Transnational Notes

Upon the invitation of the head of the UN Office of Legal Affairs, International Trade Law Branch, who also acts as Secretary to the UN Commission on International Trade Law (UNCITRAL), Professor Ferrari, the Center’s Director, will give a talk on specific aspects of the rule of law at this year’s Commission session. More specifically, Professor Ferrari will address what efforts are being made to avoid that the uniform rules elaborated by UNCITRAL be applied in a way that undermines the very purpose behind the unification efforts leading to those very same rules.

For this year’s Commission session’s program, please click here.

The Center co-hosts, with the Hong Kong International Arbitration Centre (HKIAC), the world’s first tribunal accreditation programme. As an extension of HKIAC’s award-winning tribunal secretary service, the programme aims to train and accredit a new generation of qualified tribunal secretaries. The programme is organized as a two day workshop featuring practical training by experienced tribunal secretaries, followed by a written exam and oral interview. Those who pass the exam may apply for admission to a list of accredited tribunal secretaries maintained by HKIAC. The programme is taught by an experienced faculty and overseen by an advisory board which includes eminent arbitrators from around the world. For access to the brochure, please click here.

The Center hosts, together with Sciences-Po, a seminar on “how do arbitrators decide” that is to take place on 30 May 2016, from 4.30-6.30 pm. The event’s main speaker will be Eduardo Silva Romero (Dechert Paris), while Prof. Fabien Gélinas (McGill University), Prof. Pierre Mayer (University Paris 1), Ms. Isabelle Michou (Herbert Smith Freehills Paris) and Prof. Franco Ferrari (the Center’s Director)  will act as commentators. The event will be moderated by Prof. Diego Arroyo (Sciences-Po). For more info, click here

This is to announce a conference organized by the Center, together with the Brazilian Arbitration Committee, entitled “How International Should International Commercial Arbitration Be?” The conference will  bring together speakers from the United States and Brazil and will take place on 19 April 2016, from 2.30 -7.30 pm, , in the Lester Pollack Colloquium Room, Furman Hall 900, 245 Sullivan Street, New York, NY 10012. For the full program, please click here.

 

The Center will host the November 2014 session of the Arbitration Forum,  When U.S. Treaty Powers and State Law Collide – The Controversy over Implementing the 2005 Hague Convention on Monday, November 24, 2014 from 6:00-8:00 p.m. in the Lester Pollack Colloquium Room, Furman Hall 900 (245 Sullivan Street, New York, NY 10012).

The event will be moderated by the Center’s Executive Director, Franco Ferrari. Our distinguished speakers include Peter D. Trooboff, Senior Counsel in the Washington office of Covington & Burling LLP , Ronald A. Brand, Chancellor Mark A. Nordenberg Professor of Law and Director of the Center for International Legal Education at the University of Pittsburgh School of Law,  Harold Hongju Koh,  Sterling Professor of International Law at Yale Law School and Joseph Lookofsky, Professor of Law at Copenhagen University.

Please note that all discussions taking place during the Forum are subject to the Chatham House Rule.

Since space is limited, those interested are kindly asked to RSVP at cassy.rodriguez@nyu.edu

 I. Introduction

On October 16^th, 2014 the United Nations Convention on Contracts for the International Sales of Goods (“CISG”) was finally promulgated in Brazil by the Presidential Decree No 8.327/2014[1], exactly two years after the National Congress has approved the text of the Convention (which occurred on October 16, 2012).

The fulfillment of this requirement by President Dilma Rousseff puts an end to the existing discussion of whether the Convention was actually in force in Brazil after the deposit of the instrument of ratification by the Brazilian Government at the United Nations (which occurred on March 4^th, 2013) and the expiration of the twelve-month period set forth in article 99(2) of the CISG (which occurred on April 1^st, 2014).

Although no doubts existed as to the coming into force of the Convention with respect to Brazil’s international relations (that is, for other signatory countries, Brazil is a Contracting State as of a April 1^st, 2014), discussions emerged as to whether the Convention was also in force in Brazil internally, that is, whether it should also be applied by a Brazilian judge.

The purpose of these notes is to briefly explain the Brazilian ratification process of the CISG. Such purpose will be carried out by confronting the Convention’s rules with the Brazilian Constitution and Brazilian law requirements in light of relevant case law of the Brazilian Supreme Court.

II. Ratification and approval process

In order to enter into force in the Brazilian territory, an international treaty or convention is submitted to the following process: first, it is signed by the Brazilian President and then its text is approved by the Brazilian National Congress[2] with the issuance of a Legislative Decree; as the next step, the Federal Government (i) deposits the instrument at the competent country or international organization responsible for receiving the ratifications, accessions or approvals from Contracting States; and (ii) promulgates the legal instrument by a Presidential Decree[3].

However, the exact order and necessity that all those requirements be fulfilled before a convention or treaty comes into force in Brazil is subject to controversy among scholars and decision makers. One of the main reasons for such controversy is the absence of an express provision that requires the issuance of the Presidential Decree for an international treaty to come into force in Brazil.

According to the Brazilian Federal Constitution, the National Congress is competent to decide on the approval of international treaties and conventions (art. 49, I). On the other hand, article 84, VIII determines that the President is competent for the signature of international treaties. Consequently, a practice has been developed to consider the Presidential Decree as the final step towards the entering into force of an international treaty or convention in the Brazilian territory.[4]

As regards the CISG, its text was approved by the Brazilian Senate on October 16, 2012 and enacted by the National Congress on the same date by Decree no. 583/2012[5]. The deposit of the instrument of ratification by the Brazilian government occurred on March 4^th, 2013 and thus, according to art. 99(2) of the CISG, Brazil became a Contracting State as of April 1, 2014.

Some scholars celebrated the date of April 1^st, 2014, understanding it as the date in which the CISG entered into force in Brazil. However, other scholars raised doubts as to whether the CISG could already be applied by a Brazilian judge in light of the absence of promulgation by the President. This debate recalled the classic discussion of whether Brazil adopts a monist or dualist international law system.[6]

III. Monism or Dualism?

In a monist system, the international treaty or convention, once approved by the competent authorities, integrates the domestic law of the country and is considered hierarchically equal to an ordinary law. Both national and international systems form a unity.

On the other hand, in dualist systems, the international and national laws have different effects and hierarchy within the country’s jurisdiction. In such systems, international treaties have to be “internalized” in order to produce effects within the country’s territory.

Scholars debate as to whether Brazil should be considered a monist, a dualist or even a “moderate” monist system, in light of the specific procedure for the internalization of international treaties. Once treaties are internalized in Brazil, they become part of the Brazilian law and should be applied by the judges as any other ordinary law. Therefore, an international treaty may conflict or even derogate former ordinary laws.[7] Such internalization process would somehow resemble the process to promulgate an ordinary law in Brazil, that is, necessarily involving both the Legislative and the Executive branches, and the latter with the final act.[8]

The debate between monism and dualism has been fueled by recent case law of the Brazilian Supreme Court (STF) – which is the court with the final word in the interpretation of the Federal Constitution – for it has decided that this last act by the Brazilian President is necessary for a convention to come into force in the Brazilian territory.

IV. The Brazilian Supreme Court Position

Even though the Brazilian Federal Constitution grants power to the National Congress to approve and enact international treaties, the STF considered in more than one opportunity that the President formal act of promulgation should occur in order for the treaty to have effects within the Brazilian territory.

This position embraced by the Supreme Court strengthens the dualist argument which states that, although the treaty has entered into force in the international setting, the validity and effectiveness under Brazilian domestic perspective will only occur with its promulgation by the President, that is, when its text is finally and officially published.[9] This position follows article 1 of the Lei de Introdução às Normas do Direito Brasileiro (LINDB)[10] and was reflected in two remarkable cases.

The first case was the judgment of the Letter Rogatory No. 8.279[11] issued by Argentina invoking the application of the one provision of the Mercosur Protocol for Urgent Measures. At the time of the judgment by the STF, the Brazilian National Congress had already promulgated the Protocol by Decree No. 192/95, the instrument of ratification had been already deposited by the Brazilian Government and the 30-day period of “vacatio legis” had already expired. However, the promulgation by the President was still pending (only occurred approximately one year later). Based on the lack of this requirement, the STF denied the Letter Rogatory stating that the referred Protocol was not officially published and, therefore, was not yet in force in Brazil for the purposes of granting the requested urgent measure. This case illustrates the dualist position of the STF by recognizing that Brazil was internationally bound by the Protocol to the other Member States, but could not apply its provisions since it was not fully in force within the Brazilian jurisdiction. However, the STF did not state any legal provision that expressed the need for promulgation by the Brazilian President[12].

Another case is the Ação Direta de Inconstitucionalidade (ADI) nº 1,480[13] regarding the Convention No. 158 of the International Labor Organization, when the STF also decided that an international treaty should follow a complex procedure in order to enter into force in Brazil. Such procedure encompasses acts from both the National Congress (through the promulgation of the Legislative Decree under article 49, I of the Federal Constitution) and the President (through the issuance of the Presidential Decree under the article 84, IV and VIII of the Federal Constitution) and therefore the international treaty needs to be promulgated by the President in order to become effective in Brazil.

V.  Conclusion

In light of STF’s current case law, it can be concluded that the CISG entered into force in Brazil for the purpose of other Contracting States on April 1^st, 2014, but only became applicable in the domestic setting on October 17^th, 2014 by Presidential Decree n. 8.327/2014.

 

Rafael F. Alves

LL.M. New York University, Arthur T. Vanderbilt Scholar – Class of ’10.

Master of Laws, University of São Paulo. Senior Associate of the Arbitration Practice at L.O. Baptista Schmidt Valois Miranda Ferreira Agel Advogados. Director of the Brazilian Arbitration Committee.

Ligia Espolaor Veronese

Master of Laws Candidate, University of São Paulo. Visiting researcher at the Max Planck Institute for Comparative and International Private Law. Associate of the Arbitration Practice at L.O. Baptista Schmidt Valois Miranda Ferreira Agel Advogados.

Professor Campbell McLachlan QC (Victoria University of Wellington) was scholar in residence at the Center for the month of September 2014. While visiting, he presented a seminar under the chairmanship of Professor Ferrari on “The Foreign State in International Civil Litigation before National Courts” with Professor Linda Silberman (NYU) and Professor Harold Koh (Yale). In the video-clip, Professor McLachlan talks about his new book Foreign Relations Law, published this month with Cambridge University Press. It is the first modern study of the law regulating the external exercise of the public power of states in the United Kingdom and the Commonwealth.

Professor Franco Ferrari, the Director of the Center, will give talks both in Berlin and Rome. In Berlin,  Professor Ferrari will join two former scholars-in-residence of the Center, Ms. Inka Hanefeld and Professor Luca Radicati di Brozolo, who will also give talks on the occasion of this year’s annual meeting of the German Arbitration Institution (DIS). On that occasion, Professor Ferrari will examine how international international arbitration should be (for the program, click here). In Rome, at a conference hosted by Universita’ Roma Tre and the International Institute for the Unification of  Private Law (UNIDROIT), Professor Ferrari will discuss the process of how arbitrators get to the arbitral award, focusing specifically on the deliberation process (for the program, click here). 

The New York International Arbitration Center (NYIAC), a nonprofit organization formed to advance, strengthen and promote the conduct of international arbitration in New York, has one open internship position for a NYU Law student, preferably an IBRLA LL.M. students, for the Fall 2014 semester.  In addition to legal research and writing, the intern will have the opportunity to interact with the NYIAC community, including leading practitioners and arbitrators.

The internship position can be tailored to the student’s interests and skills, but core duties will include: writing a 25 pages paper on a subject concerning international arbitration in New York. The paper will be orally presented to the NYIAC Program Committee at the end of the internship; assisting the Executive Director and the NYIAC staff in conducting legal research and drafting articles for publication; writing articles or notes for the NYIAC Newsletter and website; attend NYIAC Program Committee’s meetings; preparing case summaries for NYIAC’s contribution to www.newyorkconvention1958.org; participation in NYIAC’s events, conferences and seminars.

The time commitment is approximately 5 hours per week, not all of which needs to be on-site.  NYIAC intern will work under the direct supervision of Alexandra Dosman, NYIAC Executive Director, and Olivia Pelli, NYIAC McLaughlin Fellow.  As for the aforementioned 25 pages paper, the student will also be supervised by Professor Franco Ferrari and receive 1 credit from NYU for Directed Research, if all applicable criteria and standards are met.

Eligibility

The legal intern must be enrolled at the NYU School of Law for the Fall 2014 semester. IBRLA LL.M. students are preferred: 3Ls are also considered.

Application

To apply, please send before August 31, 2014, 5 pm a C.V. and a letter of motivation to franco.ferrari@nyu.edu, ljs3@nyu.edu, adosman@nyiac.org and opelli@nyiac.org. Interview candidates will be contacted by email on September 3, 2014. 15 minutes interviews will be held between [September 4 and September 5, 2014, at NYU. The decision will be communicated by email by September 8, 2014.

The successful candidate will have to start the internship on September 15, 2014. The 25 pages paper, which is an integral part of the internship, is to be submitted by December 7, 2014.

 

I.         Introduction: the new EU competence over foreign direct investment

On 16 April 2014, the European Parliament adopted a legislative resolution[1] on the proposal for a regulation establishing a framework for managing financial responsibility linked to investor-state dispute settlement (ISDS) tribunals established by international agreements to which the European Union is a party (COM(2012)335)[2].

This is a further step in defining European international investment policy, clearing the way for the gradual replacement of the bilateral investment treaties (BITs) of the EU Member States by EU agreements with non-EU countries on the protection of foreign investment.

This proposed regulation will clarify the division of financial responsibility between the Union and Member States when the Union or a Member State is sued by a non-EU investor in the context of ISDS proceedings. With the entry into force of the Lisbon Treaty, foreign direct investment (FDI) was added to Common Commercial Policy (CCP). Article 3 of the Treaty on the Functioning of the European Union (TFEU) stipulates that the EU will have exclusive competence in matters concerning the customs union, to which the CCP belongs, and article 206 TFEU further clarifies that by “establishing a customs union […] the Union shall contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and on foreign direct investment, and the lowering of customs and other barriers”. Article 207(1) TFEU is the central provision regarding the EU’s competence in the field of CCP. It expressly extends the scope of CCP and requires that it be based on uniform principles, adding FDI matters to treaty-making power. As regards FDI matters to be negotiated and concluded under the new CCP, the first subparagraph of article 207(4) TFEU requires the Council to “act unanimously where such agreements include provisions for which unanimity is required for the adoption of internal rules.”

These provisions correspond largely to the proposals already discussed during the drafting of an EU Constitution Treaty. Before Lisbon, investment treaties were signed by Member States and therefore any potential ISDS cases were handled nationally. But now that these treaties are being handled by the EU, a case can also be filed on the basis of European law or treaties. So new rules are needed to deal with these cases and, most importantly, to deal with any possible financial implications.

Since the Lisbon Treaty came into force, there has been growing debate between the Commission and the Member States on the appropriate division of their powers in the field of foreign investment. The EU now has the power not only to adopt secondary legislation on FDI but also to negotiate and conclude international agreements affecting FDI, in the form of Free Trade Agreements (FTAs), International Investment Agreements (IIAs) or BITs.

When EU Member States realised that the EU had gained a broad new investment competence as a result of the express inclusion of FDI in treaty-making powers relating to CCP, many of them tried to defend the remaining powers which they enjoyed as part of their national investment protection policies. This also led to lively academic debate about the scope of the new EU investment powers. On the one hand, it was argued that the EU’s investment powers would be limited to aspects concerning the admission of investments and not extend to traditional investment protection once an investment was made. On the other hand, the express choice of the term FDI was interpreted as limiting the EU’s powers to FDI, excluding portfolio investments traditionally covered by modern investment treaties. Both limitations would lead to a situation of de facto shared control between the EU and its Member States, as they would require so-called mixed agreements to be negotiated and concluded by both the EU and its Member States. Thus, the question was anything but ‘academic’.

According to the European Commission, the EU’s investment power is not limited to access/admission questions. It also covers the pre-establishment and post-establishment phase and the EU can therefore conclude treaties containing the traditional substantive treatment obligations of IIAs and procedural guarantees in the form of state-to-state dispute settlement and ISDS, although ISDS is adapted so that the EU can (partly) replace the Member as respondent. The European Commission also rejects a narrow interpretation of its investment powers, arguing that these powers are not restricted to FDI but include an implied power in relation to the discipline of portfolio investments.

Much time and effort were spent on both sides in claiming and defending treaty-making power as regards BITs with third states, lessening the Commission’s exercise of its new competence in the field of foreign investment.

In actual fact, the question of competence is still open and the inclusion of an ISDS mechanism in IIAs is surrounded by questions and controversy, also given the difficulty of access to the International Centre for Settlement of Investment Disputes (ICSID) and ICSID additional-facility rules[3].

In July 2010, two Commission documents were made public. One was a draft regulation of the European Parliament and the Council establishing transition arrangements for BITs between Member States and third countries; the other was a communication outlining the EU’s future investment policy. These were followed by a Commission proposal in the summer of 2012 for a regulation addressing the issue of allocating financial responsibility between the EU and its Member States in case of investment arbitration.

On December 12 2012, the European Union issued Regulation (EU) No. 1219/2012[4] (the “1219/2012 Regulation”) establishing transitional arrangements for BITs between Member States and third countries. The Regulation, which entered into force on 9 January 2013, provides investors with clarifications on the status of BITs entered into by EU Member States and non-EU States (“extra–EU BITs”) following the Lisbon Treaty.

With regard to the European Parliament proposal for a regulation establishing a framework for managing financial responsibility linked to investor-state dispute settlement, this provides the legal financial framework for the allocation of responsibilities between the EU and its Member States.

II.       A new framework for financial responsibility linked to ISDS tribunals established by international agreements to which the EU is a party

Given that the EU now has competence to conclude FDI international agreements, the EU has to bear the international responsibility for the violation of investor rights included in international agreements to which the EU is a party. Accordingly, as mentioned above, on 16 April 2014 the European Parliament approved at first reading the proposal for a regulation establishing a framework for managing financial responsibility linked to ISDS tribunals established by international agreements to which the EU is a party, although it has made some amendments to the version of the proposal presented by the European Commission in 2012. The aim of this proposal is to establish the proper allocation between the EU and its Member States of liability for damage caused to a foreign investor (i.e. a non-EU investor) on the territory of the EU. Indeed, in the complex situation created by the distribution of competences, it is not easy to identify who is responsible for injury caused to a foreign investor. In short, the purpose of the proposed regulation is to protect inbound FDI on the territory of the EU, given that this new legal framework will identify who is financially responsible for damage caused to a foreign investor.

The scope of this proposal is limited to the international agreements to which the EU is a party. Therefore the new regulation will apply to all IIAs that include a provision on ISDS negotiated and concluded by the EU in the future, given its new exclusive competence on FDI. Although the EU has had exclusive competence to sign international agreements affecting FDI since 1 December 2009 – when the Lisbon Treaty came into force – EU institutions had already concluded international agreements containing provisions on investments. This was possible because of the doctrine of implied powers, whereby the EU is competent to act internationally also in fields where such a competence is not provided by the Treaties, insofar as this external competence is essential to exercise internal competences efficiently and to pursue the objectives of the Treaties. This doctrine was developed by the case law of the CJEU (31 March 1970, Case 22/70, AETS) and is now incorporated into the TFEU at article 3(2).

In the recent past five EU international agreements also covering investment treatment have been concluded: the Energy Charter Treaty (ECT) (1991), the Trade, Development and Cooperation Agreement with South-Africa (1999), the Economic Partnership Agreement with Mexico (2000), the Association Agreement with Chile (2002), and the FTA with South Korea (2011). All these agreements can be considered as FTAs and, as they regulate a wide range of subjects, some of which fall within the scope of the competences of the Member States, they have been concluded in the form of mixed agreements signed by the EU and its Member States. Besides these FTAs, the EU is about to conclude the negotiation of an international trade agreement with Canada: the CETA (Comprehensive Economic and Trade Agreement). EU and USA are currently negotiating a Transatlantic Trade and Investment Partnership (TTIP). As a part of its ongoing efforts to make the negotiations as open and transparent as possible, on 27 March 2014 the European Commission has launched a public consultation on ISDS in the TTIP[5].

Although all these FTAs include some provisions on investments, not all of them have ISDS mechanisms. For instance, the FTAs with Mexico and Chile do not have ISDS clauses, whereas the ECT, the FTAs with South Africa and South Korea, and the CETA include a chapter on ISDS. Therefore, the proposed regulation on financial responsibility linked to ISDS will apply not only to future IIAs, FTAs or BITs − incorporating ISDS provisions − that the EU will conclude, but also to these existing FTAs with ISDS clauses. However, the proposed regulation will apply only “in respect of disputes where the submission of a claim to arbitration has been lodged after the entry into force of the regulation which concern treatment afforded after the entry into force of the regulation” (article 24).

III.      An overview of the proposed regulation on financial responsibility linked to ISDS

With regard to the exact scope of the exclusive external competence of the EU in investment matters, it is expressly stated in article 1 (Scope) of the proposed regulation on financial responsibility that the regulation does not prejudice the division of competences established by the TFEU. This ‘neutral’ approach to the question is confirmed by the Joint Declaration by the European Parliament, the Council and the Commission annexed to the legislative resolution. All that, despite the Commission’s firm statement that the Union has exclusive competence to conclude agreements covering all matters relating to foreign investment (COM(2012)335).

In the proposed regulation the general criterion for apportioning financial responsibility between the EU and the Member States is the origin of the treatment that has allegedly injured a foreign investor on the territory of the EU (article 3). If the treatment originates in an act of the institutions, bodies or agencies of the EU, the EU itself is financially responsible for the damage caused to the investor. If the treatment originates in an act of the institutions, bodies or agencies of a Member State, that Member State has to bear financial responsibility for its act.

Nevertheless, the proposed regulation includes an exception to this general rule: if the treatment by a Member State is required by EU law, the financial responsibility for that treatment is attributable only to the EU. The reason for this exception lies in the principle of the conferral of powers; in other words, if the EU has a competence in the field to which the treatment by a Member State belongs and that Member State acts in conformity with EU law, the EU is the sole party responsible for the action of that Member State. As the European Commission stated in the Explanatory Memorandum, “where the treatment of which an investor complained originates in the institutions of the Union (including where the measure in question was adopted by a Member State as required by Union law), financial responsibility should be borne by the Union” (COM(2012)335).

This exception is in line with the work of the International Law Commission (ILC). The draft articles on the responsibility of international organisations proposed by the ILC have been included in a resolution of the General Assembly of the United Nations (UN) adopted on 9 December 2011[6]. Although, under international law, the general rule governing the attribution of international responsibility to an international organisation is the attribution of conduct, article 64 of the articles on the responsibility of international organisations provides that “[t]hese articles do not apply where and to the extent that the conditions for the existence of an internationally wrongful act or the content or attribution of the international responsibility of an international organisation, or of a State in connection with the conduct of an international organization, are governed by special rules of international law. Such special rules of international law may be contained in the rules of the organisation applicable to the relations between an international organisation and its members”. In short, international law recognises the existence of special rules for the attribution of international responsibility to certain international organisations which are “providing for integration”[7], such as the EU, which is mentioned in the last ILC commentary to the articles[8] as an organisation to which special rules should apply. As we can see, the development of international law does not preclude that the international responsibility and consequent financial responsibility of the EU can be based on the principle of the conferral of powers between the EU and its Member States, instead of the criterion of attribution of conduct.

The proposed regulation introduces rules for the conduct of disputes concerning treatment afforded by the Union (article 4) or by a Member State (articles 6 to 10). With reference to the conduct of an ISDS arbitration proceeding, the general rule laid down by the proposal is that the Member State concerned must act as respondent (article 9), except in two cases: (a) if the European Commission decides to act as respondent, because at least part of the financial responsibility has to be borne by the EU; (b) if the Member State concerned notifies the European Commission that it does not intend to act as respondent. In any event, the European Commission and the Member States concerned have to act in accordance with the principle of sincere co-operation (article 6) referred to in article 4(3) of the Treaty on the European Union  in order to defend and protect the interests of both the Union and the Member State itself. Articles 11 and 12 govern the conduct of arbitration proceedings by the Union. Moreover, the proposal includes rules for the settlement of disputes and for the payment of the final award (articles 13 to 16 and 17 to 21 respectively). However, regardless of who is the respondent, the EU and the Member State involved in the dispute have to reach an agreement with regard to financial responsibility. It is likely that this liability will be shared between the EU and its Member States in most cases. In the view of EU institutions this agreement between the EU and the Member State concerned is important because, as the European Commission stated in the Explanatory Memorandum (COM(2012)335), it is “appropriate to put forward pragmatic solutions which ensure legal certainty for the investor and provide all the necessary mechanisms to allow for the smooth conduct of arbitration and, eventually, the appropriate allocation of financial responsibility”. Should the EU be held liable, the claimant who has obtained a final award may present a request to the Commission for payment of the award (article 18). As stated in the Explanatory Memorandum, the EU “would honour such obligation”. There are no recorded cases of the Union or its Member States refusing to respect an award; however, if an investor were to consider it necessary to seek recognition or enforcement of an award, it would need to seek such recognition or enforcement via the courts of the Member States. Article 1 of the Protocol (No 7) on the Privileges and Immunities of the European Union would apply and the investor might have to go to the CJEU, which, in turn, would apply the standard approach on sovereign immunity.

IV.      Extra-EU BITs concluded by EU Member States and EU international responsibility

Before the Lisbon Treaty came into force in 2009, the Member States of the EU had concluded more than 1,400 BITs with third countries (more properly, non-EU States). These BITs will be replaced by BITs, IIAs or FTAs with investment clauses negotiated and concluded by the EU, given its exclusive competence over FDI. In this respect, the European Parliament and the Council have already passed the 1219/2012 Regulation establishing transitional arrangements for BITs between Member States and third countries. This Regulation provides the European Commission with the power to check the compatibility of these BITs with EU law and establishes a legal framework for substituting the old BITs of Member States with new IIAs concluded by the EU.

Apparently, the proposed regulation on financial responsibility linked to ISDS will not apply to extra-EU BITs concluded by Member States, which are not international agreements to which the EU is a party. Nevertheless, considering the afore-mentioned article 64 of the ILC’s articles on the international responsibility of international organisations, it cannot be ruled out that in certain circumstances the EU may be considered internationally responsible for the conduct of a Member State which causes an injury to a foreign investor of a country with which that Member State (but not the EU) has concluded a BIT. Indeed, if that Member State does not observe a right granted to the foreign investor by the BIT because it has to comply with EU law, it is not unlikely that the international responsibility and consequent financial responsibility may be attributable to the EU. The special rules of article 64 seem to have an extremely wide scope[9] encompassing all the situations in which a Member State of an international organisation acts in accordance with a binding act of that organisation[10]. This position is the same adopted by the European Commission, according to whom “the Union bears, in principle, international responsibility for the breach of any provision within the Union’s competence” (COM(2012)335). In its resolution of 16 April 2014 the European Parliament expressed the same opinion, stating that “[i]nternational responsibility for treatment subject to dispute settlement follows the division of competence between the European Union and Member States. As a consequence, the Union will in principle be responsible for defending any claims alleging a violation of rules included in an agreement which fall within the Union’s exclusive competence, irrespective of whether the treatment at issue is afforded by the Union itself or by a Member State” (Recital (3). Moreover, as the Special Rapporteur (Gaja, Second Report on responsibility of international organizations) stated in 2004, “[a]lthough generally the organization’s responsibility depends on attribution of conduct […] this does not necessarily occur in all circumstances”. Should this interpretation of the international responsibility of the EU be right, both the EU and Member States could be brought before an ISDS tribunal to respond to an investor’s claim.

V.        What kind of ISDS tribunals for EU international agreements?

It is known that the EU cannot be part of arbitration before the ICSID which is the main ISDS mechanism now operating and which is incorporated into the World Bank Group (WB). The ICSID Convention (1966) can only be signed by States that are members of the WB or party to the Statute of the International Court of Justice (ICJ). The EU is neither of these (COM(2010)343[11]) and statehood is a clear requirement for adherence to the ICSID Convention[12]. On May 23, 2014 the European Commission sought to intervene as a third-party (article 37 of Arbitration Rules) in an ongoing ICSID proceeding under the BIT between Spain and Guatemala, citing its new competence for extra-EU investment obligations, and claiming its “systemic interest” in the interpretation of investment agreements concluded by EU Member States. On June 9, 2014 the European Commission’s application was rejected. In fact, the EU intervention did not meet the criteria set out in the ICSID rules for such interventions; in particular,  application was not presented in the format contemplated under the ICSID rules and came too late, after the final hearings[13].

To be part of an ICSID ISDS procedure the State of the investor and the State to the dispute both have to be members of the WB or party to the ICJ Statute. Nevertheless ICSID has another tool for the resolution of disputes: the ICSID additional-facility rules. Since 1978 these have allowed ICSID to manage disputes even if the State of the investor or the State to the dispute is not a member State of the WB. In such cases the ICSID Convention is not applicable but, like the Convention, the additional-facility rules only apply to States and not to international organisations such as the EU. Apart from ICSID, the EU can be part of an international investment arbitration before the Stockholm Chamber of Commerce (SCC), before an ad hoc tribunal conducted under the rules of the United Nations Commission on International Trade Law (UNCITRAL) and also before ad hoc tribunals conducted in accordance with both the international agreements that establish them and international law. According to the United Nations Conference on Trade and Development (UNCTAD), in 2013 ICSID managed 55% of the world’s investor-state disputes, while ad hoc tribunals applying UNCITRAL rules managed 35%. The SCC managed only 5% of these disputes and the remaining 5% were managed by other ad hoc tribunals[14].

With regard to the three FTAs concluded by the EU and its Member States and including ISDS clauses, we can divide these provisions into two categories: narrow ISDS clauses and broad ISDS clauses. While the FTAs with South Africa and South Korea provide for very limited ad hoc arbitration tribunals with jurisdiction over certain issues only (procurement contracts and telecommunications investment), the ECT countenances a wide range of institutionalised arbitration tribunals with extended jurisdiction, such as ICSID tribunals, ICSID additional-facility tribunals, ad hoc arbitrations conducted under UNCITRAL rules and the arbitration tribunals of the SCC. Of course, recourse to ICSID means that the ICSID Convention should be modified so that it also applies to the EU. The (preparatory) political agreement of CETA has already been signed by the EU and Canada and leaked documents allow us to include CETA in the same category as the ECT. The CETA allows claimants to bring their case before ICSID tribunals, ICSID additional-facility tribunals, ad hoc arbitration tribunals which follow UNCITRAL rules, and other ad hoc arbitration tribunals[15]. ECT and CETA include ICSID and ICSID additional-facility rules because they are mixed agreements signed by the EU and its Member States; therefore a foreign investor can obviously sue an EU Member State (but not the EU) before ICSID, following the process established by the ICSID Convention or the process established by the additional-facility rules. All the cited FTAs include an ISDS mechanism alternative to arbitration, such as consultation and mediation, before the ICSID Secretariat and before ad hoc consultation or mediation bodies.

After some initial reluctance, the European Commission eventually weighed in favour of including ISDS in future IIAs entered into under its new competence (COM(2010)343). The European Parliament, though expressing “its deep concern regarding the level of discretion of international arbitrators to make a broad interpretation of investor protection clauses, thereby leading to the ruling out of legitimate public regulations”, also took “the view that, in addition to state-to-state dispute settlement procedures, investor-state procedures must also be applicable in order to secure comprehensive investment protection” (European Parliament Resolution of 6 April 2011 on the Future European Investment Policy (2010/2203(INI)[16]). Its criticisms are based on a lack of both transparency, which commercial arbitration emphasis on confidentiality entails, and consistency in decisions, as a direct result of the decentralised nature of arbitration and the relative lack of review. One solution might be to establish an appellate process for a review of arbitral awards. The Commission has stated that “appellate mechanisms” should be considered together with or as an alternative to “quasi-permanent arbitrators” (COM(2010)343). The European Parliament, deeply concerned about the degree of discretion left to arbitrators, has expressly called for the inclusion of “the opportunity of parties to appeal” (2010/2203(INI)). In other words, ISDS should be included in future EU IIAs only where it is justifiable, that is when it is an agreement with a third country that does not have a properly-functioning judicial system, where the rule of law is doubtful. The identity of the EU counter-party would probably become the determining element in deciding whether or not to include ISDS mechanism in future investment agreements. That would mean a significant change in direction from the pattern established by previous Member State BIT procedure and the question is still open.

In conclusion, on its own the EU can only conduct ad hoc arbitrations proceedings and disputes before the SCC, while EU Member States have the opportunity to conduct any kind of investor-state arbitration proceeding, including ICSID proceedings. Last year the European Commission declared that in any case its ISDS policy will be carried out in the light of the new UNCITRAL rules[17]. Concerning the CETA and the TTIP between the EU and the USA, it is noteworthy that the European Commission has declared that it intends to create an appellate body for investor-state disputes[18] [19], a quasi-permanent tribunal which can review arbitral awards at first instance[20]. However, it is still unclear what kind of relation would exist between this possible appellate body and the other investor-state arbitrators mentioned above, especially ICSID tribunals, given that article 53(1) of the ICSID Convention provides that “[t]he award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention”.

VI.      Controversial issues

As illustrated above, the European Commission is currently and gradually making use of its new investment treaty-making power within the boundaries of EU investment policy. However, there are still many open issues which deserve to be studied in more detail.

To touch on just some of these, the precise scope of exclusive IIA powers remains unclear, especially with regard to the inclusion of provisions on post-establishment measures and on ISDS. From a practical perspective, investment agreements can be expected to be mixed agreements, signed by both the EU and Member States concerned. In terms of external relations with third countries, mixed agreements would avoid the need to specify spheres of competence; in terms of internal relations between the EU and its Member States, responsibility for breaches of the agreements would be organised according to the criterion of attribution of conduct and the principle of the conferral of powers. Another set of open issues includes the problems raised by the Commission’s Communication of July 2010, “Towards a Comprehensive European Investment Policy” (COM(2010)343) and the European Parliament’s resolution on this (2010/2203(INI)). In particular, there is a need for a higher level of definition of substantive treaty standards, greater transparency when initiating proceedings, access to documents, open hearings, publication of awards, greater consistency of outcomes through clearer rules of interpretation, and the introduction of an appeal mechanism. Another highly contentious issue concerns the compatibility of ISDS itself with the system of legal protection afforded by the CJEU. According to current rules, a European investor is under an obligation first to attempt to obtain the annulment of the illegal act of the Member State or Union that affects its investment before being able to recover the losses suffered; in contrast, most existing BITs do not require foreign investors to exhaust local remedies and allow them directly to bring a claim for all damages before an international tribunal, thus entailing the reverse discrimination of EU investors in Europe. On the other hand, investor-state tribunals are not entitled to make preliminary reference to the CJEU. In such a situation investment tribunals may have to rule on EU law which could be regarded as an infringement of the exclusive power of the CJEU to interpret EU law. Finally, the inclusion of ISDS itself in future IIAs is under scrutiny because of the degree of latitude enjoyed by arbitrators under the ISDS system.

VII.     Conclusions

Many questions still remain to be addressed in order to shape future European IIAs and, in general, European investment policy. Certainly, after initial reluctance to take a clear position on a wide range of crucial issues, the Commission, with the support of the European Parliament, seems to be moving in the right direction. The proposed regulation on financial responsibility is a logical step forward in defining the emerging European international investment policy, the contours of which are beginning to emerge.

Ruggiero Cafari Panico

Ruggiero Cafari Panico is Professor of European Union Law at the University of Milan, where he also teaches Competition Law. His practice focuses on European Union Law as well as Transnational Commercial Law, with particular emphasis on Competition Law and Discipline of foreign investments. He is a member of supervisory boards of international companies. He is the author of several publications on different topics on private international, competition and arbitration law.

Email: ruggiero.cafari@unimi.it

[1] European Parliament legislative resolution of 16 April 2014 on the proposal for a regulation of the European Parliament and of the Council establishing a framework for managing financial responsibility linked to investor-state dispute settlement tribunals established by international agreements to which the European Union is party (P7_TA-PROV(2014)0419).

[2] European Commission, Proposal for a regulation of the European Parliament and of the Council establishing a framework for managing financial responsibility linked to investor-state dispute settlement tribunals established by international agreements to which the European Union is party (COM(2012)335).

[3] ICSID additional-facility rules, April 2006.

[4] Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries, OJ L 351, 20.12.2012, p. 40-46.

[5] European Commission Consultation notice, 2014.

[6] Resolution adopted by the General Assembly on 9 December 2011, Responsibility of international organizations (A/RES/66/100).

[7] Giorgio Gaja, Special Rapporteur’s Second report on responsibility of international organizations, 2004, page 6 (A/CN.4/541).

[8] Report of the International Law Commission, 2011, pages 168-170 (A/66/10).

[9] Giorgio Gaja, Special Rapporteur’s Eight report on responsibility of international organizations, 2011, page 36 (A/CN.4/640).

[10] Frank Hoffmeister, Litigating against the European Union and Its Member States – Who Responds under the ILC’s Draft Articles on International Responsibility of International organizations?, The European Journal of International Law Vol. 21 no. 3 (2010).

[11] European Commission, Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, Towards a comprehensive European international investment policy (COM(2010)343).

[12] August Reinisch, The Future Shape of EU Investment Agreements, ICSID Review, Vol. 28 no. 1 (2013), page 193.

[13] Investment Arbitration Reporter (IAreporter.com), European Commission’s DG Trade tries to intervene for first time in an extra-EU BIT case to offer “systemic” views, but ill-timed application is rejected, July 9, 2014.

[14] UNCTAD, IIA Issue Note. Recent development in Investor-State Dispute Settlement (ISDS), no. 1 (2014), page 4.

[15] Eu-secretdeals.info/ceta.

[16] European Parliament resolution of 6 April 2011 on the future European international investment policy (2010/2203(INI) (P7_TA(2011)0141).

[17] European Commission, Fact sheet. Investment Protection and Investor-to-State Dispute Settlement in EU agreements, November 2013, pages 8-9.

[18] European Commission, Investment Provisions in the EU-Canada free trade agreement (CETA), December 2013, page 3.

[19] European Commission, Investment Protection and Investor-to-State Dispute Settlement (ISDS) in EU agreements, March 2014, page 2.

[20] Mark A. Clodfelter, The Future Direction of Investment Agreements in the European Union, 12 Santa Clara Journal of International Law 159 (2014), pages 174-175.

Professor Silberman will be delivering a paper on international child abduction to the Journal of Comparative Law conference on the Hague Abduction Convention, to be held in London in July 2014. Over the past academic year, Professor Silberman, Co-Director of the Center, has participated in a number of conferences and activities related to transnational litigation and arbitration.  In September, 2013, she participated in a conference at Pepperdine University and gave a talk on the need for a federal statute on judgment recognition, and in October, 2013 she spoke on comparative judgment recognition at the International Law Section meeting of the ABA in London.  On leave in the Spring, Professor Silberman spent two weeks in January at Pepperdine University as Distinguished Professor at the Strauss Dispute Resolution Center and then in March was Distinguished Research Scholar at Queen Mary School of International Arbitration in London. 

Professor Franco Ferrari, Director of the Center, and Professor Marco Torsello, professor of law at Verona University School of Law and Hauser Visiting Professor at NYU (2012, 2015), have just published a book on the 1980 United Nations Convention on Contracts for the International Sale of Goods. The Convention, which covers more than 3/4 of world trade, is in force in 80 States, including the United States and its most important trading partners.

The book, which is part of West’s Nutshell series, covers the basic rules one should be aware of, so as to avoid surprising when doing business with parties from other countries.

I.                    Introduction

In Corporación Mexicana de Mantenimiento Integral (“COMMISA”) v. Pemex-Exploración y Producción (“PEP”)[1] (Pemex) decided in August of last year, the District Court for the Southern District Court took what I described elsewhere as “an important step in the right direction”[2] by granting enforcement to an award vacated by the courts of the seat (Mexico in that case). In Thai-Lao Lignite (Thailand) Co Ltd & Hongsa Lignite (Lao Pdr) Co., Ltd v Government of the Lao People’s Democratic Republic,[3] decided barely four months later, the same court at first sight seems to have gone in the opposite direction by deferring to the annulment decision of the courts of the seat in Malaysia.

This post will analyze the Thai-Lao Lignite decision and show that the different outcome in the two cases is explained by the substantial differences in the facts.

II.                  The background

Thai-Lao Lignite is the most recent development in a complex litigation spanning across three continents.  It deals with the enforcement of an arbitral award rendered in an arbitration seated in Kuala Lumpur, Malaysia. The arbitration arose from a project development agreement providing for certain mining and operation rights (PDA) between the Government of Laos and the two companies that eventually became the petitioners in the enforcement proceedings before the District Court. The companies brought claims for improper termination and damages, which were upheld by the arbitrators, after rejection of the Government’s objections to jurisdiction.

In 2011 the award was confirmed by the District Court for the S.D.N.Y., whose decision was affirmed by the Second Circuit Court of Appeals.[4] In support of its motion to dismiss the petition for enforcement the award debtor contended, inter alia, that the arbitrators had exceeded their jurisdiction by extending it to other agreements and to non-signatories of the PDA. As discussed in Section IV below, these objections were rejected.

The award was also declared enforceable in England by the High Court of Justice, which relied on the US Court’s decision.[5] The English court held that the award debtor’s objections to jurisdiction had all been decided by the US courts and raised matters of issue estoppel. On that basis it decided that the award was to be regarded as “manifestly valid”.[6]

Enforcement was, instead, denied by the Paris Court of Appeal on grounds of excess of jurisdiction, because the arbitrators awarded compensation for losses related to a contract other than the one containing the arbitration clause.[7]

After the award had been enforced in the US, the Government of Laos brought a successful challenge before the Malaysian High Court, whose decision was affirmed by the Malaysian Court of Appeal. As recounted in the District Court’s decision under review here,[8] the ground for the annulment was the provision on excess of jurisdiction of the Malaysian Arbitration Act of 2005. The High Court held that the arbitrators had erred in assuming jurisdiction over two contracts entered into before the PDA and in admitting and adjudicating claims by non-parties to that agreement.

Following the setting aside of the award in Malaysia, the Government of Laos filed with the District Court for the S.D.N.Y a motion for relief from that court’s earlier judgment granting enforcement[9] pursuant to Federal Rule of Civil Procedure 60(b)(5)[10] and Article V(1)(e) of the New York Convention. The motion was granted by the District Court and the award is therefore no longer enforceable in the United States.

III.                The District Court’s Opinion

Wood J.’s Opinion first sets out what it considers to be the guiding principles for the exercise of the discretion to enforce a foreign arbitral award annulled at the seat, which derives from the “permissive ‘may’ in Article (V)(1)(e) of the New York Convention”.[11]

To do this, it analyzes the US case law on the enforcement of awards set aside at the seat, and in particular Chromalloy[12], Baker Marine,[13] TermoRio[14] and Pemex.[15] The Opinion reiterates the adages that the New York Convention “provides for a carefully crafted framework for the enforcement of international arbitral awards”[16] and that “Under the Convention, ‘the country in which, or under the [arbitration] law of which, [an] award was made’ is said to have primary jurisdiction over the arbitration award. All other signatory States are secondary jurisdictions …”.[17]

The District Court notes that “[i]n Baker Marine, the Second Circuit Court of Appeals held that where a court with primary jurisdiction over an arbitral award issues a decision setting aside the award, US courts will honor that decision in the absence of an ‘adequate reason’ not to do so”. It also refers extensively to TermoRio, which held that “normally a court sitting in secondary jurisdiction should not enforce an arbitral award vacated by a court with primary jurisdiction over the award, but that there are certain circumstances in which doing so may be appropriate”.[18] The discretion to refuse enforcement “is narrowly confined” and may be exercised only when the foreign judgment setting aside the award is “repugnant to fundamental notions of what is decent and just in the State where enforcement is sought” or violates “basic notions of justice”.[19] That “standard is high and infrequently met” and should be found “[o]nly in clearcut cases.”[20]

Wood J. concludes her survey of precedents citing Pemex’s approval of the TermoRio standard and its finding that the Mexican annulment decision in that case “violated basic notions of justice in that it applied a law that was not in existence at the time the parties‘ contract was formed and left Commisa without an apparent ability to litigate its claims.”[21]

The Court then proceeds to determine whether the extraordinary circumstances envisioned in TermoRio were met in the case at bar and concludes that, unlike in Pemex, they were not.

The analysis turns on whether the Malaysian proceedings or the judgments of the Malaysian courts violated basic notions of justice, so as to lead to ignore comity considerations and to disregard the Malaysian judgments.

The petitioners relied on a variety of arguments of questionable relevance. In particular they contended that the Respondent had acted inequitably in the enforcement proceedings before the US courts; that in challenging the award it had violated a covenant to abide by it; that the Malaysian Court of Appeal excused the Respondent’s initial failure to file its action within the proper deadline; that the Malaysian High Court wrongly held that the Respondent had properly objected to the arbitral tribunal’s jurisdiction and had not waived its jurisdictional objection; and that it failed to accord res judicata effect to the decisions of the US courts upholding the award.

The District Court is quick to point to the lack of substance of each one of the arguments. It notes amongst others that the petitioners’ criticisms of the Malaysian court’s decision “at best show weakness in the […] legal reasoning”, but ultimately fail to demonstrate that the judgments violated basic notions of justice. Predictably, the District Court also holds that the Malaysian courts had no obligation to grant preclusive effect to the enforcement decisions of the US courts, since such decisions are not truly decisions on the merits, but simply orders to enforce an award which are not necessarily res judicata in foreign jurisdictions.[22]

In light of these findings the District Court concludes that the circumstances at hand “simply do not amount to the extraordinary circumstances contemplated in TermoRio.”[23] In support of this conclusion it notes that the award brought for enforcement in this case had been rendered in a neutral country and did not involve an entity of the State of the seat, unlike in Pemex. It observes further that, again unlike Pemex, there was no retroactive application of a prohibition on arbitration and the private party was not left without remedy following the annulment.[24]

As Wood J. sums it up, the annulment of the award at the Malaysian seat was based on the “universally recognized ground” that the arbitrators had exceeded their jurisdiction.

IV.                Thai-Lao Lignite and Pemex compared

The outcome of Thai-Lai Lignite is the opposite of that of Pemex. While in Pemex the foreign award annulled at the seat was nonetheless confirmed by the District Court for the S.D.N.Y, in Thai-Lao Lignite the same court deferred to the foreign annulment. The foregoing summary makes it sufficiently clear that the reason for the dissimilar outcomes lies in the differences in the facts.

In Pemex the Mexican courts’ judgments were unquestionably tainted by a serious flaw, since they applied a retroactive prohibition on arbitrability. There was also a strong suspicion of political motivation, given that the award debtor was the largest and most powerful state entity of the seat. In that case it was difficult to contest that basic notions of justice had been violated. In Thai-Lao Lignite, instead, the crux was excess of jurisdiction by the arbitrators which, as the District Court remarks, is a universally recognized ground for setting aside awards. It is interesting that also the French courts, notoriously prone to enforce awards annulled at the seat,[25] refused enforcement on the same grounds.[26]

Thai-Lao Lignite does not, therefore, signal a departure from the standard laid down in TermoRio and applied in Pemex.

There is, however, one interesting peculiarity in Thai-Lao Lignite. Although the ground for annulment in Malaysia was excess of jurisdiction, the District Court does not address that issue in any detail. It simply remarks that, as mentioned above, the Malaysian High Court decided that the arbitrators exceeded their jurisdiction under the PDA by deciding over disputes concerning two contracts entered into by the parties prior to the PDA and by admitting claims by non-parties to the PDA.

As note previously, precisely this point had been addressed at great length in the District Court’s Opinion of August 3, 2011, which confirmed the award prior to its annulment. [27] On the first prong of the objection relating to the arbitrators’ alleged decision on matters not arising from the PDA, the Court held that the issues characterized by the Respondent as jurisdictional issues were, “at their core, not issues of arbitrability or jurisdiction at all”. Indeed, the target of the Respondents’ objections was the way in which “the Panel calculated damages and interpreted the PDA, both of which are well outside the scope of what the Court may review on petition to confirm an award under the Convention”. The arbitrators’ decision “simply reflects the Panel’s interpretation of the breadth of the term ‘total investment costs’ in the PDA, and not an extension of jurisdiction over other contracts”. On the second prong, relating to the standing of a non-party to the PDA, the District Court found that, insofar as it “concerns issues of arbitrability, […] the parties delegated decision on these issues to the Panel. Thus the Court defers to the Panel’s decision on such issues”. The Court held that, by agreeing to arbitration under the UNCITRAL Rules, the parties had also agreed to the jurisdiction of the arbitrators to decide on jurisdiction. It therefore refused to address the issue de novo and deferred to the arbitrators’ decision.

It is beyond the scope of this post to analyze these findings. It is, however, puzzling that, in the District Court’s latest decision, almost no attention was given to the contrast between the Malaysian courts’ decision on jurisdiction and the District Court’s earlier decision in the enforcement proceedings, notwithstanding that it dealt with what appears to have been an almost identical objection in the two proceedings. In the latest decision the District Court touches on the point only obliquely, where it addresses the Petitioners’ complaint that the Malaysian High Court failed to give preclusive effect to the US courts’ rulings on arbitral jurisdiction. Framed in this way it is not unsurprising that the Petitioners’ argument was given short shrift by the Court. It is difficult to imagine that the court of the seat would give res judicata effect to a foreign decision enforcing an award.

At least in the abstract, it would seem that the contrast between the foreign annulment judgment and the District Court’s own earlier decision (which had moreover been affirmed by the Court of Appeals) could have been more cogently invoked in the opposite sense. In other words, the argument could have been made that, regardless of its merits, the foreign annulment judgment could not be deferred to because of the conflict with a judgment of the forum having decided precisely the same issues.

The reason why that point was not addressed by the District Court probably lies in the relevant rules of civil procedure, that I am not qualified to discuss. It might have to do with the nature of the District Court’s earlier decision, which was “merely” a decision on enforcement and with the peculiarities of the procedure for relief from the enforcement judgment under Federal Rule of Civil Procedure 60(b)(5).

Nonetheless, it is somewhat surprising that the District Court seems not even to have blinked at the prospect of refusing to enforce an award it had previously decided to be enforceable. What is even more surprising is that, in so doing, it accepted to defer to a foreign judgment that collides frontally with its own. Admittedly, the conflict between the Malaysian judgment and the District Court’s own previous judgment turns on a delicate matter, i.e. the de novo review of the arbitrators’ decision on jurisdiction.[28] This is an issue on which positions differ, and the District Court’s view on which was not necessarily the only tenable one. Nonetheless, the District Court’s complete failure to address this conflict seems to underscore an engrained conviction that the foreign annulment judgment is almost entirely dispositive of the award’s fate, regardless of the enforcement forum’s own views on its validity. A more explicit treatment of this point would have provided food for interesting reflections on the law and policies involved in the enforcement of annulled awards.

V.                  Conclusion

Thai-Lao Lignite does not indicate a backtracking by the District Court for the Southern District of New York from the position that, in some circumstances, annulled awards can be enforced in the United States, that it adopted in Pemex. In this case, the refusal to enforce the award annulled by the Malaysian courts is easily explained by the fact that the circumstances of the foreign annulment were not as serious and prima facie objectionable as in Pemex.

Thai-Lao Lignite displays the same timid and conservative approach to the enforcement of awards annulled at the seat that characterized Pemex, with the additional peculiarity that it fails even to touch upon the contrast between the foreign annulment judgment and a decision of the forum where enforcement is sought. Upon reading the District Court’s decisions one feels the need for further analysis of the legal and policy approaches to this matter, which has significant broader implications.[29]

Luca G. Radicati di Brozolo

The author was Scholar in Residence at the Center for Transnational Litigation, Arbitration and Commercial Law in February 2014. He is a Professor of Private International Law at the Catholic University of Milan and a founding  partner of Arblit – Radicati di Brozolo Sabatini, Milan. He is a member of the ICC International Court of Arbitration, Vice-Chair of the IBA Arbitration Committee and a door tenant of Fountain Court Chambers, London. Email: Luca.Radicati@arblit.com

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Professor Franco Ferrari, the Executive Director of the Center, publishes a paper on the homeward trend and lex forism (entitled Tendance insulariste et lex forisme malgré un droit uniforme de la vente) in the latest issue of the French law journal Revue critique de droit international privé. In the paper, Professor Ferrari shows that although interpreters are generally not supposed to read the United Nations Convention on Contracts for the International Sale of Goods through the lenses of domestic law,  case-law of the various Contracting States shows that courts do not always comply with such prohibition directed at avoiding both the homeward and lex forism. Professor Ferrari then goes on to suggest how to avoid both the homeward trend and lex forism.

The editors of the Transnational Notes blog are happy to announce that some blog entries will now be  posted in a foreign language as well.

La comunidad empresarial en el Ecuador ha generado ciertas preocupaciones en relación a la recientemente promulgada Ley Orgánica de Regulación y Control del Poder de Mercado. Algunas de sus más temibles preocupaciones se basan en los excesivos poderes que la Superintendencia de Regulación y Control del Poder de Mercado tendrá una vez que se establezca. Esta Ley fue promulgada con el propósito, como fue pensado por mucho países en desarrollo cuando promulgaron sus propias leyes de competencia, que esta Ley contribuirá al crecimiento económico. El principal objetivo de la Ley es controlar y sancionar a los agentes económicos que afecten o puedan afectar a la competencia, tratando de equiparar el mercado para nuevos emprendedores. Desde un punto de vista teórico, puede ser visto como algo positivo para el bienestar de los competidores y los consumidores pero existen muchas preocupaciones que la aplicación de dicha Ley se verá sujeta a presiones políticas.

Desde el 2007, cuando Rafael Correa, de tendencia izquierdista, asumió su primera presidencia, el gobierno anuncio su deseo en redactar una Ley de Competencia. Correa estaba consternado que el Ecuador era una de los pocos países en América del Sur sin una Ley de Competencia. El interés del Presidente en tener una regulación sobre la competencia, le llevó a emitir el Decreto Ejecutivo 1614 en marzo 2009, con el propósito de hacer la Decisión 608 de la Comunidad Andina directamente aplicable y ejecutable dentro del territorio Ecuatoriano. Este Decreto Ejecutivo tuvo validez hasta que la Asamblea Nacional promulgó la Ley Orgánica de Regulación y Control del Poder de Mercado. El Decreto Ejecutivo 1614 creo la Subsecretaría de Competencia que se encontraba bajo el control del Ministerio de Industrias y Productividad. El objetivo principal de esta Subsecretaría era estimular y proteger la competencia, promoviendo la capacitación y la investigación en temas relacionado con la competencia.

En Agosto 30 del 20111, Rafael Correa presentó a la Asamblea Nacional una propuesta de Ley con el carácter de “económico urgente”. Esta propuesta de Ley era la Ley Orgánica de Regulación y Control del Poder de Mercado. La Asamblea Nacional tuvo 30 días para aprobarla, modificarla o rechazarla. En Septiembre 29, la Ley fue aprobada con modificaciones mínimas en temas relacionados con la competencia pero con mejoras substanciales en relación a derechos ciudadanos reconocidos por la Constitución. Es posible que muchas de las preocupaciones expresadas por políticos de la oposición y organizaciones económicas con respecto a la propuesta de Ley, fueran porque el texto se prestaba para ciertas dudas acerca de las intenciones verdaderas. Después de la aprobación en la Asamblea Nacional, Correa aprobó la Ley casi inmediatamente y expresó que con esto se termina el escepticismo del “mito sobre la competencia” refiriéndose que de acuerdo al texto de la Ley, todo lo que se argumentó en contra por lo políticos de la oposición y las organización económicas, fueron falsas. El ex Secretario General de la SENPLADES, la cual fue la entidad encargada de redactar la propuesta de Ley, dijo que la Ley sancionará el abuso del poder mercado que, entre otras cosas, esta causando que la inversiones directas extranjeras no entren al país. El también mencionó el hecho que el Ecuador es un país altamente concentrado. De acuerdo al CENSO económico del 2010, 90% del mercado económico esta en manos del 1% de los agentes de mercado.

Basado en declaraciones hechas por miembros del Poder Ejecutivo en relación al objeto de esta Ley, pareciera que esta Ley es perfecta y como cualquier otra Ley de Competencia solo regulará y controlará la competencia en beneficio del consumidor y la libre competencia. Entonces ¿porque muchas personas están preocupadas por la aplicación de esta reciente Ley? ¿Es que tienen temor de lo que el gobierno puede hacer con los poderes otorgados por esta Ley? Talvez, después de hacer un breve análisis de algunos de sus artículos, cualquiera puede hacer sus propias conclusiones, teniendo en cuenta la realidad política y económica del Ecuador.

El preámbulo de la Ley menciona que de acuerdo a la Constitución del Ecuador, es una obligación principal del Estado, el promover la competencia, con el propósito de proveer igual acceso al “buen vivir”. También se menciona que de acuerdo a la Constitución del Ecuador, es un deber del Estado, el asegurar un comercio justo como un medio de acceso a productos y servicios de calidad, promoviendo la reducción de distorsiones con los intermediarios de productos.

De lo expresado en el párrafo superior, puede ser interesante si la Ley produce esos efectos, pero todo dependerá como la nueva agencia de competencia, que es una Superintendencia con los poderes para controlar y regular la competencia, aplica la Ley. Los factores principales sobre los cuales la Ley Orgánica de Regulación y Control del Poder de Mercado se basa son: Abuso de poder de mercado por cualquier agente económico; sancionar los carteles, control sobre las adquisiciones y en la habilidad del Poder Ejecutivo para proponer restricciones a la competencia.

La Ley provee la creación de una Superintendencia para remplazar a la Subsecretaria que fue creada por el Decreto Ejecutivo 1614. Esta Superintendencia tendrá la autoridad de controlar, investigar e imponer sanciones en hechos relacionados a la competencia. Un aspecto positivo incluido por la Asamblea Nacional es que la Superintendencia estará bajo el control de la Función de Transparencia y Control Social. Esto sigue una característica internacional de tener una agencia de competencia separada del Gobierno. Por otro lado, el Ejecutivo presentará la lista de candidatos de donde los miembros de la Función de Transparencia y Control Social tendrán que seleccionar a uno para que actúe como Superintendente. Es la esperanza de todo ecuatoriano que esta person sea instruida en temas de competencia y especialmente que sea una persona honesta y seria que no se deje influenciar por el Gobierno.

Después de todo, los poderes de la Superintendencia y la aplicación de la Ley dependerán de él. La Ley también provee la creación de una Junta de Regulación que estará encargada de promulgar la regulación relacionada a la competencia. La Junta de Regulación estará conformada por Ministros de áreas relacionadas, aunque durante los cortos 30 días de debate en la Asamblea Nacional, hubo una propuesta que se debería incluir a académicos y profesionales, así como también a representantes del Gobierno.

Puesto que esta es la Ley de competencia es la más reciente en el mundo, también se incluye ciertas figuras novedosas como una política de “indulgencia” para un agente económico involucrado en un cartel. Este podrá beneficiarse de esta medida, si es que cuenta y esta dispuesto a contribuir con evidencia de la conducta anticompetitiva a la Superintendencia, antes que una investigación sobre determinada conducta haya empezado.

Otro aspecto que puede ser considerado como una medida novedosa, es que esta Ley también incluye una obligación de notificación a la Superintendencia antes de realizarse una adquisición de una compañía o un negocio. Esta notificación tiene que ser realizada en caso que la adquisición cumpla ciertas condiciones específicas. Sobre esta notificación existe un Silencio Administrativo Positivo, con respecto a la decisión que la Superintendencia tiene que emitir. Esto quiere decir que la Superintendencia tiene 30 días para responder, si es que no lo hace, se considera una aprobación.

Con respecto a las sanciones, la Superintendencia puede imponer multas a los agentes económicos por conductas anticompetitivas. Estas multas pueden variar dentro de una escala desde un 8% sobre el volumen del negocio total de la empresa por infracciones categorizadas como leves, hasta un 10% por infracciones graves y hasta un 12% por infracciones muy graves. Si la Superintendencia no puede determinar el volumen del negocio total, la multa puede ser un valor entre los 13,200.00 dólares americanos hasta más de 10 millones dependiendo de las infracciones. (No hay límite). Si la infracción es categorizada como muy grave, una multa de 132,000.00 dólares americanos puede ser impuesta en los representantes legales y en cualquier otra persona que haya sido parte de la junta de directores que haya votado a favor de la decisión por la cual se genero la medida anticompetitiva. Es importante mencionar que no hay sanciones penales por medidas anticompetitivas.

Finalmente, basado en el interés publico como el desarrollo de sectores estratégicos, el suministro de servicios públicos y para estimular la economía popular, el Presidente Ecuatoriano puede emitir Decretos Ejecutivos contradiciendo el propósito de lo que se establece en esta Ley, limitando la competencia y estableciendo precios. Estas ordenes son temporales y sujetas al consejo del Superintendente, quien solo puede recomendar su suspensión, pero la ultima decisión permanece en el Presidente. Esto otorga a Correa poderes extensos para restringir la competencia especialmente con respecto a las empresas estatales.

Revisando algunas de las leyes (Ej.: Código de la Producción y la Ley de Economía Popular y Solidaria) promulgadas en los anos pasados, existe una tendencia para promover la producción interna y fortalecer el mercado interno (al menos esto es lo que la Subsecretaria de Planificación y Desarrollo opinan). Con la promulgación de esta Ley de Competencia puede parecer que Rafael Correa esta planeando la mejor manera de abrir el Ecuador al mercado libre. En sus primeros años como Presidente, paró todas las negociaciones con los Estados Unidos y con la Unión Europea sobre Tratados de Libre Comercio. Antes de eso, cuando fue Ministro de Economía en la presidencia anterior a la de él, denuncio abusos realizados por el Banco Mundial y el Fondo Monetario Internacional, causando una reducción de préstamos para Ecuador. Desde que ha estado en el poder, Ecuador afortunadamente ha gozado de precios altos de petróleo, y ha obtenido prestamos financieros de China que han balanceado la necesidad de préstamos de esas dos instituciones antes mencionadas.

Capaz, y esta es mi esperanza, Correa esta planeando en estimular la producción interna, fortalecer los mercados internos y regular la competencia con la intención de abrir las fronteras al libre comercio. Al parecer, la idea es estar seguro que cuando esto suceda, los negocios ecuatorianos sean competitivos y existan leyes claras protegiendo y permitiendo inversiones. Pero una Ley o un grupo de leyes por su cuenta nunca serán suficientes. Lo que inversores y empresarios desean es un sentido de seguridad donde las reglas del juego sean favorables y la certeza de que ellas no cambiarán de una mañana a la otra.

Sobre todo, la Ley Orgánica de Regulación y Control del Poder de Mercado puede ser efectiva en cuestiones de competencia, nivelando el terreno, eliminando barreras de entrada y acabando con abusos de poder de mercado, permitiendo que empresas nacionales e internacionales entren el mercado ecuatoriano con justas y claras regulaciones que creen mayor competencia por el beneficio de todos los consumidores. Pero todos los aspectos positivos que se espera, dependerán de la aplicación de la Ley en las manos especializadas de la Superintendencia que tendrá que confrontar influencias políticas. En un país en desarrollo, como el Ecuador, donde la corrupción es un problema muy grande, donde casi no hay oposición política y los medios de comunicación se sienten amenazados por la posibilidad de acciones judiciales, seguramente en la mente de todos los ecuatorianos puede haber una preocupación que esta Ley será otro mecanismo para aplicar presión a cualquier que se oponga al régimen. Pero como ecuatoriano, quiero pensar que el tiempo ha terminado, y es momento de abrirnos al mercado libre y a inversores efectivos que incentiven la economía posicionando al Ecuador en un estándar económico y social más alto.

Agustin Acosta Cardenas is a LL.M. candidate in the program of International Business Regulation, Litigation and Arbitration at New York University School of Law, and a former lawyer of the Unit of International Affairs and Arbitration of Attorney General’s Office of the Republic of Ecuador, responsible for alleged claims based on investment contracts and Bilateral Investment Treaties.

The business community in Ecuador[1] has raised several concerns in relation to the recent enacted Regulation and Control of Market Power Statute[2]. Some of their most fearful concerns lie in the excessive power the Superintendence of Regulation and Control of Market Power will have once it is established[3].  This Statute was enacted with the purpose, as thought by many developing countries when enacting their own antitrust statutes that it will contribute to an economic growth. The main objective of the Statute is to control and sanction economic agents that affect or may affect competition, trying to level the playing field for new entrepreneurs.  From a theoretical point of view, it could be seen as positive for the welfare of competitors and consumers but there are huge concerns that its enforcement will be subject to political pressure[4].

Since 2007, when the leftist Rafael Correa assumed his first presidency, the government announced its desire on drafting a competition Statute[5]. Correa was distressed that Ecuador was one of the few countries in South America without an antitrust law[6]. The President’s interest in having competition regulation led him to issue the Executive Order 1614 in March 2009, with the purpose of making Decision 608 of the Andean Community directly applicable and enforceable within Ecuador’s territory. This Executive Order was valid until the National Assembly finally promulgated the Regulation and Control of Market Power Statute[7]. The Executive Order 1614, created an Undersecretary of Competition that was under the control of the Ministry of Industries and Productivity. The objective of this entity was to stimulate and protect competition, promoting capacitation and investigation in competition matters.[8]

On August 30, 2011, Rafael Correa presented to the National Assembly a proposed Statute with an “urgent economic status”[9]. This proposed draft Statute was the Regulation and Control of Market Power Law[10]. The National Assembly had 30 days to approve, modify or reject it.[11] On September 29, the Statute was approved with minor modifications in relation to competition matters but with substantial improvements in relation to citizens’ rights recognized by the Constitution. It is possible that many of the concerns expressed by the political opposition and economic organizations with regard to the proposed Statute were because the text gave rise to serious doubts about its true intentions[12]. After the approval in the National Assembly, Correa signed it into law almost immediately and later said that this ends the skepticism of “the myth of competition”[13] meaning that according to the words of the Statute everything that was argued by the political opposition and economic organizations were false.  The former Secretary-General of the SENPLADES[14], which was the entity in charge of drafting the proposal, said that the Statute will sanction the abuse of market power that, inter alia, is causing direct foreign investment not to enter the country[15].  He also addressed the fact that Ecuador is a highly concentrated country. According to the 2010 economic census, 90% of the economic market is in hands of 1% of economic agents.[16]

Based on declarations made by officials of the Executive Branch in relation to the purpose of this Statute, it would seem that this Statute is perfect and as any other competition Statute it will only regulate and control competition matters to the benefit of consumers and free competition. So why are many people worried about the enforcement of this recent Statute [17]? Is it that they are scared of what the government can do with the powers granted by this Statute? Maybe, after doing a brief analysis of some of its provision, anyone can make their own conclusions, having in mind the political and economic reality of Ecuador.

The preamble of the Statute mentions that according to Ecuador’s Constitution it is a primary obligation of the State to promote competition, with the purpose of providing equitable access to “good living” (buen vivir)[18]. It is also said that according to Ecuador’s Constitution it is a duty of the State to ensure fair trade as a means of access to goods and quality services, promoting the reduction of distortions in the intermediation of products[19].

From what is mentioned in the paragraph above, it would be interesting if the Statute produce those effects, but it all will depend how the new competition agency, which is a Superintendence with the power to control and regulate competition, enforces the Statute. The key principles in which the Statute focus are the following: Abuse of market power[20] by any economic agent; sanctioning of cartels; controlling mergers, and finally on the ability of the Executive Power to propose restrictions to competition.

The Statute provides for the creation of a Superintendence to replace the Undersecretary that was created under the Executive Order 1614. This Superintendence will have the authority to control, investigate and impose sanction in matters related to competition.  One positive aspect included by the National Assembly is that the Superintendence will be under the Control of the Transparency and Social Control Power[21]. This follows the international features of having a competition agency separated from the Government. On the other hand, the Executive will submit a list of candidates from where the members of Transparency and Social Control Power have to appoint one to act as the Superintendent.  It is in the hope of every Ecuadorian that this person is qualified in competition matters and especially that he or she is an honest and serious person who will not be influenced by the Government.

After all, the powers[22] of the Superintendence and the enforcement of the Estatute will depend on him. The Statute also provides for the creation of the Board of Regulation that will be in charge of promulgating regulations in relation to competition. The Board of Regulation will be formed by Ministers from related areas, although during the short 30 days of debate in the National Assembly, there was a proposal that they should include academics and professionals as well as government officials.

Since this is the newest competition statute worldwide, it also includes certain innovative features such as a leniency policy for an economic agent involved in a cartel. An economic agent can benefit from this policy, if he or she tells and is willing to contribute with evidence of the anticompetitive conduct to the Superintendence, before an investigation of the alleged conduct starts.

Another aspect that could be considered conforming to these innovative features is that this Statute also includes a mandatory pre-mergers notification to the Superintendence. This notification has to be made if the effects of the merger meet certain specified conditions. There is Positive Administrative Silence, with regards to the decision that the Superintendence has to render, meaning that the Superintendence has 30 days to respond, and if it does not, it will be considered as an approval.

As for sanctions, the Superintendence could impose fines to economic agents for anticompetitive conducts. These fines range within a scale of up to 8% of year turnover for offenses categorized as minor offenses, up to 10% for serious offenses and up to 12% for very serious offenses. If the Superintendence is not able to determine a year turnover, then the fine amount can be a sum between $13.200.00 U.S. dollars to more than $10 million depending of the offenses (there is no limit). If offenses are categorized as very serious, a fine of $132.000.00 U.S. dollars could be imposed on the legal representatives and on anyone who was part of the Board of Directors and voted in favor of the decision that generated the anticompetitive conduct. It is important to mention that there are no criminal penalties for anticompetitive conducts.

Finally, based on public interest like development of strategic sectors, to supply public services and to stimulate popular economy, the Ecuadorian President can issue an Executive Order contradicting the purpose of what is stated in this Statute, limiting competition and establishing prices. These orders are temporary and subject to the advice of the Superintendence, which can only recommend their suspension, but the last call remains on the President. This gives Correa extensive powers to restrict competition especially with regard to the State’s own enterprises.

Reviewing some of the laws (i.e. Code of Production and the Statute of Popular and Solidarity Economy)[23] enacted in the last years, there is a trend to promote internal production and strengthen the internal market (at least that is what the Under Secretariat of Planning and Development believes[24]).  With the promulgation of this competition Statute it may be seen that Rafael Correa is planning the best way to open Ecuador to free market. In his first years as president he put an end to all negotiation with the United States and with the European Union on free trade agreements. Before that, when he was Minister of Economy in the presidency before his term, he denounced abuses made by the World Bank and the International Monetary Fund, causing a reduction of loans to Ecuador. Since he has been in power, Ecuador has fortunately enjoyed high oil prices, and has obtained loan agreements from China that balanced the need of external loans from these two entities.

Perhaps, and this is my hope, Correa is planning on stimulating internal production, strengthening the internal market, and regulating competition with the intention to open borders to free trade.  It seems the idea is to make sure that when this happens, Ecuadorian businesses will be competitive and there will be clear Statutes protecting and allowing investments. But a Statute or groups of Statutes for themselves will never be enough. What investors and businessmen want is a sense of security where the rules of the game are favorable and the certainty that they will not change from one morning to the other.

Overall, the Regulation and Control of Market Power Law can be effective regarding competition matters, leveling the ground, eliminating entry barriers and ending abuse of market power, allowing national and international corporations to enter the Ecuadorian market with fair and clear regulations that create more competition for the benefit of all consumers. But all the positive aspects that are expected will depend on its application at the hands of a specialized Superintendence that will have to confront political influences. In a developing country, such as Ecuador, where corruption is a huge problem, where there is almost no political opposition, and media companies feel threatened because of the possibility of judicial actions, certainly in the mind of many Ecuadorians there could be a concern that this Statute will be another method to apply pressure to anyone who opposes the regime. But as an Ecuadorian I want to think that time has come to an end and that it is the moment to open to free trade and effective investors who will incentive the economy positioning Ecuador in a higher economic and social standard.

Agustin Acosta Cardenas is a LL.M. candidate in the program of International Business Regulation, Litigation and Arbitration at New York University School of Law, and a former lawyer of the Unit of International Affairs and Arbitration of Attorney General’s Office of the Republic of Ecuador, responsible for alleged claims based on investment contracts and Bilateral Investment Treaties.

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[1] Roberto Aspiazu, Executive director of the Ecuadorian Business Committee. “La ley antimonopolio amplia la fijación oficial de precios”, published on “El comercio”, November 4, 2011.

[2] Regulation and Control of Market Power Law. Official Registry Supplement No. 555 published on October 13, 2011. Approved by the National Assembly on September 29, 2011. There were 67 votes in favor, 23 against it and 33 abstentions.

[3] Roberto Aspiazu. Above note 1

[4] Miguel Carmigniani. “Ley Antimonopolio III”, published on “El Comercio”, October 27, 2011.

[5] The economist, The Americas view. “An uncompetitive competition law”, published on October 21, 2011. http://www.economist.com/node/21533281

[6] Ibid.

[7] Official Registry No. 558 published on March 27, 2009. Executive Order No. 1614 issued on March 14, 2009.

[8] Ministry of Industries and Productivity. Web page:

http://www.mipro.gob.ec/index.php?option=com_content&view=article&id=1361&Itemid=202

[9] Constitution of the Republic of Ecuador. Official Registry No. 449 published on October 20, 2008. Article 140. “The President may send to the National Assembly bills qualified as urgent in economic matters. The Assembly will approve, modify or deny them within a maximum period of thirty days from receipt…

If within the prescribed period the Assembly does not approve, modify or deny the project rated as urgent in economic matters, the President of the Republic can promulgate it with an Executive Order…”

[10] National Assembly. Document No. T-634-SNJ-11-1104 http://www.asambleanacional.gov.ec/tramite-de-las-leyes.html

[11] Constitution of the Republic of Ecuador. Above note 9.

[12] This chart explains some changes made to protect constitutional rights of citizens.

Proposed text	Final text of the Law
The Superintendence can: “Request and require any person to display any information or any documents, including books and records, receipts, invoices, agreements, messages, faxes, personal agendas, handwritten notes, business correspondence and magnetic records including, in this case, programs or whatever means necessary for reading; as well as requesting information regarding the organization, business, shareholders, and structure formation or economic operators.”… “Make inspections, with or without notice, in any establishments, premises or property of natural persons or legal persons and examine books, records, documents, faxes, personal agendas, handwritten notes, business correspondence and goods, being able to check the development of processes and take a statement of the people who are in those places.	The Superintendence can: Article 49. “Demand that it be submitted for consideration, books and records, accounting vouchers, correspondence, records or magnetic computers including their means of reading, and any other documents relating to the conduct under investigation or  the activities inspected, without being able to claim reserve of any nature.”… “Make inspections, with or without prior notification to establishments, of natural or legal persons and examine the books, records, and any other document relating to the investigated conduct, business correspondence and property, being able to check the development of processes productive and voluntary statements may  be taken. When the place where the inspection is the domicile of a natural person a judicial authorization shall be required under the terms of this law.”
“Since there are appropriate legal remedies for the administrative actions determined by the Superintendent, they may not be subject to a protective action (constitutional amparo).”	Article 52. “A protective action proceeds over all administrative acts of the Superintendent…”

[13]The economist. Above note 5.

[14] National Secretary of Planning and Development (SENPLADES).

[15] Rene Ramirez, interview given to “El Comercio”. “La economia concentrada espanta al inversor”. Published on July 22, 2011.

[16] To have an overview of Ecuador’s market, (i.e. 61% of sales of dairy products are in 5 of 136 enterprises; 61% of sales of textiles are in 9 of 1493 enterprises; 71% of sales of milling products are in 5 of 135 enterprises; 81% of sales of non-alcoholic beverages are in 1 of 155 enterprises and 76% of sales of soaps and detergents are in 2 of 88 enterprises.) “Pulso Politico” in TC television on August 28, 2011. http://www.youtube.com/watch?v=5IVg7WlkdZg&feature=related

[17] Roberto Aspiazu. Above, note 1 and 3.

[18] This is a constitutional principle stated in the second chapter of the Constitution under the title Rights of Good Living. According to the government plan the “Good Living is based on a vision that surpasses the narrow confines of quantitative economicism and challenges the notion of material, mechanic and endless accumulation of goods. Instead the new paradigm promotes an inclusive, sustainable, and democratic economic strategy; one that incorporates actors historically excluded from the capitalist, market-driven logic of accumulation and redistribution.” http://plan2009.senplades.gob.ec/es/web/en/presentation.

[19] Constitution of the Republic of Ecuador. Official Registry No. 449 published on October 20, 2008. Articles 283-284, 335-336.

[20] Abuse of market power is considered as abuse of dominance according to what is stated in article 8 of the law. The law does not sanction having market power, it only sanctions abuse of market power that affects competition.

[21] One of the five Powers of the State (Executive Power, Judicial Power, Legislative Power, Electoral Power and the Transparency and Social Control Power). Constitution of the Republic of Ecuador. Official Registry No. 449 published on October 20, 2008. Articles 204-210.

[22] Regulation and Control of Market Power Law. Above note 2. Article 38 enumerates 31 possible powers but the last one establishes “all other powers stated in the law”. From 93 articles almost half of them give certain powers to the Superintendence. (i.e. Articles 38-41, 46-64, 73-93)

[23] Code of Production. Official Registry No. 351 published on December 29, 2010. Law of Popular and Solidary Economy. Official Registry No. 444 published on May 10, 2011.

[24] Diego Martinez, opinion given in a discussion panel at “Pulso Politico” in TC television on August 28, 2011. http://www.youtube.com/watch?v=5IVg7WlkdZg&feature=related

As mentioned in a recent post, the existence of Regulation 261/2004 opens space for multiple forum shopping strategies, especially in flights connecting an EU airport and a non-EU airport belonging to a signatory State to the Montreal Convention. A paradigmatic case would be the regular flights between the US and the EU, considering the number of daily flights connecting both regions.

In accordance to its Article 1, EU Regulation 261/2004 will apply to all flights departing from an EU airport as well as all flights departing from a third country to an EU airport, provided that the air carrier is an EU Community carrier.

Moral and emotional distress damages are some of the most relevant aspects to consider when filing a claim based on the delay or cancellation of a flight.

Often times, the importance of moral damages, in both financial and emotional terms, will be at least as important as recovering the price of the flight ticket. Therefore, it will be strategically important to know in advance whether in a particular jurisdiction (either in the EU or not) claims for moral damages are allowed at all, or if only the material losses (price of the ticket, lodging, damaged luggage) can be claimed.

U.S. courts usually interpret the Montreal Convention¾since EU Regulation 261/2004 is not likely to be applicable¾to exclude non-physical injuries, since such injuries were not covered under the Warsaw Convention, which preceded the Montreal Convention[1]. Consequently, what is not allowed by the Montreal Convention is not available at all[2]. Therefore, as one court has held, only economic loss or physical injury damages are recoverable[3].

Also in Bassam v. American Airlines, 287 Fed. App’x 309 (5th Cir. 2008), the Fifth Circuit concluded that “purely emotional injuries are not available under the Montreal Convention”[4], allowing little room for doubt.

Conversely, the ECJ explicitly admitted moral damages in the EU in its decision C-63/09, Click Air Case. However, the decision did not clarify either the burden of proof requested from the party alleging the damage or the applicable law deciding the existence of moral damages. As a consequence, the ECJ failed to set a reliable uniform interpretation in the EU.

In a recent decision handed down on 13 October 2011, the ECJ clarified that “further compensation” in Article 12 of Regulation 261/2004 is to be read to allow passengers compensation for the entirety of the material and non-material damages they suffered due to the failure of the air carrier to fulfill its contractual obligations.

However, this decision links compensation for moral damages to the conditions and within the limitations provided for by the Montreal Convention or by national law. Since the Montreal Convention does not specify any of these conditions, resort will have to be made to the domestic laws of the EU countries.

This is where the confusion remains, because depending on which EU countries have concurrent jurisdiction, moral damages will be appreciated or not, and if so, under a variable burden for the passenger.

In Spain, for instance, compensation for moral harassment can generally be claimed because the case law of the Supreme Court has established that partial breaches of contract can give rise to moral damages in accordance to Articles 1089, 1091 and 1101 of the Civil Code (judgments dated 22 May 1995 and 19 October 1996). In the particular subject matter of flights, the Supreme Court has declared in a famous decision of 31 May 2000 that, although moral damages may arise from delayed flights, this must not be confused with the usual stress and tension caused by the delay. However, some lower courts have established that moral damages are warranted even in cases where the only issue was that no special assistance was provided at the airport. Other decisions compare the situations of stress created by flight delays and cancellations to set up an iuris et de iure presumption: If delay is the cause of stress leading to moral damages, cancellation, which is more severe than delay, should always be enough for moral damages.

The Italian Supreme Court, by contrast, allows (in judgment no. 26972 dated 11November 2008)for moral damages but, unlike Spanish courts that require a very low burden of proof, requires substantial proof.

If Italian lower courts are consistent with their Supreme Court, parties seeking to obtain moral damages with a possibility to choose between both fora should logically opt for Spanish courts, where the onus probandi is less strict.

A number of similar situations may appear within other countries in the EU, and lawyers should carefully analyze where to sue. It is clear, however, that after the ECJ decision in case C-83/2010, litigants would assume less risks if, having the possibility to sue before U.S. and EU courts, they opt for the latter.

Manuel Gimenez Rasero is an attorney at Areilza abogados and was Rafael del Pino Scholar at the New York University School of Law (LL.M.’11).

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[1] Nature of cause of action under Warsaw and Montreal Conventions; convention remedy as exclusive”, in 8A Am. Jur. 2d Aviation § 149

[2] In 8A Am. Jur. 2d Aviation § 149: El Al Israel Airlines, Ltd. v. Tsui Yuan Tseng, 525 U.S. 155, 119 S. Ct. 662, 142 L. Ed. 2d 576 (1999); Mbaba v. Societe Air France, 457 F.3d 496 (5th Cir. 2006), cert. denied, 127 S. Ct. 959, 166 L. Ed. 2d 706 (U.S. 2007); Carey v. United Airlines, 255 F.3d 1044 (9th Cir. 2001); Marotte v. American Airlines, Inc., 296 F.3d 1255 (11th Cir. 2002); Auster v. Ghana Airways Ltd., 514 F.3d 44 (D.C. Cir. 2008); In re Air Crash at Lexington, KY, August 27, 2006, 501 F. Supp. 2d 902 (E.D. Ky. 2007); Bernardi v. Apple Vacations, 236 F. Supp. 2d 465 (E.D. Pa. 2002).

[3] Daniel, 59 F. Supp.2d at 992-94 (citing Eastern Airlines, Inc. v. Floyd, 499 U.S. 530 (1991)).

[4] Bassam v. American Airlines, 287 Fed. App’x 309 (5th Cir. 2008) at 14

In Galsworthy Ltd of the Republic of Liberia v Glory of Wealth Shipping Pte Ltd [2010] SGHC 304 (“Galsworthy”), the Singapore High Court held that a losing party to an arbitration seeking to challenge an arbitral award had the “alternative and not cumulative options” of applying to set aside the award, or, applying to set aside any leave granted to enforce the award. This choice of wording is unfortunate because it gives the mistaken impression that the options described are mutually exclusive, when they are not.

The facts of the case are easy. There was a dispute over a charter party and an arbitration seated in London had issued an award against Glory of Wealth Shipping Pte Ltd (“Glory of Wealth Shipping”). Glory of Wealth Shipping applied to challenge the award before the English High Court on grounds of irregularity (“the first English application”). The opposing party, Galsworthy, applied for security of costs, which was granted by the English High Court. Glory of Wealth Shipping failed to furnish security, leading to a dismissal of their application without a hearing on the merits. Glory of Wealth Shipping also appealed against the arbitral award on a point of law, but the appeal was heard and dismissed by the English High Court.

Subsequently, Galsworthy obtained permission from the Singapore courts to enforce the award in Singapore. Glory of Wealth Shipping applied to set aside the order granting permission to enforce the award. The application was heard and dismissed by an Assistant Registrar, and failed again on appeal.

But the view of the learned Judge hearing the appeal at the High Court differed from the Assistant Registrar’s on one preliminary issue. That issue was whether Glory of Wealth Shipping was entitled to apply to set aside the order granting permission to enforce the arbitral award when it had already challenged the award before the English courts.

The Assistant Registrar was of the view that Glory of Wealth Shipping was still entitled to take up the application to set aside the leave to enforce the award and had proceeded to hear the application on its merits. The learned Judge, however, held that Glory of Wealth Shipping was not entitled to make the application because it had “elected” to proceed in the English courts and the application in the Singapore High Court amounted to “an abuse of process”.

The reasoning of the learned Judge can be summarised as follows:

(a)            Glory of Wealth Shipping’s application to set aside the order granting leave to enforce was a “considered decision on its part to avoid the need to furnish security to the English court”.

(b)            Glory of Wealth Shipping had “elected their forum of challenge and they ought to be bound by it”.

(c)            There were no exceptional circumstances permitting the derogation from the principle of comity of nations requiring the Singapore courts to be slow to undermine the orders of foreign courts.

(d)            If the application was allowed, it could result in a “duplication or conflict of judicial orders”.

(e)            If the first English application was heard on the merits and failed, Glory Wealth Shipping would be entitled to challenge the enforcement of the final award in the enforcement court if the grounds and standards between the supervising and enforcement jurisdiction are different.

The learned Judge consequently held that a party seeking challenge of an arbitral award can either apply to the curial court to set aside the award, or, apply to the enforcement court to set aside any leave granted to the opposing party to enforce. These options were, as he described, “alternative and not cumulative”.

This phrasing is inadequate because it covers too much and too little at once. It over-includes because it lends itself to the mistaken impression that the options are mutually exclusive, such that one option can no longer be exercised once the other has been elected. It under-includes because it does not explain whether one option can still be exercised if the legal grounds relied upon for the second option are different from the first.

It may be useful to set out with precision how the options of an unsuccessful party in an arbitration interact.  Generally, under the New York Convention, three general principles, which are by no means exhaustive, can be set out:

(a)            The unsuccessful party in the arbitration can resist enforcement at the enforcement jurisdiction, without having to first apply to set aside the award at the seat (see Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46, per Lord Mance at [28]).

(b)            The unsuccessful party in the arbitration can apply to set aside the award at the seat, whilst at the same time, resist enforcement if enforcement is being sought in another jurisdiction. That explains why Art. VI of the New York Convention allows an enforcement court to order a stay of the enforcement proceedings if setting aside proceedings are pending at the curial court.

(c)            Regardless of whether the setting aside of an award is successful at the seat, the ruling of the curial court can create an issue estoppel in jurisdictions where such a doctrine (or its equivalent) exists (see Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46, per Lord Collins at [98]). However, even if there is a successful annulment, the unsuccessful party in the arbitration may still find itself having to defend enforcement proceedings because certain courts may still enforce an award that had already been set aside (see Pabalk Ticaret Sirketi v Norsolor, Cour de cassation, 9 October 1984, 1985 Rev Crit 431; Hilmarton Ltd v OTV, Cour de cassation, 23 March 1994 (1995) 20 Yb Comm Arb 663; République arabe d’Egypte v Chromalloy Aero Services, Paris Cour d’appel, 14 January 1997 (1997) 22 Yb Comm Arb 691; Soc PT Putrabali Adyamulia v Soc Rena Holding, Cour de cassation, 29 June 2007 (2007) 32 Yb Comm Arb 299; Chromalloy Aeroservices v Arab Republic of Egypt, 939 F Supp 907 (DDC 1996).

The foundation of these principles stems from the way setting aside proceedings and enforcement proceedings are in fact designed as two separate and independent juridical proceedings. One may, and more critically, may not affect the other if, for instance, a result has already been reached in one or if setting aside proceedings are already pending.

Consequently, if a party aborts a setting aside proceeding before it is heard, that should not prejudice its application to defend enforcement proceedings in another jurisdiction. It is fully within that party’s prerogative to take the view that any security for costs ordered against it in the setting aside proceedings would not justify carrying through with the setting aside proceedings. In such a circumstance, it is entirely within that party’s option to terminate the setting aside proceedings, and respond to enforcement proceedings only when enforcement proceedings are commenced by the successful party in the arbitration.

It is therefore difficult to see how an “abuse of process” happened in Galsworthy. A possible abuse of process could arguably be made out in the rare instance where the unsuccessful party withdraws setting aside proceedings at the very last minute after a hearing of the merits when it became clear that it was losing that application, so as to avoid a final judgment which may have preclusive effect on subsequent enforcement proceedings. But even then, any abuse was of the process in the court of the seat, and not at the court of enforcement.

By dint of reasoning, the language of “election” used by the Singapore High Court in Galsworthy was unfortunate. There was no obligation on Glory Wealth Shipping to challenge the award in England, and even if it did so but aborted it ostensibly because of a security for costs order, that in itself does not affect its separate and independent right to defend enforcement proceedings in Singapore.

Darius Chan is an Associate at WilmerHale, London.

I am a bit surprised that the Supreme Court’s recent decisions in the stream of commerce cases have not been receiving more attention in the blog-o-sphere.  The issues are important, and the Court’s resolution of the cases contains some interesting developments in the law as well as some important signals of where future fights may lay [Disclosure – I filed briefs on behalf of an amicus in both cases.  The views expressed here are my own and do not reflect those of my client.]

For readers familiar with the cases, you can skip this paragraph which simply provides a bit of background.  The Court decided two cases – Goodyear and Nicastro.  Goodyear presented the question whether a state court could exercise general jurisdiction over foreign companies based on the flow of those companies’ goods (through intermediaries) into the state (the underlying facts involved forum state residents who were killed in a bus accident in France).  Nicastro presented the more standard question, created by the Supreme Court’s fractured opinion in Asahi – namely the conduct necessary to support specific jurisdiction based on the stream of commerce theory (the underlying facts involved a forum resident, injured in the forum state, by a machine manufactured in England and sold into the forum state by an independent US disributor with nationwide distribution rights).

In Goodyear, it was clear from the get-go that the Supreme Court was going to reverse and hold that the stream of commerce theory did not support general jurisdiction.  In doing so, the Court did a couple of interesting things.  First, and perhaps most importantly, the Court really narrowed the “continuous and systematic” contacts theory of general jurisdiction; the Court basically indicated that the theory was only available in an extraordinary case (like Perkins) where a foreign corporation relocated all of its operations to the US out of necessity.  Second, the Court explicitly linked purchases from the forum state (which had been at issue in Helicopteros) with sales to the forum state (at issue in Goodyear).  Prior decisions had suggested that, for export promotion reasons, purchaes from the forum state should be less likely to establish minimum contacts – Goodyear suggested there was no reason to treat the other differently.  Third, though the statement is technically dicta, the Court seemed to imply that a corporation could be subject to general jurisdiction not only in its state of incorporation but also in the state where it maintained its principal place of business (where that is a different state).  This strikes me as a rather radical statement- albeit dicta – especially becaues the Court offered no guidance on how to determine that place (particularly strange since, just last term, it had resolved a longstanding circuit split on that question in the context of determining the PPOB for diversity purposes).

In Nicastro, oral argument suggested that the vote would likely be 6-3, and that’s what happened albeit with another badly divided opinion (de ja vu from Asahi).  A couple of issues were at play in the Court’s decision.  One issue was the proper test.  Three justices (RBG, SS, and EK) embraced the Brennan view from Asahi.  The AMK plurality is a bit tougher to read but appears to embrace a modified version of the SOC view from Asahi.  It seems to say that stream of commerce theory still requires purposeful availment (the plurality uses the term “targeting”) of the forum state, but the plurality carefully avoids repearing the “additional conduct” factors that SOC identified in Asahi.  The Breyer/Alito concurrence is the most ambiguous.  It appears to reject the New Jersey Supreme Court’s rule (which drew on the Brennan Asahi opinion) but also cites the Brennan Asahi opinion (in my view, Breyer actually reinterprets that opinion without saying he’s doing so).  A second issue is the sovereign/forum analysis.  The AMK plurality pretty clearly wants to differentiate state sovereigns from national sovereigns and basically say that national sovereigns can consider nationwide contacts but state soveriegns can consider only contacts at the forum state itself (this has important implications for legislation pending before Congress).  The RBG dissent seems more willing to let forum states consider nationwide contacts at least where the foreign mfr uses a nationwide distributor.  Again, the Breyer/Alito concurrence is hardest to read on this point and probably cannot be understood to offer up a view.  A third issue is the methodology – the AMK plurality seems to be attempting to shift the Court away from fairness-based notions of constitutional limits on personal jurisdiction (note the repeated references to Scalia’s Burnham opinion which sought to do the same).  RBG doesn’t like that at all.  And again, Breyer and Alito are mum (though I suspect this may be a point on which these two might part ways).  Finally and perhaps most significantly, it’s worth noting that none of the justices cited the Asahi/Woodson “reasonableness” test, leaving one to wonder at least whether that prong of the test continues to hold appeal for a majority of the Court.

What does the future hold?  A couple of things.  As far as Goodyear, expect to see a lot more litigation on the issue of jurisdictional imputation of contacts – that was brimming beneath the surface in Goodyear, and RBG rightly concluded that the respondents had waived the issue.  But the law is all over the place, and some circuits (like CA9) are doing some nutty thing.  Additionally, expect to see a battle for the hearts and minds of Justice Alito and the Solicitor General.  Indeed, Alito’s vote in Nicastro is the most curious one in these cases, and I cannot help but think that Alito, a former ASG, was a bit tweaked that the SG didn’t file in that case (even though it filed in Goodyear), and the Breyer opinion basically says it’s awaiting the SG’s view.  Third, look for some internet cases.  Civ pro gurus know this has been a thorny area which Asahi did not contemplate and which dcts like the Zippo decision have struggled to address.  Breyer in particular appears keenly aware of the interplay between stream of commerce theory and internet contacts.

Peter Bowman Rutledge is Professor of Law at the University of Georgia School of Law