Kluwer Law International

Posts Tagged ‘Arbitration clause’

Notre Dame Law School

As reported yesterday, the recent tragedies in Bangladesh factories have resulted in a major breakthrough with the signing of the Accord on Fire and Building Safety in Bangladesh. Thus far, leading retailers such as H&M, Marks & Spencer, Tesco, Sainsbury’s, Benetton, and Calvin Klein are on board. Notably absent from the list are leading U.S. retailers such as Wal-Mart and Gap.

As noted in my previous post, I have been arguing for years that international arbitration could serve as an important procedural tool for promoting human rights in global supply chains. I applaud the commitment of these retailers to join with leading labor rights groups and enter into a binding agreement to improve working conditions in Bangladesh factories.

I do take issue with the drafting of the arbitration agreement, which clearly could have benefited from a quick review by a lawyer with international arbitration experience. Here’s the relevant language:

Any dispute between the parties to, and arising under, the terms of this Agreement shall first be presented to and decided by the SC [seven-member Steering Committee], which shall decide the dispute by majority vote of the SC within a maximum of 21 days of a petition being filed by one of the parties. Upon request of either party, the decision of the SC may be appealed to a final and binding arbitration process. Any arbitration award shall be enforceable in a court of law of the domicile of the signatory against whom enforcement is sought and shall be subject to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention), where applicable. The process for binding arbitration, including, but not limited to, the allocation of costs relating to any arbitration and the process for selection of the Arbitrator, shall be governed by the UNCITRAL Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006).

Note the peculiarities. There is no governing law clause, no arbitration seat, and no arbitration rules. If a party refuses to arbitrate, there will be no obvious court for the petitioner to file a motion to compel arbitration. Instead the arbitration proceedings are to be governed by the UNCITRAL Model Law on International Commercial Arbitration as a sort of free-floating “anational” governing clause. I suppose that makes the UNCITRAL Model Law the chosen arbitration rules, but I’ve never seen the Model Law function in this fashion. If that’s what the clause does, then any court where an action is brought can compel arbitration and the arbitral panel will be empowered to fill in most of the gaps, including determining the arbitration seat, the governing law, and the scope of its jurisdiction (See Articles 8, 16, 20, 28). Not ideal, but it may do the trick.

Second, the arbitration clause has a peculiar scope. Only disputes “arising under” the Agreement are subject to arbitration, apparently limiting the scope to breach of contract and excluding disputes relating to third-party injuries that relate to the agreement. The scope appears to be further limited by the fact that arbitration is an appellate function only, which may mean that the arbitral tribunal is limited to reviewing legal or factual errors of the Steering Committee.

Third, there is a question as to whether decisions of the Steering Committee are subject to enforcement pursuant to the New York Convention. It appears that only the arbitration awards rendered following an appeal of the Steering Committee decision are subject to such enforcement. This may mean that an appeal is necessary simply to create a binding mechanism for enforcing the parties’ obligations.

My hunch is that despite these errors, if a dispute arises from this agreement the parties will muddle through and find a way to make the dispute resolution clause work. Perhaps in the near term they can clarify these ambiguities when they develop the Implementation Plan mandated by the agreement.

So it’s probably not a pathological arbitration clause, but it could have benefited from a good scrubbing.

More from our authors:

	Litigation in the Netherlands. Civil Procedure, Arbitration and Administrative Litigation - 2nd Edition by Marieke van Hooijdonk, Peter V. Eijsvoogel € 70
	Yearbook Commercial Arbitration Volume XXXVII 2012 by Albert Jan Van Den Berg (ed.) € 215
	International Arbitration: Law and Practice by Gary B. Born € 30
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

Notre Dame Law School

As reported yesterday, the recent tragedies in Bangladesh factories have resulted in a major breakthrough with the signing of the Accord on Fire and Building Safety in Bangladesh. Thus far, leading retailers such as H&M, Marks & Spencer, Tesco, Sainsbury’s, Benetton, and Calvin Klein are on board. Notably absent from the list are leading U.S. retailers such as Wal-Mart and Gap.

As noted in my previous post, I have been arguing for years that international arbitration could serve as an important procedural tool for promoting human rights in global supply chains. I applaud the commitment of these retailers to join with leading labor rights groups and enter into a binding agreement to improve working conditions in Bangladesh factories.

I do take issue with the drafting of the arbitration agreement, which clearly could have benefited from a quick review by a lawyer with international arbitration experience. Here’s the relevant language:

Any dispute between the parties to, and arising under, the terms of this Agreement shall first be presented to and decided by the SC [seven-member Steering Committee], which shall decide the dispute by majority vote of the SC within a maximum of 21 days of a petition being filed by one of the parties. Upon request of either party, the decision of the SC may be appealed to a final and binding arbitration process. Any arbitration award shall be enforceable in a court of law of the domicile of the signatory against whom enforcement is sought and shall be subject to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention), where applicable. The process for binding arbitration, including, but not limited to, the allocation of costs relating to any arbitration and the process for selection of the Arbitrator, shall be governed by the UNCITRAL Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006).

Note the peculiarities. There is no governing law clause, no arbitration seat, and no arbitration rules. If a party refuses to arbitrate, there will be no obvious court for the petitioner to file a motion to compel arbitration. Instead the arbitration proceedings are to be governed by the UNCITRAL Model Law on International Commercial Arbitration as a sort of free-floating “anational” governing clause. I suppose that makes the UNCITRAL Model Law the chosen arbitration rules, but I’ve never seen the Model Law function in this fashion. If that’s what the clause does, then any court where an action is brought can compel arbitration and the arbitral panel will be empowered to fill in most of the gaps, including determining the arbitration seat, the governing law, and the scope of its jurisdiction (See Articles 8, 16, 20, 28). Not ideal, but it may do the trick.

Second, the arbitration clause has a peculiar scope. Only disputes “arising under” the Agreement are subject to arbitration, apparently limiting the scope to breach of contract and excluding disputes relating to third-party injuries that relate to the agreement. The scope appears to be further limited by the fact that arbitration is an appellate function only, which may mean that the arbitral tribunal is limited to reviewing legal or factual errors of the Steering Committee.

Third, there is a question as to whether decisions of the Steering Committee are subject to enforcement pursuant to the New York Convention. It appears that only the arbitration awards rendered following an appeal of the Steering Committee decision are subject to such enforcement. This may mean that an appeal is necessary simply to create a binding mechanism for enforcing the parties’ obligations.

My hunch is that despite these errors, if a dispute arises from this agreement the parties will muddle through and find a way to make the dispute resolution clause work. Perhaps in the near term they can clarify these ambiguities when they develop the Implementation Plan mandated by the agreement.

So it’s probably not a pathological arbitration clause, but it could have benefited from a good scrubbing.

More from our authors:

	Litigation in the Netherlands. Civil Procedure, Arbitration and Administrative Litigation - 2nd Edition by Marieke van Hooijdonk, Peter V. Eijsvoogel € 70
	Yearbook Commercial Arbitration Volume XXXVII 2012 by Albert Jan Van Den Berg (ed.) € 215
	International Arbitration: Law and Practice by Gary B. Born € 30
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

Pepperdine University School of Law

A new study of dispute resolution practices in Fortune 1,000 corporations shows that many large companies are using binding arbitration less often and relying more on mediated negotiation and other approaches aimed at resolving disputes informally, quickly and inexpensively. The 2011 survey of corporate counsel developed by researchers at Cornell University’s Scheinman Institute on Conflict Resolution, the Straus Institute for Dispute Resolution at Pepperdine University School of Law, and the International Institute for Conflict Prevention & Resolution (CPR) produced results that appear to be strongly reflective of U.S. practices and trends, but thoughtful practitioners and scholars will ponder its implications for the future of international practice.

Although the approaches of large corporations to managing conflict vary widely, their strategies typically boil down to how best to control cost and risk in dispute resolution processes and outcomes. As the U.S. experienced what some have called a “quiet revolution” in dispute resolution in the 1980s, corporate counsel played a critical role. They were in the forefront of efforts to avoid the expense and risk of hardball litigation. They began using settlement-oriented approaches like mini-trial, and, more significantly, negotiation with the help of mediators. They banded together to form the Center for Public Resources (now CPR), which actively promoted corporate and law firm pledges to seek out-of-court solutions before resorting to litigation.

Around the same time, corporate counsel also participated in efforts to address what they perceived to be the limitations or inadequacies of binding arbitration as a substitute for litigation. Although forms of arbitration had been a mainstay of business dispute resolution throughout much of the latter half of the Twentieth Century, arbitration was thrust into an even more prominent role as a substitute for public trial thanks to a series of U.S. Supreme Court decisions strongly promoting the enforcement of arbitration agreements.

When in 1997 Cornell conducted the first survey of Fortune 1,000 corporate counsel on their attitudes and practices regarding dispute resolution, mediation and arbitration were both prominently and positively portrayed. Corporate counsel expressed positive views of many perceived benefits of these options, including savings of time and cost and more satisfactory, durable results. A majority of respondents predicted that their companies would make use of both mediation and arbitration in the future.

The 2011 survey, reflecting the responses of more than 300 Fortune 1,000 corporate counsel, presents a very different, decidedly mixed picture. The respondents, almost half of whom are general counsel, assert that their companies are less likely to employ hardball litigation as a primary strategy, and instead broadly embrace mediation as a tool for resolution of all kinds of disputes now and in the future. They are also becoming more proactive in managing conflict in the early stages of litigation and employing third parties to evaluate and assess different dimensions of a legal dispute. Around two-thirds of responding counsel said their company employ some form of “early case assessment”—an approach that in companies like DuPont is a formalized and systematic method of analyzing all aspects of a dispute in the early stages in order to plot the appropriate course for its resolution.

At the same time, however, corporate counsel tend to be markedly less assured of the potential benefits of “alternative dispute resolution,” perhaps reflecting a more realistic (or more cynical) view borne of long experience. As a group, they are less certain that these processes will be deemed satisfactory, or that they will produce satisfactory settlements or durable results. These data may mirror anecdotal evidence that mediation is often subject to manipulation by attorneys seeking to prolong or frustrate the dispute resolution process or “spin” mediators.

When it comes to adjudication, more companies seem to be turning back to litigation in court. Binding arbitration usage has dropped for most kinds of disputes (including commercial, employment, environmental, intellectual property, real estate and construction disputes), and corporate counsel are now evenly divided on the question of their company’s future use of arbitration. Notable exceptions to this marked downward trend are consumer and products liability cases, as some companies appear to be taking advantage of U.S. Supreme Court’s decisions supporting the use of binding arbitration clauses in standardized consumer contracts, including provisions waiving the right to participate in class actions.

The common theme in these changing patterns appears to be a desire for maximal control of the dispute resolution process. Corporate attorneys logically prefer to manage outcomes, so mediation and other approaches that aim at achieving a mutually acceptable settlement are strongly favored. The evidence suggests that in the U.S. the models they currently embrace are heavily lawyered, with the emphasis on third party predictions or evaluations of a case’s chances in adjudication. The great majority of cases are resolved prior to hearings on the merits; thus, the incidence of court trial has fallen dramatically, and there are also fewer cases going to arbitration hearings.

Where settlement cannot be achieved, some large companies—perhaps as many as half the Fortune 1,000—then want to try their commercial cases in court despite the well-known costs and risks, if only because of the traditional “second chance”—the opportunity to overturn a faulty verdict or judgment on appeal. For many corporate counsel, concerns about the inability to overturn arbitration awards that do not comport with applicable law or proven fact, coupled with suspicions about the abilities or motivations of arbitrators, are paramount.

But many other corporate attorneys continue to view the preference for litigation as ironic, since the alternative—binding arbitration—is a choice-based process that affords countervailing advantages such as options for enhanced confidentiality, speed and efficiency, expertise . . . and even, potentially, private appeal to another tier of arbitration! All too often, however, it seems that corporate counsel fail to recognize or take advantage of such options, and instead complain about the shortcomings of arbitration. To make active choices regarding arbitration means overcoming formidable barriers such as the prevalent caution among corporate counsel about leaving traditional comfort zones, and the low priority assigned to dispute resolution in the negotiation and drafting of business agreements. These are the source of great inertia. As one expert on corporate deal-making recently explained when asked why the companies he advises had not rushed to employ a particular new program for dispute resolution, “My clients prefer to cross the street in a group.”

What do trends among Fortune 1,000 corporations portend for international arbitration and dispute resolution practice? First off, it must be said that because of the unique and critical role played by binding arbitration in the resolution of international commercial disputes, both as an alternative to national courts and as a framework for worldwide enforcement of adjudicated results, one cannot imagine in the international arena the kind of market competition between arbitration and litigation observable in the U.S. and reflected in the 2011 Fortune 1,000 survey. In other words, arbitration will undoubtedly remain the preferred mechanism for adjudication of international business disputes.

But there remains the important question of the future evolution and impact of mediated negotiation and other strategies that afford parties at least the possibility of earlier, quicker, less expensive, less formal, more private, and more appropriately tailored solutions to business conflict. It would be a mistake to assume the U.S. experience with mediation, so reflective of our culture and our system of justice, will be fully replicated internationally. On the other hand, it is reasonable to expect that over time international businesses will increasingly probe the opportunities to enhance their control and active management of conflict, including intervention strategies that help to promote greater cross-cultural and cross-border communication and which reduce the need for arbitration hearings. Such developments are likely to be stimulated to the extent that businesses perceive international arbitration is becoming more costly and less efficient—a perception that has factored significantly in recent years on the American scene.

What are your perspectives on the future of international commercial arbitration and dispute resolution? What questions or concerns, if any, are raised by observed trends among Fortune 1,000 corporations? The complete study, “Living with ADR: Evolving Perceptions and Use of Mediation, Arbitration and Conflict Management in Fortune 1,000 Corporations” by Thomas J. Stipanowich and J. Ryan Lamare may be found at http://ssrn.com/abstract=2221471.

More from our authors:

	Litigation in the Netherlands. Civil Procedure, Arbitration and Administrative Litigation - 2nd Edition by Marieke van Hooijdonk, Peter V. Eijsvoogel € 70
	Yearbook Commercial Arbitration Volume XXXVII 2012 by Albert Jan Van Den Berg (ed.) € 215
	International Arbitration: Law and Practice by Gary B. Born € 30
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

Herbert Smith Freehills LLP

In the case of HKL Group Co Ltd v Rizq International Holdings Pte Ltd the Singapore High Court (the “High Court”) has considered whether an arbitration clause in a contract which provided for disputes to be settled by arbitration in Singapore by a non-existent institution under the rules of the ICC was inoperable. The High Court found that the arbitration clause in question contained the necessary elements and was workable as long as the parties were able to secure the agreement of an arbitral institution in Singapore to conduct the arbitration.

The facts of the case are as follows. HKL Group Co Ltd (“HKL”) entered into an agreement with Rizq International Holdings Pte Ltd (“Rizq”) for the sale of sand which was to be shipped from Cambodia to Singapore (the “Agreement”).

HKL claimed that it had issued invoices to Rizq for amounts owed pursuant to the Agreement and that Rizq had failed to pay these amounts. HKL began court proceedings in Singapore to recover these amounts.

Under Section 6(2) of the Singapore International Arbitration Act (the “IAA”), the court can make an order, upon such terms or conditions as it may think fit, staying court proceedings so far as the proceedings relate to a matter which is the subject of an arbitration agreement, unless the court is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.

Rizq applied for the court proceedings to be stayed in favour of arbitration under s6(2) of the IAA on the basis of the arbitration clause contained in the Agreement which stated:

Any dispute shall be settled by amicable negotiation between [the] two Parties. In case both Parties fail to reach [an] amicable agreement, all dispute [sic] out of in connection with the contract shall be settled by the Arbitration Committee at Singapore under the rules of The International Chamber of Commerce [the ICC Rules] of which awards shall be final and binding [on] both parties . . .

HKL resisted Rizq’s application, saying that the arbitration clause was inoperable because there was no entity in Singapore named the “Arbitration Committee”. Rizq argued that although the arbitration clause was defective, it was clear that the parties’ intention was to arbitrate and the High Court should rely on the principle of effective interpretation to find that the “parties could still agree to arbitrate the matter in Singapore . . .”

Approach to pathological arbitration clauses in Singapore

The High Court gave interesting guidance on the general approach to be taken in considering pathological arbitration clauses, as well as considering the clause in question. The High Court started off by noting that in the majority of cases, when the contractual requirements for the validity of an arbitration clause are met and the meaning of the clause can be discerned by a court applying the general principles of contractual interpretation, the clause will be found to be operable as long as the conditions stipulated in the arbitration agreement have been complied with. If the court is unable to discern the meaning of the clause, either in part or entirely, then the clause will be considered inoperable, or pathological.

When faced with interpreting a potentially pathological arbitration clause, the High Court noted that the general approach is to give effect to the clause. The High Court cited the judgment of Insigma Technology Co Ltd v Alstom Technology Ltd in which the Court of Appeal of Singapore stated:

[W]here the parties have evinced a clear intention to settle any dispute by arbitration, the court should give effect to such intention, even if certain aspects of the agreement may be ambiguous, inconsistent, incomplete or lacking in certain particulars . . . so long as the arbitration can be carried out without prejudice to the rights of either party and so long as giving effect to such intention does not result in an arbitration that is not within the contemplation of either party . . .

The Court of Appeal in the Insigma case went on to note that this approach is similar to the principle of effective interpretation in international arbitration law; “where a clause may be interpreted in different ways, the interpretation which enables the clause to be effective should be adopted in preference to the others which lead to contrary effect.”

Nonetheless, the High Court found that the court will need to decide on a “case by case basis” whether arbitration clauses should be upheld or found to be pathological, but that the Singapore courts will “give primacy to the decision of the parties to arbitrate and will seek to resolve the various pathologies with the aid of the principle of effective interpretation.”

The High Court’s view of the clause in question

Readers of the Kluwer Blog will already have noticed that the defect in the arbitration clause related to the reference to the non-existent “Arbitral Committee at Singapore”.

The High Court noted that in general “an incorrect reference to the arbitral institution has not prevented the courts from referring the matter to arbitration.”

The High Court found that the arbitration clause was operable for various reasons:

1. It clearly demonstrated the intention of the parties to resolve disputes by arbitration;
2. It required the mandatory consequence of a matter being referred to arbitration if a dispute arose;
3. It provided for the place of arbitration (Singapore); and
4. It provided that the arbitration was to be governed by a particular set of rules (the ICC Rules).

However, the issue arose as to whether the reference to the ICC Rules in the arbitration agreement rendered the agreement inoperable as there was no National Committee of the ICC to administer the ICC arbitration in Singapore. The High Court found that although the arbitration clause was uncertain in relation to the arbitral institution, it was open to the parties to approach any arbitral institution in Singapore to administer the arbitration while applying the ICC Rules. The High Court specifically mentioned the Insigma case in which the Court of Appeal noted that the Singapore International Arbitration Centre (SIAC) “was able and willing, for that particular case, to conduct a hybrid arbitration, applying the ICC rules.”

Therefore, the High Court stayed the court proceedings in favour of arbitration but imposed “the condition that parties obtain the agreement of the SIAC or any other arbitral institution in Singapore to conduct a hybrid arbitration applying the ICC rules, with liberty to apply should they fail to secure any such agreement.”

Comment

This decision is interesting for two reasons. First, it provides further evidence of the strong support given to arbitration in the Singapore courts and the willingness to abide by parties’ agreement to arbitrate.

The second interesting point is the interplay between the court’s decision and the 2012 ICC Rules. In the Insigma case, cited by the High Court, the Court of Appeal upheld an arbitration clause that provided for the SIAC to administer a case under the ICC Rules.

However, after the Insigma ruling the ICC adopted a new set of rules (the “2012 ICC Rules”). The 2012 ICC Rules include Rules 1(2) and 6(2) which state:

The [International] Court [of Arbitration] is made the only body authorised to administer arbitrations under the ICC Rules

and

By agreeing to arbitration under the [ICC] Rules, the parties have accepted that the arbitration shall be administered by the Court.

In short, the 2012 ICC Rules are drafted to expressly exclude another institution from administering an ICC arbitration. However, the Singapore court did not discuss these provisions in the new ICC Rules or their implications as regards the possibility of the case being administered by another institution. Thus there was no discussion of whether the parties, by choosing Rules with these express requirements for administration by the ICC Court, had impliedly excluded the possibility of case administration by any other institution.

Conceivably, the Singapore court could have chosen another option, namely that ‘the Arbitration Committee’ was not intended as a reference to an arbitral institution at all but was merely a terminologically inaccurate reference to the tribunal that would decide the case in Singapore. That would have avoided any need to re-engage in the Insigma debate but the court may not have been presented with this option. In any event, the court did not adopt that interpretation but determined instead that the reference to ‘the Arbitration Committee’ was to be treated as the designation of an unspecified administering institution, and therefore that it would be for the SIAC (or any other arbitral institution in Singapore approached to administer the arbitration) to determine if it can and will administer the arbitration under the ICC Rules.

Although the SIAC agreed to administer the arbitration relevant to the Insigma case, it is unclear whether the SIAC, or another arbitral institution, will now agree to administer a “hybrid” arbitration under the ICC Rules given the introduction of Rules 1(2) and 6(2) in the 2012 ICC Rules, and the controversy that followed the earlier decision. It will also be interesting to see whether the court’s decision is appealed and whether the judgment stands. On any basis, it appears that the recent amendments to the ICC Rules have not yet fully doused the flames of the debate that was sparked by Insigma in 2009.

More from our authors:

	Litigation in the Netherlands. Civil Procedure, Arbitration and Administrative Litigation - 2nd Edition by Marieke van Hooijdonk, Peter V. Eijsvoogel € 70
	Yearbook Commercial Arbitration Volume XXXVII 2012 by Albert Jan Van Den Berg (ed.) € 215
	International Arbitration: Law and Practice by Gary B. Born € 30
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

Conway & Partners

There are many clients who are often engaged in industrious works that result in disputes. Typically, the applicable arbitral agreements requirement submitting claims to international arbitration and, in this author’s opinion, appropriately so. However, these same clients may also be subject to frequent claim assertions that lack any true merit. Despite this, there is not truly a mechanism in place to protect such clients against having to fully defend themselves against such frivolous claims.

Under the ICSID rules the situation is different. Originating in the 2006 Amendments, Rule 41(5) allows a party to object to a claim that is “manifestly without legal merit.” This rule has, over the years, been tested and utilized by ICSID investment treaty claims. As the ICSID framework operates independently, however, it is not subject to a review under the terms of the New York Convention.

Could and should such a process be extended to international commercial claims under the auspices of international arbitration institutions? Many arbitral rules have recently undergone rigorous review and changes from appointed committees, such as the ICC Arbitration Rules. However, no such rule as found in the ICSID Rules exists. Why? There are, perhaps, many cultural reasons but the most obvious issue stems from the New York Convention, which may allow a party to claim under Article V that it was not given a proper opportunity to be heard and make its case. Clearly, protecting one’s right to assert its full claim is legitimate, it can also lead to abuse of the system – ultimately, hassling companies by making them carry-on a full defense on what can be determined early-on as a claim “manifestly without legal merit.”

Other commentators have considered models found in the common law system, such as that often referred to summary judgment or in the civil law system, such as the “kort geding” in the Netherlands which captures elements of both the common law summary judgment style motions and interim measure reviews.

The question raised is whether it could possibly hold up against a claim under the New York Convention when seeking recognition or enforcement of an arbitral award. Published in the Arbitration International (the Journal of the London Court of International Arbitration) in 2010, myself along with two co-authors (Ned Beale and Matthijs Nieuwveld) considered some preliminary motion options in practice in the United Kingdom and The Netherlands. In the article, entitled Summary Arbitration Proceedings: A Comparison Between the English and Dutch Regimes, “The authors recognize that the Dutch kort geding procedures should be distinguished from the English summary judgment procedure, having a requirement of urgency, as opposed to a strong case on the merits, and producing, at least technically, only interim remedies. However, given that interim awards resulting from arbitration kort geding procedures are often not challenged in subsequent main proceedings, in reality such an interim award often amounts to a final, summary, disposition of the claim. Specific provision for arbitration kort geding procedures make such ‘summary’ dispositions fairly frequent in the Netherlands, and also on the authors’ analysis protect against risk of being refused recognition and enforcement under the New York Convention.

Given that arbitral summary judgment is relatively rare in England, and that on the authors’ analysis there is a risk of such awards being appealed to the English court or refused recognition and enforcement under the New York Convention, the authors conclude that there is a good argument for specifically providing for summary judgment in the 1996 Act and/or the LCIA Rules. Obviously, whether a tribunal would exercise such a power would remain in the tribunal’s discretion, but in the authors’ opinion an express statement of the tribunal’s powers in this regard would be a useful clarification of the law.” (Ned Beale, Lisa Bench Nieuwveld, and Matthijs Nieuwveld, 26/1 Arbitration International 159 (2010)).

Furthermore, there is no precedent – looking to the ICSID examples can give arbitrators something to rely on when considering using a rule that would allow early-on review of the merits. What is crucial is finding a way to satisfy the NY Convention Article V(b) wherein the party may seek setting aside the arbitral award because the party was “unable to present his case.”

Surely, this can be worked around? The parties can “adequately” present their case while clearly demonstrating early on whether there are sufficient merits to press forward with a full-blown arbitration? I have no doubt this sparks controversy arising from all of our legal system biases, etc., but thoughts would be interesting to hear – is it ever possible to follow the ICSID example when constrained by the NY Convention? If so, how?

More from our authors:

	Litigation in the Netherlands. Civil Procedure, Arbitration and Administrative Litigation - 2nd Edition by Marieke van Hooijdonk, Peter V. Eijsvoogel € 70
	Yearbook Commercial Arbitration Volume XXXVII 2012 by Albert Jan Van Den Berg (ed.) € 215
	International Arbitration: Law and Practice by Gary B. Born € 30
	Arbitrating Under the 2012 ICC Rules. An Introductory User’s Guide by Jacob Grierson, Annet van Hooft € 140

Lalive

In a recently published decision dated 6 August 2012 (4A_119/2012), the Swiss Federal Supreme Court confirmed its own jurisprudence according to which state courts facing a jurisdictional defense based on an alleged arbitration agreement must not assess in full the validity of the arbitration agreement.  In such cases, the state court must limit itself to a summary examination of whether or not a valid arbitration agreement exists.

The case which gave rise to the Supreme Court’s decision dealt with an asset management agreement concluded by a wealthy German businesswoman, Ms. Y, with Asset Manager X.  Pursuant to the agreement, Ms Y had transferred a total amount of DM 1.5 million into a bank account opened with Bank A over which the director of X was given a power of attorney.

After four years, Ms. Y and Asset Manager X entered into a trust and mandate agreement with U Inc., Panama, for the setting up of a Panama Foundation.  The asset manager was given the role of managing all assets of the newly created Panama Foundation, the beneficiaries of which were Ms. Y and her son.  The mandate and trust agreement, signed by U Inc. and Ms. Y, as well as by the Asset Manager X as general proxy holder, was made subject to Swiss Law and contained the following arbitration clause:

“All disputes arising out or in connection with this agreement are to be resolved by a Sole Arbitrator in accordance with the International Arbitration Rules of the Zurich Chamber of Commerce with seat in Zurich, under exclusion of the ordinary state courts.”

Ms. Y transferred an amount of EUR 446,521 to the account of the Panama Foundation.  However, the initial amount of DM 1.5 million was not included in the assets of the Foundation.

Dissatisfied by substantial losses suffered by herself and by the Foundation, which Asset Manager X had in the meantime wound up without her knowledge, Ms Y initiated proceedings against Asset Manager X before the Zurich Commercial Court. She sought compensation for damages incurred and a full accounting of all finder’s fees and commissions (according to a relatively recent decision of the Swiss Federal Supreme Court, a bank or fund must disclose such commissions to the account holder, who is entitled to be credited the amount of the commissions).

Asset Manager X objected to the jurisdiction of the Commercial Court, taking the position that the dispute fell within the scope of the arbitration agreement in the mandate and trust agreement.  The Commercial Court of Zurich rejected the objection.  It found that it had jurisdiction to decide all claims resulting from the management of Ms. Y’s and the Foundation’s assets unless such claims were directly based on the mandate and trust agreement.  This was not the case since Ms Y’s claims in the Zurich court were rooted in another (earlier) mandate relationship, an agency of necessity, and an asset management agreement that contained no arbitration clause.

Asset Manager X appealed the Commercial Court’s decision on jurisdiction before the Swiss Federal Supreme Court.  He took the view that the Commercial Court had exceeded its jurisdiction by performing a full blown analysis of the scope of the arbitration agreement rather than subjecting the clause to a summary review only.  As the arbitration agreement in the mandate and trust agreement was valid, a summary review would inevitably have led the Commercial Court to deny its own jurisdiction and to refer the parties to arbitration.

The Supreme Court upheld the appeal and annulled the Commercial Court’s decision. It recalled its earlier case law that the state courts’ power of review of an arbitration agreement is limited to a summary, prima facie, examination (Article 7 PIL Act).  The courts can only admit jurisdiction over a party invoking an arbitration agreement if it is manifestly void or inapplicable.

The Swiss Federal Supreme Court added that the prohibition of full review not only applies to the question of the existence of the arbitration agreement, but also to the question of its scope.  In the case at hand, the Zurich Commercial Court had exceeded its powers by construing the arbitration clause in full.  The Supreme Court found that a proper (summary) review of the clause would have shown that the arbitration agreement was prima facie applicable, subject to a later decision by the arbitral tribunal.  It was undisputed that there existed a valid arbitration agreement between the parties.  In such circumstances, nothing justified a restrictive interpretation of this arbitration clause.  To the contrary, the parties’ intent to have their disputes decided by an arbitral tribunal must be respected and it must not to be presumed that the parties would choose to have one aspect of their relationship decided by a state court and another by an arbitral tribunal.  Furthermore, the inclusion of the terms “arising out of or in relation to” the contract in the arbitration clause was prima facie evidence of the parties’ intent to have all claims arising from or directly related to the subject matter governed by the contract decided by an arbitral tribunal, even if they allegedly concerned another mandate.

The matter recalls an earlier Swiss Federal Supreme Court decision, dated 9 January 2008 (4A_436/2007, ASA Bull. 2/2008, pp 329-352), dealing with a French couple which had retained a Geneva lawyer to organize the establishment of their domicile in Geneva and to negotiate a tax arrangement with the local authorities.  The clients signed a power of attorney which contained an arbitration agreement.  Some time thereafter, the French couple asked their lawyer whether the purchase of a house in Geneva would have an impact on their tax arrangement.  The lawyer advised that it would not, and the French couple proceeded to buy the house.  Contrary to the lawyer’s advice, however, the authorities increased the tax payable by the couple.  The couple sued their lawyer in the Geneva Court.

The lawyer objected to the Geneva Court’s jurisdiction based on the arbitration agreement in the power of attorney, however the Court dismissed the objection and heard the case.  The lawyer then appealed to the Supreme Court, arguing that the lower court had exceeded its power by fully examining the applicability of the arbitration agreement, rather than performing only a summary review.  The Supreme Court dismissed the argument, ruling that it would have been evident to the lower court, even in a summary review, that the arbitration agreement was not applicable to a new mandate for which the lawyer had been retained after having completed the previous mandate, which was covered by the power of attorney.

More from our authors:

	International Arbitration: Law and Practice by Gary B. Born € 30
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Lalive

In the recent case of Itochu Corporation vs. Johann M.K. Blumenthal GMBH & Co KG & Anr [2012] EWCA Civ 996 (“Itochu vs. Blumenthal”), the English Court of Appeal decided obiter that – in the absence of an agreement on the number of arbitrators – a sole arbitrator should be appointed even when the arbitration clause suggested that the parties contemplated more than one arbitrator.

In this case, a dispute had arisen between the parties under a Letter of Guarantee containing an arbitration clause which provided as follows:

Any dispute arising out of this LETTER of GUARANTEE shall be submitted to arbitration held in London in accordance with English law, and the award given by the arbitrators shall be final and binding on both parties.

While Blumenthal argued that the clause provided for a sole arbitrator, Itochu argued that the tribunal should be composed of three arbitrators given the reference to “arbitrators” in the arbitration clause.

Blumenthal subsequently applied to the English Commercial Court for an order under section 18 (3)(d) of the English Arbitration Act 1996 (“the Act”) that a sole arbitrator be appointed. Itochu contested the application and argued that the Court should instead give directions under section 18(3)(a) of the Act for the appointment of a tribunal of three arbitrators.

The Commercial Court considered that the relevant issue to be decided in this case was whether section 15(3) of the Act – which provided that “[i]f there is no agreement as to the number of arbitrators, the tribunal shall consist of a sole arbitrator” – applied despite the fact that the parties contemplated a tribunal of more than one arbitrator. The answer, in short, was yes. The Court recognized that its decision represented an “apparent departure from the principle of parties’ autonomy generally adopted by the … Act” but laid emphasis on the purported aim of section 15 to ensure the efficiency of the arbitral proceedings as well as the unambiguous wording of section 15(3) of the Act.

Itochu appealed and argued before the Court of Appeal that effect ought to be given to the parties’ intention that the tribunal would be comprised of more than one arbitrator. Itochu contended that the arbitration clause envisaged three arbitrators, or if it contemplated two arbitrators, an additional arbitrator as Chairman would be required to be appointed in accordance with section 15(2) of the Act.

Although the Court of Appeal held that it did not have jurisdiction to hear the appeal, it nonetheless stated that it agreed with the conclusion reached by the Commercial Court. While the Court accepted that the parties had contemplated more than one arbitrator, it held that it was impossible to read into the clause an agreement as to the number of arbitrators and that absent such an agreement, section 15(3) of the Act provided unambiguously for the appointment of a sole arbitrator. The Court pointed out that the purpose of this rule was to prevent the stalling of an arbitration when there was a failure in the appointment procedure and was an example of Court support for arbitration and not an infringement on party autonomy.

The appointment of a sole arbitrator in this case sits uncomfortably with the parties’ clear intention in the arbitration clause to appoint more than one arbitrator. The Court of Appeal held that it was impossible to read into the arbitration clause an agreement as to the number of arbitrators. However, while there was indeed no agreement on the exact number of arbitrators, there was an agreement that there should be more than one arbitrator.

Section 15(3) of the Act sets out a presumption in favour of a sole arbitrator when the parties have not agreed on the number of arbitrators as the drafters did not want to impose on the parties the burden of paying for three arbitrators (see DAC Report on the Arbitration Bill, para. 79). However, in this case, the parties had clearly contemplated the possibility of more than one arbitrator and that they would have to pay for more than one arbitrator. As a result, such presumption should have been rebutted in favour of the only other choice in practice, which was three arbitrators.

Different national laws take different approaches with respect to the number of arbitrators to be appointed in the absence of an agreement between the parties. While common law jurisdictions generally tend to be in favour of sole arbitrators, civil law jurisdictions tend to lean towards the appointment of a three member tribunal. Hence, in the U.S., Hong Kong, India, and Singapore, a sole arbitrator is appointed by the court in the absence of an agreement (U.S. FAA §5, Hong Kong Arbitration Ordinance, Art.8; Indian Arbitration and Conciliation Act, Art. 10(2); Singapore International Arbitration Act, §9). Conversely, in Belgium, Austria, Japan and Denmark, three arbitrators are to be appointed in the absence of an agreement (Belgian Judicial Code, Art. 1681(3); Austrian ZPO, §580; Japanese Arbitration Law, Art. 16(2); Danish Arbitration Act, §10(2)). A third approach adopted by the courts in the Netherlands is to leave it up to the discretion of the judge to decide (Netherlands Code of Civil Procedure, Art. 1026(2)). A similar provision in the English Arbitration Act would most certainly have led to a different conclusion in Itochu vs. Blumenthal. While a reform of the English Arbitration Act 1996 is obviously not on the cards in the near future, a similar provision to the one adopted in Article 5(4) of the LCIA Rules would maintain the presumption that a sole arbitrator be appointed in the absence of an agreement on the number of arbitrators but nonetheless endow the court with discretion to appoint a three member tribunal when this is appropriate in the circumstances.

For now, in light of the obiter dicta of the Court of Appeal in this judgment, parties wishing to submit any dispute under their contract to ad hoc arbitration under English law would be well advised to expressly state the number of arbitrators to be appointed in their arbitration agreement.

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Lalive

In the recent case of Itochu Corporation vs. Johann M.K. Blumenthal GMBH & Co KG & Anr [2012] EWCA Civ 996 (“Itochu vs. Blumenthal”), the English Court of Appeal decided obiter that – in the absence of an agreement on the number of arbitrators – a sole arbitrator should be appointed even when the arbitration clause suggested that the parties contemplated more than one arbitrator.

In this case, a dispute had arisen between the parties under a Letter of Guarantee containing an arbitration clause which provided as follows:

Any dispute arising out of this LETTER of GUARANTEE shall be submitted to arbitration held in London in accordance with English law, and the award given by the arbitrators shall be final and binding on both parties.

While Blumenthal argued that the clause provided for a sole arbitrator, Itochu argued that the tribunal should be composed of three arbitrators given the reference to “arbitrators” in the arbitration clause.

Blumenthal subsequently applied to the English Commercial Court for an order under section 18 (3)(d) of the English Arbitration Act 1996 (“the Act”) that a sole arbitrator be appointed. Itochu contested the application and argued that the Court should instead give directions under section 18(3)(a) of the Act for the appointment of a tribunal of three arbitrators.

The Commercial Court considered that the relevant issue to be decided in this case was whether section 15(3) of the Act – which provided that “[i]f there is no agreement as to the number of arbitrators, the tribunal shall consist of a sole arbitrator” – applied despite the fact that the parties contemplated a tribunal of more than one arbitrator. The answer, in short, was yes. The Court recognized that its decision represented an “apparent departure from the principle of parties’ autonomy generally adopted by the … Act” but laid emphasis on the purported aim of section 15 to ensure the efficiency of the arbitral proceedings as well as the unambiguous wording of section 15(3) of the Act.

Itochu appealed and argued before the Court of Appeal that effect ought to be given to the parties’ intention that the tribunal would be comprised of more than one arbitrator. Itochu contended that the arbitration clause envisaged three arbitrators, or if it contemplated two arbitrators, an additional arbitrator as Chairman would be required to be appointed in accordance with section 15(2) of the Act.

Although the Court of Appeal held that it did not have jurisdiction to hear the appeal, it nonetheless stated that it agreed with the conclusion reached by the Commercial Court. While the Court accepted that the parties had contemplated more than one arbitrator, it held that it was impossible to read into the clause an agreement as to the number of arbitrators and that absent such an agreement, section 15(3) of the Act provided unambiguously for the appointment of a sole arbitrator. The Court pointed out that the purpose of this rule was to prevent the stalling of an arbitration when there was a failure in the appointment procedure and was an example of Court support for arbitration and not an infringement on party autonomy.

The appointment of a sole arbitrator in this case sits uncomfortably with the parties’ clear intention in the arbitration clause to appoint more than one arbitrator. The Court of Appeal held that it was impossible to read into the arbitration clause an agreement as to the number of arbitrators. However, while there was indeed no agreement on the exact number of arbitrators, there was an agreement that there should be more than one arbitrator.

Section 15(3) of the Act sets out a presumption in favour of a sole arbitrator when the parties have not agreed on the number of arbitrators as the drafters did not want to impose on the parties the burden of paying for three arbitrators (see DAC Report on the Arbitration Bill, para. 79). However, in this case, the parties had clearly contemplated the possibility of more than one arbitrator and that they would have to pay for more than one arbitrator. As a result, such presumption should have been rebutted in favour of the only other choice in practice, which was three arbitrators.

Different national laws take different approaches with respect to the number of arbitrators to be appointed in the absence of an agreement between the parties. While common law jurisdictions generally tend to be in favour of sole arbitrators, civil law jurisdictions tend to lean towards the appointment of a three member tribunal. Hence, in the U.S., Hong Kong, India, and Singapore, a sole arbitrator is appointed by the court in the absence of an agreement (U.S. FAA §5, Hong Kong Arbitration Ordinance, Art.8; Indian Arbitration and Conciliation Act, Art. 10(2); Singapore International Arbitration Act, §9). Conversely, in Belgium, Austria, Japan and Denmark, three arbitrators are to be appointed in the absence of an agreement (Belgian Judicial Code, Art. 1681(3); Austrian ZPO, §580; Japanese Arbitration Law, Art. 16(2); Danish Arbitration Act, §10(2)). A third approach adopted by the courts in the Netherlands is to leave it up to the discretion of the judge to decide (Netherlands Code of Civil Procedure, Art. 1026(2)). A similar provision in the English Arbitration Act would most certainly have led to a different conclusion in Itochu vs. Blumenthal. While a reform of the English Arbitration Act 1996 is obviously not on the cards in the near future, a similar provision to the one adopted in Article 5(4) of the LCIA Rules would maintain the presumption that a sole arbitrator be appointed in the absence of an agreement on the number of arbitrators but nonetheless endow the court with discretion to appoint a three member tribunal when this is appropriate in the circumstances.

For now, in light of the obiter dicta of the Court of Appeal in this judgment, parties wishing to submit any dispute under their contract to ad hoc arbitration under English law would be well advised to expressly state the number of arbitrators to be appointed in their arbitration agreement.

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www.marcgold.ca

In recent years, Canada has an enjoyed a reputation as an arbitration-friendly country. This is due to a number of factors, including the incorporation or adaptation of the Model Law into the arbitration legislation at the provincial and federal level, a sophisticated arbitration community well versed in both the common and civil law traditions, and, more than anything else, a judiciary that has come to respect, and indeed to encourage, the arbitration process once it has been properly invoked by the parties. In this respect, the Supreme Court of Canada has played a central role by giving a broad interpretation to the scope of arbitral power and taking what all would agree was a pro-arbitration stance.

The question is whether that stance has changed in light of the Court’s decision of last year in Seidel v. TELUS Communications Inc. [2011] 1 S.C.R. 531. The purpose of this note is to assess the Canadian case-law citing Seidel to determine what impact it had on the attitude of Canadian courts to the arbitration process.

At issue in Seidel was the enforceability of clause inserted into the standard form cellular phone services contract, which referred disputes to private and confidential mediation and arbitration and purported to waive any right to commence or participate in a class action. A class action against Telus was commenced alleging deceptive and unconscionable practices under section 172 of the Business Practices and Consumer Protection Act of British Columbia (S.B.C. 2004, c. 2). Telus brought an action to stay the proceedings on grounds that the matters were properly subject to arbitration. Although the argument did not prevail before the judge of first instance, the British Columbia Court of Appeal held that the arbitration clause applied and ordered a stay of all proceedings pending arbitration. The Supreme Court of Canada reversed. By a majority of 5-4, the Court held that claims brought against Telus were inarbitrable. The Court characterized the provisions of the Act as creating a public interest remedy, one in which the public interest would not be served by being addressed in private and confidential arbitration hearings. The Court inferred a legislative intent to have such claims dealt with by the ordinary courts, and accordingly allowed the class action to proceed.

In a posting sharply critical of the case, Professor Frédéric Bachand worried that Seidel will have the effect of changing the attitude of Canadian courts to the arbitration process. In his view, “[t]he key lesson is that, when faced with an ambiguity in statutory provisions or precedents bearing on an arbitration law issue, Canadian courts can no longer be safely expected to prefer the pro-arbitration solution”. Responding to his concern, others thought that the case would be relatively confined to the area of consumer protection legislation and remedies.

It has now been well over a year since Seidel was decided, and it appears fairly clear that the worst fears about the impact of Seidel have not been realized. Equally interesting, it also appears that Seidel has not had a dramatic impact even in the area of so-called consumer protection legislation.

At the time of writing, Seidel has been cited in sixteen cases. (For a list of these cases and links thereto, see here.) Of these, six are irrelevant for our purposes, Seidel typically being cited for the proposition that consumer legislation should be interpreted generously in favour of consumers or for the general rules governing class actions. No arbitral issue was raised in these cases.

In the remaining ten cases where an issue of arbitration did arise, there is no evidence that Seidel has had a negative impact on courts’ attitudes towards the arbitration process.

In cases where consumer protection legislation was not at issue, the courts citing Seidel have tended to support the arbitration process, whether deferring to arbitrators’ ruling on the scope of their jurisdiction, or upholding the scope of an arbitrator’s remedial powers. (Regarding jurisdiction, see Padmawar v. Altig and Altig International, 2011 BCSC 682 (CanLII); 1338121 Ontario v. FDV Inc., 2011 ONSC 3816 (CanLII); Boxer Capital Corporation v. Marine Land Developments Ltd., 2012 BCSC 684 (CanLII); Ontario v. Imperial Tobacco Canada Limited, 2011 ONCA 525 (CanLII). Regarding remedial powers, see Mercer Gold Corporation (Nevada) v. Mercer Gold Corp (B.C.), 2012 BCCA 103 (CanLII).)

Even where class action proceedings were at issue, Seidel seems to be limited in its impact. Where a class action was allowed to proceed despite the existence of an arbitration agreement, it was strictly on the basis that the defendant in the class action suit was not a party to the arbitration agreement in question. (See Ontario v. Imperial Tobacco Canada Limited, 2011 ONCA 525 (CanLII). Indeed, in the case of the parties to the agreement, the Court upheld the arbitrator’s determination that he had jurisdiction over the dispute.) In another case, an application to exclude a class from a class action suit because of an ostensible arbitration agreement was rejected on the basis that there was no evidence of the arbitration agreement. (Toronto Community Housing Corporation v. Thyssenkrupp Elevator (Canada) Limited, 2011 ONSC 4914 (CanLII).) In neither case can it be said that Seidel had a material bearing on the orientation of the courts towards arbitration.

What then of those cases where consumer protection legislation was at issue? Even here, Seidel has not had the anti-arbitration impact that some feared.

In Kary v. 1147237 Alberta Ltd., 2011 ABPC 178 (CanLII), a provincial court judge in Alberta cited Seidel for the proposition that an arbitration clause did not preclude a class action proceeding based upon provincial consumer legislation, but the case was informed by the judge’s doubts as to whether or not an arbitration agreement was, in fact, in effect at all.

More significantly, in Telus v. Comtois, 2012 QCCA 170 (CanLII), the Quebec Court of Appeal had to consider an arbitration clause between Telus and its corporate customers. Seidel was cited on a number of occasions, first for the proposition that in the absence of a contrary provision of law, an arbitration clause should be deferred to by courts and later to support the proposition that the arbitration clause in the service contracts with Telus’ corporate customers were valid and not abusive as per the terms of the relevant Quebec legislation. This hardly reflects an anti-arbitration virage by Canadian courts.

Indeed, one court seems to have gone out of its way to place Seidel in the context of the pro-arbitration line of Supreme Court of Canada cases. In Murphy v. Compagnie Amway Canada, 2011 FC 1341 (CanLII), the Federal Court had to consider the relationship of the class action remedy under the Competition Act (RSC 1985, c. C-34) with the existence of an arbitration clause in the Registration agreement between the plaintiff and Amway. The Court rejected the analogy between the Competition Act and the consumer protection legislation at issue in Seidel, and held that the arbitration clause applied. It is worth citing the Court’s reasons for judgment at some length.

[42] Although more recent, the Siedel case comes after a long string of Supreme Court of Canada decisions which have contributed to confirming Canada’s status as an “arbitration-friendly” jurisdiction. In particular, the Court recalls the Supreme Court of Canada’s landmark decision in Desputeaux v Éditions Chouette (1987) inc., 2003 SCC 17 (CanLII), 2003 SCC 17, [2003] 1 SCR 178 [Desputeaux], which stands for the principle that a statute cannot be assumed to exclude arbitration unless it so states (para 42). This principle was also acknowledged in Dell Computer Corp. v Union des consommateurs, 2007 SCC 34 (CanLII), 2007 SCC 34, [2007] 2 S.C.R.801 [Dell], Rogers Wireless v Muroff, 2007 SCC 35 (CanLII), 2007 SCC 35, [2007] 2 SCR 921 [Rogers] and Bisaillon v Concordia University, 2006 SCC 19 (CanLII), 2006 SCC 19, [2006] 1 SCR 666 [Bisaillon]. These cases – and the Siedel case does not take exception to this – all illustrate that arbitration agreements must be enforced by courts absent specific legislative language to the contrary.

[43] More particularly, the majority reaffirmed this principle in Seidel at paras 2 and 42:

[2] The choice to restrict or not to restrict arbitration clauses in consumer contracts is a matter for the legislature. Absent legislative intervention, the courts will generally give effect to the terms of a commercial contract freely entered into, even a contract of adhesion, including an arbitration clause. …

[42] For present purposes, the relevant teaching of Dell and Rogers Wireless is simply that whether and to what extent the parties’ freedom to arbitrate is limited or curtailed by legislation will depend on a close examination of the law of the forum where the irate consumers have commenced their court case. Dell and Rogers Wireless stand, as did Desputeaux, for the enforcement of arbitration clauses absent legislative language to the contrary. [Emphasis in Original]

[44] The Court accordingly may not, absent legislative language to this effect, assert jurisdiction over a matter that is subject to an arbitration agreement. The enforcement of arbitration agreements has long been recognized by Canadian jurisprudence as an acknowledgment of the “jurisdictional choice” made by the parties. This has been the case in the face of class action waivers applicable to matters subject to public order consumer protection legislation void of language to the contrary (Dell).

It is hard to imagine a stronger pro-arbitration stance by a judge, one that seems designed to ensure that Seidel does not become a point de départ for a change in judicial attitude towards the arbitration process.

In conclusion, a review of the sixteen cases in which Seidel was cited reveal no clear change in the Canadian judiciary’s attitude towards the arbitration process. Even in cases where consumer legislation and class action remedies were at issue, Canadian courts do not appear to have wavered from a generally pro-arbitration stance. In this respect, it would appear that the worst fears of some commentators have not been realized.

To be sure, it may take longer for the full impact of Seidel to be felt as lawyers incorporate it into their arguments at trial and on appeal, and any predictions about how courts will incorporate its teachings should be approached with cautious reservation. (I recall my constitutional law professor observing that she who lives by the crystal ball must be prepared to eat glass.) Nonetheless, it does seem safe to say that the arbitration process is alive and well in Canada and that the pro-arbitration stance of the Canadian judiciary appears to be holding.

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On 1 June 2012, the new revised version of the Swiss Rules of International Arbitration (“Swiss Rules”) will come into force.  According to Article 1.3, the new Rules will apply to all Swiss Rules proceedings in which the Request for Arbitration is submitted after 1 June 2012, unless the Parties agree otherwise.

The Swiss Rules 2012 build on the initial version of the Swiss Rules, which were created in 2004 in order to harmonize the arbitration rules of six Swiss Chambers of Commerce (those of Basel, Berne, Geneva, Ticino (Lugano), Vaud (Lausanne), and Zurich, joined later by Neuchâtel).  The 2004 Rules were based on the UNCITRAL Arbitration Rules, although they were adapted by the Chambers for use in an institutional framework. They therefore already contained some novel features, including the possibility of consolidation and joinder, as well as mandatory expedited arbitration in certain circumstances.

The Swiss Rules 2012 do not constitute a complete overhaul of the original version of the Rules, which worked well in practice, and they maintain the traditional flexibility of the Swiss Rules.  They do, however, incorporate a number of important changes (for a thorough analysis of the Swiss Rules 2012 see P. Habegger, “The Revised Swiss Rules of International Arbitration – An Overview of the Major Changes”, in ASA Bull. 2/2012 (forthcoming)).

The “Swiss Chambers’ Arbitration Institution” and “Arbitration Court”

Until now, arbitration cases under the Swiss Rules were administered directly by the various Chambers. With the entry into force of the 2012 revision, arbitration services will be provided on behalf of the Chambers by the new “Swiss Chambers’ Arbitration Institution” (see https://www.swissarbitration.org/sa/en/), an association incorporated under the laws of Switzerland as a separate legal entity, and which is independent of the Chambers.  In addition, the old “Arbitration Committee”, appointed by the Chambers to oversee the handling of cases under the Swiss Rules, will be replaced by the “Arbitration Court” of the Swiss Chambers’ Arbitration Institution.

Although these changes might seem to be merely administrative in nature, they represent a significant step forward for the Swiss Rules. It took a decade for the Swiss Chambers to unite behind a single set of arbitration rules. It is therefore no small feat, in federalist Switzerland, that the leading Chambers from all across the country have now agreed on a joint administrative structure. The step strengthens the role of the Rules, as the structure within which they are administered now reflects their uniform nature. It also brings the Rules in line with all other arbitration rules in frequent use in Europe (ICC, LCIA, SCC, Vienna, etc.), which are administered by central structures.

The Swiss Chambers administer disputes unless “there is manifestly no agreement to arbitrate referring to” the Swiss Rules (Article 3.12, which corresponds to Article 3.6 of the Swiss Rules 2004). Clauses referring to arbitration “of the International Chamber of Commerce of (Swiss city)” and “to the appropriate board in the Canton of X” have been accepted by the Chambers as referring to the Swiss Rules.

Expedited Procedure

One of the important innovations of the 2004 version of the Swiss Rules was the mandatory Expedited Procedure for cases with amounts in dispute of less than one million Swiss Francs (Article 42(2)). Contrary to other institutions, the Swiss Chambers enforce time limits strictly, and almost all expedited proceedings are completed within the prescribed six month period from the time of transmission of the file to the arbitrator (Article 42(1)(d)). Such expedited proceedings play an important role in various sectors, including in resolving the very frequent disputes arising in the field of commodities trading, for which Geneva is one of the most important centers.

Unlike the 2004 Rules, the revised 2012 Rules now explicitly provide that the arbitrator only has to begin his or her work once the parties have made a provisional cost deposit. Indeed, pursuant to Article 42(1)(a), the Secretariat of the Arbitration Court will transmit the file to the arbitrator only after “payment of the Provisional Deposit as required by Section 1.4 of Appendix B (Schedule of Costs)”.

The value in dispute for the purposes of determining whether the Expedited Procedure is applicable is calculated upon receipt of the Answer to the Notice of Arbitration (Article 3(11) of the Swiss Rules 2012, which corresponds to Article 3(10) of the Swiss Rules 2004).  The determination is not affected by any subsequent increase in the value of claims or counterclaims, for example in the Statement of Defence. Article 42(1) also allows for voluntary expedited proceedings. Indeed, the parties are free to agree to subject their disputes to expedited proceedings even if the amount in dispute exceeds one million Swiss Francs.

Emergency Relief

One of the main innovations of the 2012 revision of the Swiss Rules is the provision regarding Emergency Relief at Article 43. The provision allows parties to seek urgent interim measures prior to the constitution of the tribunal. Article 43 is applicable by default unless the parties opt out of the Emergency Relief regime.  As an alternative, the parties are also free to file for interim measures before state courts (Article 43(1) with Article 26).

The applicant may file for urgent interim relief either before or after submitting the Notice of Arbitration. If the Notice of Arbitration has not been submitted at the moment the applicant applies for interim relief, a Notice of Arbitration has to be submitted “within ten days from the receipt of the Application [for interim relief]” (Article 43(3)). Otherwise, the Court will terminate the proceedings for Emergency Relief.

The emergency arbitrator decides by way of an order or an interim award. Since Article 43(1) refers to Article 26, the emergency arbitrator’s decisions have the same effect as standard decisions on interim measures rendered by the constituted tribunal under Article 26. Emergency relief decisions pursuant to Article 43 are therefore enforceable to the same extent as interim measures decisions rendered by an arbitral tribunal, although whether interim measures ordered by an arbitral tribunal are enforceable in practice ultimately depends on the laws of the country where such measures have to be enforced.

Transitional Rules

According to Article 1.3, the Swiss Rules 2012 “shall come into force on 1 June 2012 and, unless the parties have agreed otherwise, shall apply to all arbitral proceedings in which the Notice of Arbitration is submitted on or after that date.” In principle, this means that parties that have entered into a Swiss Rules arbitration agreement prior to 1 June 2012, without having expressly excluded the application of the revised Swiss Rules, are deemed to have consented to the application of the revised Rules, including of the Emergency Relief provisions.

A party could however argue that the inclusion of Emergency Relief in the Swiss Rules is a major change which was both unforeseeable and unforeseen at the time of the conclusion of the arbitration agreement. The Swiss Federal Supreme Court has addressed how an arbitration agreement referring to the rules of an arbitration institution should be interpreted if arbitration is initiated after the rules were revised. In Komplex v. Voest-Alpine Stahl (ASA Bull. 1994, p. 226, Commentary by Sébastien BESSON, p. 230), the Federal Tribunal held that an arbitration agreement must be construed like any other contract, in accordance with the common intention of the parties. Consequently, a clause that expressly stipulates that arbitration should be subject to the arbitration rules in force at the time of the conclusion of the contract is likely to be enforced by the Arbitration Court of the Swiss Chambers’ Arbitration Institution. If, however, the parties did not specify the applicable version of the rules, the Komplex test would apply, according to which the new version of the provision at issue would apply unless the changes made to the old version result in structural and fundamental differences.

In the Komplex case, the parties had signed a contract in 1978. At that time, the ICC Rules of 1975 were in force. When, in subsequent arbitration proceedings, an arbitrator resigned, one of the parties claimed that the applicable replacement procedure should be that provided for in the 1988 version of the ICC Rules. The other party argued that the 1975 rules continued to apply. The Federal Supreme Court analysed both sets of Rules and came to the conclusion that the parties would have entered into their contract irrespective of which version of the ICC Rules applied since their principal choice was of arbitration as opposed to litigation. The judges found that the 1988 revision did not fundamentally alter the ICC system and that the new rule on the replacement of arbitrators was not surprising or untenable. Consequently, the Federal Tribunal confirmed that the new rules were applicable.

Conclusion

The revised version of the Swiss Rules will usher in a new era for Swiss Chambers arbitration.  The changes do not constitute an overhaul of the original 2004 Rules, which have proved themselves in practice, however they do significantly strengthen the Rules.

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