Month: February 2011

In the recent case of Hanwa Corp. v. Cedar Petrochemicals, Inc., 2011 WL 165404 (S.D.N.Y.), the court concluded that a Korean buyer of the petrochemical toulene had not made an effective offer to purchase under Article 14 of the CISG because it did not reveal an intent to be bound when it made its bid for the goods.  The court determined that the parties had created a practice between themselves of a two-step process of contract formation in which neither party performed until they had reached agreement on terms that were not included in initial bids.  Analysis of the circumstances in which the parties’ prior transactions occurred supported the proposition that they had not entered into a final contract when they disagreed about a choice of law clause, even if they had already agreed on product, quantity, and price.

In the course of reaching that decision, however, the court made broader allusions to the role of intent in contract formation under the CISG. Unfortunately, those allusions reveal a possible misunderstanding of the CISG’s position on the use of subjective versus objective intent. Moreover, the court’s comment is consistent with remarks made in at least one other American CISG opinion and thus requires some clarification.

The court in Hanwa Corp. began its analysis of the intent to contract issue by referencing CISG Article 8 for the proposition that “although the CISG expresses a preference that the offeror’s intent be considered subjectively, that consideration is not possible in this case since neither party submitted any competent evidence of their subjective intentions.”  It is certainly true that in the hierarchy of intent, subjective intent of the parties, when properly applicable, takes priority over other tools of interpretation.  But that is a far cry from a claim that the CISG “expresses a preference that the offeror’s intent be considered subjectively.”  The latter comment suggests that subjective intent consistently dominates objective evidence in the formation or interpretation of contracts.  The court’s comment might be dismissed as an overstatement or a casual dismissal of an issue not really before the court, given that no evidence of subjective intent was available.  Nevertheless, it is reminiscent of other judicial references to the relevance of subjective intent under the CISG.  Perhaps most notably, the court in the well-known case of MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino, S.P.A., 144 F.3d 1384 (11^th Cir. 1998), purported to juxtapose Article 8(1)’s invocation of subjective intent with the American “preference for relying on objective manifestations of the parties’ intentions,” and cited Justice Holmes for the proposition that the law was unconcerned with “the actual state of the parties’ minds.”

One might infer from these comments that the CISG has embraced 19^th century notions of subjective intent that required an actual meeting of the minds before contracts were concluded.  American contract jurisprudence has subsequently replaced reliance on largely unverifiable subjective intentions with more objective measures, as evidenced by the Restatement (2d) of Contracts reference to “manifestations” of a party’s intent rather than to the intent itself.  One underlying rationale is that it is less costly for the idiosyncratic actor whose subjective meaning or hidden intentions deviate from normal expectations of counterparties to explain his or her actual intentions than for each actor to attempt to discern the actual meaning of his or her counterparty.  The judicial references to the CISG’s elevation of the subjective view therefore suggests a view of contract more concerned with protecting the autonomous intentions of commercial actors than with reducing the transactions costs.

But these references to the primacy of subjective intent in Article 8(1) appear to misunderstand the scope of its application.  Article 8(1) does, of course, make subjective intent the measure of a party’s meaning, whether to determine the existence of a contract or to interpret its terms.  But it does so only when the other party could not have been unaware of that subjective intent.  A well-hidden, subjective intent of which the counterparty neither was nor should have been aware plays no role in the process.  An expression of desire to enter into a contract that commercially reasonable actors would take as sincere is not undermined by a subsequent claim that the speaker had private reservations.  Nor should it be.  Transactions costs would increase dramatically if actors had to discern the secret, if honestly held, beliefs of counterparties rather than rely on what reasonable actors would infer in the circumstances.

This does not mean that subjective intent is irrelevant.  Rather, it means that the circumstances matter.  Under Article 8(1), if the circumstances reveal that I understand your offer to me is, in your mind, insincere or incomplete, then no contract will be concluded by my purported acceptance, even if some third party would infer just the opposite from your manifestations.  The result is fully consistent with the standard understanding of American contract law.  Take the classic example of Lucy v. Zehmer¸ to which the court in MCC-Marble referred as the model of the American approach. In that case, the court famously observed that a binding contract existed even if an offeree signed a proposed contract in jest, as long as the context allowed the offeror to conclude that the acceptance was serious.  But the court was equally clear that if all parties had or should have understood that the offer was in jest, the act of accepting it would not create a contract.  In the language of the court in Lucy, subjective intent prevails notwithstanding objective manifestations if the personal meaning “is known to the other party.”  Article 8(1) limits the application of subjective intent to those same circumstances when it provides that statements and conduct are to be interpreted according to the actor’s intent “where the other party knew or could not have been unaware of what that intent was.”  American courts should be more cautious about proclaiming an expanded scope for subjective intent in international sales law.

Clayton P. Gillette

Professor Gillette is Max E. Greenberg Professor of Contract Law at New York University School of Law

The Center, in collaboration with the Investment Law Forum run by Professor Robert Howse, Lloyd C. Nelson Professor at NYU, hosted the third session of its Arbitration Forum. On that occasion, Mr. Mark Kantor and Mr. David Bigge spoke on “Transparency in investment related ad hoc arbitrations”. Mr. Barry Appleton and Professor Robert Howse acted as commentators. The event took place on February 7th, 2011.

On 13 January 2011, France revealed its long-awaited new arbitration law.  The décret n° 2011-48 portant réforme de l’arbitrage, was published in France’s Official Journal, alongside a report commenting on the reform.  The new law can be found at http://www.legifrance.gouv.fr/jopdf/common/jo_pdf.jsp?numJO=0&dateJO=20110114&numTexte=9&pageDebut=00777&pageFin=00781, as well as the accompanying commentary http://www.legifrance.gouv.fr/jopdf/common/jo_pdf.jsp?numJO=0&dateJO=20110114&numTexte=8&pageDebut=00773&pageFin=00777

The reform concerns both domestic and international arbitration and the new provisions will comprise Articles 1442 to 1527 of the French Code of Civil Procedure.  The new law becomes effective and applicable as of 1 May 2011, except for a number of specifically enumerated provisions which apply only if the arbitration agreement was entered into, the arbitral tribunal constituted, or the award rendered, after that date.

The French arbitration community has long lobbied for this updated of the law, the first overall reform of French arbitration legislation since the 1980s.  The reform keeps with the long-standing tradition of innovative and arbitration-friendly arbitration law in France, which has contributed to establishing Paris as one of the world’s most popular seats of arbitration.  The aim of the new law is to sustain Paris’ leading role in international arbitration.  The accompanying official report states that “after thirty years, the reform appeared necessary to consolidate case law [in the area], as well as to complement the existing text and conserve its efficacy.”  The report also specifically draws attention to the fact that the new law has “integrated some provisions inspired by foreign laws which have proven useful.”

By codifying well-established French case law, the reform also significantly enhances the accessibility of French arbitration law for foreign users and observers.  For instance, Article 1447 codifies the well-established and fundamental principle of the autonomy of the arbitration agreement, according to which the arbitration clause remains unaffected even if the underlying contract is found void.  The provision states that “[t]he arbitration agreement is independent from the contract it relates to.”

Another example of codifying existing case law can be found in Article 1466.  According to this provision, which is inspired by previous French case law as well as the common law concept of estoppel, a party who – in knowledge of the facts and without any legitimate excuse – fails to invoke an irregularity of the arbitral process in due course, is prevented from doing so at a later stage.

The new law also contains some important innovations which will surely be subject of abundant commentary.  For instance, Article 1522 contains a significant and substantial change concerning the parties’ ability to waive their right to seek annulment of an award in front of the national courts at the seat of the arbitration.  Article 1522 provides that “the parties may, by specific agreement, waive at any time their right to challenge the award [by way of annulment].”  This new provision will become effective for arbitration agreements entered into after 1 May 2011.

According to the report accompanying the new law, the parties’ waiver under Article 1522 does not affect, however, their right to appeal any decision to enforce the award in France.  The report also explains that Article 1522 was inspired by “existing foreign law.”  Indeed, a few jurisdictions with pro-arbitration statues permit the parties to waive or exclude judicial review of the award by way of annulment proceedings.  For instance, Swiss and Belgian law permit such waivers as long as the parties are foreign, i.e., have no connection to Switzerland/Belgium respectively.  Contrary to Belgian or Swiss law, however, the new French provision grants the right to exclude judicial review in annulment proceedings not only to foreign but also to French parties.

Another notable innovation is contained in Article 1526, which provides that a challenge of the award does not automatically result in suspension of enforcement proceedings.  Rather, according to Article 1526 para. 2, a suspension has to be specifically requested and is granted only if the enforcement would be highly detrimental to the rights of the party requesting the suspension.  The report accompanying the new law notes that the aim of this provision is to discourage bad faith annulment proceedings which seek to delay the enforcement of fully valid and legitimate awards.  Article 1526 will apply to awards rendered after 1 May 2011.

Finally, some changes which are not supposed to introduce any substantive modifications according to the official accompanying report, will nonetheless not go unnoticed.  For instance, one of the grounds for challenging an award has been significantly re-worded.  While Articles 1504/1502-2 previously referred to the fact that the tribunal “has rendered the award without an arbitration agreement or based on an arbitration agreement that was void or expired,” Article 1520-2 instead now allows setting aside of the award if the tribunal “has mistakenly declared itself to have or not to have jurisdiction.”

Without any attempt to draw an exhaustive list, further clarifications or changes in the new law include the fact that (i) international arbitration agreements – contrary to the solution contained in the New York Convention – do not have to meet any particular form requirements (Article 1507); and (ii) the original of the award is no longer required with the petition for seeking exequatur; rather, it is now sufficient to present a copy which fulfils “the conditions required to establish its authenticity” (Article 1515).  The new law also, among other things, re-organizes the legal definition of an arbitration agreement, clarifies the role and powers of the local French court in support for arbitration (the so-called juge d’appui), strengthens the rules on arbitrators’ impartiality and possible challenges, and simplifies remedies available against arbitral awards.

Overall, the new law has been well-received by the arbitration community.  The first reactions described the reform as innovative and trend-setting.  Interestingly, the French newspaper Les Echos has quoted the French Justice Minister, Michel Mercier, as saying that the new law is also aimed at keeping the ICC headquarters in Paris.  Mr. Mercier said that in enacting the new law, “[t]he government had paid particular attention to the situation of the international chamber of commerce.”  He concluded that Paris was the premier place in the world for arbitration and that the new law would ensure that it continued to thrive.

Maxi Scherer

Dr. Maxi Scherer is a Global Hauser Fellow at NYU Law School and Counsel in Wilmer Cutler Pickering Hale and Dorr’s Dispute Resolution team in New York/London.  She is a member of the Paris bar and a solicitor (England and Wales).  She graduated from University of Paris Panthéon-Sorbonne, France, and University of Cologne, Germany, and obtained her PhD at the University of Paris Panthéon-Sorbonne with highest honors.  Maxi Scherer teaches International Arbitration and Litigation, International Private Law, European Civil Procedure and Comparative Law. She is an adjunct professor at SciencesPo Law School Paris, Georgetown CLTS London, University of Melbourne, Pepperdine Law School London and University of Fribourg.

The “Lex Sportiva” is a hotly debated concept at the moment. While some commentators promote the “Lex Sportiva” and try to define its content and characteristics others are reluctant to recognize its very existence (see e.g. Frank Latty, La Lex Sportiva (Martinus Njihoff Publishers 2007); for a recent contribution see Lorenzo Casini, The Making of a Lex Sportiva: The Court of Arbitration for Sport “The Provider”, IILJ Working Paper 2010/5 Global Administrative Law Series, available at http://www.iilj.org/publications/2010-5.Casini.asp). In this context the question may arise as to what significance should be attached to a contractual choice-of-law clause wherein the parties refer to the “Lex Sportiva” (here understood as “l’ensemble des normes coutumières privées qui se sont dégagées de l’interaction entre les normes de l’ordre juridique sportif et des principes généraux propres aux ordres juridiques étatiques, telles qu’elles se concrétisent dans les arbitrages sportifs” (Antoni Rigozzi, L’arbitrage international en matière de sport, 628 (Helbing & Lichtenhahn, L.G.D.J./Bruylant, 2005)? Further, one might also wonder whether in international arbitration the arbitrators themselves can apply the “Lex Sportiva” to the merits of the dispute. While these questions are too complex to be answered in this short note, I would try to shed some light on them by having a glance at Swiss law, especially the case law of the Federal Supreme Court of Switzerland. Swiss law is of particular interest since Switzerland is the seat of all arbitration proceedings before the Court of Arbitration for Sport “CAS” (Rule 28 of the CAS Code 2010 Edition), and a relevant amount of sports law disputes are adjudicated by Swiss state courts.

Swiss law provides parties to state court proceedings with great autonomy in choosing the law applicable to a contract (Article 116 of the Swiss Code on Private International Law “PILA”). This autonomy is even greater in international arbitration proceedings with its seat in Switzerland. Parties, and the arbitrators themselves, are allowed to apply “rules of law”, as opposed to a “law”, to govern the merits of the dispute (Article 187 Para 1 PILA; see, e.g., Jean-François Poudret & Sébastien Besson, Comparative Law of International Arbitration, 603 (Sweet & Maxwell, 2nd edition, 2007)).  Hence, scholarly writers almost unanimously suggest that in international arbitration non-state law such as for example the “Lex Mercatoria” can be applied to the merits (Id. at 603-604). The question whether the “Lex Sportiva” constitutes such “rules of law” is disputed amongst scholars (Ulrich Haas, Die Vereinbarung von “Rechtsregeln” in (Berufungs-) Schiedsverfahren vor dem Court of Arbitration for Sport, CaS 2007 271, 272 (who also provides a good overview over the relevant case law of the CAS); see also Jean-François Poudret & Sébastien Besson, Comparative Law of International Arbitration, 604 (Sweet & Maxwell, 2nd edition, 2007)).

The Federal Supreme Court of Switzerland has, to date, issued only one decision dealing with a choice-of-law issue in the peripherals of the “Lex Sportiva” (Decision of the Federal Supreme Court of Switzerland of 20 December 2005, BGE 132 III 285). In that decision the court was reluctant to recognize the “Lex Sportiva” as a “law” under Article 116 of the PILA.

The parties in that case debated whether a statute of limitation rule contained in a set of rules issued by the FIFA prevailed over a mandatory statute of limitation rule of the Swiss Code of Obligations. The parties had stipulated the following provision in a transfer agreement: “This agreement is governed by FIFA rules and Swiss law”.  The state court of first instance held that the choice of FIFA rules constitutes a valid choice of law. It thus concluded that both FIFA rules and Swiss law shall apply, but that FIFA rules shall prevail over Swiss law as a matter of lex specialis. Accordingly, the court of first instance applied the FIFA statute of limitation and not the mandatory statute of limitation rule set forth in the Swiss Code of Obligations.

On appeal, the Federal Supreme Court of Switzerland reversed this decision. The court observed generally that according to Article 116 of the PILA the parties are free to choose the law applicable to their contract and that the law chosen supersedes all rules of the law otherwise applicable, whether mandatory or not. The court then questioned whether within the scope of Article 116 of the PILA the parties are allowed to choose a non-state law, such as the FIFA rules. After considering that this question was disputed amongst scholars, the court reasoned that bodies of rules and regulations issued by private organizations cannot be considered “law”, even in cases where they are elaborate and detailed. According to the court, such rules are subordinated to state law and apply only within the framework of state law. The court thus held that FIFA rules do not constitute “law” in the sense of Article 116 of the  PILA and neither can it be accepted as “lex sportiva transnationalis”. The court concluded that the FIFA statute of limitation rule cannot trump the mandatory statute of limitation rule of the Swiss Code of Obligations. However, the court accepted the integration of the FIFA rules into a contract. Accordingly, those rules were at least able to trump non-mandatory rules of Swiss Law.

It results from this decision that the parties to a dispute before Swiss state courts cannot choose rules issued by private organizations. Not even in the case where one regards them as forming part of the “Lex Sportiva”. The court expressly rejected the recognition of the “Lex Sportiva” as a “law” under Article 116 of the PILA. However, in my view, nothing speaks against incorporating private rules and regulations as well as particular rules of the “Lex Sportiva” in a contract. But it bears emphasis that such contractual provisions can only prevail over non-mandatory provisions of Swiss law.

Not addressed in the said decision was the question whether the concept of “Lex Sportiva” could be recognized as a “rule of law” according to Article 187 Para 1 of the PILA in the context of international arbitration. Hence, this question remains open to debate. One could argue that the Federal Supreme Court of Switzerland in the said decision expressed a general concern regarding the concept of “Lex Sportiva” and it would thus answer the question in the negative. However, the Federal Supreme Court of Switzerland attaches great importance to the policy of arbitration friendliness inherent in the PILA and it might thus adopt a different view in an international arbitration context.

Simone Stebler

Simone Stebler, who is an Arthur T. Vanderbilt Scholar and LL.M. candidate in International Business Regulation, Litigation and Arbitration of the New York University School of Law, graduated summa cum laude from the University of Fribourg Law School in Switzerland in 2005. She was an exchange student at the University of Paris II Panthéon-Assas in 2003.  In 2007, Simone Stebler was admitted to the Basel Bar. In 2008, Simone Stebler joined the renowned dispute resolution boutique Nater Dallafior, where she has been engaged in international commercial and sports arbitration as well as in corporate and commercial litigation.

On 7 July 2010, the European Commission published a proposal for a Regulation establishing transitional arrangements for bilateral investment agreements between Member States and third countries (COM (2010) 343 final, hereinafter: the Regulation Proposal; available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52010PC0344:EN:NOT). By adopting this Regulation Proposal, the Commission reacts to the changes by the Treaty of Lisbon concerning the division of competences in the field of investment law: According to Article 207 of the Treaty on the Functioning of the European Union (TFEU), the Common Commercial Policy (CCP) now expressly extends to foreign direct investments. Since the competences in the field of the CCP are exclusive, EU Member States are generally no longer allowed to conclude new agreements concerning foreign direct investment (see Article 2 para. 1 TFEU). Furthermore, the Member States are obliged to denounce agreements, for which they have lost their competence (compare Article 351 s. 2 TFEU; see Joined Cases 3, 4 and 6/76, Cornelis Kramer and others, 1976 E.C.R. 1279, ¶ 45; concerning investment agreements compare 205/06, Commission of the European Communities v Republic of Austria, 2009 E.C.R. I-1301 (Mar. 3, 2009); Case C-249/06, Commission of the European Communities v Kingdom of Sweden, 2009 E.C.R. I-1335).

However, it would not be desirable if the Member States would have to denounce all their BITs as a consequence of the EU having acquired exclusive competences for FDI. The EU Member States have concluded an impressive number of bilateral and also multilateral investment treaties: The numbers of BITs concluded by all EU Member States range between 1000 to 1300. With a total number of 130 BITs ratified (compare http://www.bmwi.de/BMWi/Navigation/aussenwirtschaft,did=194058.html), Germany can be considered the “BIT world champion”. Besides, all EU Member States are contracting parties to the ICSID-Convention, which offers a mechanism for the settlement of investment disputes between States and investors.

In case the EU Member States would have to denounce all their BITs, EU investors would be left unprotected until the EU concludes BITs on its own.  Therefore, like in similar cases before (compare, e.g., Regulations (EC) No. 662 and 664/2009), the European Commission seeks to establish a transitional procedure by the Regulation Proposal, which allows the Member States to maintain their existing BITs concluded with third countries and even to conclude new BITs. However, this Regulation Proposal must be criticized mainly for two reasons. First, the Commission incorrectly assumes that the EU has exclusive competences for all issues covered by the Member States’ BITs. Therefore, questions of “mixity” are neither discussed by the Regulation Proposal, nor by the Communication concerning a future European International Investment Policy (COM (2010) 343 final, available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52010DC0343:EN:NOT), which has been published on the same day as the Regulation Proposal. Second, the Proposed Regulation is poorly and incoherently drafted.

Concerning competences, most authors come to the conclusion – and rightly so – that Article 207 TFEU does not cover all issues addressed by current BITs (see, e.g., Markus Krajewski, External Trade Law and the Constitution Treaty, 42 Common Market Law Review 91, 112 (2005); Lorenza Mola, Which role for the EU in the development of international investment law? 15 (Society of International Economic Law Inaugural Conference, 2008), available at http://ssrn.com/abstract=1154583; Joachim Karl, The Competence for Foreign Direct Investment, 5 Journal of World Investment & Trade 413, 425 (2005); Jan Ceyssens, Towards a Common Foreign Investment Policy?, 32 Legal Issues of Economic Integration 259, 274-75 (2005)). For example, Article 207 TFEU is limited to direct investments, which require “lasting and direct links between the persons providing the capital and the undertakings to which that capital is made available in order to carry out an economic activity“ (see Case C-446/04, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, 2006 E.C.R. I-11573 at ¶ 181). However, current BITs generally use a broader definition of investment, which refers to all kinds of assets. In addition, it is arguable that the competences under Article 207 TFEU are limited to question of the admission of investments and do not govern the protection of admitted investments. Nevertheless, „[the]Commission is of the view that any legal uncertainty on the status and validity of these agreements, which could be detrimental for the activities of EU investments and investors abroad or foreign investments and investors in Member States, is to be avoided.“ (Regulation Proposal, at 3). It is certainly true that the investors’ major concern is not who will conclude future BITs, but whether the protection granted by existing BITs will remain in force (until replaced by an adequate standard of protection). Nevertheless, the EU cannot dispose over its own competences merely by adopting a regulation. Thus, the Draft Regulation is not a suitable instrument to create legal certainty regarding the extent of the competences of the EU or the Member States. Rather, such an attempt would contravene against the principle of conferral.

But apart from questions of competence, the Proposed Regulation may be subject to criticism. First, the legal certainty aimed at by this Regulation Proposal will be limited or may even be deceptive. Existing BITs will be – after a notification by the Member States –automatically authorized and then be published in the Official Journal (Articles 3 and 4 Regulation Proposal). The Commission may withdraw such an authorization, inter alia, in case of  a substantive conflict with the law of the Union (Article 6 para. 1 Regulation Proposal). But there is neither a binding decision by the Commission that there is no substantive conflict between the agreement and EU law, nor are there time limits for a review by the Commission. Thus, the publication of the agreement in the Official Journal as well as the fact, that the authorization has (not yet) been withdrawn, does not mean that he Commission will not do so in the future. Or worse, it can review the agreement immediately and come to the conclusion that there is no substantive incompatibility; but some years later it can change its mind and withdraw the authorization. Second, neither the grounds for a withdrawal of an authorization and the grounds for a non-authorization correspond, nor do so the grounds for withdrawing the authorization and the aspects to be assessed during the review according to Article 5. Third, Article 6 para. 1 lit. c provides a rather far reaching and indeterminate reason for withdrawal. According to this provision, the authorization can be revoked in case an agreement constitutes an obstacle to the development and the implementation of the Union’s policies relating to investment. Neither the proposal nor the explanatory memorandum explain how the “Union’s policies relating to investment” can be determined. Thus, if adopted tel quel this ground for withdrawal could constitute a carte blanche for the Commission. Fourth, the Draft Regulation sets a strict time limit for a notification by a Member State of its intention to negotiate an agreement, which does not correspond to the time limits for a review by the Commission (Article 8 ).

Despite this criticism, a transitional regime for existing BITs is urgently needed to avoid the severe consequences foreseen by Article 351 TFEU, regardless of whether the EU enjoys exclusive competences for all or only some subjects covered by current BITs (i.e. if the competence is mixed). Conversely, questions of “mixity” will arise as far as future agreements are concerned unless the Commission is willing to exclude non-direct investments from future EU BITs and to leave them unprotected. Although in theory the Member States retain the competence to conclude their own BITs limited to non-direct investments, this will hardly be a workable solution in practice.

Mixed agreements are quite a common phenomenon today. Still, their conclusion entails intricate problems resulting from the interplay of public international law and EU law. In the case of investment agreements, two issues are of particular interest: international responsibility and dispute settlement.

In general, international organizations are only liable for the conduct of their own organs. However, EU law is normally not implemented by the organs of the EU itself, but by the Member States,  which enjoy a certain discretion in implementing EU legislation. According to Article 16 of the Draft Articles on the Responsibility of International Organizations, an international organization may be responsible if it orders a state to commit an act contrary to its international obligations. However, if a Member State breaches an obligation under the BIT while implementing EU legislation without having been ordered to do so, Article 16 of the Draft Articles provides no answer. Whether the Member State itself is liable depends on the actual design of the BIT: Most modern mixed agreements delimitate the scope of rights and obligations of the EU and Member States according to the internal allocation of competences (compare, e.g., Article. 5, 6 para. 1 UNCLOS Annex IX). If such a clause is missing, the EU and its Member States are jointly liable for a breach (compare Opinion by Advocate General Jacobs, delivered on Nov. 10, 1994, Case C-316/91, Parliament/Council, 1994 E.C.R. I-625, ¶ 69). Assuming that a future EU BIT contains such a delimitation clause, neither the EU nor the Member State could be held responsible in the just mentioned case. To avoid such strange consequences, it thus will be necessary to treat the EU like a federal state and to attribute the conduct of the Member States to the EU itself (compare Article 4 para. 1 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts).

As far as dispute settlement is concerned, a direct participation of the EU as a party to the dispute in an ICSID-arbitration is not feasible because the EU is not a contracting party to the ICSID-Convention. Therefore, an investor seeking redress from the EU will have to chose the rules of another arbitral institution, although this has some disadvantages compared to ICSID. Conversely, EU investors could still choose arbitration under the ICSID-Rules as long as the EU Member States remain contracting parties to ICSID. Thus, there is a serious imbalance between the rights of EU investors and investors of third countries. It seems doubtful whether, in a future EU-BIT, third countries are willing to submit to ICSID-arbitration under these circumstances. However, the ICSID-Convention would have to be amended in order to allow a direct participation of the EU because the participation of regional organizations for economic integration is not possible so far. But the revision of a multilateral treaty is always a delicate thing.

It becomes apparent that the extension of the CCP by the Lisbon Treaty has enormous consequences for existing and future investment agreements, which the drafters did not intend. The focus of the Commission in its Regulation Proposal and the Communication on exclusive EU competences for BITs tends to obscure the intricate questions of “mixity”, which inevitably will come up in the future. The Communication would have been a proper place to create a consciousness for these problems, to shape the discussion and to propose legal solutions. Although a uniform EU foreign investment regime can be a step towards more coherency in international investment law, mixed BITs will cause complications, which can undermine the whole process. If these complications prove to be insurmountable, a revision of Article 207 TFEU should be considered. Considering the frequent amendments of Article 207’s predecessors, such a revision is not unrealistic.

Jan Asmus Bischoff

Dr. Jan Asmus Bischoff studied law at Hamburg University from 2000 to 2005. After his graduation, he worked as a researcher at the Max Planck Institute for Comparative and International Private Law until 2010. In 2008, he completed his Master Degree in International Legal Studies at NYU, School of Law as a Hauser Global Scholar. In 2009, he completed his doctoral thesis on “The European Community and the Uniform Private Law Conventions” under the supervision of Prof. Dr. Dr. hc. Jürgen Basedow. In 2010, he passed the Second State Examination at the Hanseatic Regional Appelate Court, Hamburg. He is currently working as an attorney (Rechtsanwalt) at Luther Rechtsanwaltsgesellschaft, Hamburg in the field of investment law.

Which jurisdiction is competent to regulate corporate law affairs? And which court is competent, in the international arena, to address cases involving corporations? My purpose is not to clarify all these issues, but more simply to ask the right questions regarding choice of law and jurisdiction criteria.

The most important question is to establish what “corporate law matters” are. Corporations, indeed, can be involved in litigations on different kinds of issues, not only typical “internal affairs matters”, such as derivative actions or actions on the validity of corporate’s decisions. To such legal issues apply different choice-of-law criteria, which vary from jurisdiction to jurisdiction. For instance, the scope of the U.S. “Internal Affairs Doctrine” is narrower than the area covered by the corporate “personal statute” in Europe. Similarly, in jurisdictions where there is employees codetermination in place corporate law regulate an issue that in other countries belong exlusively to the province of labor law.

In the realm of typical “corporate law” matters, as is well known, a fierce debate oppose “incorporation theory” countries and “real seat” country. According to the former, the law of the country of incorporation applies, while for the latter the country of the administrative seat is competent to regulate corporate affairs. Of course, several different versions of these “theories” exist. The “real seat theory” is based upon a spatially-oriented criterion and the main legal issue is to establish where the administrative (or “real”) seat of the corporation is. Originally, the idea to attach the applicable law to the “real” or the “administrative” seat was aimed at attaining legal certainty. However, this goal seems to be uncertain now, since modern telecomunications make possible for the board to meet “virtually”, independently from the physical location of their members, and cheap flights make possible for the board to meet in countries different from such where corporate main activities are. [Luca Enriques, Silence is Golden: the European company as a catalyst for company law arbitrage, J. Corp. L. Stud., 82, 78 (2004)]. Therefore, to make the real seat theory workable, the concept of administratve seat can not coincide simply with the place of boards’ meetings. To resolve this problem, German scholars and case law have developed a more sofisticated concept, that rely upon the place where business decisions are conducted on a day by-day basis. By contrast, the “incorporation theory” – at least in the English, U.S. or Swiss versions – is not properly based upon a territorially-oriented conflict of law rules, but on the mere fact of the incorporation under the law of a certain state.

The second relevant issue is related to corporate litigation. The question is: Where are corporate matters litigated? This is issue is often negleted in the scholar debate on regulatory competition for corporate law, yet it is highly relevant, since to attain legal coherence and predictability substantive law should not be detached from the competent forum. A good example is Delaware law, which is fundamentally judge-made [see: Marcel Kahan & Rock Edward, Symbiotic Federalism and the Structure of Corporate Law, 58 Vand. L. Rev., 1573, 1591 – 1597 (2005)]. Nonetheless, corporate choice-of-law and choice-of-forum criteria diverge, so that Delaware law may be litigated outside of Delaware court [see: John Armour, Bernard Black & Brian Cheffins, Is Delaware Losing its Cases?, www.ssrn.com].  Differently from U.S. law, EU law has addressed this issue, yet only partially and with uncertain results. According to the Regulation on jurisdiction [EC Regulation 44/2001, art. 22(2)] part of the internal affairs matters (i.e.: the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or of the validity of the decisions of their organs) should be litigated in the member state of the “seat”. However, the concept of “seat” is to be established according to each member states’ own private international law, so that conflict of jurisdiction can still arise; in addition, other “internal affairs” matters, such as derivative suits, are not comprised in this list and can be litigated alternatively either in the state of the registered office, or of the central administration or of the principal place of business [EC Regulation 44/2001, art. 60(1)], so that the competent court can diverge from the applicable substantial law.

Another set of rules and procedures that are relevant for corporations is insolvency law, whose choice-of-law and forum criteria often diverge from those to be applied to corporate law matters. For instance, according to the Uncitral model law on cross-border insolvencies of 1997 as well as for the EU regulation on cross-border insolvencies [EC Regulation 1346/2000] the fundamental choice of forum criterion is the Centre of the Main Interests (“COMI”) of the insolvent debtor. If the debtor is a corporation, unless the contrary is proven, the COMI coincides with the country of the registered office (i.e. the country of incorporation). The COMI criterion should make the applicable insolvency law more predictable in the eyes of third parties and should avoid forum shopping. However, it does not seem to be always the case and the COMI concept has revealed to be fuzzy and that it can be manipulated. According to the European Court of Justice the COMI diverges from the state of incorporation only if evidence is given that third parties could recognize that corporate activities are managed from a certain coutry different from the registered office (European Court of Justice, C-341/04, Eurofood IFSC Ltd [2006] ECR I-3813). The COMI, therefore, is neither the “administrative seat” of the real set theory, nor the “central administration” or the “central place of business”, which are possible location of corporate domicile according to the EC Regulation on jurisdiction.

Federico M. Mucciarelli

Professor Federico M. Mucciarelli is Associate Professor of Business Law at the University of Modena and Reggio Emilia Business School. He is also Global Fellow at NYU School of Law