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Chapter 1 – Introduction

I.1.c – Arbitration and Mediation

• World Intellectual property Organization (WIPO) Guide to Mediation


Mediation –
2 main ways mediators assist:
1) facilitative mediation – facilitate commo, perspective, etc
2) evaluative mediation – makes a non-binding assessment of the dispute
Process:
1) Request Mediation
2) Appoint Mediator
3) Initial Contact btwn Mediator & Parties
- meet, exchange documents
4) Later Meetings
- agree to ground rules, gather information, develop options for settlement, look at options
5) Conclusion

• How does mediation differ from Arbitration?


Arbitration – (3 Party) Parties cede decision-making power over the dispute to an arbitrator. Decisions are
made based on an OBJECTIVE STANDARD.
o How does arbitration differ from mediation?
 Objective standard
 Goal: a final judgment
 Authority: Can determine THE outcome.
 Must be neutral & impartial

Mediation – (2/3 party) Non-Binding. Confidential. Parties retain responsibility & control of the dispute & do
not cede the power to an intermediary
a. Role of mediator is to assist parties in reaching their decisions.
(1) Facilitative Mediation - mediator endeavors to facilitate communication btwn parties.
(2) Evaluative Mediation - mediator provides a non-binding assessment or evaluation of the
dispute and parties are free to accept or reject it.
Advantages:
- minimizes costs
- parties maintain control over the process
- speedy settlement
- confidentiality

• Other forms of dispute settlement


o Conciliation (Vienna): Settlement of a dispute in a friendly manner. If parties agree, parties can
agree to allow conciliator to become the arbitrator. If it fails, the conciliator cannot become the
arbitrator.
o Med/Arb – Where parties go into mediation, but if mediation fails, the mediator becomes the
arbitrator (umpire) and there is a small ‘trial.’ It allows parties to determine whether they like the
future arbitrator, and cut out if they don’t like him.
o Mini-Trial (Zurich) – One Umpire & 2 associate members (senior officers of the 2 companies) –
can mediate, meet, listen to evidence, etc. The panel can make a settlement decision, or if the
panel can’t agree, the umpire makes a decision. Outcome: JUDGMENT
I.1.d – Technical Expertise
o ICC Rules on Expertise
• In addition to an arbitration clause, parties should include in Ks an expertise clause for the appointment of
an expert through the International Centre for Expertise.
• ICC Expertise Rules Art 8 §3.
• ICC Expert’s opinion is normally NOT binding (unless they agree it will be)
I. 1.e – Adaptation of Contracts
• Frydman v. Cosmair Inc

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o Facts: Defendant, L’Oreal, entered into an agreement to arbitrate the value of plaintiffs’ Paravision
shares. Later they also agreed to buy plaintiff’s Paravision holdings at a price to be determined by
the arbitrator under 1592 of the French Civil Code.
o Rules
o Although the parties may label something as an “arbitration” – it must be a real arbitration
(involving a dispute with a judgment). In this case, the 1592 price appraisal called for in the K was
not an arbitration.
o Arbitrations have:
 1) a dispute (there was none in this case – they had come to an agreement – no longer
making arbitration necessary – and replaced the question with a 1592 price appraisal)
 2) involve a judgment (the 1592 price appraisal does not constitute a judgment)
I.1.f – Arbitration and Litigation
• Learned Hand:
o “Arbitration may or may not be a desirable substitute for trials in courts; as to that the parties must
decide in each instance. But when they have adopted it, they must be content with its
informalities; they may not hedge it about with those procedural limitations which it is precisely
its purpose to avoid. They must content themselves with looser approximations to the
enforcement of their rights than those that the law accords them, when they resort to its
machinery.”
• Advantages of Arbitration in International Disputes
o Predictability - dispute resolved in one place, not race to courts in two nations.
o Competence - arbitrators will have applicable specialized commercial and legal expertise.
o Party participants - procedures shaped by parties & arbitrators
o Finality - arbitration awards are final and more often than not are enforced.
o Enforceability - if party to NY Convention, a foreign arbitral award is easier to enforce than a
foreign judgment.
o Costs (to some extent) - Cost of arbitrators is high, but don’t have other costs incident to litigation
e.g. depositions, appeals etc.
o Privacy (up to a point) - during arbitration there is confidentiality, but proceeding may become
known due to ancillary litigation or regulatory filings.
o Neutrality
o Expertise - arbitrators will be experts in their field more than federal judges.
o Procedural Flexibility - can tailor rules to fit your case
o Representation - can have your own lawyer represent you, doesn’t have to be a member of the bar
somewhere.
• Disadvantages of Arbitration in International Disputes
o Speed - unlikely since arbitral panel must be chosen and nothing substantive can be done before
that.
o Provisional remedies -
 not all courts will provide provisional remedies in aid of arbitration.
 Those that do, are reluctant to go beyond the maintenance of the status quo.
o Double Proceedings - sometimes will have litigation and arbitration.
o Finality - if you lose, can’t appeal
o Type of relief - can’t get intermediate relief e.g. injunction, have to wait until arbitration is over.
Can’t get punitive damages either.
• Advantages of Litigation over Arbitration in International Disputes
o No Agreement - parties might not agree on the procedures of arbitration
o Lack of joinder provisions - can’t join multiple provisions.
o Lack of discovery - might want broader judicial discovery, particularly the broader discovery
available as to non-parties.
• Factors to consider when selecting a dispute resolution mechanism
o What sorts of disputes most likely to arise?
 Who is the likely claimant?
 Who will be holding the money or goods?
 Who will be holding the records and other evidence?
o Will there be other leverage at the time of a dispute, such as dependence by one party on another
for spare parts or service?
o Where are the parties’ assets?

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o In what language will the parties be dealing?
o What will be the governing law of the contract?
o Does either party have a substantial base of operation in a third country and familiarity with its
legal system?

I.1.g – Institutional and Ad Hoc Arbitration


Institutional - Proceedings administered by an organization, usually in accordance with its own
rules of arbitration.
• Advantages:
o Ease - of incorporating by reference the institution’s rules in an international contract.
o Validity of Arbitration: Institutional rules have proven valuable in preventing parties, after
a dispute arises, from successfully asserting in national courts that the claims are non-arbitrable.
o ICC - available in seven major languages
o Arbitrator Selection -
 One of the most important services an institution can provide
 ICC can draw on its wide resources to find suitable arbitrators
 Having neutral party select arbitrator eases the process of tribunal formation.
 Institution’s role in engaging the service of an arbitrator spares the parties from
having to negotiate the fees of the arbitrator.
 Administrative Referee provided by the institution to ensure that arbitrators are
truly independent.
o Professional Administration - Professional staff to guide disputants through arbitration
process.
o Judicial Deference to Institutional Arbitration
 National courts are much more comfortable in confirming commercial awards
where there is some assurance that a neutral body, such as an arbitral institution, has
fairly referred both the procedural and substantive controversies which invariably arise
during the course of arbitration proceedings.
o Default Award - Ability to proceed in the absence of a defaulting party.
 Example: ICC Art. 15(2) “If one of the parties, although duly summoned, fails
to appear, the arbitrator, if he is satisfied that the summons was duly received and the
party is absent without a valid excuse, shall have the power to proceed with the
arbitration, and such proceedings shall be deemed to have been conducted in the
presence of all parties.”
 In ad hoc arbitration, may be more difficult to enforce a default award because
the enforcing party does not have the same degree of assurance that due process was
accorded the defaulting party.

• Disadvantages
o Takes more time
o Fees are higher than ad hoc.
Ad hoc - no formal administration by any established arbitral agency; instead the parties have
opted to create their own procedures for a given arbitration.
• Ad hoc rules can be created by:
o Drafting a set of ad hoc procedures in contract, or
o Reference to the UNCITRAL Arbitration Rules, or
o By allowing the arbitration tribunal to fashion it’s own procedures after the dispute has
arisen.
• Advantages
o Flexibility - arbitration can be shaped to meet the wishes of the parties and the facts of the
particular dispute. But need cooperation in order to ensure this.
o Cost - save administrative fees of institution.
o Speed - avoid sometime cumbersome internal proceedings e.g. selecting arbitrators, filing
documents.
o UNCITRAL rules make ad hoc arbitration much easier by providing a set of rules w/out
the institutional fees or administration.
• Disadvantage
o Lack of cooperation: The parties, their counsel and arbitrators must work together to reap
the benefits of ad hoc arbitration, this is hard to do when there are two sides fighting for different
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results.
o Flexibility - have to fill in the rules, hard to do when disputes arise.
o Cost- still have to pay arbitrators, lawyers etc.
o Speed - in theory it is faster, but might not be in practice.

I.3 – On the sources of relevant Norms


Sources of Relevant Norms
I. Arbitration relies on party autonomy to set the decision-making process free of municipal law and formal
procedure; yet at the same time it relies on court assistance when party cooperation is lacking, and hence the party-
driven process faces a road-block.
a. Party Autonomy -
(1) The basis of the jurisdiction of an arbitral tribunal is the will of the parties, while courts
owe their competence to procedural norms of a state or of an international convention.
b. Institutional Rules – What rules apply
(1) Apply if the parties subscribe to the institution’s system of rules.
(2) Ad hoc rules are more flexible, but it is hard to come up with a complete set of rules for
each dispute. Therefore, many rely on UNCITRAL rules which emphasize that “the
establishment of rules for ad hoc arbitration that are acceptable in countries with different legal,
social and economic systems would significantly contribute to the development of harmonious
international economic relations.”
(3) Parties may also combine pre-established institutional rules with solutions designed
by themselves. Though problems may emerge if the rules contradict each other.
c. National Statutes - national law / municipal law
(1) Generally, parties may follow procedural rules drafted or chosen by the parties as long as
they observe due process.
(2) May also apply when referring parties to arbitration, constituting the arbitral tribunal, or
challenging the arbitrators, etc.
(3) UNCITRAL Model Law on International Commercial Arbitration created to provide a set
of uniform rules acceptable throughout the world and which could be adopted by national
legislatures. Accepted by 8 states in the US and numerous countries worldwide. Model for
national statutes on arbitration.
Lex Arbitri – the law that governs the arbitration proceeding (but NOT the facts
themselves).
Ex/ Arbitration in Paris – Fr law; in NYC, -- the US law
d. International Agreements - ICA is supported and guided by a network of international
conventions and bilateral agreements to aid the recognition and enforcement of arbitral awards.
(1) 1958 NY Convention: most countries are party to it.
(2) 1961 Geneva Convention on ICA
(3) 1965 ICSID Convention

I.3.b – Party Stipulation v/s Institutional Rules


• By agreeing to arbitrate in accordance with the rules of an arbitral institution, the parties have agreed that the
proceedings shall be conducted in accordance with the rules established by the institution.
• Preliminary Award Made in Case No. 2321 in 1974 (ICC)
o Facts: The K provided for arbitration according to ICC rules. An annex to the K stated that the
arbitrator was to be chosen by an authority (“the Chairman”) other than the Court of Arbitration of
the ICC. When the Chairman refused to appoint an arbitrator, the Court of Arbitration of the ICC
nominated an arbitrator pursuant to ICC rules.
o Rule: ICC Rule 8(2) – if there is a failing agreement between the parties, the arbitrator will be
appointed by the court. The arbitrator found that since the parties had failed to come to an
agreement, it was proper for the ICC Court to appoint an arbitrator.
o CRITIQUE: Unenforceable under NYConv V(1)(d) - a nation’s court may not enforce an arbitral
agreement if not the intent of the parties.
 The parties did not fail to agree; they agreed to appoint the “Chairman” who was
supposed to appoint the other arbitrators. Since they did not fail to agree, ICC rules
should not have been relied on to appoint the arbitrator.
 Furthermore, arbitrator needs to worry about enforceability. NY Convention V(1)(d)
“Recognition and enforcement of the award may be refused, at the request of the party
against whom it is invoked . . . [if] The composition of the arbitral authority or the
arbitral procedure was not in accordance with the agreement of the parties . . .”

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 Fr law says if there is any problem determining the arbitration – go to the local court –
and the local court would make the decision. If the parties had gone to a Swedish Court,
then they would have avoided the whole problem in this case.

I.3.c – Party Stipulation versus State Norms


• Al Haddad Bros Enterprises Inc. v. M/S Agapi
o Facts: Al Haddad brought an action against ship owner, Diakan, for damage of its goods (salt &
detergent) during transportation from Wilmington to Turkey. Diakan raised as an affirmative
defense the existence of an arbitration provision. The ship owner (D) , Daikan, submits to
arbitration a dispute against Al Haddad for unpaid charter hire and gives AH notice. Al Haddad
does not appoint an arbitrator and the sole arbitrator entered an award against Al Haddad.
o Rule: To determine enforceability of an arbitral award, look to the laws of the nation the
proceeding took place in.
 Under the British arbitration statute, a sole arbitrator appointed by one of the parties may
decide a dispute when the other party fails to appoint an arbitrator under the
agreement, after being called upon to do so.
 NY Conv. V(1)(d) “the recognition of a foreign arbitration award is to be refused where
“the composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or failing such agreement, was not in
accordance with the law of the country where the arbitration took place.”
 Court says that the NY Convention allows recognition of an award which, although not
in accord with the parties’ agreement, complied with the laws of the country where the
arbitration occurred. NY Convention Art. V(1)(d). Since under UK law if one party
fails to appoint an arbitrator – an arb appointed by the other party is valid, the arbs
decision is a valid J.
o Critique: A better reasoning would have been as follows;
 Under V(1)(d) if the arbitral authority was not in accordance with the agreement of the
parties, the court may refuse to recognize and enforce the award. Since the court has
discretion to recognize and enforce the award, it can do so even when the arbitral
tribunal was not set up in accordance with the parties’ agreement, or
 Could argue that since there was no agreement, the law of the country where the
arbitration took place applied. (Conv. V(1)(d) “failing such agreement, was not in
accordance with the law of the country where the arbitration took place. . . “
Therefore, English law applied. Since English law was complied with, the award was
enforceable.
• Sally v. Termarea (Courts of Appeals of Florence, Italy)
o Facts: Sally began arbitration against Termarea in England for $US 41,000 for excess time at the
loading and discharging ports. Arbitration clause provides for a board of 3 arbitrators, the 3rd to
be appointed by the 2 chosen by the parties. Sally appointed an arbitrator but Termarea did not.
After 20 days, Sally appointed another arbitrator pursuant to the arbitration agreement. The
arbitrators did not appoint a third arbitrator reasoning that under English law (lex arbitri), the
third arbitrator was the equivalent of an umpire and an umpire was only needed when there was
disagreement btwn the two arbitrators. Since there was no disagreement there was no need to
appoint an arbitrator. An award was given in favor of Sally. Sally tried to enforce it but the Court
of Appeals of Florence refused to enforce it.
o Rule: An arbitration tribunal’s decision to follow the lex arbitri does NOT supersede the
intent of the parties.
 This rule is supported by Van Den Berg’s article that V1d was designed to limit the law
of the lex arbitri – that the law of the place of arbitration should not overrule party
agreement.
 Further, “the conformity of the composition of the arbitral tribunal with the law of the
country where the arbitration takes place must be observed for the enforcement of the
award only if the parties have not provided for a different composition of the arbitral
tribunal.”
• Tarmarea v. Sally (Queen’s Bench, England)
o Facts: As above
o Rule: Since the parties agreed to arbitrate in London and under English law, the agreement to
appoint a third arbitrator was overridden by English law. English law stated that where an
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agreement provided for the appointment of a third arbitrator, an umpire would be appointed
instead. In addition, the umpire does not have to be appointed if the two arbitrators agree.
Therefore, since the two arbitrators (correctly appointed) agreed, there was no need to appoint an
umpire.
 If Tarmarea wanted to dispute the failure to appoint an umpire, it should have done so
within six weeks of publication of the award on the basis that the failure amounted to
technical misconduct. Proceedings to enforce an award as a judgment are not
appropriate for raising the issue of misconduct.
 Dicta: It would have been better to appoint an umpire, but failure to do so did not render
the award unenforceable. The failure was only a ““procedural mishap” without any
consequential effect upon the award.”
o Res Judicata? Arb decision was in UK. Enforcement in the UK for an arb decision in the UK –
domestic -- not the same case b/c the NY convention doesn’t apply. Similarly, the Italian decision
is different from the UK review of the arb decision b/c the NY convention applies. Therefore the 2
decisions are different.
• Van der Berg – NY Convention – Toward a uniform Judicial Interpretation
o The purpose of V (1) (d) is to restrict the role of the law of the country where the arbitraiton took
place.
 Moral of the Salley/Tamarea cases is that parties have to be VERY careful in drafting
agreements.
 However, if we don’t take into consideration mandatory law, may have problems of
enforcement. E.g. In Sally, if arbitrators had appointed a third arbitrator they would have
been in violation of English law and an English court could have set aside the award
thereby making it difficult to enforce it in Italy pursuant to V(1)(e).
o Cyrilla & Caribdus Problem
 Where the parties agreement says one thing and the lex arbitri law of the country
mandates another, there is conflict.
 What will most likely happen is that the arb decision will be set aside.
 Why can’t you just go to another country to enforce the arb award?
• V(1)(e) – can’t be enforced if it has already been set aside in the country it was
made in.
• But we also know that set aside doesn’t automatically mean that it can’t be R&E
(Ex/ France under Art VII)

Chapter 2. On the authority of Arbitration Tribunals


Notes
• Variations of the arbitration agreement
i)Compromis - agreement that submits to arbitration already existing disputes
ii)Clause Compromissoire - agreement that covers disputes that may arise in the future.
1. More frequent
2. Easier to negotiate agreement to arbitrate when there is no dispute.
• Referring the parties to arbitration
a. NY Convention Art. II(3) compels a court to send the parties to arbitration, upon the request of one of
the parties, if there is a valid arbitration agreement. Other countries national laws mandate a referral to
arbitration if the court finds that the parties are bound by a valid arbitration agreement even without party
request.
b. Two situations when parties bring arbitration cases to courts
(1) Independent - P seeks an order compelling or prohibiting arbitration or a declaration that a
dispute is arbitrable or not arbitrable, and no party seeks any other relief. I.e. If there are
doubts about the validity of the arbitration agreement, one of the parties may wish to clarify this
before seeking another form of dispute settlement.
(2) Embedded - a party has sought some relief other than an order requiring or prohibiting
arbitration (typically some relief concerning the merits of the allegedly arbitrable dispute). I.e.
Moving party seeks damages from a court (in spite of an arbitration clause), and the respondent,
relying on the arbitration agreement, contests the jurisdiction of the court.
c. Kompetenz-Kompetenz principle - Arbitrators have competence to decide upon their own competence.
However, the conclusion of the arbitrators on this issue can be reviewed by courts in recognition of
setting-aside proceedings. The final word on the issue of arbitral competence belongs to the courts.
DILEMMA: Can a court decide the issue of the existence or validity of the arbitration agreement
before an arbitral tribunal hears the issue?
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(a) US Law
If a ‘container-contract’ = JUR belongs to the arbitrators
If the issue regards a specific arbitration clause itself = American courts have JUR
(b) French law: Negative Competenz-Competenz
If the arbitration tribunal as already seized, the court will defer to the arbitrators, unless the arb
agreement is manifestly null; if one has not been, the court may undertake a limited scrutiny, but
is to retain jurisdiction only if the arbitration agreement is manifestly null.
(c) UNCITRAL Model Law
Art. 16 states that an arbitral tribunal may rule on its own jurisdiction. Art. 8 states that “A court
before which an action is brought in a matter which is the subject of the arbitration agreement
shall refer the parties to arbitration, unless it finds that the agreement is null and void, inoperative
or incapable of being performed.”
a)Ontario court found that court scrutiny only applied if arbitration had not started.
b)Furthermore, even though a court refuses to here the jurisdictional question in the
beginning, it can always review the issue during set aside proceedings after the
award has been rendered.
• Formal Requirements - in general there are few legal restraints and requirements.
o Written Agreement - what constitutes a written agreement is quite flexible, i.e. can be exchange
of letters, telexes, telegrams or reference in the contract to a document containing an arbitration
clause.
o NY Conv. Art. II (2) obliges each Contracting State to recognize “an agreement in writing,” and
explains that: “The term ‘agreement in writing’ shall include an arbitral clause in a contract or an
arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.”
 Query - is NY Conv. standard a minimum standard? Different countries have different
opinions.
• Scope - Arbitration agreements determine not only whether there will be arbitration but also what issues will
be submitted to arbitration
o Should avoid splitting related claims btwn arbitration and litigation since it is difficult to
consolidate claims btwn arbitration and litigation is difficult.
• Further issues pertaining to the range and limits of the arbitration agreement
o Separability - does the arbitration clause have its own destiny, can it be regarded as valid (or
invalid) notwithstanding the invalidity (or validity) of the main contract?
o Imperfections in arbitration agreement - how do you deal with them?
o Transformation of arbitral institution
• Arbitrability – whether the arbitrators have jurisdiction to decide the issues
o Boils down to 3 issues
 Existence of Arb agreement
 Validity of the Arb Agreement
 Scope of the Arb Agreement
o If the answer to these three criteria is yes, then the court has the duty to send the dispute to
arbitration
• Decision at 3 Stages:
o Phase 1 – In court before arbitration occurs (parties disputing if arbitration can even go ahead)
o Phase 2 – in Arbitration
o Phase 3 – In court after Arbitration – Award enforcement
 In all three stages, the issue of arbitrability arises. In Phase 1, the question as to who
should decide also arises. The Court may say that under certain circumstances, the
arbitrators are to decide if the arbitration can even go ahead.
 In Phase 2, the parties can still challenge the jurisdiction of the arbitrators.
 In phase 3, the dispute arises in 2 circumstances – set aside (Model Law Set Aside
provision) or R&E (V (1)(a) of the NYConv).

II.1.b – Compelling the Reluctant party to arbitrate; Courses of Action and Waiver of the Right to Compel
• Tennessee Imports v. Filippi and Prix Italia
o Facts: Tennessee Imports sued Filippi in US district court for breach of K (Prix) and tortious
interference with the contract (Filippi). Filippi moved to dismiss for lack of proper venue or,
alternatively, for lack of subject matter jurisdiction pointing to an arbitration agreement btwn the
parties.

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o Rule: When language is broad the court should “focus on the factual allegations in the
complaint rather than the legal causes asserted.
 If the allegations underlying the claims ‘touch matters’ covered by the parties’ contract,
then those claims must be arbitrated.”
 When we have a claim about the arbitration agreement it goes to the Court. Since this is
a dispute for a container K it goes to arb.
o Critique: that the Chamber of Commerce in Venice did not have an arbitration tribunal – they
didn’t say specifically that they wanted the ICC Court in Venice & were unspecific – the court
never actually came into existence -- therefore the agreement was incapable of being
performed. Thus, they could say there was no meeting of the minds as to the arb clause – and it
would have been held invalid. Ironically, Ten Imports could have won this case.
 Q: What’s the source of the law that the Court is to use here in the Federal Court? (Either
FQ or Diversity) CH II of the Fed Arb Act. Which refers to the NY Convention. The NY
convention says in Art I (1, 2 & 3) that there are certain requirements for it to be able to
be enforced. Then in ART II (3) says that if the parties request arb and there was an
agreement then the Court will refer to arb UNLESS the agreement is null & void,
inoperative, or incapable of being performed.
 What happens to the claim? There are issues of non-mutual collateral estoppel – issue
preclusion – where the decision by the arbitrators in Venice is recognized in the US.. But
their decision is based on the arb agreement. In a 2nd case in the US on the validity of the
whole K, the arb decision can effect the litigation in the US.
o Existence v Validity
 What if there was no challenge in stage 1, and in stage 2 they get an arb agreement. What
if in stage 3 they said there was a Q as to the existence of the K at all.
 Under Art IV of the NY convention – you have to show the original award & the
agreement. If you can’t show the agreement you can’t show that a K existed.
 In US the review of existence of an agreement is de novo.
• Pepsico v. Oficina Central
o Facts: Petitioner is PepsiCo Inc., a NC corporation, wholly owns Pespsi-Cola a Venezuelan
corporation. Respondent is a Venezuelan corporation that manages the Venezuelan Cisneros
bottling cos. Cisneros had a 15 yr exclusive right to bottle Pepsi-Cola in its respective area of
Venezuela. Cisneros terminated the K early. As part of the K, Cisneros had to pay Pepsi-Cola
liquidated damages for early termination
o Rule: A US Court will defer to the court of another country to compel arbitration where the
question of arbitrability falls within the law of that country.
 Held: Court found that the validity of arbitration needed to be decided under
Venezuelan law and the arbitration would be governed by NY substantive law.
o Critique: Two readings of “This Agreement shall be governed by the laws of . . . Venezuela:
 Venezuelan law would govern the arbitration provision only.
 Venezuelan law would apply to any issue that went before courts and NY would govern
the arbitration.
• In favor of the decision to delay:
o The Venezuelan courts are better equipped to decide arbitrability under
Venezuelan law.
o Need to know whether Venezuela will enforce the award, this way will
know earlier.
• First Options v. Kaplan
o Facts: U.S Supreme Court granted Certiorari to review the determination that the Kaplan’s dispute
with First Options was arbitrable. Arbitrability means the
 1) existence,
 2) validity, and
 3) scope of the arbitration agreement.
• Is there an arb agreement? Is it valid? What’s it’s scope?
o Held: ARBITRABILITY: Since the Kaplans did not agree to submit
the question of arbitrability to arbitration, the arbitrability dispute was
subject to independent review by the courts.
o Rule:

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 ARBITRABILITY: Unless there is “clear & unmistakable evidence” the parties agreed
to arbitrate, Courts will presume that they DID NOT intend to arbitrate.
• Standard of Review of FDC of an arbitrator’s decision that the parties agreed to
arbitrate a dispute:
o Have to ask first: Did the parties agree to submit the arbitrability
(scope of submission) question itself to arbitration?
 If the answer is yes, then the court should give considerable
leeway to the arbitrator, setting aside his or her decision only
in certain narrow circumstances.
o If the parties did not agree to submit the arbitrability question itself
to arbitration, then the court apply a de novo review.
 Courts should not assume that the parties agreed to arbitrate
arbitrability unless there is “clear and unmistakable” evidence
that they did so
• Standard of Review of a CA of a FDC review of an arbitrator’s decision that
the parties agreed to arbitrate a dispute: (ordinary standard used by CAs)
o 1) Facts – Cannot be “clearly erroneous”
o 2) Law – de novo
 SCOPE: Determining questions of whether the dispute or decision is within the SCOPE
of the Arbitration Clause is the Opposite of the Arbitrability Standard:
• Courts will use a rebuttable presumption that the decision or issue IS WITHIN
the SCOPE of the Arb clause.
• Courts decide existence & validity de novo, but the presumption for scope is that
the issue is included.
• Howsam v. Dean Witter
o Facts: Dean Witter (P) recommended that Howsam (D) buy & hold particular interests in
partnerships. P argues D misrepresented the virtues of the partnerships. Howsam made a claim
against Dean Witter in arbitration. Dean Whitter files lawsuit un US courts to issue a declaratory J
that the dispute was ineligable for arb b/c passed a clause stating that “no dispute will be eligible
for submission where 6 years have elapsed since the occurrence of the event giving rise to the
dispute.”
 Whether an arbitrator has Jurisdiction to determine whether a condition precedent to
arbitration has been fulfilled; i.e. whether Howsam’s claim meets the 6-year time limit
stipulation in the arbitration agreement?
• Held: Yes. An arbitrator has Jur to determine whether conditions necessary for
an arbitration panel to meet have been met.
o Rule:
 Issues of substantive arbitrability are for courts to decide.
 Issues of procedural arbitrability (i.e. time limits, waiver, notice, estoppel, etc.) are
for arbitrators to decide.
• First Options says that validity, scope, existence – are for the courts to decide.
• BUT Howsam says that these issues of procedural arbitrability are for the
arbitrators to decide.
• Menorah Insurance v. Inx Reinsurance
o Facts: Menorah made a claim for $750,000 against INX but INX replied that it owed only
$178,000. After failed negotiations, Menorah told INX that it was going to commence arbitration
and asked INX to appoint an arbitrator, if INX failed to do so, Menorah would “fell free to pursue
all legal and judicial measures available.” INX replied that it would not arbitrate. Menorah
filed suit against INX in Israeli court. When INX did not appear, Menorah won a default
judgment for $812,907. When Menorah tried to enforce the judgment in Puerto Rico, INX
moved to dismiss claiming that there had to be arbitration. District Court found that INX had
waived arbitration.
 Issue: Whether a party can waive its right to arbitration?
• Held: Yes. Once waived, the other party can litigate in a nation’s court (Israel).
Such a decision is enforceable in another nation’s court (Puerto Rico)
 1st Circuit – Affirmed. Reasons:

9
• 1) INX waived the arbitration
• 2) This issue is not within the scope of the arbitration clause (First Options)
o Rule:
 Express Waiver - INX explicitly waived arbitration when it refused to submit to
arbitration when asked.
 Implicit Waiver - INX’s entire conduct implicitly waived arbitration.
 Showing of prejudice - not necessary here, but in order for plaintiffs (persons asking for
waiver, here Menorah) to prevail on their claim of waiver, they must show prejudice.
 Totality of circumstances - other circuits apply a totality of the circs test for the
determination of waiver, where prejudice is but one factor.
o Q. Is it arguable that based on Howsam case that Menorah is wrong?
 Was the issue in Menorah procedural or substantive? Howsam should say that this should
go to arbitrators –the question of whether INX waived the arbitration agreement or
not is procedural.
 The trend is moving more towards Howsam in the American Courts – the more that
courts make decisions the more that they interfere with the arbitration tribunals.

II.1.c – Kompetenz-Kompetenz and Separability


• Texaco v. Libya
o Facts: Texaco notified Libya that it was submitting their dispute to arbitration and designated an
arbitrator. Libya failed to appoint an arbitrator and rejected the demand for arbitration. Texaco,
pursuant to the arbitration agreement, asked the President of the ICJ to appoint a Sole Arbitrator.
 Kompetenz-Kompetenz - Arbitrator can decide his or her own jurisdiction - not only a
customary rule, but also the terms themselves of the clause by virtue of which the Sole
Arbitrator has been appointed, require that the Sole Arbitrator should be competent to
decide his own jurisdiction.
• DECISIONS BY COURTS & ARBS
o A Court that determines Jur will ONLY send a case to arb after it
establishes that there is a valid arb agreement, b/c only valid arb
agrmts “oust” the Jur of the Courts.
 Separability - Arbitration Clause remains valid even if the contract is held to be invalid
or canceled.
• NB: Separability simply means separate scrutinies, and possibly different rules
under which each scrutiny is conducted.
• 16(1) of the Model Law – “ A decision by the arbitral tribunal that the K is null
& void shall not entail ipso jure the invalidity of the arb clause.”
o Critique: What’s the difference between K-K and Separability?
 K-K:
• 2 consequences --
o Positive – If before the arbs, then they get to decide
o Negative - (as to restriction of court jur) - Court’s initial review is
restricted as to allow the arbs to decide. In France, it restricts the
court’s decision as stage 1, and wait until stage 2 at arb to make a
decision. In Fr the courts can relook & review fully in stage 3.
 Separability:
• Arbs decide whether the container K is valid or not, and the invalidity of the k
doesn’t necessarily mean the invalidity of the arb clause. (JOC Oil)
• ABS v. Jules Verne
o Facts: JV (P) sues Amer Bur of Shipping, ABS, an insurer (D), for damage in an accident that
occurred to a ship, the “tag hauer,” in an arbitration proceeding.
o Rule: Arbitrators DO have competence to determine their jurisdiction, despite whether the arb
provision is applicable to the Ps. If as a prima facie matter the conclusion is that there is no arb
agreement – the courts decide. But if there’s a question of validity – if it’s not manifestly null –
then the arbs decide. The arbs have KK.
o Notes:

10
 US law: What would have been the outcome of this case in the US? It’s a question of the
existence or validity of the arb clause – then it would have had to have been decided
before a US court. But if it had to do with the existence or validity of the container K –
goes to the arbs.
 French Law: French law: see similar to UNCITRAL Art 16 (esp. Art 16(3))
• If the arbitration tribunal as already seized, the court will defer to the arbitrators,
unless the arb agreement is manifestly null; if one has not been, the court may
undertake a limited scrutiny, but is to retain jurisdiction only if the arbitration
agreement is manifestly null.
• Steps:
o Fr. Courts can make a Prima Facie review – is the arb agreement
manifestly null?
o Otherwise – goes to arb.
o Reviewed by the French courts after arb decision, de novo.
 The French allow cases to go to arb when it’s not completely clear that the arb clause is
valid? Why are the French so pro-arbitration? To protect arb from the potential of
obstruction. Remember that arbs are entitled to give an initial J / prelim award on
jurisdiction – UNCITRAL rules say this, and lex arbitri – arbs can decide J by
preliminary award. That J can be taken immediately for an annulment proceeding – and
that the award can’t be enforced in that Jur.
 Arguably – the law is moving more towards the French law, b/c the UNCITRAL Model
Law Art. 16 (p. 28-29)
• SNE v. JOC Oil
o Facts: SNE (a Russian Co that sold Oil) began proceedings in arbitration against JOC Oil (An Oil
reseller in Bermuda) for breach of contract as a result of JOC’s failure of payment to SNE. JOC
contended in its defense that the contract was invalid because it didn’t have the two requisite
signatories for SNE and, as a result, the arbitration agreement was also invalid and the FTAC
lacked jurisdiction.
 Whether the Arb had Jur where the K was invalid, but the parties did agree to terms of a
K for which JOC Oil was held responsible for restitution and under UE.
• Held: Bermuda Court of Appeals – Reversed the Bermuda Trial Court – The
Arb had J. The K was invalid, but under the doctrine of separability (which
existed in Russian law which was the law used by the arbitrators) – the Arb
tribunal could declare the K invalid BUT STILL RETAIN ITS JURISDICTION.
(i.e. 2 signatures were needed to allow for a valid K, but not for a valid arb
agreement within the K)
o Rule: Validity of arbitration agreement –
 The concept of separability means that the validity of the arbitration clause does not
depend upon the validity of the remaining parts of the contract in which it is contained.
This allows an arbitration tribunal to declare a contract invalid and yet retain its
jurisdiction to decide a dispute as to the consequences of such invalidity provided that the
arbitration clause is valid as a separate entity and is sufficiently broad in its wording so as
to cover non-contractual disputes.
• Two times when arbitration agreement is invalid:
o If there is no contract at all (as opposed to an invalid contract), there
is no arbitration clause either. Burden of proving no K is very heavy.
o Arbitration agreement itself might be invalid because it did not
conform to the requirements for the conclusion of a valid arbitration
agreement.
o Invalidity v. Non-existence
 The doctrine of separability does not apply to a non-existent contract. There is a clear
distinction in principle btwn a contract that is void ab initio and one that is non-existent.
If no contract came into existence, no arbitration agreement could have come into
existence either.
 “A claim that a contract is invalid for lack of the required two authorized signatures does
not raise any issue as to whether or not the parties agreed to the terms of the contract.
They did enter into a K, but their agreement gave rise to no enforceable contractual rights
or duties.”

11
 K was invalid, not non-existent, therefore, arbitration clause came into existence.
o Why do we look to see if Russian law has the doctrine of separability? The K has a clause that
says that the USSR is the place for the fulfillment of the K – therefore the Soviet law governs the
K.
• Harbour Assurance v. Kansa General International
o Facts: P argues the K was fraudulent, and is surprised when the K is decided by an arbitrator,
where the arbitrator may have found that the K was invalid b/c it was fraudulent, but the arb clause
was valid.
 Issue: Does the principle of separability extend so as to enable the arbitrator to determine
whether or not the contract, in which the arbitration clause is contained, is in fact void ab
initio(from the beginning) for illegality?
• Held: Yes. if a K is invalid b/c of fraud doesn’t mean that the arb clause in the K
was invalid & the arb therefore had jur to make a judgment.
o Rule: Principle of separability - Provided that the arbitration clause itself is not directly
impeached, the arbitration agreement is capable of surviving the+ invalidity of the contract so that
the arbitrators could have jurisdiction under the clause to determine the initial validity of the
contract.
 Further, an issue as to the initial illegality of the K is also capable of being referred to
arbitration, provided that any initial illegality does not directly impeach the
arbitration clause.
o Critique: The general English rule has been that if the k was void from the beginning (ab initio),
then so must also the clause in the K. ex nihi nihi fit.
 Reasoning:
• Policy reason – we are allowing the wishes of the parties – the parties DID agree
to arbitrate if there were any problems.
• Ps were wrong in their argument that ex nihi nihi fit – from nothing comes
nothing.
• There’s no reason to force parties to add additional words in Ks to secure
ordinary words
• The parties DID agree to arbitrate if they had problems – even though the K was
invalid b/c it was fraudulent.
• The dispute over invalidity of the K are disputes arising out of the agreement.
• Republic of Nicaragua v. Standard Fruit
o Facts: Nicaragua & Standard fruit entered into an agreement as a “memo of intent” over replacing
sale of good Ks. The memo of intent has clause 4, which says that any disagreements will (2
interpretations)
 1) go to arb or
 2) the parties will write an arb clause, and that it will go to the London Arbitration
Association (there is none – but there is a London Court of International Arbitration).
o Rule: US Law – (First Options) – Courts presume that arbitrability is for the US Courts. (Qs of
validity, scope) (i.e. if the dispute is about the whole K it goes to arbitration, if the question is
about the validity of the arbitration clause, it goes to the US Courts). If the question is of
procedural arbitrability, then it goes to arbitration (Howsam).
 In this case, the question was whether the dispute should go to an arbitration panel, where
the parties indicated that there was an arb agreement despite the fact that there was not a
contract (because it was specifically a memo of intent).
 Court held that the arb clause was separable, and therefore the clause should be decided
by the arbitrator. But normal US law seems to be that arbitrability is a Q for the courts…
This is why the case seems to be wrongly decided.
o Critique:
 Too far. There are cases where the invalidity of the K should automatically eliminate the
validity of the arb clause. This is one such case.
 Under French case – could think this is a prima facie case of an agreement – on that basis
the arbs would be allowed to decide if there’s an agreement. Then if the arb say there’s an
agreement it can be challenged in court.
 First Options is the basic USSC opinion- says q s of arbit go presumptively to courts –
and arb includes did the parties intend to arbitrate – Qs of validity, scope, all go
presumptively to a court and not to the arbitrator. Although we know from Howsam that
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procedural arbitrability issues go to the arbitrators. In US courts we’d say that the courts
should decide. So this case seems questionable.
 One other thing about this case – presumptively arbitrability is for courts. Can the
presumption be rebutted? How would that happen? What if the parties put into the arb
agreement that the arbs are hereby approved to decide their own jurisdiction. At one
time, in German law if we had a clause like that – we thought we wanted the arbs to
decide Jur and there was no court review. But that doesn’t exist in Germany now – but
look at the illogical argument of that principle. But if arbs had CC reversed the
presumption for courts in the US – a bootstrapping problem. Chicken before the egg
problem.
 This is different with separability – the validity of the container K.

II.1.d – The form of the Arbitration Agreement


• Writing Requirement
o NY Convention:
 Arb Agreements will be “in writing” in an arb agreement signed by parties or
contained in an exchange of letters or telegram.
o UNCITRAL Model Law Article 7(2): Definition and Form of Arbitration Agreement
 The arbitration agreement shall be in writing. An agreement is in writing if it is
• contained in a document signed by the parties or
• in an exchange of letters, telex, telegrams or other means of telecommunication
which provide a record of the agreement, or
• in an exchange of statements of claim and defense in which the existence of an
agreement is alleged by one party and not denied by another
o Each party must consent to arbitration in writing.
 However, if there is an oral agreement, it may be accepted by the arbitration tribunal if an
objection to the oral agreement is not raised early in the arbitration proceedings.
o The Model Law expands on but is consistent with Article II(2) of the NY Convention which
provides:
 The term “agreement in writing” shall include an arbitral clause in a contract or an
arbitration agreement, signed by the parties or contained in an exchange of letters or
telegrams.
 Does this mean that an arbitration agreement will not be accepted unless it meets all the
requirements? What does the inclusion of “shall” do? Can courts interpret the writing
requirement liberally?
 The formal writing requirement of Art. II(2) is reinforced by Art. IV(1) of the NY
Convention which states that the party seeking enforcement has to present to the court the
original agreement referred to in Art. II or a duly certified copy thereof. That such a
requirement must be satisfied if enforcement and recognition is sought adds a
consideration bearing on the possible interpretation of the agreement in writing.
• Robobar Limited v. Finncold SAS
o Facts: Finncold (supplier) supplied Robobar (buyer) with refrigerating units for the manufacture of
refrigerators for European and US hotels. A dispute arose over the quality. The purchase
confirmations sent by Robobar contained an arbitration clause.
 Issue: Whether the arb clause was invalid under the NY Convention where the clause was
only contained in D’s confirmations but where P did not seem to have agreed in writing?
• Held: Yes. Clause was invalid. The S.Ct. of Italy held that the arbitration clause
was invalid under the NY Convention because the clause was only
contained in Robobar’s confirmations upon which Finncold did not seem to
have agreed by letter or telegram.
• Court rejected that Finncold’s conduct of adhering to the terms of the contract
estopped them from denying the arbitration agreement because the arbitration
agreement was an independent agreement (separability) the validity and
efficacy of which must be ascertained independently of the K.
o Rule: See NY Conv and UNCITRAL Model Law above.
 NY Convention Art. II(2) says arbitration agreement not enforceable unless in writing
• Compagnie De Navigation (CNT) v. Mediterranean Shipping

13
o Facts: Somatrans ZAE (Marsailles) did not sign a bill of lading btwn it and MSC but Somatrans
Reunion did sign. ZAE (shipper) fills the bill of lading, the carrier (Reunion) then signs it, sends
it off. The MSC pays off ZAE, and then segregated, then they bring claim in Swiss court. CNT,
insurers for ZAE, filed suit against MSC for the damage of some goods (transporting 2 sealed
containers from Marseilles to Ile of Reunion). P argued that the court did have jurisdiction b/c
there was NO arb agreement (b/c ZAE didn’t sign). MSC argued that the court did not have
jurisdiction b/c there was an arbitration agreement.
 Held: Court found that there was a valid arbitration agreement under Art. II(2) of the
NY Convention read in light of Art 7(2) of the UNCITRAL Model Law and Art. 178 PILA1
despite the fact that Somatrans ZAE did not sign the bill of lading.
o Rule: – A written agreement – signed later by another related CO -- is a written agreement & in
accordance with the NY Conv and UNCITRAL Model Law
 NY Convention requires that the arb agreement is signed by the parties or contained in an
exchange of letters or telegrams.
 NY Convention must be interpreted in light of the UNICTRAL Model Law.
 Art 7(2) of the UNCITRAL Model Law requires that the arb agreement be in writing,
letters, teles, telegrams, or other means of comm.
• Sphere Drake Ins v. Marine Towing
o Facts: Marine Towing contacted Shade Co to provide insurance for its vessels. Shade secured a
policy from Drake (London marine insurer). Between time the policy was delivered but in policy
period, a boat sank. Marine Towing wants to sue in US courts – but Sphere Drake says there’s an
arb provision. Marine Towing says there’s no arb provision b/c they never signed the K. (i.e.
it’s not in writing IAW the NY Convention). Marine Towing disputes the existence of an
agreement to arbitrate disputes about insurance coverage.
o Rule: If an arbitration agreement is in a written contract, a signature is not required
 Was the arb agreement valid where the NY Convention requires arb agreements be in
writing, but the arb provision wasn’t signed?
• Held: Yes. Arb agreement exists. There is a valid arbitration agreement under
Art. II(2) of the NY Convention because the definition of “agreement in
writing” includes:
o an arbitral clause in a contract or
o an arbitration agreement,
 signed by the parties or
 contained in an exchange of letters or telegrams.
II.1.e – Jurisdiction by virtue of Tacit or Post-Agreement Submission or Estoppel
• William Co. v. Guangzhov
o Facts: P, a cargo owner, brought an action in the High Court of Hong Kong against D, ship owner,
for damage to cargo. The bill of lading provided by D to P said that all disputes would be resolved
through arbitration or litigation in China. P didn’t want to arb or lit in PRC. P wanted to
follow the Hague-Visby rules that said that an arb clause was invalid if it reduced liability beyond
certain minimum amounts. P was simply concerned that a PRC court or arbitrator would not apply
mandatory Hague-Visby rules regarding carrier liability, so didn’t want to go to the PRC despite
the clause. D wanted to arbitrate in PRC. In correspondence btwn P and D, it was clear that both
sides recognized the existence of the arbitration clause.
o Rule: Chinese Court recognizes the existence of an arb agreement where a party doesn’t sign a bill
of lading but does have a later exchange of letters following the date of the agreement.
 Note: This case expands the normal rule which was that the exchange of letters was to be
before the agreement was made in order to meet the writing requirement.
 Guide to the UNCITRAL Model Law: The Writing Requirement is an “exchange” of
letters, telexes, etc. They do NOT need to be signed, or mention the arbitration
agreement.
o Critique: Other courts may not accept the Hong Kong court’s interpretation of the writing
requirement. As a result, it is questionable whether an arbitration award in China would be
enforceable under Article IV(1)(b) of the NY Convention where the parties have to produce the
agreement if the enforcing court disagrees with the Hong Kong court’s interpretation of the

1
Swiss arbitration law
14
letters. Normally, the provision of an exchange of statements of claim and defense assumes that
the exchange will occur before an arbitral tribunal and not a court.
• Jianxi Provincial v. Sulanser
o Facts: Jiangxi and Sulanser entered into a K with an arbitration agreement that was in writing
but not signed. A dispute arose. Jiangxi commenced legal proceedings against Sulanser in
Wuhan Admiralty Ct. Sulanser contested jurisdiction invoking the arbitration clause. Sulanser
challenged the jurisdiction of the arbitrators claiming that there was no valid arbitration agreement
due to the lack of signatures. Arbitral tribunal said that Sulanser was estopped from claiming
invalidity of the award because it confirmed the arbitration agreement in writing in its written
defense invoking arbitration submitted to the Wuhan ct.
o Rule: Only an exchange of letters, etc.,, even after an agreement is formed, (and even if not
between the P and D) is necessary to meet the writing requirement.
 Note: This case expands the normal rule which was that the exchange of letters was to be
before the agreement was made in order to meet the writing requirement.
 A party is estopped from claiming an arb agreement doesn’t exist where the other party
reasonably relied on their promises.
• Claimant (Austria) v. Respondent (Germany)
o Facts: P sues for D’s failure to deliver sheets of metal. Arbitration agreement was in writing but it
was never signed by respondent. However, Art. II(2) of NY Convention requirements are met if
“the addressee replies in writing to the acknowledgment of an order in such a way that need only
conclusively show that he accepts the acknowledgment of the order together with the arbitration
clause mentioned therein.”
o Rule: An arb clause within a K signed by the 2 parties is sufficient to meet the writing
requirement, OR:
 The writing requirement of the NY Convention is met if the addressee replies in writing
that he acknowledges the order in such a way that it shows that he accepts
acknowledgement of the order along with the arb clause. In this case, D did so by
noting the exact K numbers in his letters to P.
o Note:
 Difference btwn estoppel and good faith.
• Estoppel requires reliance by the opposing party on the other parties
actions.
• Good faith does not require reliance and is a broader doctrine.
II.1.f – Scope of Arbitration Clause – Settlements and Renewals
• Mediterranean Enterprises v. Ssangyong
o Facts: Ssangyong and MEI (CA Corp) enter into an agreement (NOT a K) to form a joint venture
in Saudi Arabia to build modular housing projects and enter into an agreement with Trac to serve
as their agent. Agreement falls through, Ssangyong ends up working with Trac alone, and MEI is
out of the picture. Arb clause: “any disputes arising herunder … shall be settled through binding
arbitration”. FDC ---- MEI sues in FDC for breach of K, inducement to breach agency contract,
quantum meruit, and conversion. Ssangyong argued that the matter should be settled in arbitration
-- the phrase “arising hereunder” meant any disputes between the parties. MEI argued that the
phrase “arising hereunder” meant “arising under the contract itself” and was not intended to cover
“matters or claims independent of the contract or collateral thereto.”
o Rule:
 When an arbitration clause “refers to disputes or controversies ‘under’ or ‘arising out of’
or ‘arising hereunder’ the contract,” the arbitration is restricted to “disputes and
controversies relating to the interpretation of the contract and matters of
performance.”
• “Arising under” is narrower in scope than “arising out of or related to”
(recommended by the AAA)
 Court found that certain issues(1,2,&4) (breach of agreement and fiduciary duty created
by agreement) were governed by the K and therefore arbitrable. Other issues (7,8 & 9)
(inducement to breach agency K, quantum meruit and conversion) were not governed by
the K; as a result, these were stayed pending the arbitration results.
• Note: Article V(1)(c) of NY Convention allows for setting aside arbitration
awards for things that were not part of agreement, so perhaps the court here felt
that it was allowed to sever issues outside the scope of the arbitration clause

15
before sending to arbitration rather than just waiting for a set aside proceeding
later.
• Ermenegildo Zegna Corp. v. Mario Zegna SPA
o Facts: US Zegna and Italian Zegna had a settlement agreement about the use of their trademark
name globally. Agreement had an arb clause & no-contest clause. The agreement had an
arbitration clause which covered all disputes arising “with respect to rights, duties and
obligations” under the agreement. The agreement also had a “no-contest” clause which said that
the parties would not contest the validity of the Agreement or attempt to set it aside. Italian law
changed (liberalized use of surnames in TMs) and Italian Zegna wanted to change part of the
agreement (by arbitration) b/c it felt the new law made parts of the agreement unfair in Italy. D
argued the dispute is within the scope of the arb clause – dealing with the “rights, duties, &
obligations” of the parties. P argued this violated the no-contest clause (that the parties will not
contest the validity of the agreement). US Zegna refused and sued in the US for a permanent
injunction to stop IT Zegna from using the TM. IT Zegna asked for arbitration in Milan.
 Held; Since any doubts concerning the scope of arbitrable issues should be resolved in
favor of arbitration, and the underlying dispute concerns the “rights, duties and
obligations” of the parties -- there is arbitration.
o Rule: Presumption of Scope: It’s within the scope of the arb clause unless you can say for sure that
the language is out of the scope of the arb clause.
 Modification of the agreement doesn’t affect a no-contest clause
• Hart Enterprises v. Anhui
o Facts: Anhui entered into 12 contracts with Hart (to sell yarn) which contained an arbitration
clause. A dispute arose but was settled through negotiations and resulted in a settlement agreement
whereby Hart was to make certain payments. Hart failed to make the payments and Anhui
submitted the case to arbitration. Hart did not respond so the FTAC in Beijing appointed an
arbitrator on Hart’s behalf. Hart commenced an action in SDNY.
o Rule: A settlement to a dispute (where there was an arb clause) bars arbitration. Only an actual
settlement (rather than a settlement agreement) bars arbitration
 In this case, the parties never actually settled – P never paid D.
• Becker Autoradio v. Becker Autoradiowerk
o Facts: Becker USA and BAW entered into a K for a period of two years (’74-’76). The K
provided that there could be an extension if negotiations were entered into 6 months prior to
termination. Negotiations were entered and the parties had an oral agreement to renew, but
a renewal agreement was never signed. Becker USA brought this action for BAW’s breach of
K on the basis that an oral agreement to renew the K for a 5 year period was reached. BAW
wanted to compel arbitration. The original K provided for arbitration of “all disputes arising out
of or about this agreement.” Becker USA argued that the breach did not arise out of the
original K. Therefore, the dispute did not arise out of the agreement.
 Held: Case should be sent to arbitration because the issues raised “arose out of and
about” the original K in that they all arose in the course of and during the on-going
relationship btwn Becker USA and BAW, which relationship was created and governed
by the original K.
o Rule: “The applicable federal standard requires that doubts are to be resolved in favor of
arbitration unless one can state with “positive assurance” that arbitration of the dispute was not
intended by the parties.”
o Critique: Problem in Becker is that there was only an allegation of an oral agreement. Therefore,
Becker USA is only alleging that a failure to renew constituted a breach of the oral agreement.
Does the arbitration agreement in the original K cover the oral agreement to renew? According to
the court yes b/c it “arose out of and about” the original K.
 First Option: Who should decide whether an issue is within the arbitration clause; the
arbitration tribunal or a court?
• American approach says that it is for the court to decide unless the arbitration
agreement is clear that the parties intended the scope of the arbitration clause is
to be decided by the arbitral tribunal.
• Review Problem – p. 192/193
o (GET NOTES)
II.2. Limits on Arbitrability
II.2.a – Notes
• See NYConv Art II (1), (3) and art V (2)(a)
16
What can be There are still some areas in which public interest is high in which countries will
arbitrated? not allow the decisions to be made by arbitration panels. The NY convention and
UNCITRAL model law implicitly recognizes this.
Areas that are sometimes non-arbitrable:
Antitrust, securities, damage to cargo under a bill of lading, bankrupcy, administrative Ks, political
embargoes, etc.

Language France:
interpretations Can arbitrate only those things parties agreed to freely
on Cannot arbitrate divorces, public entities, or matters that concern the public
Arbitrability order
Italy
Parties may arbitrate disputes, except those of marriage and things that
personal status
Etc.
Cannot send to arbitration something that would be against mandatory law.
II.2.b – Statutory definitions of Arbitrability and their interpretation
• Fincantieri v. Iraq
o Facts: Republic of Iraq entered into a K with Fincantieri (Italy) for the supply of corvettes for the
Iraqi Navy. The K had an arbitration agreement. Security Council, European Union and Italy
issued embargoes against Iraq in 1990 after the invasion of Kuwait. Italian parties commenced
proceedings against Iraq in an Italian court alleging frustration of K and seeking termination and
damages. Iraq objected to the court’s jurisdiction and sought arbitration. Italian party said that
couldn’t arbitrate this due to the embargo.
 Issue: Whether the dispute is arbitrable where the dispute arose out of an embargo b/c of
the Iraq war?
• Held: No. The issue was not arbitrable b/c if any possible outcome would go
against the embargo, then it would be a violation of Italian mandatory law.
Since there was a possibility of violation of Italian mandatory law, there could
be no arbitration.
• The lower court was wrong in determining that the case was arbitrable
(because the rights effected were only based on Ps claims seeking damages)
because in order to allow only damages, you have to recognize the K, which is
invalid under the Embargo.
o Rule: An arbitration tribunal does not have jurisdiction (a case cannot go before an arbitration
court) if there is a possibility that the decision would go against mandatory Italian law (i.e.
the Italian law against the embargo).
 Under the principle of diritti indisponibili, a case cannot go to arbitration if it does not
deal with rights that the parties can freely dispose.
 Under Art II(3), if the arb clause is null and void then it cannot go to arbitration.
II.2.c – Arbitrability Tested in Court Practice
• Mitsubishi Motors v. Soler
o Facts: Mitsubishi is a Japanese corporation and it entered into a joint venture with Chrysler
International (CISA), a Swiss corporation, wholly owned by Chrysler Corporation, and Soler Ch
Ply, a Puerto Rican Co. There was an agreement to arbitrate. The arbitration provision said the
arbitration was to be in Japan, using the laws of Switzerland. A dispute arose in 198 (recession)
(Soler couldn’t sell in PR and told Mitsubishi it wanted to cancel some orders, but tried to
transship cars from the U.S. which Mitsubishi and CISA refused to do) and Mitsubishi brought an
action against Soler in district court seeking compel arbitration & tried to start arbitration at the
Japan Arbitration Association. Soler counterclaimed that Mitsubishi’s actions were a violation of
the Sherman Act (antitrust) (Mitsubishi and CISA conspired to divide the market by refusing to
allow Soler to resell to buyers vehicles it had obligated itself to purchase from Mitsubishi).
 The Court of Appeals held that the antitrust claims were nonarbitrable but the
USSC finds that the claims are arbitrable.
o Rule:
 Even where it is possible that an arbitral decision will contradict mandatory law, the
US court will send the case to arbitration.

17
• Note: Different from Fincantieri which said that as long there was a possibility
that the arbitration court’s decision would violate mandatory law then the case
would not be referred to arbitration.
 If the arbitration contradicts mandatory US law, then the US courts will hopefully be able
to relook on the 2nd look – enforcement of the award.
• Main Reason: Federal Policy in favor or arbitration
o Notes:
 In the 2nd Look: What is the US Court’s standard of review? Suppose Soler can’t resell
the cars below a minimum price (a per se AT violation). There’s arbitration in Japan,
and the arbs say that Swiss Law applies, and US doesn’t apply. And even if US law
applies, and there’s no violation. So then the case comes to the US – should the ab award
be enforced or not? The standard of review (p. 226-7) is to “remain minimal” – i.e. there
appears to be DEFERENCE in REVIEW. So a US court might allow the arbs decision
even if it’s a bad interpretation of US law. Only if the error was manifest might the US
courts not accept the arbs decision.
 Dissent: Problem with Arbitration: Arbitration awards are only reviewable for manifest
disregard of the law and the rudimentary procedures which make arbitration so desirable
in the context of a private dispute often mean that the record is so inadequate that the
arbitrator’s decision is virtually unreviewable. This sort of review is bad when
antitrust claims are so fundamental to US public policy.
• NY Convention allows to refusal arbitrability of antitrust claims.
o Art. V (1)(c) and (e)
o Art. II (b)
• Domestic public policy interest is so great that it overrides concerns of
international comity.
 The argument against allowing antitrust claims to be arbitrated stems from the
importance of antitrust law’s public policy goals and suspicion that arbitrators will see
themselves as beholden to the parties and the parties’ agreement, rather than to the goals
of public policy. If the arbitrators either fail to apply the relevant antitrust law or
misapply it, those goals could be compromised.
 Parties chose Swiss law, so how come US antitrust law is being applied? S.Ct. implied
that it would enforce the award only if US antitrust law was applied.
 Criticism by Jacques Warner (Swiss Layer): “The perceived advantages of the
arbitrability of antitrust claims simply pale into insignificance when compared with the
substantial disadvantage of creating an additional ground for setting aside, or
denying enforcement to, arbitral awards.”
• Benneton Case – A license agreement between 2 parties – but neither side
raised any AT issue. Decision went to set-aside proceedings. In set-aside
proceedings the court found that a party violated EU AT law.
o Issue: Must the decision be set-aside (or recognized or enforced) if it
violates EU AT law, when the AT issues weren’t brought up in the
original arb proceedings?
 Held: Yes.
II.2.c.ii – Arbitrability of Cargo Damage (COGSA) Claims
• Notes
o Common Carriers
 Carrier is responsible for goods damages. In 1800s the carriers had clauses that
exculpated them from damage to good in transport. This created confusion – solved by
Brussels convention in 1924 – established minimums of liability for damage to goods.
o Under the 1936 Carriage of Goods by Sea Act (COGSA), (46 USC §1312) - THE us COGSA
applies to all shipments to and from a US port.
o Choice of law and choice of forum clauses in bills of lading have been held invalid by US courts.
o But what about an arbitration clause in a bill of lading?
 See Sky Reefer… Reverses invalidity of foreign forum selection clauses.
• Vimar v. Sky Reefer
o Facts: Bacchus, a NY fruit wholesaler, contracted w/ Galaxie, a Moroccan fruit supplier, to
purchase a shipload of fruit and chartered a ship to transport it from Morocco to Mass. The ship
was Sky Reefer owned by a Panamanian co., Maritima, and time-chartered to a Japanese co.,
18
Nichiro. When Nichiro received the cargo from Galaxie, it issued a form bill of lading. Once the
ship set sail, Galaxie tendered the bill of lading to Bacchus. The bill of lading required arbitration
to be held in Tokyo and governed by Japanese law. The goods were damaged upon receipt.
o Rule: Where there is an arb clause in a Bill of Lading which calls for arb in another country, the
possibility that the decision of the arbitration tribunal will not be IAW COGSA §3(8) is not
enough to prevent the court from keeping the dispute within the US and going to arbitration.
 COGSA §3(8): There is a minimum level of liability. The liability that may not be lessened
is “liability for loss or damage . . . arising from negligence, fault, or failure in the duties
or obligations provided in this section.”
• The statute thus addresses the lessening of the specific liability imposed by the
Act, w/out addressing the separate question of the means and costs of enforcing
that liability. Thus, court reads “lessening of liability” to exclude increases in
the transaction costs of litigation
 Second Look Doctrine (US courts will have an opportunity at the award-enforcement
stage to ensure that mandatory US law has been respected. If it is not been, US cts will
be able to invoke public policy as a ground for refusing to recognize or enforce the
award.): B/c Dist. ct has retained jurisdiction while the arbitration proceeds, any claim
of lessening liability that might arise out of the arbitrators’ interpretation of the bill of
lading’s choice of law clause, or out of their application of COGSA, is premature.
• Problem with this is if the carrier wins, there will be no occasion to enforce the
award in the US, so who will the “second look” occur?
 Suppose the award is too low? Goes to US Court, sues. US court will say public policy
violation, and will increase the money to P. Since this was an in rem action, the insurer
would cover the ship (in admiralty law the ships can continue and J is paid by an insurer).
II.2.d – Laws applicable to Arbitrability
• M.S.A v. Company M
o Facts: The agreement contained an arbitration clause and explicitly stated that Swiss law applied.
After a dispute arose, Belgium party started court proceedings in Tribunal de Commerce of
Brussels. Swiss party objected to jurisdiction on the basis of arbitration clause. P argued the arb
clause was not valid under Art II(1) and Art II(3) as read in conjunction with Art. V(2).
 “The state MUST refer to arbitration unless it finds the agreement is null, void,
inoperative, or incapable of being performed.”
 Issue: Is the arb clause valid where Belgian law says the issue cannot be arbitrated?
• Held: Yes. Arb clause is valid
• Court must
o 1) determine what law applies to the arb agreement
o 2) determine whether the dispute is capable of arbitration - Since Swiss
law says this subject matter is capable of settlement by arbitration,
must go to arbitration.
o Rule: The arbitrability of the dispute under the law of the forum (i.e. an arb decision that would be
contrary to mandatory law) must be taken into consideration ONLY at the stage of recognition &
enforcement, NOT when examining the validity of the arb agreement.
o Notes:
 In Audi-NSU: When a German party tried to enforce a Swiss arbitral award with same
facts in Belgium, the court refused to enforce on the grounds that under Belgium law, the
subject matter of the difference was not capable of settlement by arbitration.
• Given this result, wouldn’t it have been better not to go to arbitration b/c won’t
be able to enforce the award in Belgium.
 Albert Jan van den Berg:
• For the enforcement of the arbitral award, the Convention refers in Art. V(2)(a)
to the law of the country where the enforcement is sought i.e., the lex fori.
• For the enforcement of the arbitration agreement the Convention is silent on this
point; Art. II(1) merely states that the agreement must concern a ‘subject matter
capable of settlement.’ Notwithstanding this silence, it must be presumed that
the for the enforcement of the arbitration agreement also the lex fori governs the
question of arbitrability.

CHAPTER 3. The Arbitrators


19
III.1 – The Arbitrators – Qualifications, Rights and Responsibilities
Arbitrators – 1. Neutrality
Qualification UNCITRAL Art 11(1) – Arbs can be from ANY country, unless the parties stipulate otherwise
s, Rights & But even though not precluded, nationality must be considered UNCITRAL art 6(4).
Responsibilit
ies ICC – Usually tries NOT to have an arbitrator from the same country.

2. Number of Arbitrators
Default Numbers
ICC = 1 Arbitrator
UNCITRAL = 3 Arbitrators

Even Number of Arbitrators


- Most countries require that there be an odd number of arbitrators.

Ex/ French Court – Declared NULL AND VOID an arbitration decision where the parties
wanted 2 arbitrators, and 3 arbitrators only if the two didn’t agree, where the decision was
only made by 2 arbitrators.

3. Checks on Arbitrators
The NY Convention does NOT govern vacation.
Thus, an award can only be rarely be vacated for an arbitrator’s improper or unskilled behavior.
• Partiality v. Neutrality
o Partiality – One cannot be even “innocently” partial and still be an arbitrator
o Neutrality – One COULD be non-neutral (not have the same intellectual beliefs) as one of the 2
sides and still be an arbitrator
 Examples showing non-independence
• 1) If an arb has written a prior opinion on such a case
• 2) If and arb has written an article on such a case
• When independence is carries too far: the Arbitrator-Dictator
o Must balance independence and desire to ensure parties receive equal opportunities
• Neutral v Non-Neutral Arbs
o Even if the parties say they want non-neutral arbs, the arbs have to meet minimum ethical stds
• Nationality Requirements
o LCIA – Art. 6(1) (Too Hot)
 The sole arb CANNOT have the same nationality as any party (unless ABP)
o UNCITRAL Model Law -- Art 11(1) (Too Cold)
 No person shall be precluded by reason of nationality from acting as an arb.
• But Even though not precluded, nationality must be considered UNCITRAL
art 6(4).
o ICC – Art. 9(5) (Just Right)
 The sole arb will be of a different nationality other than the parties.
 BUT in some circumstances, if neither party objects, the sole arb or chairman may be
from the same nationality.
• Differences between the AAA (ABA) and IBA Rules of Ethics
o Neutrality
 IBA – Arbs MUST be neutral, etc.
 AAA – Party appointed arbitrators do not necessarily have to be neutral.
• In international arb – there is a recognition that the arbs must be neutral.
o Withdrawal
 AAA – If all or one of the parties requests an arb to withdraw, then he should withdraw
 IBA – nothing. Leaves arb in a quandry as to whether they should withdraw.
o Communication with counsel
 Unilateral commo
• AAA – MAY BE OK. Arbs are not strictly neutral. They can be associated with
the corp
o Ex/ Vantage v. SS Corp (US case finding no misconduct where the arb
was an attorney for the party, a stockbroker for the party, etc).

20
• IBA – NOT OK. Requires arb to answer questions by counsel regarding
impartiality or independence
o But how can the arb answer Qs from counsel in an interview without
discussing the merits of the case or the “issues in dispute”?
o Also, no independent communications between the arb and the parties
o Fees
 AAA – party-appointed arbs can negotiate compensation with party unilaterally
 IBA – No unilateral arrangements should be made for arbs fees or expenses
o Settlement Disputes
 AAA –
• If the arb is neutral – cannot suggest a settlement
• If the arb is party-appointed – arb CAN suggest a settlement
 IBA – NO arb can propose settlement
Fouchard Relationship btwn arbitrator and parties
– - Judge by virtue of K

Relations Effects of this Relationship


hips (1)Arbitrators obligations towards parties
Between (a) Bound to behave equitably and impartially and treaty parties equally.
the (b) Fulfill tasks w/in legal or contractual time limits laid down for him.
Arbitrato (c) Fulfill tasks with due diligence.
r and the (d) Must carry out task until completion - until final award is rendered - unless there is an
Arbitral unforeseeable circ or lack of independence.
Institutio (e) Duty to respect confidentiality
n
(2) Parties’ obligations towards arbitrator
(a) Must remunerate arbitrators but shouldn’t have unilateral financial arrangement btwn arbitrator
and appointing party.
(b) Arbitrator has right to meet with faithful and cooperative behavior from parties

(3) Relationship btwn arbitrator and arbitral tribunal


(a) K btwn the two that results from twofold consent:
i) consent of center which appoints or confirms arbitrator and consent of arbitrator when agrees to
accept rules etc.

(4) Content of the Reciprocal Rights and Obligations of the Arbitrator and the Arbitration Center
(a) arbitration center is bound to carry out its functions of organization etc.
(b) AC must treat arbitrator with respect
(c) has to reimburse arbitrator
(d) must provide arbitrator with technical assistance to facilitate completion of task.
(e) arbitrator agrees to comply with rules of center.

Liability: ----------
Liability of Arbitrators –
British Law has a provision that says that an arb is liable only for bad faith.
ICC – Neither arb nor ICC can be liable. (Complete waiver of liability)
Is this a good thing for the ICC? My force some away
FEES:
France Court – Because the arb had gone beyond what the arb agreement had allowed, that the
arb should not receive his money. Is it a BofK or an Agency relationship?
How do Arbs get paid?
In institutional or ad hoc arb:
Institutional – parties give an advance. If there are further developments, the institution will give a further
advance. At the end, if there’s anything that hasn’t been paid, the arb will refuse to give the award has been made.
Ex/ ICC. P. 210.

Often, one party (petitioner) puts up the whole amount for the deposit, in the hope the other side will
lose and have to pay.

The award doesn’t just decide the issues but will allocate costs. (as in civil law).
21
• Norjarl v. Hyundai Heavy Industries
o Facts: Three arbitrators accepted their appointment without any reference to fees. The parties
requested the arbitrators to reserve 12 weeks beg. April 28, 1992 for the hearing. Arbitrators
agreed, provided that they were paid a portion of fees in advance. (in order to guarantee
they’d get money if the parties settled). Hyundai began action to remove arbitrators on the ground
that arbitrators’ proposed commitment fee arrangement constituted “technical misconduct.”
Norjarl opposed dismissal and sought declaration that if Hyundai was unwilling to accept the
commitment/fee arrangement, the arbitrators were free w/out impropriety or imputation of bias to
conclude fee arrangement w/ Norjarl. Norjal said they would pay the entire commitment fee in
order for the arbitration to continue.
 Issue 1: In seeking to persuade the parties to agree to a commitment fee have the
arbitrators committed misconduct? NO. If so, can remove them? NO.
• Arbs conduct is NOT misconduct fit for removal b/c parties’ request that they
keep 60 days open for the hearing was beyond the arbitrators duty, therefore,
the arbitrators had the right to request a fee.
o It was reasonable for the arbs to ask for a commitment fee if the length
of the hearing was so long.
 Issue 2: If the arbitrators conclude an agreement for a commitment fee w/ Norjarl alone,
will this constitute misconduct? YES. Would create imputed bias.
• Norjarl CANNOT have a unilateral commitment fee arrangement – would
create imputed (but not actual) bias.
o Rule: The Court can’t accept all of the money from one party where one party contests the fee
arrangement
o Note: Pt of case: Negotiations btwn the arbitrators and the parties as to the services that the
arbitrators are to render and the terms upon which they are to render them should take place at
the time of the appointment of the arbitrators.
 Once arbitrators have accepted appointment -- not good to get into discussions about fees.
Situations may arise where have to, but, in general, should avoid such discussions.
 A failure to agree or FEES CAN lead to the arb agreement invalid
• Under Art II – Arb decision invalid “if inoperative or incapable of being
performed”
• Arbitrator Resignation – Milutinovic Case
o Facts: German v Yugo(P) in Zurich. Arb was coming to a close when Prof Juvonovich disagreed
with other arbs as to whether the P could bring in past witnesses on an issue critical to
Yugoslavia. 2 arbs disagreed with Prof. Juvonovich. Then Prof Y. said the arbs acted unethically –
that the other 2 were only interested in expediency. Prof Y resigns. ICC refused to accept Prof
Y’s resignation. (Art. 12 (1)). Then the other 2 arbs say they’re going to render an award.
o Issue: Is that award enforceable? Swiss tribunal determined that 3 arbs were required – and the
award could not be enforced. Is that sound? Suggests that we have to have a replacement
arbitrator who refused to participate. But that means the whole process starts again. And what if
this happens again? One argument is that they should have allowed the decision to be enforced. Is
there a difference whether the arb is party-appointed or not?
o Legislative Solution
 British Statutory provisions (DS p. 97 §25)
• IMPORTANT STATUE – (3) indicates that an arb WOULD be LIABLE if
they resigned. Which means that it would be unlikely an arb would want to
resign (in order to avoid liability).
 Swedish Act (DS p. 171) – When an arb fails, without valid cause, to participate in the
determination of an issue by the arbitration tribunal, such failure will not prevent the
other arbs from ruling on the matter. Unless the parties have decided otherwise, the
opinion agreed upon by the majority of the arbitrators participating in the determination
shall prevail. If no majority…
III.2.b – Appointment by Courts
• Issues regarding court assistance – What power does a court have to investigate the validity of the arb
agreement?
o If court derives power from the parties – the court cannot refuse to appoint an arb just b/c there
is doubt about the validity of the arb clause.
o If court derives power from a NATIONAL PROCEDURAL LAW –

22
 Formal validity STD
• (ex/ Swiss) – the court CAN not proceed if a summary exam shows the arb
clause is invalid.
• (ex/ Portugal) - the court CAN not proceed if the arb is not manifestly void
• (ex. France) – the court CANNOT proceed if the court determines the arb clause
is manifestly null.
 Substantive Validity STD:
• (ex/ Belgium) – If one party had a “privileged position” the arb agreement is no
good and invalid
 “NO COMMENT”
• (ex/ Germany) – the court’s decision to send to arb does NOT necessarily mean
the arb clause is valid
 No Standard (unusual)
• (ex/ Dutch) – Will send to arbitration automatically
o Most states – Courts only have JUR to offer assistance if:
A) the lex arbitri is the law of the forum state
B) the seat of the tribunal is in the forum state
Exception – Netherlands – (Art 1027) – radical clause – allows for jur regardless of
whether there was a valid arb clause.
• Issue: If a court refuses to appoint a tribunal, should it also declare that the arb agreement is invalid?
o Problems:
 A declaration that the arb agreement is invalid is contrary to the arbs Competence-
Competence principle (arb tribunals CAN determine their Jur)
 Such a declaration could impede arbs
o Rule: Whenever a court refuses to appoint an arb does NOT mean that a party can declare the arb
clause invalid.
• Israel v. Iranian Oil
o Should the French Courts be allowed to appoint an arb even where the tribunal is not in France
and the lex arbitri is not applicable?
o Rule: A judge may intervene in a case where a denial of justice has taken place in another
country, assuming the case has some ties with France.
 General Rule: Courts only have JUR to offer assistance if:
• A) the lex arbitri is the law of the forum state
• B) the seat of the tribunal is in the forum state
 The above stated French rule applies even when these 2 criteria are not met, because:
• Public Policy (ensure justice)
• The rules were ICC rules, and the ICC is a legal person in France under French
Law
III.2.c – Appointing Authorities Chosen by Parties
III.2.c.i – The Nature of the Decision of the Appointing Authority
• Saphire Petroleum v. Iranian Oil
o Facts: SP requested arbitration and appointed as their arbitrator Mr. Tippet and invited NIOC to
appoint an arbitrator. NIOC refused, stating that b/c all of SP’s rights had been assigned to SIP
that only Saphire International Petroleum ( SIP) could take advantage of the K and the
arbitration clause. SIP then requested a Swiss court to appoint a sole arbitrator pursuant to the
arbitration agreement. After a “preliminary investigation” to see if conditions under national
law were met, the Swiss court appointed Pierre Cavin. NIOC acknowledged receipt of
documents etc. but did not introduce a memorial, refused to participate in hearings, and at all times
objected to the arbitrator’s jurisdiction. NCOIC considered the arbs appointment by the court null
b/c the notice to D had originally come from SP, NOT SIP.
 Held: The arbitrator declared that he had jurisdiction in accordance with the agreement
and decided the case against NIOC. BECAUSE HE HAD NO POWER TO REVIEW
THE COURT’S DECISION (b/c it was res judicata)
o Rule: The decision reached is a judicial decision/judgment and has the full force of res judicata.
The arbitrator cannot review a decision that has the effect of res judicata and therefore, must
accept appointment.

23
o Critique: Barceló disagrees:
 Thinks that arbitrator was wrong to think that he could not question his own appointment
b/c Swiss Court said arbitration was OK, but arbitrator should have made a decision on
merits whether appointment by parent co. was proper.
 Thinks that Swiss Court was not acting as a judicial authority, since its authority is being
derived from private agreement, so its decision is not res judicata (if acted as judicial
authority (pursuant to mandatory law,) then res judicata).
• Elf Aquitane v. National Iranian Oil
o Facts: Elf (in a 1966 K) was to explore and produce oil and in return NIOC, only if oil was found,
would refund the exploration fees and sell oil at a favorable price to NIOC. Elf DID find oil but
NIOC didn’t pay Elf. Elf went to arbitration but after NIOC refused to comply, it requested,
pursuant to the arbitration agreement, the President of the Danish S.Ct. to appoint a sole arbitrator.
The Danish SC appointed Prof. Bernhard Gomard as the sole arbitrator. NIOC objected on the
ground that the arbitration agreement was invalid due to the nationalization law
 Issue: Did the Danish SC have the authority to appoint an arbitrator?
• Held: Yes. President of S.Ct. said “It is not for me to determine whether the
arbitration agreement became void with respect to the French Co., or what were
the consequences of the Iranian legislation. These questions should be
resolved by the arbitration tribunal, the constitution of which is requested by
the French co.”
 Does a court’s decision to appoint an arbitrator indicate the arbitrator has competence?
• There is scholarly dispute, but most say that the court’s decision DOES NOT
automatically indicate competence.
• Some argue that a Court that appoints an arbitrator ACTS AS A PRIVATE
PERSON, not as a court of law of that country
o Rule: It’s not up to the appointing authority (in this case the Danish SC as indicated in the arb
agreement) to determine whether the arbitration tribunal has competence or not. All they do is
appoint someone. They’re appointment does not indicate, one way or the other, whether the
arbitrator has competence or not.
III.2.d – Multi-Party Arbitration and Selection of Arbitrators
• Note: In multiparty arbitration, multiple Ds may have different interests. If they have to jointly appoint an
arbitrator, their differences are not realized.
• Siemens and BKMI v. DUTCO
o Facts: Dutco (P) entered into a K with Siemens (D) and BKMI (D) where Ds were to construct a
cement factory for P in Oman. A dispute arose. The parties had an arb clause – 3 arbitrators would
be appointed under ICC rules. Dutco sent the dispute to a SINGLE case for arbitration – against
the 2 Ds separately. One of the 3 persons on the arb tribunal was JOINTLY designated by the 2 Ds
(under their protests)
o Rule: An arb decision where there are Ds with competing interests who are forced to jointly
nominate an arbitrator is not valid.
 Principle of Equality & public policy concerns are such that it is unfair to force
competing Ds to not be able to compete in an arbitral tribunal’s creation.
o Notes: As a result of this case, changes were made. See
 ICC Rule Art. 10 – joint nomination of all 3 arbs by all parties OR (if no agreement) the
Court will appoint
 LCIA Rule Art. 8 – if parties have not decided that they represent two different sides (P
and D) the Court will appoint without regard to any party’s nomination.
 AAA Rule Art. 6(5) – the administration will appoint the arbs
 What if this is AD HOC arbitration. Would the UNCITRAL Rules be adequate? Look at
Art 11. Doesn’t look like it’ll help. It’s the same old rule – default of 3, 2 appointed by
the parties.
III.3 - Challenges
III.3.a - Introduction
• See Van den Berg – p. 379 – 388
Van den 2. Introduction
Berg a. In case of any objective doubt as to impartiality, arbitrator may not act.

Report 3. Avoidance of Challenge


24
on the a. A prospective arbitrator can avoid challenge at two stages
Challen (1) When the party first comes to him
ge (2) If at any time there are circumstances that might give rise to doubt about impartiality or independence,
Procedu should disclose to parties and institution.
re
4. Possible reasons for the recent increase of challenge procedures
a. Interpretation as to what constitutes impartiality and independence is stricter
b. New parties from new countries misconceive the definition of impartiality
c. Challenges can be a powerful delaying tactic, -- it has a psychological effect on challenged arbitrator (will be
more impartial and independent in order to avoid more allegations),
d. International arbitration is growing more litigious.

5. SUBJECT of the PRESENTATION: The two issues concerning challenge procedures


a. Compliance with impartiality and independence is subject to court control. At what point can court control
be exercised?
b. Mandatory law v. institutional procedures of challenge. To what extent are institutional challenge
procedures compatible with the applicable arbitration law?

6. Court Control
a. Can challenge an arbitrator’s partiality in court during arbitration
(1) Advantage - decide immediately
(2) Disadvantage - can be used as delay tactic.
(An avg challenge takes 1-6 months—and can go to SC, etc.)

b. Another system is to challenge an arbs partiality before the arbitral tribunal, if the challenge rejected,
party can re-challenge in court only after award is made in enforcement or set aside proceedings.
(Sweden)
(1) Advantage: delay is minimized, if challenge is accepted, arbitration doesn’t continue
(2) Disadvantage: court may accept challenge and refuse to enforce or set aside - waste of time
(a) direct discussion with arbitral tribunal will have impact on further proceedings.

c. Note: Court control can take place in place of arbitration, or place of enforcement (award) -- (NY
Conv. V(2)b) – (“if the recognition or enforcemen of the award would be contrary to the public policy
of that country”) -- public policy includes lack of impartiality and independence - however, this is
rarely used.

7. Institutional Challenge Procedures


a. Most arb institutions have their own challenge procedures.
b. Institutional challenge procedure should be compatible with applicable arbitration law (arb law of the
place of arbitration). Issue: To what extent can an arbitral institution provide its own challenge
proceedings in the context of the arb law? 3 Different Systems:

(1) Challenge to be decided exclusively by a court


(a) Some arbitration acts provide that courts have exclusive jurisdiction for challenge of an
arbitrator. (Swiss)
i) advantage: arbitral proceedings not delayed
ii) disadvantage: court may have views on the impartiality or independence of an arbitrator
which differ from the views of courts in other countries

(2) Challenge to be decided exclusively by arbitral institution (e.g. French)


(a) E.g. for ICC arbitration, ICC Court of Arbitration is the sole judge for challenges brought
against ICC arbitrators if the place of arbitration is situated in France
i) advantage: limits challenge procedure to one instance and minimizes delays, uniformity of
concept of impartiality and independence
ii) disadvantage: legal status of institution’s decision on the challenge may be uncertain - not
sure if it is binding on courts

(3) Challenge to be decided by arbitral institution with a possibility of recourse to a court against
the institutional decision on the challenge.
(a) UNCITRAL Model Law (Art 13).
i) advantage: arbitral institution has opportunity to decide challenge, likely that court will

25
follow institution (increasing uniformity) and court can exercise final control. Also, that
courts can have a certain control over the arbitral institutions.
ii) disadvantage: delays arbitral proceedings in two instances, at institution and court.
a) Should court review de novo or just marginal review? De novo seems to prevail. I.e. ct takes
into account institution’s decision as persuasive authority but nevertheless engages in its own
examination. (alleviates any doubt as to the correctness of the institution’s decision)

8. Other Procedural Aspects


a. Time limits - some arbitration acts contain time limits for bringing a challenge. (ex/ Swiss – “without delay”)
b. Challenge of a party-appointed arbitrator: MOST abr acts provide that a party may not challenge an
arbitrator whom he has appointed, except on a ground which came to that party’s attention after such
appointment.
c. Suspension of arbitral proceedings: UNCITRAL allows proceedings to continue before tribunal while there is
a challenge in court. Dutch has discretionary power to suspend. Other rules are silent.

III.3.b – Challenges and Court Control


• Homs and Banias v. ICC
o Facts: Syrian party challenged ICC decision to remove arbitrator in French court.
o Rule: ICC decision to remove an arbitrator will not be overturned even though no grounds
were given, b/c ICC rules say no reasons will be given and parties agreed to ICC rules.
 Maintenance of arbitrator must be authorized by the will of the parties, here they vested
the ICC Court of Arbitration with the power to resolve disputes relating to nomination,
confirmation, challenge and replacement of arbitrators, the parties conferred that power
by choosing ICC as the institution and ICC followed its procedures.
• Qatar v. Creighton
o Facts: Qatar’s complaints
 Creighton arbttr had helped Creighton find attorney for the arb (this is the most serious
ground according to Barceló)
• This can be more of suggestion that there was some connection between the
arbttr and the parties. However, Barceló agrees with the Cour de Cassation, that
the linkage is not enough to raise the scepter of bias.
 Creighton chose same arbttr in another arb (Creighton v. Sub-k’tor) involving same
project
 Creighton arbttr made independent inquiries about Qatari law
• Is this different from consulting law professor colleagues to discuss K theory.
o Dealing §1502(5) and §1504 of the French Civil Code. Often, the grounds for set aside are the
same grounds for R&E.
o Held: Court made factual findings – No alleged bias
• Andros v. Marc Rich
o Facts: Award for Andros, Rich seeks set aside in N.Y Fed Court on the grounds that (i) Presiding
arbttr (Arnold) was claimed to be a close friend of Nelson, who was president of company that
performed services for the vessel; and (ii) Arnold served as arbttr with Nelson 19 times; 12 times
Nelson was one of the arbttrs who chose Arnold as presiding arbttr. Most of the time they voted
the same.
 Held: Award upheld; refused even to allow Marc Rich discovery
• On voting, in all but one case, the panel was unanimous
• Arnold had served just as many times with March Rich’s appointed arbttr
(common in maritime arb)
• Arnold’s affidavit says he and Nelson were not friends and had never visited
each other’s homes.
o Rule: Famous Supreme Court precedent stating the law in this area – Commonwealth Coatings:
Arb set aside because an arbttr failed to disclose he had rendered significant paid consulting
services to a party on the project in dispute. Burden of proof rests on the party asserting bias.
 N/a here and award not set aside due to the court’s factual findings
• AT&T v. Saudi Cable
o Facts: Fortier was chosen as an arb. Fortier ended up (by mistake) not disclosing that the was an
executive director of Nortel, one of the companies that did not receive a bid on the contract.
 Was the arbitrator biased where he was a director of Nortel, one of the companies that did
not receive a bid on the contract and he failed to disclose this?
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• Held: No.
o Rule:
 Test for Actual Bias - Automatic disqualification of a judge
• who has a direct pecuniary interest that he can be truly said to be a judge in his
own cause
• who would lead to the promotion of a cause in which he was involved with in
connection with one of the parties (Amnesty Int’l)
 Test for Apparent Bias - Whether there is a real danger of bias where the judge may be
pre-disposed against a party’s case
• Sub Test: Was the connection a significant part of his professional life
Chapter 4. Focal Points in the Arbitration Process
• Notes
o Lex Arbitri
 Lex arbitri refers to the procedural norms of the municipal law governing arbitration. It is
quasi-mandatory in nature and acts as a kind of supervisory (external) law which
functions as a gap-filler. In other words, lex arbitri will apply when institutional rules
and/or party created rules fail to provide for the circumstances at hand. Note that the
arbitration process is predominately molded by institutional rules and party autonomy,
rather than lex arbitri.

 Following issues are generally governed by the lex arbitri (though differences exist in
various countries): P. 552 fn 20.
• Parties
• Autonomy to agree on substantive and procedural issues in arbitration
• Procedural issues
o type of hearings
o administration of oaths
o discovery
o evidentiary matters
• Appointment and removal of arbitrators
• Extent of judicial supervision or, interference in, the arbitration proceedings
(such as ordering provisional relief or discovery in aid of arbitration)
• Arbitrators’ liability and ethical standards
• Form and making of the award.
• Sometimes governs:
o interpretation and enforceability of the parties agreement (including
issues of nonarbitrability)
o conflict of law rules applicable to the substance of the dispute
o quasi-substantive issues, such as rules concerning interest and attorney’s
fees.

 However, according to the McDonnell Douglas case, there is a distinction btwn internal
and external procedural norms.
• External norms (Lex arbitri) consist of
o appointment/challenge of arbitrators
o set aside procedure
o jurisdiction
o scope of mandatory law
• Internal precedure consist of
o time limits
o sufficiency of evidence
o depositions
o discovery
o I.e. more procedural rules.

 Who’s Lex Arbitri Applies?

27
• In general, most courts agree that the parties are free to choose the lex arbitri as
long as the choice is explicit and not contrary to mandatory law. In the absence
of explicit selection, most courts will apply the lex arbitri of the place of
arbitration.
• Modern v. Traditional Approach to lex arbitri
o Traditional: favors the application of law of the seat of arbitration.
Traditional courts regard the place of arbitration as a kind of forum.
Most jurisdictions follow this approach in the absence of party choice.
Note that the McDonnell Douglas (UK) case employs this approach.
o Modern: regards arbitration as anational, autonomous, and thus,
forumless. This approach advocated by Von Mehren, views the place
of arbitration merely as a convenient location for the parties and
maintains that the law of the forum is irrelevant to the arbitration
proceeding. The modern view maintains that any court with
jurisdiction can apply its own lex arbitri.
IV.1.b – The scope and the Relative Importance of the Lex Arbitri
• India v. McDonell Douglas
o Facts: The parties chose the law of India to govern the agreement. Arbitration is in London. A
separate arbitration clause stated both that “arbitration shall be conducted in accordance with
the procedure provided in the Indian Arbitration Act of 1940" and “the seat of the arbitration
proceedings shall be London, UK.” D argues that the parties chose London as the seat not merely
the place of arbitration. Because the seat can change, the English law should apply in India. P
argues that the parties overwrite the seat of arbitraiton by the specific clause that says that the
procedural law would be from India.
 Held: UK law applies to external/supervisory procedure (lex arbitri). Here, the parties
did not expressly state what the lex arbitri for procedure would be – the implicit choice
is the seat of arbitration. Indian Law applies for internal procedural issues.
o Rule: Where parties do not explicitly state what the lex arbitri is, the lex arbitri is the law of the
seat of arbitration.
o Notes:
 Parties may make three separate choice of law decisions (subject to mandatory law
provisions).
• Law to govern commercial bargain
• Law to govern arbitration agreement (internal)
• Law to govern arbitration procedure (external/supervisory - lex arbitri)
 If parties don’t make an express choice of procedural law to govern their arbitration, then
the Court will consider whether they have made an implicit choice.
 Example of implicit choice: Choice of seat of arbitration implies that lex arbitri will be
from the law of the seat as well.
o Criticism:

Since parties made an express choice of lex arbitri by choosing Indian law, should not
look at implicit choice - i.e. seat of arbitration.
• Seems that judge is ignoring express language for the sake of convenience since
English lex arbitri would be more practical to apply b/c on some issues are
going to have to apply English mandatory law anyway.
 Some arbitration laws require that if the seat of arbitration is in that country, their lex
arbitri applies.
o Importance: Traditional approach: favors principle of party autonomy in selecting lex arbitri,
however, makes party choice subject to mandatory law (usually) of the site of arbitration (in this
case England). Presumption of arbitration law of the seat of arbitration. Makes a distinction
between internal & external procedural norms.
• UNCITRAL Model Law
o Art. 18 – The parties shall be treated with equality – DUE PROCESS overrides Art. 19
o Art. 19 –
 1) The parties are free to choose the procedural law of the arbitration
 2) But if the parties don’t agree to the procedural law, then the tribunal may conduct the
tribunal in the manner it considers appropriate.

28
 3) The tribunal can determine the admissibility, relevance, materiality, and wright of
evidence.
o Comments:
 There is some conflict between Art. 18 & 19
 Parties can decide whatever they want for procedural law, as long as it doesn’t violate
mandatory law.
 There is NO TIME LIMIT for parties to determine a procedural point. Ex/ they don’t
have to have the procedural law determined before the arbitrators are appointed.
 If there is conflicting (ex/ Italian) substantive law that conflicts with the procedural law,
the tribunal can follow the procedural law. Art 19(2) trumps Art. 28!
• ICC Art 15
o Note that ICC Art. 15 mandates application of its own procedural rules despite selection of lex
arbitri. Lex arbitri can only function as a gap-filler.
o “The proceedings bf the Arbitral Tribunal shall be governed by these Rules and, where these
Rules are silent, any rules which the parties or, failing them, the Arbitral Tribunal may settle,
whether or not reference is thereby made to the rules of procedure of a national law to be applied
to the arbitration.”
• WIPO
o Unless the parties have agreed otherwise & as long as not against mandatory law, the law
applicable to arbitration WILL BE The PLACE of Arbitration
 Note that WIPO supports the presumption that the seat of arbitration provides the lex
arbitri unless parties explicitly choose otherwise. Sort of like Judge in McDonnell
Douglas.
 Written to prevent trap of having a lex arbitri and seat of arb not in the same place.
IV.1.d – Party Discretion, Discretion of the Arbitrators, and Due Process
• Abati v. Haupl
o Facts: Abati was given two months by the arbitral tribunal to appear bf the arbitral tribunal.
However, these two months coincided with the summer months during which most Italians take
vacations. Particularly, the Italian legal period is 90 days and that all time limits for proceedings
bf Italian cts were suspended btwn Aug. 1 and Sept. 15. Award rendered in Vienna favoring
Haupl. Haupl seeks enforcement in Italy in an Italian court.
 Whether the lower Italian court’s decision that D must appear before the Vienna arbitral
tribunal in less than the required time in Italy allowed the D sufficient notice?
• Held: No. D was not given enough time / notice. Due process must be observed.
o Rule: Parties can determine lex arbitri except if against DUE PROCESS or Mandatory Law.
• P (USA) v. F (F.R.G)
o Facts: Arbitration under AAA rules. Arbitrator didn’t treat the parties equally where 1) The sole
arbitrator did not forward a letter it received from the US firm to the German firm who had no
knowledge of its existence; and 2) German firm submitted a letter which contradicted the
American letter. The arbitrator did not take this into account. D argues that it had not been able to
present its case.
o Held: Held: German court refused to enforce the award on the basis of violation of public policy,
notwithstanding the fact that the violation might not have affected the outcome. Due Process (Fair
chance to present its case & equal treatment by the arbitrator).
o Rule: The German court would only not enforce a US Court’s decision that an award was
enforceable in extreme circumstances – ex/ the party was not able to present his case (as in this
case).

IV.3 Choice of Law Issues before the Arbitrators


IV.3.a - Note
• How do arbitrators determine:
o Procedure
 Institution – institutional rules
 Ad Hoc – parties intent or lex arbitri (arbs might look to the lex arbitri to determine
choice of law issues).
o Substance (Law governing the Arb Agreement)
 What if the arb agreement itself is invalid?

29
• Art. V(1)(a) – “a contracting state can refuse to enforce an award if the arb
agreement :is not valid under the law to which the parties subjected it or law of
the country where the award was made.”
• This is not quite a substantive question. (Ch 2 in the course). 2 types of validity
issues:
o Formal validity: ex/ are the writing requirements met
 Look at Art IV (referring to Art. II)
 Often will look to the formal requirements of NY Convention
for formal validity OR the lex arbitri.
 Court uses Choice of Law Rules to determine. Can says
according to formal validity, NY convention rules apply. In
the US the fed arb act implements the NY convention – and
the NY Convention says when there’s a formal validity (Art 2)
then they must send to arb on a formal validity issue. But if it
doesn’t meet NY convention – on the basis that their own law
requires it, b/c their on nation’s laws a re less strict & requires
it.
o Material validity: this is s subject matter you can’t submit to arb. Or the
attempt to arb undercuts national (?) law,
 Can look at (5)(1)(a) –
 Non-arbitrability examples:
• One approach is forum law (Mitsubishi) (Contierei –
IT)
• (Company M – Belgian) – says it depends. Strange
outcome. More dominant result is forum law
determines non-arbitrability.
 What if not about non-arb. COL rules will often be looked at
for the arb agreement. What the choice of law is.
 Egyptian local authority – only case we have where … lex
arbitri of Switz is the law we look at. Lex Arbitri.
• If this issue is before courts – the question is whether the courts will determine
at first, or not (Fr v US, etc.). But eventually it can come back to a court. If
trying to decide what’s going
• In choosing what law applies, may rely on the whole K itself.
 What if there are disputes about the merits?
• Normally the parties have decided in the arb agreement what the law will be the
law that’s to apply is what the parties choose. Then the arbitrators choose.
o See Sub Law Section BELOW in NOTES – Geneva Convention, ICC
Rules Art 17, etc.
• Role of the Lex Arbitri
o Lex Arbitri – the law governing the arbitration: The national law that can supervise the arb
proceedings. Ex/ ad hoc, but no procedural rules. The lex arbitri of the country will be the
governing law. Usually the lex arbitri is also the law used for set aside proceedings, etc.
 Ex/
• a) parties autonomy to agree on sub and proc issues
• b) procedural issues (ex/ type of hearings, admin of oaths, evidentiary matters)
• c) appointment & removal of arbs
• d) the form & making of the award
• 2 Constraints on Parties Choices:
o 1) Due Process
o 2) Mandatory Law
1961 Geneva 1) In absence of agreement of an actual law, the tribunal will decide choice of law questions
Convention on as appropriate & take into account trade usage & the K.
Int’l Arb 2) The arb tribunal will assume a role as amiabel compoitu only if expressly stated by the
parties.
Art VII When would this apply? If the SEAT of the country is a signatory – the the lex arbitri here
applies.
Could the parties adopt a set of rules that were never adopted as law? No.

30
ICC Rules 1) In absence of parties determination, the Tribunal will apply the rules of alww it deems
appropriate in choice of law questions
Art. 17 2) In all cases the Tribunal will take into account the K and usage of trade
3) The arb tribunal will assume a role as amiabel compoitu only if expressly stated by the
parties.
UNCITRAL 1) The Arb tribunal will use the sub law decided by the parties, but the arbs will not, unless
Model Law expressly stated by the parties, use the substantive law to determine problems with conflict of
laws.
ON Conflict of Applies in other parts of the Model Law
LAWs Ex/ Art 19(2) would not be affected by the choice of law applicable to the substance of a dispute under Art. 28.
Follows the rule of depecage – that parties have the rightr to select different laws for different paets of the
Art. 28 relationship.
2) The arbs will determine conflict of law questions as they choose, unless the parties agree
otherwise.
3) The arb tribunal will decide ex aequo et bono (don’t have to follow any law, but decide
based on equity) or amiable compositeurs only if the parties have expressly authorized it to do
so.
4) In all cases, the arb tribunal shall decide IAW the terms of the K & usage of trade.

IV.3.c – Interpreting Choice of law Clauses and the Role of the Lex Arbitri
• Buyer (Mozambique) v. Seller (Netherlands)
o Facts: Seller sells Potatoes to Buyer. Dispute regarding interpretation of arbitration clause: “The
arbitration will take place in Switzerland, the law applicable is that known in England.”
 Arbitrator interpreted clause as a VALID choice of English substantive law.
• The arbitrator concludes that the clause may mean
o a choice of substantive law - England
o a choice of procedural law - Swiss
- External Norms – Lex Arbitri (McDonnell Douglas)
- Internal Norms – (McDonnell Douglas)
o a choice of choice of laws rule – English (codified in the Model Rules –
where if they say “law” the parties are assumed to mean the substantive
law).
o a choice of law to determine the validity and effect of the arbitration
clause.
• Arbitrator reasoned that the choice of Switzerland as the place of arbitration
implies the application of Swiss procedural and mandatory law.
o Also, “law applicable” usually means substantive law not procedural
law. If parties want to choose a specific procedural law (which is rare),
they must do so explicitly and clearly.
o Barcelo suggests that this provision could mean choice of lex arbitri but
the arbitrator rejected it to avoid complications btwn the seat of
arbitration being in one place and lex arbitri being from another
country.
• Wouldn’t choose conflict of law rules over substantive law. In addition, if
wanted to do so, would have made it clear.
• If want separate laws to apply to K and arbitration agreement must designate
both laws, one for K and one for arbitration agreement. Usually if specify only
one law, usually mean law applying to K.
o Issues:
 Where the arb clause says the arb will take place in Switz. but the applicable law is
England, which substantive law applies?
• Held: The plain unambiguous meaning indicates that the choice of law is the
substantive law of England.
o “Law applicable” and “the law which applies” usually means
substantive law.
o In addition, parties had valid reasons for choosing English law:
neutrality, provisions well adapted to needs of international commerce,
well accessible, known to foreign lawyers and more common than
other laws e.g. Dutch etc.
o “Law known” not the typical phrase but it is not ambiguous.
31
 Arbitrator questions validity of this choice since defendants contend that English
substantive law bears no relation to the K (Barceló thinks this inquiry is irrelevant).
Arbitrator consults both Swiss and UK law to determine validity.
• Held; No connection is required in either system. Choice of law is valid.
o Rule:
 There. two instances where arbitral tribunal should make substantive law choice:
• when party fails to designate
• when enforcement would be impossible with party choice (Mandatory Law) or
(DP)
 When choice of law problems, collateral issues arise:
• interpretative law: here tribunal applies Swiss rules of interpretation b/c it’s the
law of the seat.
• validity of the choice of law clause: here tribunal looks at Swiss law b/c it’s lex
arbitri. some lex arbitri will require a sufficient connection b/e the K and the
chosen law.
• mandatory rules: here choice of English law was not made to escape some
mandatory provisions of the laws of Netherlands or Mozambique, and there’s no
indication that award based on English law would not be enforceable in one of
these 2 countries.
o Also, arbitrator is forced to take into consideration the mandatory law of the countries of
enforcement in order to “make every effort to make sure that the award is enforceable at law.”
ICC art 26(old), 35(new).
Von Mehren Main Argument: Favors the Anational (as opposed to the Jurisdictional) approach
to Arbitration
Final Report
on Lex Fori – Arbitrators require a lex fori – an explanation of the source of his power and
Arbitration a method of establishing the rules and principles in terms of which the tribunal will
between adjudicate.
States &
Foreign Issue: How can arbitration tribunals have authority without a soverign?
Enterprises
“Jurisdictional” theory of arbitration --
Says the lex fori is based on the jurisdiction of the state in which the arbitration tribunal is placed.

Von Mehren argues that this view no longer works (practically & theoretically). The English view is no
longer valid (where the English courts had cases while arb tribunals were going on). The arbitration trib
doesn’t represent a permanent relationship with any national legal system or place.
Ex/ the fact that arb tribunals rely on the power of the parties to decide.

Local courts’ lex forti cannot intrude on the decisions of the parties in arbitration tribunals. If local courts do
interfere, then it will cause arbitration tribunals to move elsewhere.

New thinking: selection of place should have no effect on the intent of the parties in their arbitration
tribunal.

Other theories:
There is an international order of consensus, a lex mercatoria.

Would there be a different result in McD D if they were more anational? Yes.
Would there be a different result in Seed Potatoes? Same result, but different reasoning.
There would not be any reason to go to Mozambique law at all?

IV.3.d – The Role of Lex Mercatoria


• Norsolor v. Pabalk
o Facts: Arbitration agreement lacks a choice of law clause. According to ICC 1988 rules,
arbitrators had to select an appropriate conflicts of law rule to decide applicable substantive
law (Note that as a direct result of this case, ICC Art. 17 was amended in 1998 to allow arbitrators
to apply “law”). Award rendered in favor of Pabalk. When Pabalk attempts to enforce the award
in France, Norsolor contends that the arbitrators exceeded their authority by acting as amiables

32
compositeurs in violation of ICC rules which prohibits arbitrators from acting in equity unless
authorized to do so by the parties. Lower French court concludes that arbitrators decided
according to lex mercatoria (good faith and reasonableness), or general principles of law, and
thus were not acting in the capacity of amiables compositeurs. Norsolor moves to set aside
award in Austria. Pabalk seeks enforcement in France and Norsolor seeks stay until set aside
proceedings in Austria. The Austrian courts set aside the award. French court enforces it.
o Rules:
 Also, an enforcing court can enforce an award that has been set aside because NY
Conv. V(1)(e) language is optional not mandatory.
• Furthermore, Art. VII of NY Conv. requires a court to enforce the award if
national law is more liberal than the law of where the arbitration takes place and
where award is set aside.
o “Provisions of [NY Conv.] shall not affect . . . recognition and
enforcement of arbitral awards . . . [if the laws of the enforcing country
give a party a right to avail himself of an arbitral award].”
• French Art 1502 (p.83) – Is more lenient than the NY Convention for
enforcement of arb awards.
 In order to act as amiables compositeurs need express consent from parties
 Lex Mercatoria really is law and can be applied.

IV.3.e – Applicable Law in the Absence of Party Choice


• Seller (Korea) v. Buyer (Jordan)
o Facts: Korean Seller and Jordanian Buyer go to arb. Buyer refuses to appoint arbitrator, claiming
that arb clause was invalid under Jordanian law. Interim award says that Korean law governs the
merits of the dispute (a) law of the arb agreement is either law of the seat (French law), or law of
the K (which is certainly not Jordanian law); and (b) ICC rules provide that failing agreement on
the parties as to applicable law to the substance of the dispute, arbitrators apply appropriate
conflict of law rules. Uses a cumulative approach: all countries that are connected w/ the
transaction (Korean, French, Jordanian, Iraqi conflict of laws rules) provide that Korean law
should apply.
o Rule: ICC method of choosing conflict of law rules - two approaches:
 1) Seat of Arbitration (in this case France used…)
• Cumulative approach: conflict of law rules of the states most closely
connected with the sales K, such conflict of law rules being in harmony with
each other.
 2) General principles of conflicts of law: substantive law most closely connected with
the K should be applied and that the ‘home law’ of the seller is such substantive law.
• Old version of ICC rules say you have to go to choice of law first, which lead to
the law.
• Current version of ICC (Art 17) say if parties haven’t chosen, the arbs can
decide choice of law.
IV.3.f – The Problem of Mandatory Law
• Principal (Italy) v. Distributor (Belgium)
o Facts: Exclusive Distributorship. Arb in Cologne, GE. Arb clause in K provided for application of
Italian law. K said the supplier only needed to provide 3-months notice before stopping supplies
to distributor. Two issues – arguing that Belgian mandatory law imposes invalidity of the
arbitration: (1) On the Merits - Lack of Notice. Principal only gave notice of termination 3 months
in advance, but IAW the K; and (2) Not valid – b/c the subject matter is not arbitrable. Distributor
argues that the dispute is not arbitrable according to Belgian law Art 4: “the agent . . . as a result
of their termination of a distributorship . . . may always initiate court proceedings in Belgium.”
Distributor claims art 4 renders the arbitration clause null and void, inoperative or incapable of
being performed under the NY Conv.
o Rule:
 Arbitrability: the Law does not compel the distributor to bring his dispute bf a Belgian
court, only gives him the possibility to do so.
 Mandatory Law: Contractual autonomy of the parties is recognized by NY Conv. Art
V(1)(a) and Geneva Convention art VII(1). Although Rome Convention permits the
application of mandatory law of another country when the dispute has a close connection
with that country, the Rome Conv. clearly does not apply to arbitration clauses and is not
33
in force. The parties do not contest that they agreed on the application of Italian law in
the K. Italian law allows arbitration of this dispute. Belgian law doesn’t affect this.
Public Policy & Mandatory rules are important in the interests of a given national society and, as a result, they
the Law intervene despite the fact that they do not belong to the lex contractus.
Applicable to d. As mandatory rules, their very aim is to disallow parties from excluding them by making
the Distribute in their contract subject to a law foreign to the legal system from which they stem, or a judge
International or arbitrator preventing them from coming into effect by deciding to apply such a foreign
Arbitration law to the contract.

Two different mandatory rules for judges:


e. Mandatory rules “of the forum” - preclude application of applicable law.
f. Foreign mandatory rules - not sure if always apply

Int’l arbitrator doesn’t apply the above distinction, instead, makes distinction btwn mandatory rules
of the lex contractus and mandatory rules of another legal system.
g. Lex contractus chosen by the parties:
(1) their choice will include mandatory law as well.
(a) Party cannot exclude any provisions of mandatory law once choose certain lex
contractus
(2) however, does the arbitrator have to apply the mandatory rules of a law other than
the lex contractus when that law was chosen so as to preclude the operation of the
mandatory rules in question?
h. Lex contractus is determined by the arbitrator.
(1) Unless parties have chosen lex contractus all laws that claim to affect the K have a
priori equal right to be applied.

i. Mandatory rules foreign to the lex contractus


(1) The parties have chosen the lex contractus
i) The principle where arbitrators are bound to apply the law chosen by the
parties is sometimes all that is needed for them to set aside a mandatory rule
foreign to that law. (However, arbitrators will rarely expressly provide that this is
the reason for excluding mandatory rules that are foreign to the lex contractus)
(2) The question is whether an international arbitrator is mandatorily bound to respect
the will of the parties as to the choice of rules applying to their K even at the expense of a
deliberate fraud against a national law.
(a) If mandatory law was contrary to “international public policy” then apply parties’
intentions.
(b) If parties trying to avoid mandatory law for purposes against int’l public policy, then
apply mandatory law.

(3) The lex contractus is determined by the arbitrator


(a) Since all laws have the same weight, there is nothing to prevent the application of a
mandatory law foreign to the law designated by the arbitrator as the lex contractus.
(b) Some arbitrators like to apply the mandatory rules of the parties’ respective laws.
i) majority tend towards favoring the application of mandatory rules of the place
of performance of the K.

Thus, it is only if a mandatory rule of the place of performance is incompatible with truly international
public policy that an arbitrator can exclude its application.

Hypo: If we have a K that violates EU antitrust law. Parties say we choose Swiss law, and arb in
Geneva. Say the German party says the K is not valid (AT law violation, but doesnot apply the Swiss
AT law). Should the arb choose Swiss or German law?
Should be Swiss law.

Conflict of Law Should apply mandatory laws when can reasonably claim application to the issue.
Rules for
Arbitrators, in Since have to try and make sure that award is enforceable, arbitrator should attempt to render
Festschrift fur awards which do not violate the public policy or the directly applicable rules of the country in
Konrad which enforcement, if any, of an award is likely to be requested.
34
Zweigert
See ICC - draft recommendations on the law applicable to int’l Ks. P. 581

There are no rules that actually require that the award be enforceable.
ICC Rules. Is it important the arb award should be enforceable (not following mandatory law)? ICC
Rules - p. 201 of Supplement -- the rules don’t say the arbs can follow mandatory law.

UNCITRAL Rules – Arbs sometimes think it’s implicit that the award that it’s enforceable. But again, no
rules. (of course UNCITRAL is ad hoc, anyway).

There’s a difficulty with the argument that you shouldn’t apply mandatory law unless the parties agree – how
mandatory law may effect the outcome. It’s a little simplistic to say we shouldn’t think about what the parties
think when the arbs make a decision.

International Public Policy:


Q 6 (605) – Embargo in Yugo & embargo to supply arms to Serbs. Close to immoral to allow this. There’s a
belief in morality that exists in international arbitration. You could also say this ties into the enforcement of an
award. There may be many systems if you didn’t follow this international moral public policy.

Von Mehren – Thinks it’s almost impossible to apply mand law where the parties didn’t agree. Don’t apply
mandatory law. Varady thinks public policy should have a more of an influence. Barceló – thinks if you can’t
enforce the award, you should apply mandatory law. But generally doesn’t like enforcing mandatory law not in
agreement by the parties.

CHAPTER 5. ENFORCEMENT OF AWARDS


V.1 Confirmation, Merger into Judgment, Concurrent and Consecutive Proceedings
1. Finality & Enforcement
a. Arbitration goals
(1) self-contained finality
(2) what would constitute perfect finality
(a) enforcement immediately following the completion of the arbitration
(b) set-aside not possible
(3) Present international status of arbitral awards has come very close to satisfying the first
goal.

b. NY Convention
(1) Pre-Conv. system required arbitral awards to undergo scrutiny of a court before
enforcement
(a) submitted to prove finality
(b) two court proceedings (defeats the purpose of arbitration)

(2) NY Convention eliminated requirement of double scrutiny (double exequatur).


Recognition and enforcement can take place in all contracting states w/out prior confirmation in
the country of origin; however, the convention does not bestow effects on an award until
recognition or leave to enforce is granted by the court.

c. Difference btwn confirmation and recognition & enforcement


(1) confirmation - by courts of country hosting arbitration or courts of country providing law to
the arbitrators (lex arbitri or substantive law )
(2) recognition and enforcement - in accordance w/ NY Convention.

d. Position of the award in its country of origin depends on local procedural law. Possible options:
(1) the award must be confirmed by domestic courts
(a) to be enforceable and
(b) to have preclusive effects
(2) The award must be confirmed to be enforceable, but it has preclusive effects without
court scrutiny
(a) after it is rendered
(b) after it is communicated
(c) after the time limit for beginning set-aside proceedings has expired w/out action
(3) The award is enforceable and has preclusive effects w/out court scrutiny

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e. Legal status of confirmation: does the award maintain (or lose) its identity after a confirmation
judgment is rendered: does confirmation result in conversion (merger of the award into a
judgment)?
(1) merger doctrine: confirmation of award creates a court judgment that replaces and
extinguishes the award
(2) parallels: confirmation of award creates a court judgment that parallels the award (either
can be used in enforcement)
(3) confirmation yields a judgment with a distinct (and very limited) holding. I.e. that award is
enforceable in that jurisdiction.
(a) If adopt this understanding, it is meaningless to seek recognition of the judgment outside
confirming jurisdiction.
V.1.c – Confirmation and Conversion
• Cosid v. Steel Authority of India
o Facts: COSID and SAIL had a K whereby SAIL would supply COSID with hot rolled steel sheet
coils. Only half the agreed quantity was shipped when India imposed a ban on the export of hot
rolled steel sheet coils. COSID resorted to arbitration pursuant to agreement in London under ICC
rules. Award in favor of COSID. COSID received confirmation from English court and tried
to enforce in India. India refused to enforce on public policy grounds stating that the ban was
binding on SAIL. Said it had merged. Also dealt with whether the award was governed by the NY
Convention and whether it was merged into the English judgment.
o Held: Held no merger. Award was a foreign award and was governed by the NY Convention. The
award was not merged into a judgment, therefore, the NY Convention still applies to its
enforcement.
 Note: NY Convention only applies to arbitral awards, not to court judgments. This is
why the losing party wants it to be seen as a judgment b/c then it is harder to enforce.
Under NY Conv. can only deny enforcement for five specific reasons, whereas judgment
refusal to enforce is broader depending on country. If you looked at the NY convention –
can’t not enforce an award b/c it had been reduced to confirmation J somewhere
would not be a valid reason. So this case is clearly correct.
• Damiano v. August Topfer
o Facts: Award’s fate is the same as the Js fate. Parties entered into K for the sale of sugar with
arbitration clause. Award in favor of Topfer (German). Topfer attempted to get the award
enforced in Italy, the request was refused. Then went to English court to seek a declaratory
judgment confirming the award. Upon receiving confirmation in England, Topfer attempted to
get the English court’s judgment enforced in Italy. Italian S.Ct. refused to enforce. Because
both parties are signatories to the ’61 Geneva convention – the agreement of the parties follows
the Convention. Therefore they didn’t follow the Convention. UK court says the J is confirmed.
But now the German party takes that J into Italian court & tries to get enforced. Italian SC says
won’t enforce it because the award’s not enforceable.
o Held: Enforcement of the arbitral award was sought and denied in Italy, and the judgment denying
enforcement has become final.
o Rule: A judgment confirming an award will not allow a party to avoid res judicata effect if
enforcement of the award was already refused.
 The mistake that the Germans seem to have made was trying to get it enforced in Italy
first, before getting the confirmation and then trying to enforce it again.
 Italian court did not allow because of 51d – not consistent with the beliefs of the parties.
This confirmation should not be recognized & enforce – because the J was based on the
award itself – which had already been rejected in Italy. Which was inconsistent with the
British J.
• Seetransport v. Navimpex
o Facts: Award’s fate is NOT the same as the Js fate. Parties arbitrated dispute before ICC. Arbitral
award in favor of Seetransport. Seetransport sued to enforce the award but the statute of
limitations to enforce under the NY Convention had run (need to enforce in 3 years). Navimpex
tried to set aside the award in France but the French court did not set aside. Seetransport argues
that this dismissal of the set aside conferred exequatur on the award (creating a “judgment”). As a
result, Seetransport tried to sue on the “judgment” in the US. Have an award for the Germans –
treated as having been confirmed in France (actually the French court refused to set it aside –
which means it’s an enforceable J in France). In the U.S. the Q is: is the award is not available for
enforcement b/c of SOL? Court says they’ll enforce the J where French SOL applies.
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o Issues:
 Award cannot be enforced because they’re trying to enforce the award after the 3-year
SOL in the US on the enforcement of the award. What the Romanian Companies did –
attempted to set aside the award in France. Refused to set aside the award in France. Is
this refusal to set aside in France the same as a confirming J? Held: Yes.
 Did dismissal of set aside proceedings set up by N confer exequateur status on the
arbitration award thereby making it an enforceable judgment (i.e. final, conclusive and
enforceable)? Yes.
o Held:
 Rejection of a motion to set-aside functions as a confirmation (satisfying double
exequatur).
• NY would recognize a French decree conferring exequatur on an arbitral award
as the functional equivalent of a foreign money judgment.
• NY will enforce a foreign decree if that decree is a “foreign country judgment
which is final, conclusive and enforceable when rendered . ..”
• NY would consider the rejection of set aside as an exequator and thereby
enforceable b/c the process of obtaining exequatur in France allows the losing
party in an arbitration to challenge the award on the bases enumerated in the
Convention.
• By Implication, a court judgment can be used to get around NY Conv.’s statute
of limitations on awards
• Note that the enforcement of foreign awards is governed by Federal US law (Ch
2 of the Int Arb Act – includes the NY convention). But recognition &
enforcement of the French J is a question of STATE law (NY law in this case).
• Oriental Commercial & Shipping v. Rosseel
o Facts: Big 1st arbitration – finished with order to arbitrate again. Before 2nd arbitration began,
parties entered a stipulation stating “parties agree that any proceedings to confirm or vacate the
arbitration award will be brought in the USDC SDNY. . .” Arbitration award in favor of Rosseel.
Rosseel sought to recognize & enforce the award in England under NY Conv. but Oriental argued
that this action was barred by the Stipulation which required Rosseel to seek confirmation of the
award in SDNY first.
• In the English court – isn’t this issue an issue that should be looked at by the
English? Enforcement of the J in the UK. D made a mistake by not attempting
to set aside in the US. Where the D didn’t set aside, the FDC decision created a
final judgment, which can be enforced (sort of) in the UK b/c of res judicata.
 English court ruled that Stipulation did not bar Rosseel’s action and proceeded to
grant enforcement. Instead of moving to set aside the award, Oriental sought a
declaratory judgment stating that Rosseel had to seek confirmation in SDNY before the
award became binding.
• Since this decision has already been decided in the UK, isn’t there a res
judicata / issue preclusion problem? No. But if the enforcement was tried in the
US, there would be a res judicata problem.
o Rule: Can Confirm an Award or Go to another Country & Enforce. Don’t have to confirm to get
enforcement in another country.
 Under the Convention, it is no longer necessary to seek leave to enforce in the rendering
jurisdiction: the party seeking to enforce an award may proceed directly to the
jurisdiction in which it wishes to enforce the award and may apply directly to that
jurisdiction’s court for an order of enforcement.
• In addition, a party may often avoid relying on the Convention by applying in
the rendering jurisdiction for an order confirming the award, which converts the
award into a judgment which may be enforced abroad under the appropriate
• Even after an award has been confirmed in the foreign jurisdiction, making it
enforceable as a foreign judgment, it is still enforceable as a foreign award
under the Convention; the foreign confirmation simply increases the options
available to the enforcing party. (Not all jurisdiction follow this view, some say
that the award is merged into the judgment - see above)
 Therefore, confirmation proceedings in fed. courts are now usually filed only where the
prevailing party seeks to enforce the award in this country, when the Convention
procedures would be of no assistance.
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 Stipulation only stated that if they wanted to seek confirmation, they had to do so in
SDNY, but since they didn’t want to, their enforcement proceedings in England are fine.
V.2 Judicial Control over the Award: Setting Aside
V.2.a – Note
Note – Judicial
Control in the 1. Judicial Control in the Country Where the Award is Considered to be Domestic
Country Where a. Judicial Control over the award occurs in two settings:
the Award is (1) Opposition to recognition and enforcement in a country in which the winner
Considered to chooses to rely on the award.
be Domestic (2) The claim for setting aside in the country in which the award was made or that
considers the award domestic.

b. Grounds for recognition and enforcement are set out in the NY Conv.
(1) While courts may refuse to refuse to recognize or enforce on these grounds, they
nonetheless are obligated not to refuse recognition or enforcement on grounds other than
those stated in art. V.
c. Grounds for setting aside are regulated by the forum’s general law.

2. Which awards are domestic (and can therefore be set aside by domestic courts)?
a. NY Convention, it is unclear.
(1) cannot be in a country where recognition and enforcement is sought.
(2) can be a country where the award was rendered, or in the country under the law
of which the award was rendered. QUE: Does the latter relate to substantive or
procedural or lex arbitri?????
b. Under the UNCITRAL Model Law, a domestic award is where the arbitration took
place.

3. What decisions may be subject to setting aside?


a. Setting aside applies to arbitrations which have been completed
b. Can set aside partial awards if they are understood as final, although not exhaustive
c. Generally, interim awards can only be disputed at the end with the final award.

4. Is the right to seek setting aside waivable?


a. In principle before award is rendered, parties cannot waive their right to seek set aside -
though some countries allow a party to waive right to set aside.
b. Waiving right to set aside rests on considerations of expediency and efficiency. Que. is
whether they sacrifice minimum safety and control.
c. Also, parties cannot expand options to judicial recourse. Where the parties try to expand
set aside. (See the Famous Kyocera case below)

d. In Switzerland, Belgium, Sweden – do allow such a clause as long as the parties are not
parties from the country where that arbitration takes place.
Ex/ Parties from Fr and GE in Swiss Arb with clause waiving set aside is OK.

Under US & French law – such a provision would not be binding.

5. The Issue of Standard of Review


a. Judicial review is limited and restricted essentially to a listed number of procedural issues.

6. The Consequence of Setting Aside


a. If an award is set aside, it has no effects in the country where it was vacated.
b. If setting aside occurs in a country in which, or under the law of which the award was
made, such setting aside may serve as a ground under the NY Conv. for other countries to
refuse to recognize or enforce the award; however, it does not require this result.

7. Are there relevant procedural standards superior to those of national courts?


a. Due process

The NY Convention & the Model Law are the same – except for 51e on set aside.

Language & Pretty Serious Language Translation Difficulties:

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Recognition & ART V(1) --
Enforcement of
Awards Permissive -- FN 26 (p. 650 ) – Language of the NY Convention in English is permissive – a country
MAY refuse to recognize & enforce an award if any of the grounds are found.

Mandatory -- But the French terminology comes across as mandatory -- The Award WILL NOT BE
REFUSED UNLESS …

V.2.b – Domestic and Foreign Awards


• ISEC v. Bridas
o Facts: Mexican procedural law was used and the site of the arbitration was Mexico. ICC
arbitration award in favor of Bridas. ISEC filed in a USDC a petition to vacate and refuse
recognition and enforcement. ISEC Argues that the arbitrators used US substantive law, and
therefore a US court should be able to set the award aside. Bridas cross-petitioned to dismiss the
petition to vacate on the basis that the court lacked smj and petitioned the court to enforce the
award pursuant to art. III of the NY Conv.
 Does the FDC have jurisdiction? No. Under V(1)e – a court MAY NOT recognize or
enforce an award if “the award has not yet become binding on the parties, or has been set
aside or suspended by a competent authority of the country in which, or under the law
of which (THE LEX ARBITRI), that award was made.”
o Rule: In the NY Conv “[the country] under the laws of which that award was made” refers
exclusively to procedural and not substantive law, and more precisely, to a regimen or scheme of
arbitral procedural law under which the arbitration was conducted, and not the substantive law of
contract which was applied in the case.”
 What law do you look at within a country regarding whether it can set aside? Is it right to
say that V(1)e regulates what country has jurisdiction for set aside. No. Technically
where would you look? You would go to the Arbitration Statutory of a law that talks
about set aside procedures. In the US – FAA Ch. I, §10 (p. 75 in the supplement). §10
(A)1-5.
• §10A – The court in the district where the award was made has jurisdiction to
determine set aside. So in the US – it seems set aside can only be made if the
award was made physically in the US.
o Critique: : NY Convention does not govern set aside proceedings; the national statute decides
whether you take set aside jurisdiction and on what ground.
• Croatian Company v. Swiss Company
o Facts: ICC arbitration in Switzerland award in favor of Swiss co. Substantive law during the
arbitration was Croatia. Croatian co. wanted to set aside in Croatia. (It made the same argument
that Bridas did, that substantive law was Croatian and under NY Conv V(1)e should be able to set
it aside.)
o Issue: Whether the Croatian court can set aside an award made in Switzerland, but where the
substantive law of the arbitration tribunal was Croatian?
 Held: Held: No. Croatian court refused to set aside on the basis that cannot set aside a
foreign award.
o Rule: It found that application for setting aside had to be submitted
 1) to the court of the country in which the arbitral award had been made OR
 2) under procedural law of arbitration (in this case Switzerland).
o Note: Court gets the law correct: Court cites the local state law – and that they don’t have
jurisdiction.
• ONGC v. Western Company
o Facts: Arbitration proceeding – lex arbitri -- was to be governed by the Indian Arbitration Act of
1940. Arbitration was to take place in London. Award was for Western.
 India – ONGC (India) starts a proceeding for set aside in India
• Note: Set aside allowed because even though the arbitration was in London, the
lex arbitri was the Indian Arbitration Act (India).

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 US – Western proceeds with 1) recognition & enforcement of the award (under NY
Convention) & 2) judgment against ONGC. But US Court has an injunction against
moving forward with recognition and enforcement.
 India - Also requested an interim restraining order against the actions in the US
Court
o Issue: Whether the AC was correct in granting the interim restraining order (an anti-suit
injunction) trying to keep the US party from recognition & enforcement?
 Held: Yes. It would not be in conformity with law, justice and equity for a US court to go
forward with the recognition and enforcement in US while there is a set aside proceeding
in India.
o Rule: A court cannot recognize & enforce an award while there are set aside proceedings ongoing
in another country.
o Critique: Barceló criticizes this outcome saying it is overreaching by the Indian court b/c under
NY Conv. V(1) “recognition and enforcement of an award MAY be refused … because the
award has been set aside.”
 Courts do not HAVE to refuse enforcement and recognition proceedings if there is a set
aside by another court. (but remember under French & Spanish interpretations it is
mandatory).
 Since non-recognition and non-enforcement is not mandatory if the award has been set
aside, it follows that courts do not have to stay recognition and enforcement proceedings
when there are concurrent set aside proceedings in another court.
• NTPC v. Singer
o Facts: ICC chose arbitration in London. Interim award in favor of Singer.
 Substantive Law:
• K law said Indian law applied. Where the parties did not specifically state what
the arb law was, the substantive law of the arb clause was Indian.
 Procedural Law:
• Not expressly given. But does say ICC rules apply (internal rules).
 NTPC made an application to set aside the interim award in India.
o Held:
 If proper law of the K is chosen and proper law of arbitration clause is not, there is an
implication that the proper law of the K applies to the arbitration clause as well.
 Normal Rule: If the procedural law of the arbitration law is not chosen, there is an
implication that the procedural law of the seat of arbitration applies. If the parties have
designated a procedural law for the arbitration, that will apply so long as it is not contrary
to the public policy or the mandatory requirements of the law of the country in which the
arbitration is held.
 The courts of the country whose substantive laws govern the arbitration agreement are
the competent courts in respect of all matters arising under the arbitration agreement, and
the jurisdiction exercised by the courts of the seat of arbitration is merely concurrent and
not exclusively and strictly limited to matters of procedure. All other matters in respect
of the arbitration agreements fall within the exclusive competence of the Courts of the
country whose laws govern the arbitration agreement.
 Since Indian law governs the K and there is no express law chosen for the
arbitration agreement, Indian law governs it too. As a result, India has jurisdiction
over all matters concerning the arbitration. The parties did not say (as in Western) that the
lex arbitri is Indian. The court here is saying the substantive law was Indian – and using it
to get to a domestic award. Here it doesn’t seem that the parties intended for the lex
arbitri to be Indian.
 A foreign award under Indian law is an award that is made in the territory of a foreign
state and not governed by the law of India. Since Indian proper law governs the
arbitration agreement, it is a domestic award. Since it is a domestic award, the NY
Convention is not applicable. Therefore the arbitration decision may be set aside.
o Rule:
 The proper law of an arb agreement (substantive law) is normally the proper law of the
K. The only time that it would not be the law of the K is where the parties expressly state
so.

40
 But where there is no express statement of what the law of the K or the arb agreement is,
the presumption is that law of the country where the agreement is held is the proper law.
But this is a rebuttable presumption.
 Validity, effect & interpretation of the ar agreement are governed by its proper law. i.e.
whether the arb clause is wide enough to cover the dispute between the parties.
 If the parties have specifically selected the lex arbitri, it will be followed unless contrary
to the public policy or mandatory law of the country in which the arbitration is held. But
if the lex arbitri has not been expressly selected by the parties, then the lex arbitri will be
the law of the seat of arbitration.
 But where (THIS CASE) the parties stipulated the arb will be conducted IAW ICC rules
will govern, minus mandatory & public policy concerns of the place of arbitration.
• Paulsson – Critique of Indian Decisions
Paulsson says:
1) Misundertands the NY Convention? No.
FN D on p. 664 – Pauson says that if Indian sub law applies, then even I it’s an award is outside of India, then
Indian law applies. Barcelo disagrees with Paulsoon’s interpretation of the Indian “foreign Awards act” – the
statute intends that if there an award outside of Indian where indian lex arbitri applies, the Act will not apply,
and therefore the NY Convention does not apply. Paulson doesn’t agree – if you read the NY Convention in
Art I the Convention applies to anawrd made outside of a country. If there’s an award in London, the
Convention applies.

If you look at the Act harder – not nec against the NY Convention.
Ex/ award outside Indian, parties chose Indian lex arbitri. The winning party might take the awrdd in India
and take it for Recog & Enforcement. Indian cts would not allow. India would say that this is a domestic
Indian award subject to set aside jurisdiction. So should be subjected to set aside jurisdiction.

Is this against the NY Convention? If an award sub to set aside in India,and want to know that … is it
wrong for India to say they first want to do set aside rather than rec & enforcement? No. But the problem
is that this creates a J. Doesn’t seem to be radically different from NY Convention b/c NY Convention
doesn’t go for set asides.

This issue arises in the US – in a different way. P. 676 – Q5.


What happens in the US where we have an arb in the US but where the US wouldn’t consider it a
domestic situation – the NY Convention should apply. Art I of the NY Convention applues – where the
award is not considered domestic. The US doesn’t consider every award as domstic. Where there were
enough international elements that it was subj to NY Convention CH II of Fed AA applies. So
enforcement could happen in the US under the US. BUT the other party said it should be set aside
(IAW CH I of the AA). Specter said it was possible – they could go forward with set aside OVER
recognition & enforcement if both were brought at the same time. Specter v Thornerg.

Another case – Oriental v Rosseel. We had arb in the US where the 2 parties were foreign. Chosen arb
in the US. Oriental could have challenged igf they had sought to set aside. But suppose they had filed a
set aside. Was it able to do so? Because it was a non-domestic award, and therefore the NY Convention
applies. But R&E gives rise to refusla on the ground there is no binding arb agreement. But there are
situations where what one party wants is set aside, not R&E b/c the STANDARDS ARE NOT THE
SAME.

BUT if it were a MODEL LAW JUR the standards are the same. But those countries who were not
MODEL LAW countries, there are differences. We see in Moran that …

2) Overreaching? Yes. Seems like it’s not reasonable for Indian lex arbitri here.
Here it doesn’t seem that the parties intended for the lex arbitri to be Indian.
• Indian Arbitration Act of 1996
o Does the 1996 Indian Foreign Arbitration Act prevent a Singer problem from happening?
 It’s basically the same as the Model Law – Art II(2)
 This seems to be a withdrawal of the older Indian law where the courts would take jur
even if outside of India.
 So this changes the law – India wouldn’t take Set aside Jur unless the arb was in India.
 The Model Law applies only where the arb was in the country.

41
 But the Indian Act doesn’t say “only” – so it’s possible that the same result in Singer
could result.
o In France and Germany – courts would take set aside Jur where the parties intended the lex arb to
be from their country.
o BUT NOW in Fr and GE – will not take set aside Jur unless the arb was in the country. THIS IS
THE TREND.
V.2.d – Standard of Review
• Vekoma v. Maran Coal
o Facts: K was subject to Swiss law and provided for ICC arbitration in Geneva. Arb Clause: Parties
had provided for arbitration only as an option, rather than as a mandatory dispute resolution
mechanism. “May be referred to arbitration” Furthermore, the party who initiated arbitration had
to do so within thirty days after it was “agreed that the difference or dispute [could] not be
resolved.” Arbs decided that, based on the K and facts, that Maran had commenced within 30 days
o Rule: Standard of Review used by courts of an arbitration award during set aside proceedings:
 De novo for the law
 Deferential for the facts
• Egyptian Pyramids Case
o Rule: Just because Arbs have Kompetenz-Kompetenz does NOT mean that courts can’t review
whether an arb clause is BINDNG on all parties.
o French review of set-aside & enforcement of foreign awards: More limited than allowed in the NY
Convention – can only look at:
 1) if there was no valid arb agreement (and an arb made an award) or the arb clause was
void
 2) the tribunal was irregularly composed
 3) the arb decided in an incompatible manner with his mission
 4) DP not respected
o Egypt v. Southern Pacific
 French Court set aside an arb agreement in France.
 Issue in Arb Tribunal: Whether the Egyptian party was a party to an existing arb
agreement. Held: Yes.
 French Court: Whether the Arb Tribunal had Jurisdiction over the case?
• Held: No. Didn’t seem to give any deference to the arbs determination that they
had jurisdiction. Appears to use a de novo interpretation of the Terms of
Reference
 Suggests that Fr courts when looking at arb decisions – CAN REVIEW ARB
DECISIONS (BOTH FACTS AND LAW) DE NOVO.
• Note that the intrusive French standard only applies to questions of jurisdiction.
• Lapine v. Kyocera
o Facts: LaPine brought suit in FDC – Kyocera moved to compel arbitration based on the arb clause
in the K. Motion approved. LaPine and Kyocera arbitrated the dispute in the US pursuant to the
arbitration clause in their agreement. The arbitral tribunal found for LaPine. Kyocera made a
motion to vacate, modify and correct the arbitral award in the US on the basis that the tribunal’s
findings of fact were not supported by substantial evidence and the tribunal had made errors of
law.
o Rule:
 Normal Standard of Review: A federal court may vacate or modify an arbitration award
only if the award is “completely irrational,” exhibits a “manifest disregard of law,” or
otherwise falls within one of the grounds set forth in 9 U.S.C § 10.
 Kyocera Rule: Federal courts can expand their review of an arbitration award beyond
the FAA’s grounds, when (but only to the extent that) the parties have so agreed.

V.3 Judicial Control over the Award: Recognition and Enforcement


V3a – Awards A main purpose of the NY Convention was to ensure that awards can be enforced.
Subject to the An award that is not recognized (for res judicata purposes) or not enforced in national courts it no
NY good.
Convention
Previous issue: What Arbitration Agreements are governed by the NY Convention?
This issue: What Awards are governed by the NY Convention?

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Art I of NYC:
Applies to 2 categories of awards:
1) Awards “made in the territory of a State other than the State where the rec & enforcement
of such awards are sought”
2) those “not considered as domestic awards in the state where R&E are sought”

V.3.a.i – An award rendered in the State where Recognition or Enforcement is sought


• Bergesen v. Joseph Muller
o Facts: SB, a Norwegian ship owner and JMC, a Swiss co. entered into three charter parties in 69,
70, 71. Each one had an arbitration clause providing for arbitration in NY and the Chairman of
the American Arbitration Association was given authority to resolve disputes in connection w/
appointment of arbitrators. After a dispute, arbitration proceedings were initiated. An award was
handed down in favor of SB. SB sought R&E in Switzerland (for 2 years) but JMC successfully
resisted. SB then applied to SDNY for enforcement.
o Rule:
 Art I of NYC applies to:
• I(1) Awards “made in the territory of a State other than the State where the
R&E of such awards are sought” AND
o Art I(1) Simply put, it is not a foreign award as defined by Art I(1) b/c
it was not rendered outside the nation where enforcement is sought.”
• I(1) those “not considered as domestic awards in the state where R&E are
sought”
o Art I(2) “We adopt the view that awards “not considered as domestic”
o denotes awards which are subject to the Convention not b/c made
abroad, but b/c made within the legal framework of another country.”
 A Domestic award is: “an award arising out of a legal relationship exclusively btwn
citizens of the US” without a reasonable relation with a foreign state.
 Thus, an award rendered in the US btwn two aliens with substantial relations with foreign
states is necessarily foreign. The NY Convention applies.
o Note: Some Civil Law countries consider an award “domestic” if the award was made abroad but
their country’s lex arbitri was used. So these civil law countries would be able to “set aside”
foreign awards that followed their lex arbitri Art V(1)e.
V.3.b – Grounds under the Convention for refusing Recognition and Enforcement – an introductory case
• Parsons and Whittemore v. RAKTA
o Facts: After 6-Days war, the US calls out all Americans out of Egypt. Could have gotten visas, but
didn’t try hard. Parsons says that this is force majeure. Arbitration award held PW liable to
RAKTA for breach of K. RATKA Seeks enforcement in FDC. PW claims that the FDC should
not enforce the award b/c
 (1) enforcement of the award would violate the public policy of US [V(2)b],
 (2) the award represents an arbitration of matters not appropriately decided by arbitration
[V(2)a],
 (3) the tribunal denied PW an adequate opportunity to present its case [V(1)b],
 (4) the award is predicated upon a resolution of issues outside the scope of contractual
agreement to submit to arbitration [V(1)c], and
 (5) the award is in manifest disregard of the law.
o Rules:
 Court says it takes narrow reading of public policy defense: Enforcement of foreign
arbitral awards may be denied on this basis only where enforcement would violate the
forum state’s most basic notions of morality and justice.
 The mere fact that an issue of national interest may incidentally figure into the resolution
of a breach of K claim does not make the dispute not arbitrable. Rather, certain
categories of claims may be non-arbitrable b/c of the special national interest vested in
their resolution. There’s no real issue of non-arb here. This is just an ordinary commercial
transaction.
 No DP violation b/c you can’t expect arbs to accommodate every convenience of the
parties.

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 Powerful presumption that the arbitral body acted within its powers. Under V1c – to
succeed on that ground you have to show that the issue the arbs were considering was not
one that was within the arb clause. But here the clause was very broad. In P-J – if there’s
any doubt as to whether it’s arbitrable or included in the arb clause – the US Courts will
ASSUME that it’s part of the arb clause.
 Not sure that Manifest Disregard applies in Int'l commercial agreement, but even
assuming that the manifest disregard defense applies under the Convention, court finds
that there was no manifest disregard of the law. May be able to raise this defense under
NY Convention if arbitrators decided as amiables compositeurs
V.3.c – Procedural Grounds under the Convention for Refusing R & E
What should be the standard of review a court should exercise in deciding whether to recognize or
enforce an award when art. V(1) grounds are invoked?

Potential Standards of Review


a. De novo - court looks at the case again
b. Reasonableness -- Arbitrary and Capricious - court looks at reasonable possibilities
c. Colorable - somewhat possible - passes the laugh test.
d. Manifest disregard of the law - are manifest disregard and colorable similar?????

• ACME v. MCP
o Facts: ICC arbitration in Geneva applying Geneva’s procedural rules but NY Substantive Rules
(according to the main agreement). ACME obtained an arbitration award against MCP and tried
to enforce in SDNY. MCP signed the Terms of Reference (required by ICC rules) thereby agreeing
to arbitration but then argued that the arbitration was invalid under the laws of Pakistan because
the supplemental agreement says that Pakistani law is to be applied. MCP petitioned court in
Pakistan to invalidate both arbitration and arbitration clause. Pakistani court did so – found arb
clause invalid. Arbitrator goes forward. Says that either under US or Pakistani law the
supplemental agreement is invalid. And US law applies anyway. Awards in favor of Acme (US).
Acme seeks R&E in the US.
o Rule: When reviewing an arbitrator’s decision for R&E of the validity of an arbitration agreement
(V(1)(a)), a US Court will use a “manifest disregard” standard, which requires a “mere
colorable justification for the outcome reached.”
 Note: when US courts initially look at separability question, i.e. is arbitration agreement
valid, it applies de novo review.
 Arbitrator did not make a decision in manifest disregard of the law b/c considered both
NY and Pakistani law.
• Southern Pacific v. Egypt
o Facts: Arbitration in favor of Southern Pacific in France. Egypt argued that it wasn’t a party to the
contract which had the arb clause. But the arbs determined that Egypt was a party to the K. A Paris
court of appeals set aside the arbitral award made in Paris btwn the parties. The French court held
there was no arbitration agreement binding Egypt. On the same day, a court in Amsterdam granted
a request for leave to enforce the same award. The Dutch court (the court in this case) allowed
R&E of the award.
o Rule: Netherlands: Standard of review for R&E of the validity of the arb clause (V(1)(a)) is
reasonableness – was the arbitrator’s decision regarding the validity of the arbitration clause
reasonable?
o Note:
 The French Court in set aside proceedings seems to have used de novo review for the
validity of an arbitration agreement under a arbitration award. (Ex/ Egyptian
Pyramids). But remember that set aside standards are based on national law, not the
NYC. This comes up in Negative Competenz – Competenz that exists in France. In
France, if the arbs are not yet seized, but it’s not manifestly null, the court stops. When
arbs decide on jurisdiction, the preference is they decide in a prelim award on
jurisdiction, and that prelim award can be challenged in set aside proceedings in a court
in France.
 But under UNCITRAL Model Law the standards for review of set aside & R&E are the
same –
• Set Aside – Art 34
• R&E – Art. 36

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 Which approach (US – manifest disregard) or Dutch (reasonableness) or French Set
Aside (de novo) is the best approach?
• Reasonableness is more of a middle ground between the other 2.
 Note that the Model Law uses the same standard for R&E and Set Aside – although it
doesn’t specifically say what the standard of review is.
 There are arguments that there should be more deference for R&E, and b/c set aside is
still domestic, there can be a higher std of review. But more countries are moving
towards the same standard for R&E and set aside.
 When we’re talking about the validity of the arb agreement we’re talking about the
jurisdiction of the arbitrators. And arbs can have a self- interest in finding jurisdiction.
So some think the standard of review should be more than the ACME standard of
“manifest disregard / colorable justification.”
• SA X (Belgium) v. Mr. Y (Spain)
o Facts: Arbitration in Strasbourg, Fr.. Y does not appear; X wins by default. X then sought
enforcement of the award in Spain before the S.Ct. The S.Ct. granted leave for enforcement after
verifying the existence of the arbitration clause (in accordance with Art II of the NY Conv) and
the arbitrability of the dispute (in accordance with Art.(2) of NY Conv.)
o Rule:
 A Court can only refuse R&E of Art V(1) if the party furnishes proof.
 A Court can determine on its own whether V(2) requirements are met – there is no proof
requirement
V.3.c.ii – Notice of Appointment of the Arbitrator and Waivability
• Danish Buyer v. German Seller
o Facts: Arbitration in Copenhagen. Procedure of Copenhagen Arbitration is that there is a list of
arbitrators. The list is given to both sides; parties can ask that certain arb can be eliminated. The
Committee will pick a list of arbitrators but will not tell the parties the names of the arbitrators.
There are no oral proceedings; it’s all in writing. The parties don’t know who the arbitrators are.
The award will be sent to the parties w/out the arbitrators signature. This is supposed to enhance
independence. Danish buyer wins and tries to enforce in Germany.
 Can a party waive its right to notice of appointment of the arbitrator & still have the
award enforced in Germany?
• Held: No. Such a waiver is violation of V(1)b, no notice, and is against public
policy because it’s a violation of DP under V(2)b. (although not stated as a
violation of V(2)b).
o Rule: In Germany, some due process rights are not waivable & therefore cannot be enforced. V(1)
grounds against R&E CAN be waived. V(2) grounds against R&E CANNOT be waived.
V.3.c.iii – Scope of the Parties submission to Arbitration
• Management & Technical Consultants v. Parsons-Jurden
o Facts: MTC helped PJ get a K with Iran. The parties entered into an agreement under which if PJ
got the K with Iran and got a certain amount in gross billings it was to pay a certain amount to
MTC. If gross billings exceed $350 million, PJ is to negotiate any additional payments that PJ
would give to MTC. Got into dispute about gross billings and entered into a settlement agreement
where Parsons paid MTC and also agreed that if gross billings exceeded 350 million then would
pay MTC and would decide the terms etc. Got into another dispute as to what were gross billings.
Provided for arbitration by ICC in Bermuda, following laws of Bermuda. Went to arbitration. For
MTC. JP was to pay MTC $1.85 million + as the amount due for the gross billings. Arbitrators
went further and decided what MTC would get
o Rule: Standard of Review by a Court as to whether a subject matter of an arb lay outside the
SCOPE of the K: The court reviewed de novo the Art V(1)(c) contention that the subject matter
of the arbitration lay outside the scope of the K.
 A broad “any dispute” arb clause logically implies that the scope of the K included a
decision for any amounts of additional compensation.
 If there’s any doubt as to whether it’s arbitrable or included in the arb clause (clause is
valid under V(1)c – the US Courts will ASSUME that it’s part of the arb clause.

V.3.c.iv – Improper Composition of Arbitral Authority or Improper Arbitral Procedure


• China Oil v. Gee Tai
o Facts: CIETAC has 3 locations: Shanghai, Beijing, and Shenzhen. They had different arbitrators in
the 3 cities. Parties wanted CIETAC, but didn’t get the name of the city correct. Improper tribunal
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b/c arbitration was provided for in Beijing but took place in Shenzhen. If arbitration in Beijing
then arbitrators come from one list, but if in Shenzhen, arbitrators come from somewhere else.
Claimant says arb should have been in Beijing. Award for Shenzhen party, sent to Hong Kong for
R&E.
o Held: Court says that yes there was a technical violation, but court has discretion comes from the
NY CONVENTION – “MAY” -- to recognize and enforce.
 The court decided to exercise its discretion to recognize and enforce b/c there were no
consequences for the violation and parties did not say how the decision would have been
different. There was no prejudice against the losing party.
o Note: Decision seems troublesome. Remember where the AAA had refused to consider a letter
form the German Ministry that the American party had submitted, the US court said that it was a
procedural irregularity & it shouldn’t have made a difference – BUT the German Court said that it
COULD have made a difference, and therefore shouldn’t be enforced.
• Compagnie de Guinee v. Hammermills
o Facts: ICC procedure where ICC says award has to be submitted to ICC for approval. Art 27 of the
ICC Rules (’98) – the Court of Arbitration is entitled to develop the form of the award, and modify
the form. Arbs sends letter to the parties – says please give me your attorney’s fees – that the form
sent to the ICC was w/o that attorney’s fees. Arbitrator submits award without putting in the legal
costs. This is being challenged that the ICC should also have reviewed the legal costs. R&E of the
award in the US. Argues there was a violation of procedure b/c the award with attorney’s fees
wasn’t sent to the ICC.
o Held: Court says that there was no ICC procedure to review legal costs, therefore, there was no
violation and question of legal costs is something for the arbitrator to decide.
 “The Court believes that a more appropriate standard of review would be to set aside an
award based on a procedural violation only if such violation worked substantial prejudice
to the complaining party.”
 The standard of review is good, but the outcome isn’t.
V.3.c.v – An award set aside in “the country in Which, or Under the law of which, that award was made”
• Company A v. Company B (Slovenia)
o Facts: Arb in Belgrade for A, made in Yugoslavia, under Yugoslavian law. At the time of the
award Yugoslavia was one country. There is an attempt to set it aside in the territory that later
becomes Slovenia. Slovenian court and court of appeals do not initially set it aside in ‘88. Refuse
to set aside. IN ’92 when Slovenia is its own country, there is an appeal and the Slovenian S.Ct.
sets it aside on the ground that it must follow the ’61 Geneva Convention – that an award may be
set aside if contrary to public policy of the state in which the award was made – and the
agreement violated the Slovenian public policy b/c it violated “antitrust” provisions of the
Yugoslavian constitution. In 1995 there is an attempt to enforce the award on Austria. Austria
enforces the award. Austria & Slovenia are parties to the Geneva Convention.
 Held: Under V(1)(e) enforcement is discretionary. However, the court enforces the
award b/c it decides the case under the European Convention, where enforcement is not
discretionary.
 European Convention restricts the application of the terms of V(1)e) of the NY
Convention admitting the setting aside of an award - w/out restriction - as a ground for
refusing its enforcement, to the grounds for such a refusal enumerated in Art. IX(1) of the
European Convention. The violation of public policy does not figure in this enumeration.
 Under NYC, can set aside, technically for anything and then can refuse recognition and
enforcement on the basis of set aside. This allows irregularities coming into the
arbitration process. European Convention wants to limit this and doesn’t want set aside
to be an arbitrary process. Therefore, set aside only works if given under the grounds
given in Art. IX (a-d).
 Austrian court was required to enforce the award.
o Rule:
 NYC: Under V(1)(e) R&E is discretionary.
 Geneva Convention: Recognition and enforcement is not discretionary. Have to
recognize and enforce unless
• a) it is not valid under law applicable
• b) not given proper notice/present case
• c) award deals with difference not contemplated in arbitration or outside scope

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o Public policy does not apply as falling within Art IX – and therefore
even id against the public policy of the country, it must be enforced.
• d) procedure not followed.
• NYC Art. VII: Relevance of the Enforcing State’s National Arbitration Law
o Both the below cases interpret NYC Art. VII to give the enforcing party a right to rely on the
“national” law of the country of enforcement - that is, the law that would apply in that country in
the absence of the NY Convention - if that law is more favorable to enforcement than is the NY
Convention itself.
Relevance of Many Countries – esp. France – have bypassed Art V(1)(e) – to allow R&E even though a country has set it
the Enforcing aside.
State’s
National This is in part because of French interpretation of NYC Art. VII.
Arbitration
Law French National Law does not include set aside as a ground for non-enforcement.

Fr law on non-enforcement of R&E: (New Code of Civil Pro §1502). WILL R&E, unless:
1) absence or invalidity of arb agreement V1a
2) irregularities in appointment of arbs V1d
3) arbs exceeded their own authority V1c
4) violation of DP V1b
5) where R&E would violate international public policy

• Pabalk v. Norsolor
o Facts: Award in Vienna under ICC. Parties did not say what substantive law applied -- Arb
tribunal used international lex mercatoria. Found French party guilty of not having good faith.
Decided in equity – although the parties never said they wanted amiables compositeurs. But never
said they were ruling in amiables compositeurs. Pabalik sought R&E in France. Norsolor brought
set aside in Austria. Austrian court did not allow set aside – “good faith” did not infringe on
Austrian mandatory law did not go against its competence on a damage issue. Norsolor argued
that should not be R&E because the arbs acted as amicables compositeurs.
 French R&E –
• Paris Ct of Appeals – Refused R&E – based on the Austrian lower court’s first
decision to set aside, citing NYC V(1)e.
• Tribunal Grande Instance – Allowed R&E – arbs did not act as amiables
compositeurs, but more importantly that the national law of France allowed
enforcement under Art VII.
• Cour de Cassation – Affirmed – but remanded to Amiens Ct of Appeal. Paris
Ct of Appeals erred in refusing R&E because it had been set aside in
Austria. French Law under NYC Art. VII trumps V1e.
o Issues:
 1) Whether the arbs could disregard all national sub rules and use lex mercatoria?
• Held: Yes. As long as there was no conflict between the lex mercatoria and the
mandatory rules of the substantive law of the country with the closest
connection (that would normally be the country’s sub law that applied)
 2) Whether the French court can allow R&E even where a case has been set aside?
• Held: Yes. Even if under NYC Art V(1)(e) set aside is a reason for non-
enforcement of R&E, a party is not limited to non-enforcement where NYC Art
VII allows a party to use national laws. Thus, a Judge cannot refuse enforcement
where national laws permit it.
o Rules:
 NYC Art. VII gives the enforcing party a right to rely on the “national” law of the
country of enforcement - that is, the law that would apply in that country in the absence
of the NY Convention - if that law is more favorable to enforcement than is the NY
Convention itself.
 In France, set aside is not a criteria for non- R&E. See New Code of Civil Pro §1502.
Non-arbitrability (V(2)) is also not a criteria for non-R&E in France.
• Chromalloy v. Egypt
o Facts: Egypt terminated K with C. C commenced arbitration in Cairo, Egypt. Apply Egyptian
Law. Award was in favor of C. Egyptian court set aside the award on the basis that the arbs
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applied the wrong law – admin, not civil law should have been used. At same time, C applied in
US FDC for enforcement.
o Held: FDC noted that pursuant to NYC it could in its discretion decide not R&E the award due to
the Egyptian set aside.
 However, it also notes that Art. VII preserves all the rights to enforcement that a party
wishing to enforce would have in the absence of the Convention.
 Court found that “if the NYC did not exist, the FAA would provide C with a legitimate
claim to enforcement of the award.” “Article V provides a permissive standard, under
which this Court may refuse to enforce an award. Art VII, on the other hand,
mandates that this Court must consider C’s claims under applicable US law.”
o Critique: Court recognizes and enforces on the basis that FAA allows enforcement of the award,
however, FAA applies seems to apply to domestic arbitrations and not to international arbitrations.
V.3.c.vi – The limits of deference – The Hilmarton Triangle and the problem of conflicting awards
• Hilmarton (UK) v. OTV (France) – 1st Cassation opinion
o Facts: K – H agreed to be a tax & legal consultant to OTV to act as a middleman between the
Algerian govt and OTV, which was going to get a K in Algeria to build drainage in Algiers.
Algerian law said there could not be any middlemen in connection with a public K. H is a
middleman. Hilmarton bring claim that OTV only paid 50% Arb Clause – Swiss law would
govern under ICC Rules in Geneva. Award in Switzerland. For OTV.
 R&E in France. Losing party argues that R&E should not be granted b/c such
enforcement would be contrary to UK public policy (b/c K is illegal under Algerian law,
which is the place of performance of the K). UK Court GRANTS R&E: deference to
arbitrators under V(2)(b) as long as international public policy is not violated.
o Rule: French Court must enforce the 1st award as long as it passes through the very limited filter
imposed by the French national arbitration law – which does not ask whether an award has been
annulled.
 Courts will only review the merits of an award when public policy considerations are
particularly weighty: Parsons: “forum state’s most basic notions of morality and justice.

V.3.d – Review of the merits under the Convention

V.3.d.i – Review of the merits under article V(1) Standards


• Fertilizer v. IDI
o Facts: K says no consequential damages will be awarded. But the Arb awards consequential
damages.Arb Award in India – For FCI, including consequential damages. FCI brought an action
for recognition and enforcement in US of an arbitral award rendered in India in FCI’s favor. IDI
filed an action in Indian court to set aside the award. FCI said that though it may not have been
allowed in the K, the issue of consequential damages was, nevertheless, submitted to the
arbitrators in the Term of Reference signed by both parties. Therefore, the issue of consequential
damages was validly submitted to the arbitrators and V(1)c doesn’t apply.
o Rule: The Standard of Review of an Arb Award by a US Court is very narrow – Cannot substitute
it’s judgment for that of the arbitrators.
 Court uses colorable justification standard of review
o Note: Barceló thinks that merits are not subject to review.
• Brandeis v. Calabrian
o Facts: 35 of 1,000 pails of metal were damaged. BIL refused the shipment, and wants a new one.
Goes to arbitration. Arbitration in favor of BIL. BIL moves for an order confirming the award.
Award confirmed.
o Rule: Manifest disregard would be a merits-based review. There is NO Manifest Disregard is read
into the NYC. US courts will not review merits based review.
 Def of Manifest Disregard – the arb was aware of the law and did not apply law to the
facts found
 Manifest Disregard – is something US courts have read into CH I of the FAA. Under
Parsons, they say they don’t have to decide this. But Brandeis decides this – Manifest
Disregard IS NOT read into CH II of the FAA for interpretation of the NYC.

V.3.d.iii – Review of the merits under Article V(2)(b) – the public policy standard
• OTV v. Hilmarton (Uk Court)

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o Facts: K – H agreed to be a tax & legal consultant to OTV to act as a middleman between the
Algerian govt and OTV, which was going to get a K in Algeria to build drainage in Algiers.
Algerian law said there could not be any middlemen in connection with a public K. H is a
middleman. Hilmarton bring claim that OTV only paid 50%. 2nd Arbitrator found for H.
o Rule: A courts review of an award is minimal – in this case (where the K violated a law of Algeria
but not the mandatory law of the seat of arbitration – Switzerland) there is no public policy ground
on which to not enforce a Swiss award.
 When there are 2 conflicting awards, an enforcing court will only consider the award at
issue.
o Note:
 English law – would not have allowed enforcement of a K that violates the law of the
country of the K. But doesn’t apply in this case. But would have worked upon R&E from
an award in UK under public policy grounds.
 UK Case of Solemany – UK court did not R&E where one party engaged in corrupt
practices. Didn’t apply in this case because there were no corrupt practices. But shows
that if there were corrupt practices, it would be unlikely under Public Policy grounds that
the UK court would R&E.
V.3.e - Estoppel
• Shenzhen v. Gee Tai
o Facts: Improper tribunal b/c arbitration was provided for in Beijing but took place in Shenzhen
under CIETAC Rules. If arbitration in Beijing then arbitrators come from one list, but if in
Shenzhen, arbitrators come from somewhere else. Lawyer made an informal complaint to one
arbitrator during the tribunal. Arbs said they had jurisdiction, and makes an award. But lawyer
never made any official objection to the composition of the tribunal or CIETAC until after the
tribunal in preparation for R&E. Brings up 2 years later in R&E. R&E in Hong Kong. But the
judge in this case allowed R&E – R&E is discretionary. The losing party is estopped from its
challenge.
o Rule: There is no requirement for a losing party to send to set aside, and can then argue against
R&E. But a losing party can be estopped from bringing a claim of invalidity of the agreement
where they never brought up an argument that there was no jurisdiction during the tribunal, but
then argue it during R&E.
o Note: Van den Berg argues estoppel is a fundamental principle of good faith which overrides any
formalities required by Art II(2). Because under Art V(1) a court MAY refuse enforcement –
which is a reason for R&E where a party estopped the other in violation of good faith.

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