INTRODUCTION TO

COMMERCIAL ARBITRATION

St. Petersburg State UniversityLaw Faculty

Zykov Roman March 2009

2

Contents

Intro to Arbitration Regulations Arbitration agreement/clause Choosing / Dismissing arbitrators Submissions Procedures Interim Measures Evidence Award Enforcement

3

Intro to Arbitration Institutional

Permanent arbitration establishmentSecretariatCase managementArbitration Rules Appointment of arbitratorsPredictable case fees Appointing authority

Ad Hoc Process management is on the arbitrator(s)

and partiesNon-transparent feesUncertain time frame

4

Regulations

New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)

European Convention on International Commercial Arbitration (1961)

Russian Law on International Commercial Arbitration 1993 (UNCITRAL Model Law based)

Russian Law on Treteisky sudi (2002)

Arbitrazh Procedure Code (2002)

5

Arbitration Agreement Written form - NYC art. II, Law on ICA

art. 7(2) Parties agree to arbitrate

Separate arbitration agreement Arbitration clause Reference to a Document (f. ex. GCS) Submission agreement

6

Extension of Agreement to 3d Party

Convention on Agency in the International Sale of Goods (UNIDROIT, Geneva, 1983, not in force)

Art 12: “Where an agent acts on behalf of a principal within the scope of his authority and the third party knew or ought to have known that the agent was acting as an agent, the acts of the agent shall directly bind the principal and the third party to each other, unless it follows from the circumstances of the case...”.

International Convention On Salvage (IMO, 1989) Art 6.2: “The master shall have the authority to conclude contracts for

salvage operations on behalf of the owner of the vessel. The master or the owner of the vessel shall have the authority to conclude such contracts on behalf of the owner of the property on board the vessel”.

“Group of companies” doctrine Awareness of agreement; involvement in negotiations and

performance; Dow Chemical v. Isover Saint Gobain Case No. 4131/1982

(ICC)

7

Treaty based Arbitration General Terms of Delivery SEC (Общие Условия

Поставок СЭВ) GTD with China (1990)

Para 52: “Disputes arising out of or in connection with a contract, unless settled by negotiations are exempted from the state courts’ jurisdiction and shall be arbitrated”.

GTD with Finland (1978) Para 16.1.1 “Disputes arising out of or in connection with a

contract are exempted from the state courts’ jurisdiction and shall be arbitrated”.

Place of arbitration under GTDs - @ the residence of the seller (characteristic performer).

8

Basic Considerations when Drafting

New York Convention is applicable to the parties

Arbitration environment at the place of arbitration:

Legal requirements for arbitration agreement Intervention of state courts Possibilities of parallel procedures Court’s support to arbitration Consolidation of cases / 3d parties Grounds for setting aside of awards Application of “public policy” doctrine

Avoid “midnight clause” situation (plan ahead)

9

Arbitration Agreement (i) Subject matter of the dispute

Compare: “Any dispute or controversy arising out of or in connection with the contract…” (OK) and “Disputes arising out of determination of damages…” (NARROW)

Applicable Arbitration Rules Correct name of arbitration Institute/Rules

Compare: “by Arbitration court in London…” and “by arbitration under the London Court of International Arbitration Rules”.

Odd names: “Ad Hoc Arbitration Institute” in Latvia (!!!)) or Method of appointing the tribunal if Ad Hoc

Gaps filled by national laws/int. documents

10

Arbitration Agreement (ii)

Additional elements Number of arbitrators Place of arbitration Language of submissions/proceedings Possibility of pre-arbitral DR (deadlines!) Powers of Tribunal Limitation of liability Law applicable to arbitration agreement

(?)

11

Arbitration Agreement (iii)

Authorities of Tribunal parties “may” or “can” v. “shall” or “agree” refer to

arbitration Interim measures of protection ex aequo et bono Partial/Interim Awards (on costs or separate matters)

Supplementary Rules Expedited Arbitration Rules Small-claims Rules Rules on the Taking of Evidence in ICA (IBA) Other

12

Arbitration Agreement (iv)

Limitation of liability Exclusion of punitive damages No vicarious liability

the responsibility of any third party that had the "right, ability or duty to control" the activities of a violator

corporate liability (piercing the corporate veil)

Exclusion of sovereign immunity

13

Arbitration Agreement (v)

Separability of arbitration clause Law applicable to arbitration agreement

(interpretation, validity, etc.): Law of arbitral situs Closest connection rule Most appropriate law

14

Composition of the Tribunal

Method of appointment: By a Party/Parties By the Institute

sole arbitrator small claims no agreement on appointment method appointing authority

By a Chamber of Commerce (Genève Convention, 1961)

By a court (Dutch Code of Civil Procedure, Book IV )

Chairperson is appointed: by the party appointed arbitrators by the Institute

In multi-party arbitration by the Institute jointly by claimants; jointly by respondents

15

Composition of the Tribunal

Fixed period for appointment (15-30 days) If parties fail to appoint in due time:

Appointed by the Institute in Ad Hoc cases – appointing authority (state court or

chamber of commerce)

Is it important to participate in the composition? Select an appropriate arbitrator (background check

based) Shape the Tribunal (arbitrators appoint the chairperson)

16

Impartiality and Independence (i)

Arbitrators are impartial and independent Obligation to disclose

CV’s submitted to the Secretariat and the parties

No substantial guidance in national laws or international acts

No substantial guidance in Russian law re: impartiality and independence

Case law: OAO NK Rosneft v. Yukos Capital S.a.r.l.

a statutory obligation of an arbitrator to disclose any information that may raise doubts as to his/her impartiality, f.ex. participation in seminars

17

Impartiality and Independence (ii)

IBA Guidelines on Conflicts of Interest in International Arbitration

Non-Waivable Red list (absolute no) Waivable Red list (most likely no) Orange list (possibly yes) Green list (yes)

18

Arbitrators Considerations as to candidates:

Lawyer/Non-Lawyer Civil/Common law Experience Specialization Language proficiency Nationality (sole arbitrator or

Chairperson) Personal credentials Workload/Calendar Location

19

Arbitrators (ii) Background check

Conflict check Expressed opinions (cases, publications) Is interviewing acceptable?

Guideline on the Interviewing of Prospective Arbitrators (Chartered Institute of Arbitrators)

20

Dismissing Arbitrators Justifiable doubts to impartiality or independence

Notice is submitted to the Secretariat Within […] days of awareness (check applicable Rules!) If period is missed - challenging rights are waived

Discharging arbitrators (by the Institute) Unqualified (no sufficient knowledge) Fails to fulfill the duties Delays proceedings Arbitrator has no legal capacity

21

Jurisdiction of Tribunal Kompetenz-kompetenz Parallel proceedings (check local regulations)

Arbitration v. State Courts’ proceedings (lis pendens) Arbitration v. Bankruptcy Arbitration and State Court’s Measures

Pathological clauses and Choice of Forum Multi-jurisdictional clauses (?) One-sided clauses (?) Arbitrability (also at the place of enforcement)

F. ex. Belgium (agency agreements)

22

Submissions

Request for Arbitration (ICC, LCIA) Statement of Claim Response/Counter Claim Additional submissions Documents discovery (f.ex. in the US)

23

Statement of Claim/Response

Statement of Facts Summary of Arguments Relief Sought Arguments

Jurisdictional issues Forum + Scope

Substantive issues Facts + Law

24

Additional Submissions Rebutting facts or legal arguments Introducing new facts/evidence Amending the claim/counter claim (when?)

Facts Specific performance Relief sought (recalculations)

Witness Statements Expert Statements

25

Notifications Notifications re:

Filed request for arbitration Invitation to appoint an arbitrator Hearings Other

Vehicles: Fax (?) Registered letter Hand-in in the presence of a notary

No enforcement on grounds of due process violation

26

Procedural Requests/Orders

Challenging arbitrators Requests for disclosure/discovery Request for extension Request for interim measures of protection Request of appearance (witnesses, experts)

State court’s support Request to adjourn proceedings

Implemented by Procedural Orders of Tribunal

27

Place of Arbitration Determined by:

parties arbitrators Institute

Meetings might be somewhere else Place of arbitration determines

Nationality of award Procedural law applicable Setting aside procedures

28

Language of Arbitration Language of submissions/hearings Language:

Agreed by the Parties Established by the Tribunal Set out by Arbitration Rules

Flexibility No requirements for legalization Documents in different languages No need for a Bar admission No nationality requirements

29

Hearings Agenda is suggested by the Tribunal/Parties Opening Statements Jurisdiction Substantive issues

Presentations Witness/Expert direct testimony Witness/Expert cross/re-cross exam Examination of documents On-Site inspection (rare)

Closing arguments

30

Evidence Admissibility of evidence (forged,

stolen documents) Free evaluation by Tribunal Indexed exhibits Witnesses and Experts are treated the

same Witness statements saving time on

direct exam

31

Witness direct-exam Do not over-prepare a witness

there is a presumption that all witnesses lie Common law tradition - story telling Civil law tradition - proving the fact

Maybe a short Direct exam warm up a witness ask something that might be asked by

opponent

32

Witness cross-exam Think of a strategy (how the arbitrator would proceed) Be prepared (DD on the opposite side witness) Be brief (2-3 major point) Use simple language Listen to the answers Make him answering your questions, not some other Never argue with the witness Do not let the witness repeat his direct testimony Do not let the witness explain Do not corner the witness (one question too many) Do not ask a witness to draw conclusions Save for closing arguments

33

Expert Witness Always conflicting opinions as the parties

control their experts DD on the opposing expert

Conflict of interests Inflated experience

Try not to challenge the expert on tech facts, rather point on inconsistencies

34

Interim Measures of Protection

Tribunals may issue IMP not binding on the parties not binding on 3d parties not considered as award

Tribunals may seek courts’ assistance

Support to foreign arbitrations (?) What’s the situation in Russia (?)

35

Interim Measures in Russia

Chapter 8 АПК РФ (Para 3 Art 90) State court may issue IMP at the place of tretejski

sud, at the domicile of the defendant or location of its assets

supporting tretejski sud or also ICA? if also ICA, then only ICA located in Russia

“Tretejski sud” is a broad category in АПК РФ and Law on ICA, also including ICA.

Art 9 (in conjunction with para 1 Art 1) of the Law on ICA stipulates that ICA located abroad may seek IMP in Russian courts

36

Award Reasoned (?) Signed

(chairman/majority/everyone?) Dissenting opinions (?) Costs Time for rendering the award (6-9

months)

37

Setting Awards Aside (i) European Convention on International

Commercial Arbitration, Genève, 1961, Art. IX

Arbitrazh Procedure Code, Chapter 30 Russian Law on ICA, 1993, Art. 34 Arbitrazh courts’ case law on Chapter 30

38

Setting Awards Aside (ii) If a party proves: (Genève 1961, ICA Law)

Incapacity of a party Invalidity of arbitration agreement under applicable

law No proper notice of arbitrator/unable to present its

case Award is beyond the scope of submissions Defects in the composition of the tribunal

If the competent court finds that: (ICA Law) the subject matter is not arbitrable award is contrary to the public policy

39

Setting Awards Aside (iii) Art 230 (5) АПК РФ: “В предусмотренных международным

договором Российской Федерации случаях … может быть оспорено иностранное арбитражное решение, при принятии которого применены нормы законодательства Российской Федерации”

Art IX EC 1961 “setting aside took place in a State in which, or under the law of which, the award has been made”

Is this application correct? Art IX of EC 1961 is based on Art V NYC 1958 where the law of

the award means the procedural law (lex arbitri) not material law!!!

Misleading Russian case law: Presidium of Supreme Arbitrazh Court, Decree N15359/03, 30.04.2004; Federal Arbitrazh Court Northwestern Distric, Decree NA05-4274/2007, 25.07.2007

40

Recognition and Enforcement (i)

New York Convention European Convention of ICA Arbitrazh Procedure Code

Supreme Arbitrazh Court Information Letter N96, 22.12.2005

Case law of cassation instances

41

Recognition and Enforcement (ii)

NYC, APC, ICA Law list limited grounds If the enforcing party proves that:

Agreement invalidity/party incapacity Failure to notify Award is out of scope Defects in composition of the tribunal The award is not yet binding or set aside in the

country in which, or under which law is made (!)

If the enforcing court finds that: Not arbitrable Recognition and enforcement contrary to public

policy

42

Recognition and Enforcement (iii)

АПК РФ Глава 31 Application is filed within 3 years since in

force Filed to Arbitrazh court at location of the

location of the debtor or its assets.

43

Enhancing Enforcement Valid arbitration clause Valid jurisdiction Non-bias arbitrators Due-process and notifications Correct calculations Correct names of the parties

44

Hannes Snellman AttorneysStockholm HelsinkiBirger Jarlsgatan 6 Eteläranta 8

Moscow St. Petersburg4 Podkopaevsky Pereulok 62 Nevsky pr.

Kiev2A Kostyantynivska St.

Shanghai BeijingShui On Plaza 15/F, Unit 1507 Jianguo Road 17/F

www.hannessnellman.com