Miscellanea

Center to co-host two-day arbitration conference in the Dominican Republic

The Center is pleased to announce that it will co-host for the fourth time a two-day conference regarding the intersections between international commercial and international investment arbitrations. The papers presented at the conference are based on papers submitted to the soon to be published Cambridge Compendium of International Commercial and Investment Arbitration, co-edited by Professors Franco Ferrari, the Director of the Center, as well as Andrea Bjorklund and Stefan Kröll, and attempt to address the various topics from both a commercial and an investment arbitration perspective whenever appropriate in order to highlight the commonalities as well as the differences between both fields . The event will take place in Santo Domingo, on 13 and 14 November 2017. For more information, please click here.

“Prayers for Relief in International Arbitration, Plead in Haste, Repent at Leisure” at NYU on 11/10

This is to announce the November 2017 session of the Arbitration Forum of the Center for Transnational Litigation, Arbitration and Commercial Law, entitled “Prayers for Relief in International Arbitration, Plead in Haste, Repent at Leisure”. The event will take place on Friday, November 10th, 2017, from 12.45-2.00, in Vanderbilt Hall 218.

 
It is a great pleasure to be able to announce that on the occasion of that session, Mr. Klaus Reichert will give a talk on the aforementioned topic and that Mr. Grant Hanessian agreed to act as commentator.

 

Klaus Reichert SC specializes in international arbitration and has worked on, both as lead counsel and as arbitrator (frequently as chair), in excess of 250 international disputes right across a broad spectrum of complex subject matters, industries and governing laws involving parties (often sovereigns, or state commercial entities) from all over the World. These cases involved Institutions and Rules such as ICSID, ICC, SCC, LCIA, ICDR, CAS, DIAC, DIFC-LCIA, and UNCITRAL. The venues have included Paris, Los Angeles, San Francisco, Helsinki, New York, London, Munich, Seoul, Miami, Geneva, Dublin, Dubai, Stockholm, Nassau, and Zürich. He is a member of the Court of Arbitration for Sport and the International Basketball Federation (BAT) panel of arbitrators. He was counsel for Dallah in the landmark case in the English Courts on the New York Convention against the Government of Pakistan. In 2012 he was elected to the Governing Board of the International Counsel for Commercial Arbitration (ICCA). He has served on a number of bodies in the international legal domain including the IBA (past Co-Chair of the Litigation Committee, and currently a Council Member of the Legal Practice Division), the International Commercial Arbitration Committee of the ILA, the European Users’ Council of the LCIA, and was a founder member of Arbitration Ireland – the Irish Arbitration Association. He was made a Silk (Senior Counsel) at the Bar of Ireland in 2010, and was involved as counsel in a large number of leading cases in the field of private international law before the Irish Courts. In 2008 he chaired the Host Committee for the ICCA Conference in Dublin to mark the 50th anniversary of the New York Convention.

 

Grant Hanessian, an NYU Law School graduate, heads Baker & McKenzie’s International Arbitration Practice Group in North America.  Mr. Hanessian has extensive experience as counsel and arbitrator in international commercial and investment treaty arbitrations.  He currently serves as US alternate member of the ICC International Court of Arbitration in Paris, chairman of the Arbitration Committee of the US Council for International Business (US national committee of the ICC), and a member of the ICC’s Commission on Arbitration and its Task Forces on Arbitration Involving States or State Entities and on Financial Institutions and International Arbitration (leader of Investment Arbitration and Banking & Finance work stream), Vice President (for US) of the London Court of Arbitration’s North American Users Council and a member of the American Arbitration Association—International Centre for Dispute Resolution’s International Advisory Committee and its Advisory Committee on Brazil, the International Arbitration Club of New York, the Arbitration Committee of the International Institute for Conflict Prevention and Resolution, the New York City Bar Association’s Committee on International Commercial Disputes and Club Español del Arbitraje, and is a founding board member of the New York International Arbitration Center. Mr. Hanessian writes and speaks frequently on international arbitration topics.  He is editor of ICDR Awards and Commentaries (Juris Pub. 2012) and co-editor of Comparison of International Arbitration Rules (American Bar Association Section of International Law), International Arbitration Checklists (Juris Pub., 3d ed., 2015), Gulf War Claims Reporter (ILI/Kluwer, 1998) and Baker & McKenzie’s International Litigation & Arbitration Newsletter.  Mr. Hanessian is recommended by Chambers Global and USA Guides (described as “very experienced, hugely knowledgeable and effective”), Legal 500 (described as ‘a great practitioner’ with a ‘strong commercial profile’), PLC Which Lawyer, The International Who’s Who of Commercial Arbitration and Expert Guide to Leading Practitioners in International Arbitration.

 

Please note that the Chatham House rule applies.

Center Event “Dialogue with the US delegation to the Hague Conference on the proposal for a world-wide Judgment Convention” at NYU on 10/23

The NYU Center for Transnational Litigation, Arbitration and Commercial Law is pleased to announce a special event to be held on Monday, October 23, 2017, at NYU School of Law in Furman Hall, 245 Sullivan St., Lester Pollack Colloquium Room, 9th floor, from 6:00-9:00 PM.  There will be a Dialogue with the US delegation to the Hague Conference on the proposal for a world-wide Judgment Convention.

The event is an opportunity to provide members of the US delegation, who will be in attendance, with comments about the present Draft proposal as well as the desirability of having the United States join such a Convention. The delegation is also interested in issues that lawyers and their clients have faced with respect to recognition and enforcement of foreign judgments both here and abroad and how a Convention might address some of those issues. There will be an upcoming meeting of delegations at the Hague in mid-November, and this discussion will be of great assistance to the US delegation in those negotiations. The latest (Feb. 2017) proposed draft of the Convention is attached here.

The event is being co-sponsored by the University of Pittsburgh’s Center for International Legal Education headed by Professor Ronald Brand, who is a member of the U.S. delegation. It is also being organized in cooperation with the International Commercial Disputes Committee of the New York City Bar. A number of Committee members, along with others who have special expertise in cross-border recognition and enforcement, have agreed to actively participate in the Dialogue. It should be an exciting and informative evening, and we hope that you will be able to join us.

Professor Ferrari co-edits and co-authors the Encyclopedia of Private International Law

Professor Franco Ferrari, the Executive Director of the Center for Transnational Litigation, Arbitration and Commercial Law, has just published the Encyclopedia of Private International Law of which he is a co-editor and a co-author. The Encyclopedia, the first of its kind in the area of private international law, represents the definitive reference work in the field. Bringing together 195 authors from 57 countries, including Professor Linda  Silberman, the Co-Director of the Center,  the Encyclopedia sheds light on the current state of Private International Law around the globe, providing unique insights into the discipline and how it is affected by globalization and increased regional integration. The role and character of Private International Law has changed tremendously over the past decades. With the steady increase of global and regional inter-connectedness the practical significance of the discipline has grown. And so has the number of legislative activities on the national, international and, most importantly, the European level. The Encyclopedia is a rich and varied resource in four volumes. The first two volumes provide comprehensive coverage of topical aspects of Private International Law in the form of 247 alphabetically arranged entries. The third volume provides insightful detail on the national Private International Law regimes of 80 different countries. The fourth volume presents invaluable, and often unique, English language translations of the national codifications and provisions of Private International Law in those countries. As for its key features, here is a summary: • 247 substantive entries organized alphabetically for ease of navigation and fully cross-references, • 80 national reports; • Entries and National Reports written by the world’s foremost scholars of Private International Law; • National codifications in English collected together into a single volume for quick reference. For more information, please click here.

Professor Diego Fernandez Arroyo elected to the Institute of International Law

Professor Diego Fernandez Arroyo, a returning scholar-in-residence at the Center for Transnational Litigation and Commercial Law and professor of law at Sciences-Po Law School in Paris as well as a former Global Professor at the NYU Paris Campus, has been elected to the Institute of International Law. The organization was founded in 1873 to examine and adopt normative resolutions on international law which it then brings to the attention of governmental authorities, international organizations, and scientists.

Professor Arroyo, who is also a member of the Curatorium of the Hague Academy of International Law and the current Secretary-General of the International Academy of Comparative Law, is the second scholar-in-residence of the Center elected to the Institute of International Law, Professor Jürgen Basedow, a director of the Max Planck Institute for Comparative and International Private Law, being the other one.

Conflict of laws in international commercial arbitration – call for papers

In 2010, Professors Franco Ferrari and Stefan Kroell organized a seminar on “conflict of laws in international commercial arbitration”, conscious of the fact that every arbitration raises a number of ‘conflict of laws’ problems both at the pre-award and post-award stage. Unlike state court judges, arbitrators have no lex fori in the proper sense, providing the relevant conflict rules to determine the applicable law. This raises the question of which conflict of laws rules apply and, consequently, the extent of the freedom arbitrators enjoy in dealing with this and related issues. The papers presented at that conference were later published in a book co-edited by the two organizers of said conference. Professors Ferrari and Kroell are now preparing a new edition of the book, which has attracted a lot of attention over the years. Apart from updated versions of the papers published in the first edition (with the following titles: “Conflicts of law in international arbitration: an overview” by Filip De Ly, “The law applicable to the validity of the arbitration agreement: a practioner’s view” by Leonardo Graffi, “Applicable laws under the New York Convention” by Domenico Di Pietro, “Jurisdiction and applicable law in the case of so-called pathological arbitration clauses in view of the proposed reform of the Brussels I-Regulation” by Ruggiero Cafari Panico, “Arbitrability and conflict of jurisdictions: the (diminishing) relevance of lex fori and lex loci arbitri” by Stavros Brekoulakis, “Extension of arbitration agreements to third parties: a never ending legal quest through the spatial-temporal continuum” by Mohamed S. Abdel Wahab, “The effect of overriding manadatory rules on the arbitration agreement” by Karsten Thorn and Walter Grenz, “Arbitration and insolvency: selected conflict of laws problems” by Stefan Kröll, “Getting to the law applicable to the merits in international arbitration and the consequences of getting it wrong” by Franco Ferrari and Linda Silberman, “Manadatory rules of law in international arbitration” by George A. Bermann, “Conflict of overriding mandatory rules in arbitration” by Anne-Sophie Papeil, “The law applicable to the assignment of claims subject to an arbitration agreement” by Daniel Girsberger, “The laws governing interim measures in international arbitration” by Christopher Boog), the new edition seeks to include papers on new topics, such as the law governing arbitrators’ liability, the law governing issues of characterization in commercial and investment arbitration, the law governing limitation periods (including their characterization as procedural or substantive), the law governing the taking of evidence (including the characterization of evidence as procedural or substantive, its admissibility and weight), the law governing damages (including whether different laws govern heads of damages and quantification), the law governing issues fees and costs, the law governing res iudicata, the law governing privilege, the law governing ethical obligations (both of arbitrators and counsel), the role of the Hague Principles on Choice of Law in international arbitration).

The editors welcome the submission of papers on any of the aforementioned topics as well as other topics related to the relationship between conflict of laws and international commercial arbitration. If interested, please submit an abstract (2000 words) and a basic bibliography to Professors Ferrari (franco.ferrari@nyu.edu) and Kroell (stefan.kroell@law-school.de) for acceptance by 1 October 2017. If accepted, the paper will need to be submitted (in blue book format) by 1 February 2018. 

Comments on the CJEU case ‘Gazprom’ OAO v Lietuvos Respublika

I. Introduction

On May 13, 2015, the Court of Justice of the European Union (CJEU) delivered the highly anticipated ruling Gazprom. [1] The main issue of the case is whether Regulation 44/2001 may preclude the court of a Member State from recognizing and enforcing an arbitral award containing an anti-suit injunction. The purpose of paper is to analyze the case in light of the CJEU case law and the new Regulation 1215/2012. In so doing, it begins with a presentation of the background of the case. Then, it addresses the Gazprom case. Finally, it concludes with some comments on Regulation 1215/2012.

II. Background

The Gazprom case involves Regulation 44/2001 and its relationship with the anti-suit injunction mechanism and arbitration. These elements are examined in turn.

A. Regulation 44/2001 in a Nutshell

Over the past decade, the European Union (EU) has adopted two sets of regulation on the rules governing the jurisdiction of courts in civil and commercial matters: Regulation 44/2001[2] (also referred as Brussels I) and Regulation 1215/2012[3] (also referred as Brussels I Recast), which repealed Regulation 44/2001 on January 10, 2015.

Their objective is to reduce and/or eliminate certain differences between national rules governing jurisdiction and recognition of judgment that hamper the sound operation of the internal market. In so doing these regulations seek to unify the rules of conflict of jurisdiction and to ensure rapid and simple recognition and enforcement of judgments given in a Member State through mechanism of automatic recognition and enforcement of judgments. [4]

B. Regulation 44/2001 and Anti-Suit Injunction

In parallel to these developments, arbitration as an alternative dispute resolution, has gained importance as cross-border trade significantly increased. Through an agreement, parties may decide to arbitrate instead of resolving their dispute before the national court of one party.

A problem may arise when one of the parties, despite an arbitration agreement, commence an action in a court. Based on legitimate or tactical (torpedo action) motivations, this parallel proceeding may result in high cost, inefficiency and delay. One way to prevent such action is for the court of the seat of arbitration to issue an anti-suit injunction.

Under English law, the anti-suit injunction is an order made by a court requiring a party to the jurisdiction of the court not to bring or advance particular claims before a national court or tribunal or arbitral tribunal established in another country.[5]

In the EU context, in Gasser[6] and in Turner[7], the CJEU held that anti-suit injunctions issued by a court of a Member State and directed against court proceedings in another Member State were contrary to Regulation 44/2001. More recently, in West Tankers, it held that, despite the express exclusion of arbitration of the Regulation 44/2001, an anti-suit injunction issued by a court of a Member State in support of arbitration was not compatible with the Regulation.[8]

This decision has been severely criticized. In particular, the English arbitration community argued that the West Tankers could jeopardize the position of the English arbitral forum, as without the safeguard of anti-suit inunction parties may be inclined to chose other forum than England as their seat of arbitration.[9] As a result West Tanker raised the question of the application of Regulation 44/2001 to arbitration.

C. Regulation 44/2001 and Arbitration

Article 1(2)(d) expressly excludes arbitration from the purview of Regulation 44/2001. However, the provision does not provide for further guidance on the precise scope of the exclusion.

The Anglo-Saxons and the continental Europeans have opposing views on the issue. [10] For the Anglos-Saxons, as soon as it is claimed that there is an arbitration agreement all dispute arising out the legal relationships are exclusively subject to arbitration. Accordingly, only the arbitral body and the courts at the seat are entilted to examine jurisdiction. In contrast, for continental Euopean lawyers, if the subject-matter on the case falls within the scope of the Regulation 44/2001, a court has jurisdiction to determine whether the exception under Article 1(2)(d) applies and, according to its assessment, decide whether it adjudicates the matter itself or whether it refers the case to the arbitral body. [11]

The CJEU adopted the continental European approach for the first time in Rich[12] and confirmed it in Van Uden[13] and West Tankers[14]. Accordingly, the fact that parties have entered into an arbitration agreement does not rule out the application of Regulation 44/2001, which depends on the substantive subject-matter of the case. For instance, if the claim is tort or contract damages, the subject-matter is covered by the Regulation, which should apply. In contrast, issues related to the selection of arbitrators, the choice of the seat of arbitration does not fall within the sope of the Regulation.[15]

Therefore the crucial question is not whether the anti-suit injunction is compatible with Regulation 44/2001. After West Tanker, we know, it is not. Rather it is to determine whether Regulation 44/2001 is applicable or not to the case. If yes, the injunction would breach EU law and should not be taken into consideration. Conversely, if Regulation 44/2001 would not apply, the validity of the injunction should be assessed in the light of other legal instruments.

III. The Gazprom Case

A. Background

The case concerned a Lithuanian company, Lietuvos diju AB, whose main business consisted in buying gas from Gazprom OAO, conveying and distributing it in Lithuania. The main shareholders of the company concluded a shareholder agreement, which contained an arbitration clause. Later on, one shareholder, the Ministry of the Lithuanian State (the Ministry), made an application to Lithuanian regional Court against the activities of the other shareholders. Another shareholder, Gazprom, took the view that the application had breached the shareholder agreement and filed a request for arbitration in which it sought an order to the Ministry to discontinue the proceedings before the regional court. The arbitral tribunal agreed partially with the claim and ordered the Ministry to withdraw or limit some of the claim it brought before the regional Court. However, the Ministry maintained its claim before the regional Court, which order the initiation of the investigations. Gazprom applied to the Court of Appeal in Lithuania for the recognition and enforcement of the arbitral award. The Court of dismissed the claim. The decision went before the Supreme Court of Lithuania, which in turn submitted the CJEU a request for a preliminary ruling regarding the recognition and enforcement of the arbitration award.

The case gained momentum with the opinion of the Advocate General Wathelet, in which he submitted that West Tankers should be overturned and arbitration law should automatically prevail over EU rules of jurisdiction (hence favoring the Anglo-Saxon approach).[16] While his argumentation is debatable, it aroused the hope for some lawyers that arbitration will be completely excluded from the scope of Regulation 44/2001. [17]

B. The CJEU’s Ruling

After excluding the application Regulation 1215/2012 (because the facts of the case took place prior to its entry into force), the CJEU addressed two issues: whether an arbitral award prohibiting a party from bringing a claim before a national court is contrary to Regulation 44/2001; and whether it is compatible with the Regulation 44/2001 for a Member State’s court to recognize and enforce an arbitral award ordering a party to limit its claim before a court of that Member State is compatible with that regulation.

In the first part of the ruling, the CJEU recalled and reaffirmed its jurisprudence on arbitration and on the anti-suit injunction under Regulation 44/2001. It mentioned that arbitration is excluded from the scope of Regulation 44/2001, unless the subject matter of the dispute falls within the scope of the Regulation. Then it recalled that an anti-suit injunction issued by a Court of a Member State restraining a party – to a proceeding or to arbitration proceeding – not to proceed or continue proceeding before a court of another Member is not compatible with the Regulation 44/2001.[18]

Then, in the second part of the ruling, the CJEU held that the issue at hand is not whether an injunction issued by a Court is compatible with the Regulation 44/2001, but whether the recognition and the enforcement of an arbitral award ordering a party to limits its claim before a court of that Member State is compatible with that regulation. The CJEU went on holding that the Regulation 44/2001 does not govern the recognition and the enforcement of an arbitral award. It held that this issue is rather covered by the national and international law applicable in the Member State. In particular, it suggested that the relevant instrument is the New York Convention. [19]

In light of the foregoing it can be concluded that despite the opinion of the Advocate General, the CJEU reaffirmed its case law, with notably West Tanker. It remains to be seen whether this jurisprudence is consistent with the recently adopted Regulation 1215/2012.

IV. Arbitration under Regulation 1215/2012

As mentioned earlier, Regulation 1215/2012 repealed Regulation 44/2001 on January 10, 2015. It contains two provisions, which specifically deals with arbitration. Article 1 (2) (d) excludes arbitration from the scope of the regulation adopting the wording from Regulation 44/2001. Article 73(2) underlines that the Regulation does not affect the application of the New York Convention. In addition, the Regulation features recital 12, which seeks to clarify its relationship with arbitration. It includes 4 paragraphs that have to be read in line with CJEU case law.

Recitals 12 (1) and (4) remind some well-established principles. Recital 12 (1) deals with the jurisdiction of Member States Court with respect to arbitration. It recalls that the Regulation does not prevent them from taking any measures related to arbitration proceeding in accordance to their national law, such as referring the parties to arbitration, staying or dismissing the proceeding or examining whether the arbitration is null and void, inoperative or incapable of being performed. Recital 12 (4) points out that arbitration-related court proceedings are excluded from the scope of the Regulation.

On the other hand, Recitals 12 (2) and (3) bring some changes. Recital 12 (2) mentions that a ruling by a Member State court on the validity and existence of an arbitration agreement, as principal issue or as incidental question, is not subject to rules of the Regulation. In contrast, according to the CJEU case law, when the subject matter of the case falls within the scope of the Regulation, the decision on the validity and existence of an arbitration agreement as preliminary issue is subject to the Regulation. As a result, following recital 12(2), the ruling of a Member State court on the validity and existence of an arbitration agreement would not circulate within the EU under the term of the Regulation, regardless of the subject matter. This will leave the party who relies on the arbitration agreement, to seek freely a ruling on the validity and existence of an arbitration agreement before other Member State’s court.

Recitals 12 (3) provides nevertheless that the judgment on the merit rendered by the first court, while it had determined that the arbitration agreement is invalid as preliminary issue, falls within the scope of the Regulation and can be recognized within the EU. However, Recitals 12 (3) stressed that the New York Convention takes precedence over the Regulation. This means that if an arbitral award is rendered on the same issue as a Member State court’s judgment, other Member States court should recognize the arbitral award first.

It results from the foregoing that the new Regulation does not change the situation of the anti-suit injunction. At the same time, the recognition of the precedence of arbitration awards over Member State court judgments may arguably rebalance the rejection of the anti-suit injunction mechanism. First, following the CJEU ruling in Gazprom, an anti-suit injunction in an arbitral award rather than in interim relief falls within the scope of the New York Convention. Second, in the event of two competing proceedings on the same issue –one before an arbitration tribunal, the other before a national court– the recognition of the arbitration award takes precedence over the recognition of the national court judgment, which may dissuade the party to start a parallel proceeding despite the existence of an arbitration agreement.

V. Conclusion

The CJEU in Gazprom addressed the issue of whether Regulation 44/2001 may preclude the court of a Member State from recognizing and enforcing an arbitral award containing an anti-suit injunction. The case was highly anticipated by those who had hoped that the CJEU would reverse its jurisprudence on anti-suit injunction developed in West Tankers.It is submitted that the underlying issue in Gazprom was rather on the extent of the relationship between Regulation 44/2001 and arbitration. This latter has been the subject of an intense debate between the Anglo-Saxon and the continental European approach.

In Gazprom the CJEU reaffirmed its case law: anti-suit injunction in support of an arbitration is not compatible with Regulation 44/2001 if the subject matter falls within the purview of the Regulation, endorsing hence the continental European approach. At the same time, it held that the same measure contained in an arbitration award falls outside the scope of the Regulation, which is rather covered by the New York Convention.

Regulation 1215/2012 repealed Regulation 44/2001. It integrates the same elements of the previous Regulation on arbitration, while adding some elements. In particular, it is submitted that Regulation 1215/2012 enshrines the precedence of the New York Convention, which could mitigate the impact of the rejection of the anti-suit injunction.

Gilles Muller

[1] Judgment of the Court of 13 May 2015, Gazprom, C-536/13, ECLI:EU:C:2015:316.

[2] Regulation (EC) No 44/2001 of the Council of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, 2001 O.J. (L 12) 1.

[3] Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, 2012 O.J. (L 351) 1-32.

[4] Id., Rec. 4.

[5] Opinion of Advocate General Wathelet of 4 December 2014, Gazprom, C-536/13, ECLI:EU:C:2014:2414, at 63.

[6] Judgment of the Court of 9 December 2003, Gasser, C-116/02, ECLI:EU:C:2003:657.

[7] Judgment of the Court of 27 April 2004, Turner, C-159/02, ECLI:EU:C:2004:228.

[8] Judgment of the Court of 10 February 2009, West Tankers, C-185/07, ECLI:EU:C:2009:69.

[9] Daniel Rainer, The Impact of West Tankers on Parties’ Choice of a Seat of Arbitration, 95 Cornell L. Rev., 431 (2010); Jae Sundaram, Does the Judgment of the CJEU in Gazprom Bring About Clarity on the Grant of Anti-suit Injunction Under the Brussels I Regulation?, 27 Denning L. J., 303 (2015).

[10] Margaret Moses, Arbitration/Litigation: The European Debate, 35 Nw. J. Int’l L. & Bus.1, 1 (2012).

[11] Opinion of Advocate General Kokott of 4 September 2008, West Tankers, C-185/07, ECLI:EU:C:2008:466, at 39-45.

[12] Judgment of the Court of 25 July 1991, Rich, C-190/89, ECLI:EU:C:1991:319, at 26.

[13] Judgment of the Court of 17 November 1998, Van Uden, C-391/95, ECLI:EU:C:1998:543, at 33-34.

[14] West Tankers, supra note 8, at 22.

[15] Opinion of Advocate General Kokott, supra note 11, at 48.

[16] Opinion of Advocate General Wathelet, supra note 5, at 157.

[17] Trevor C. Hartley, Antisuit Injunctions in Support of Arbitration: West Tankers Still Afloat, 64 ICLQ 4, 965 (2015).

[18] Gazprom, supra note 1, at 28-34.

[19] Id., at 35-44.

Professor Ferrari to speak to Italy’s High Council of the Judiciary

Professor Franco Ferrari, the Center’s Director, is an expert, among others, on transnational litigation at the European level. And it is in this capacity that he will give a talk at Italy’s High Council of the Judiciary, the institution tasked with guaranteeing the autonomy and independence of Italy’s judiciary from the other branches of the state. In particular, Professor Ferrari will address the issue of whether Italian courts should recognize and enforce US punitive damages awards despite claims that such recognition and enforcement would violate Italian public policy, an issue currently pending before the Italian Supreme Court. For the full program (in Italian) click here.

Professor Ferrari publishes paper on the interpretation of the CISG

Professor Franco Ferrari, the Center’s Director, is known for his work on the United Nations Convention on Contracts for the International Sale of Goods (CISG), one of the most successful uniform contract law instruments. This his most recent paper, Professor Ferrari identifies two trends in case law interpreting the CISG: the homeward trend and the outward trend, both of which are disruptive of the goal behind the CISG. The paper analyses the trends and suggests how to tackle them to promote a uniform application of the CISG. For a link to the paper, please click here:

https://academic.oup.com//ulr/article/22/1/244/3091168/Autonomous-Interpretation-versus-Homeward-Trend?guestAccessKey=e3e54fd0-6b34-4c04-80fc-cd3a40c834d4

Professor Ferrari edits book on “The Impact of EU Law on International Commercial Arbitration”

Professor Ferrari, the Center’s Director, has just edited a book on the impact of EU on international commercial arbitration. For many years, it seemed almost a truism to state that EU law and the law of international arbitration were two very distinct areas of law that did not intersect. Most scholars believed each area pursued its own course without impacting on the other. The papers published in the book edited by Professor Ferrari, which were presented at a conference hosted by the Center for Transnational Litigation, Arbitration and Commercial Law on October 31 and November 1, 2016, show that, today, these areas of law are becoming ever more interconnected and that the impact of EU law on the law of international arbitration can be felt over the course of all stages of an international arbitration, from the pre-award stage to the post-award stage. Furthermore, and the papers authored by scholars and practitioners from both sides of the Atlantic make this abundantly clear, EU law has not only impacted international arbitrations seated in EU Member States, but has also influenced arbitrations seated around the world, a fact practitioners and arbitrators must come to acknowledge.

Professor Ferrari to talk at the Global Law Week in Brussels

Professor Ferrari, the Center’s Director, will give a talk during the arbitration session of the third edition of the Global Law Week, this one to be held at the Free University of Brussels from 15-19 May 2017. The arbitration session will be moderated by Alexandre Hublet, a graduate of NYU’s LL.M. program on International Regulation, Litigation and Arbitration. For the full program click here.

The Center co-hosts an arbitration training program in Bangkok

One of the goals of the Center is capacity building in the areas on which the Center focuses. Over the years, the Center has hosted many capacity building events around the globe. On 15 and 16 June, the Center, together with the Thailand Arbitration Center and UNCITRAL Asia Pacific, hosts another such event, this one aimed as practitioners and government lawyers operating in Thailand and surrounding countries. The speakers include Professor Franco Ferrari, the Center’s Director, Dr. Friedrich Rosenfeld, a Global Adjunct Professor at NYU Law in Paris, as well as Dr. Joao Ribeiro, Head of UNCITRAL Regional Centre for Asia and the Pacific, and Professor David Halloway from City University of Hong Kong. For the full programme click here.

Professor Ferrari named to the CIETAC panel of arbitrators

Professor Franco Ferrari, the Center’s Director, who specializes in international commercial law and international commercial and investment arbitration, has just been added to the panel of arbitrators of the China International Economic and Trade Arbitration Commission. This appointment comes after recognition of Professor Ferrari’s work by the Thailand Arbitration Center, which appointed Professor Ferrari as President of its Arbitrator Committee a year ago.

Professors Ferrari and Gillette publish an anthology on “International Sales Law”

Professors Franco Ferrari and Clayton P. Gillette, two experts on the United Nations Convention on Contracts for the International Sale of Goods (“CISG”), have just published an anthology (in two volumes) on the CISG. This authoritative collection presents carefully selected scholarly articles that describe and examine the principles of international sales law, as set forth in the United Nations Convention on Contracts for the International Sale of Goods (CISG). These seminal pieces reflect various viewpoints of authors from different countries and legal systems, and offer a range of distinct methodological approaches to legal analysis. Together with an original introduction by the editors, these volumes provide the reader with both an international and an interdisciplinary perspective on many CISG topics. As for the 41 articles included in the two volumes, they are divided into 12 parts, entitled “Introduction”, “The CISG and the Unification of Law”, “Sphere of Application: When Does the CISG Apply?”, “Issues Excluded from the CISG”, “General Principles and Interpretation”, “Trade Usages and Other Sources of Law”, “Form, Formation and Pre-Contractual Liability”, “Obligations of the Parties”, “Risk of Loss”, “Exemption”, “Breach of Contract” “Remedies”, and “Final Provisions”. For more information, please click here.

Professor Franco Ferrari’s work cited by Advocate General of the Court of Justice of the European

In his Opinion in cse C-54/16 dated 3 March 2017, Advocate General Szpunar cited several papers authored and edited by Professor Ferrari, the Center’s Executive Director. The Opinion addresses, among other matters, the issue of what qualifies as an “international” contract. In doing so, Advocate Szpunar also refers to the Regulation on the law applicable to contractual obligations (Rome I), even though it was not applicable to the specific contract (given the date of the contract’s conclusion). And it is in this context that Advocate Szpunar cites the work by Professor Ferrari to conclude that the fact that a contract agreed upon between two companies registered in one and the same country containing a choice of law in favor of the laws of a different country renders the situation international enough to trigger a conflict of laws approach.

The Center co-hosts a conference on international commercial and investment arbitration in Vienna

The Center, together with other institutions, will host a conference around the submissions for the Cambridge Compendium of International Commercial and Investment Arbitration to be edited by Professor Franco Ferrari, the Center’s Director, as well as Professors Andrea Bjorklund (McGill University, Montreal) and Stefan Kröll (Bucerius Law School, Hamburg). The most innovative element of the Compendium lies in many topics being addressed from both a commercial and an investment arbitration perspective whenever appropriate in order to highlight the commonalities as well as the differences between both fields. The talks to be given are a means of introducing the audience to the Compendium project. The event is graciously hosted by the University of Vienna just prior to the commencement of the 24th annual Willem C. Vis International Commercial Arbitration Moot. For the detailed program, please click here.

How the US Government copes with Transnational Litigation

On March 22, 2017, the Center for Transnational Litigation, Arbitration and Commercial Law will host a seminar entitled “How the US Government copes with Transnational Litigation”, which will take place from 6.00 – 8.00 pm in the Lester Pollack Colloquium Room, Furman Hall 900 (245 Sullivan Street, New York, NY 10012).

It is a great pleasure to be able to announce that Professors Harold Hongju Koh and Donald E. Childress, III, will give talks on the aforementioned topic.

Harold Hongju Koh is Sterling Professor of International Law at Yale Law School, where he served as Dean (2004-09) and is formerly Legal Adviser to the U.S. Department of State (2009-13) and Assistant Secretary of State for Democracy, Human Rights and Labor (1998-2001).  He is the author of Transnational Litigation in U.S. Courts (2008), co-author of Transnational Business Problems (5th ed. 2014 with Vagts, Dodge, and Buxbaum), and Transnational Legal Problems (3d ed. 1995 with Steiner & Vagts) and author of many articles on international and foreign relations law. He has received the Wolfgang Friedmann Award from Columbia Law School and the Louis B. Sohn Award from the American Bar Association for his lifetime achievements in international law. He is also a member of the Council of the American Law Institute and Counselor to the Restatement (Fourth) of the Foreign Relations Law of the United States, and is currently on the Executive Committee of the American Arbitration Association and the U.S. National Group of the Permanent Court of Arbitration.

Donald E. Childress, III, is professor of law at Pepperdine School of Law. Prior to joining the School of Law 2008, Professor Childress was associated with the international law firm Jones Day in Washington, D.C., as a member of their Issues and Appeals practice, where he focused on Supreme Court litigation, general appellate litigation, and significant motions practice in trial litigation. Professor Childress’ primary research interests are international civil litigation and arbitration, private international law, comparative law, and ethics. His scholarship has appeared in the Duke Law Journal, the U.C. Davis Law Review, the Northwestern Law Review, the Georgetown Law Journal, the Virginia Journal of International Law, the William and Mary Law Review and the North Carolina Law Review. He has also published an edited volume with Cambridge University Press entitled “The Role of Ethics in International Law”. He is working extensively on the role that international civil litigation and arbitration plays in an increasingly global world. He is the American co-editor of the private international law blog ConflictOfLaws.net.

Center Hosts 6th Arbitration Moot at Hogan Lovells

NYU’s  Center  for  Transnational  Litigation,  Arbitration  and  Commercial  Law  will  hold  its  Sixth Annual Arbitration Practice Moot  on  Saturday,  11 March 2017. The  event will be co-hosted by Hogan Lovells US LLP  and NYU’s International  Arbitration  Association. The  principal  objective  of  the  NYU  Practice  Moot  is  to provide  a  forum  within  which  students  participating  in  this  year’s  Willem  C.  Vis  International  Commercial Arbitration  Moot  can  refine  their  oral  presentations  by  pleading  before,  and  receiving  constructive  feedback  from, panels of distinguished arbitrators.

For the program please click here.

An International Netherlands Commercial Court?

Introduction

In November 2015, the Dutch Council for the Judiciary published a plan for the establishment of a Netherlands Commercial Court (hereafter: ‘NCC’), a special state court in the Netherlands for large national and international commercial disputes.[1] This commercial court with specialized judges that is supposed to conduct proceedings in the English language follows the recent establishment of international commercial courts around the world, most notably in Singapore and Dubai.[2] This paper will argue that the plan by the Council for the Judiciary is of a more conservative nature than the Singapore International Commercial Court (hereafter: SICC) and the Dubai International Financial Centre (hereafter: DIFC) Courts. The plan for the NCC seems less ambitious in its international scope, arguably showing that, unlike its counterparts in Singapore and Dubai, its primary goal is to attract domestic companies. This will be illustrated by looking at three factors: the language of proceedings in appeal and cassation (paragraph 1), the composition of the court (paragraph 2) and the court’s evidence rules (paragraph 3).

It is important to evaluate the plans for the NCC. A court that is tailored to the needs of commercial parties has the potential to reverse the current downward trend in large trade cases being brought before Dutch courts in times of increasing need for cheap and efficient solution of complex transnational trade disputes.[3] Thus, the plan for the NCC explicitly states that it aims to compete in the international dispute resolution market, in particular with the nearby Commercial Court of England and Wales in London, by offering cheaper and faster resolution of trade disputes by specialized judges in the English language.[4]

In order to implement the plan, a Netherlands Commercial Court Bill has been introduced on 16 December 2016 that relates to the amount of court fees and the use of English as a language of proceedings.[5] The limited scope of these amendments already constitutes a striking difference with the courts in Singapore and Dubai, which were established through the enactment of comprehensive legislation.[6] A closer look at the NCC’s planned structure and composition will further show that the changes brought about by the new court are relatively modest compared to the other international commercial courts.

 

  1. The language of proceedings at the Supreme Court

An appeal of an NCC judgment is possible in the English language. However, cassation at the Supreme Court will always take place in Dutch.[7] The plan for the NCC does not give an explanation for this limitation. It is not at once clear why proceedings at the Supreme Court cannot be in English. There is currently no explicit legal basis for Dutch as the official language of proceedings.[8] In comparison, a pending legislative proposal for international commercial court chambers in Germany does provide for the possibility of conducting proceedings in English before the German Supreme Court, the Bundesgerichtshof (Article 184(3) Gerichtsverfassungsgesetzes).[9] The absence of such an initiative in the Netherlands once again shows the limited international focus of the NCC compared to similar commercial courts in other states.

 

  1. Composition of the court: no foreign judges and no additional domestic judges envisaged

In terms of the composition of the court, the NCC again seems less revolutionary than the courts in Singapore and Dubai. The NCC will take the form of a special chamber of the Amsterdam District Court and the Court of Appeals in Amsterdam and will consist of judges who are appointed based on their specialized knowledge, experience and English language proficiency.[10] These judges will come from other courts in the country. Since the Plan does not offer the possibility of hiring new or foreign judges, it seems that there will be no foreign judges appointed to the NCC.

By comparison, the SICC and the DIFC Courts are comprised of a unique mix of local judges and foreign judges from major jurisdictions around the world.[11] Such a mix is intended to improve the court’s ability to resolve disputes governed by laws from foreign jurisdictions and to enhance its international reputation in terms of neutrality and impartiality when it handles cases that do not involve parties from Singapore.[12] Chief Justice of Singapore Sundaresh Menon expressed a vision for the SICC as a court that is ‘blind to the nationality or domicile of a litigant’.[13]

The lack of foreign judges shows that these goals are not pursued in the same fashion by the NCC. The Dutch Court seems to put more emphasis on the internal specialization of national judges, rather than relying on the expertise of international professionals. This choice is consistent with the above-mentioned considerations concerning the purely domestic nature of the evidentiary rules on which the parties can rely.

The minimal changes envisaged by the plan with regard to the composition of the Court are unfortunate, since the NCC obviously aims to attract more commercial parties than Dutch courts currently do, whilst judges in the Netherlands are already deemed to be under great pressure due to excessive workload.[14]

 

  1. Absence of international standards of evidence

Another indication of the modest nature of the NCC’s international ambition compared to that of the other international commercial courts relates to the court’s evidence rules. The plan for the NCC does not offer flexibility as to the type of evidence rules to be applied, since it does not state explicitly that parties can choose what kind of evidence rules they would like to be applicable. Consequently, the NCC seems to rely exclusively on existing evidence rules in Dutch civil procedure law.[15] In contrast, the SICC is empowered to apply rules of evidence other than the ones under Singaporean law, such as the IBA Rules on the Taking of Evidence in International Arbitration (Article 18K(1) Supreme Court of Judicature Act). The absence of such freedom of choice, which in the case of the Singaporean court was welcomed as innovative and reflective of a strong international ambition, suggests that the NCC’s aspiration in this respect is more limited.[16]

It could be argued that there is no urgent need for the NCC to offer such alternative international standards, because Dutch procedural law generally is considered efficient, expeditious and predictable.[17] Nonetheless, this only reinforces the argument that the efficiency of the procedure is considered more important than its international dimension.

 

Conclusion

Where the SICC has been praised as a ‘visionary step’ and a judicial forum with unrivaled international legal sophistication, it is hard to say the exact same of the NCC as currently envisaged in the plan.[18] The NCC’s overall idea and structure can be considered a welcome institutional innovation and its specialized judges and the English language of proceedings will likely prove attractive to commercial parties.[19] However, a comparison with other international commercial courts reveals that the NCC’s set-up is not as revolutionary as its counterparts in Singapore and Dubai in terms of international ambition and focus.

As opposed to the SICC, the NCC does not offer the option to use alternative international evidence rules as an alternative for Dutch procedural rules. Furthermore, the composition of the court, lacking foreign judges, stands in contrast with the mix of domestic and international judges at the courts in Dubai and Singapore. Similarly, the imposition of Dutch as the only language of proceedings at cassation level confirms the limited international vocation of the NCC.

This inward-looking dimension is somehow acknowledged by the plan itself, which mentions the interests of Dutch companies in saving costs by avoiding recourse to Anglo-American courts for specialized commercial procedures as one of the rationales for the court.[20] Therefore, the goal of the NCC appears to be different from that of the SICC and the other international commercial courts. It would seem that the focus of the plan for the NCC is more about providing Dutch and foreign companies operating in the Netherlands with effective and familiar procedural remedies than about the establishment of a truly international commercial court. This choice is perhaps hard to justify, given the absence of any stated reason for this restraint in the attempt to internationalize the rule of law for the benefit of the international community.[21] It is to be hoped that the NCC will gradually develop its international focus in the future.

 

Annette Scholten, LL.B. Leiden University; LL.M. Candidate, New York University (2017).

[1] Dutch Council for the Judiciary, Plan tot oprichting van de Netherlands Commercial Court inclusief kosten-batenanalyse (Plan for the establishment of the Netherlands Commercial Court including cost-benefit analysis), November 2015, http://www.netherlandscommercialcourt.nl and http://netherlands-commercial-court.com. The court was originally scheduled to start functioning from 1 January 2017, but this deadline has not been met due to delays in the passing of the necessary legislation. Although no official revised opening date of the court has yet been stated, the Netherlands Commercial Court Act is planned to come into force on 1 January 2018. See http://netherlands-commercial-court.com.

[2] Dutch Council for the Judiciary, supra note 1, p. 8-10, 12, D.H. Wong, The rise of the international commercial court: what is it and will it work?, 33(2) Civil Justice Quarterly 205 (2014), p. 206-207, E. Bauw, Ondernemerschap in de Rechtspleging (Entrepreneurship in Legal Procedures), Ars Aequi 93 (February 2016), p. 93, D.P. Horigan, From Abu Dhabi to Singapore: The Rise of International Commercial Courts, 3(2) International Journal of Humanities and Management Sciences 78 (2015), p. 78.

In Germany, there is currently a legislative proposal pending that would also make it possible to establish international commercial courts: Gesetzentwurf des Bundesrates, Entwurf eines Gesetzes zur Einführung von Kammern für internationale Handelssachen (Draft law on the introduction of chambers of international trade), 30 April 2014.

[3] Dutch Council for the Judiciary, supra note 1, p. 2, 4-6, 9, S. Menon, The Transnational Protection of Private Rights: Issues, Challenges and Possible Solutions, 108 American Society of International Law Proceedings 219 (2014), p. 224, C. Sikkel, P.A.M. van Schouwenburg-Laan, Actualiteiten maritieme kamer Rechtbank Rotterdam (News maritime chamber Rotterdam Court), 1 Tijdschrift Vervoer & Recht 20 (2016), p. 22, Bauw, supra note 2, p. 96.

[4] Dutch Council for the Judiciary, supra note 1, p. 2. G.A. van der Steur, Kamerbrief NCC (Letter of Minister of Justice to Parliament), 23 November 2015, p. 2, S. Menon, International Arbitration: The Coming of a New Age for Asia (and Elsewhere), Keynote Address Opening Plenary Session ICCA Congress 2012, p. 13-14, E. Lein et alia, Factors Influencing International Litigants’ Decisions to Bring Commercial Claims to the London Based Courts, Ministry of Justice Analytical Series 2015, p. 16, C. Jeloschek, ‘Netherlands Commercial Court’: eindelijk een alternatief voor grote (inter)nationale handelsgeschillen vanaf 1 january 2017 (‘Netherlands Commercial Court: finally an alternative for large (inter)national trade disputes from 1 January 2017), 34(11) Bedrijfsjuridische berichten 129 (2016), p. 130-131.

A similar initiative is already taking place in Rotterdam, where a pilot started in January 2016 in the Rotterdam District Court enabling proceedings in maritime, transport and international trade sale cases to be conducted in English. See https://www.rechtspraak.nl/Organisatie-en-contact/Organisatie/Rechtbanken/Rechtbank-Rotterdam/Nieuws/Paginas/Pilot-project;-civil-court-procedures-in-English.aspx, Sikkel, van Schouwenburg-Laan, supra note 3, p. 20, C.J.M. Klaassen, Producties in een vreemde taal (Documents in a foreign language), Ars Aequi 843 (November 2016), p. 847, R.J. Tjittes, Een Netherlands Commercial Court vereist reclame voor Nederlands recht (A Netherlands Commercial Court asks for advertisement of Dutch law), 6 THEMIS 261 (2014), p. 261.

[5] Wet houdende wijziging van het Wetboek van Burgerlijke Rechtsvordering en de Wet griffierechten burgerlijke zaken in verband met het mogelijk maken van Engelstalige rechtspraak bij de internationale handelskamers van de rechtbank en het gerechtshof Amsterdam (Act concerning the modification of the Code of Civil Procedure and of the Act on Fees for Civil Proceedings in order to make proceedings in the English language possible in the Netherlands Commercial Court chamber of the Amsterdam District Court and the Court of Appeals in Amsterdam), consultation version, December 2016. See also Van der Steur, supra note 4, p. 2.

[6] SICC: Articles 18A – 18M Supreme Court of Judicature Act. DIFC Courts: Dubai Law establishing the Judicial Authority at the Dubai International Financial Centre No. 12 of 2004, the DIFC Court Law No. 10 of 2004.

[7] Dutch Council for the Judiciary, supra note 1, p. 10.

[8] T. Veling, Vreemde talen in de civiele procedure (Foreign languages in the civil procedure), 5 Tijdschrift voor de Procespraktijk 109 (2016), p. 109.

[9] See footnote 2 for more information about the German legislative proposal.

[10] http://www.netherlandscommercialcourt.nl/news/ncc/, Veling, supra note 8, p. 111, Dutch Council for the Judiciary, supra note 1, p. 10.

[11] Article 5A Supreme Court of Judicature Act Singapore, A. Emmerson, S. Jhangiani, J. Lewis, Why international courts may be the way forward, Global Arbitration Review News (16 February 2015), R. Hermans, A Netherlands Commercial Court, Ars Aequi 187 (May 2015), p. 195, Wong, supra note 2, p. 208, W.Y. Kenny, Exploring a New Frontier in Singapore’s Private International Law, 28 Singapore Academy of Law Journal 649 (2016), p. 650.

[12] S. Leong, Planting the Seeds for an International Rule of Law – The Commercial Court of England and Wales and the SICC, Practical Law UK (12 May 2015), p. 10, S. Menon, International Commercial Courts: Towards a Transnational System of Dispute Resolution, Opening Lecture for the DIFC Courts Lecture Series 2015, p. 24-25. See for example the International Judges of the SICC, a group of reputable judges from both common and civil law backgrounds: http://www.sicc.gov.sg/Judges.aspx?id=30.

[13] Menon, supra note 12, p. 42.

[14] J.C. Oord, Geschillenbeslechting als business model (Dispute resolution as business model), 5 Tijdschrift Ondernemingsrechtpraktijk 370 (2016). Concerning the complaints about high workload for Dutch judges, see for example http://www.mr-online.nl/juridisch-nieuws/23356-hoge-werkdruk-rechterlijke-macht-bewezen, http://www.volkskrant.nl/binnenland/president-hoge-raad-bezorgd-om-werkdruk-rechters~a3388115/.

[15] E. van de Kuilen, Netherlands Commercial Court to launch next year, AKD 16 February 2016, https://www.akd.nl/o/Paginas/PublicatiesEN/Netherlands-Commercial-Court-to-launch-next-year.aspx.

[16] Kenny, supra note 11, p. 650. For example, the Commercial Court of England and Wales in London does not offer such a choice of evidence rules: HM Courts & Tribunals Service, The Admiralty and Commercial Courts Guide 2014, p. 57ff.

[17] Dutch Council for the Judiciary, supra note 1, p. 9, Hermans, supra note 11, p. 193, Lein et alia, supra note 4, p. 27, Leong, supra note 12, p. 7-8.

[18] S.J. Brogan, Singapore’s Leadership in Advancing the Rule of Law, The Straits Times 19 January 2016.

[19] Horigan, supra note 2, p. 80, C.A. Kern, English as a Court Language in Continental Courts, 5(3) Erasmus Law Review 187 (2012), p. 190-191.

[20] Dutch Council for the Judiciary, supra note 1, p. 6.

[21] Leong, supra note 12, p. 12.

WHEN DOES AN ARBITRATION AGREEMENT BIND A NON-SIGNATORY? COMMENT ON A DECISION BY THE SWISS BUNDESGERICHT FROM JUNE 6 2016

When does an arbitration agreement bind a non-signatory? Comment on a decision by the Swiss Bundesgericht from June 6 2016[1]

In this decision, the Swiss Supreme Court had to deal with a fundamental question, which touches upon the idea of consent as the core principle for arbitral proceedings: When does an arbitration agreement bind a non-signatory? This comment will address the requirement, under which the court allowed for a third-party application of the agreement, and will deal with the implications such an application has on the concept of consent.

I.          Summary of the facts

In 1980, two Aktiengesellschaften (A.G.) – companies limited by shares under Swiss law –  D and E concluded a framework contract for the operation of a wastewater treatment facility. The contract included the following Art. 2.4: “D and E guarantee to each other that their named subsidiaries and the agents of their subsidiaries will fulfill all the parties’ obligations under this contract.[2] It also included an arbitration clause, in which Basel was chosen as the seat of arbitration. The parties chose Swiss arbitral and substantive law. In 1995, D sold its chemicals division to A, another A.G. For this demerger D and A concluded an umbrella agreement that included two provisions, which are relevant to this dispute. The first read that A would assume “all assets and liabilities pertaining to the chemical business of D.” The second read: “Assumption of Guarantees. A. undertakes to assume as per the Closing Date all guarantees, letters of comfort and undertakings of similar nature of A. Affiliates.” In 1996, D and E merged into the B A.G. In 2014, B initiated arbitration against A for claims in connection with the shutdown of the wastewater treatment facility. A argued that the arbitral tribunal did not have jurisdiction, because A was not bound by the arbitration agreement. In an interim decision, the tribunal rejected those arguments and confirmed its jurisdiction. This interim decision was the matter in dispute before the Bundesgericht.

II.       Decision

The Bundesgericht had to decide whether A and B were bound by the arbitration agreement that was only signed by D and E – which had merged into B. It applied the national arbitration law of the ZPO[3] as opposed to its international arbitration law, because of the domestic character of the dispute and the express choice of the parties. The court started by acknowledging that, generally, only signatories to an arbitration agreement are bound by it because of privity of contracts. It then cited some exceptions from that rule, namely assignments of claims, assumptions of debts and obligations, and transfers of contracts. The Bundesgericht applied the doctrine of business takeover as found in OR[4] Art. 181. Pursuant to that rule, a party who takes over a business assumes as the previous owner’s obligations in respect of the business once the obligee is informed of the takeover. The previous owner, however, is still jointly liable for the obligations for three years. According to the court, the arbitration agreement is transferred as an ancillary right to the obligations in accordance with OR Art. 178 para. 1.

Next, the court interpreted Art. 2.4 of the framework agreement. The arbitral tribunal had held that this provision included at least a “quasi-guarantee” by which the parent companies – D and E – guaranteed that each subsidiary of theirs would fulfil its obligation. A argued that the provision was only a non-binding “Patronatserklärung”, or letter of comfort. However, the Bundesgericht agreed with the arbitral tribunal: the wording of the provision (“guarantee to each other”) and position in the contract allowed the conclusion that Art. 2.4 actually created a binding obligation. A also argued that the tribunal did not qualify the agreement more precisely but only called it a “quasi-guarantee”. But the court held that the specificities of the obligations are a matter of the substance of the claim. For the matter of jurisdiction, it is only relevant that there is in fact an obligation that was transferred.

The court turned on to address the question whether the tribunal had correctly found that the chemical branch was taken over by A, as required by OR Art. 181 para. 1. The defendant challenged this finding as obviously contrary to the record and therefore arbitrary. The court held that the defendant had not shown that the findings were in fact clearly wrong. The arbitral tribunal had held that the obligation, and with it the arbitration agreement as an ancillary right, was transferred to A on the basis of the first provision of the umbrella agreement. A argued that this was a false interpretation of the umbrella agreement as it contradicted the second provision of the umbrella agreement, Art. 9.1. The Bundesgericht agreed with the tribunal: Art. 9.1. did in fact only address the transfer of guarantees of subsidiaries, but the tribunal had not relied on Art. 9.1 for the transfer, but on first provision. They did not contradict each other.

The Bundesgericht agreed with the tribunal’s interpretation of both the framework agreement as well as the umbrella agreement. Consequently, it concluded that both the obligation and the arbitration agreement as ancillary rights had been transferred to A. A was therefore bound by the agreement and the tribunal had jurisdiction. The interim decision was upheld.

III.    The dogmatic approach

The application of an arbitration agreement to a non-signatory is a common issue in arbitral proceedings. Various legal doctrines have been used to give effect to arbitration agreements as to non-signatories.[5] The Bundesgericht applied a sub-category of the doctrine of transfer in Swiss law: the business takeover. Swiss law usually adheres to the widely-accepted principle[6] that an obligation can only be completely assumed by a new obligor, if the obligee agrees to it.[7] OR Art. 181 para. 1 provides an exception to that rule, as it allows the transfer without the obligees approval. But since the old obligor remains liable for three years, the obligee is sufficiently protected. According to the court, an arbitration agreement is transferred with the obligation by virtue of OR Art. 181 para. 3 and Art. 178 para. 1. OR Art. 178 para. 1 ensures that the obligee’s ancillary rights bind the new obligor after the transfer.[8] By designating the arbitration agreement as an ancillary right, the court agreed with the prevailing opinion in Swiss scholarly literature.[9]

This dogmatic approach to the transfer of the arbitration agreement is more comparable to an assignment than to a regular transfer of obligation. In assignment, the natural party to an arbitration is substituted without the approval of the other party, which is not the case for a regular transfer. The policy reason for binding assignees to an arbitration agreement is to prevent assignors from circumventing arbitration agreements by assigning the underlying claim.[10] This does not apply here, as the old obligor remains liable and could therefore still be sued under the agreement. But OR Art. 178 is based on the concept of an unchanged obligation,[11] hence it requires that the new obligor must take the obligation as is, in spite of the old obligor’s remaining liability. Thus, the court did not consider the transfer of the arbitration agreement separate from the obligation. It implicitly applied the following two-pronged test: First, was there was an obligation that was subject to an arbitration agreement? Second, was this obligation effectively transferred?

It tackled the first prong of the test by interpreting Art. 2.4 of the framework agreement. Here, it determined whether this provision actually created an obligation or merely constituted a letter of comfort. Given the wording of the provision, the court’s conclusion is the correct one. The court also correctly decided that it is unnecessary to consider the details of the obligation to determine jurisdiction. The obligation is the “vessel” that transports the arbitration agreement as an ancillary right to the newly bound party. Therefore, its mere existence is decisive for the jurisdictional questions. Naturally, a transferred obligation can only bind a new party to an arbitration agreement, if that agreement actually covers it. The court did not address this, but since arbitration agreements are interpreted broadly,[12] this is not a problem.

For the second prong of the test, the court needed to determine whether the requirement for a successful transfer of obligations under OR Art. 181 para. 1 were fulfilled. Here, the Bundesgericht accepted to the fact-finding of the arbitral tribunal, which it considered not obviously contrary to the record. It also interpreted the umbrella agreement to see whether it constituted a takeover contract. Its interpretation of the relevant provisions by the court was convincing.

IV.    The dogma of consent

The binding effect of an arbitration agreement in non-signatories seems to be at odds with what is considered to be the most fundamental principle of arbitration: arbitration is based on the consent of the parties to the arbitration.[13] How can A be bound by an arbitration agreement, if it never expressly agreed to it? This case deals with an assumption of claim without involvement of the debtor, which is effectively the counterpart to an assignment. For assignments, scholars argue that assignees are presumptively bound by an arbitration agreement over the assigned claim.[14] Where the parties to the assignment agreement make a different arrangement, the presumption could be rebutted.[15] So, what if A and D had included an “anti—arbitration” agreement in their umbrella agreement, declaring that all claims should be assumed without related arbitration agreements? In this scenario, A had decidedly not consented to participate in arbitration. According to this opinion, A would not be bound by the arbitration agreement.

In Swiss law, such an agreement would directly contradict the function OR Art. 181 para. 3 and Art. 178 para. 1 of guaranteeing that the obligee is not negatively affected by the transfer[16]. In relying on this provision, the court did not base the transfer of the arbitration agreement on a presumed consent. Instead it implied that an arbitration agreement is inseparable from the main obligation in matters of transfer.[17] Does this contradict the separability doctrine[18]? The original purpose of this doctrine is to ensure the survival of an arbitration agreement in case of the invalidity of the main contract.[19] The doctrine does not contradict the notion that there is an inherent connection between an arbitration agreement and the main contract. Such a connection is easily proven: An arbitration agreement, which does not refer to a defined legal relationship such as a contract, is no arbitration agreement at all.[20] So as to preserve the usefulness of an arbitration agreement, any (potential) dispute, which at one point is subject to an arbitration clause, should remain so until the agreement is revoked.

Applying comparable German rules on business takeover the Kammergericht even decided that a new business owner is bound by an arbitration agreement, even if the takeover is only factual and not contractual.[21] The general rule should be that every time an obligation or claim is transferred without the other party’s consent, the new party must be bound by a related arbitration agreement. An “anti-arbitration” agreement would be a contract at the expense of a third party, specifically the other party to the arbitration agreement. Agency aside, nobody has the power to dispose of another person’s rights. Doctrines of assignment and, to a lesser degree, transfer give people the right to dispose over their position as party to a contract. But other aspects of the contract are not up to disposition by third parties. For example, A and D could not have agreed to repeal Art. 2.4. of the framework agreement as a whole. Likewise, A and D could not dispose of E’s right to have the claim settled in arbitration.

This shows that consent to arbitrate cannot play a role in any case of succession of claims or obligations, where the other party to the legal relationship does not have to approve. The binding effect much rather comes from the fact that the new party does not have the right to dispose over the agreement.

V.       Conclusion

The Bundesgericht was confronted with an uncommon situation for the application of arbitration agreements to non-signatories, but solved it convincingly. The decision allows the reader to gain insight into the dogmatic structure of such applications and invites the reader to ponder their implications: in all cases of succession, where the other party to the obligation does not need to approve, the absence of the power to dispose explains the binding effect of the arbitration agreement to the new party better than consent.

Maximilian Schlueter

The author is a Class of 2017 LL.M. student in the International Business Regulation, Litigation and Arbitration program at the New York University School of Law. He graduated in law from the University of Bayreuth (Germany) in 2014 and completed his First State Examination in the same year. He finished his doctoral studies at the same university in January 2017.

[1] Bundesgericht [BG] [Federal Supreme Court of Switzerland], Jun. 6, 2016, http://relevancy.bger.ch/php/aza/http/index.php?lang=de&type=show_document&highlight_docid=aza://06-06-2016-4A_82-2016 (Ch.).

[2] „D und E garantieren sich gegenseitig, dass ihre genannten Tochtergesellschaften und deren Vertreter sämtliche ihnen in diesem Vertrag zugedachten Pflichten erfüllen,“ translation by the author.

[3] Zivilprozessordnung [ZPO] [Code of Civil Procedure], (Ch.).

[4] Obligationenrecht [OR] [Law on Obligations], (Ch.).

[5] These include among others theories of agency, alter ego status (or veil piercing), “group of companies,” estoppel, guarantor relations, third party beneficiary rights, succession, assignment, assumption and other doctrinal bases, Gary Born, International Commercial Arbitration 1405 (2nd ed. 2014).

[6] See e.g., Art. 9.2.3 of the UNIDROIT Principles on International Commercial Contracts.

[7] See OR Art. 176 para. 2.

[8] Cf. Peter Reetz & Christof Burri, CHK – Handkommentar zum Schweizer Privatrecht – Obligationenrecht, Allgemeine Bestimmungen Art. 178 ¶ 1 (Andreas Furrer & Anton K. Schnyder eds., 2nd ed. 2012); Eugen Spirig, Zürcher Kommentar – Art. 175-183 OR. Die Abtretung von Forderungen und die Schuldübernahme Art. 178 ¶ 8 (Peter Gauch ed., 3rd ed., 1993).

[9] See e.g. Peter Reetz & Christof Burri, supra note 8, at Art. 178 ¶ 4; Eugen Spirig, supra note 8, at Art. 178 ¶ 46.

[10] Cf. Konstadinos Massuras, Die Dogmatische Struktur der Mehrparteienschiedsgerichtsbarkeit 119-120 (1998).

[11] Eugen Spürig, supra note 8, at Art. 178 ¶ 2.

[12] See Pierre A. Karrer & Peter A. Straub, Practitioner’s Handbook on International Commercial Arbitration ¶ 12.20-12.21 (Frank-Bernd Weigand ed., 2nd ed., 2009) for Switzerland; cf. Gary Born, supra note 5, at 1325 in general.

[13] E.g. Nigel Blackaby et al., Redfern and Hunter on International Arbitration, ¶ 2.01 (6th ed. 2015); but see Gary Born, supra note 5, at 1417, for references to nonconsensual theories for binding non-signatories.

[14] Cf. Gary Born, supra note 5, at 1467.

[15] Id.

[16] See Eugen Spirig, supra note at 8, at Art. 178 ¶ 3.

[17] This is comparable with the approaches of other courts in civil law jurisdictions on matters of assignment, see Bernard Hanotiau, Consent to Arbitration: Do We Share a Common Vision?, 27 Arb. Int’l 541-42 (2011).

[18] For Swiss law cf. Zivilprozessordnung [ZPO] [Code of Civil procedure], Art. 357 para. 2 [Ch.].

[19] See Nigel Blackaby et al., supra note 13, at ¶ 2.101.

[20] Cf. Nigel Blackaby et al., supra note 13, at ¶ 2.25-2.28.

[21] Kammergericht [Court of Appeal in Berlin], Aug. 13, 2015, 20 Sch 9/14, http://www.gerichtsentscheidungen.berlin-brandenburg.de/, paras. 46-53 (Ger.).

The Center for Transnational Litigation and Commercial Law aims at the advancement of the study and practice of international business transactions and the way to solve related disputes either through litigation or arbitration. As commercial transactions become increasingly international, it is vital to the legal and business communities to understand and analyze the practices and legal principles that govern relationships between firms and between firms and consumers in the international arena