the Centre for Efficient Dispute Resolution (CEDR), available at http://www.cedr.com/about_us/arbitration_com-mission/Arbitration_Commission_Doc_Final.pdf. 32 See “Techniques for Controlling Time and Costs in Arbitration,” Report of the ICC Comm. on Arb. 18 (¶15), 24 (¶2) (2007) [hereinafter Techniques].33 SteVen p. FiniZio et AL., reViSed icc ruLeS oF ArbitrAtion, 6, available at http://www.wilmerhale.com. 34 See art. 25(1) of the ICC Rules (former ¶ 20(1)); see also derAinS &SchwArtZ, supra note 26.35 See art. 16(3) of the AAA International Rules (“The tribunal may in its discretion direct the order of proof, bifurcate proceedings, exclude cumulative or irrelevant testimony or other evidence and direct the parties to focus their presentations on issues the deci-sion of which could dispose of all or part of the case.”).36 See art. 2(3) of the IBA Rules 2010. 37 See also Gerstenmaier, supra note 10. 38 See for the relevance method, Elsing, supra note 1, at 114, 118.39 Rivkin, supra note 29, at 372, 377 et seq. 40 Berger, supra note 3.41 See also Elsing, supra note 1, at 114, 118.42 See also id.43 Id. at 114, 122.44 Gabrielle Kaufmann-Kohler & Philippe Bärtsch, Discovery in international arbitration: How much is too much?, SchiedSVZ 13, 17 (2004). 45 Kaufmann-Kohler & Bärtsch, supra note 44; Kern, Internationale Schiedsgerichtsbarkeit zwischen Civil Law und Common Law, ZVGLrwiSS 109 78, 84 (2010).46 See Kaufmann-Kohler/Bärtsch, supra note 44, at 13, 16 et seq.47 Commentary, supra note 28, at 7.48 Id. at II.1.49 The DIS Rules are an exception with probably the most proactive approach to the subject of promotion of settlement. Section 32.1 of the DIS Rules, follow-ing the example of Section 278 of the German Code of Civil Procedure, provides that the arbitral tribunal should seek to encourage an amicable settlement be-tween the parties at any stage during the proceedings.50 Techniques, supra note 32, at 843, ¶ 43.51 CEDR Commission on Settlement in International Arbitration, Final Report Nov. 2009, 4 et seq.52 See also Elsing, supra note 1, at 114, 118.

FRoM tHE EDitoR, from page 4

and Laura Patrick explore the develop-ing law on damages in European antitrust actions, with a focus on the differences be-tween those and claims brought in the U.S.

Harvard graduate and former editor-in-chief of the Harvard Human Rights Jour-nal, Hrishikesh Hari, analyzes a recent bilateral investment treaty action and the important question of whether mass claims may be brought in a sovereign-bond dis-pute under the ICSID rules.

Grzegorz Barszcz and agnieszka Ma-jka, who have written for us in the past, again share their scholarship from Warsaw, this time with an excellent overview of the history and current state of arbitration law in Poland.

French lawyers sylvie Gallage-alwis and Constance tilliard explain how to avoid being held liable by French courts

for improperly terminating contractual relationships.

We close out the issue with Tampa, Flor-ida-based mediator Lynn Cole’s article on international mediation that eloquently points out that international arbitration and litigation are not the only results of increased globalization, but that mediation is also experiencing tremendous growth around the world.

As always, we hope and trust that you will enjoy this issue. Our forthcoming summer issue will be a special issue on Canada, Mexico and the North American Free Trade Agreement.

Safe travels, Alvin F. Lindsay

Hogan Lovells US LLPEditor-in-Chief

Page 23: International law Quarterly 2012 Spring Issue

Page 23 Spring 2012 The International Law Quarterly

International Frauds and Ponzi schemes

By tucker Ronzetti, Miami, Florida

Frauds abound. Open the newspaper on a typical day, and a story appears explaining how unsuspecting investors lost millions in the latest scheme. With the advent of the in-ternet and modern financial institutions that promote liquidity and electronic transfers, these schemes have drawn international investors and ensnared banks, accountants, law firms, and other organizations.

Cyprus FundsOne scheme, involving Cyprus Funds,

illustrates how such international frauds operate. Eric Bartoli, an apparently wealthy South American, operated Cyprus Funds and represented that he would make invest-ments conservatively in precious metals and U.S. and Latin American companies. In-vestor confidence in Bartoli’s abilities was bolstered by observations that he lived in a mansion and drove expensive cars. The fact that the prospectus of Cyprus Funds, os-tensibly a mutual fund, listed a major U.S. bank as “custodian” gave investors further assurance. At times, Bartoli would even travel with bankers in wooing investors.

In reality, Cyprus Funds was a “Ponzi” scheme, a type of fraud where investors are repaid their own money so that the investment appears successful, and more investors are attracted and swindled. This scheme originated with Charles Ponzi, who defrauded millions in the 1920’s by falsely claiming he could sell international postal coupons at 100% profit. Ponzi financed his purported business through promissory notes that he always readily repaid. The business, however, was a sham. Ponzi was paying investors with their own money, rather than paying investment returns or redemptions. The U.S. Supreme Court described Ponzi as “always insolvent, and became daily more so, the more his busi-ness succeeded. He made no investments of any kind, so that all the money he had at any time was solely the result of loans by his dupes.”1 There have been hundreds of similar schemes. While no official statistics

are available, a search of a U.S. federal case database yields over 3,400 references to Ponzi.

The Cyprus Funds Ponzi scheme vic-timized hundreds of investors in the U.S. and Latin America. The Latin American investors were attracted to the scheme in two ways. First, there was simple affin-ity to Bartoli himself, who married into a respectable and wealthy South American family. Second, and more importantly, Bartoli offered Latin American investors the safety and security of U.S. investments purportedly held in a major U.S. bank and denominated in stable U.S. dollars.

In the end, the Cyprus Funds scam im-ploded, as do all Ponzi schemes, when Bartoli was unable to repay investors in a timely fashion. As such schemes fail, the fraudsters use further lies to cover their tracks, and this was no exception. Bar-toli falsely told investors that redemptions had to be halted to complete an account-ing in connection with a sale of the fund. Of course, no genuine accounting ever occurred. Ultimately, the investors were

shocked to realize that Bartoli and others had stolen over $35 million. A receivership action by the U.S. Securities and Exchange Commission, and lawsuits against those who enabled the fraud, recovered only a portion of their monies. Meanwhile, Bartoli fled to Peru, where he was later able to run yet another scheme.2

InverWorldAnother international Ponzi scheme that

led to financial institution liability was called InverWorld, operated out of San Antonio, Texas. InverWorld was suppos-edly providing banking and brokerage services to Mexican and Latin American investors who sought the security of U.S. investments. Instead, like Cyprus Funds, InverWorld was a Ponzi scheme, investing only a bit of the funds while laundering and stealing the rest.

Like the Cyprus Funds scheme, the In-verWorld fraud required the assistance of banks. Millions were transferred out of In-verWorld’s accounts and laundered through circular transactions. Two banks involved in InverWorld’s dealings learned of several red flags with regard to Inverworld, but no bank filed a suspicious activity report, and the fraud continued until the U.S. govern-ment finally stepped in. As with Cyprus Funds, the InverWorld fraud led to litiga-tion, though investors could not recover all of their losses.

The nature of International Ponzi schemes

According to the U.S. Securities and Exchange Commission, three of the most common red flags in an investment oppor-tunity are: (1) claims of little to no risk; (2) promises of highly consistent returns; and (3) complex and opaque accounting meth-ods.3 In Ponzi schemes, the purported lack of risk and consistent returns lull victims into complacency. Of course, that false safety and consistency occur only because there is no underlying investment, and in-

Charles Ponzi

Page 24: International law Quarterly 2012 Spring Issue

Page 24 Spring 2012The International Law Quarterly

Ponzi sCHEMEs, from previous page

vestors are receiving their own money. At the same time, the fraudsters use methods like arcane accounting to cover their tracks, and they operate multiple accounts and entities to transfer and launder stolen funds. Ponzi scheme operators often engage le-gitimate banks, accountants, attorneys, and other professionals to provide a sheen of legitimacy to the fraud.

International Ponzi schemes use these methods as well and because the investor hails from another nation, due diligence is made more difficult by cultural and language barriers. Despite those barriers, international investors find the “invest-ments” attractive, as in the Cyprus Funds and InverWorld schemes, because they view the host nation as a stable, safe haven for their money.

The prevalence and growth of Ponzi schemes poses significant challenges for international investors, as well as inter-national lawyers. Some modern Ponzi schemes originate in countries where au-thorities have few resources to detect or police sophisticated financial fraud. Even in the comparatively well-regulated Unit-ed States securities market, the massive Ponzi schemes of Madoff, Stanford, and Rothstein all went undetected for years or decades. Yet Ponzi schemes are far more likely to be identified and shut down in the U.S. than they are in many other countries.

Though some international groups have made admirable efforts toward creating more forceful global deterrents to financial fraud, the perpetrators of Ponzi schemes are still governed largely by the legal systems of the nations where the schemes origi-nated. An inconsistent patchwork of laws governs—or fails to govern—the preven-tion, detection, and punishment of Ponzi schemers. This raises serious concerns for foreign investors and their attorneys.

Ponzi schemes also thrive in the develop-ing world, largely because of complex ac-counting.4 Even in more developed nations such as the United States, with strong in-stitutions and financially savvy judges and lawyers, Ponzi schemes go undetected for decades. Governments with weak financial regulations and institutions fare far worse.

Perhaps the most dramatic example is

Albania. In 1997, the Albanian investment funds Sude and Gjallica collapsed. The funds were only two of a rash of purported loan and investment schemes that ulti-mately bilked Albanians out of about $300 million, more than half of Albania’s gross domestic product at the time. Two-thirds of the population had invested in one fund or another. Soon, riots led to an estimated 2,000 deaths and the complete downfall of the Albanian government. For several months after the funds collapsed, Albania was literally a state of anarchy, with no governing institutions.

The social, economic, and political con-ditions of developing countries create a breeding ground for Ponzi schemes. In Albania, for example, the country’s in-stitutions had only recently been released from a half-century of stifling communist control. Albania’s banks and regulators were simply incapable of identifying or stemming the rising tide of fraud. The government and media had even explicitly endorsed some of the Ponzi schemes as great investments.5 The Albanian disaster was largely contained to Albania, but it is at least an instructive example of the conditions in which Ponzi schemes thrive and go unchecked. Where governments and regulators are weak, Ponzis flourish.

The Caribbean, in particular, has been a hotbed of Ponzi schemes in the last decade. Between 2002 and 2008, large-scale Ponzi schemes operated—and collapsed—in An-tigua, Barbados, Colombia, Jamaica, Nevis, Turks and Caicos, St. Kitts, Grenada, Haiti, Dominica, and St. Lucia, among others. Jamaica was the hardest hit.6 The collapse of the OLINT and Cash Plus schemes cost Jamaica 12% of its gross domestic product in 2008.7

Just prior to their collapse, Jamaica’s largest Ponzi schemes had been signifi-cant players in the Jamaican government and economy. Cash Plus sponsored pro-fessional sports teams, and OLINT was heavily involved in charitable giving. Both organizations had powerful friends. When OLINT’s offices were searched for evi-dence of fraud, a Jamaican official publicly called the search a “vulgar abuse of state power.”8

Insufficient International Policing of Ponzi schemes

Ponzi scheme frauds present a double threat for the international community. First, the unique conditions of develop-ing countries make them susceptible to Ponzi schemes. And the very same weak-nesses that create favorable conditions for financial fraud also impose barriers for the foreign victims of Ponzi schemes to re-cover their losses. There is no standardized international legal approach to curbing se-curities fraud in general and Ponzi schemes in particular.9 Instead, in most cases, the law of the country in which the Ponzi scheme was based often applies to any ef-forts to hold the perpetrators accountable or recover lost investments. This presents challenges to victims of international fraud.

In the United States, a well-developed body of criminal and civil law applies to Ponzi schemes. Duped investors can recover at least some of their losses by freezing and auctioning off the perpetra-tors’ assets, either directly with bankruptcy courts or through government action like a receivership created by the Securities and Exchange Commission. Investors can also bring court cases against the perpetrators and enablers of the fraud, and those who were deceived in large numbers may be able to bring a class action. In some cases, victims have been successful in recovering their lost investments from institutions that assisted the Ponzi scheme. In the Cyprus Funds and InverWorld Ponzi frauds, for ex-ample, investors obtained recoveries from banks, accountants and others. Through liberal discovery rules in the U.S., victims uncovered evidence of the enablers’ com-plicity in the frauds.

The same cannot be said of many coun-tries in which Ponzi schemes thrive. The essential first move against a Ponzi scheme is to freeze the perpetrator’s assets before they are laundered or hidden. In the United States, this is standard operating procedure, but the governments of many countries move more slowly, if at all. In some coun-tries, such as Jamaica, there are no legal provisions authorizing an asset freeze. In others, such as Colombia, there are such

Page 25: International law Quarterly 2012 Spring Issue

Page 25 Spring 2012 The International Law Quarterly

provisions, but the burden of proof required to invoke them is so high that, from a prac-tical perspective, all of the money will be gone by the time a court issues an order. In the case of the OLINT scheme in Jamaica, it took the Jamaican government a year to shut down the perpetrators and seize their assets.10

Other hurdles that Ponzi scheme victims face abroad are bureaucratic, political, le-gal, and technical. Many countries lack any governmental agency devoted to policing financial fraud, such as the U.S. Securi-ties and Exchange Commission which exercises joint civil and criminal powers. In many countries, the legal structure for securities regulation requires civil and criminal authorities to work hand-in-hand to respond to financial fraud. The power of many governments to prosecute Ponzi schemes does not even stem from their securities laws. Instead, Ponzi schemes in many nations are addressed under general banking laws ill-suited to deal with large-scale financial frauds.

Compounding the problem is the fact that information-age Ponzi schemes tend to transcend national boundaries. This re-quires the enforcement and regulation in-stitutions of multiple countries, operating under different political conditions and legal regimes, to work together to arrest perpetrators and freeze and redistribute their assets.

A few international organizations have made commendable efforts to harmonize the international approach to securities fraud. The International Organization of Securities Commissions has attempted to foster cooperation among securities and regulatory bodies of different coun-tries with a multilateral “Memorandum of Understanding.” This “Memorandum of Understanding” encourages nations and regulators to work together to bring per-petrators of financial fraud to justice. The Hague Securities Convention has a similar goal.11 These initiatives are a good start, but they are non-binding and have done little to change the inconsistent patchwork

of regulations governing global financial fraud. Legal and diplomatic commentators continue to deplore the current situation and recommend a stronger international approach to securities frauds.12

Remedies for Victims of International Ponzi schemes

Faced with these challenges, how can investors deal with international frauds and Ponzi schemes? Of course, the best remedy for a Ponzi scheme is prevention. That can be difficult because Ponzi schemes can take vastly different forms. Schemes have used everything from Kreuger’s matchstick empire to trading in burial certificates in Kuala Lumpur. But the fundamentals are the same: Ponzi schemes attract investors by promising consistent returns, often high ones, with little to no risk. If it sounds too good to be true, then it probably is.

Victims of Ponzi schemes must often resort to governmental action, litigation, or both. The United States has become an increasingly sought-after forum for vic-tims of international fraud because of the active plaintiffs’ bar and general expertise of U.S. lawyers and judges in dealing with investment fraud. Foreign plaintiffs can often sue even foreign defendants in U.S. district courts if the defendants’ actions had some substantial connection to the United States. Even in the U.S., litigation can be procedurally complex, and the courts have not been consistent in granting jurisdiction over cases involving largely foreign con-duct. Victims who succeed in court may face additional hurdles, such as enforcing a U.S. judgment against a foreign defendant with no U.S. assets.13 Despite that, victims of international Ponzi schemes with a U.S. component have consistently succeeded in recovering at least some of their losses.

As time and technology progress and the international flow of funds and information grows wider, international Ponzi schemes will no doubt multiply. Investors must be wary. When, despite that diligence, investors become victims, they must seek

prudent recourse, often in nations like the U.S. that have developed institutions for their vindication.

Tucker Ronzetti is a Florida attorney and the head of complex and commercial liti-gation at Kozyak Tro-pin & Throckmorton, P.A., in Coral Gables, Florida. His practice deals extensively with Ponzi schemes and

other financial frauds.

Endnotes:1 Cunningham v. Brown, 265 U.S. 1, 8 (1924).2 Kymberli Hagelburg, Investors Say Eric Bartoli Cheated Them and Should Be Extradited to U.S., pLAin deALer (3 Jan. 2010), available at http://www.cleveland.com/business/index.ssf/2010/01/inves-tors_say_eric_bartoli_che.html. See also http://www.sec.gov/investor/alerts/bartoli.htm (S.E.C. warning against Bartoli, a/k/a Enrico Orlandini).3 U.S. Securities and Exchange Commission, Ponzi Schemes—Frequently Asked Questions, available at http://www.sec.gov/answers/ponzi.htm.4 See Utpal Bhattacharya, On the Possibility of Ponzi Schemes in Transition Economies, trAnSition (World Bank), Feb. 2000 at 24-26.5 Christopher Jarvis, The Rise and Fall of Al-bania’s Pyramid Schemes, FinAnce & deV. (Int’l Monetary Fund [IMF]) March 2000, Vol. 37, No. 1, available at http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm.6 Ana Carvajal et al., Ponzi Schemes in the Car-ribean (IMF Working Paper, April 2009) (available at http://www.imf.org/external/pubs/ft/wp/2009/wp0995.pdf).7 Hunter Monroe, Ana Carvajal, & Catherine Pat-tillo, Perils of Ponzis, Finance & Development (IMF) March 2010, Vol. 47, No. 1, at 37, available at http://www.imf.org/external/pubs/ft/fandd/2010/03/mon-roe.htm. 8 Id. at 39.9 Derek N. White, Conduct and Effects: Reassessing the Protection of Foreign Investors from International Securities Fraud, 22 reGent u. L. reV. 81, 83-84 (2009-2010).10 Carvajal, supra note 6; Monroe, supra note 7.11 White, supra note 9.12 See id.; Cheryl Nichols, Addressing Inept SEC Enforcement Efforts, 31 nw. J. int’L L. & buS. 637 (Summer 2011).13 White, supra note 9.

Ponzi sCHEMEs, from previous page

T. Ronzetti

Page 26: International law Quarterly 2012 Spring Issue

Page 26 Spring 2012The International Law Quarterly

Thank You to Our Annual Sponsors

Page 27: International law Quarterly 2012 Spring Issue

Page 27 Spring 2012 The International Law Quarterly

Counterclaims by Respondent statesin Investment Arbitration:Two Recent Cases Leave

Counterclaiming states Frustrated AgainBy thomas Kendra, Paris, France

One of the most significant roles played by international arbitration is as an ef-fective and widely publicized forum for investors, both individuals and companies, to bring claims directly against States, be it through contractual provisions with the State in question or through investment treaty arbitration, where the investor in-vokes the dispute resolution provisions of a treaty to enforce rights under that treaty. Such treaties grant to the world at large the possibility of bringing arbitration against the State, provided relevant criteria are met, giving rise to what Jan Paulsson termed “arbitration without privity.”1 While often overlooked, the flipside of this role—that of allowing States to claim, or more likely to counterclaim, against the investor—should, in theory, provide the State with a means not only to defend itself but to enforce its own rights and laws where ap-propriate.

This possibility of a claim in arbitration by a State against an investor is relatively ignored. In the last thirty years, only about twenty States have chosen to make a coun-terclaim in a case before ICSID2 and when made, such counterclaims usually fail.3 Two recent cases, Paushok v. The Govern-ment of Mongolia4 and Spyridon Roussa-lis v. Romania,5 have seen counterclaims brought by the respondent State against the claiming investor, with both sets of coun-terclaims dismissed for lack of jurisdiction. Nevertheless, the decisions themselves, and the reaction they have provoked, may shed light on the potential uses of such recourse in the future.

This article (1) briefly provides back-ground by reference to previous decisions on counterclaims by respondent States, before (2) touching on the recent decisions in Paushok v. The Government of Mongolia and Spyridon Roussalis v. Romania, and

then (3) reviewing some of the problematic issues in considering the future for such counterclaims.6

(1) A Brief Review of Respondent state Counterclaims

While the theory behind respondent State counterclaims is nothing new in invest-ment treaty arbitrations, as shown by the procedural rules themselves, practical ex-perience reveals the difficulties that present themselves for a state to be successful.

(a) A procedural feature provided for by the ICsID Convention and the unCITRAL rules

The procedural basis for counterclaims by respondent States is—without question under both the UNCITRAL Rules and the ICSID Convention—by far the most commonly used procedures for arbitration involving States.

The UNCITRAL Rules, which are not designed to apply to arbitration involving States only, contain provisions on coun-terclaims as part of the general rules on arbitral procedure. In the 1976 rules, how-ever, which were in force until recently and continue to apply to disputes arising under contracts or treaties made before the rules were updated, any such counter-claims could be brought only if “arising out of the same contract”7 as the claims themselves. Clearly, this was an obstacle to counterclaims in arbitration brought under investment treaties. In 2010, the

rules were amended to address this point and give tribunals wider discretion. Thus, under Article 21(3), “the respondent may make a counterclaim or rely on a claim for the purpose of a set-off provided that the arbitral tribunal has jurisdiction over it.” This increased flexibility, particularly when viewed in the light of some of the deci-sions set out below, may allow a broader scope for State-brought counterclaims in the future.8

The ICSID Convention is more con-clusive, being specifically designed for investor-State arbitration and explicitly allowing counterclaims by States, pro-vided the investor has consented to this in the underlying investment agreement and the subject matter of the counterclaim is closely related to the investment itself. Article 46 states: “Except as the parties otherwise agree, the Tribunal shall, if re-quested by a party, determine any inciden-tal or additional claims or counterclaims arising directly out of the subject-matter of the dispute provided that they are within the scope of the consent of the parties and are within the jurisdiction of the Centre.” Thus consent9 and a close relationship to the subject matter of the dispute10 (i.e., the investment) are set out as requirements for a successful counterclaim.

That a State may bring an arbitration under the ICSID Convention is repeated elsewhere in the document. Article 36(1) provides that “any Contracting State or any national of a Contracting State wishing to institute arbitration proceedings shall ad-dress a request to that effect in writing to the Secretary-General.” The drafting of the Convention evidences the thinking behind these clauses. The travaux preparatoires describes the balance that must be struck between the interests of States and inves-tors, pointing directly to this option avail-

Page 28: International law Quarterly 2012 Spring Issue

Page 28 Spring 2012The International Law Quarterly

CountERCLaiMs By REsPonDEnt statEs, from previous page

able to respondent States: “The provisions of the Convention maintain a careful bal-ance between the interests of investors and those of host States. Moreover, the Conven-tion permits the institution of proceedings by host States as well as by investors,” and “the Executive Directors have con-stantly had in mind that the provisions of the Convention should be equally adapted to the requirements of both cases.”11 The availability of counterclaims to respondent States was therefore high in the minds of the negotiators of the Convention when it was being drawn up in the 1960’s. As de-scribed below, however, it is the application of this concept on a case-by-case basis that has brought to light the practical difficulties behind such claims.

(b) Practical experience highlights the limitations placed on counterclaims

Three cases brought before ICSID in the late 1970’s and early 1980’s showed from a relatively early stage the potential usefulness of a State’s right to counter-claim. Adriano Gardella v. Republic of the Ivory Coast (1977),12 Benvenuti v. Congo (1980)13 and Southern Pacific Properties v. Arab Republic of Egypt (1985)14 were all contract-based cases where the tribunal found jurisdiction over the respondent State’s counterclaims but dismissed them for lack of evidence. In considering that the counterclaims arose in relation to the contract in question, the tribunals saw no issue as to consent. The question of whether the counterclaim allegations arose from the subject matter of the dispute (i.e., the investment) was satisfied in each case.

In Benvenuti v. Congo, for example, the claimant, an Italian company, set up a mineral water bottling plant that was jointly held with the State of Congo. Even-tually, following tensions, the plant was occupied by the Congolese Army. In its counterclaim, Congo filed for damages for intangible loss (i.e., moral damages) and non-payment of tax and duties. The tribunal accepted that these damages arose from the investment but dismissed the claim for lack of evidence.15

The tribunal in Amco Asia Corporation v.

Republic of Indonesia (1981),16 despite the fact that the case also involved a specific investment agreement, took a more restric-tive approach to the respondent State’s counterclaims. In Amco, a U.S. company jointly ran a hotel with an Indonesian com-pany. The two parties disagreed over their roles in the project, and the Indonesian government ended up revoking the busi-ness license of the claimant U.S. party. In its counterclaims, Indonesia alleged various breaches of Indonesian tax law. The first tribunal accepted jurisdiction over the counterclaims but rejected them on the merits because it found that there was no breach of tax law where, as it determined here, the State’s termination of the license was illegal. The award, however, was an-nulled, and the consideration of the coun-terclaims came before a second tribunal.

This time, the tribunal did not find ju-risdiction over the counterclaims, as it held that a violation of Indonesian tax law was not connected to the investment subject of the dispute, though the parties had consented to proceedings. The tribu-nal found: “The obligation not to engage in tax fraud is clearly a general obligation of law in Indonesia. It was not specifically contracted for in the investment agreement and does not arise directly out of the invest-ment agreement.”17 Thus, the requirement that the counterclaim arise directly from the investment excludes violations based solely on domestic law.

This restrictive trend is also reflected in Klöckner v. Cameroon (1981),18 where the tribunal held that a State could not counter-claim for an equity violation such as mis-representation. In that case, a joint venture company held by a German investor and the State of Cameroon went into liquida-tion. In its counterclaim, Cameroon alleged that the claimant had misrepresented its management capability, causing the joint venture to collapse. The counterclaims were dismissed (by both the first and, after annulment, second tribunals) as having no merit. The fact that the counterclaim argu-ment was grounded in notions of equity rather than in the investment itself was also taken into account. As the second tribunal noted:

[T]he Award denies that the Cameroonian State could be entitled to claim compensation for “the fact that it was misled by a private company”; whether it was deceived or not changes nothing: it acted with either full understanding or with open eye, and if it was ”misled,” it would have a ”concurrent responsibility” which excludes the counterclaim. Therefore, we also seem to find ourselves here in the field of ”equity,” relying on the notions of ”preclusions” or ”estoppel.”19

In the same spirit, in RSM Production Corporation v Grenada (2009),20 it was held that criminal violations (in this case, fraudulent misrepresentations) of the host State’s law did not fall within the set of facts arising out of the investment.

In contrast to cases involving restrictive grounds for counterclaims is MINE v. Re-public of Guinea21 (1986). There, Guinea counterclaimed against MINE for legal costs arising from two previous claims MINE had brought in other forums (the Belgian and Swiss courts) that should have been brought before ICSID. The tribunal accepted Guinea’s arguments. While heav-ily limited in scope, relating basically to previous aspects of the same procedure, the case nevertheless provides an example of the successful invocation of counterclaims by a respondent State.

More significantly, however, the Saluka v. Czech Republic22 case involved further restriction on the type of counterclaims that could be brought. Grounded on the Netherlands-Czech BIT rather than a con-tract, and heard under the 1976 UNCIT-RAL rules, the case builds on Amco and Klöckner in that it excludes violations of the public law of the host State as grounds for a counterclaim against the investor. Consent was not an issue in the case as ar-ticle 8 of the BIT referred to “all Disputes” and hence included claims from the respon-dent. What was an issue was the extent to which the counterclaims were found to be connected to the investment and the subject matter of the dispute. In addition to citing Amco approvingly, the tribunal referred to commentary on the Iran-U.S. Claims Tribunal where the issue of counterclaims frequently came up in the arguments Iran

Page 29: International law Quarterly 2012 Spring Issue

Page 29 Spring 2012 The International Law Quarterly

CountERCLaiMs By REsPonDEnt statEs, from previous page

used to defend itself against allegations of expropriation:

When claims are based on contracts the tribunal has consistently held that it has no jurisdiction over counterclaims seeking Iranian taxes or social security premiums allegedly owed by the claimant and attributable to the performance of those contracts. The reason is that such counterclaims arise from provisions of Iranian law, not from the contracts. Even when the contracts contained clauses requiring the claimant to comply with Iranian tax and social security laws, it was the law, not the contract that was the source of the obligations.23

Having reviewed previous decisions in this area, we now turn to two awards in the past year that have considered this area anew.

2. Two recent cases restate the position on respondent state counterclaims

The issue of counterclaims in investment treaty arbitration has arisen again in two recent awards, Paushok v. The Government of Mongolia and Spyridon Roussalis v.

Romania, considered in turn below. While the awards offered a detailed analysis of the conditions to be fulfilled in order for a counterclaim to get off the ground, the outcomes of both cases demonstrate the issues respondent States continue to face in this area.

Paushok v. Mongolia

In this case, the claimants—a Russian national, Zolotoy Vostok, and two Russian companies in which he was the sole share-holder—brought a claim against Mongolia pursuant to the Mongolia-Russia BIT, al-leging, among other things, that changes to the Mongolian tax regime (including the introduction of a windfall tax) and employ-ment law were tantamount to a violation of the treaty and an expropriation of their investment.24 The claim was heard under the 1976 UNCITRAL rules.

Mongolia brought seven counterclaims against a gold-mining company, controlled by the claimants but not a party to the ar-bitration, alleging that the company owed windfall taxes and foreign worker fees to Mongolia, and that the company was liable

for tax evasion, environmental damages, gold smuggling and violation of its obli-gations under a gold exploration license agreement.25

The tribunal, comprised of Marc Lalonde, Horacio A. Grigera Naon and Brigitte Stern, ruled in their award of April 2011 that the Central Bank of Mongo-lia acted with government authority and breached the fair and equitable standard of the Denmark-Mongolia BIT (applicable through the most-favored-nation clause of the Mongolia-Russia BIT) but dismissed the other claims.

The tribunal denied jurisdiction over all of Mongolia’s counterclaims. In particu-lar, taking into consideration the decision in Saluka v. Czech Republic, it explained that “in considering whether the tribunal has jurisdiction to consider the counter-claims, it must therefore decide whether there is a close connection between them and the primary claim from which they arose or whether the counterclaims are matters that are otherwise covered by the general law of the Respondent.”26 The tribunal concluded that the “close connec-tion” criterion was not met in the present

Page 30: International law Quarterly 2012 Spring Issue

Page 30 Spring 2012The International Law Quarterly

CountERCLaiMs By REsPonDEnt statEs, from previous page

case, as the counterclaims were directed against a company that was not a party to the arbitration and did not have a close connection with the claimants’ claim.27 The tribunal also considered that “if the Arbitral Tribunal extended its jurisdiction to the Counterclaims, it would be acquiescing to a possible exorbitant extension of Mongo-lia’s legislative jurisdiction without any legal basis under international law to do so, since the generally accepted principle is the non-extraterritorial enforceability of national public laws.”28

The tribunal therefore concluded that: [A]ll these issues squarely fall within the scope of the exclusive jurisdiction of Mongolian courts, are matters governed by the Mongolian public law, and cannot be considered as constituting an indivisible part of the Claimants’ claims based on the BIT and international law or as creating a reasonable nexus between the Claimants’ claims and the Counterclaims justifying their joint consideration by an arbitral tribunal exclusively vested with jurisdiction under the BIT.29

While in the circumstances it can be seen that the claims and counterclaims were not directly linked, the tribunal, following the practice of Saluka among others, again re-jected an opportunity to handle the parties’ disputes in the same forum.

Roussalis v. Romania

The most recent case to consider the topic shows again the difficulties of bring-ing such claims. A dissenting opinion sug-gests, however, that there may be room for an alternative view and one that may yet see a relaxation of the approach. In this case, Greek businessman Spyridon Roussalis brought claims against the Government of Romania pursuant to the Greece-Romania BIT, alleging, among other things, that Romania breached the standard of fair and equitable treatment and indirectly expropri-ated its investment in a frozen-food ware-housing business by pursuing various do-mestic remedies against him on the ground that his company, Continent SRL, did not comply with its post-purchase investment obligation.30 Romania brought a counter-

claim against Spyridon Roussalis and his companies, alleging, in turn, that he had violated the share purchase agreement by not making the post-purchase investment.31

The tribunal, formed by Andrew Giar-dina, Michael Reisman and Bernard Hano-tiau, in their award of December 2011, ac-cepted jurisdiction over the claims brought by Roussalis but dismissed them all in the end, judging them to be unfounded. The arbitral tribunal, however, was divided regarding Romania’s counterclaims. The majority ruled that the tribunal did not have jurisdiction over such claims. In dis-sent, Professor Reisman brought this area into sharp relief, voicing concern about the increasingly narrow scope given to such counterclaims.

According to the majority, in order to find jurisdiction the parties must have consented to have the State’s counterclaims arbitrated; i.e., the allegations must fall within the tribunal’s jurisdiction as expressed in the BIT.32 The majority therefore took into consideration Article 9(1) of the BIT, not-ing that this article “undoubtedly limit[s] jurisdiction to claims brought by investors about obligations of the host State.” Ac-cordingly, the tribunal held that “[t]he BIT does not provide for counterclaims to be introduced by the host [S]tate in relation to obligations of the investor. The meaning of the ‘dispute’ is the issue of compliance by the State with the BIT.”33 Thus, for the ma-jority of the tribunal, the Greece-Romania BIT did not contain consent for the submis-sion of respondent State counterclaims, as the parties had not agreed to settle through arbitration their disputes concerning inves-tor obligations. The tribunal consequently ruled that any grievances against the inves-tor had no basis in the parties’ arbitration agreement and therefore were not under the tribunal’s jurisdiction: “[T]he BIT imposes no obligations on investors, only on con-tracting States. Therefore . . . counterclaims fall outside the tribunal’s jurisdiction.”34

Professor Reisman, by contrast, felt that when States consent to ICSID jurisdiction through a BIT, article 46 of the Washington Convention regarding jurisdiction on coun-terclaims is automatically incorporated in the proceedings resulting from this BIT.

According to Professor Reisman: It is important to bear in mind that such counterclaim jurisdiction is not only a concession to the State Party: Article 46 works to the benefit of both respondent [S]tate and investor. In rejecting ICSID jurisdiction over counterclaims, a neutral tribunal—which was, in fact, selected by the claimant—perforce directs the respondent State to pursue its claims in its own courts where the very investor who had sought a forum outside the state apparatus is now constrained to become the defendant. . . . Aside from duplication and inefficiency, the sorts of transaction costs which counterclaim and set-off procedures work to avoid, it is an ironic, if not absurd, outcome, at odds, in my view, with the objectives of international investment law.35

3. Conclusion

From the awards outlined above, tribu-nals considering a counterclaim brought by a respondent State will look closely at (1) consent, and (2) relationship to the subject matter of the dispute. Consent is, of course, essential, but the very making of an invest-ment and submission of an investor-State dispute to arbitration could be seen as going some way towards this. Further, the ques-tion is raised as to exactly how close a link to the investment is required, particularly when balanced with the possibility that tribunals might be imposing an almost impossible test that may, as Professor Re-isman feared, defeat the very objectives of international investment law.

One way to remedy the issue could sim-ply be to consider the matter from the out-set, taking into account when drafting trea-ties the relatively strict manner in which tribunals have considered this issue. Both the issue of consent and of the required link to the investment are points that can be specifically addressed in the wording of the BIT or investment contract. Indeed, States could choose to insert wording that explicitly allows them to launch claims for breaches of the types of public laws Amco and Saluka exclude. Accordingly, some commentators have argued for a revision of BITs,36 with wording inserted to eliminate the uniquely asymmetric nature of invest-

Page 31: International law Quarterly 2012 Spring Issue

Page 31 Spring 2012 The International Law Quarterly

ment treaty claims that was observed a decade ago by one tribunal: “[I]t would be inequitable if, by reason of the invocation of ICSID jurisdiction, the [foreign investor] could on the one hand elevate its side of the dispute to international adjudication and, on the other, preclude the [host State] from pursuing its own claim for damages.”37

While this may be a theoretical solution from the point of view of those wishing to ease access for a respondent State’s recourse, and one that could be used for new treaties going forward, it is surely not a very practical or catch-all solution, given the thousands of treaties already in circulation.

Rather, there remains criticism of the ap-proach that has so far been taken by arbitral tribunals, which appear to have taken the position of protecting the investor rather than allowing for some flexibility in the consideration and resolution of disputes. This criticism, typified by Professor Reis-man’s dissenting opinion, includes the ar-guments that counterclaims are a source of judicial economy and better administration of justice that should be promoted in the

CountERCLaiMs By REsPonDEnt statEs, from previous page

interest of both investors and States. The in-creased efficiency of handling claims from both sides in the same proceedings is obvi-ous. The investors themselves may prefer, and may benefit from, having their rights with regard to the counterclaims reviewed by an independent tribunal, which they themselves participated in constituting. Further, allowing for counterclaims could be seen as a way to balance the arbitral process between States’ and investors’ in-terests and therefore improve enforcement prospects to the benefit of all parties. In this way, States enabled to bring counterclaims against investors before arbitral tribunals may ultimately be more inclined to put faith in the dispute resolution system’s fairness and impartiality, with potential compliance benefits.

It remains to be seen whether respondent States will be entirely discouraged from bringing counterclaims by the decisions outlined above, although given the continuing popularity of investment arbitration—coupled with the gradual increase in use of the 2010 UNCITRAL Rules, which provide for a greater

flexibility in this area—there are likely to be further opportunities for tribunals to revisit this question. At such time, the tribunal will consider consent and the link to the investment itself. But in a climate where commentators are increasingly raising the issue of possible bias towards investors in investor-State arbitration, it remains to be seen whether tribunals will continue to be as strict in their interpretation—frustratingly strict for those States whose counterclaims have been denied.

Thomas Kendra is a senior associate in the international arbitra-tion practice of Hogan Lovells, Paris, and is an English Solicitor and registered at the French Bar. He repre-sents both companies and States in interna-

tional arbitrations and mediations. He has particular experience and expertise in the energy, aerospace, technology, construc-tion and telecommunications sectors and

T. Kendra

Page 32: International law Quarterly 2012 Spring Issue

Page 32 Spring 2012The International Law Quarterly

also focuses on investment arbitration, an area in which he has acted for or against a number of States.

Endnotes:1 Jan Paulsson, Arbitration Without Privity, 10 icSid reV. 232 (1995).2 Ana Vohryzek-Griest, State Counterclaims in Investor-State Disputes: A History of 30 Years of Fail-ure, 15 int’L LAw, Revista Colombiana de Derecho Internacional 86 (2009).3 Id. 4 Sergei Paushok, CJSC Golden East Co. and CJSC Vostokneftegaz Co. v. The Government of Mongolia, Decision on Jurisdiction and Liability, 28 April 2011.5 Spyridon Roussalis v. Romania, Award, 7 Dec. 2011 (ICSID Case No. ARB/06/1).6 Vohryzek-Griest, supra note 2.7 UNCITRAL Arbitration Rules, art. 19(3).8 Yaraslau Kryvoi, Counterclaims in Investor-State Arbitration, LSE Law, Soc’y and Econ. Working Papers 8/2011.9 ICSID Convention, art. 25(1) defines consent as “the parties to the dispute consent in writing to submit to the Centre.” 10 ICSID Convention, art. 25(1) defines this relation-ship as “any legal dispute arising directly out of an investment.”11 Report of the Executive Directors of the Inter-national Bank for Reconstruction and Development on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, available at http://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/partB-section01.htm.12 Adriano Gardella v. Republic of the Ivory Coast, Award, 29 Aug. 1977, ICSID Case No. ARB/74/1.13 Benvenuti & Bonfant Co. v. the Government of the People’s Republic of Congo, Award, 15 Aug. 1980, ICSID Case No. ARB/77/2.14 Southern Pacific Properties (Middle East) v. Arab Republic of Egypt, Decision on Jurisdiction, 27 Nov. 1985, ICSID Case No. ARB/84/3.15 Vohryzek-Griest, supra note 2, at 95.16 Amco Asia Corp. v. Republic of Indonesia, ICSID Case N°ARB/81/1.17 Amco Asia Corp. PanAmerican Dev. Ltd and PT Amco Indonesia v Republic of Indonesia, ICSID Case No. Arb/81/1, Decision on Jurisdiction, ¶ E(3), 10 May 1988.18 Klöckner Industrie-Anlagen GmbH v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case N°ARB/81/2.19 Klöckner v Cameroon, ICSID Case No ARB/81/2, Decision on Application for Annulment 123, 3 May 1985.20 RSM Production Co. v Grenada, ICSID Case No ARB/05/14, Award, 13 March 2009.21 MINE v. Republic of Guinea, Award, 10 Jan. 1988, ICSID Case No. ARB/84/4.22 Saluka Investments BV v. The Czech Republic, Decision on Jurisdiction over the Czech Republic’s

CountERCLaiMs By REsPonDEnt statEs, from previous page

Counterclaim, 7 May 2004.23 Id. ¶ 74; G.h. ALdrich, the JuriSprudence oF the irAn-united StAteS cLAimS tribunAL 166, Clarendon Press (1996).24 Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The Government of Mongolia, Decision on Jurisdiction and Liability, 28 April 2011, paras. 286 et seq.25 Id. ¶ 678. 26 Id. ¶ 693.27 Id. ¶ 686.28 Id. ¶ 695.29 Id. ¶ 694.

30 Spyridon Roussalis v. Romania, Award, 7 Dec. 2011 (ICSID Case No. ARB/06/1), ¶¶. 1-10.31 Id. ¶. 747.32 Id. ¶¶ 864-866.33 Id. ¶ 869.34 Id. ¶ 871.35 Dissenting Opinion of M. Reisman, Spyridon Roussalis v. Romania, 28 Nov. 2011, Award, 7 Dec. 2011, ICSID Case No. ARB/06/1.36 Vohryzek-Griest, supra note 2, at 118.37 Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, Procedural Order No. 2, 16 Oct. 2002, 302 (ICSID Case No. ARB/01/13).

Litigation noteGrupo Radio Centro v. American Merchant

Banking Group, Inc.

71 so. 3d 151 (Fla. 3d DCA 2011)

By Gregory C. Ward Chair, subcommittee on Groupo Radio Centro

The Civil Rules Committee of The Florida Bar was recently asked to consider revising some of Florida’s standard litigation forms in light of the Third District Court of Appeal’s opinion in Grupo Radio Centro v. American Merchant Bank-ing Group, Inc. 71 So. 3d 151 (Fla. 3d DCA 2011). In Grupo Radio Centro, the court quashed service under the Hague Convention because the summons did not indicate whether the response was to be calculated in business days or cal-endar days, purportedly a requirement in Mexico under the Hague Convention.

Subsequent to this opinion, in November 2011, officials from the Consultoría Jurídica of the Ministry of Foreign Affairs, the Permanent Bureau of the Hague Conference and the Mexican Central Authority met to discuss the Hague Con-vention. During this meeting, Mexican authorities recognized that “time limits for responses by addressees are subject to the law of the requesting State, not the requested State,” and that the Central Authority “may not condition compli-ance on requirements of its own internal law or existing judicial decisions.” This information together with other conclusions from the workshop can be viewed online at: http://www.hcch.net/upload/2011workshop_mx.pdf.

In light of the foregoing, the Civil Rules Subcommittee recommended “no action” with respect to changing any of Florida’s rules or forms. Nevertheless, until a published opinion supersedes the Groupo Radio opinion, practitioners may be at risk if the term “calendar” does not appear on the face of a summons served in Mexico pursuant to the Hague Convention.

Page 33: International law Quarterly 2012 Spring Issue

Page 33 Spring 2012 The International Law Quarterly

Ill-Defined Boundaries?The scope of Arbitral Authority in the united states

By Gustavo J. Lamelas, Miami, Florida

Perhaps the most persistent source of arbitration-related lit-igation in the United States has been with respect to the threshold question of determining whether particular controversies are to be controlled by courts or arbitra-tors. The U.S. has long espoused a decidedly pro-arbitration public policy, through the 1925 enact-ment of the Federal Arbitration Act (the “FAA”), the 1970 adoption of the Convention on the Recogni-tion and Enforcement of Foreign Arbitral Awards (the “New York Convention”), and more than forty Supreme Court opinions over the last sev-enty years. The enormous discretion vested in arbitrators concerning matters subject to their authority is well established in U.S. jurisprudence. The rules adopted by the Su-preme Court for determining what matters fall within an arbitrator’s authority have proven, however, easier to state in theory than to apply in practice.

The question of how the scope of arbi-tral authority is to be determined, and by whom, is of fundamental importance to the efficiency and predictability of interna-tional arbitration since standards of review for arbitration and court decisions differ sharply. Proponents of international arbi-tration should favor broad and predictable arbitral authority, consistent with the par-ties’ arbitral agreement, subject to limited and well-defined court review—objectives furthered by the expansive discretion vested in arbitrators over matters within their ju-risdiction. The New York Convention and the FAA provide only narrow bases for the annulment of arbitral decisions.1 As the Supreme Court explained in Major League Baseball Players Association v. Garvey, “[w]hen an arbitrator resolves disputes regarding the application of a contract, and no dishonesty is alleged, the arbitrator’s ‘improvident, even silly, fact finding’ does not provide a basis for a reviewing court to refuse to enforce the award.”2 In contrast,

the Supreme Court has determined that arbitration-related “gateway” decisions by courts on matters of law raised in motions to vacate or confirm arbitral awards are subject to broad de novo appellate review, without the special deference afforded deci-sions within the jurisdiction of arbitrators.3

Uncertainty in the application of the rules to be applied in determining whether a par-ticular dispute must be arbitrated may un-dermine the efficiency and predictability of the arbitral process. Apart from the signifi-cant costs that may be expended litigating gateway issues, errors by a trial court—at least in the subsequent view of appellate jurists—may have the effect of nullifying an award on jurisdictional grounds after the completion of a lengthy arbitration process. One significant recent example is Republic of Argentina v. BG Group PLC,4 where a $185-million arbitral award was vacated on the grounds that a failure to comply with a pre-arbitration duty to seek a resolution through at least eighteen months of court litigation in Argentina rendered the contro-versy non-arbitrable and outside the arbitral panel’s jurisdiction, as described in greater detail below.

Arbitrability is for Courts to Decide

The FAA was enacted to overcome tra-

ditional resistance to arbitration by placing arbitral agreements on equal footing with other contracts.5 To that end, FAA § 2 states that “[a] written provision in . . . a contract . . . to settle by arbitration a controversy thereafter arising out of such con-tract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract [Emphasis added.].” “Section 2 is a congressional declaration of a liberal policy favoring arbitration agreements, notwithstanding any state substantive or procedural poli-

cies to the contrary. The effect of the section is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.”6

The U.S. Supreme Court has, in multiple opinions, stated a series of rules defining the scope of arbitral authority over par-ticular disputes, the most fundamental of which is that “arbitrability” is for courts to decide.7 The concept of “arbitrability” is based upon the proposition that “‘arbi-tration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’”8

In deciding whether an agreement to arbitrate exists,

a court is not to rule on the potential merits of the underlying claims[,] . . . “weighing the merits of the grievance, considering whether there is equity in a particular claim, or determining whether there is particular language in the written instrument which will support the claim.”9 [W]here [a court determines that] the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that “[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of any interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.”10

Page 34: International law Quarterly 2012 Spring Issue

Page 34 Spring 2012The International Law Quarterly

Divided Control Over Gateway Issues

The deceptively simple statement that questions of arbitrability are for courts to decide belies the practical complexity of defining the scope of arbitral authority, since control over the threshold question of whether a particular matter must be ar-bitrated is, in fact, divided between courts and arbitrators.

Linguistically speaking, one might call any potentially dispositive gateway question a ”question of arbitrability,” for its answer will determine whether the underlying controversy will proceed to arbitration on the merits. The [Supreme] Court’s case law, however, makes clear that, for purposes of applying the interpretive rule, the phrase ”question of arbitrability” has a far more limited scope.11

Through its adoption of the severabil-ity rule in Prima Paint Corp. v. Flood & Conklin Mfg. Co.,12 the Supreme Court has distinguished challenges to contracts as a whole—which are for courts to resolve—from challenges to specific arbitration pro-visions—which are left for arbitrators to decide. In Prima Paint, the Court affirmed a Second Circuit holding that:

except where the parties otherwise intend—arbitration clauses as a matter of federal law are ”separable” from the contracts in which they are embedded, and . . . where no claim is made that fraud was directed to the arbitration clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud.13

Prima Paint involved the arbitrability of a claim for fraud in the inducement of a contract generally, which the Court found to be for an arbitrator to decide. In doing so, the Court explained that “if the claim is fraud in the inducement of the arbitration clause itself—an issue which goes to the ‘making’ of the agreement to arbitrate—the federal court may proceed to adjudicate it.”14

In Rent-A-Center, West, Inc. v. Jack-son,15 the Supreme Court reaffirmed and

explained the rational underlying Prima Paint’s severability rule. The Court rea-soned that:

§ 2 [of the FAA] states that a “written provision” “to settle by arbitration a controversy” is “valid, irrevocable, and enforceable” without mention of the validity of the contract in which it is contained. Thus, a party’s challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate. “[A]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.”16

As a consequence of Prima Paint and its progeny, an arbitrator may have jurisdic-tion over a cause of action that challenges the enforceability of the contract, even when the arbitrator ultimately concludes that the contract is not legally binding, so long as there is not a direct challenge to the arbitration clause upon which the arbitra-tion is based. A court might, it follows, deem a matter “arbitrable” in the absence of a challenge to a specific arbitration clause, which an arbitral panel might deem to be outside of its jurisdiction under the arbitral panel’s own analysis of the arbitration clause. For example, in Howsam v. Dean Witter Reynolds, supra, the Supreme Court held that a challenge to the arbitrability of a claim—purportedly initiated after the expi-ration of the time limit for such a claim as provided for in the parties’ contract—was to be resolved through arbitration.17

An additional variable to be consid-ered in delineating arbitral authority is that “parties can agree to arbitrate ‘gate-way’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbi-trate or whether their agreement covers a particular controversy,” thereby shifting to arbitrators threshold issues that would otherwise be for court disposition.18 The general presumption favoring arbitrability does not, however, apply to delegations of authority over arbitrability. Instead, “clea[r] and unmistakabl[e]” evidence that the parties intended to arbitrate arbitrabil-ity—e.g., contract formation issues—is required.19

Practical ImplicationsThe application of the arbitrability rules

adopted by the Supreme Court has resulted in holdings by circuit courts of appeal, and the Supreme Court itself, that are difficult to reconcile and that suggest the existing framework remains inadequate. For ex-ample, in Granite Rock Co. v. International Brotherhood of Teamsters,20 the Supreme Court addressed a challenge to an arbitra-tion clause based upon a dispute regarding the ratification date of a collective bargain-ing agreement that included an arbitration clause. A request for arbitration by a labor union under the terms of a collective bar-gaining agreement was resisted on the basis of a dispute over whether the collective bargaining agreement was in effect during a strike associated with the controversy for which arbitration was sought. In short, there was no dispute that a contract existed between the parties or that the agreement included an arbitration clause. Instead, a controversy existed regarding the date the collective bargaining agreement became ef-fective. The majority of the Court rejected the dissent’s contention that the contro-versy was with respect to the merits of the dispute—which an arbitrator would typi-cally resolve—and instead determined that the matter involved a contract formation issue, which was an issue of “arbitrability” for the trial court to resolve.21

Eight years earlier, in Howsam, the Court had addressed another timing issue, reach-ing an opposite outcome. Howsam involved a claim related to a securities brokerage account. There was no dispute regarding whether a contract existed between the parties or whether that contract included an arbitration clause. Instead, the controversy turned on whether the contract’s six-year time limit for asserting claims barred the cause of actions in question. In holding that the matter was for an arbitrator to decide, the Court reasoned that “in the absence of an agreement to the contrary, issues of substantive arbitrability . . . are for a court to decide and issues of procedural arbitra-bility, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obliga-

iLL-DEFinED BounDaRiEs, from previous page

Page 35: International law Quarterly 2012 Spring Issue

Page 35 Spring 2012 The International Law Quarterly

tion to arbitrate have been met, are for the arbitrators to decide.”22

Notwithstanding this indication in Howsam that disputes regarding whether “conditions precedent to an obligation to arbitrate have been met” are for arbitrators to decide, the Circuit Court of Appeals for the District of Colombia ruled to the con-trary in Republic of Argentina v. BG Group PLC in January 2012. The case involved a $185-million arbitral award against Ar-gentina that was vacated on the grounds that the arbitral panel failed to enforce a requirement that at least eighteen months of litigation in Argentina’s courts be con-ducted prior to the initiation of arbitral proceedings, as is provided for in the bilat-eral investment treaty (“BIT”) pursuant to which the arbitration was conducted. In ac-cordance with the BIT, the arbitration was conducted under the UNCITRAL rules, Article 21(1) of which provides that “[t]he arbitral tribunal shall have the power to rule on objections that it has no jurisdiction” to hear the arbitration.

The arbitral panel determined that it possessed jurisdiction over the dispute on the grounds that court proceedings in Ar-gentina would have been futile. In render-ing its award, the arbitral panel concluded that “Argentina violated the principles of stability and predictability inherent to the standard of fair and equitable treatment” required by the BIT.23 The D.C. Circuit nevertheless vacated the confirmation of the award by the trial court. In so doing, the D.C. Circuit purported to distinguish Howsam on the grounds that the pre-ar-bitration litigation requirement in the BIT was not the type of purely “procedural” matter that could be left to an arbitral panel to decide.24 The court reasoned that the arbitral panel’s express authority under UNCITRAL Article 21(1) to determine the

arbitrability of the controversy was never triggered since the applicability of the threshold requirement of pre-arbitration litigation in Argentina preceded the arbitra-tion and did not “grow out of the dispute.”25 The practical consequence of the court’s arbitrability analysis was that the extremely broad deference typically afforded arbitral awards was inapplicable, thereby facilitat-ing the voidance of the massive award after years of arbitration proceedings.

ConclusionThe frequent difficulties faced by courts

in applying the Supreme Court’s various arbitrability rules highlight the importance of careful planning, both in drafting arbi-tration clauses and in determining how to pursue or defend against arbitration claims. Contracting parties strongly committed to dispute resolution through arbitration should assess carefully whether “clear and unambiguous” language allocating the disposition of threshold arbitrability issues to arbitrators should be included in their arbitration clauses. Prudence also dictates careful consideration of the implications of not obtaining a court determination of whether gateway issues are properly for an arbitrator to decide. The BG Group case should serve as a cautionary tale of the potentially disastrous consequences of mis-takenly concluding that an arbitral panel’s determination of its own jurisdiction will

not be subject to a ple-nary court review and perhaps voidance.

Gustavo Lamelas is a member of the trans-national litigation and international arbitra-tion team of the Miami

office of DLA Piper LLP (US).

Endnotes:1 See 21 U.S.T. 2517, Art. V; and 9 U.S.C. § 10. 2 532 U.S. 504, 509 (2001) (quoting Paperworks v. Misco, Inc., 484 U.S. 29, 39 (1987)).3 See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48 (1995). 4 665 F.3d 1363 (D.C. Cir. 2012).5 See, e.g., Buckeye Check Cashing, Inc. v. John Cardegna, 546 U.S. 440, 443 (2006).6 Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).7 See, e.g., John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 547 (1964) (quoting Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241 (1962)) (“‘[W]hether or not the [defendant] was bound to arbitrate, as well as what issues it must arbitrate, is a matter to be determined by the Court on the basis of the contract entered into by the parties.’”).8 AT&T Tech., Inc. v. Communications Workers of America, 475 U.S. 643, 648 (1986) (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960)). 9 Id. at 649-50 (quoting Warrior & Gulf at 568).10 Id. at 650 (quoting Warrior & Gulf at 582-83).11 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (citing First Options, 514 U.S. at 942).12 388 U.S. 395 (1967).13 Id. at 402 (citing Robert Lawrence Co. v. Devon-shire Fabrics, Inc., 271 F.2d 402 (2nd Cir. 1959)).14 Id. at 403-04.15 130 S. Ct. 2772 (2009).16 Id. at 2778 (quoting Buckeye Check Cashing, 546 U.S at 445).17 See Howsam, 537 U.S. at 83.18 Rent-A-Center, 130 S. Ct. at 2777.19 First Options, 514 U.S. at 944-45 (quoting AT&T Tech. at 649).20 130 S. Ct. 2847 (2010)21 Id. at 2860 and 2866.22 Id. at 85 (quoting Revised Uniform Arbitration Act of 2000, § 6, comment 2, 7 U.L.A., at 13) (Emphasis added.).23 BG Group, 665 F.3d at 1368. 24 Id. at 1369-70.25 Id. at 1372.G. Lamelas

iLL-DEFinED BounDaRiEs, from previous page

For the Bar, By the Bar. www.floridabar.org/CLE

Florida Bar CLE–24/7, Online & downloadable

Page 36: International law Quarterly 2012 Spring Issue

Page 36 Spring 2012The International Law Quarterly

Section10th Annual International Litigation and

Arbitration ConferenceMiami, Florida • 23-24 February 2012

Photos by Carlos Osorio, Aballi Milne Kalil

Alejandro Pignataro; Elizabeth Ortega of ECO Strategic Communications; and Edward Davis of Astigarraga Davis

Arnie Lacayo and Annette Escobar of Astigarraga Davis; and Gerardo Rodrigues Albizu, Greenberg Traurig

Santiago Cueto, Cueto Law Group; and Judith Freedberg, University of Miami School of Law

Ricardo Puente, Concepcion Martinez & Bellido; and Carlos Osorio, Abali Milne Kalil

Page 37: International law Quarterly 2012 Spring Issue

Page 37 Spring 2012 The International Law Quarterly

Scene

Conference particpants with Quinn Smith, of Smith International Legal Consultants

Clarissa Rodriguez, Smith International Legal Consultants; Raphael R. Ribeiro of Bilzin Sumberg Baena Price & Axelrod; Quinn Smith, Smith International Legal Consultants; and a guest

Annette Escobar, Astigarraga Davis; Gary Davidson, Diaz Reus; and Rima Mullins, law clerk to federal Magistrate Judge Chris McAiley

Luis O’Naghten, Akerman Senterfitt; Monique Garcia; and David Massey, Bilzin Sumberg Baena Price & Axelrod

Page 38: International law Quarterly 2012 Spring Issue

Page 38 Spring 2012The International Law Quarterly

Damages Claims Following Antitrust Violations in european Markets

By nicholas Heaton and Laura Patrick, London, England

In the U.S., it is a well-established practice for victims of antitrust vio-lations to bring claims (often class actions) to recover damages. In Eu-rope, this has not traditionally been the case, but that is changing. This article explores this developing area of European law and identifies some of the key differences between claims in Europe and those in the U.S.

The comparative enthusiasm for antitrust damages claims in the U.S. must in part be due to the incentives available—including the possibility of triple damages, the use of class actions, and lawyers who can work on contingency fees—that are largely absent from Europe-an jurisdictions. In part, it may also have to do with the different emphasis historically placed on “private enforcement” in the U.S. and the greater reliance in Europe on public enforcement by regulators like the Euro-pean Commission (the “Commission”).

For years, despite the courts having indi-cated that damages claims were a possibil-ity, potential claimants seemed either un-aware of their rights or were deterred from pursuing them because of the perceived practical difficulties. The Commission and national governments and antitrust authori-ties, however, came to recognize the im-portance of compensating victims through damages claims and the potential for such “private enforcement” to supplement the stretched resources of the public enforcers. As a result, there has been much talk of reforms to encourage claims at a European and national level, with repeated consulta-tions but no real change to date. Despite the absence of reform, although possibly as a result of the attention given to the subject by all the talk of reform, it is clear that com-mercial victims of breaches of competition law are aware of and are enforcing their rights. One can now expect, as a matter of course, any findings of infringement of competition law by the Commission to be followed by damages claims.

“Follow-on” nature of Damages Actions

Although there has been an upsurge in damages claims for breach of competi-tion law, it is notable that they are almost exclusively what are known as “follow-on claims.” Follow-on claims are claims brought only after an antitrust authority has investigated and found those involved to have infringed competition law. Behavior that may restrict competition, such as abuse of dominance or participation in a cartel, is prohibited under European law1 and can be investigated by either the antitrust authority of a European member state (in the United Kingdom, it is the Office of Fair Trading) or by the Commission. When it is the Commission that has investigated the allegations and made a finding of infringe-ment, its decision is binding on all courts in European member states (subject to any appeal to the European Court of Justice2). Typically, a decision of a national antitrust authority is binding only on the court of that member state. As a result, if a potential claimant waits to bring a claim until after an infringement decision has been made, the claimant can rely on that decision to establish the defendants’ liability, leaving only issues of causation and quantification of loss to be determined.

This sounds as if it should be straight-forward, but in fact there are many other issues— such as disputes over jurisdic-

tion, limitation, applicable law, and disclosure—that need to be resolved before a court can turn to the task of assessing damages. In fact, due to the fairly recent advent of these damages actions in Europe, most of the jurisprudence in this area con-cerns these preliminary issues, some of which we discuss below.

Applicable LawAlthough the requirements of

competition law itself are estab-lished by the Treaty on the Func-

tioning of the European Union and thus are applicable throughout Europe, there are many other aspects of damages claims not determined by European law (includ-ing rules about limitation, causation and remedies) that will be governed by the applicable national laws. Therefore, in any claim for damages it is necessary to determine what national law applies to the claim. The rules used to determine the ap-plicable law for competition actions have recently been harmonized across European member states under the Rome II regula-tion.3 Rome II, however, applies only to events that occurred after 11 January 2009. For infringements prior to 11 January 2009, the courts of each European member state will apply their own national rules to de-termine which national law (or laws) will be applicable to the claim. Determining the applicable law of a dispute in, say, the English courts, involving claimants and defendants from many jurisdictions (both from Europe and elsewhere) with respect to a price-fixing cartel that operated through-out Europe, can become very complex and an area ripe for disputes.

The applicable law of the claim may, among other things, determine the avail-ability of the “passing on” defense, by which a defendant can argue that the claim-ants passed on any overcharge applied by the cartel to its own customers and so suffered no loss. Although the availability of this defense is not yet definitively es-

Page 39: International law Quarterly 2012 Spring Issue

Page 39 Spring 2012 The International Law Quarterly

DaMaGEs CLaiMs, from previous page

tablished in Europe, it is likely to apply, although the laws of individual member states may take different approaches. The trade off for allowing this defense is that indirect purchasers, in addition to direct purchasers, are entitled to bring claims.

JurisdictionThe nature of the European marketplace

in which antitrust violations take place is such that the domicile of the claimants and the defendants will ordinarily span multiple jurisdictions. Although there is a uniform regime in EU member states that governs where claimants can bring their claims against defendants domiciled in Europe,4 within this regime there is considerable room for claimants to engage in “forum shopping.”

The jurisdiction will, crucially, deter-mine important procedural matters that vary significantly among European mem-ber states. For example, the common law jurisdiction of England and Wales provides for wide document discovery in compari-son to all the other main European jurisdic-tions, whose civil law systems provide for very little or no documentary discovery.

Another pertinent procedural issue is whether the claimants can bring a multi-party action, a position that again differs among member states. Moreover, the rules

about cost recovery and how claims may be funded in different European countries vary significantly. Given the importance of these issues, claimants will go to great lengths to try to secure their preferred jurisdiction (often England, primarily because of the wide discovery regime). Many current cases and recent decisions deal with battles over jurisdiction, some prompting referrals to the European Court of Justice for final determination.5

The general rule is that a defendant should be sued in the courts of the mem-ber state in which it is domiciled. A key exception to the general rule, and one that is frequently employed, is when claimants have claims against entities domiciled in several European member states and those claims are so closely connected that it is expedient to hear them together.6 In these circumstances, the claimants are permitted to bring claims against all those entities in a court of one member state, using a defen-dant domiciled in that member state as an “anchor defendant.” This approach elimi-nates the risk of irreconcilable judgments from separate proceedings, but attempts of claimants to secure their preferred jurisdic-tion by bringing weak or spurious claims against a defendant domiciled in that juris-diction have given rise to much case law.

In particular, if none of the addressees

of the Commission infringement decision being relied upon is domiciled in the pre-ferred jurisdiction, claimants habitually hunt out subsidiaries of groups involved in the infringing behavior that are domiciled in the preferred jurisdiction in order to try to ground jurisdiction with respect to all the other defendants. This approach has led to disputes over which entities claim-ants can legitimately pursue in follow-on actions relying on Commission infringe-ment decisions.

Claimants can plainly rely on a Com-mission infringement decision to pursue entities that are named as addressees of that decision. The difficulty is whether other companies in the same group, that are not named addressees of the decision, are bound by the Commission’s decision and can be sued on the basis of it. The am-biguity stems from the fact that European competition law prohibits certain activities of “undertakings”—a concept that looks at economic groupings, not legal entities—whereas it is necessary for authorities to address decisions to specific companies, partly for practical reasons. Therefore, it can be unclear whether any particular com-pany is part of an undertaking and whether findings made in a decision addressed to one company are binding against another company (typically in the same corporate

• Quality Speakers

• Online Registration

• Convenient Locations

• CLE Certification Credit

• Audio CDs / Video DVDs

• Live Webcasts

• 24/7 Online CLE

For the Bar. By the Bar.www.FloridaBar.org/CLE

FloridaBarCLE

Page 40: International law Quarterly 2012 Spring Issue

Page 40 Spring 2012The International Law Quarterly

group) even if it is part of the same under-taking for competition law purposes.

To support their rights to bring claims against non-addressees of a decision, claimants may argue that a subsidiary or sister company of an addressee partici-pated in the cartel despite it not being an addressee itself, or that it had knowledge of the cartel. The position is not yet settled, and the English courts have indicated that this point is ripe for a referral to the Euro-pean Court of Justice.7

Contribution ClaimsThe generally accepted position in Eu-

rope has been that the members of a cartel are jointly and severally liable for any losses attributable to the operation of that cartel (although recently a German court has referred this question to the European Court of Justice for determination8). As a result, one member of a cartel can be sued for the entirety of the claimants’ damages.

Typically, in Europe a defendant that is jointly and severally liable for a loss can seek to recover a contribution from any oth-ers who are jointly liable with it. Claimants do sometimes pursue their claims against only one or a small number of the cartelists for the entirety of their losses. In such cir-cumstances, those sued will typically bring claims against the others involved in the infringement to recover a share of the dam-ages. This provides a level of protection for individual defendants, although the threat of contribution claims can complicate, or even hinder, settlements. A settling defendant would wish to have the comfort of knowing that it does not remain exposed to contribu-tion claims, but claimants are often unable to provide any assurances and are unwilling to provide an indemnity with respect to them.

In the U.S., a defendant with a judgment against it cannot seek contribution from the other members of the cartel. The effect of this tends to be that defendants hurry to settle with the claimants in order to ensure that they are not the one left facing a judg-ment for the remainder of the claims.

DisclosureIn a follow-on claim, claimants are often

anxious to obtain disclosure of materials provided by the defendants to the antitrust authority during the course of its inves-tigation. Most investigations arise from the receipt of information from a whistle-blower who, in return for full cooperation, can receive immunity or leniency from the very large fines (sometimes running to €100s millions) that are regularly imposed. An applicant for leniency has to provide complete cooperation with the Commission in order to benefit, and so the information it discloses to the Commission can be very useful to claimants. The Commission has, however, jealously guarded against the disclosure of that material in the fear that the harm it could cause to a potential leni-ency applicant would deter applications in future, dangerously undermining a key part of the Commission’s enforcement effort.

Recent cases have seen applications by claimants for disclosure of documents that contain leniency material.9 The European Court of Justice has held that it is a matter for national courts to decide, on a case-by-case basis, whether to order disclosure.10 In making its decision, a court must consider the value of protecting the leniency regime as against the claimants’ rights to have ac-cess to documents that may support their claims. This issue is likely to instruct which members of a cartel the claimants choose to pursue and the nature of leniency mate-rials that cartelists provide to the antitrust authorities in the future.

ConclusionThe frequency with which damages ac-

tions are brought in the European courts following antitrust infringements is ex-pected to continue to rise. Not only are claimants increasingly aware of the op-portunity to recover damages, but the ease with which they are able to do so will surely be enhanced as case law develops and uncertainties are resolved. Further, private damages actions are being encour-aged by governments seeking to decrease the burden on public enforcement action. Most recently, in April 2012, the U.K. government launched a consultation on how best to promote private damages ac-

DaMaGEs CLaiMs, from previous page

tions, including a proposal to introduce opt-out collective actions. At the European level, the Commission is expected to move forward in the next year or so toward its longstanding goal of reforming this area of law and ensuring that claimants have access to effective compensation. European antitrust damages actions are now a real-ity and cannot be ignored by companies operating in Europe, whether they might find themselves as potential claimants or defendants.

Nicholas Heaton is a litigation partner in the London office of Hogan Lovells. He specializes in antitrust damages actions, pen-sion disputes and pro-fessional negligence litigation.

Laura Patrick is a litigation associate in the London office of Hogan Lovells. Her commercial disputes practice specializes in antitrust damages ac-tions.

Endnotes:1 Art. 101 and 102 of the Treaty on the Functioning of the European Union.2 Masterfoods Ltd. v. HB Icecream Ltd. [2000] ECR 1-11369.3 Regulation (EC) No 864/2007 of the European Parliament and of the Council on the law applicable to non-contractual obligations (Rome II).4 Council Regulation (EC) No 44/2001 on jurisdic-tion and the recognition and enforcement of judg-ments in civil and commercial matters (the “Brussels Regulation”).5 For example, Case 13 O 23/09 [Kart] in the Re-gional Court of Dortmund, Germany.6 Art. 6(1) of the Brussels Regulation.7 See Provimi Ltd. v. Roche Products Ltd. [2003] 2 All ER (Comm) 683 and Cooper Tyre & Rubber Co. Ltd. v. Shell Chemicals UK Ltd. [2010] EWCA Civ 864.8 Case 13 O 23/09 [Kart] in the Regional Court of Dortmund, Germany.9 National Grid v. ABB & Others [2012] EWHC 869 (Ch.).10 Case C-360/09 Pfleiderer AG v. Bundeskartellamt.

N. Heaton

L. Patrick

Page 41: International law Quarterly 2012 Spring Issue

Page 41 Spring 2012 The International Law Quarterly

sovereign Bonds and the struggle to Limit Article 25 of ICsID

By Hrishikesh Hari, Washington, D.C.

IntroductionOn 4 August 2011, a tribunal of the In-

ternational Centre for Settlement of Invest-ment Disputes (“ICSID”) handed down what was arguably the most controversial decision of the year. In Abaclat and Others (Case Formerly known as Giovanna a Bec-cara and Others) v. Argentine Republic,1 the tribunal ruled 2-1 that despite silence on whether mass claims in a sovereign bond dispute were permissible under the ICSID Convention, ICSID Arbitration Rules, and the Argentina-Italy Bilateral Investment Treaty (“BIT”), there were no impediments to asserting jurisdiction.2 A strongly worded dissent issued on 28 Oc-tober 2011 argued that jurisdiction did not lie in Abaclat because, among other things, the sovereign bonds in question were not investments actionable before ICSID, and Argentina did not consent to a mass claim.3

While the mass-claims ruling is unprec-edented, the decision to admit sovereign bonds may prove to be the most significant aspect of Abaclat for the future of ICSID because of the type of financial instrument involved.4 Sovereign-debt crises give rise to an issue previously taken for granted: a state’s ability to pay. The Abaclat decision comes amid a series of ICSID rulings that constrain the policy space states have to rule for the public good in crises, exempli-fying what one commentator has character-ized as the “titanic struggle” on the future of investment law.5

The Contours of “Investment” under Article 25 ICsID

Article 25(1) of the ICSID Convention limits ICSID arbitral jurisdiction to legal disputes arising directly out of an “invest-ment” and requires “consent”6 of the par-ties.7 The definition of what constitutes an investment for the purposes of Article 25 has recently come under scrutiny. Despite their best efforts in 1962, the framers of ICSID ultimately agreed not to define the term “investment.”8 Developing countries pushed

for a narrow definition, closely tied to tra-ditional foreign direct investment, while developed countries pushed for a capacious definition of investment, encompassing many types of economic activity. This de-bate (and a bargain between developed and developing states to allow a broad range of foreign enterprise to be covered, while si-multaneously allowing states the right to opt out of specific types of investments through bilateral investment treaties)9 is why “in-vestment” was not expressly defined.

Historically, ICSID tribunals have been highly deferential, allowing an array of economic activity to constitute “invest-ment.”10 In his commentary, Professor Christoph Schruer references a number of factors for determining what qualifies as an Article 25 investment: (1) duration of the enterprise; (2) a measurable return to the in-vestor; (3) shared risk; (4) the substantiality of the commitment by the investor; and (5) significance to the state’s development.11 Schruer did not intend these criteria to be “jurisdictional requirements”; instead, he viewed these elements as common to investments contemplated under ICSID.12

Recently, cases have abandoned the defer-ential approach to ICSID’s jurisdiction and adopted a strict interpretation of whether a given activity constitutes an investment. The oft-cited origin of the strict approach is Salini Costruttori v. Morocco, which func-tionally treated Schruer’s investment criteria as a dispositive “test” for jurisdiction under Article 25, noting that no economic activity lasting less than two years could constitute an investment.13 While precedent is not binding in ICSID, subsequent tribunals began referencing the Schruer-Salini factors as limits to the reach of Article 25.14

The issue of whether a sovereign-debt instrument constitutes an Article 25 in-vestment has been previously addressed. The tribunal in Fedax v. Venezuela found promissory notes issued by Venezuela that were subsequently assigned to Fedax were an actionable investment.15 Venezuela ar-gued that the acquisition of a promissory note through assignment was a commercial transaction that does not comport with the vision of investment contemplated by the framers of the Convention.16 In rejecting Venezuela’s argument, the Fedax tribunal concluded that the promissory notes consti-tuted investments because they were issued under fundamental public interest—Ven-ezuela’s Public Credit Law.17 The Fedax tribunal did provide the caveat that purely commercial disputes fall outside Article 25’s jurisdictional ambit.18

Fedax set the stage for Abaclat. In dicta, the Fedax tribunal noted that “loans qualify as an investment within ICSID’s jurisdic-tion, as does, in given circumstances, the purchase of bonds.”19 Abaclat clarifies that in all circumstances sovereign bonds qualify as investments under Article 25, irrespective of the purpose or nature of the investment.

The Abaclat DecisionArgentina’s response to the December

2001 financial crisis has thus far been the subject of over forty-eight investor-state disputes.20 The Abaclat claims were precipi-

Page 42: International law Quarterly 2012 Spring Issue

Page 42 Spring 2012The International Law Quarterly

tated by Argentina’s default on roughly $100 billion in sovereign debt on 23 December 2001. Argentina’s suspension of payments on a large number of Italian bonds led eight major Italian banks to formulate Task Force Argentina (“TFA”) to negotiate restructur-ing debt with the Argentinian government. After refusing several debt restructuring proposals from Argentina, TFA obtained authority from 180,000 Italian investors aggrieved by Argentina’s December 2001 policies and initiated arbitration at ICSID in 2006 based on the Argentina-Italy BIT. In 2007, roughly two-thirds of the original claimants, totaling approximately $82 bil-lion in eligible debt, accepted Argentina’s exchange offer.21 The remaining claims total more than $1 billion.

The first matter before the Abaclat tribu-nal was whether the bonds at issue consti-tuted an investment within the meaning of the ICSID Convention and the Argentina-Italy BIT.22 The bond instruments con-tained choice clauses providing for dispute resolution in New York, Switzerland and other countries.23 Argentina’s argument was that bondholders had breach of con-

tract claims that ought to be resolved in accordance with the bond instruments, not claims alleging breach of the BIT. The tribunal found that, by invoking the 2001 financial crisis as a justification for its actions and by adopting emergency legislation “unilaterally modifying” the terms of the bonds, Argentina had acted as a sovereign, and thus its actions amounted to more than a breach of contract.”24

The Abaclat majority clashed with the dissent over the breadth of investment under Article 25. The majority explicitly rejected using the limiting Salini criteria, describing the approach as without merit.25 Instead, the panel chose a highly deferential test for whether the alleged investment fell within “the spirit and aim of Article 25.”26 The dissent argued that the purpose of in-cluding the term “investment” in Article 25 was to set an outer limit—a “hard-core” that parties may not negotiate around through BITS—on disputes that can be heard under ICSID.27 After engaging in a review of the drafting history of the Convention, the dis-sent stated that the purpose of the Conven-tion was to promote economic development

through foreign investment.28 The dissent advocated an ad hoc approach

to admissibility of sovereign bonds, tied more closely to the purpose of the invest-ment. There was strong disagreement re-garding absolute jurisdiction over financial products with “high velocity of circulation and remoteness . . . being traded within seconds at the touch of a button in capital markets, with no involvement or knowledge of the borrowing country.”29 This dissent found the majority approach to be “worlds apart from the direct foreign investment model, which is usually long negotiated and extensively embedded in the legal environ-ment of the host state.”30 The key message of the dissent is that while sovereign bonds are not disqualified per se as investments, there should be a strong presumption that they are, and the decision to bring these products in under Article 25 should be done on a case-by-case basis, not en masse.31

A Limiting Principle for Article 25

Adequate dispute resolution fora for

soVEREiGn BonDs, from previous page

Hogan Lovells is a global law firm with more than 40 offices around the world. Building on the foundations of our previous success as two firms, Hogan & Hartson and Lovells, Hogan Lovells is dedicated and equipped to help clients across the spectrum of their critical business and legal issues. We draw from our local market knowledge and international capabilities to provide exceptional service and creative advice to our clients.

www.hoganlovells.com

Page 43: International law Quarterly 2012 Spring Issue

Page 43 Spring 2012 The International Law Quarterly

sovereign-bond disputes are of paramount importance both for investors and states. The current legal regime, post Abaclat, dis-services both states and investors. Current remedies protecting sovereign creditors are generally ineffective. Countries typi-cally issue bonds under municipal law with waivers of immunity in foreign courts.32 In-vestors face difficulty collecting on awards won abroad against states because states typically have limited attachable assets abroad. To its credit, the Abaclat tribunal recognized the need for a legal framework to remedy wrongs for investors.33 In so doing, Abaclat departed from emerging ICSID precedent tying the definition of investment more closely to the vision of foreign direct investment contemplated by developing states in 196234 and may have made future sovereign debt restructurings significantly more complicated.35

Abaclat will likely make ICSID the venue of choice for resolving sovereign bond disputes, with a variety of important ramifications about which investors and states should be aware. First, in an envi-ronment where many developing countries are already questioning the legitimacy of ICSID—and even weighing continued par-ticipation—allowing arbitration of sover-eign bonds may be both bad policy and bad politics.36 Second, as investment arbitration and international financial law converge, one important question for policymakers is how arbitration of sovereign debt will im-pact future debt restructurings.37 One fear is that allowing arbitration of sovereign debt will encourage holdout litigation, where a majority of creditors accept a debt restruc-turing, but a minority of creditors chooses to sue for full repayment.38

Abaclat is significant because it exposes a chasm with respect to which state activities are fair game before ICSID. The definition of “investment” ought to be broad enough to accommodate the Convention’s goal of encouraging private investment, but the success of ICSID is predicated on consent of parties. If countries are leaving ICSID based on the view that ICSID has overreached, perhaps it is time to revisit the objections of developing countries.39 The path to achiev-ing multilateral consensus may be tortured,

but it may be necessary if ICSID is to have any chance of preserving its effectiveness, efficiency and legitimacy going forward.

In the absence of multilateral consensus, future ICSID tribunals ought to search for a limiting principle for Article 25 “invest-ments” that balances the interests of de-veloped and developing countries. Under a purposive test, a tribunal would look to whether the purpose of an investment was commercial or public. Not all sovereign bonds would be excluded with a purposive examination of investment. For example, bonds for general treasury or budgetary functions would not have a commercial purpose, but it is likely that bonds for a specific development project, such as in-frastructure development, would meet the commercial-purpose test.40 The Abaclat tribunal’s application of the purposive test was sloppy: the tribunal paid cursory atten-tion to the purpose of Argentina’s sovereign bonds, broadly reasoning that since the bonds contributed to Argentina’s economic development, it would be “irrelevant” to look into whether the funds were used as government spending or to pay down debt.41 Under such a rubric, virtually any transac-tion could be construed as an investment.

Another method of limiting Article 25 meaningfully can be found in United States Supreme Court jurisprudence examining the nature rather than the purpose of state action. In Republic of Argentina v. Weltover, Inc., the Court held that Argentina’s issuance of sovereign bonds and suspension of payments of sovereign bonds was not sovereign activ-ity, even when undertaken for the purpose of stabilizing the economy.42 The Court stated:

[B]ecause . . . the commercial character of an act by a foreign government is to be determined by reference to its “nature” rather than its “purpose,” the question is whether the particular actions that the foreign state performs are the type of actions by which a private party engages in trade and traffic or commerce, rather than whether the foreign government is acting with a profit motive or with the aim of fulfilling uniquely sovereign objectives.43

The Court found that Argentina had not acted as a regulator of the market, and there-fore the nature of the activity was commer-

cial and not sovereign. Under an evaluation that focuses on the nature of the transaction, it would be unlikely that the sovereign bonds at issue in Abaclat would be con-strued as commercial activity. In finding the nature of the transaction to be commercial, the tribunal could reason that a private corporation could carry out a restructuring similar to that implemented by a country.44

Until now, ICSID has been lauded for its efficiency when compared to national courts. In the words of ICSID’s former Secretary General, “There’s never been a case in which a sovereign has failed to pay an [ICSID] award.”45 This pristine record hangs in the balance as the Abaclat tribunal pens its decision on the merits and ultimately delivers an award later in 2012. The size of sovereign bonds, coupled with the volume of mass claims, may pose a threat to ICSID’s pristine record on repay-ment (if for no other reason than the fact that sovereign-bond crises are triggered because states are not able to pay in the first place) and have significant implications for both future sovereign-debt restructurings and the legitimacy of ICSID.

Hrishikesh Hari is an associate in the Washington, D.C. of-fice of Hogan Lovells. Mr. Hari is a 2011 graduate of Harvard Law School, where he served as editor-in-chief of the Harvard Human Rights Journal.

Endnotes:1 Abaclat and Others (Case formerly known as Giovanna a Beccara and Others) v. Argentine Repub-lic, ICSID Case No. ARB/07/5, Decision on Jurisdic-tion and Admissibility (4 Aug. 2011), http://italaw.com/documents/AbaclatDecisiononJurisdiction.pdf, [hereinafter Abaclat].2 Alison Ross, Abaclat Sweebs OGEMID Prize Board, GLobAL Arb. reV., 7 Feb. 2012, available at http://www.globalarbitrationreview.com/news/article/30151/abaclat-sweeps-ogemid-prize-board.3 Abaclat, supra note 1, (Professor Georges Abi-Saab, Dissenting Opinion, ¶ 46 ( 28 Oct. 2011), http://italaw.com/documents/Abaclat_Dissenting_Opin-ion.pdf, [hereinafter Abaclat Dissent]; see also S.I. Strong, Enforcing Class Arbitration in the Interna-tional Sphere: Due Process and Public Policy Con-cerns, 30 u. pA. J. int’L L. 1 (2008) (showing that

H. Hari

soVEREiGn BonDs, from previous page

Page 44: International law Quarterly 2012 Spring Issue

Page 44 Spring 2012The International Law Quarterly

there are unique challenges that result from coupling cross-border dispute resolution and mass claims).4 There is a great deal of commentary on the mass claims aspect of the Abaclat jurisdictional decision but very little on whether an Article 25 investment has been made. 5 Malaysian Historical Salvors v. Malaysia, ICSID Case No. ARB/05/10, Decision on Annulment, ¶ 62 (16 Apr. 2009) (Shahabuddeen, dissenting) (noting that jurisdictional questions mark a titanic struggle between the ideas of capital importing and capital exporting countries).6 Lucy Reed, Jan Paulsson, & Nigel Blackaby, Guide to icSid ArbitrAtion 35 (2004) (The consent requirement may be fulfilled in a variety of ways: legislation where the sovereign agrees to submit in-vestment disputes to arbitration; an arbitration clause in a contract between a sovereign and foreign inves-tor; or through a bilateral investment treaty (“BIT”) in which the sovereign agrees to resolve disputes through ICSID arbitration. In the case where consent is invoked through a BIT’s offer to arbitrate, an inves-tor accepts the offer by filing a request for arbitration. Italian investors in Abaclat accepted Argentina’s offer to arbitrate investment disputes contained within the Argentina-Italy BIT.).7 Convention on the Settlement of Investment Dis-putes Between States and Nationals of Other States Art. 25(1), 27 Aug. 1965, 17 U.S.T. 1270, 1290, 575 U.N.T.S. 159, 192 [hereinafter ICSID Convention], available at http://icsid.worldbank.org/ICSID/Stat-icFiles/basicdoc/CRR_English-final.pdf.8 See generally, Julian Davis Mortenson, The Mean-ing of “Investment”: Icsid’s Travaux and the Domain of International Investment Law, 51 hArV. int’L L.J. 257 (2010) (reviewing the drafting history of the IC-SID Convention and finding the Convention’s silence on the definition of “investment” in Article 25 was intentional). 9 Id.10 See, e.g., Gruslin v. Malaysia, ICSID Case No. ARB/99/3, Award, ¶¶ 13.5-13.6 (27 Nov. 2000), re-

soVEREiGn BonDs, from previous page

printed in 5 ICSID Rep. 483 (2006); Lanco Int’l, Inc. v. Argentine Republic, ICSID Case No. ARB/97/6, Preliminary Decision on Jurisdiction, P 48 (8 Dec. 1998), reprinted in 40 I.L.M. 457 (2001).11 Christoph H. Schruer, the icSid conVention: A commentAry, Art. 25, ¶ 122 (2001). 12 Id. at 122.13 Salini Costruttori, S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, ¶¶ 52-57 (23 July 2001), reprinted in 42 I.L.M. 609 (2003).14 Malaysian Historical Salvors v. Malaysia, ICSID Case No. ARB/05/10, Award on Jurisdiction, P 112 (17 May 2007)(declining jurisdiction because the venture amounted to mere “commercial risk” and not “investment risk” for the purpose of Article 25); Joy Mining v. Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction, P 57 (6 Aug. 2004), reprinted in 44 I.L.M. 73 (2005).15 Fedax v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction, ¶ 29 (11 July 1997), reprinted in 37 I.L.M. 1378 (1998) [hereinafter Fedax Jurisdiction].16 Id. ¶¶ 18-19.17 Id. ¶¶ 42-43.18 Id. ¶ 28.19 Id. ¶ 29.20 Luke Eric Peterson, Argentine Crisis Arbitration Awards Pile Up, but Investors Still Wait for a Pay-out, Law.com (25 June 2009), available at http:// just-investment.org/2009/07/argentinecrisis-arbitration-awards-pile-up-but-investors-still-wait-for-a-payout/.21 Abaclat, supra note 1, ¶ 77 (the offer allowed bondholders to choose from par bonds with the same principal but a lower interest rate than non-performing debt, discount bonds with reduced principal but a higher interest rate, or quasi-part bonds with a prin-cipal and interest rate falling between the other two bond options).22 Id. ¶¶ 362-67.23 Id. ¶ 340.

24 Id. ¶¶ 320-26.25 Id. ¶ 364.26 Id. 27 Abaclat Dissent, supra note 2, ¶ 45; Phoenix Action, Ltd. v. Czech Republic, ICSID Case No. ARB/06/5, Award, ¶ 96 (Apr. 15, 2009) (noting “[BITS] cannot contradict the definition of the ICSID Convention. In other words, they can confirm the ICSID notion or restrict it, but they cannot expand it in order to have access to ICSID.”)28 Abaclat Dissent, supra note 2, ¶ 50.29 Id. ¶ 57.30 Id.31 Id. ¶¶ 59-61.32 Abaclat, supra note 1, ¶ 82 (conceding many of the putative claimants in Abaclat stayed their lawsuits in New York to pursue a remedy before ICSID and that final judgments had already been entered in Germany and Italy).33 Id. ¶ 40.34 Mortenson, supra note 8, at 257.35 Michael Waibel, Opening Pandora’s Box: Sover-eign Bonds in International Arbitration, 101 Am. J. int’L L. 711, 718-32 (2007).36 Come and Get Me, economiSt, 18 Feb. 2012; thomAS m. FrAnck, FAirneSS in internAtionAL LAw And inStitutionS 7 (1995).37 Waibel, supra note 35, at 728; Abaclat, supra note 1, ¶ 41.38 Id.39 Come and Get Me, supra note 36.40 Waibel, supra note 35, at 728.41 Abaclat, supra note 1, ¶ 378.42 504 U.S. 607 (1992).43 Id.44 See Fedax Jurisdiction, supra note 15, ¶ 2845 Carolyn Kolker, When Nations Go Bust, 25 Am. LAw. 90, 92 (2003).

Call for Papers --The Institute for Transnational Arbitration The Executive Committee and Academic Council of the Institute for Transnational Arbitration (ITA) are proud to announce that the second annual ITA Winter Forum will take place in Miami on January 24-25, 2013.

Go to http://www.cailaw.org/ita/2013winforum_papers.pdf for more information on topics and criteria.

Selected papers will be announced by October 1, 2012. Authors selected for the Winter Forum must be prepared to circulate a substantially complete draft of their paper no later than December 20, 2012.

Contact Joe Matthews, co-chair of the winter forum, at [email protected] or (305) 761-2323 with any questions.

Page 45: International law Quarterly 2012 Spring Issue

Page 45 Spring 2012 The International Law Quarterly

Arbitration in Poland—A Modern Approach and Vivid Development

By Grzegorz Barszcz and agnieszka Majka, Warsaw, Poland

The history of Polish Commercial Arbitration

Arbitration in Poland has a long his-tory, and provisions on arbitration have traditionally been included in codes of civil procedure. One of the first acts containing provisions on arbitration was the Code of Civil Proceedings of 29 No-vember 1930, replaced later by the Code of Civil Proceedings (“CCP”) of 17 No-vember 1964 (which has remained the act governing arbitration in Poland). Both acts were seen to be modern, precise and flex-ible, and their initial provisions are deemed by legal scholars to still be relevant.1

Regardless of the availability of arbi-tration under the codes of civil proce-dure, the use of commercial arbitration was limited during the communist era. The majority of important companies were na-tionalized, and almost all branches of com-merce were governed by the monopoly of the state. The Act on National Commercial Arbitration of 23 October 1975 stipulated that disputes between companies, coopera-tives and other commercial entities owned by the state in whole or in part could be submitted only to the National Commercial Arbitration supervised by the Prime Min-ister (Państwowy Arbitraż Gospodarczy). Due to the fact that the Act on National Commercial Arbitration of 1975 contained strict provisions on the course of arbitration proceedings, composition of the tribunals, etc. (additionally detailed in Ordinances of the Council of Ministers), it can be said that commercial arbitration as we understand it was almost completely excluded (except for disputes with foreign entrepreneurs).

The Act on National Commercial Arbi-tration of 1975 lost its force in 1989. This allowed the thriving Polish companies to benefit from the existence of flexible laws on arbitration set forth in the CCP of 17 November 1964. Changes initiated after 1989, during the transformation of the socialist-style planned economy into a mar-ket economy, forced subsequent changes in

law and were aimed at implementation of global free-market standards into the Pol-ish legal system. In response to a growing demand for alternative dispute resolution procedures and arbitration, the CCP was amended by the Act of 28 July 2005, and the 1985 UNCITRAL Model Law on Inter-national Commercial Arbitration has been fully incorporated into the Polish legal system, making it a modern forum for arbi-trating both domestic and foreign disputes.

Party to International Conventions on Commercial Arbitration

Notwithstanding the limitations of ar-bitration use between Polish companies during the communist era, Poland remained a party to and signed almost all significant international conventions on arbitration:• the Geneva Protocol on Arbitration

Clauses of 24 September 1923, oblig-ing its signatories to observe arbitration agreements;

• the Geneva Convention on the Execu-tion of Foreign Arbitral Awards of 26 September 1927, supporting the 1923 Geneva Protocol on Arbitration Clauses;

• the New York Convention on the Rec-ognition and Enforcement of Foreign

Arbitral Awards of 10 June 1958 (some-times referred to herein as the “NYC”), which replaced both the 1923 and the 1927 Geneva Conventions; and

• the European Convention on Interna-tional Commercial Arbitration of 21 April 1961, supplementing the 1958 New York Convention in commercial relations between “East and West.”2

BITs

Poland is also a party to sixty-three bi-lateral investment treaties that were con-cluded after 1987, as well as the Energy Charter Treaty, but it is not a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 18 March

1965. Thus, in general, investment disputes involving Poland or Polish investors are to be settled by international arbitration tribunals appointed in accordance with the UNCITRAL Arbitration Rules (a few trea-ties allow the investor to submit the dispute to ICC or SCC or other permanent courts, but this should be treated as an exception). The majority of BITs, it should also be noted, envisage jurisdiction of the Interna-tional Centre for Settlement of Investment Disputes upon ratification by Poland of the Washington Convention, if Poland would sign such treaty.

International soft LawRegardless of the lack of its official en-

actment or implementation, Polish arbitra-tion practitioners often adopt international soft law instruments within their domestic practice. These are various guidelines pri-marily designed to accompany the main governing rules or procedure regarding certain matters. The most widely known and recommended guidelines in Poland are:• IBA Guidelines on Conflicts of Interests

in International Arbitration;• IBA Rules on the Taking of Evidence in

International Commercial Arbitration;

Page 46: International law Quarterly 2012 Spring Issue

Page 46 Spring 2012The International Law Quarterly

aRBitRation in PoLanD, from previous page

• ICDR Guidelines on Exchange of In-formation;

• UNCITRAL Notes on Organizing Arbi-tral Proceedings;

• Recommendations to assist arbitral in-stitutions and other interested bodies with regard to arbitrations under UN-CITRAL Arbitration Rules; and

• Techniques for Controlling Time and Costs in Arbitration, prepared by the ICC.

Polish Arbitration CourtsThe majority of arbitration disputes are

settled by Polish permanent arbitration courts that can be divided into the fol-lowing categories: main arbitration courts of a nationwide reach; arbitration courts established for the needs of specific sectors of commerce; and minor arbitration courts.

The most recognized permanent Polish arbitration court is the Court of Arbitration at the Polish Chamber of Commerce. In

operation since 1 January 1950, it is one of the oldest arbitration courts in Central and Eastern Europe. The Court of Arbitration at the Polish Chamber of Commerce (“SA KIG”) resolves approximately 400 disputes yearly with an aggregate value reaching approximately €400,000,000. The court has settled over 11,000 disputes since its establishment.3

The second most important permanent Polish arbitration court is the Court of Arbitration at the Polish Confederation of Private Employers Lewiatan (“SA Lewi-atan”). The court was established in 2005 by prominent Polish lawyers, primarily associated with Polish offices of the most renown international law firms, as an al-ternative to the SA KIG. Since its estab-lishment, the SA Lewiatan has decided approximately fifty cases.4

Both the SA KIG and the SA Lewiatan have modern arbitration rules based on the UNCITRAL Model Law and other inter-

national soft law instruments. Both courts have internal codes of ethics for arbitrators, compliant with worldwide standards. The rules on costs of both courts are trans-parent—the fees of the SA Lewiatan are slightly lower than the fees of the SA KIG.

Several courts have been established for the needs of specific sectors of commerce, among which at least the following institu-tions should be mentioned:(1) Court of Arbitration at the Polish Bank

Association;5

(2) Court of Arbitration at the Gdynia Cot-ton Association6 (the oldest Polish ar-bitration court, operating since 1938);

(3) Court of Arbitration at the Wielkopol-ska Chamber of Construction;7

(4) Court of Arbitration for Internet Do-mains at the Polish Chamber of Infor-mation Technology and Telecommuni-cations;8

(5) International Court of Arbitration at the Polish Chamber of Maritime Com-

Page 47: International law Quarterly 2012 Spring Issue

Page 47 Spring 2012 The International Law Quarterly

merce in Gdynia;9 and(6) Court of Arbitration at the Polish In-

ternational Freight Forwarders Asso-ciation.10

Minor arbitration courts are associated with regional chambers of commerce—such as the chamber of commerce in Gdansk, Cracow, Tarnowskie Góry, Wielkopolska, Lower Silesia—and regional chambers of legal advisers.

Additionally, a number of arbitration dis-putes are resolved by ad hoc arbitration courts. Subject to specific cases, the majority of ad hoc arbitration clauses refer to UN-CITRAL arbitration rules and the arbitra-tion tribunal composed of three arbitrators. Foreign arbitration courts such as the ICC International Court of Arbitration or Vienna International Arbitral Centre are also quite popular among Polish entrepreneurs and rather preferred by foreign entrepreneurs doing business in Poland.

Arbitration AgreementAn arbitration agreement can either be

contained in the main contract in the form of an arbitration clause, or it can be a sepa-rate agreement of a procedural nature. The arbitral arrangement can be concluded be-fore any disagreement between the parties arises or after a dispute emerges, although the latter case would obviously be a dif-ficult time to do so.

A simple written arbitration agreement is sufficient. The requirement of a written arbitration agreement is fulfilled also when the agreement is contained in an exchange of documents or statements made by means of communication that provide a record of their content. A reference in a contract to a document containing an arbitration clause is also deemed to be a written form, provided that the contract is in writing and the reference is such as to make that clause part of the contract.

As in most jurisdictions, the provisions of the arbitration agreement are ineffec-tive if they infringe the principle of equal-ity of the parties; in particular, entitling only one of the parties to file a request for arbitration or a statement of claim to a state court.

ArbitrabilityBy an arbitration agreement, the parties

are free to submit to arbitration all pro-prietary or non-proprietary disputes that can be subject to a court settlement. In practice, this means the parties are allowed to submit to arbitration those disputes in which they retain their freedom to dispose of the subject of the dispute (e.g., claims for payment). Some statutory provisions (lex specialis) may, however, prevent cer-tain disputes from being subjected to arbi-tration; e.g., certain intellectual property disputes. Thus, the arbitration agreement and the decision on its conclusion should always be tailored to the type of contract and the parties thereto.

Interim MeasuresInterim measures can be granted both by

the state courts and the arbitration courts. By way of example, the rules of both the SA KIG and the SA Lewiatan contain relevant provisions in this respect. The arbitration rules of the SA Lewiatan set forth a pro-cedure for appointment of an emergency arbitrator authorized to issue a ruling on an interim measure by the time the arbitral tribunal is constituted.11 The CCP explic-itly states that interim measures can be provided even if the place of arbitration is outside the borders of the Republic of Poland or has not been determined.

The decision upon interim measures is enforced by the court bailiff (who in Poland has the status of a public official but runs a private office), based on the same rules as the enforcement of the decision on the interim measures issued by the state court (or other competent authority, depending on type of the procedure).

Annulment of Arbitral AwardsUnder Polish law, annulment of an ar-

bitral award by a state court is the sole method of challenging an arbitral award. There are no other ordinary means that would allow recourse against such award except when the parties had foreseen a second-instance arbitral tribunal. Even then, though, a state court would have the

power to control the final decision of the second-tier tribunal. In this respect, the Polish arbitration law adopted the formula provided in Article 34 of the UNCITRAL Model law that allows for setting aside a defective arbitral award.

Under Polish law and doctrine, the power to submit an award to judicial review can-not be excluded by an agreement. The respective provision of the Polish CCP containing the annulment procedure is of a mandatory nature. Setting aside is possible both against an award issued according to the CCP and under the applicable arbitra-tion rules whenever the place of arbitration or place of award is Poland.

The Polish Supreme Court12 has ruled that the scope of control is restricted to formal matters and is limited to assessing whether the decision as such conforms to the Polish legal order. The court is therefore not permitted to engage in investigating the award on the merits; i.e., re-determining the facts and law. As a result, it can only either cancel the award in part or in full, or dismiss the claim for annulment.

ProcedureThe claim for annulment is limited in time

and must be filed within three months from the date of receipt of the arbitral award.

The court with jurisdiction over the claim is one that would be involved if the case had not been submitted to arbitration. In terms of scope of review, the court is lim-ited by the party’s claim.

A decision of a first-instance court as to the claim for setting aside does not end the annulment procedure, a matter that has been the subject of criticism. The parties have the right to appeal the court’s deci-sion on general terms to a second-instance court. Further, a binding award of a second-instance court can be subjected to cassation by the Supreme Court if it fulfills statutory requirements. The annulment procedure may therefore last a long time, which can considerably diminish the major advan-tages of arbitration.

Grounds for AnnulmentThe grounds for setting the award aside

aRBitRation in PoLanD, from previous page

Page 48: International law Quarterly 2012 Spring Issue

Page 48 Spring 2012The International Law Quarterly

aRBitRation in PoLanD, from previous page

are limited to the grounds stipulated in Article 1206 CCP. A party can request that the award be set aside only if:• there was no arbitration agreement or

the arbitration agreement was invalid, ineffective or ceased to be binding pur-suant to the law applicable thereto; or

• the party making the application was not given proper notice of the appoint-ment of an arbitrator or of the arbitral proceedings or was otherwise unable to defend its rights at the court of arbi-tration; or

• the award deals with a dispute not con-templated by or not falling within the terms of the submission to arbitration, or exceeds the scope of the submission to arbitration, provided that, if the deci-sions on matters submitted to arbitration can be separated from those not so sub-mitted or excessive, only that part of the award containing decisions on matters not submitted to arbitration or exceeding the scope of the submission may be set aside; however, exceeding the scope of submission to arbitration cannot be the reason for setting aside unless a party to the proceedings previously objected to deciding claims beyond what had been agreed upon for arbitration; or

• the composition of the arbitral tribunal or the principles of the arbitral proce-dure were not in accordance with the law or agreement of the parties; or

• the award was gained through a criminal act or issued on the basis of a forged or altered document; or

• a valid court decision had been issued in the same case between the same parties.

The above grounds are taken into con-sideration by the court only insofar as they are raised by a party, while the additional two provided in Article 1206 CCP are con-sidered by the court ex officio, whether or not a party mentioned them in the claim.

The court therefore will always set an award aside if it determines that:• under the applicable law the dispute

could not be resolved in arbitration; or• the award is contrary to the fundamen-

tal principles of the Polish legal order (public policy clause).

Public Policy ClauseWhether or not the award conforms to

the fundamental principles of the Polish legal order is the sole ground on which the state court is authorized to control the award as to the merits. Nonetheless, it should be continually emphasized that it is neither the parties’ agreement nor the matter under dispute that is subject to evaluation but the award itself. The judicial review is not aimed at correcting the award but rather at protecting the legal order from the damaging effects of a faulty award. Therefore, the courts are not expected to declare that the arbitral tribunal breached the law in a certain manner but instead that an award was passed that itself breaches the fundamental principles of the Polish legal order.13

What is expected is that the court review whether the award respects the main princi-ples of the constitutional legal order, as well as the leading principles of the respective fields of law, both material and procedural.14

suspension for Purposes of Correcting the Award

Under Article 1209 CCP the state court can, upon the request of a party, suspend the proceedings in order to allow the ar-bitral tribunal to resume the proceedings for purposes of correcting the award by removing the defects that give grounds for setting aside.

The arbitral tribunal is not entirely free to amend the award since it is obliged to carry out a review according to the state court’s indications. An award that is given as a result of such exercise has the status of a supplementary award. Parties are not allowed, however, to challenge the supple-mentary award independently.

Consequences of setting Aside

Once the arbitral award is finally and bindingly set aside, the legal situation caused by such an award no longer exists.

Setting aside does not, however, cause the arbitration clause to expire, unless the par-ties agreed otherwise. More than that, par-ties are even free to submit a dispute to the same panel of arbitrators. Further conduct depends, however, primarily on the reason for annulment. If the state court decided that there was no arbitration clause, the parties will likely submit their dispute to a state court or conclude a new arbitration agreement. Or, if the award was issued by a panel of arbitrators constituted in breach of mandatory law, it is unlikely the same tribunal will be chosen.

Recognition and enforcement of Arbitral Awards

An arbitral award, or a settlement con-cluded before an arbitral tribunal, is binding upon the parties from the time the award or settlement is signed by the arbitrators. The binding force thereof, however, does not give any objective advantages to the parties until the time the award is enforced or rec-ognized in another country. Only then is the award equally effective as a judgment of a national court. This is especially true when the assets of the losing party are located in the country of enforcement, or the winning party seeks further legal advantages from the recognition of the award.

Poland is perceived as one of the most liberal and arbitration-friendly jurisdic-tions, where recognition and enforcement can be sought under the New York Conven-tion and under similar rules of the CCP for other foreign arbitral awards outside the scope of NYC signatory states.15 Unlike recognition and enforcement under the NYC, there is no requirement of reciprocity with respect to recognition and enforce-ment under the CCP.

ProcedureRecognition or enforcement are possible

upon a motion of a party, filed along with an original or certified copy of the arbitral award.

The claim is filed in a state court—either the Regional (rejonowy) or Circuit Court (okręgowy) that would otherwise be com-

Page 49: International law Quarterly 2012 Spring Issue

Page 49 Spring 2012 The International Law Quarterly

aRBitRation in PoLanD, from previous page

petent to resolve the dispute had the parties not concluded an arbitration agreement.

If the award that is subject to enforce-ment or recognition was rendered in Po-land, the court decides upon the claim at a sitting in camera. This means that the parties do not participate and have no knowledge that such claim is being con-sidered. To the contrary, arbitral awards or settlements issued abroad are recognized or enforced during a court hearing.

Upon the end of the enforcement pro-cedure, the arbitral award is enforced by the court bailiff based on the same rules as the enforcement of the decision on interim measures issued by the state court (or other competent authority, depending on the type of the procedure).

Grounds for Refusal of enforcement or Recognition

Refusal to recognize or enforce domes-tic arbitral awards can be based upon two grounds: (1) that under Polish law the dispute could not be submitted to arbitra-tion (is non-arbitrable); or (2) recognition

or enforcement of the arbitral award or a settlement would be contrary to the funda-mental principles of the Polish legal order (public policy clause). These grounds for refusal are considered by the court ex of-ficio and do not require an explicit request by the party.

Recognition or enforcement of awards issued abroad (in countries other than the signatory states of the NYC) can, except for reasons mentioned above, be refused on the grounds raised by a party that:• there was no arbitration agreement or

the arbitration agreement was invalid, ineffective or ceased to be binding pur-suant to the applicable law;

• a party was not duly notified of the appointment of an arbitrator, or of the arbitration proceedings, or was in any other way deprived of the possibility to defend its rights;

• the award refers to a dispute not contem-plated by an arbitration agreement or exceeds the scope of such agreement; if, however, the decision on matters within the scope of an arbitration agreement

can be separated from the decision on matters not contemplated by or exceed-ing the scope of this agreement, the refusal can concern only the matters that are not contemplated by, or that remain beyond the scope of, the agreement;

• the composition of the arbitral tribunal or the arbitral proceedings did not con-form to the parties’ agreement or—if there was no such agreement—did not conform to the law of the state where the arbitral proceedings took place;

• the arbitral award has not yet become binding upon the parties or has been set aside or its enforcement has been suspended by the court of a state where or under the law of which the award was issued.

Last, but not least, recognition or en-forcement of arbitral awards and settle-ments can be refused pursuant to Article V of the New York Convention if a claim is lodged with respect to an award originating from a NYC signatory state. The grounds for refusal are the same in all jurisdictions of NYC signatory states and similar to

Page 50: International law Quarterly 2012 Spring Issue

Page 50 Spring 2012The International Law Quarterly

those under the CCP.

enforcement of an Annulled Award

Under Article 1216 CCP, a court de-ciding upon a claim for recognition or enforcement of an arbitral award has the right to postpone its decision once a claim for annulment has been filed.

Polish law does not, however, provide for what happens if an arbitral award, pre-viously recognized or enforced in Poland, is subsequently set aside in its country of origin.

Polish legal doctrine16 has established that the decision on setting aside takes precedence over the recognition or enforce-ment. As a result, the enforcement of an arbitral award should not take place at all or should be discontinued.

The new York Convention Versus the european Convention

Detailed analysis of the above conven-tions exceeds the scope of this paper. Worth mentioning, however, is that Article IX of the European Convention limits the appli-cation of Article V (1) (e) of the New York Convention solely to cases of setting aside the arbitral award under Article IX, which does not provide for the setting aside of an arbitral award on the basis of lack of arbi-trability or a violation of public policy. Set-ting aside an arbitral award in the European Convention contracting state constitutes a ground for the refusal of recognition or enforcement in another contracting state only if such setting aside takes place due to the reasons set forth in the European Convention. Thus, if an arbitration award was successfully set aside in its country of origin and the setting aside was based on the lack of arbitrability or a violation of public policy, the courts of the European Convention contracting states may allow enforcement of such award.17

Why Poland?Arbitration in Poland has become in-

creasingly popular as a method of resolv-

ing disputes. More and more commercial disputes are submitted to arbitration, both under domestic and foreign regimes. Fur-ther, since Polish entrepreneurs are parties to international commercial contracts, they are often involved in high-profile arbitra-tions inside and outside of the country. This is followed by post-arbitration procedures; i.e., the setting aside and enforcement of awards domestically, which causes this sphere of law to develop rapidly.

Arbitration in Poland is subject to con-stant and vivid development. Poland can be proud to offer a neutral venue with modern arbitration laws and rules, renown arbitra-tors with expertise in various fields and language skills, and experienced arbitration counsels. These provide a sufficient guar-antee that arbitration and post-arbitration procedures in Poland are conducted with a modern approach according to acknowl-edged global standards.

Grzegorz Barszcz is an attorney at Hogan Lovells’ Warsaw office. He works in all areas of commercial and corporate practice in-cluding mergers and acquisitions (domestic and cross-border), as well as arbitration and

litigation. He is a member of the Interna-tional Legal Fraternity of Phi Delta Phi, and since 2008, has been a member of the young practitioners’ forums at Association Suisse de l’Arbitrage (ASA) and the London Court of International Arbitration (LCIA).

A g n i e s z k a M a -jka works at Hogan Lovells’ Warsaw office as a member of the life sciences and product li-ability practice. She is a Ph.D student at the University of Munich specializing in interna-tional commercial arbi-

tration and is a trainee at the Warsaw Bar of Legal Advisors. She provides services to Polish and foreign companies in litigation

and arbitration proceedings and counseling in product liability and pharmaceutical law. Ms. Majka is a member of the German-Polish Lawyers’ Association (Deutsch-Polnische Juristen Verenigung e.V.), German Arbitra-tion Institution (DIS - Deutsche Institution für Schiedsgerichtsbarkeit) and the London Court of International Arbitration (LCIA).

Endnotes:1 See Andrzej Kakolecki & Piotr Nowaczyk, Sourc-es of law in commercial arbitration – Polish and in-ternational, in 8 system prawa hanDlowego, arbitraz hanDlowy (CH Beck, Warsaw) (2010).2 See id.3 See the website of the Court of Arbitration at the Polish Chamber of Commerce at http://www.sakig.pl.4 See P. Bielarczyk, General Overview of Arbitra-tion Practice, in ArbitrAtion in poLAnd (The Court of Arbitration at the Polish Chamber of Commerce) 2011.5 See http://www.zbp.pl.6 See http://www.gca.org.pl.7 See http://www.wib.com.pl.8 See http://www.piit.org.pl.9 See http://www.kigm.pl.10 See http://www.pisil.pl.11 See Rules of the Court of Arbitration at PKPP Lewiatan at http://www.sadarbitrazowy.org.pl.12 Decision of the Supreme Court of 11 May 2007, case No. I CSK 82/07; decision of the Supreme Court of 21 Dec. 2004, case No. I CK 405/2004; decision of the Supreme Court of 6 May 1936, case No. I C 1914/35; decision of the Supreme Court of 6 Jan. 1961, case No. II CR 532/59.13 See, e.g., decision of the Supreme Court of 14 Nov. 1960, case No. II CR 1044/59; decision of a Court of Appeals in Warsaw of 29 May 2000, case No. I ACa 65/00.14 T. Ereciński & K. Weitz, Sąd arbitrażowy (Arbi-trAtion) 369 (Lexis Nexis, Warsaw) (2008).15 R. Morek & W. Sadowski, Recognition and En-forcement of Arbitral Awards in Poland, in ArbitrA-tion in poLAnd (The Court of Arbitration at the Polish Chamber of Commerce, Warsaw) (2011).16 See T. Ereciński & K. Weitz,, supra note 14, at 379; R.Morek, Mediacja i arbitraż (mediAtion And ArbitrAtion) 292 (C.H.Beck, Warsaw) (2006); M. łaszczuk & J. Szpara, Postępowania postarbitrażowe (Post-Arbitration Proceeding”), in A. Szumański, arbitraż handlowy (commerciAL ArbitrAtion) 642 (C.H.Beck, Warsaw) (2010).17 See Pawel Pietkiewicz, “Legal and Organizational Framework of Arbitration in Poland,” in ArbitrAtion in poLAnd (The Court of Arbitration at the Polish Chamber of Commerce Warsaw) (2011).

aRBitRation in PoLanD, from previous page

G. Barszcz

A Majka

Page 51: International law Quarterly 2012 Spring Issue

Page 51 Spring 2012 The International Law Quarterly

Avoiding Litigation in France by Properly Terminating Contractual Relationships

By sylvie Gallage-alwis and Constance tilliard, Paris, France

A contract formally estab-lishes the intent of the parties to be bound in a commercial relationship. In principle, parties to a contract are not free to ter-minate the relationship unilater-ally or prematurely. In practice, however, one of the parties may wish to terminate the agreement before its predetermined end. In such a case, significant precau-tions must be taken to avoid be-ing held liable by French courts.

To what extent and under what conditions a party may terminate a contract without the partner’s consent primarily will depend on the duration of the contract in ques-tion. Indeed, rules differ depending on whether the contract has been conclud-ed for a fixed or an indefinite period of time. Obviously, the reason for desiring to terminate a contract is also important. A termination may result from contrac-tual breaches committed by the partner. Frequently, however, even in the absence of a breach by one party, the other party still wishes to free itself from the contract for internal purposes such as financial dif-ficulties or a change in business strategy.

When drafting a contract, it is possible to plan for these exigencies without impeding the celerity of trade. Additionally, legisla-tion and case law supply procedures for ending a contractual relationship.

This article seeks to present the options offered by French law to terminate a con-tract, as well as the conditions to implement such a termination and the management of post-contractual relationships in order to enable withdrawing parties to avoid li-ability and even minimize costs resulting from the termination.

Options to terminate a contract before its stated period

In drafting the contract, a party should provide for its right to withdraw as precisely as possible to avoid any future complication. In the event this is not the

case, legislation and case law subject the party wishing to withdraw to certain conditions.

Anticipate termination upon drafting of the contract

The contract is, above all, an instrument whereby parties define their mutual inten-tions regarding the commercial relation-ship. Parties can, therefore, specify the circumstances where they will be able to end the relationship. A termination can, in the first instance, be used as a sanction in the event of a contractual breach com-mitted by one of the partners. Parties also may decide that they can end the contract at their discretion without having to prove the legitimacy of the decision.

Provide for the possibility of sanctioning the partner in the event of a breach

When one of the parties fails to perform its obligations, the law provides that the court must acknowledge these breaches and order the annulment of the contract (Article 1184, paragraph 3, of the French Civil Code).

To avoid having to go before the courts, however, which is often a very long process with unforeseen hazards, the parties can decide to include a termination clause in the contract. This clause will enable the party

who is the victim of a contrac-tual breach to end the contract.

In order to be taken into ac-count by the courts, termination clauses must be drafted with precision so that the terms are entirely unambiguous. Thus, it is necessary to state that the contract will be automatically terminated, without any court intervention, as an exception to Article 1184, paragraph 3, of the French Civil Code. Further, the beneficiary of the clause should also be specified (it may be one of the parties or both) as well as the method of notifying the other

party of the breach.Similarly, enumerating the contractual

breaches that will give rise to an early termination of the contract is highly recom-mended. These may be different for each party. Non-compliance with an exclusiv-ity clause or repeated lack of payment for a service may thus trigger a termination clause. The parties may also decide to specify the severity of the breach required to enable termination of the contract—whether total or partial non-performance, serious or not very significant.

Conversely, the drafting of a general provision stating that non-performance of obligations under the contract may give rise to its termination at any time, even though legally valid, is not advisable. Besides the fact that such a provision weakens the contract insofar as it gives rise to numerous possibilities to terminate it, such a clause likely will be restrictively interpreted by judges ruling on the merits.

Rules relating to contracts concluded with consumers, it should be noted, are different in that such contracts may not be manifestly unbalanced.

negotiate the ability to terminate the contract at one’s convenience without any breach

The parties may also include a unilateral termination clause enabling them to termi-

Page 52: International law Quarterly 2012 Spring Issue

Page 52 Spring 2012The International Law Quarterly

nate the contract at any time, whatever the reason and regardless of any contractual breach by one of the parties.

Another way of wording the clause is to list certain objective elements that will enable a party to trigger the termination. For instance, a change of control of the company (or even the significant acquisi-tion of its share capital by a competitor), a change of management, the loss of a mar-ket, or even financial difficulties of one of the parties (decrease of revenue, etc.) may authorize the termination. A termination will not be awarded by the courts, however, for bankruptcy of the contractual partner.

A contract clause may also anticipate regulatory and legislative changes, such as modifications of advantageous tax mea-sures that may lead to a loss of financial in-terest in the contract for one of the parties.

A termination clause must not introduce any significant imbalance between the par-ties (Article L. 442-6, I, 2° of the French Commercial Code). Therefore, each should have the ability to terminate the contract unilaterally. The parties shall thus mutu-ally benefit from the right to terminate, but the elements triggering such right may be different for each party. Another option con-sists in implementing an indemnity that will compensate for the financial consequences of the termination and the loss of profit for the party sustaining it. Such compensation may be calculated according to previously invoiced services and the time still to be covered. When the performance of the ser-vice provided by one of the parties requires significant investments at the start of the contract, the clause may also provide that the termination will be awarded only after a certain number of months or years, which should ensure that the party will secure a minimum return on the invested amounts. As discussed in more detail later, a notice period—which may increase depending on the number of years of contract perfor-mance—should also be included.

During the contract, choose appropriate legal options

If the contract does not include at least one of the two clauses described above,

legislation and case law have created other options that may be summarized as follows: In the case of a fixed-term contract:

it is necessary to prove that the party breached its contractual obligations in a sufficiently serious manner;

In the case of a permanent contract: it is necessary to comply with a sufficient notice period (which notably takes into account the length of the commercial relationship and the economic depen-dence of the party) or to prove a suf-ficiently serious contractual breach.

In the event of a contractual breach, the drawbacks of an action before the courts

When, during the contract, one of the parties fails to perform its obligations, it is possible to initiate an action before the courts, which will acknowledge the breach and order the end of the contract.

Judges, however, have sovereign power of assessment: if the breach does not nec-essarily give rise to a loss, they will order the end of the contract only if they consider the breach sufficiently serious. The judges will take objective elements into account (the general terms of the agreement and the specific obligations of the parties), as well as more subjective elements such as the good or bad faith of the parties. Courts have found that the aggressive, abusive and threatening behaviour of a co-contractor could justify a termination. Similarly, a significant delay has been considered a sufficiently serious breach to justify the ter-mination of the contract insofar as several formal notices had remained unanswered. Judges ruling on the merits also ordered the termination of a works contract follow-ing the contractor’s non-compliance with special technical specifications.

After an examination of the facts of the case, the court may decide that the breach is not sufficiently serious to justify the termi-nation and then solely allocate damages to the claimant. The court also has the option of maintaining the contract by granting a period of grace to the debtor to allow the lat-ter time to perform its obligations. The party choosing this option faces legal proceedings that are often unpredictable and slow.

In the event of a breach, the risks of an extrajudicial unilateral termination

To avoid the above drawbacks, the party-victim of a contractual breach can also notify of the termination without bringing an action before the courts. Indeed, case law has acknowledged the unilateral ter-mination of a contract where a party, under fallacious pretexts, did not pay its invoices. This method has been pursued in the case of a unilateral modification (increase of the prices of the products sold) of a distribu-tion contract. In order to adopt this course of action, however, the breach must create a serious situation requiring an immediate termination of the contractual relationship. Indeed, the party that is not at the origin of the termination will always have the option of bringing an action before a court for the latter to note the irregularity of the termi-nation. The party terminating the contract thus faces a subsequent sanction if it cannot prove the seriousness of the breach. The validity of the contract may be ordered, as well as the allocation of damages on the ground of abusive termination.

In the absence of any breach, the right to terminate a permanent contract

When a contract is established for an in-definite period, it is acknowledged that the parties have the right to terminate the rela-tionship at any time subject to compliance with a sufficient notice period pursuant to several criteria laid down by case law re-lating to Article 442-6 of the French Com-mercial Code, in particular. This principle is a consequence of the prohibition of per-manent undertakings, and its purpose is to protect the partners’ freedom and promote free competition between commercial play-ers. This right, however, is awarded only in the presence of a permanent contract.

The signatory to a fixed-term contract who stops performing its obligations with-out any valid reason would incur liability, and the enforcement of the contract could be ordered in addition to the award of damages.

Minimize the risks of litigation when implementing the right to terminate

Whether the termination results from re-

aVoiDinG LitiGation in FRanCE, from previous page

Page 53: International law Quarterly 2012 Spring Issue

Page 53 Spring 2012 The International Law Quarterly

peated breaches or whether it is sought for personal reasons of the terminating party, only compliance with the terms govern-ing the right to terminate enables a party to minimize the risks incurred during this process and the resulting cost.

In the event of contractual breaches, ensure one’s advantage

Notify of a breach upon first occurrence

When one of the parties fails to perform its obligations—for instance, with an incom-plete or late delivery—it is essential to notify such party of its breaches in writing immedi-ately. If the breaches continue, they should also be recorded in writing for purposes of proof in subsequent court proceedings.

Remain courteous and vigilant despite the partner’s contractual breaches

During the entire termination process of the contractual relationship, the party sus-taining the breaches must remain courteous. Indeed, any disrespectful, denigrating or aggressive email or letter may be used by the opposing party to assert the bad faith of the party wishing to withdraw from the relationship.

Send a formal notice to the partner for the latter to perform its obligations

When the contractual breach continues without any possibility of finding a com-mercial solution, a formal notice must be sent to the party requesting the latter to perform its obligations. In the presence of a termination clause, it will be necessary to draft a letter with acknowledgment of receipt mentioning the clause and listing the breaches in question. The time granted

to the partner to become compliant and end all breaches must be clearly mentioned.

The clause must be implemented in good faith so the formal notice must truly en-able the party to become compliant. Thus, orders to pay should not be sent during the holidays when the premises of the party are closed, and the latter must not be provided with a time period that would not objectively enable it to become compliant.

Moreover, the implementation of the clause will seem all the more well-founded when the party-victim of the breaches seeks to end the contract immediately rather than tolerating several breaches without any reaction over a period of time before suddenly implementing the termination clause. This is why written communication of breaches suffered must be preferred to telephone conversations or in-person con-tacts that are difficult to prove.

When a party chooses to bring an action before the courts, the legal claim acts as a formal notice. The claim will be all the more justified if the party will be able to prove that the other side was granted sev-eral opportunities to become compliant, without any effect.

In the event of a termination for personal purposes, enable the party to limit its resulting loss of profit

Continue to perform the obligations during the notice period

When the termination occurs for person-al reasons, in the absence of any contractual breach by the other side, it is essential to give the latter a notice period at the end of which the termination will become effec-tive. Since 1996, Article L. 442-6, I, 5° of the French Commercial Code sanctions suddenly terminating an established com-

mercial relationship without a notice period that takes into account the length of the relationship.

This notice period is a safety period enabling the party to reorganize its activity and address the market to find substitution solutions, thus minimizing the economic consequences of the end of the commer-cial relationship. During this period, it is therefore essential to continue to perform the contract in good faith. Failing such, liability could be incurred.

Estimate the appropriate duration of the notice period

The duration of the notice period usually depends on the length of the commercial relationship. Case law, however, also tends to take into account the investments made by the party, the time eventually necessary for the party’s conversion and even its economic dependence towards the author of the termination.

When a notice period has been provided for, it will be taken into account by the courts. The courts may decide, however, that it does not meet the legal requirements and must be extended. As proof of good faith, it may be useful in such a case to offer to extend by a few months the period provided for in the contract.

What constitutes an adequate notice pe-riod is difficult to assess because case law is difficult to generalize. For a commercial relationship of fourteen years, the Lyon Court of Appeal held that a notice period of four months was sufficient, while a pe-riod of eighteen months has been granted by the Paris Court of Appeal for the same length of commercial relationships. Before taking the step of terminating a contract, it is therefore highly advisable to examine the case law corresponding to the activity

aVoiDinG LitiGation in FRanCE, from previous page

2012 Florida Bar Midyear Meetingseptember 19-22, 2012Buena Vista Palace, Walt Disney WorldLake Buena Vista, FL

Page 54: International law Quarterly 2012 Spring Issue

Page 54 Spring 2012The International Law Quarterly

sector concerned and record the decisions handed down based on length of the com-mercial relationship, economic dependence of a commercial partner, possibility of find-ing a substitution partner, or amount of the investments made.

Be warned of the sanctions to be incurred

In the event of non-compliance with a reasonable notice period, the author of the sudden termination may incur tort liability, provided that the partner proves that it com-mitted a fault having caused a loss. This loss is often calculated by taking into ac-count the gross margin that could have been generated by the party during the mandated notice period. Certain courts have also granted additional compensation in the event of significant investments made by the party just before the termination or in the presence of vexatious behavior of the author of the termination. This should prevent a situation in which one side leads the other to believe that the contract will be renewed or directly encourages the latter to make investments, when in fact it is known that a termination will occur in the near future. Further, any denigrating act or act of unfair competition is prohibited. A specific loss could also be granted on this ground.

Additionally, it seems that the courts are starting to consider the forced validity of the contract in the event of an abusive ter-mination. The possibility of assessing the cost that an abusive termination could rep-resent compared to the cost of continuing to perform the contract during the notice period is thus no longer relevant.

Organize post-contractual relationships

When the parties invoke their right to terminate a contract at their discretion, the termination will apply only for the future.

Conversely, when the termination results from contractual breaches of one side, the parties must be returned to the situation they were in at the time of the first breach. In this regard, the court must order restitu-tions: they may be in kind (X shall return the price of a printer in exchange for the

aVoiDinG LitiGation in FRanCE, from previous page

return by Y of the item in question) or based on equivalents (X will offer a compensa-tory indemnity covering the period during which it used the stock management system made available by Y, but will obtain the reimbursement by Y of the monthly charge corresponding to the software).

When the parties wish to avoid bringing an action before the courts, they should in-clude a clause, in addition to a termination clause, determining the mutual restitutions that will be implemented by the parties. A liquidated damages provision whereby the parties will decide on the amount of and con-ditions in which damages could be awarded to one of them may also be included.

When entering into the contract, it is also important to specify the obligations (for instance, confidentiality) that will re-main applicable after the termination of the contract and that will govern the post-contractual relationship. A clause may gen-erally provide that all the obligations will remain in force.

Another recommendation is to establish a detailed list of the obligations the parties wish to be able to assert after the termina-tion. A confidentiality commitment and a non-compete clause to become effective after the end of the contract may thus spe-cifically be included. The contracting com-panies must also agree on the distribution of their liability should it be subsequently

sought by third parties due to obligations arising from the contract.

Similarly, contracting companies will gain some measure of assurance by deter-mining beforehand the beneficiary of the publication and intellectual property rights. Finally, it will be necessary to include a clause relating to the applicable law, as well as a choice-of-forum clause, by broadly mentioning that they will apply in the event of any dispute between the parties at the time of the conclusion, performance and termination of the contract.

Sylvie Gallage-Alwis is a senior associate in Hogan Lovells’ Paris office and has extensive experience in product liability and commercial litigation.

Constance Tilliard is an associate in the litigation practice of Hogan Lovells’ Paris office, focusing on product liability litiga-tion and on claims arising from commercial contracts.

In practice: what to do when a party encounters financial difficulties preventing it from correctly performing its obligations?

Article L. 622-13 of the French Commercial Code prohibits the inclusion of any clause providing that the contract shall be terminated in the event of the opening of safeguard proceedings. Should such proceedings be opened against the other side, it is, therefore, mandatory to meet your obligations. The contractual breaches com-mitted by the other party before the opening of the proceedings do not free you from your undertakings. You will nevertheless have the possibility to state your claims. In practice, it is rare that all the creditors obtain full reimbursement of their claims.

To protect against such a risk, a commercial solution is to anticipate the risk of insolvency of the other party by requesting advance payments on the final amount or by establishing a system of installments for services. When a debtor encounters its first financial difficulties without safeguard measures yet being considered, it is also possible, under certain conditions, to attach goods, which will block part of the goods or bank balance of that party with respect to other creditors.

C. TillardS. Gallage-Alwis

Page 55: International law Quarterly 2012 Spring Issue

Page 55 Spring 2012 The International Law Quarterly

What’s Driving the Global Growth of Mediation in Business and Commerce?

By Lynn Cole, tampa, Florida

One of the most significant develop-ments over recent years has been the rapid internationalization and globalization of business. Commercial expansion actively seeks to make consistent products, markets, promotion and branding, and is premised on the idea that differences in markets around the world are vanishing. Global business interdependence employs increas-ingly rapid and inexpensive movement of information, ideas, money, goods and people across borders. This growth in world trade, investment and in joint ventures be-tween companies from different countries has been fueled by information technology and is no longer the purview of large corporations and multi-nationals. Today it has become routine for many small to medium enterprises to do business internationally.1

As international business grows so, too, do international disputes not ame-nable to traditional litigation. Interna-tional business transactions now extend over long periods of time, often many years; create complex legal, financial, and technical relationships; and involve numerous participants—including mul-tinational corporations, global financial institutions, sovereign governments, state enterprises, and international orga-nizations—from many different countries. These complex transactions are occurring in an environment of diverse cultures, political instability, conflicting ideologies, differing bureaucratic and organizational traditions, inconsistent laws, and constantly changing monetary and economic vari-ables.

Not surprisingly, recently formed organi-zations such as the International Mediation Institute (“IMI”), located in The Hague, meet the need for mediation’s expansion in cross-border disputes by certifying inter-national mediators. Mediation mirrors the rapid expansion of international business’s shift to a worldwide vision.

Why is “modern” mediation prolifer-ating around the globe? The traditional advantages of mediation apply in equal, if

not greater, force to international disputes. Advocates of mediation have long claimed that mediation is the most cost-effective and time-efficient ADR (alternative dispute resolution) process to resolve international disputes.2 Corporate surveys evidence me-diation as the growing ADR method of choice in the business community.3 One reason is that mediation allows participants to take resolution of the case into their own hands and away from third-party courts and arbitrators—strangers to the disputing parties. Indeed, in mediation, the parties are specifically encouraged and empowered to do so. Courts must follow the strict con-

fines of evidentiary and procedural rules and while arbitrators have greater latitude, they still are constrained by procedural and evidentiary parameters. Parties to a mediation have the opportunity to create a resolution tailored to the inimitable cir-cumstances of their dispute, often assisted by neutral mediators who are industry experts. Some courts have discretion to shape equitable remedies. But in media-tion, the parties not only can be equally creative, but can also address and resolve even potentially contentious issues. Out-comes traditional in court-related litigation and arbitration—that of the quintessential “winner and loser”—can be much more expansive in mediation. Mediation can involve changes in contractual provisions that would otherwise be left untouched by

a court or a panel of arbitrators. Parties in mediation can also redesign long-term contracts to adapt to political, societal, legal and ideological shifts.

Mediation, it is well-established, reduces costs4 and curtails the delay endemic in litigation and arbitration. Mediation settle-ments also have a higher rate of compliance than decisions made by outside parties. Many ascribe this to the fact that the parties in this voluntary process ultimately control the outcome of the agreement. In other words, the parties “own” their decision because they are empowered by a trained neutral to create a resolution designed to be

fair and capable of performance.Mediation is also unique because of

its emphasis on confidentiality.5 This fact alone makes mediation appeal-ing in commercial disputes. Mediation laws being adopted in various countries around the world all have provisions requiring confidentiality. Developing countries attempting to incentivize trade and tourism have, in particular, promul-gated civil-mediation laws containing strong confidentiality provisions. In some countries, a violation of mediation confidentiality is an illegal act. 6

Within the private confines of media-tion, confidential information can be dis-

closed, thereby enhancing communication and the exchange of otherwise personal or proprietary information. Confidentiality helps attorneys and clients to understand and identify the pivotal issues, the often un-disclosed motivations, the pressure points, the risks of litigation, and the interests that can—perhaps surprisingly—often be mu-tual. Clients are known to disclose private events, perceptions or issues in mediation they would not want disclosed to anyone publicly. Explaining their concerns and fears, even in business and commercial disputes, is often critically important to clients in resolving the conflict, especially in certain cultural contexts.

In some types of commercial situations, confidentiality can be and often is critical to the successful resolution of a dispute.

Page 56: International law Quarterly 2012 Spring Issue

Page 56 Spring 2012The International Law Quarterly

GLoBaL GRoWtH oF MEDiation, from previous page

For example, the protection of trade secrets involves matters relating to formula, pro-cess, device or other business information that must be kept confidential in order to maintain a competitive advantage. In cases involving patents, proprietary information and other sensitive commercial informa-tion, the confidentiality aspect is a huge incentive to use mediation. In technol-ogy and intellectual property disputes, especially where the technology at issue in the dispute is not patented, the media-tion process allows outside expertise to be brought into the dispute resolution pro-cess. By enabling the free discussion of all aspects of issues and interests, including trade secrets and proprietary information, mediation’s confidentiality provides a real opportunity to reach a business-oriented solution. There appears to be two main fac-tors at work in mediation’s meteoric rise. Not surprisingly, one factor is government support of mediation. The other is business

itself, which has spawned and strengthened a bevy of international companies endors-ing the international practice of mediation. Each factor supports the establishment of mediation laws and court-related mediation in countries and emerging economies.

The governmental driving force has as its base an abiding philosophy that mediation is essential to strengthening and creating a robust societal rule of law. Inherent in this philosophy is the widely accepted notion that mediation within judicial programs is viewed as essential to improving the investment climate and private sector de-velopment. If the current judicial process in the region is time consuming, expensive, or corrupt, it often leads to less-desirable outcomes or no outcomes at all. Mediation offers an alternative to the intra-country court processes.

In most of the emerging rule-of-law countries, and even in the more sophisti-cated countries of Europe, the judiciary

and the courts are not as flexible as they need to be to address the increasingly complex economic and communication demands that globalization has created. International businesses now have clients all around the world and need a method of dispute resolution that is faster and less expensive than traditional judicial adjudication. Countries addressing court-based mediation programs understand that mediation simultaneously and significantly advances growth potential for increased international trade and commerce. Gov-ernment promotes mediation to increase access to justice, strengthen judiciaries, and promote judicial reform. Increased access to justice is one of the fundamental conditions for the establishment of the rule of law. These programs generally involve on-going international conflict-mitigation efforts that seek to improve the functioning of and accessibility to the justice system.

In the past, the right of access to judicial

Page 57: International law Quarterly 2012 Spring Issue

Page 57 Spring 2012 The International Law Quarterly

GLoBaL GRoWtH oF MEDiation, from previous page

protection meant, essentially and almost exclusively, the aggrieved individual’s formal right to litigate or defend a claim, defined in strictly legal terms. Mediation opens new pathways to resolve disputes and relieves the overcrowding that makes resolving court cases unnecessarily slow.7

Generally, justice-reform programs seek to strengthen the ability of a court system to deliver services in a more transparent, inde-pendent and accountable way. All too often, in countries with developing judiciaries or, in fact, in post-conflict countries, much of the population experiences the law only as an obstacle. The law, and the costs associ-ated with using the legal system, can make it difficult or impossible to run a legitimate business, to secure redress for exploitation by the powerful, or even to participate as a full member of the community. Mediation laws can be an opportunity to expand ac-cess to economic benefits, to ensure gov-ernment accountability and even to effect broader social changes. Mediation, as an adjunct to the judicial system, instills confi-dence in the legal framework because it is a proven mechanism that promotes economic benefits in a business environment.

The concept of judicial reform likewise plays a central role in mediation promotion efforts. Judicial reform programs, which often include mediation, seek to promote a judiciary that functions with modern administration and case management, in-creased transparency, more qualified staff, and increased public confidence. Program-matic assistance includes establishing legal frameworks for judicial independence, building judicial associations, promoting education and training of judges, strength-ening court administration, improving judicial ethics and accountability, and in-creasing public outreach and media skills. Mediation is the adjunct to all of these.

The United Nations is perhaps the larg-est global governmental entity endorsing mediation. In June 2011, in a unanimous resolution, the United Nations Security Council announced its support of global peace through the use of mediation. As the first such globally accepted mediation resolution of its kind, it set out principles on how to carry out mediation activities

in order to prevent armed conflicts in a world where conflict is a part of daily life in many regions. This powerful resolution brings worldwide attention to the use of mediation, not only for disputes between and among countries, but also to promote the political and societal stability necessary for the burgeoning growth of international commercial mediation.

Prior to enactment of this global reso-lution on mediation, the United Nations, through its Department of Political Af-fairs, established a Mediation Support Unit (“MSU”) to serve as a central repository for peacemaking experience, a clearing house for lessons learned and best practices, and as training coordinator on U.N. standards and operating procedures for mediation. Between 2008 and 2011, the MSU was involved in supporting over thirty peace processes on all continents.

Perhaps the most heavily funded global provider of rule-of-law programs, includ-ing developing court-related mediation, is the United States Agency for International Development (“USAID”). USAID asserts that its foreign assistance has the twofold purpose of furthering U.S. interests while improving lives in the developing world. The Agency carries out U.S. foreign policy by promoting broad-scale human progress while expanding stable, free societies, cre-ating markets and trade partners for the United States, and fostering good will abroad.

USAID works in 100 developing coun-tries and in close partnership with pri-vate voluntary organizations, indigenous groups, universities, U.S. businesses, in-ternational organizations, other govern-ments, trade and professional associations, faith-based organizations, and other U.S. government agencies. USAID has work-ing relationships, through contracts and grant agreements, with more than 3,500 companies and over 300 U.S.-based pri-vate voluntary organizations.8 Under its general framework of “Democracy and Governance,” USAID has become one of the leading governmental funders of justice reform programs, including mediation.9

The European Union (“EU”) Commis-sion is another international governmental

funder of developing mediation programs. The EU’s European Directive on Com-mercial Mediations, passed in 2008, made certain attributes of enforcement of me-diation in civil and commercial settle-ments uniform throughout the European Union. The objective of mediation is for the parties to settle their disputes amicably without reference to a tribunal, and the European Directive makes clear that me-diation “should not be regarded as a poorer alternative to judicial proceedings.”10 The Directive is limited to cross-border disputes among its member states, and at least one of the parties must be domiciled or habitually reside in a member state in order for the Directive to apply. Partnering with USAID, the EU recently completed its funding of a country-wide mediation system in Kosovo.

The International Finance Corporation (“IFC”) of the World Bank Group is the largest global financier. As the private-sector arm of the World Bank Group, it promotes sustainable private-sector in-vestment in economically transitioning countries by providing financing to help businesses employ more people and supply essential services, by mobilizing capital from others, and by delivering advisory services to ensure sustainable develop-ment. The IFC also provides technical assistance and advice to governments and businesses.11 Its 178 member countries provide its share capital and collectively determine its policies.

The IFC views commercial litigation as a potentially unavoidable consequence of growth for new businesses and sees expensive, time-consuming court proceed-ings as an increasing burden to small and medium enterprises. Thus, it is has helped to establish several court-related mediation programs and has worked to develop two mediation models suited to the legal frame-work and court administration processes of specific countries, including Bosnia and Herzegovina, Macedonia, Serbia, and Pakistan.

The business momentum for mediation is rapidly building. As previously noted, mediation is overwhelmingly chosen over other ADR methods across different ju-risdictions.12 A number of recognized in-

Page 58: International law Quarterly 2012 Spring Issue

Page 58 Spring 2012The International Law Quarterly

ternational business organizations focus on providing not only arbitration, but also mediation. Three of the largest and best known international and for-profit organi-zations offering arbitration and mediation are: the International Center for Dispute Resolution of the American Arbitration Association (“ICDR”); the International Institute of Conflict Prevention and Reso-lution (“CPR”); and, JAMS, Inc. There also are a number of other organizations that offer institutionalized arbitration and mediation. Some of the better known ones include the London Court of Arbitration, the Stockholm Chamber of Commerce, and WIPO (World Intellectual Property Organi-zation). These organizations develop lists of selected and trained neutral mediators and arbitrators to work in international arbitration and mediation.

The International Centre for Settle-ment of Investment Disputes (“ICSID”) of the World Bank is another reputable organization supporting mediation. ICSID is an autonomous international institution established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, with over 140 member States. The Convention sets forth ICSID’s mandate, organization and core functions. The primary purpose of ICSID is to provide facilities for con-ciliation and arbitration of international investment disputes.

Another global organization, the Paris-based International Chamber of Commerce (“ICC”), adopted new rules in 2003 for the amicable resolution of cross-border busi-ness disputes. These rules include media-

GLoBaL GRoWtH oF MEDiation, from previous page

tion rules patterned after U.S. mediation. Two years in the making, the new rules, called “ICC ADR Rules,” signaled recog-nition by the ICC that mediation is equal with arbitration as a dispute resolution tool. The ICC similarly provides for granting status and effect of a mediation award as a final award.

More and more countries are promulgat-ing internal mediation laws, increasing the in-country possibility of judicially filing for a mediation award or mediation judgment. If a lawsuit has been filed before the media-tion has commenced, it is possible in many jurisdictions to have the court enter the set-tlement agreement as a consent decree and incorporate it into the dismissal order. In those countries with mediation laws, even where a lawsuit is not filed enforcement can be by submission to a public notary or by using a court in a summary proceeding.

Mediation empowers individuals in all walks of society to resolve their own dis-putes. This not only strengthens developing nations’ judiciaries but also economically empowers the nation and its peoples to make choices in their disputes. When mod-ern mediation filters from the courts down through business, governmental institu-tions, and communities into general soci-ety, mediation is a proven transformational tool for good governance and economic growth. Mediation is no longer the busi-ness or governmental “alternative” in ADR.

Lynn Cole is a circuit civil mediator in Florida and is certified by the International Mediation Institute (“IMI”). She serves as President of Mediators Beyond Borders, International, and has served as a media-tion specialist with USAID, successfully as-sisting in developing court-based mediation programs in Bulgaria, Jordan and Kosovo. Ms. Cole lectures extensively and teaches internationally on commercial mediation, ethics, and basic and advanced mediation.

Endnotes:1 Robert Lopich, Collaborative Practice – Cross Jurisdictional Commercial Dispute Resolution, available at http://www.collaborativepractice.com/lib/PDFs/CP~Cross%20Jurisdictional%20Com-mercial%20DR.pdf. Business partnerships or joint ventures are entered into where one partner resides

in one part of the world and conducts certain aspects of the operation while the other partner (or partners) conducts other aspects from another country on the other side of the world.2 For a comprehensive discussion of the compara-tive costs of arbitration and mediation, see Timothy Martin, International Mediation, Contemporary Is-sues in International Arbitration and Mediation, The Fordham Papers, 2010, available at http://www.timmartin.ca/fileadmin/user_upload/pdfs/Int_Media-tion_Evolving_Market _Martin2011_.pdf.3 See Herbert Smith, The inside track –how blue-chips are using ADR, November 2007, for corporate survey results reporting preferences for mediation, available at http://www.hks.harvard.edu/m-rcbg/ CSRI/ga/smith_adr.pdf. 4 See Giuseppe De Palo, Ashley Feasley, & Fla-via Orecchini, Quantifying the Cost of Not Using Mediation – a Data Analysis, available at http://www.europarl.europa.eu/document/activities/cont/ 01105/20110518ATT19592/20110518ATT19592EN.pdf. The EU break-even point for time is 19% media-tion success rate, and the break-even point for costs is 24%. Additionally, it is important to note that the study found the average cost to litigate in the European Union is €10,449 while the average cost to mediate is €2,497. Therefore, when mediation is successful, European citizens can save over €7,500 per dispute.5 Although confidentiality can be used advanta-geously in arbitration, until recently many of the institutional rules did not expressly provide for con-fidentiality. Therefore, parties involved in arbitration are advised to include provisions in their arbitration clause to ensure confidentiality.6 Some countries’ mediation laws not only provide that is mediation confidential, but also make divulging mediation information illegal. See, e.g., the Jordan Mediation Law of 2006 and the Kosovo Mediation Law of 2009.7 In particular, ADR processes are of significant importance to justice systems when effective estab-lishment of alternative means of dispute resolution can significantly reduce the number of minor disputes before the civil courts, helping to improve the avail-ability of judges for cases that must be tried.8 USAID, http://www.usaid.gov/our_work/democ-racy_and_governance/ (last accessed April 3, 2012).9 The author has worked as a mediator specialist designing court-related mediation systems for USAID in Bulgaria, Jordan and Kosovo. 10 Steven Friel and Christian Toms, The European Mediation Directive—Legal and Political Support for Alternative Dispute Resolution in Europe, bLoomberG LAw reportS, Vol. 2, No. 1, available at http://www.brownrudnick.com/nr/pdf/articles/Brown_Rudnick_Litigation_European_Mediation_Directive_Friel_Toms_1-2011.pdf.11 IFC, http://www1.ifc.org/wps/wcm/connect/corp_ext_content/ifc_external_corporate_site/about+ifc (last accessed April 3, 2012). 12 See Herbert Smith, supra note 3.

Pay your BAR Dues online!When it’s time to pay your Bar dues, log on to The Florida Bar’s website

(www.FLORIDABAR.org) and click on the “Pay Fees Online” icon on the home page. EASY!

Page 59: International law Quarterly 2012 Spring Issue

Page 59 Spring 2012 The International Law Quarterly

For more information or to register,please visit

ambar.org/ILFall2012

For more information or to register,please visit

ambar.org/ILFall2012

REGISTRATION IS NOW OPEN JOIN US AT THE CROSSROADS OF THE WORLD FOR A SPECTACULAR FALL MEETING!

Fall Meeting attendees will include high-level practitioners with the largest and most respected global law firms; lawyers with the most prominent regional and national firms inside and outside the U.S.; U.S.-based small-firm and solo practitioners with significant international practices; corporate and in-house counsel; lawyers serving in government or with non-governmental organizations and inter-governmental organizations; and academics. The 2012 Fall Meeting is a “Must-Attend” meeting for lawyers with a practice or interest in international legal issues.

WHAT WILL ATTENDANCE AT THE 2012 FALL MEETING OFFER YOU?

• Over 60 substantive concurrent continuing legal education sessions (an entire year’s worth of CLE credits) and showcases with world-class speakers, focused on the latest international legal and ethics issues;

• Program tracks including: Business/Transactional, Compliance/Regulatory, Corporate Counsel, Corruption, Dispute Resolution/Litigation, Latin American/Caribbean, Law Practice Management, Public International Law/Rule of Law, and Young Lawyers;

• Networking opportunities with counterparts, leaders and members of foreign bar associations, decision makers and potential clients from around the world who are active in international practice areas;

• Outstanding social events including daily luncheons with keynote speakers and evening receptions at Fontainebleau Miami Beach; the Moore Building in Miami’s fabulous Design District; and the New World Symphony just off Lincoln Road in Miami Beach;

• An exhibition hall with dynamic products and services for the legal profession;

• Specialized meetings with colleagues who share your areas of interest at committee working business meetings, division breakfasts and committee dinners;

• Special programming for young lawyers and law students.

ABA International members come from morethan 90 countries, and include private practitioners from across the globe as well as in-house counsel, academics and lawyers in the public sector.

Page 60: International law Quarterly 2012 Spring Issue

Page 60 Spring 2012The International Law Quarterly

under the administration and supervision of an arbitration institution). As a general rule, institutional arbitration is strongly recommended in large or complex arbitra-tions, or whenever a high degree of predict-ability and dependability is required—such as where one or both parties are relatively unsophisticated and need institutional sup-port, or where the parties do not (or may not, when a dispute arises) have a good or longstanding relationship, are not familiar with one another, and/or have a high risk of non-cooperation during the proceedings.

Conversely, providing for ad hoc arbitra-tion is recommended in arbitrations involv-ing smaller or simpler matters, where the parties are relatively sophisticated, and/or when the parties reasonably expect to have a good relationship that would allow them to continue communicating effectively when a dispute arises. Parties choosing ad hoc arbitration must either spell out the main procedural rules that will govern the arbitration, or they must submit the proce-dural aspects of the arbitration to a specific set of procedural arbitration rules (such as those arbitration rules from one of the arbitration institutions mentioned below). Parties who choose ad hoc arbitration often select the well-known and accepted rules of the Model Law on International Com-mercial Arbitration of the United Nations Commission on International Trade Law (“UNCITRAL Rules” or “UNCITRAL Model Law”) to govern the procedural aspects of their disputes.

Following are some domestic and inter-national arbitration institutions commonly used in the resolution of disputes arising from transactions in Latin America:• Arbitration and Mediation Center of the

Quito Chamber of Commerce in Quito, Ecuador (www.lacamaradequito.com);

• Peruvian Chamber of Conciliation, Ar-bitration and Mediation in Lima, Peru (www.campecam.cjb.net);

• Arbitration Center of the Caracas Cham-ber of Commerce in Caracas, Venezuela (www.arbitrajeccc.org);

• International Chamber of Commerce (“ICC”) (www.iccarbitration.org);

• American Arbitration Association (“AAA”) (www.adr.org); and

• International Centre for the Settlement of Investment Disputes (“ICSID”) (www.worldbank.org/icsid).1

seat of the ArbitrationThe parties’ choice of the place, “seat”

or “forum” where the arbitration shall take place and where the award must be issued (which is ordinarily, but not necessarily, where all or any of the hearings are held) is one of the most crucial elements of an arbi-tration clause. This is because the law of the forum will either determine or materially af-fect a number of critical issues, such as how the award will be enforced, the procedural rules that may apply to the arbitration, un-der what circumstances and to what extent the award may be reviewed and vacated, the degree of the local courts’ intervention in the arbitration, and the availability of discovery and other evidentiary matters. In addition, the choice of forum will provide or deny the parties the necessary facilities and professional and technical support re-quired to conduct the proceedings.

The following recommendations gener-ally apply when selecting the place of arbi-tration in a transaction with Latin American parties: • To facilitate the enforceability of the

award, if the other party has signifi-cant assets in a country that has ratified the 1958 New York Convention on the Recognition and Enforcement of For-eign Arbitral Awards (the “New York Convention”)—which is the case with regard to all Latin American countries—or the 1975 Inter-America Convention on International Commercial Arbitra-tion (the “Panama Convention”)—Cuba and Haiti are the only Latin American countries not parties to the Panama Convention—the place of arbitration should be located in a country that is a party to one of these conventions. In the case of the New York Convention, because many parties to that Convention have made the reciprocity reservation whereby they will enforce only foreign arbitral awards issued in countries that

have acceded to the New York Conven-tion (the Unites States is one of them), it is particularly important that the place of arbitration is within the territory of a party to such Convention in order to facilitate enforcement of the award;2

• The parties should avoid jurisdictions allowing broad judicial intervention in arbitration proceedings, or providing for broad grounds for vacating the award;

• The place of arbitration should be geo-graphically convenient and provide ad-equate facilities, services and support;

• The parties should carefully assess the availability of discovery and testimonial evidence pursuant to the laws of the place of arbitration;

• The parties may wish to consider wheth-er the forum’s laws applicable to the arbitration contain some procedural safeguards such as the right to consoli-date separate arbitration proceedings if necessary, the availability of injunctions or provisional remedies, and perhaps the arbitrators’ ability to decide questions concerning their own jurisdiction.

As noted at the outset, Latin America’s increased receptivity towards arbitration is relatively recent. Local courts, arbitrators, litigators and parties to arbitration proceed-ings have not all had time to interpret and apply these new bodies of law, and so we cannot yet fully gauge their practical impact on arbitration. Accordingly, with regard to venue, it is still too soon to know how much certainty and comfort these commendable legislative efforts can bring to U.S. parties involved in Latin American transactions. For the time being, we consider it good practice in Latin American deals to attempt to select a seat that is located in the United States, such as Miami or New York; or if the non-U.S. party objects, then at least the Latin American capital city where the agreement is primarily linked, as long as the country in question is a signatory to the New York Convention and/or the Panama Convention.

Applicable substantive Law The choice of the substantive body of

law governing disputes that may arise un-

intERnationaL aRBitRation CLausE, from page 1

Page 61: International law Quarterly 2012 Spring Issue

Page 61 Spring 2012 The International Law Quarterly

der the contract is an essential element of every arbitration agreement, as it will determine the merits of the dispute and the contractual rights and obligations of the parties. The choice of law is generally not included in the arbitration clause itself but constitutes a separate provision of the agree-ment. The main considerations in choosing the substantive law applicable to a contract include the parties’ familiarity with the rel-evant law; the enforceability of the parties’ rights and obligations under that law; the availability of well-developed case law in connection with such rights and obligations; the enforceability of the arbitral award and grounds for challenge of the arbitral award under the relevant law; and the availabil-ity of a pool of arbitrators with sufficient knowledge and experience regarding the body of law that will govern the contract.

Parties negotiating contracts will usually prefer to have their respective domestic laws govern the relevant agreements, and U.S. and Latin American parties are no exception. U.S. parties and counsel will often look at Latin American legal systems with some degree of apprehension, due—at least in part—to the relatively unfamiliar civil law (as opposed to common law) tradition on which those systems are based. Latin American parties and counsel often feel the same way when contemplating the possibility of having the substantive laws of common law jurisdictions like New York or Florida govern their agreements. Fac-tors such as the parties’ sophistication and relative bargaining power will usually de-termine which choice of law wins the day.

selection of ArbitratorsExcept as mentioned below, the method

of selecting arbitrators does not vary sig-nificantly based on the geography of the transaction (Latin America or other). Some common recommendations include: (1) designate the number of arbitrators in the arbitration clause [one arbitrator is usually recommended for arbitrations involving smaller amounts of money ($2 to $4 mil-lion), and three are generally recommended for more complex and/or higher-stakes cases]; (2) avoid naming arbitrators in

the agreement but consider providing for appointment of arbitrators by an appoint-ing authority3 in the event that all named arbitrators are unable or unwilling to per-form their duties; (3) where there are only two parties to an agreement and a three-arbitrator tribunal is provided, it may be useful (and is, in fact, quite common) for each party to appoint one arbitrator and for the third arbitrator to be nominated by the party-appointed arbitrators or by the rel-evant appointing authority; (4) provide that the selection of arbitrators shall ultimately be decided by an appointing authority if the party-nominated arbitrators cannot agree; and (5) whenever more than two parties are or may be defendants or respondents and their interests conflict or may not be aligned (i.e., multi-party arbitration), provide for appointment of all three arbitrators by an arbitration institution or other authority.

Another important consideration regard-ing the selection of arbitrators is whether it may be necessary or useful to impose certain requirements or restrictions on po-tential arbitrators. In the case of clients who have service agreements that provide for specific services in Latin America, it might be extremely helpful to lay out certain professional qualifications desired of each arbitrator (e.g., a legal or technical background in, for example, computers or

intellectual property work, or a number of years of experience in a given industry), neutral nationality, and language skills. All major arbitration institutions will include people with adequate background and ex-perience. Keep in mind, however, that the more requirements or restrictions that are placed on potential arbitrators, particularly professional qualifications, the smaller the pool of arbitrators will become.

Finally, while the elements mentioned above are generally applicable to arbitra-tion clauses in any type of transaction, some special considerations arise when se-lecting arbitrators for deals involving Latin American laws, parties or assets. First, because the availability of experienced arbitrators in certain parts of Latin America is still relatively limited, too many require-ments concerning an arbitrator’s qualifica-tions may cause delays in the arbitration process. Also, every arbitrator qualification can (and often does) give rise to a number of conflicting interpretations, further de-laying the selection process. For instance, if the parties to a transaction agree that a sole arbitrator has to be fluent in Spanish and English, be versed in the substantive law governing the contracts (i.e., a Latin American jurisdiction), and have at least five years of experience in, for example, computer software, the arbitration may

intERnationaL aRBitRation CLausE, from previous page

ICCA Miami 2014April 6-9, 2014

The International Council for Commercial Arbitration will be

hosting its 22nd ICCA Congress in Miami. For more information

please refer to the website at www.iccamiami2014.com. For

information, please call Ines Calderon at 786-693-6011.

Page 62: International law Quarterly 2012 Spring Issue

Page 62 Spring 2012The International Law Quarterly

very likely stall while the parties try to find an arbitrator with all those qualifications. Secondly, if the arbitrators are to be institu-tionally appointed, the parties should assess whether the relevant institution’s roster of arbitrators includes a sufficient number of arbitrators trained in civil or continental law (as opposed to common law) systems or who are, for example, knowledgeable of the law of the Latin American jurisdiction that may be applicable to the dispute.

Language of the ArbitrationWhenever the parties to a transaction

speak different languages, and whenever the seat of arbitration is in a country with a different language, the arbitration clause should specify the language in which the arbitration shall be conducted. In choosing the language of the arbitration, the par-ties should consider, among other things, the authoritative language of the relevant contracts and other significant documents; the language spoken by those individuals who will serve as key witnesses in the arbitration; the substantive law governing the contracts; the language of the place of arbitration; and the availability of arbitra-tors and local counsel who are fluent in the relevant language.

In addition to the above, the parties should try to foresee the usually high expenses in-curred in the translation and interpretation of documents, testimony and proceedings, and determine who will bear these costs. Language-related issues other than trans-lations and interpretations can also be re-markably costly to the parties. For example, court transcripts in most languages other than English are usually memorialized in longhand, without the assistance of modern court-reporting equipment. This sole factor can increase by tens of thousands of dollars the cost of a single hearing.

Given that the global language of busi-ness is English, it is very common for Latin American parties involved in large cross-border transactions to accept English as the language of the arbitration. For the same reason, finding Latin American counsel and arbitrators with sufficient fluency in English is not a major concern. Where the underlying contracts are in Spanish or Portuguese, however, or where the relevant Latin American party may be unwilling to accept English as the language of arbitra-tion, the client may have to select Spanish or Portuguese as the language of the arbi-tration. We consider it good practice for the parties to choose to conduct the arbitration in the language of the arbitration agreement

and/or of the majority of the relevant docu-ments that will be used in the arbitration.

Finally, if for some reason the parties fail to provide the language of the arbitration, the rules of the AAA, for instance, provide that the arbitration proceedings will be conducted in the language of the arbitration clause. On the other hand, the ICC rules provide, for example, that the arbitrators will choose the language of arbitration if the parties fail to do so.

Finality of the Arbitral AwardOne of the essential elements of any

arbitration clause is the statement that the arbitration award shall be final, binding, and not subject to any recourse or appeal by the parties. Even where the desirability of the finality of the award is contemplated by the relevant institutional rules adopted by the parties or in the procedural laws of the place of arbitration, contracting parties should expressly provide for finality in the arbitration clause for greater certainty. This provision is particularly important when the laws of the country where the arbitration takes place otherwise allow parties to ap-peal an arbitral award issued in that country.

A few Latin American countries still provide a right of appeal with respect to

intERnationaL aRBitRation CLausE, from previous page

If you’ve got questions, we’ve got answers!

• Law Firm Management – Firm structure and governance; financial and personnel management; records information management; work flow processes and more

•LawOfficeTechnology–Technology utilization, tips and trends•LawFirmManagerTraining– On-site training includes: - Staff selection and supervision; - Performance measurement; - Bookkeeping functions, including trust accounting; - Proper docketing, calendaring and conflict checking; and - Overall office management responsibilities•On-siteConsulting– In-depth review of the efficiency and effectiveness of the

firm’s administrative practices

Starting,closingormerging...LOMASprovidesassistance.

The Law Office Management Assistance Service of The Florida BarDevelopingBusinessManagementPracticeswithinthe

LawFirmTodaytoPromoteEfficiencyandProfessionalismfortheLawFirmTomorrow

Call Toll-Free866.730.2020

Or visit us on the web atwww.floridabar.org/lomas

Page 63: International law Quarterly 2012 Spring Issue

Page 63 Spring 2012 The International Law Quarterly

arbitral awards. In such cases, however, the right to appeal may generally be waived in the arbitration clause. Other Latin Ameri-can countries do not provide for a general right of appeal against arbitral awards, although in some cases the parties may avail themselves of such right if they ex-pressly provide for it in the arbitration clause. Even where local laws or arbitra-tion rules prohibit an appeal, or where the parties have incorporated the “final and binding” language in their arbitration clause, the award may still be challenged. As discussed below, local arbitration laws provide certain grounds to vacate or set aside (i.e., annul) an arbitral award issued in their jurisdiction, even where the parties have stipulated that the award will be final and binding and not subject to appeal, or where local laws or the relevant procedural rules restrict or deny the right to appeal. In short, if the parties want to limit the risk of general appeals, they need to clearly set forth in the arbitration clause that no right of appeal exists and that the arbitral award will be final and not subject to any further review.

An arbitral award may generally be va-cated only by the courts of the country where the award is issued and pursuant to the arbitration laws of such country. Since the laws of the place of arbitration will govern whether the award may be vacated, the ground for vacating an award is thus a major consideration when deciding the place of arbitration. If, for example, the arbitration seat is in the United States, then the governing arbitration law will be the Federal Arbitration Act (“FAA”). The grounds for vacating an award under the FAA are: (1) the award was procured by corruption, fraud, or undue means; (2) the arbitrators’ partiality or corruption was evident; (3) the arbitrators were guilty of misbehavior that prejudiced rights of a party; or (4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.4 In addition to these grounds for vacating an arbitral award, U.S. courts have recognized a number of non-statutory grounds that allow federal courts to vacate

continued, next page

intERnationaL aRBitRation CLausE, from previous page

an arbitral award, such as an arbitrary and capricious award, an award in contraven-tion of public policy, or an award entered in “manifest disregard of the law.”5

While domestic laws in Latin America differ as to the grounds for nullifying arbi-tral awards, as a general rule Latin Ameri-can courts will vacate an arbitral award issued in their respective countries if: (1) the award decided issues that were not submitted to arbitration by the parties; (2) the award was issued beyond the deadline agreed by the parties; or (3) the award was rendered in violation of due process or due to a gross procedural mistake. Other grounds provided for under Latin Ameri-can arbitration laws for vacating arbitral awards include non-arbitrability of the relevant dispute; violation of the public order by an award; the nullity of the ar-bitration agreement and/or of the parties’ subsequent agreement, or “compromiso,” selecting the arbitrators and submitting to arbitration; misconduct of the arbitrators; insufficiency of the award in resolving all the matters submitted to arbitration; and the rendering of an award ex aequo et bono (i.e., based on principles of equitable justice and without submission to the laws of the relevant country) where the parties did not grant the arbitrators such powers.

Finally, the New York and Panama Con-ventions also offer grounds for a court to

refuse to enforce an arbitral award. Under the New York and Panama Conventions, a court may refuse to confirm and enforce an arbitral award only after finding proof of one of the following seven grounds: (1) the parties are under some incapacity with respect to the applicable arbitration agree-ment, or the agreement is otherwise invalid; (2) the party against whom the award is invoked was not given proper notice of the arbitration or appointment of an arbitra-tor or was otherwise unable to present its case; (3) the award exceeds the scope of the terms of the submission to arbitration; (4) the composition of the arbitral authority or the arbitral procedure was not in accor-dance with the parties’ agreement; (5) the award has not yet become binding on the parties; (6) the subject matter of the award is not capable of settlement by arbitration under the law of the court where confirma-tion and enforcement are sought; or (7) the confirmation or enforcement of the award would be contrary to public policy.6

sample Arbitration ClausesThe following are some general, sample

arbitration clauses that may be used in an international transaction involving parties from, and/or assets located in, Latin Ameri-can countries and Europe:

sample Clause for Latin American Transactions:

Arbitration. Any controversy or claim arising out of or relating to this contract shall be determined by arbitration in accordance with the International Arbitration Rules of the American Arbitration Association (“AAA Rules”).

The arbitration will be conducted in [insert seat of arbitration]. There shall be a panel of three arbitrators for every dispute. The claimant party

shall appoint an arbitrator in the arbitration petition and the respondent party shall appoint an arbitrator in its response. If within thirty (30) days after the arbitration petition, the respondent has not appointed an arbitrator, such arbitrator shall be ap-pointed by the American Arbitration Association (“AAA”). Within thirty (30) days of their appointment, the two arbitrators so appointed shall appoint a third arbitrator who shall preside over the arbitration panel. If the two arbitrators cannot agree on a third arbitrator within such thirty (30) day period, the third arbitrator shall be ap-pointed by the AAA.

Page 64: International law Quarterly 2012 Spring Issue

Page 64 Spring 2012The International Law Quarterly

intERnationaL aRBitRation CLausE, from previous page

The arbitration shall be conducted in the [insert language of arbitration] language.The arbitration panel shall award the prevailing party its attorneys’ fees and costs,

arbitration administrative fees, panel member fees and costs, and any other costs as-sociated with the arbitration. The parties agree that notifications of any proceedings, reports, communications or any other document shall be sent as set forth in Section __ of this Agreement. The arbitration panel may only award damages as provided for under the terms of the Agreement and in no event may punitive or special dam-ages be awarded.

The arbitral award shall be reasoned and in writing, and not subject to any review or appeal.

The arbitration panel shall have the exclusive right to determine the arbitrability of any disputes.

In the event of any conflict between the AAA Rules and any provisions of this Agreement, this Agreement shall prevail.

ConclusionInternational commercial arbitration

continues to be a viable and effective al-ternative for the resolution of disputes, and a carefully drafted international arbitration clause will help ameliorate some of the challenges a party may encounter if it ever needs to move for enforcement an against a non-complying party.

Richard C. Lorenzo is a partner with the law firm of Hogan Lovells US LLP, in Miami, Flor-ida, and is a member of the firm’s international arbitration practice group. He is the incom-ing Chair of the Inter-national Law Section of The Florida Bar.

M a r í a E u g e n i a Ramírez is Counsel with the law firm of Ho-gan Lovells US LLP, in Miami, Florida, and is a member of the firm’s international arbitra-tion practice group.

Endnotes:1 Disputes before ICSID are between foreign na-tionals and sovereign states that have signed the Convention on the Settlement of Investment Disputes between States and Nationals of other States (the “ICSID Convention”).2 In Latin America, only Argentina, Cuba, Ecuador, Guatemala and Venezuela have made the reciproc-ity reservation. Therefore, when trying to enforce a foreign arbitral award in these countries, it will be especially important that the award be issued in a country that was a party to the New York Convention.3 Commonly used appointing authorities include the major arbitration institutions discussed above (ICC, AAA and others). These institutions may select arbitrators from their own lists of arbitrators, taking into account the specific characteristics of the dispute and any requirements of the parties as delineated in the arbitration clause. The selection of arbitrators by these institutions is usually made either by proposing a list of arbitrators to the parties, who can then delete names and rank the remaining names (the “list” system), or by directly selecting the arbitrator(s) from the list. 4 See 9 U.S.C. § 10.5 See, e.g., Montes v. Shearson Lehman Bros., Inc., 128 F.3d 1456 (11th Cir.1997).6 See art. 5 New York Convention; Art. 5, Panama Convention.

sample Clause for european Transactions:Arbitration. All disputes arising out of or in connection with this Agreement shall

be finally settled under the Rules of Arbitration of the International Chamber of Commerce (“ICC Rules”) by one or more arbitrators appointed in accordance with the ICC Rules.

The arbitration will be conducted in [insert seat of arbitration]. There shall be a panel of three arbitrators for every dispute. The claimant party shall

appoint an arbitrator in the arbitration petition and the respondent party shall appoint an arbitrator in its response. If within thirty (30) days after the arbitration petition, the respondent has not appointed an arbitrator, such arbitrator shall be appointed by the International Court of Arbitration of the International Chamber of Commerce (“ICC”). Within thirty (30) days of their appointment, the two arbitrators so appointed shall appoint a third arbitrator who shall preside over the arbitration panel. If the two arbitrators cannot agree on a third arbitrator within such thirty (30) day period, the third arbitrator shall be appointed by the ICC.

The arbitration shall be conducted in the [insert language of arbitration] language.The arbitration panel shall award the prevailing party its attorneys’ fees and costs,

arbitration administrative fees, panel member fees and costs, and any other costs as-sociated with the arbitration. The parties agree that notifications of any proceedings, reports, communications or any other document shall be sent as set forth in Section __ of this Agreement. The arbitration panel may only award damages as provided for under the terms of the Agreement and in no event may punitive or special dam-ages be awarded.

The arbitral award shall be reasoned and in writing, and not subject to any review or appeal.

The arbitration panel shall have the exclusive right to determine the arbitrability of any disputes.

In the event of any conflict between the ICC Rules and any provisions of this Agreement, this Agreement shall prevail.

R. Lorenzo

M. Ramirez

Page 65: International law Quarterly 2012 Spring Issue

Page 65 Spring 2012 The International Law Quarterly

of transmission of the file to the emergency arbitrator.17 The emergency arbitrator is then obliged to conduct the proceedings in “the manner which the emergency arbitra-tor considers to be appropriate, taking into account the nature and the urgency of the Application.”18 This grants the emergency arbitrator very broad discretion over the conduct of the emergency arbitrator pro-ceedings, including the format and length of any legal submissions, whether a hearing is required, or whether the emergency arbi-trator will reach a decision on the papers.

The emergency arbitrator’s decision will take the form of an order,19 which is to be made no later than fifteen days from the date on which the file was transmitted to the emergency arbitrator.20 The parties will therefore have a decision in a reasonably swift time frame, although the process is slower than it might be before some na-tional courts. The order will fix the costs of the emergency arbitrator proceedings and will allocate the costs between the parties.21

The fact that the emergency arbitrator’s decision will be issued as an order is in itself problematic. There is little alternative to the decision taking the form of an order: it cannot be a final award, because it may be modified, terminated or annulled by the arbitral tribunal appointed to hear the main dispute22 and because the time frame for issuing the order is incompatible with the scrutiny process to which all ICC awards are subjected before they are issued to the parties.23 Although the parties undertake to comply with any order of an emergency arbitrator,24 the fact that it is an order and not a final award has the consequence that it will not be enforceable under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. An emergency arbitrator’s order may be enforceable under national arbitration laws, but this will be the case in only a very lim-ited number of jurisdictions. Principally, these are jurisdictions with arbitration laws based on the 2006 UNCITRAL Model Law, Article 17H of which provides that “[a]n interim measure issued by an arbitral tribunal shall be recognized as binding and, unless otherwise provided by the arbitral tribunal, enforced upon application to the

competent court.” At the date of writing (May 2012), the only jurisdictions to have adopted the 2006 Model Law are Austra-lia, Brunei, Hong Kong, Costa Rica, the republic of Georgia, Ireland, Mauritius, New Zealand, Peru, Rwanda, Slovenia and Florida (in the United States).25 Addition-ally, in March 2012 the Singapore Ministry of Law announced its intention to amend the Singapore International Arbitration Act to, inter alia, provide for orders of emergency arbitrators (including those of both SIAC and the ICC) to be enforceable in Singapore.26 In most jurisdictions, how-ever, an emergency arbitrator’s order will be unenforceable. An applicant for interim or conservatory measures may therefore prefer to have a court order for reasons of enforceability.

Further, there is an argument that the availability of interim or conservatory mea-sures from an emergency arbitrator would adversely impact a party’s ability to obtain similar relief from a national court. Al-though Article 29(7) provides that “[t]he Emergency Arbitrator Provisions are not intended to prevent any party from seeking urgent interim or conservatory measures from a competent judicial authority,” it is for the court in question to decide on its own jurisdiction to grant interim or conservatory measures. In the case of England and Wales, the relevant statutory provision is s.44(5) of the Arbitration Act 1996, which states that “in any case the court shall only act if or to the extent that the arbitral tribunal, and any arbitral or other institution vested by the parties with power in that regard, has no power or is unable for the time being to act effectively.” Future respondents to ap-plications under s.44(5) may argue that the English court has no power to act because the ICC is able to act effectively by appoint-ing an emergency arbitrator.

Once the emergency arbitrator proceed-ings are complete, the emergency arbitrator may not act as arbitrator in the same dis-pute.27 This may have its advantages, in that it avoids the possibility of the emergency arbitrator pre-judging the dispute. There may also be the disadvantages of a lack of continuity and some duplication of cost. In this respect, the emergency arbitrator

provisions may be contrasted with Article 9 of the LCIA Rules,28 which provide for ex-pedited formation of the arbitral tribunal—rather than appointment of an emergency arbitrator—in cases of extreme urgency.

In view of these issues, parties entering into an arbitration agreement under the ICC Rules may not wish to apply those provi-sions if it is likely the parties can obtain in-terim or conservatory measures from a na-tional court within a reasonable time frame. In most instances, the national court route is likely to be quicker and cheaper than the emergency arbitrator route, and the result-ing order will be more readily enforceable. The emergency arbitrator provisions may be beneficial where the national courts at the seat of the arbitration are unlikely to grant effective interim relief. This will need to be considered when entering into the arbitration agreement.

The Jurisdictional ThresholdUnder the 1998 Rules, Article 6(2) con-

tained a threshold test on jurisdiction. If a party disputed that it was bound by an arbitration agreement, the ICC Court was empowered to decide whether or not the arbitration should proceed, based merely on whether the Court was satisfied that a prima facie arbitration agreement under the ICC Rules may have existed.

In contrast, under Article 6(3) of the 2012 Rules, the default position is that the arbitration will proceed and the arbitral tribunal will determine its own jurisdic-tion unless the Secretary General refers the matter to the ICC Court for a determination under Article 6(4). As was the case under the 1998 Rules, the relevant test is whether the ICC Court is prima facie satisfied that an arbitration agreement under the ICC Rules may exist, which is a low threshold. Article 6(4) provides further guidance as to how the ICC Court may make that decision in certain circumstances (emphasis added in the following):• Where there are more than two parties to

the arbitration, the arbitration shall pro-ceed between those parties with respect to which the ICC Court is prima facie satisfied that an arbitration agreement

2012 iCC RuLEs oF aRBitRation, from page 2

Page 66: International law Quarterly 2012 Spring Issue

Page 66 Spring 2012The International Law Quarterly

under the ICC Rules that binds them all may exist.29

• Where claims are made under more than one arbitration agreement, the arbitra-tion shall proceed as to those claims with respect to which the ICC Court is prima facie satisfied (a) that the arbi-tration agreements under which those claims are made may be compatible, and (b) that all parties to the arbitra-tion may have agreed that those claims can be determined together in a single arbitration.30

The threshold test is therefore still a low one. The decision is likely to be referred to the ICC Court only in circumstances where there is serious doubt that the party contest-ing jurisdiction is in fact bound by the arbi-tration clause, thereby removing a potential obstacle to the arbitration proceeding in many cases where a jurisdictional chal-lenge would previously have been brought under Article 6(2) of the 1998 Rules. The effect of this change should be to speed up constituting the arbitral tribunal in many cases because, as a matter of practice, the ICC would not take steps to form the tribu-nal until any jurisdictional objection under Article 6(3) had been handled.

Multi-Party and Multi-Contract Arbitrations

The 1998 Rules did not expressly pro-vide for multi-party and multi-contract arbitration, except for addressing the ques-tion of the appointment of arbitrators in multi-party situations31 (although the ICC’s practice developed to fill some of these gaps). One of the most notable features of the 2012 Rules is therefore the incorpo-ration of express provisions to facilitate multi-party and multi-contract arbitrations.

Joinder of Additional PartiesThe first of these new provisions is Ar-

ticle 7, which provides for the joinder of additional parties to an arbitration. The 1998 Rules did not provide for the joinder of additional parties, but a practice devel-oped allowing such joinder (typically at the request of a respondent, given that a

claimant is able to specify the parties to an arbitration), where certain requirements were met.32 Those requirements were: • The party or parties to be joined must

have signed the arbitration agreement that is the basis of the arbitration.

• The respondent must have claims against the party that it seeks to have joined.

• The request for joinder must be made before any arbitrators have been ap-pointed or confirmed by the ICC Court, in order to ensure that any parties that are joined have the opportunity to par-ticipate in constituting the arbitral tri-bunal.

The new Article 7 is not a straightfor-ward codification of these requirements. Article 7 applies to joinder at the request of either party, not just a respondent, and there is no requirement that the party requesting the joinder have claims against the party that it wishes to join. Instead, Article 7(1) simply requires a party wishing to join an additional party to the arbitration to submit a Request for Joinder to the ICC Secretar-iat. The only guidance provided in Article 7 as to the criteria that will be applied in considering such a request is that any such joinder will be subject to the provisions of, inter alia, Article 6(4). As referred to above, Article 6(4)(i) provides that the arbitration shall proceed between those parties with respect to which the ICC Court is prima facie satisfied that an arbitration agreement may exist under the ICC Rules that binds them all. Given that Article 7 applies only before the arbitral tribunal is constituted, it appears that requests for joinder will routinely be referred to the ICC Court for determination, and the prima facie test set out in Article 6(4) will apply. The require-ments to be met when applying for joinder under the 2012 Rules are therefore less demanding than under the ICC Secretariat’s previous practice.

This low threshold may be of concern to some parties, particularly claimants, who do not wish an otherwise straightforward claim to be complicated by the involvement of additional parties and subsequent juris-

dictional battles. The risk is not as great as might be feared: the effect of Article 6(4) is that for joinder to be granted, an arbitra-tion agreement that binds that third party must exist. This requirement is likely to be satisfied only where the third party has either signed the contract in dispute or has signed an umbrella agreement containing an arbitration clause. Further, if the ICC Court grants a request for joinder, the mat-ter is not finally determined; the decision as to whether the arbitral tribunal has jurisdic-tion over the additional party rests with the arbitral tribunal itself.33

The stipulation that no joinder may occur after the arbitral tribunal has been consti-tuted may restrict the application of Article 7 in practice, as in some cases it may not be apparent in the early stages of the arbitra-tion that liability in fact rests with a third party and, by the time that becomes clear, it may be too late to file a Request for Joinder.

Claims Among Multiple Parties

Article 8 of the 2012 Rules allows for any party in a multi-party situation to make claims against any other party, provided that no new claims may be made after the Terms of Reference are signed or, in cir-cumstances where a party refuses to sign, are approved by the ICC Court.34 This pro-vision facilitates multi-party arbitration by allowing for cross-claims by one respon-dent against another. In contrast, under the 1998 Rules, cross-claims were permitted in practice if the tribunal determined that the parties’ arbitration agreement gave it jurisdiction over cross-claims,35 although this was not stated in the rules.

Multiple ContractsSimilarly, the 1998 Rules were silent on

the question of whether a single request for arbitration could be filed on the basis of two or more contracts. As a matter of practice, however, such Requests for Arbitration were allowed to proceed where certain criteria were met:36 • All contracts must have been signed by

the same parties.37

2012 iCC RuLEs oF aRBitRation, from previous page

Page 67: International law Quarterly 2012 Spring Issue

Page 67 Spring 2012 The International Law Quarterly

• All contracts must have been related to the same economic transaction.

• The dispute resolution clauses contained in the contracts must be compatible.

The rationale behind these criteria was that the ICC Court endeavoured to reach a decision that was consistent with the in-tention of the parties as evidenced in their arbitration agreement.38

The 2012 Rules introduced a new Ar-ticle 9 on multiple contracts. As was the case with Article 7, it is not a straightfor-ward codification of the ICC Court’s exist-ing practice. Article 9 now provides that “claims arising out of or in connection with more than one contract may be made in a single arbitration, irrespective of whether those claims are made under one or more than one arbitration agreement under the Rules.” As with Article 7, this is subject to, inter alia, Article 6(4). As outlined above, Article 6(4)(ii) limits which claims under more than one arbitration agreement can be brought in a single arbitration, namely “those claims with respect to which the Court is prima facie satisfied that (a) the arbitration agreements under which those claims are made may be compatible, and (b) that all parties to the arbitration may have agreed that those claims can be de-termined together in a single arbitration.”

The overriding principle is therefore unchanged: claims under multiple contracts may be brought in a single arbitration only where this is what the parties intended. As with Article 7, and consistent with the other amendments to the 2012 Rules to facilitate multi-party arbitration, the test to be ap-plied under the 2012 Rules is less exacting than under the ICC’s previous practice.

Consolidation of ArbitrationsThe 1998 Rules did expressly deal with

consolidation of arbitrations. Article 4(6) provided that:

When a party submits a Request in connection with a legal relationship in respect of which arbitration proceedings between the same parties are already pending under these Rules, the Court may, at the request of a party, decide to include the claims contained in the

Request in the pending proceedings provided that the Terms of Reference have not been signed or approved by the Court.

In other words, the ICC Court had au-thority to consolidate a new arbitration with an existing arbitration where the par-ties were the same and where the two cases related to the same legal relationship (which has been understood to mean the same economic transaction39). This was an extremely narrow test, capable of applica-tion in only very limited circumstances. In addition, the ICC Court would allow arbitrations to be consolidated where all parties agreed to consolidation.40

By contrast, the new test for consolida-tion under Article 10 of the 2012 Rules is broader and gives the ICC Court more discretion:

The Court may, at the request of a party, consolidate two or more arbitrations pending under the Rules into a single arbitration, where:• the parties have agreed to consolidation; or• all of the claims in the arbitrations are made under the same arbitration agreement; or• where the claims in the arbitrations are made under more than one arbitration agreement, the arbitrations are between

the same parties, the disputes in the arbitrations arise in connection with the same legal relationship, and the Court finds the arbitration agreements to be compatible.

In deciding whether to consolidate, the Court may take into account any circum-stances it considers to be relevant, includ-ing whether one or more arbitrators have been confirmed or appointed in more than one of the arbitrations and, if so, whether the same or different persons have been confirmed or appointed.

Paragraph “c” essentially reproduces the requirements of the old Article 4(6), and paragraph “a” codifies the Court’s practice of allowing consolidation where all parties agreed. The main innovation is therefore paragraph “b”: arbitrations may be consolidated where all of the claims in the arbitrations are made under the same ar-bitration agreement. This is consistent with the principle that multi-party and multi-contract arbitrations should proceed only where this was the intention of the parties.

Consolidation may now be considered at any stage where two arbitrations are pending before the ICC, not just at the time when the second Request for Arbitration is filed. In practice, however, consolidation may be more readily granted before the arbitrators in the second case have been ap-

2012 iCC RuLEs oF aRBitRation, from previous page

Benefits of Section Membership:• • The International Law Quarterly• • WritingandSpeakingOpportunities• • DiscountsforSeminars,Webinars&Downloads• • SectionListservNotices• • NetworkingOpportunities• • GreatSeminarsinFour-StarHotelsataGroupRate

Invite a colleague to become aSection member!

Page 68: International law Quarterly 2012 Spring Issue

Page 68 Spring 2012The International Law Quarterly

pointed or confirmed, as the ICC will wish to ensure that all parties are able to par-ticipate in constituting the arbitral tribunal.

Independence and Impartiality of Arbitrators

Article 11(1) requires arbitrators to be and remain independent and impartial of the parties. This reproduces the wording of Article 7(1) of the 1998 Rules but adds the requirement of impartiality. Arguably, independence may have been previously understood to encompass impartiality in any event,41 but all room for doubt has now been removed.

Prospective arbitrators in ICC cases are now required by Article 11(2) to sign a statement of acceptance, availability, im-partiality and independence. This codifies the requirement that has been in place since 17 August 2009 to sign such a statement42 and replaces Article 7(2) of the 1998 Rules, which merely required a statement of in-dependence to be completed. The require-ment for prospective arbitrators to disclose details of their availability was designed to address concerns that some arbitrators were making unrealistic assessments of their availability to handle new cases, leading to delays in the arbitral process.

Case ManagementCase management assumes increased

importance in the 2012 Rules. A series of

2012 iCC RuLEs oF aRBitRation, from previous page

new provisions on case management are introduced, intended to improve the way in which ICC arbitrations are run—in particu-lar, the speed and cost efficiency of those proceedings. Most of these provisions are not novel in the broader context but are included in the ICC Rules for the first time.

The arbitral tribunal and the parties are now specifically required to make every effort to conduct the arbitration in an ex-peditious and cost-efficient manner, having regard for the complexity and value of the dispute.43 In order to achieve this aim, the arbitral tribunal may adopt procedural measures it considers appropriate, provided that they are not contrary to any agree-ment that the parties may have reached.44 These measures may include any of the case-management techniques set out in Ap-pendix IV—case-management techniques that are widely employed and likely to be uncontroversial, such as bifurcation, partial awards, limiting the length and scope of written submissions and written or oral witness evidence, and telephone or video conferencing. Other measures in Appendix IV involve the arbitral tribunal taking a role in settlement by informing the parties that they are free to settle the dispute or by taking steps to facilitate the dispute. The involvement of arbitrators in facilitating a settlement, particularly through media-tion (or “med-arb”), is a topic that divides legal cultures: it is common in Asia but

approached with caution elsewhere for fear that it may give rise to a perception of bias, which may in turn impede the en-forceability of any award. Further, should a mediation phase fail, the arbitrator will have information gained in the role of me-diator that he or she may, consciously or otherwise, carry forward to a subsequent arbitration phase.

The tribunal is now specifically required to convene a case-management confer-ence45 at, or following which, the proce-dural timetable must be drawn up.46 Further case-management conferences may be convened “to ensure continued effective case management,”47 and these may be conducted in person, by video conference or by telephone.48

There is also an incentive for the par-ties to cooperate, as the arbitral tribunal may take into account whether the parties complied with their obligation to conduct the arbitration in an expeditious and cost-efficient manner when making decisions on costs.49

Communications have also been brought up to date. References in the 1998 Rules to “fax,” “telex” and “telegram,” have been removed in the 2012 Rules and replaced by the term “email.”50

The 2012 Rules also include provisions designed to encourage the arbitral tribunal to render its final award swiftly. The Rules do not go so far as to impose a deadline, but

We want you!Become an ILS Sponsor today!Each year firms, companies and suppliers sponsor the International Law Section. Because of their generosity and support, the ILS is able to host top-notch seminars, events and meetings in Florida and around the world.

In light of what we accomplished this past year, we hope our current sponsors will continue to sup-port the Section. We also hope others will consider joining with us, as we look forward to innovative programs where we can advance international law and promote our sponsors

Please contact elizabeth Ortega at [email protected] for more details.

Page 69: International law Quarterly 2012 Spring Issue

Page 69 Spring 2012 The International Law Quarterly

there is a new requirement that, as soon as possible after the final hearing, the arbitral tribunal must inform the ICC Secretariat and the parties of the date by which it ex-pects to submit its draft award to the Court for approval.51

Confidentiality and Investment Arbitration

Like previous versions, the 2012 Rules do not contain an express confidentiality provision. Instead, the tribunal is given new authority to make orders, upon the request of any party, concerning the confidentiality of the arbitration proceedings or any other matters in connection with the arbitration, and it may take measures for preserving trade secrets and confidential information.52

The absence of a general confidential-ity provision is consistent with the aim of making the 2012 Rules more suitable for use in investment treaty claims (as those claims are generally public). Whereas the 1998 Rules stated that the function of the ICC Court was to provide for the settlement of “business disputes,” the 2012 Rules state that it “administers the resolution of disputes by arbitral tribunals,”53 removing the reference to “business.” In disputes involving states or state entities, an arbitra-tor may now be directly appointed by the ICC Court,54 rather than through a national committee, as national committees have been perceived as being too close to their national business communities.

Conclusion The 2012 Rules have generally been re-

ceived favorably. That the ICC has sought to address criticisms of the arbitral process as too slow and expensive has, in particular, been welcomed. The provisions on multi-party and multi-contract arbitration have also met with approval, as they will enable arbitration to meet the demands of modern business transactions more effectively. The emergency-arbitrator provisions, on the oth-er hand, have encountered some scepticism.

The impact of the new rules in practice will inevitably be tested over time. Specifi-cally, it is far from clear that they will re-duce the time and cost associated with ICC arbitration, since such outcomes depend more on the conduct of the parties and arbitrators than on the arbitration rules.

Kate Wilford is a se-nior associate in the London office of Ho-gan Lovells. Her prac-tice focuses on inter-national arbitration, including under the rules of the ICC and other institutions.

Endnotes:1 Available at http://www.arbitrationonline.org/docs/2010_InternationalArbitrationSurveyReport.pdf, at 23.2 Available at http://www.iccwbo.org/court/arbitra-tion/id4199/index.html.3 Art. 29(6) provides that the emergency-arbitrator provisions do not apply to arbitration agreements concluded before 1 January 2012, unless otherwise agreed.4 Article 6(1).5 [2009] SGCA 24.6 Art. 1(2).7 Art. 29(1).8 Art. 29(7).9 yVeS derAinS And eric A. SchwArtZ, A Guide to the icc ruLeS oF ArbitrAtion 10 (2005).10 App. II, Arbitration Rules of the Stockholm Cham-ber of Commerce, 1 Jan. 2010, available at http://www.sccinstitute.com/skiljedomsregler-4.aspx.11 Rule 26.2 and sched. 1, SIAC Rules 4th Edition, 1 July 2010, available at http://www.siac.org.sg/cms/index.php?option=com_content&view=article&id=210&Itemid=130.12 App. V, art. 1(1). For a list of practical consider-ations for submitting an application for emergency measures, see http://www.iccwbo.org/court/arbitra-tion/index.html?id=46940.13 App. V, art. 7(1).14 App. V, art. 7(2).15 App. V, art. 1(5).16 App. V, art. 2(1).17 App. V, art. 5(1).18 App. V, art. 5(2).19 App. V, art. 6(1).

20 App. V, art. 6(4).21 App. V, art. 7(3).22 Art. 29(3).23 Art. 33.24 Art. 29(2).25 Details of the States that have enacted the 2006 Model Law are available at http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_ar-bitration_status.html.26 See http://app2.mlaw.gov.sg/News/tabid/204/Default.aspx?ItemId=634.27 App. V, art. 2(6).28 Available at http://www.lcia.org/Dispute_Resolu-tion_Services/LCIA_Arbitration.aspx.29 Art. 6(4)(i) (Emphasis added.).30 Art. 6(4)(ii) (Emphasis added.).31 Art. 10 of the 1998 Rules.32 Anne Marie Whitesell & Eduardo Silva-Romero, Multiparty and Multicontract Arbitration: Recent ICC Experience, icc int’L ct. Arb. buLL.: SpeciAL Supp. (2003) 7, 11; derAinS & SchwArZ, supra note 9, at 71.33 Art. 6(5).34 Art. 23(3).35 derAinS &SchwArZ, supra note 9, at 71.36 Whitesell & Silva-Romero, supra note 32, at 15; derAinS & SchwArZ, supra note 9, at 100.37 In exceptional circumstances, the ICC Court al-lowed the dispute to proceed as a single arbitration in a case where it was clear that the signatories belonged to two groups of companies. See Whitesell & Silva-Romero, supra note 32, at 15.38 Id. at 15.39 Id. at 16.40 Id. at 16; derAinS & SchwArZ, supra note 9, at 59.41 For details of the debate as to whether “indepen-dence” in the 1998 Rules encompassed impartiality, see derAinS & SchwArZ, supra note 9, at 116-20.42 See http://www.iccwbo.org/court/arbitration/in-dex.html?id=34543.43 Art. 22(1).44 Art. 22(2).45 Art. 24(1).46 Art. 24(2).47 Art. 24 (3).48 Art. 22(4).49 Art. 37(5).50 Art. 3(2) of both the 1998 and 2012 Rules.51 Art. 27.52 Art. 22(3).53 Art. 1(1) of the 1998 Rules; Art. 1(2) of the 2012 Rules.54 Art. 13(4).

2012 iCC RuLEs oF aRBitRation, from previous page

K. Wilford

Page 70: International law Quarterly 2012 Spring Issue

Page 70 Spring 2012The International Law Quarterly

AUDIO CD ORDER FORM

TO ORDER AUDIO CD OR COURSE MATERIALS BY MAIL, SEND THIS FORM TO The Florida Bar, Order Entry Department: 651 E. Jefferson Street, Tallahassee, FL 32399-2300 with a check in the appropriate amount payable to The Florida Bar or credit card information filled in below. If you have questions, call 850/561-5831.

Name ____________________________________________________________________________ Florida Bar # __________________________

Address _______________________________________________________________________________________________________________

City/State/Zip _______________________________________________________________ Phone # ____________________________________

Email Address __________________________________________________________________________________________________________ABF: Course No. 1422C

METHOD OF PAYMENT (CHECK ONE): Check enclosed made payable to The Florida Bar

Credit Card (Advance registration only. Fax to 850/561-5816.) MASTERCARD VISA DISCOVER AMEX

Signature: _____________________________________________________________________________________Exp. Date: ____/____ (MO./YR.)

Name on Card: ______________________________________________________________ Billing Zip Code: ____________________________

Card No. ______________________________________________________________________________________________________________

The Florida Bar Continuing Legal Education Committee and the International Law Section present

10th Annual International Litigation and Arbitration ConferenceCOURSE CLASSIFICATION: INTERMEDIATE LEVEL

– Audio CD –Recorded February 24, 2012 at J.W. Marriott Marquis, Miami

Course No. 1422C

TO ORDER AUDIO CD OR COURSE MATERIALS, fill out the order form above, including a street address for delivery. Please add sales tax. Tax exempt entities must pay the non-section member price.

Please include sales tax unless ordering party is tax-exempt or a nonresident of Florida. If this order is to be purchased by a tax-exempt organization, the media must be mailed to that organization and not to a person. Include tax-exempt number beside organization’s name on the order form.

This is the 10th year anniversary of the International Law Section’s Litigation and Arbitration Conference. The Audio CD includes all breakout sessions on litigation and arbitration: asset tracing and recovery tools: essentials for the international litigator; arbitration rules update; hot topics in international litigation; hot topics in international arbitration; what you may not know about litigation in Latin America; what you may not know about enforcing your arbitral award abroad; cross border enforcement: the role of prosecutors, regulators, and defense attorneys; the next generation of investor-state arbitration: a review of the logical steps. The plenary sessions include: recent alien tort claim act cases and ethics issues in international litigation: fee sharing and suit financing. This one-day program has been awarded 11 hours of CLE credit, 1 hour of ethics and 11 hours of international certification credit.

❑  AUDIO CD (1422C)(includes electronic course material)

$345 plus tax (section member)$395 plus tax (non-section member)

TOTAL $ _______

Friday - February 24, 2012 9:00 a.m. – 10:00 a.m.Plenary Session

Recent Alien Tort Claim Act Cases Moderator: Raoul G. Cantero, White & Case LLP, Miami

10:00 a.m. – 10:15 a.m. Break

10:15 a.m. - 11:15 a.m.Breakout Sessions

Asset Tracing and Recovery Tools: Essentials for the International Litigator Moderator: Arnoldo B. Lacayo, Astigarraga Davis

Mullins & Grossman, P.A., Miami

Arbitration Rules Update Moderator: Eduardo Palmer, Eduardo Palmer, P.A.,

Coral Gables

11:15 a.m. – 11:30 a.m. Break

11:30 a.m. – 12:30 p.m.Breakout Sessions

Hot Topics in International Litigation Moderator: Edward M. Mullins, Astigarraga Davis

Mullins & Grossman, P.A., MiamiHot Topics in International Arbitration Moderator: Carlos F. Concepción, Concepción

Martinez & Bellido, Coral Gables

12:30 p.m. – 1:45 p.m.Luncheon (included in registration fee)

1:45 p.m. – 2:45 p.m. Breakout Sessions

What You May Not Know About Litigating in Latin AmericaModerator: Gustavo Lamelas, DLA Piper (US) LLP,

Miami

What You Need to Know about Enforcing Your Arbitral Award AbroadModerator: C. Ryan Reetz, DLA Piper (US) LLP, Miami

2:45 p.m. – 3:00 p.m. Break

3:00 p.m. – 4:00 p.m.Breakout Sessions

Cross Border Enforcement: The Role of Prosecutors, Regulators, and Defense Attorneys Moderator: Matthew Menchel, Kobre & Kim, LLP, Miami

The Next Generation of Investor-State Arbitration: A Review of the Logical Steps Moderator: Alberto Wray, FoleyHoag LLP, Washington,

D.C. and Quito, Ecuador

4:00 p.m. – 4:15 p.m. Break

ELECTRONIC MATERIALS: Every CLE course will feature an electronic course book in lieu of a printed book for all live presentations, live webcasts, webinars, teleseminars, audio CDs and video DVDs. This searchable, downloadable, printable material will be available via e-mail several days in advance of the live course presentation or thereafter for purchased products. We strongly encourage you to purchase the book separately if you prefer your material printed but do not want to print it yourself. Effective July 1, 2010.

4:15 p.m. – 5:15 p.m.Plenary Session

Ethics Issues in International Litigation: Fee Sharing, Suit Financing Moderator: Martin Kenney, Martin Kenney & Co.,

Tortola, British Virgin Islands

5:30 p.m. – 7:00 p.m.Reception (included in registration fee)J.W. Marriott Marquis

CLER PROGRAM(Max. Credit: 11.0 hours)

General: 11.0 hours Ethics: 1.0 hour

CERTIFICATION PROGRAM(Max. Credit: 11.0 hours)

Business Litigation: 8.0 hours Civil Trial: 8.0 hours

Criminal Appellate: 1.0 hourCriminal Trial: 1.0 hour

International Law: 11.0 hours

REFUND POLICY: A $25 service fee applies to all requests for refunds. Requests must be in writing and postmarked no later than two business days following the live course presentation or receipt of product. Registration fees are non-transferrable, unless transferred to a colleague registering at the same price paid.

CLE CREDITS

Page 71: International law Quarterly 2012 Spring Issue

Page 71 Spring 2012 The International Law Quarterly

MeMber benefitsThe Florida Bar • 651 East Jefferson Street • Tallahassee, Florida 32399-2300

www.floridabar.org/memberbenefits • 850/561-5600 • 800/342-8060

For information on ALL Bar Membership Services, visit www.floridabar.org/

memberbenefits

REV04/12

LEGAL RESEARCH

ABA PuBLiCATionS www.ababooks.org100’s of books in a variety of formats. Rigor-ously reviewed to offer highest quality informa-tion & presentation.

ref. #PAB6EFLB for 15% discount

CCH ASSoCiATion http://tax.cchgroup.com/members/tfbSavings up to 30% off industry-leading tax and accounting books. use ref. #Y5604 at check out.

FASTCASE nATionAL LAW LiBRARY 866-77-FASTCASEComprehensive 50 state and federal case law databases. Unlimited dual column printing. 80% discount off retail.

FREE FLoRidA CASE LAW at www.floridabar.org

LExiSnExiS 866-836-8116 www.lexis.com/flabarFlexible research and big savings. Shepard’s® and exclusive content make research easier. Unique offerings,affordably priced and easy to customize.

BAnk PRoGRAmS

BAnk oF AmERiCA 800-932-2775 www.bankofamerica.com/floridabarApply Online or toll-free! Affinity credit card. CD’s, Money Market, free checking.

LAWPAY 866-376-0950 www.affiniscape.com/floridabarLaw Firm Merchant Account. Members can save up to 25% off credit card processing fees.

inSuRAnCE

BuSinESS PLAnninG ConCEPTS, inC.800-282-8626 www.memberbenefits.comMedical, disability, life, hospital, AD&D, long term care, retirement programs, workers’ comp., pet insurance & more.

CELEdinAS inSuRAnCE GRouPwww.celedinas.com/florida-bar

Offers excess personal liability coverage, up to 60% discount.

FLoRidA LAWYERS muTuAL (FLmiC)800-633-6458 • www.flmic.com

Lawyer-created liability carrier.

GEiCo 800-368-2734 www.geico.comThe GEICO Auto Insurance Program offers car insurance with 24-hour service. Bar members may qualify for additional discounts.

JuRiSCo 800-274-2663 www.jurisco.comCivil court bonds by phone in 24 hrs.

BuSinESS

ABi www.ABIToday.comAssociation Benefits internationalOver 90% of searches for products or services today are performed on-line.From the largest more established firms to the newest attorney, ABI has the right marketing strategy for you.

FoRmSPASS 877-389-0141 x.111 www.formspass.com/flbar-partnership

Unlimited access to a library of high-quality legal practice forms for low yearly or monthly rate, with no timed usage fees, per form fees, printing fees or other hidden charges.

PRodoC 800-759-5418 www.prodoc.comProDoc legal forms software. Family, Estate Planning, Probate & more.

STAPLES 800-3STAPLE www.floridabar.org/memberbenefitsOffice supplies, furniture and technology.

SuBSCRiPTion SERviCES, inC.800-289-6247 • www.buymags.com

TABS3 TRuST ACCounTinG SoFTWARE www.tabs3.com/floridabarMembers of the Florida Bar are entitled to exclusive pricing for Tabs3 Trust Accounting Software (handles up to 5 billable timekeep-ers). The member benefit price is $99 – over a 40% savings!

APPAREL / HomE /GiFTS

THE BiLLABLE HouR ComPAnY www.thebillablehour.com/flabar.phpWide selection of gifts for lawyers and legal professionals. Save 10% with code: FLABAR.

BRookS BRoTHERS 866-515-4747 membership.brooksbrothers.comEnroll for Corporate membership Card and Save 15% on regular and everyday value priced merchandise. Enter Organization ID #10320 and your Pin Code #97352.

FTd 1-800-SEnd FTd www.ftd.com/corporatepartner15

Code: 30646

JoS. A. BAnk CLoTHiERS 800-285-2265 www.josbank.com • Code: 91861Specializing in men’s clothing. Save 20% with the JoS. A. Bank Corporate Discount Card. (Sale items excluded). Call for FREE Corporate Card.

SEARS CommERCiAL mARkETPLACE www.floridabar.org/memberbenefitsSave 5-50%* off everyday items to furnish your home! (*Discount reflects savings off regular price. Program not available in Sears retail stores.)

mAiLinG & dELivERiES

FEdEx 800-636-2377 www.1800members.com/flbSave up to 26% on Fed Ex shipping services.

uPS 800-325-7000 www.savewithups.com/floridabarDiscounts on services.

AuTomoBiLE REnTALS

ALAmo www.alamo.com • 800-354-2322Year round discounts from Alamo! ref. #93718

AviS www.avis.com • 800-331-1212Avis Preferred Renter fees waived. ref. #A421600

BudGET www.budget.com • 800-527-0700Year round discounts from Budget. ref. # Y067600

HERTZ www.hertz.com • 800-654-2200Hertz #1 Club Gold fees waived. ref. #152030

nATionAL www.nationalcar.com 800-227-7368National Emerald Club fees waived. ref. #5650262

mEdiCAL EvACuATionAnd REPATRiATion

mEdJET 800-527-7478 www.Medjet.com/TFBEnroll prior to travel with Medjet rates reduced up to 18% for domestic & international “hospital of choice” protection, personal & business travel. Reference The Florida Bar.

Page 72: International law Quarterly 2012 Spring Issue

Page 72 Spring 2012The International Law Quarterly

the Florida Bar651 East Jefferson streettallahassee, FL 32399-2300

FIRST CLASSU.S. POSTAGE

PAIDTALLAhAssee, FL

Permit No. 43

Section CalendarMark your calendars for these important dates.For more information, visit www.internationllawsection.org.

February 28, 2013

2:00 p.m. - 6:00 p.m.half-day: International Business Transactions Conference (IBTC) — Miami

6:30 p.m. - 8:30 p.m.Opening Cocktail

March 1, 2013

All Day: International Litigation and Arbitration Conference (ILAC) — Miami

6:00 p.m. - 8:00 p.m.Closing Cocktail / Vis opener

March 2, 2013

All Day: the Florida pre-competition for the Annual Willem C. Vis International Commercial Arbitration Moot (The Vis Moot) — Miami

6:00 p.m. - 8:00 p.m.Vis Moot Closing Cocktail

October 16-20, 2012 American Bar Association section of International Law (“ABA International”) 2012 Fall Meeting Fontainebleau Miami Beach

* * *

April 6-9, 2014International Council for Commercial Arbitration (ICCA) 22nd Congress — Miamiwww.iccamiami2014.com