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A Second Look at Arbitrability


Approaches to Arbitration in the United States, Switzerland and Germany Patrick M. Baron
(*)

Author
Patrick M. Baron Stefan Liniger

; Stefan Liniger

(**)

Jurisdiction I. INTRODUCTION ACCORDING TO the principle of Kompetenz-Kompetenz, an arbitral tribunal is vested with the authority to decide upon its jurisdiction with respect to any given dispute. In making such a decision, it will review the respective arbitration agreement and it will consider general legal principles affecting its jurisdiction. This decision will inevitably include an assessment as to whether the dispute at hand is arbitrable. The arbitral tribunal's determination, however, is not necessarily final. It might be subject to judicial review. In a motion to set aside the tribunal's determination or during a challenge of the final award at the recognition and enforcement stage, a court may take a second look at the arbitrability of a particular matter. The nature of such judicial review has been the subject of extensive scholarly debate in the past. The key point of this debate has been a conflict of interests with significant bearing on international arbitration as an institution. On the one hand, there are national concerns of public policy calling for the exclusive jurisdiction of state courts with respect to the adjudication of certain disputes, whereas, on the other hand, a more liberal and international concept of arbitrability appears to be highly desirable for international trade, with a lesser degree of state control over private dispute resolution. Arbitrability, in essence, is a matter of national public policy. As public policy can differ from one country to another, the arbitrability of a particular dispute may vary considerably from jurisdiction to jurisdiction. Naturally, judges of different states will look at the question of whether a given dispute is arbitrable from different angles. Arbitrators, of course, will take yet a different approach to that page "27" question. While state judges will make their determination in accordance with their national laws and interests, arbitrators will strive to strike a balance between the interests of the legal systems concerned in the dispute and the (subjectively) reasonable expectations of the parties of the proceeding. (1) Consequently, interpretations of arbitrability by judges and arbitrators may vary. The potentially different interpretations of arbitrability by arbitrators
United States Switzerland Germany

Source
Patrick M. Baron and Stefan Liniger, A Second Look at Arbitrability, Arbitration International, (Kluwer Law International 2003 Volume 19 Issue 1 ) pp. 27 - 54

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and state judges are the focus of our article. In particular, we will analyse the development of the concept of arbitrability in the context of international arbitration in the United States, Switzerland and Germany. In the course of this analysis, we will outline the limitations and restrictions imposed upon the parties' freedom to opt for arbitration as an alternative to litigation, and we will unearth existing familiarities in the approaches to arbitration in these three jurisdictions. Finally, we will conclude this article with our assessment of where the concept of arbitrability in international arbitration currently stands, with a particular focus on the arbitration of disputes that involve significant public interests. II. THE US APPROACH: THE SECOND LOOK DOCTRINE (2) The Federal Arbitration Act (FAA) contains one single explicit exclusion from arbitrability: 9 U.S.C. 1 states that nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. Apart from that provision, the issue of arbitrability is not regulated in any statute or provision and pursuant to 9 U.S.C. 2 all other arbitration agreements in writing shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. In the United States, the development of a concept regarding arbitrability (3) is therefore predominantly a matter of case law. The courts, over time, have set forth limitations to the parties' freedom to arbitrate disputes in specific areas of law, namely, with respect to controversies arising in connection with such areas of law that were traditionally considered to be within the exclusive domain of state and page "28" federal courts. As a result, certain types of cases, in particular those involving strong public interest, were considered as being non-arbitrable. (4) Over the last couple of decades, however, US courts have more and more taken an arbitration-friendly view. As a consequence, the effects of public policy considerations limiting the arbitrability of certain types of controversies have been reduced. (5) For the purpose of illustrating this development, we will now turn to four leading cases. These cases deserve to be looked at more closely, as each of them highlights significant changes to the concept of arbitrability in the United States. (a) Scherk v. Alberto-Culver Co. (1974) (6) This case marks the beginning of a more liberal approach of the US Supreme Court towards arbitration. The case involved the question of arbitrability of claims under the Securities Exchange Act of 1934.

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Some 20 years prior to this decision, in Wilko v. Swan, (7) the US Supreme Court had held that disputes under the Securities Act of 1933 were not arbitrable. It reasoned that the right of an individual to select a judicial forum could not be waived under the Securities of Act 1933. (8) The US Supreme Court also voiced concerns with respect to the review of an arbitrator's decision on securities laws matters by the courts, and it finally concluded that the effectiveness of the remedies available under the Securities Act of 1933 would be lessened in arbitration as compared to judicial proceedings. (9) In contrast, in Scherk the US Supreme Court found claims under the Securities Exchange Act of 1934 to be arbitrable. (10) The crucial criterion in the justification page "29" for the opposite outcome to Wilko was the fact that the underlying dispute had arisen in an international context: one of the parties involved was a German national who was not residing in the United States. The US Supreme Court held that different standards had to be applied to such cases as opposed to than in purely domestic cases. Transnational disputes would be suited for arbitration. In such cases, the need for international commerce to enforce arbitration procedures would prevail over other public policy considerations. It further concluded that: the invalidation of such an agreement [to arbitrate] would reflect a parochial concept that all disputes must be resolved under our laws and in our courts We cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts. (11) (b) Mitsubishi Motors Corp v. Soler Chrysler-Plymouth, Inc. (1985) (12) In the famous landmark decision Mitsubishi, the US Supreme Court expanded the general guidelines established in Scherk to antitrust disputes, which until that time had been deemed to be nonarbitrable. Prior to Mitsubishi, the opinion prevailed that the state and its courts have the duty and responsibility to promote national interests in a competitive economy by enforcing antitrust laws. Arbitration, with its confidential and private character, was perceived as not suited for the resolution of antitrust matters. It was feared that public interests might be unjustifiably excluded behind the closed doors of an arbitral proceeding. In Mitsubishi, again a case having international dimensions, the US Supreme Court rejected these considerations and concluded: that concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial

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system for predictability in the resolution of disputes require that we enforce the parties agreement, even assuming that a contrary result would be forthcoming in a domestic context. (13) Having thus given the arbitrators and parties the go-ahead to commence with arbitration, the US Supreme Court, however, at the same time stressed that this would not necessarily put an ultimate end to judicial intrusion. It pointed out that page "30" the national courts of the United States, pursuant to Article V(2)(b) of the New York Convention 1958, would have an opportunity at the award enforcement stage to ensure that the legitimate interest in the enforcement of antitrust laws has been adequately addressed by the arbitrators. (14) We will discuss infra why this position of the US Supreme Court, effectively threatening a subsequent judicial review of the decision of the arbitrators notoriously branded as the Second Look remains one of the most controversial issues in international commercial arbitration. (c) Shearson/American Express, Inc. v. McMahon (1987) (15) Two years after Mitsubishi, the US Supreme Court, in Shearson, handed down another ground-breaking decision by affirming the arbitrability of a domestic claim of customers against a broker based on a violation of section 10(b) of the Securities Exchange Act of 1934, as well as violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). With its broad, all-encompassing language, this decision has been referred to in many other cases regarding the arbitrability of controversies in different areas of law. As a precedent for the arbitrability in domestic cases, its effect is vastly persuasive. (16) Essentially, Shearson held that courts are required to enforce arbitration agreements and that a court's duty to do so is not diminished for claims founded on statutory rights, namely rights afforded by the Securities Exchange Act of 1934 and RICO. Similarly to Mitsubishi, the US Supreme Court held that a party who agrees to arbitrate a statutory claim would not forego the substantive protection afforded by the statute. Rather, it trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration. (17) Furthermore, as in Mitsubishi, the US Supreme Court emphasized that the potential complexity of certain matters is in itself not sufficient to ward off arbitration. (18) (d) Vimar Seguros Y Reaseguros, SA v. M/V Sky Reefer et al. (1995) (19) A more recent breakthrough with respect to arbitration clauses contained in bills of lading was Sky Reefer, in which the US

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Supreme Court further consolidated its position regarding arbitrability. The issue at stake in this case was whether a foreign arbitration clause in a bill of lading would be invalid under COGSA (20) because the selection of a foreign forum page "31" in conjunction with the choice of foreign law might lessen the liability of a carrier in a sense that the provisions of COGSA prohibit. Based upon the notion that the United States should be a trustful partner in international trade and multinational endeavours, along with the idea that US courts will have the opportunity at the award-enforcement stage to ensure that the legitimate interest in the enforcement of the laws has been addressed, (21) the US Supreme Court affirmed the arbitrability of the matter. Although there could be no certainty as to whether the arbitrators abroad would apply the law consistent with COGSA, it would be premature at the interlocutory stage not to enforce the arbitration clause. (22) (e) The Legacy of Mitsubishi: the Second Look Doctrine In both Mitsubishi and Shearson, the US Supreme Court held that potential complexity should not suffice to ward off arbitration, (23) thus rejecting the respective plaintiffs' argument that an arbitral tribunal could not properly handle certain complex matters such as antitrust or RICO claims. The trust the US Supreme Court conferred upon arbitrators appears to have a catch though, because of a potential judicial review at the award enforcement stage. One wonders what such a review could actually mean for international arbitration: are the decisions of the US Supreme Court ultimately to be applauded as yet another step facilitating arbitration, or do they rather come across as wolves in sheep's clothing? The arbitration clause between Mitsubishi Motors Corporation and Soler Chrysler-Plymouth, Inc., for example, provided for arbitration in Japan and included a choice of law clause explicitly selecting Swiss substantive law as applicable to the dispute. The US Supreme Court, in a footnote, (24) cautioned the parties and arbitrators to take into account US antitrust laws in the adjudicatory process, as it would otherwise void the arbitration agreement for US public policy reasons. (25) This passage, of course, can be read in two ways: on the one hand, the US Supreme Court stated that it believes the arbitrators will be capable of deciding the case. On the other hand though, it requires the arbitrators to decide the case so that the US Supreme page "32" Court will be satisfied with its outcome. It follows from this that the arbitrators will have to respect the extraterritorial character of US antitrust laws, even if they are forced to disrespect the parties' explicit choice of law as a consequence of this. We will revisit this issue infra where we will elaborate further on what consequences such a (potential) Second Look could have for international arbitration.

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III. SWITZERLAND In Switzerland, two main bodies of law govern arbitration: the socalled Concordat, an intercantonal arbitration convention (26) which applies to domestic arbitration, and Chapter 12 of the Private International Law Act (PIL), (27) a federal law sometimes referred to as the Swiss Arbitration Act. Chapter 12 of the PIL establishes a regime specific to international arbitration, directly applicable to all international arbitrations that have their seat in Switzerland. We will only concern ourselves with the PIL, as the Concordat is of little interest in international arbitrations. The relevant provision of the PIL with regard to arbitrability is article 177, (28) which consists of two paragraphs: paragraph (1) lays down the basic concept of objective arbitrability (29) for international arbitral tribunals with their seat in Switzerland, and paragraph (2) sets forth a special rule for cases in which states or state-controlled entities are parties to an arbitration. Pursuant to article 177(1) PIL, any dispute involving an economic interest may be the subject matter of an arbitration. Although there is no statutory definition of what constitutes a dispute involving an economic interest, it is commonly understood that the scope of page "33" Thus, article 177(1) PIL is to be interpreted broadly. (30) a dispute is arbitrable if it involves any sort of economic interest, regardless of whether the underlying transaction is commercial or private in nature, and whether the respective controversy involves civil, administrative or public law, or international public law. (31) Arbitrability under the PIL is laid down as a material rule of private international law. (32) This means that the PIL itself determines the principle by which the issue of arbitrability has to be determined. As a result, the parties or arbitrators are not referred to the lex causae or any other national law to determine whether the subject matter of the dispute is arbitrable. Thus, article 177(1) PIL governs objective arbitrability notwithstanding the potential applicability in the dispute of any mandatory provisions of Swiss domestic or even foreign law to the contrary. As we will see in more detail, the only limit to this principle is public policy. This is true regardless of whether the issue of arbitrability is raised before a court in an action to compel the parties to resort to arbitration, in a proceeding to set-aside a preliminary award ruling on the jurisdiction of the arbitral tribunal, in a set aside proceeding regarding the final award, or in the course of recognising and enforcing an arbitral award. (33) An important case confirming this restrictive approach to the application of domestic and foreign rules when determining the arbitrability of a dispute is the well-known decision BGE 118 II 353 in Fincantieri-Cantieri Navali Italiani SpA v. page "34" Oto Melara of June 1992. Here, the Swiss Federal Tribunal (Bundesgericht) held

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that the issue of arbitrability has to be determined irrespective of the validity of the contractual obligations under the lex causae. As a result, foreign (as well as Swiss domestic) mandatory rules of law as such do not function as barriers to arbitrability. Arbitrability, as the Bundesgericht concludes in dicta in Fincantieri, could only be denied with respect to claims that are reserved to the exclusive jurisdiction of a certain authority by rules of law, provided that the Swiss understanding of public policy would require the application of such rules of law. (34) The Fincantieri case not only underlines the existence of an arbitration-friendly environment in Switzerland, but also illustrates the Swiss tendency to lessen statutory or other limitations and to reduce the impact of public policy concerns with regard to arbitrability. (35) A dispute that involves public policy issues is not per se regarded to be non-arbitrable. (36) Swiss courts rather expect arbitrators to apply public policy rules along with all other rules of law in settling disputes that have been put forward to them. (37) Article 177(2) PIL addresses the problem arising out of the participation of a state in arbitral proceedings. Under its regime, a state, a state-held enterprise or a page "35" state-owned organisation, as a party to an arbitration agreement, can neither rely on its own law for the purpose of challenging its own capacity nor can it invoke its own laws to contest the arbitrability of the dispute at hand. Thus, a state cannot frustrate an arbitration by denying its capacity to enter into an agreement providing for the arbitration of disputes by arguing, for example, that the arbitration clause had not been approved by a specific council. Similarly, a state cannot deny the objective arbitrability of a dispute by employing the argument that the controversy involves a matter which is not arbitrable under its own laws. (38) IV. GERMANY Before examining the arbitrability of disputes within specific areas of law it is necessary briefly to consider the statutory provisions governing the arbitrability of controversies in general. The year 1998 saw one of the most fundamental changes to the arbitration law of Germany when the Tenth Book of the Code of Civil Procedure (ZPO) was fully replaced by a new text based upon the UNCITRAL Model Law. (39) The question of whether a dispute is arbitrable or not is now governed by the new article 1030 ZPO. (40) The first sentence of article 1030(1) ZPO significantly extended the scope of issues that are deemed arbitrable under German law. (41) Any dispute involving page "36" economic interests may be (42) referred to arbitration. This is true regardless of whether such disputes are public or civil in nature, the parties can freely dispose of

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the interests involved or whether a certain court would have exclusive jurisdiction over the dispute if it were litigated. (43) According to the second sentence of article 1030(1) ZPO, only the arbitrability of controversies not involving economic interests remains conditional upon whether the parties can freely dispose of the rights affected and thereby are able to conclude a settlement with respect to the issue in dispute. The purpose underlying this provision was to exclude arbitration in matters concerning particularly sensitive private interests (e.g. divorce proceedings, proceedings concerning domestic relations, matters relating to custody of persons of full age). (44) Such matters remain within the exclusive domain of the courts. Article 1030(2) ZPO excludes disputes relating to the existence of a lease of residential accommodation within Germany from arbitration. This provision can be viewed as a procedural reinforcement of the strong protection tenants of residential accommodation, which are generally deemed to be in a socially weak position, receive under article 535 et seq. of the Civil Code (BGB). (45) Finally, article 1030(3) ZPO provides that provisions outside the ZPO rendering certain disputes non-arbitrable or imposing limits and restrictions on the arbitrability of certain matters remain unaffected by article 1030 ZPO. (46) This means that the arbitrability of certain types of disputes remains restricted by virtue of provisions contained in other statutes notwithstanding the general notion of article 1030(1) ZPO, pursuant to which all disputes involving economic interests may be submitted to arbitration. (47) Having briefly outlined the general framework of article 1030 ZPO, we will now turn in more detail to the arbitrability of disputes in selected areas of law. (a) Antitrust Claims Since article 91 of the Act against Restraints on Competition (GWB) (48) has page "37" been repealed in the course of the reform of the Tenth Book of the ZPO, all antitrust claims are now arbitrable. (49) During the parliamentary debate regarding the repeal of article 91 GWB, it was concluded that the exclusion of antitrust matters from arbitration was no longer necessary. It was thought that arbitrators would apply antitrust laws in the same manner as the courts would do. Thus, decisions of arbitral tribunals would not disregard antitrust laws and therefore protect the public policies underlying the provisions of the GWB. And even in the event that arbitrators were to disregard the law, it was further argued, public interest would not be at stake since arbitral awards could still be reviewed by the courts in set-aside proceedings or during the enforcement of such an award.
(50)

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(b) Securities Claims By virtue of article 28 of the Securities Exchange Act (BrsenG) securities claims are arbitrable, provided that an agreement to arbitrate is entered into between parties permitted to trade in securities (51) or that a dispute is submitted to arbitration after it has arisen. (52) In addition to these statutory restrictions on arbitration, certain agreements to arbitrate were rendered void by German courts. It was repeatedly held by the Federal Supreme Court (Bundesgerichtshof) that disputes in connection with securities are not arbitrable if the arbitration agreement provides for arbitration before a foreign tribunal under foreign law. (53) It reasoned that the combination of a choice of a foreign tribunal and the choice of foreign law would probably have the effect that German mandatory securities exchange laws would be disregarded. (54) Arbitration agreements providing for the settlement of controversies by German arbitral tribunals under German law, on the other hand, were held to be valid since it could not automatically be assumed that mandatory German law would be evaded through the establishment of such a dispute resolution mechanism. (55) Furthermore, arbitral awards would be subject to review by the courts in subsequent set aside proceedings. (56) In the course of such proceedings the courts page "38" would be able to evaluate whether the award is or is not apparently inconsistent with substantial principles of German law. (c) Actions Challenging the Validity of Shareholder Resolutions One of the most vehement disputes regarding arbitrability is the question whether actions brought by shareholders seeking to challenge the validity of shareholder resolutions may be submitted to arbitration or not. (57) The controversy originates from the fact that court decisions regarding the validity of these resolutions, by virtue of article 248(1) of the Stock Corporation Act (AktG), have inter omnes effects. (58) The reason for this statutory exception to the general principle that judgments only have effects inter partes (as laid down by article 325 (1) ZPO) is the very nature of the subject matter of the proceedings in question: shareholder resolutions can only be either valid or invalid in relation to all of the shareholders of a given corporation. Unlike the case of judgments, a statutory provision to the effect of article 248(1) AktG does not exist with respect to arbitral decisions. Nevertheless, a number of scholars although most of them have reached their conclusion for different reasons have voiced the opinion that disputes regarding challenges of shareholder resolutions

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are arbitrable. (59) In a judgment dating from March 1996, the Bundesgerichtshof declared that article 248(1) AktG could not be applied mutatis mutandis to arbitral awards, thereby rendering challenges of the validity of shareholders' resolutions non-arbitrable. (60) This judgment was mainly based upon procedural considerations. page "39" First, the Bundesgerichtshof argued that if such claims were deemed arbitrable there would be the danger of a number of irreconcilable awards resulting from separate proceedings with respect to one and the same shareholders' resolution. (61) Each shareholder of a corporation could bring an action before a different tribunal. This problem is avoided if such actions are brought in courts because article 246(3) AktG (62) provides that such actions shall be joined to be heard and decided together. (63) Secondly, the Bundesgerichtshof held that there was no guarantee that the shareholders have substantially equal rights to participate in the proceedings, in particular, to be able to appoint or influence the appointment of an arbitrator of their choice. (64) Given the importance of the appointment of an arbitrator of one's choice for the entire proceedings, this could lead to a significant restriction of the rights of a party to such proceedings in comparison to judicial proceedings. (65) In light of this reasoning of the Bundesgerichtshof, one would be inclined to think that such claims are arbitrable, if only some conditions were met to safeguard that the arbitration procedure is not subject to the problems addressed by the Bundesgerichtshof. (66) Thus, arbitration procedures concerning challenges of shareholder resolutions should be arbitrable and have inter omnes effect, provided that regard is had to the multilateral character of the issue in question: all shareholders must be able to participate in the arbitration procedure and all of the participants must have substantially equal rights with regard to the composition of the arbitral tribunal. Furthermore, there must only be one such proceeding. (67) page "40" (d) Labour and Employment German policy with regard to the arbitrability of labour and employment matters can be described as being rather hostile. Arbitration of such cases is not governed by the provisions of the Tenth Book of the ZPO referred to above, but exclusively by the regime set forth under article 101 et seq. of the Labour Court Code (ArbGG). According to article 101(1) and (2) ArbGG, only a very limited number of disputes related to labour and employment can be submitted to arbitration. While parties to collective bargaining

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agreements may generally resort to arbitration in so far as civil law matters are concerned, such a possibility does not exist for the vast majority of controversies relating to employeremployee relationships. Pursuant to article 101(2) ArbGG, only disputes arising out of a small number of specified occupations (68) are arbitrable, provided that a collective bargaining agreement provides for arbitration and that such employees are either personally bound to that bargaining agreement or that the parties to an employment agreement, without being bound by a collective bargaining agreement, have expressly and in writing incorporated the terms of a collective bargaining agreement into the employment contract. (69) In addition to limiting the scope of matters that can be submitted to arbitration, arbitration as a means of dispute settlement in such labour and employment cases is made highly unattractive by the fact that arbitral awards can be reviewed on their merits in actions seeking to set aside such an award (article 110(1) No. 2 ArbGG). (70) Effectively, this means that, with the threat of re-litigating the same matter after arbitration, most of the (very limited number of) parties that are permitted to initiate arbitral proceedings will refrain from doing so in order to save both time and resources. (e) Intellectual Property Rights With respect to the arbitrability of disputes over patents, it is necessary to differentiate between claims for the declaration of nullity, the revocation of patents and the issuance of compulsory licences, (71) on the one hand, and all other claims in relation to patents on the other hand. While the arbitrability of the latter category of claims is generally accepted, the arbitrability of the former group of claims is questionable. It has been argued that page "41" disputes regarding the potential nullity and revocation of patents as well as the issuance of compulsory licences cannot be submitted to arbitration since patents are public in nature and because the Patent Court (Patentgericht) has exclusive jurisdiction over such disputes.
(72)

Arguing in favour of the arbitrability of such controversies, it is appropriabe to point out that the mere fact that such rights are public in nature and that the Patentgericht has exclusive jurisdiction over the settlement of such disputes if they were litigated do not provide any grounds upon which the exclusion of arbitration can be justified. (73) Rather, because of the fact that the underlying interests of these disputes are economic in the terms of article 1030 ZPO, they appear to be arbitrable. (74) A substantially similar discussion arises with respect to the arbitrability of disputes involving other intellectual property rights.

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Again, reservations regarding the arbitrability of certain disputes regarding trade marks and copyrights are voiced. They are based upon the concentration of such controversies at courts specialising in their adjudication and on the public nature of copyrights and trademarks. (75) In light of the arguments made in favour of the arbitrability of patents, namely, that the public nature of the rights as well as the fact that certain courts exercise jurisdiction over specific controversies cannot per se render a dispute non-arbitrable, the conclusion is that disputes regarding trade marks and copyrights are also arbitrable. (76) (f) Insolvency Insolvency proceedings are arbitrable. Such proceedings involve only interests that are economic in nature. (77) The authority to enter into agreements to arbitrate, however, page "42" is limited under certain circumstances. Pursuant to article 160(2) No. 3 of the Insolvency Code (InsO), for example, a receiver may only submit disputes where a high amount is involved to arbitration with the debtors committee's consent. V. CONCLUSION From the preceding discussion we have seen that, although a tendency favouring arbitration is clearly visible in the United States, Switzerland and Germany, the individual approaches taken with respect to arbitrability are not uniform. The final part of this article attempts to characterise the different concepts in more detail. In addition, we will take a brief look at how the question of arbitrability will be examined by the courts of the above countries at both the recognition and enforcement stage as well as in set-aside proceedings. (a) Switzerland Due to the broad definition of objective arbitrability, on one hand, and the fact that states and state-controlled parties are precluded from raising objections to arbitrability based upon their own laws, on the other hand, practically anything goes in international arbitration when the arbitral tribunal is sitting in Switzerland. Because of the transparent, stringent structure of Chapter 12 of the PIL as to challenges of awards in setting aside or recognition and enforcement proceedings, the Bundesgericht does not attempt to promulgate an approach under which it would be entitled to take a second look at or reserve second thoughts with respect to the question of whether a given dispute is arbitrable or not, except where truly international public policy so requires. Rather, the Bundesgericht addresses this question within the limits set forth in articles 190, 192 and 194 of the PIL.

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In an action for setting aside a final award, a party can only rely upon the specific grounds set forth in article 190 (78) of the PIL. (79) Any alleged non-arbitrability of a controversy may be raised either under the lack of jurisdiction clause of (2)(b) or under the public policy clause of (2)(e). page "43" In respect of a challenge of the award based upon (2)(b), the state court has full ability to review the alleged lack of jurisdiction. (80) The Bundesgericht, however, will only review the merits of an award pertaining to the jurisdiction of a tribunal and it will not disturb the findings of facts, unless they can be reviewed under another ground of article 190(2) PIL. As to the arbitrability question raised in a motion to set aside an award pursuant to the public policy clause of article 190(2)(e), the Bundesgericht has repeatedly stated that public policy is only violated if an award violates fundamental legal principles and is therefore incompatible with Swiss legal understanding. (81) The present authors are not aware of any case where the Bundesgericht has actually denied arbitrability for public policy reasons. It has, nonetheless, articulated potential public policy restrictions to arbitrability when it reasoned in Fincantieri: Dans le contexte de la prsente affaire, l'ordre public ne pourrait avoir de l'importance que s'il exigeait imprativement que la prtention litigieuse soit soumise une autorit tatique. (82) Beyond such circumstances, however, Fincantieri suggests that article 177 of the PIL remains the only benchmark to determine whether or not a dispute is arbitrable in Switzerland. These set-aside principles similarly apply, if an arbitral tribunal has ruled on its jurisdiction in a preliminary award. The grounds for the annulment of such an award in an action for setting aside however, are restricted to those listed under article 190(2)(a) and (b). Therefore, a preliminary award may only be set aside if the tribunal was not properly constituted, or if the tribunal erred with respect to its jurisdiction. In addition, articles 190(3) and 191(1) PIL require that such an action be initiated within 30 days (83) after notification of the award. Any failure to adhere to this time limit will lead to the forfeiture of the right to bring an action to set aside the preliminary award. (84) page "44" The public policy standard developed under article 190 PIL also applies when it comes to recognizing and enforcing foreign arbitral awards in Switzerland. (85) Article 194 PIL, which is concerned with recognition and enforcement of foreign arbitral awards, states that such procedures are governed by the New York Convention, which therefore applies erga omnes. Non-arbitrability can be invoked as a

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ground for the refusal of recognition and enforcement pursuant to Article V(2)(a) and (b) of the New York Convention under both of which arbitrability is determined in accordance with the allencompassing arbitrability notion of article 177 PIL. (86) This, however, is not the final word on the Swiss approach to arbitrability. Ultimately, the anything goes concept is reflected most clearly in the so-called exclusion agreement provision in Article 192 PIL, pursuant to which the potential judicial review of an award may be restricted even further. (87) If neither party has its domicile, habitual residence or business establishment in Switzerland, the parties are free to waive their right to bring an action to set aside the award: they can exclude some or all of the grounds to challenge an award provided for in Article 190(2) PIL. Consequently, the authority of a Swiss judge to examine the award in a set-aside proceeding will be limited to the grounds the parties have not excluded from judicial scrutiny. The exclusion agreement, however, does not entirely eliminate judicial control over an award in Switzerland. Its effect is rather that the parties waive their possibility to have their award set aside with erga omnes effect. In other words, if parties agree on an exclusion agreement, the arbitral award becomes foreign in the eyes of a Swiss judge. So if a party seeks to enforce the award in Switzerland, the New York Convention of 1958 will apply and a party resisting recognition and enforcement is still able to invoke the Articles of the New York Convention to resist recognition and enforcement. (88) This leads us to one page "45" final observation on the possible consequences of arbitrating a dispute in Switzerland. While the Swiss legislator consciously linked arbitrability to the subject matter of the dispute, it was taken into account that, although an arbitral award may be honoured in Switzerland, it may not be enforceable abroad. From this it follows that arbitration under the liberal concept of the Swiss arbitration regime is conducted at the risk of the parties. In the words of the Bundesgericht: En optant pour la rglementation matrielle de l'arbitrabilit, le lgislateur fdral a choisi une solution qui n'exclut sans doute pas que des sentences rendues en Suisse ne seront pas excutes dans tel ou tel pays. Il l'a fait cependant en toute connaissance de la cause, laissant les parties seules juges du risque qulles encourent du fait d'une eventuelle nonreconnaissance de la sentence arbitrale, de sorte qu'il n'est pas possible de justifier une approche restrictive de l'arbitrabilit par l'existence de semblable risque. (89) Thus, the Bundesgericht itself appears to read Switzerland's approach towards arbitrability in the sense of an anything goes, but judge for yourself formula.

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(b) Germany Before turning to some remarks of our own regarding the German concept of arbitrability, let us briefly sketch how German courts review arbitral awards with respect to this issue. We start by discussing the degree of judicial scrutiny in the set-aside context, (90) after which we will look at the standard of review during the recognition and enforcement stage. Central to the setting aside of domestic awards is article 1059(2) ZPO, which lists a limited number of grounds under which an award may be set aside. Two of these grounds are relevant to the question of arbitrability: first, (2) No. 2 (a), which is concerned with whether the subject matter of the dispute at bar is arbitrable under German law; secondly, (2) No. 2 (b), according to which an award may be set aside if it is contrary to public policy. (91) The courts will review with full scrutiny whether or not the respective subject matter is arbitrable under German law. The standard of review is quite different, page "46" however, when the courts examines whether the recognition or enforcement of an award would lead to a result that would be contrary to public policy. The Bundesgrichtshof, arguing in a manner strikingly similar to the reasoning of the Swiss Bundesgericht, has repeatedly held that public policy is violated only under very limited conditions, (92) namely, if the application of a foreign rule of law is totally incompatible with the basic principles of justice underlying German laws, so that the application of such a foreign rule of law in Germany would be unbearable. (93) This, of course, also means that German courts will not investigate whether the arbitral tribunal made mere errors of judgment or wrong findings of fact. (94) Courts will recognize and enforce foreign arbitral awards in accordance with the provisions of article 1061 ZPO, which declares the New York Convention 1958 applicable. The standard of review a court will adopt during a procedure to recognise and enforce a foreign award is substantially similar to that in set aside proceedings. (95) Arbitrability will be reviewed with full scrutiny, while a violation of public policy requires that recognition and enforcement of an award would be incompatible with fundamental principles of German law.
(96)

Thus, one can observe that the standard of judicial review of the question of arbitrability from a technical point of view, by which we mean to describe the degree of scrutiny a court will apply when examining an award as opposed to evaluating the arbitrability of the given dispute in accordance with German law, is largely similar to that in the United States and Switzerland. This, however, cannot be said of the concept of arbitrability as such.

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As to the statutory concept of arbitrability, the first point to make is that the German legislature still remains relatively hesitant with respect to the arbitration of certain disputes. Although an approach similar to the one under article 177(1) PIL has been adopted in article 1030(1) ZPO, (97) it is fair to say that the reform of the Tenth Book of the ZPO in 1998 has been somewhat half-hearted since, pursuant to article 1030(3) ZPO, limits on arbitrability imposed by statutes outside of the Tenth Book of the ZPO, such as, for example, article 28 BrsenG and article 101 page "47" et seq. ArbGG, (98) remained unaffected. Arbitrability, therefore, is not only linked to whether or not a dispute is concerned with economic interests, as the thrust of article 1030(1) ZPO suggests, but also is a question of subject matter. This approach by the German legislature can be described as politically elegant. A number of hot topics were avoided during parliamentary debate regarding the reform of the Tenth Book of the ZPO. Reforms with respect to areas of law that escaped the ambit of article 1030(1) ZPO by virtue of article 1030(3) ZPO were effectively postponed to a later point of time, allowing for further changes to be implemented in a gradual and selective manner. We must not forget, however, that the remaining restrictions upon the arbitrability of certain subject matters still warrant deciding against Germany as the situs of arbitration. Where such restrictions to arbitrability outside the Tenth Book of the ZPO have already been reduced, as, for example, through the enactment of the new article 91 GWB, the reasoning supporting such action seems remarkably similar to the argument of the U.S. Supreme Court. In finding that public interest in antitrust matters would be protected by the fact that an arbitral award could be reviewed during a set aside procedure or at the recognition and enforcement stage, the German legislature, quite remarkably, reasons along the lines of the Second Look doctrine. For the time being we will not comment on this approach to arbitrability, as it will be dealt with in great detail below. This leaves us with a final remark upon how the judiciary, within the statutory regime, addresses the issue of arbitrability. German courts, although generally adopting an arbitration-friendly attitude, appear to have second thoughts when faced with arbitration clauses providing for adjudication by foreign tribunals, as illustrated by the above mentioned judgments of the Bundesgerichtshof regarding the arbitrability of securities claims. The justification given for this discrimination against foreign tribunals is the likelihood that they would probably disregard German mandatory securities exchange law in cases where foreign law governs the respective securities transaction. (99) Despite the fact that such views were articulated only in a limited number of cases, which seem to establish the exception rather than the rule, it emphasises that

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German courts are still a step apart from their counterparts in the United States and Switzerland in so far as trust in the competence of foreign arbitrators is concerned. (100) In summary, we can say that the reform of the Tenth Book of the ZPO, without doubt, has to be lauded as the most significant achievement in German arbitration law. The unwillingness of the German legislature to adopt a regime as rigorous and uncompromising as article 177 PIL, however, effectively means that the dust has page "48" not settled yet with respect to the arbitrability of a number of issues. Further legislative efforts are needed to expand the scope of matters that can be submitted to arbitration. The latest developments in this respect, such as the repeal of the old article 91 GWB, suggest that barriers to arbitration will be gradually torn down over time. As we expect that the German courts will follow this trend, we are confident that Germany will become an increasingly attractive place for international arbitrations. For the time being, however, one has to bear in mind that a number of disputes remain to be non-arbitrable so that arbitration in Germany still has to be approached with caution by parties willing to arbitrate their conflicts. (c) United States The approach towards arbitrability in the United States, the so-called Second Look Doctrine, promulgated by the US Supreme Court in Mitsubishi, has been fiercely criticised by a number of scholars. There are essentially three different lines of argument upon which this criticism has been based in the past: the first line of reasoning is founded upon concerns that the decision in Mitsubishi paves the way for a review of the merits of an arbitral award, which would constitute a backward step not only for US but also international arbitration, considering the efforts made in countries with modern arbitration legislation to limit judicial supervision. (101) Furthermore, it has been argued that the decision in Mitsubishi would force arbitrators to depart from the parties' express choice of law, whereby the arbitrators would exercise powers that the parties never wanted them to have. (102) Finally, contrary to the first line of argument, US scholars in particular have voiced concerns that Mitsubishi had slaughtered the Golden Calf of American capitalism, US antitrust legislation, by entitling private judges all over the world to adjudicate problems regarding US antitrust laws, which eventually could lead to an erroneous application or even non-application of these laws. (103) Much has been made of the first line of argument, the fear of judicial scrutiny of the merits of an arbitral award at the enforcement stage. We, however, think that page "49" these concerns are greatly overstated. Granted, there is some uncertainty as to what standard of review a Second Look will entail. (104) The respective court could interpret Mitsubishi in wide manner, and thus conduct a thorough

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examination of the reasoning of the award to determine if the arbitrator properly applied the law. Alternatively, such an examination could be restricted to a test establishing whether the arbitrator attempted in good faith to apply the law correctly, or the review could be merely mechanical in nature, confined only to the question of whether the arbitrator applied US antitrust laws at all. These uncertainties, at first glance, appear to support the concerns many scholars articulate. When one looks at the carefully developed rulings of the US Supreme Court with regard to arbitrability and the review of arbitral awards, however, one can conclude that Justice Blackmun's words of warning were not much more than a cry in the dark. First of all, because there is a long line of US decisions that limit the setting aside of domestic awards. Secondly, case law has produced clear standards for recognising and enforcing foreign awards. As a consequence of this, there is far less uncertainty than the critics of Mitsubishi try to imply. In an action to vacate a domestic award, the powers of a US court to set aside an award are strictly limited to the grounds set forth in section 10 of the Federal Arbitration Act (FAA), as well as to the grounds developed by the case law pertaining to that section. (105) Under the regime established thereby, as a rule of thumb, arbitration awards are generally considered to be final and judicial review is extremely limited. On top of this, it should be pointed out that section 10 does not include arbitrability as a possible ground for vacation. Therefore a party intending to challenge the arbitrability of a dispute would have to show either that the arbitrators acted in manifest disregard of the law (106) in rendering the award or it would have to invoke a violation of public policy. A plea alleging a violation of public policy, however, is highly unlikely to succeed. This conclusion can be drawn from the fact that a court's authority to vacate an award does not include broad judicial power to set aside arbitration awards against public policy Rather, the court's power is limited to situations page "50" where the contract as interpreted would violate some explicit public policy that is well defined and dominant, and is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interest. (107) As to the recognition and enforcement in the United States, courts will scrutinize foreign awards under the well-developed standards of Article V(2)(a) and (b) of the New York Convention 1958. The latter subsection, which is of primary interest at this point, has, as Article V in general, been narrowly construed. US courts, adopting a proenforcement bias, will only deny the enforcement of foreign arbitral awards where enforcement would violate the forum state's most basic notions of morality and justice. (108) In addition to this narrow form of review, it has to be pointed out that the courts have repeatedly refused to review the merits of awards under the

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provisions of the New York Convention 1958. (109) A manifest disregard defence, available with respect to domestic awards, cannot be invoked by a party seeking to frustrate recognition and enforcement. (110) In summary, one can only conclude that there is little reason for concern regarding an over-intrusive review of arbitral awards by US courts. (111) The second contention against Mitsubishi is related to potential tensions between express choice of law by the parties and mandatory interventionist norms (lois de police), rules of law that arbitrators might have or want to consider in their decision, irrespective of the law that governs the dispute at bar. (112) The language of page "51" Justice Blackmun leaves no doubt that the US Supreme Court expects the arbitrators to take into account US antitrust laws, i.e., mandatory US laws. (113) It is precisely this notion that seems troublesome to legal positivists who insist that the arbitrators rigorously comply with the parties' will, which may even mandate that fundamental rules of law and principles of transnational public policy be ignored. With these legal positivists we can agree only insofar as to the extent that the arbitrator, unlike a state judge, cannot completely disregard the parties' will. One has to bear in mind, however, that an international arbitrator is not merely the obedient servant of the parties, and that it is not his sole duty to hand down a decision in favour of their interests. (114) On the contrary, he will have to take into account other interests in rendering an award, although he cannot be placed on an equal footing with a state judge, who can be described as the guardian of the interests of a particular state or legal order. In an international setting, an orientation is required from an arbitrator which is not only grounded in a particular legal system, but also takes notions into consideration that form part of a transnational ordre public. (115) Hence, the diligent arbitrator will have to reconcile the will of the parties, from which his authority originates, with the lois de police. In rendering a legally correct and enforceable decision, he will have to strike a balance between the private autonomy of the parties, on the one hand, and legal norms conflicting with the intentions of the parties, on the other hand. When the US Supreme Court noted that it expects the arbitrators to honour US antitrust laws in Mitsubishi, it required from the arbitrators nothing but to act diligently in the manner just described. Not only did it thereby define the role it expects an arbitrator to assume, but it also promoted a principle which is well recognized in statutes and common law as well as in international arbitration: the principle of dpeage. (116) Since the US Supreme Court does not seem to venture beyond the principle of dpeage in Mitsubishi, we fail to see the justification for criticizing the Second Look Doctrine on the basis that it confers powers on the arbitrators inconsistent with the will of the parties. Such criticism, in truth, is founded upon an understanding of the function of an arbitrator equivalent to that of an obedient servant, a fundamental misconception of the role of an

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arbitrator in our view. page "52" At the heart of the concerns voiced by scholars supporting the third line of argument against the decision in Mitsubishi lies the ancient question of the trustworthiness of arbitrators. This concern, we admit, is not to be taken lightly. Selecting an arbitrator is one of the most important steps in an arbitration proceeding, and it has therefore accurately been referred to as a form of art. (117) One has to bear in mind, however, that parties to international disputes are usually highly sophisticated. Thus, it seems likely that they are capable of choosing individuals as arbitrators who are competent to hear and adjudicate their dispute. Moreover, in institutional arbitration, the designated institution will assist the parties in choosing such an arbitrator. As regards the competence of the arbitrator so chosen, one can seriously doubt the suggestion that they are less qualified than judges to handle complex disputes. It can be assumed that a lawyer of the pedigree likely to be chosen for an international arbitration will either be a specialist in the area of law with which the arbitration is concerned, or he will generally be able to learn enough about the relevant matter in the course of the proceedings to resolve the questions put to him. (118) In light of the above, the Second Look Doctrine appears to be no different from approaches in civil law jurisdictions, such as the legislative efforts defining arbitrability in Germany and Switzerland. Naturally, as is always the case under common law, it will need another decision of the US Supreme Court to end the current uncertainty with respect to the standard of review of arbitral awards at the award enforcement stage. Such a precedent, we are confident to predict, will silence the current critique of the Second Look Doctrine and thus put an end to all of Cassandra's cries. (119) Besides, we are sure that most arbitrators who act on the global scene do not have to fear a Second Look at their awards, whatever such a review might entail. (d) Final Remarks The different concepts of arbitrability reviewed illustrate a steady trend towards a more liberal approach regarding the arbitrability of disputes that involve a great degree of public interest. Consequently, the importance of arbitrability as a mechanism of state to control private adjudication of disputes has declined. This, page "53" however, does not mean that the respective states have divested themselves from exercising control over private dispute resolution. Rather, the influence of the states on arbitration is increasingly concentrated at the recognition and enforcement stage of an award. Questions that were formerly addressed under the heading of arbitrability now appear in the guise of public policy. We

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therefore have to look to this stage to evaluate whether the liberal trend with respect to arbitrability can be hailed as a development that further encourages arbitration, or whether a perceived new liberalism in truth falls prey to judicial scrutiny at the award enforcement stage. Given the narrow interpretation of the public policy defence, combined with the general pro-enforcement bias adopted in the United States, Switzerland and Germany, we are convinced that we are not merely dealing with a shift of the focus of state control over arbitration procedures to a different stage, that we are not just presented with old wine in new bottles, but that international arbitration as an institution has taken yet another significant step forward. page "54"

Associate, Simpson Thacher & Bartlett, London. Dr. iur., Associate, Br & Karrer, Zrich. The views represented herein are strictly the authors' personal views. 1 See infra, section v(3). 2 The label Second Look Doctrine, under which the US approach regarding the arbitrability of public interest sensitive issues is most commonly referred to, originates from William Park, National Law and Commercial Justice: Safeguarding Procedural Integrity in International Arbitration in (1989) 63 Tul. L Rev. 648. 3 US courts, including the US Supreme Court, do not use the term arbitrability in a proper and uniform sense. They speak of arbitrability not only in relation to the issue of whether a certain dispute is capable of being arbitrated (objective arbitrability), but also in relation to the capacity of the parties to enter into an arbitration agreement (subjective arbitrability) and with regard to whether a dispute is contained within the scope of a specific arbitration agreement. See Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration (3rd edn., 1999), p. 148 n. 61; William Park, The Arbitrability Dicta in First Options v. Kaplan in (1996) 12 Arbitration International 137 at pp. 143144; cf. Edward R. Leahy and Carlos J. Bianchi, The Changing Face of International Arbitration in (2000) 17 Journal of International Arbitration 19 at pp. 2425. 4 See Wilko v. Swan, 346 U.S. 427 (1953); Zimmermann v. Continental Airlines, Inc., 712 F.2d 55 (3d Cir. 1983), cert. denied 104 S.Ct. 699 (1984); N.V. Maatschappij Voor Industriele Waarden v. A.O. Smith Corp., 532 F.2d 874 (2d Cir. 1976); Cobb v. Lewis, 488 F.2d 41 (5th Cir. 1974); A&E Plastik Pak Co., Inc. v. Monsanto, Co., 396 F.2d 710 (9th Cir. 1968); American Safety Equip. Corp. v. J.P. Maguire & Co., 391 F.2d 821 (2d Cir. 1968). 5 See Vimar Seguros Y Reaseguros, S.A. v. M/V Sky Reefer et al., 515 U.S. 528 (1995); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991); Shearson/American Express, Inc. v. McMahon, 428 U.S. 220 (1987); Mitsubishi Motors Corp. v. Soler Chrysler**

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Plymouth, Inc., 473 U.S. 614 (1985); Scherk v. Alberto-Culver Co. 417 U.S. 506 (1974); Pritzker v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110 (3d Cir. 1993); Saturday Evening Post Co. v. Rumbleseat Press Inc., 816 F.2d 1191 (7th Cir. 1987); Kamakazi Music Corp. v. Robbins Music Corp., 684 F.2d 228 (2d Cir. 1982); Acquaire v. Canada Dry Bottling, 906 F. Supp. 819 (E.D.N.Y. 1995). 6 417 U.S. 506 (1974). 7 346 U.S. 427 (1953). 8 ibid. at 435. 9 ibid. at 436. 10 It is worthwhile pointing out that the US Supreme Court, although it noted certain differences between the provisions of the Securities Act of 1933, under which Wilko had been brought, and the provisions of the Securities Exchange Act of 1934, did not rely on those differences in reaching a conclusion opposite to the one in Wilko. Although the US Supreme Court was critical of the reasoning of Wilko in Scherk, it was not until Rodrigez De Quijas v. Shearson/American Express, Inc., 109 S.Ct. 1917, 1920 (1989), that Wilko was formally overruled. In reversing the decision in Wilko, the US Supreme Court held that to the extent that Wilko rested on suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants, it has fallen far out of step with our current strong endorsement of the federal statutes favoring this method of resolving disputes.

11 12

Scherk v. Alberto-Culver, supra n. 6 at 519. 473 U.S. 614 (1985). 13 ibid. at 629. The issue of whether domestic antitrust claims are arbitrable has not yet reached the US Supreme Court. Lower courts, however, have already answered this question in the affirmative. Kotam Elecs. v. JBL Consumer Prods. Inc., 93 F.3d 724 (11th Cir. 1996), cert. denied, 117 S.Ct. 946 (1997); Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511 (10th Cir. 1995); GKG Caribe, Inc. v. Nokia-Mobira, Inc., 725 F. Supp. 109 (D. Puerto Rico 1989); Cindy's Candle Co., Inc. v. WNS, Inc., 714 F. Supp. 973 (N. D. Ill. 1989). With regard to the general significance of Mitsubishi for antitrust litigation we should bear in mind Andreas F. Lowenfeld's remark, that antitrust claims submitted to arbitration almost exclusively arise in the context of counterclaims among parties to an agreement once the contractual relationship has gone awry. Companies squeezed out of the market by rivals or seeking to prevent a merger among competitors do not resort to arbitration because they have no contractual relationship with the persons or entities against which they seek relief: Andreas F. Lowenfeld, The Mistubishi Case: Another View in (1986) 2 Arbitration International 178 at p. 180.

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Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., supra n. 5 at 638. 15 482 U.S. 220 (1987). 16 The US Supreme Court practically opened the floodgates for the arbitration of domestic cases when it stated, with respect to RICO claims, that although the holding in Mitsubishi was limited to the international context, much of its reasoning is equally applicable here (ibid. at 239). 17 ibid. at 229230. 18 ibid. at 239. 19 515 U.S. 528 (1995). 20 Carriage of Goods by Sea Act 1936, 46 U.S.C. 21 Vimar Seguros Y Reaseguros, S.A. v. M/V Sky Reefer et al., supra n. 5 at 540. 22 One factor influencing the US Supreme Court in its decision to dismiss speculation regarding the decision of the arbitrators as premature was that the District Court had retained jurisdiction over the case. This was categorically stated by Justice O'Connor, who concurred in the judgment: Vimar Seguros Y Reaseguros, S.A. v. M/V Sky Reefer et al., supra n. 5 at 542. It is worthwhile noting at this point that such a retention of jurisdiction is not possible in Germany or Switzerland. 23 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., supra n. 5 at 633; Shearson/American Express, Inc. v. McMahon, supra n. 5 at 239. 24 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., supra n. 5 at 637 n. 19. 25 The very same cautionary note was re-emphasised in 1995 in the case of George Fischer Foundry Systems, Inc. v. Adolph H. Hottinger Maschinenbau GmbH, 55 F.3d 1206 (6th Cir. 1995), where the Court of Appeals for the Sixth Circuit adopted the US Supreme Court's view on non-interference with the resolution of US statutory claims in pending international arbitration proceedings. In this case, a US company had tried to bring an action for antitrust violations in the United States while arbitration proceedings with respect to a licensing dispute were pending in Switzerland. The action was dismissed because ruling that the claim was non-arbitrable would involve a premature judicial determination at odds with the US policy favouring the enforceability of agreements to arbitrate in crossborder transactions. 26 Intercantonal Concordat of 27 March 1969, on Arbitration, SR (Systematische Sammlung) No. 279. 27 Federal Law of 18 December 1987, on Private International Law, SR (Systematische Sammlung) No. 291. 28 Article 177: 1 Any dispute involving an economic interest (vermgensrechtlicher Anspruch) may be the subject of an arbitration.

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2 A state, or an enterprise held by, or an organisation controlled by a state, which is party to an arbitration agreement, cannot invoke its own law in order to contest its capacity to arbitrate or the arbitrability of a dispute covered by the arbitration agreement.

The concept of objective arbitrability is concerned with the question of whether a certain issue is capable of being arbitrated. See supra n. 3. 30 Message of the Swiss Federal Council (Bundesrat) of 10 November 1982 regarding the Private International Law Act, Bundesblatt (BBl) 1983, p. 301; Final Report of the Expert Committee on the Draft Bill for the Private International Law Act, SSIR 13, Zrich 1979, pp. 4647. The Swiss Federal Tribunal's (Bundesgericht) notion of what constitutes a dispute involving an economic interest is very broad. It covers all claims having an underlying economic purpose or aim (wirtschaftlicher Zweck). If the underlying purpose or aim is both economic and non-economic (ideeller Zweck) in nature, one has to evaluate as to which prevails. BGE 82 II 296; BGE 108 II 77; Andreas Bucher, Die neue Internationale Schiedsgerichtsbarkeit in der Schweiz (1989), p. 41; Thomas Ruede and Reimer Hadenfeldt, Schweizerisches Schiedsgerichtsrecht (2nd edn., 1993), pp. 5556; Robert Briner, Article 177 in Stephen V. Berti et al. (eds), International Arbitration in Switzerland (2000), p. 319; BGE 118 II 353, 355356: La solution retenue, qui ne rserve pas la comptence exclusive des tribunaux tatiques, contrairement au droit concordataire par exemple manifeste, au demeurant, l'intention du lgislateur fdral d'ouvrir largement l'accs l'arbitrage international. 31 Marc Blessing, The New International Arbitration Law in Switzerland, A Significant Step Towards Liberalism in (1988) 5 Journal of International Arbitration 9 at p. 24; see also Frank Vischer, Artikel 177 in Anton Heini et al. (eds), IPRG-Kommentar (1993), p. 1500; Bucher, supra n. 30 at p. 41; Ruede and Hadenfeldt, supra n. 30 at p. 55; Lalive, Poudret and Reymond, Le droit de l'arbitrage interne et international en Suisse (1989), p. 305; Walter, Bosch and Brnimann, Internationale Schiedsgerichtsbarkeit in der Schweiz (1991), p. 58; Briner, supra n. 30 at p. 317. 32 In contrast to Art. 177 PIL, Art. 5 of the Concordat provides that any dispute concerning rights the parties may freely dispose of is capable of resolution by arbitration, unless the subject matter of the dispute falls within the exclusive jurisdiction of a state authority by virtue of mandatory law. Article 5 of the Concordat requires state courts to examine whether these prerequisites for arbitration are met based on the applicable conflict of law rules, effectively adapting a conflict of law method to determine the arbitrability of a given dispute: Briner, supra n. 30 at pp. 317, 318; Pierre Lalive, The New Swiss Law on International Arbitration in (1988) 4 Arbitration International 2 at p. 8; Lalive, Poudret and Reymond, supra n. 31 at

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pp. 52 and 305; Bucher, supra n. 30 at p. 40; Ruede and Hadenfeldt, supra n. 30 at p. 48. The advantages of the approach of Art. 177 PIL over Art. 5 of the Concordat are threefold: first, the complicated question as to which law governs the issue of arbitrability can remain open; secondly, arbitrators and courts are not required to ascertain whether the dispute in question is within the free disposal of the parties, and they are not forced to determine the law that governs this issue; thirdly, Art. 177(1) PIL does not as such limit arbitrability by deeming disputes non-arbitrable if their subject matter falls within the exclusive jurisdiction of specific state courts or administrative authorities: Marc Blessing, Objective Arbitrability: Antitrust Disputes, Intellectual Property Disputes in (1996) ASA Special Series No. 6, 13, at pp. 1516; see Marc Blessing, Arbitrability of Intellectual Property Disputes in (1996) 12 Arbitration International 191 at pp. 191194; Antoine Kirry, Arbitrability: Current Trends in Europe in (1996) 12 Arbitration International 373 at pp. 379382; with regard to the topic see generally Bernard Hanotiau, What Law Governs the Issue of Arbitrability? in (1996) 12 Arbitration International 391 at pp. 391403; Julian D. M. Lew, The Law Applicable to the Form and Substance of the Arbitration Clause in Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention (ICC Congress Series No. 9, 1999), p. 114 at pp. 136145; Bernard Hanotiau, The Law Applicable to Arbitrability in Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention (ICC Congress Series No. 9, 1999), pp. 146167. 33 See below, section v(1). 34 Dans le contexte de la prsente affaire, l'ordre public ne pourrait avoir de l'importance que s'il exigeait imprativement que la prtention litigieuse soit soumise une autorit tatique: BGE 118 II 353, 357. The Bundesgericht also stated that the legislator consciously opted for a solution that does not exclude the possibility that an award rendered in Switzerland would not be enforced in a foreign state. Instead, it was decided that risk-assessment with respect to a potential non-recognition of the arbitral award should be left to the parties: BGE 118 II 353 at 358; see infra, section v(1). 35 supra n. 32 at pp. 373, 378. 36 le fait que ladite prtention touche l'ordre public ne suffirait pas, en soi, exclure l'arbitrabilit de la cause; il appartiendrait, dans ce cas, au Tribunal arbitral de tenir compte de cette circonstance et, le cas chant, de refuser toute protection juridique la prtention conteste, sa sentence pouvant alors tre attaque sur ce point pour le motif prvu l'art. 190 al. 2 let. e LDIP: BGE 118 II 353, 357. 37 Seminal in this respect is case law developed in the area of competition law. Many contracts with perceived adverse effects on competition provide not only for arbitration in Switzerland but also for the application of Swiss law. Because of the validity of such contractual arrangements, one might be inclined to think that Switzerland provides a safe haven as far as potential violations of (usually mandatory) competition laws are concerned, for example, contraventions of European antitrust laws, as such laws could

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potentially be evaded by employing a contractual regime that explicitly excludes the application of European competition law. This, however, is by no means so: in Ampaglas v. Sofia (Chambre de Recours du Tribunal Cantonal du Canton de Vaud, Dcision du 28 Octobre 1975, commented in (1981) III Journal des Tribunaux 71), the Chambre de Recours of the Canton of Vaud held obiter dictum that an arbitrator is entitled to scrutinise a contract under the notions of Arts 85 et seq. of the EC Treaty, irrespective of contractual provisions seeking to limit such a standard of review. The holding of Ampaglas was confirmed by the Bundesgericht in G. SA v. V. Spa in 1992 (BGE 118 II 193), where the court held that arbitral tribunals sitting in Switzerland not only have authority, but are obliged to scrutinize a contract as to whether it is in compliance with EC competition laws. The Bundesgericht concluded: Ni l'art. 85 du Trait, ni son rglement d'application n. 17 n'interdisent au juge national ou l'arbitre saisi d'une cause ayant pour objet le rglement de comptes qui doit intervenir entre parties en relation avec l'execution ou l'inexecution d'une convention d'en examiner la validit. A cet gard, le risque de dcisions contradictoires n'est pas dterminant; ne l'est pas non plus le risque de voir l'autorit d'execution ne pas accorder l'exequatur. L'examen par les arbitres de la conformit des conventions qui sont soumises la rglementation communautaire s'impose si l'on veut viter des dcisions qui y seraient contraires. Aussi le Tribunal arbitral ne pouvait-il rendre sa sentence sans avoir examin au pralable s'il devait le faire en fonction d'une convention valable ou non: BGE 118 II 193 at 198.

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Article 177(2) PIL has been lauded as a legislative milestone in international commercial arbitration: Switzerland was the first country to explicitly restrict the objections of states and state-controlled organisations disputing arbitrability by invoking their own national law. The PIL incorporated those fundamental ideas which are embodied in a whole series of important arbitral awards: see Marc Blessing, Introduction to Arbitration: Swiss and International Perspectives (2000), p. 183. For a sample list of such awards see Blessing, Objective Arbitrability supra n. 31 at pp. 9, 2728. 39 A general overview of the characteristics of the Tenth Book, which applies to both national and international arbitrations, is provided by Karl-Heinz Bckstiegel, An Introduction to the New German Arbitration Act Based on the UNCITRAL Model Law in (1998) 14 Arbitration International 1931; Peter Gottwald and Jens Adolphsen, Das neue deutsche Schiedsverfahrensrecht in (1998) 36 Deutsches Steuerrecht 1017 and Hubertus W. Labes and Torsten Lrcher, Das neue Recht der Schiedsgerichtsbarkeit in (1997) 51 Monatsschrift fr Deutsches Recht 420.

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40

Article 1030 [Arbitrability] 1 Any claim involving an economic interest (vermgensrechtlicher Anspruch) can be the subject of an arbitration agreement. An arbitration agreement not involving an economic interest shall have legal effect to the extent that the parties are entitled to conclude a settlement on the issue. 2 An arbitration agreement relating to disputes on the existence of a lease of residential accommodation within Germany shall be null and void. This does not apply to residential accommodation as specified in 556a (8) of the Civil Code. 3 Statutory provisions outside this Book by virtue of which certain disputes may not be submitted to arbitration, or may be submitted to arbitration only under certain conditions, remain unaffected.

Article 1030 ZPO, like Art. 177(1) PIL, determines the question of arbitrability irrespective of the potential applicability in the dispute of any mandatory provisions of foreign law (for example, the lex causae) to the contrary: Reinhold Geimer, in Zller, Zivilprozessordnung 1030, ann. 24 (22nd edn., 2001); Joachim Mnch, in Mnchener Kommentar zur Zivilprozessordnung 1030, ann. 12 (2nd edn., 2001). As a matter of fact, Art. 177(1) PIL served as a model for the current version of art. 1030(1) ZPO: Geimer, op. cit 1030, ann. 1; Mnch, op. cit 1030, ann. 1. 42 A claim involves economic interests if it originates from an economic relationship, the claim is for money, or a monetary remedy is sought. See Gnter Henn, Schiedsverfahrensrecht (3rd edn., 2000), p. 9; Jens-Peter Lachmann, Handbuch fr die Schiedsgerichtspraxis (1998), p. 42; Mnch, supra n. 41, 1030 ann. 8. 43 Jan Albers, in Baumbach, Lauterbach, Albers and Hartmann, Zivilprozessordnung 1030, ann. 2 (59th edn., 2001); Heinz Thomas, in Thomas and Putzo, Zivilprozessordnung 1030, ann. 2 (23rd edn., 2001). 44 BT/Drs. 13/5274, 34; see Geimer, supra n. 41, 1030, ann. 6; Gottwald and Adolphsen, supra n. 39 at p. 1018; Mnch, supra n. 41, 1030, ann. 1. 45 See ibid., 1030, ann. 2 and 1416; Thomas, supra n. 43, 1030, ann. 4. 46 Such provisions include, e.g., art. 1822 No. 12 BGB, art. 1908i (1) BGB, art. 1915 (1) BGB, art. 28 Securities Exchange Act (BrsenG), art. 101 et seq. of the Labour Court Code (ArbGG). 47 See Mnch, supra n. 41, 1030, ann. 3. 48 Under the former version of art. 91(1) GWB a clause compromissoire concerning disputes within the ambit of the GWB was either void (sentence 1) or its existence had to be notified to the

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Federal Cartel Office in order for the clause to be valid (sentence 2), unless the arbitral agreement provided that each party had the alternative right to submit the dispute to a court of law. A compromis, on the other hand, was generally valid under the old version of art. 91(2) GWB. 49 Geimer, supra n. 41, 1030, ann. 12; Gottwald and Adolphsen, supra n. 39 at pp. 10181019; Mnch, supra n. 41, 1030, ann. 19; Karl Heinz Schwab and Gerhard Walter, Schiedsgerichtsbarkeit (6th edn., 2000), p. 37. 50 BT/Drs. 13/5274, at 19, 36 and 74. 51 Parties permitted to engage in securities transactions are defined under art. 53 BrsenG. 52 Schwab and Walter, supra n. 49 at p. 38. 53 BGH, (1991) 44 NJW 2215 (2215); BGH, (1987) 40 NJW 3193 (3194); contra Frank Ebbing, Zur Schiedsfhigkeit von Brsengeschften und Brsentermingeschften in (1999) 53 Zeitschrift fr Wirtschafts- und Bankrecht 1264 at pp. 12681269; Peter Schlosser, in Stein and Jonas, Zivilprozessordnung 1025, ann. 30a (21st edn., 1994); Schwab and Walter, supra n. 49 at p. 39 (arguing that securities claims are arbitrable even if an arbitration agreement provides for the settlement of disputes before a foreign tribunal under foreign law). 54 BGH, (1991) 44 NJW 2215 (2215); OLG Dsseldorf, (1997) 12 NJW-RR 372 (373). 55 BGH, supra n. 54. 56 BGH, ibid. 57 There are two kinds of actions shareholders of a stock corporation (Aktiengesellschaft) may bring to challenge shareholder resolutions: an action to set aside a resolution (art. 246 AktG) and an action for the declaration of nullity of a resolution (art. 249 AktG). The provisions of the AktG dealing with challenges of shareholder resolutions are applied by analogy to challenges of resolutions by shareholders of a limited liability company (Gesellschaft mit beschrnkter Haftung). BGHZ 51, 209 (210); BGHZ 11, 231 (235); Marcus Lutter and Peter Hommelhoff, GmbH-Gesetz, Anh. 47, ann. 1 (15th edn., 2000).

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Article 248 Effect of Judgment 1 To the extent that the resolution is declared invalid by a final judgment, such judgment shall be binding upon all shareholders as well as members of the managing board and of the supervisory board, even if they are not parties to the action. 2

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See Gregor Bender, Schiedsklagen gegen

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Gesellschafterbeschlsse im Recht der Kapitalgesellschaften nach der Neuregelung des Schiedsverfahrensrecht in (1998) 51 Der Betrieb 1900 at p. 1904; Gnther M. Bredow, Die Zukunft der Schiedsklausel fr GmbH-Beschlussmngelklagen in (1996) 34 DStR 1653 at pp. 16541655; Carsten Thomas Ebenroth and Andreas Mller, Anfechtung von GmbH-Gesellschafterbeschlssen: Effiziente Gestaltung der Beschlussberprfung in (1992) 45 Der Betrieb 361 at p. 365; Lutter and Hommelhoff, supra n. 57, Anh. 47, ann. 7778; Schlosser, supra n. 53, 1025, ann. 27f; Karsten Schmidt, Schiedsklagen gegen Hauptversammlungsbeschlsse? in (1995) 40 Die Aktiengesellschaft 551; Schwab and Walter, supra n. 49 at pp. 3637; contra Albers, supra n. 43, 1030, ann. 8; Hartwig Henze, Zur Schiedsfhigkeit von Gesellschafterbeschlssen im GmbH-Recht in (1988) 17 Zeitschrift fr Unternehmens- und Gesellschaftsrecht 542 at pp. 549557; Thomas, supra n. 43, 1030, ann. 2.; Oleg de Lousanoff, Schiedsklauseln in Gesellschaftsvertrgen in (1994) ASA Special Series No. 8, 89119. 60 BGHZ 132, 278 (286). Although rendered in 1996, and thus prior to the reform of the Tenth Book of the ZPO, it is important to note that this decision still represents good law. The Bundesgerichtshof indicated in its opinion that the Bill for the proposed amendment of the ZPO stated that the legislature intended to leave the issue of whether challenges of shareholder resolutions are arbitrable or not to be resolved by the courts. 61 ibid. at 285286. 62 Article 246 Action to Set Aside 1 2 3 The district court (Landgericht) of the district in which the corporation is domiciled shall have exclusive jurisdiction to adjudicate the action. The hearing shall not be held before the expiration of the one-month period specified in paragraph (1) hereof. If several actions to set aside are pending, they shall be joined to be heard and decided together. Article 249 AktG includes similar language, providing that actions for a declaration of nullity of a resolution shall be joined to be heard and decided together.

BGHZ 132, 278 (285286). ibid. at 287. 65 ibid. at 287. 66 Bredow, supra n. 59 at pp. 16541655; Geimer, supra n. 41, 1030, ann. 9; Lachmann, supra n. 42 at p. 47; Hilmar RaeschkeKessler, The New German Arbitration Act v. Old German Case Law: Which Case Law of the Bundesgerichtshof (German Federal
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Supreme Court) is to be Applied to the New Act? in (1998) 14 Arbitration International 47 at p. 53; contra Thomas, supra n. 43, 1030, ann. 2. 67 At this point in time, however, it is difficult to predict how exactly the procedure before the arbitral tribunal would have to be tailored to satisfy the Bundesgerichtshof that the rights of all parties involved in the dispute are adequately protected. In light of the discussed judgment of the Bundesgerichtshof, Gnther M. Bredow has proposed a model clause to govern such a procedure: Bredow, supra n. 59 at p. 1655. 68 Actors, film-makers, artists, captains and crew-members as defined under arts 2 and 3 Seaman's Law (SeemannsG). 69 According to a judgment of the Federal Labour Court (Bundesarbeitsgericht), only members of those professions mentioned supra n. 68 can consent to the arbitration of disputes arising out their employment relationships via the incorporation of the terms of a collective bargaining agreement. The question of whether an employee is a member of one of the aforementioned professions is to be determined by a test of fact: BAG, (1998) 15 NZA 220 (221). 70 In contrast, a review of the merits of an arbitral award is not possible under art. 1059 ZPO. Geimer, supra n. 41, 1059, ann. 74. 71 Articles 65, 81 Patents Act (PatG). 72 BGH, (1984) 39 BB 561 (562); BT/Drs. 13/5274, 35; Albers, supra n. 43, 1030, ann. 8; Lachmann, supra n. 42 at p. 49; Thomas, supra n. 43, 1030, ann. 6. 73 See Schlosser, supra n. 53, 1025, ann. 27d; P. Schlosser, Schiedsgerichtsbarkeit und ffentlichrechtlich beeinflusste Streitgegenstnde in Karl-Heinz Bckstiegel and Ottoarndt Glossner (eds), Festschrift fr Arthur Blow (1981), pp. 189, 192193; Schwab and Walter, supra n. 49 at p. 39. 74 See Geimer, supra n. 41, 1030, ann. 14-15; Hilmar RaeschkeKessler and Klaus Peter Berger, Recht und Praxis des Schiedsverfahrens (1999), 187190 ann; Schlosser, supra n. 53, 1025, ann. 27d; Schwab and Walter, supra n. 49 at p. 39. As Reinhold Geimer points out, however, regard is to be had to the fact that patents are public in nature and are granted by administrative acts (Verwaltungsakt). From this it follows that, although arbitrators can render decisions as to their validity, they are not vested with the powers to revoke or declare the nullity of patents. Only the patent office that initially granted the respective patent is competent in this respect. Thus, the arbitral award can only order the defendant to instruct the patent office to delete the patent from the registrar. Such an award, when enforced pursuant to art. 894 ZPO, will create such an instruction per legal fiction and thus have the effect as if the defendant himself had ordered the patent office to strike the patent from the registrar. 75 Pursuant to arts 104 and 105 of the Copyrights Act (UrhG), controversies regarding copyrights can be concentrated at particular courts. 76 See Raeschke-Kessler and Berger, supra n. 74, ann. 192; see also Ina Anne Frost, Schiedsgerichtsbarkeit im Bereich des geistigen

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Eigentums nach deutschem und US-amerikanischem Schiedsrecht (2001). 77 See Geimer, supra n. 41, 1030, ann. 11; Mnch, supra n. 41, 1030, ann. 19; Schwab and Walter, supra n. 49 at p. 37; but see Raeschke-Kessler and Berger, supra n. 74, ann. 198, who are of the opinion that proceedings to rescind certain actions of debtors under art. 129 et seq. InsO are not arbitrable. 78 Article 190: (1) The award is final from its notification. (2) The award may only be annulled: a if the sole arbitrator was not properly appointed or if the arbitral tribunal was not properly consulted; b if the arbitral tribunal wrongly accepted or declined jurisdiction; c if the arbitral tribunal's decision went beyond the claims submitted to it, or failed to decide one of the items of the claim; d if the principle of equal treatment of the parties or the right of the parties to be heard was violated; e if the award is incompatible with public policy. (3) Preliminary awards can be annulled on the grounds of the above (2) (a) and 2 (b) only; the time limit to bring an action for annulment runs from the notification of the preliminary award.

Stephen V. Berti and Anton K. Schnyder, Article 190 in Stephen V. Berti et al. (eds), International Arbitration in Switzerland (2000), pp. 569, 577. 80 BGE 117 II 94, 97: The Bundesgericht reviews with full scrutiny (Kognition) whether jurisdiction has been affirmed or denied correctly. 81 Seminal is BGE 116 II 634 et seq.: Erroneous findings of fact or wrongful applications of the law, without more, are insufficient to justify the annulment of an arbitral award even when such errors are obvious. The review of the award by the Bundesgericht is limited to the question as to whether the award is compatible with ordre public. The evaluation of the merits of a given claim only violates public policy if it is contrary to the most fundamental principles of law, thus rendering it totally incompatible with the legal and moral order. Such principles include the doctrine of pacta sunt servanda, the prohibition of the abuse of rights, the principle of good faith, the

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prohibition of uncompensated expropriation, the prohibition of discrimination and the protection of the incapaciated. [T]he annulment of a final award is justified only if the award as such is contrary to public policy, and not if merely the reasoning of the award appears to be incompatible with public policy. For some time there has been debate as to whether public policy with regard to Art. 190 (2) (e) of the PIL comprises of fundamental principles of Swiss law only, or whether foreign or transnational legal values and principles have to be taken into account too. Since BGE 120 II 155 (United Arab Emirates v. Westland Helicopters), at 167 168, it is clear that both Swiss and transnational fundamental principles of law have to be considered.

BGE 118 II 353, at 357. See Art. 89(1) of the Statute on the Organisation of the Federal Judiciary (Bundesrechtspflegegesetz). 84 See BGE 120 II 155 (United Arab Emirates v. Westland Helicopters), at 158166. 85 One has to bear in mind, though, that Art. 190(2)(e) PIL and Art. V (2)(b) of the New York Convention deal with two different situations: While Art. V sets forth grounds pursuant to which recognition and enforcement of foreign awards in Switzerland may be refused, Art. 190 is concerned with the setting aside of an award rendered in Switzerland which cannot yet be regarded as a fait accompli: Paolo Michele Patocchi and Cesare Jermini, Article 194 in Stephen V. Berti et al. (eds), International Arbitration in Switzerland (2000), pp. 625, 669 86 See also Homayoon Arfazadeh, Arbitrability under the New York Convention: the Lex Fori Revisited in (2001) 17 Arbitration International 7387. 87 Article 192:
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1 If none of the parties have their domicile, their habitual residence, or a business establishment in Switzerland, they may, by an express statement in the arbitration agreement or by a subsequent written agreement, waive fully the right to bring an action for annulment or they may limit it to one or several of the grounds listed in Article 190(2). 2 If the parties have waived fully the right to bring an action for annulment against the awards, and if the awards are to be enforced in Switzerland, the New York Convention of June 10, 1958 on the Recognition and Enforcement of Foreign Arbitral Awards applies by analogy.

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As can be inferred from Art. 192(2) PIL (see ibid.), the Swiss legislator did not intend to completely eliminate judicial review with regard to specific grounds. Rather, the approach chosen by the Swiss legislator has the consequence that the situs of arbitration loses its significance as far as setting aside proceedings are concerned. See Emmanuel Gaillard, A Foreign View of the New Swiss Law on International Arbitration in (1988) 4 Arbitration International 25 at pp. 3031; Lalive, supra n. 32 at p. 19. 89 BGE 118 II 353 (Fincantieri) at 358. 90 While under the old law German courts took jurisdiction in setting aside proceedings whenever German lex arbitri applied (under the previously prevailing procedural theory the issue of qualifying arbitral awards as domestic or foreign was determined by the applicable lex arbitri), the new art. 1025 ZPO confers such jurisdiction only if the place of arbitration is situated in Germany: Albers, supra n. 43, 1025, ann. 1; Mnch, supra n. 41, 1025, ann. 6 and 1061, ann. 3. 91 Article 1059 [Application for Setting Aside] 1 2 An arbitral award may be set aside only if: 1 2 the court finds that a the subject matter of the dispute is not capable of settlement by arbitration under German law; or b recognition or enforcement of the award leads to a result which is in conflict with public policy (ordre public).

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The Bundesgerichtshof held that public policy would only be violated if recognition and enforcement of an award would be incompatible with fundamental principles of German law. BGH, (1998) 51 NJW 2358 (2358), expressly referring to ordre public international as the applicable standard of review; BGHZ 118, 312 (320321); BGHZ 98, 70 (74); BGHZ 54, 132 (140); BGHZ 50, 370 (375376). 93 ibid. 94 Geimer, supra n. 41, 1059, ann. 47 and 5254, who notes that a court can only examine whether the procedure, upon which the findings of fact are based, is flawed with procedural errors. In all other respects the court is generally bound to the findings of fact made by an arbitral tribunal. 95 It is worthwhile mentioning that, with respect to ordre public, it has been held by the Bundesgerichtshof that the courts are not only required to enforce German ordre public, but also internationally

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mandatory European Union laws. BGH, (1972) 25 NJW 2180 (2181 2182); BGH, (1969) 22 NJW 978 (979980). These decisions were affirmed by the ECJ in a decision regarding Art. 81(1) of the EC Treaty: ECJ, (2000) 54 NJW 2185 (2186); ECJ, (1999) 10 EuZW 565 (567). 96 BGHZ 118, 312 (320-321); BGHZ 98, 70 (74). 97 See supra n. 41. 98 See supra, section IV(2) and (4). 99 BGH, (1991) 44 NJW 2215 (2215); BGH, (1987) 40 NJW 3193 (3194). 100 As can be derived from the discussion under section IV, we face a different picture when it comes to domestic arbitration. Reservations with respect to arbitrability are not voiced in connection with the competence of the arbitrators to adjudicate a certain issue. Rather, the arbitrability of disputes is questioned for reasons other than concerns of public policy, such as due process considerations in the case of actions challenging the validity of shareholder resolutions. The latter concerns, of course, although fully justified, are beyond the scope of our discussions. 101 Thomas E. Carbonneau, Mitsubishi: the Folly of Quitoxic Internationalism in (1986) 2 Arbitration International 116 at pp. 127 128. 102 Jacques Werner, A Swiss Comment on Mitsubishi in (1986) 3 Journal of International Arbitration 81 at p. 83. 103 See Justice Stevens, delivering the dissenting opinion in Mitsubishi: 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 arbitators' decision is virtually unreviewable. Despotic decision making of this kind is fine for parties who are willing to agree in advance to settle for a best approximation of the correct result in order to resolve quickly and inexpensively any contractual dispute that may arise in an ongoing commercial relationship. Such informaltity, however, is simply unacceptable when every error may have devastating consequences for import businesses in our national economy and may undermine their ability to compete in world markets. Instead of muffling a grievance in the cloakroom of arbitration, the public interest in free competitve markets would be better served by having the issues resolved in the light of impartial public court adjudication: Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., supra n. 5 at 656657; Hans Smit, Misubishi: It is Not What it Seems To Be in (1987) 4 Journal of International Arbitration 7 at p. 9.

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The language in Mitsubishi regarding the standard of review (While the efficacy of the arbitral process requires that substantive review at the award-enforcement stage remain minimal, it would not require intrusive inquiry to ascertain that the tribunal took cognizance of the antitrust claims and actually decided them) appears to be quite vague: Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., supra n. 5 at 638 (emphasis added). 105 See Edward R. Leahy, Enforcing Foreign Arbitral Awards and Foreign Judgments, International Litigation and Arbitration: Practical Approaches and Considerations (American Bar Association), p. 601. 106 It has long been accepted that, in addition to the grounds set forth in s. 10 FAA, an arbitral award may be vacated where the arbitrators are found to have acted in manifest disregard of the law in reaching their conclusion (Wilko v. Swan, 346 U.S. 427, 436437 (1953)). A finding that an award has been made in manifest disregard of the law, however, requires more than a showing that it is merely erroneous in law. An award will be vacated on these grounds only in cases where the arbitrators consciously chose to ignore a clearly governing legal principle (Montes v. Shearson Lehman Brothers, Inc. 128 F.3d 1456, 1461 (11th Cir. 1997)). In cases where even a barely colorable justification for the conclusion of the tribunal exists the award will be confirmed (Willemijn Houdstermaatschappij BV v. Standard Microsystems Corp. 103 F.3d 9, 13 (2nd Cir. 1997)). 107 See Terri L. Combs, Anthony De Toro and Bette J. Roth, PostAward Proceedings and Appeals in Bette J. Roth, Randall W. Wulff and Charles A. Cooper (eds), The Alternative Dispute Resolution Practice Guide (1999), pp. 14-28 citing Prudential-Bache Securities, Inc. v. Tanner, 72 F.3d 234 (1st Cir. 1995), quoting United Paperworkers Intern. Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 42-43 (1987) and W.R. Grace and Co. v. Local Union 759, Intern. Union of United Rubber, Cork, Linoleum and Plastic Workers of America, 461 U.S. 757, 766 (1983). 108 Parsons & Whittmore Overseas Co., Inc. v. Socit Gnrale de L'Industrie du Papier (RAKTA) et al., 508 F.2d 969, 974 (2d Cir. 1974); National Oil Corp. v. Libyan Sun Oil Co., 733 F. Supp. 800, 819 (D. Del. 1990); Brandeis Intsel Ltd v. Calabrian Chemicals Corp., 656 F. Supp. 160, 165 (S.D.N.Y. 1987); Geotech Lizenz AG v. Evergreen Systems, Inc., 697 F. Supp. 1248, 1254 (E.D.N.Y. 1988); Coutinho Caro & Co. U.S.A., Inc. v. Marcus Trading, Inc., 2000 WL 435566, *12 (D. Conn. 2000). 109 Parsons & Whittmore Overseas Co., Inc. v. Societe Generale de L'Industrie du Papier (RAKTA) et al., supra n. 108 at 977, holding that Overseas in effect asks this court to read this defense as a license to review the record of arbitral proceedings for errors of fact or law a role which we have emphatically declined to assume in the past and reject once again. 110 Brandeis Intsel Ltd v. Calabrian Chemicals Corp., supra n. 108 at 167. 111 As a practical matter, it should be noted that empirical studies

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indicate that the vast majority of parties to arbitrations honour the awards rendered voluntarily, so that the courts do not have the possibility to review the respective award in the first place. Furthermore, these studies have shown that cases in which recognition and enforcement of awards was refused on the grounds of public policy are few and far between. See Redfern and Hunter, supra n. 3 at pp. 471472; Albert Jan van den Berg, Refusals of Enforcement under the New York Convention of 1958: the Unfortunate Few, in Arbitration in the Next Decade, (1998) International Court of Arbitration Bulletin 7594; Jean Thieffry, The Finality of Awards in International Arbitration in (1985) 2 Journal of International Arbitration 27 at p. 28 n. 3. With this in mind, one should also consider the fact that not every award will be enforced in the United States while speculating about the anticipated effects the Second Look Doctrine might have. 112 See Pierre Mayer, Mandatory Rules of Law in International Arbitration in (1986) 2 Arbitration International 274 at p. 275. 113 Having permitted the arbitration to go forward, the national courts of the United States will have the opportunity at the awardenforcement stage to ensure that legitimate interest in the enforcement of the antitrust laws has been addressed: Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., supra n. 5 at 638 (emphasis added). 114 Blessing, supra n. 38 at p. 270. 115 ibid.; see Klaus Peter Berger, Exchange Control Regulations in Karl-Heinz Bckstiegel (ed.), Acts of State and Arbitration (1997), p. 99 at p. 124); J. H. Dalhuisen, The Arbitrability of Competition Issues in (1995) 11 Arbitration International 151 at pp. 163165; Daniel Hochstrasser, Choice of Law and Foreign Mandatory Rules in International Arbitration in (1994) 11 Arbitration International 57 at pp. 8485; Serge Lazareff, Mandatory Extraterritorial Application of National Law in (1995) 11 Arbitration International 137 at pp. 137 150; Mayer, supra n. 112 at pp. 284286; Nathalie Voser, Mandatory Rules of Law as Limitations on the Law Applicable in International Commercial Arbitration in (1996) 7 Am. Rev. Int'L Arb. 319 at pp. 332357. 116 See Lowenfeld, supra n. 13 at pp. 185188. 117 James H. Carter, The Selection of Arbitrators in WIPO Publication No. 728 (E) (1994), p. 147. 118 See Lowenfeld, supra n. 13 at p. 182. 119 In addition to the arguments already put forward, our prognosis seems to receive further support from the attitude expressed towards arbitration in Sky Reefer. In contrast to Justice Blackmun's opinion in Mitsubishi, the tone in the opinion delivered by Justice Kennedy in Sky Reefer, handed down some 10 years after Mitsubishi, appears to be less uncompromising with respect to the enforcement of the arbitration clause. Justice Kennedy repeatedly indicated that it would be premature at the time of the decision to establish whether the arbitrators would disregard mandatory US law or not, describing claims alleging the latter as merely speculative. See Vimar Seguros Y Reaseguros, S.A. v. M/V Sky Reefer et al., supra n. 5 at 540541.

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From this we read that the US Supreme Court confers an even greater degree of trust upon the arbitrators than in Mitsubishi. The US Supreme Court would act somewhat inconsistently if it would hold that such trust conferred at the commencement of an arbitration proceeding would be followed by an intrusive review of the merits at the award enforcement stage. See Leahy and Bianchi, supra n. 3 at p. 34.

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