Transnational Notes

On the occasion of the 2021 Brazilian Arbitration Day at NYU, to take place on Aug. 31, 2021, from 9.00-noon, Professor Franco Ferrari will give the keynote speech entitled “The impact of anti-Covid measures on substantive law solutions”. The event, once again co-hosted by CAM-CCBC (Centro de Arbitragem e Mediação) and NYU’s Brazilian Legal Society, will be opened by Ms. Eleonora Coelho, President of CAM-CCBC, and will also feature Marcelo Ferro, Christian Leathley, Erika Levin, Pedro J. Martinez-Fraga, Rose Rameau, Guilherme Recena Costa, Frederico Singarajah, and Gretta Walters. Luíza Kömel, Deputy Secretary General of CAM-CCBC, and Rekha Rangachari, Executive Director of the New York International Arbitration Center, will act as moderators for the sessions on “Persuasion: Strategies for effective oral advocacy skills from the Counsel’s and the Tribunal’s perspectives” and “Arbitration War Stories: what the books don’t teach you”, respectively.

Registration is required.

On June 7, 2021, from 9.30 to 10.45 am NY time, the Center will host, together with the Milan Chamber of Arbitration, a webinar focusing on the study entitled “Responsible private funding of litigation” authored by Jérôme Saulnier with Ivona Koronthalyova and Klaus Müller, European Added Value Unit, Directorate-General for European Parliamentary Research Services (EPRS), and the research paper annexed to it entitled “State of play of the EU private litigation funding landscape and the current EU rules applicable to private litigation funding”, co-written by Professors Cristina Poncibò and Elena D’Alessandro, University of Turin, Law Department, with cooperation, inter alia, by Dr. Niccolò Landi. While the study aims at determining whether and why the European Union should act in the field of private litigation funding, the research paper’s goal is to give a comprehensive overview of private litigation funding (or third-party litigation funding – TPLF) in the European Union, by describing the main players on the European TPLF market (i.e. funders, claimants and lawyers) and analyzing the EU legal framework.

The event will also compare the key findings of the study and research paper, to be identified by Professor Cristina Poncibò and Dr. Niccolò Landi and Professor Marco Torsello, with private litigation funding in the commercial arbitration context, a topic to be addressed by Dr. Domenico Di Pietro.

Professor Franco Ferrari will moderate the event.

For more information, including how to register, see the flyer.

Professor Franco Ferrari, the Center’s Director, will give a talk in the context of the Coimbra International Arbitration Meeting to take place online from 8 to 10 October 2020. The talk entitled “How International Should International Arbitration Be?” is scheduled to take place on the second day of the three-day event, which will also include a workshop on “New Paradigm in International Arbitration in Times of Covid: Wishful Thinking, Necessity or Mere Survival?”, a round table on “Arbitration During the Pandemic: Solutions, Issues and Balance”, as well as sessions on “Innovation and Alternative Dispute Resolution”, “Arbitration and Industry – From Gogreen to Digital Transformation”, and “Hot Topics”.

Coimbra International Arbitration Meeting (JPEG: 51 KB)

Xin MA

The Supreme People’s Court of the People’s Republic of China (SPC) and the government of Hong Kong Special Administration Region (HKSAR) signedthe Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administration Region (hereinafter Arrangement) on April 2, 2019. This Arrangement came into force on October 1, 2019 both in Mainland China and in the HKSAR. The SPC promulgated it in the form of Judicial Interpretation,[1] according it national mandatory force.[2] This Arrangement for the first time allows the People’s court to order interim measures in aid of commercial arbitral proceedings[3] outside Mainland China,[4] though limited to those seated in Hong Kong.

Up to now, the SPC and the HKSAR have already signed six arrangements[5] in relation to mutual judicial assistance in civil and commercial matters. In addition to this Arrangement, the SPC intends to strengthen Hong Kong as a unique seat for Sino-related alternative dispute resolution in the Asia-Pacific area. This short article tries to clarify several implications of this Arrangement for foreign parties, in the context of negotiating and drafting arbitration clauses with a Sino party, and in the context of seeking court-ordered interim measures in a People’s court against a Sino party.

What Interim Measures Can Be Ordered by A People’s Court?

While the HKSAR is a common law jurisdiction and has adopted the Model Law, Mainland China is a civil law jurisdiction and its arbitration law does not resemble the Model Law. Thus, “Interim Measure” as defined in the Model Law, does not exactly correspond to its Mainland China counterpart.

Article 1 of this Arrangement defines Interim Measure in Mainland China as “property preservation, evidence preservation, and conduct preservation.”[6] If because of one party’s conduct, or for other reasons, enforcing an arbitral award becomes difficult, or any other damage may be caused to the applicant, the applicant may apply for the preservation of that party’s property, or for an order compelling that party to perform certain conduct or abstain from certain conduct.[7] If there is a likelihood that evidence may be destroyed, or lost, or difficult to obtain later, the applicant may apply for the preservation of evidence.[8] Parties can apply for such interim measures before or after the relevant arbitral institution or permanent office has accepted the arbitration case.[9] However, applications before the start of the arbitral proceedings face stricter judicial review in regard to the urgency of the circumstances.[10]

Ad hoc vs. Institutional Arbitration & Which Arbitral Institution to Choose?

Two issues should be considered when negotiating an arbitration clause in light of this Arrangement. First, Mainland China has not yet allowed ad hoc arbitration in its own jurisdiction.[11] Its attitude towards ad hoc arbitration is also reflected in this Arrangement: only institutional arbitral proceedings seated in Hong Kong are qualified to seek court-ordered interim measures in a People’s court. Though the award of ad hoc arbitration seated in Hong Kong could be enforced by a People’s court,[12] if a foreign party intends to fully benefit from Hong Kong’s preferential arrangements with Mainland China, institutional arbitration in Hong Kong would be a more valuable choice than ad hoc arbitration.

Shanghai Marine Court granted the first application pursuant to this Arrangement on October 8, 2019 for a settlement agreement enforcement arbitration submitted to HKIAC.[13] Notice, however, that the parties initially conducted an ad hoc arbitration to solve the original contract dispute and reached that settlement agreement agreeing upon HKIAC arbitration thereof. If such an institutional arbitration clause had not been negotiated and included in that settlement agreement, this application could not have been granted.  

Second, the choice of arbitration institution should be deliberately considered because not all of the institutional arbitration seated in Hong Kong is entitled to such court-ordered interim measure aid. The arbitral institutions or permanent offices which administer “arbitral proceeding in Hong Kong” for the purpose of this Arrangement have to satisfy certain requirements,[14] then apply to the HKSAR government and obtain mutual confirmation from both the SPC and the HKSAR government to be qualified.[15] The first confirmed arbitral institutions have been promulgated[16] and other arbitral institutions can be confirmed upon application in the future. Of those first six arbitral institutions or permanent offices, CIETAC Hong Kong office and SCIAC (Hong Kong) are permanent offices of arbitral institutions which are organized and registered in Mainland China. They excel in Chinese arbitration practice. Compared to ICC Asia Office and HKIAC, however, they may be less attractive because they are from the same jurisdiction as Sino parties. 

Practical Concerns When Seeking Interim Measures in A People’s Court

Some specific and practical concerns should also be addressed when seeking interim measures in a People’s court. Procedural as they may be, they can affect the success of the application. The first concern is to decide to which court to apply. The applicant may apply to the Intermediate People’s Court of the place of residence of the party against whom the application is made, or to the Intermediate People’s Court of the place where the property or evidence is situated.[17] However, this Arrangement requires that the People’s court which accepts the interim measure application be the same as the one to accept the enforcement application.[18] This requirement comes out of consideration for judicial efficiency; the ultimate purpose of interim measures is to guarantee the enforcement of the arbitral award.[19] Thus, there may be a trade-off between one court that is more advantageous for ordering interim measures and another that is more convenient for enforcing the arbitral award. Considering the urgency required for the interim measure, it might be practical to apply to the court where the interim measure can be directly implemented, since it has no need to ask for further assistance from another court, which may prolong the implementation process.      

The second concern is with regard to the notarization and authentication requirement. A foreign applicant’s documents of identity, as part of the materials for the interim measure application,[20] must be notarized and authenticated before their submission. The People’s Court bears a fairly rigid judicial attitude towards evidence formed outside Mainland China, requesting that all such evidence, including documents of identity, be notarized and authenticated.[21] Note that although notarization and authentication are a matter of formality, failing to complete those steps in a timely manner would jeopardize an application.

Another concern is with regard to security provision. The People’s courts may at their discretion require the foreign applicant to provide security for ordering property preservation or conduct preservation. Further, if such application is made before the relevant institution or permanent office has accepted the arbitration case, security must be provided.[22] Though there are legitimate policy justifications for requiring security provision, and Sino applicants face the same requirement,[23] it may in reality constitute an obstacle to the application’s success. Once required by the People’s court, failure to provide security may lead to the refusal to grant an interim measure.[24] Nevertheless, the foreign applicant may own no property in Mainland China, or the value of such property located in Mainland China may be not sufficient to satisfy the security requirement. Thus, a practical solution may be to ask a local or national guarantee company to provide security at some consideration; however, to do so entails hasty and expeditious negotiations at costs. It still remains to be seen how the People’s courts will exercise their discretion pursuant to this Agreement in regard to security provision. However, it is wiser for foreign applicants to prepare themselves in advance for such a security provision request.

On the other hand, certain conveniences related to the “pass-on” requirement in light of this Arrangement are noteworthy. Article 3 paragraph 2 of this Arrangement requires interim measure application materials produced by the applicant to be passed on to the relevant arbitral institution or permanent office, together with a pass-on letter addressed by such relevant arbitral institution or permanent office to the People’s court.[25] However, in practice, the SPC allows applicants submitting the interim measure application materials with the pass-on letter to proceed directly to the relevant People’s court, considering that the rigidity of the pass-on requirement may, given the urgency of the circumstances, jeopardize the application since Hong Kong is located outside Mainland China.[26] In the first application under this Arrangement, this is how HKIAC and the applicant proceeded.[27]

Conclusion

In light of this Arrangement, institutional arbitration is recommended. Parties should deliberately consider the suitable arbitration institution during arbitration clause negotiation, and choose the suitable court among the competent People’s courts for granting an interim measure. Besides other procedural concerns this article has mentioned, an applicant should prepare well in advance for how to satisfy the possible security provision requirement to ensure a successful application. Nevertheless, this Arrangement’s importancefor Sino-related arbitration “cannot be overstated”,[28] as Sarah Grimmer, Secretary-General of HKIAC has commented. Hong Kong will surely become a more attractive arbitration seat henceforth. 

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[1] Judicial Interpretation〔2019〕No.14

[2] As the highest court in the People’s Republic of China, the SPC also functions as a de-facto rule-making power holder. Its judicial interpretation has played an important role directing judicial practice in Mainland China. Regarding the legal status, functions and limits of the SPC’s Judicial Interpretation, please see Li Wei, Judicial Interpretation in China, 5 Willamette J. Int’l L. & Dis. Res. 87 (1997).

[3] Investment arbitrations between a state party and a private party are not covered by this Arrangement.

[4] Please see Part One of《<最高人民法院关于内地与香港特别行政区法院就仲裁程序相互协助保全的安排>的理解与适用》(The Interpretation and Application of the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administration Region), (Sep. 26, 2019),

http://rmfyb.chinacourt.org/paper/html/2019-09/26/content_160433.htm?div=-1.

[5] The Arrangement on Mutual Entrustment in Service of Judicial Documents in Civil and Commercial Matters 1998; the Arrangement Concerning Mutual Enforcement of Arbitral Awards 1999; the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters Pursuant to Choice of Court Agreements between Parties Concerned 2006; the Arrangement on Mutual Taking of Evidence in Civil and Commercial Matters 2016; the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters (signed in January 2019, but has not come into force yet. The Choice of Court Arrangement will be superseded upon its commencement). Another arrangement is the Reciprocal Recognition and Enforcement of Civil Judgments in Matrimonial and Family Cases 2017.

[6] See Interim Measure Arrangement, Article 1, “Interim measure” referred to in this Arrangement includes, in the case of the Mainland, property preservation, evidence preservation and conduct preservation.

[7] See Article 100 of the Civil Procedure Law of PRC.

[8] See Article 81 ofthe Civil Procedure Law of PRC.

[9] See Id. Article 81, Article 100.

[10] See Wang, Shizhou, Civil Procedure in China 159 (2014).

[11] Article 16 of the Arbitration Law of PRC requires that an arbitration agreement must contain a designated arbitration commission; otherwise the agreement will be invalid. Regarding the consensus that ad hoc arbitration is not admitted in Mainland China, please see Shahla F. Ali & Tom Ginsburg, International Commercial Arbitration in Aisa 88-90 (2013).

[12]《最高人民法院关于香港仲裁裁决在内地执行的有关问题的通知》法［2009］415号 (Notice of the Supreme People’s Court on Issues concerning the Execution of Hong Kong Arbitral Awards in the MainlandNo. 415 [2009]).

[13] See “全国首例！上海海事法院裁定准许香港仲裁程序中的保全申请”, (the First Instance! Shanghai Marine Court Granted an Interim Measure Application in Aid of A Hong Kong Arbitral Proceeding), (Oct. 9, 2019),

https://shhsfy.gov.cn/hsfyytwx/hsfyytwx/spgk1356/spdt1420/2019/10/09/09b080ba6dac0657016dae2f47970000.html?tm=1574068535096.

[14] See Interim Measure Arrangement, Article 2 paragraph 1.

[15] See Interim Measure Arrangement, Article 2 paragraph 2.

[16] These arbitral institutions are: Hong Kong International Arbitration Centre, China International Economic and Trade Arbitration Commission Hong Kong Arbitration Center, The Asia Office (Hong Kong) of the International Chamber of Commerce (ICC) International Court of Arbitration, Hong Kong Maritime Arbitration Group, South China International Arbitration Center (Hong Kong) and eBRAM International Online Dispute Resolution Centre.

[17] See Interim Measure Arrangement, Article 3 paragraph 1.

[18] See Supra note 4, (4) of Part Two.

[19] Id.

[20] See Interim Measure Arrangement, Article 4 paragraph 1, paragraph2.

[21] Wang, Shizhou, Supra note 10, at 23-24.

[22] Id. at 159-160.

[23] Id. at 160.

[24] Id.

[25] See Article 272 of the Civil Procedure Law of PRC.

[26] See Supra note 4, (2) of Part Five.

[27] “HKIAC Receives Five Applications under Hong Kong-Mainland Arrangement on Interim Measures”, (Oct.11, 2019), https://www.hkiac.org/news/five-interim-relief-applications-under-new-arrangement.

[28] Id.

— Jack Davies

Section 68 of the Arbitration Act (UK) enables parties to challenge an arbitral award on the basis of a “serious irregularity affecting the tribunal, the proceedings or the award”.[1]  The section sets out an exhaustive list of irregularities on which an award may be challenged, including s 68(2)(d) — “failure by the tribunal to deal with all the issues that were put to it” — and s 68(2)(h) — “failure to comply with the requirements as to the form of the award”.[2]  In holding that “inadequate” or “insufficient” reasons cannot found a legitimate challenge under either s 68(2)(d) or s 68(2)(h), the English High Court’s decision in Islamic Republic of Pakistan v Broadsheet LLC has helpfully clarified the scope of those subsections.[3]  In short, the Court has taken a narrow, arbitration‑friendly approach to s 68, one which aligns with the purposes of s 68, the objectives of the wider Arbitration Act and international practice.  The Court also denounced prior case law that suggested a wider approach ought to be taken to the interpretation of s 68: this criticism was well warranted, and should lead to clarity in the law. 

Relevant facts

Broadsheet was engaged by Pakistan to trace and locate assets taken from various state-run institutions, and transfer them back to the government.[4]  As compensation, Broadsheet was to receive 20 per cent of the “amount available to be transferred”.  Approximately two years after signing its contract with Broadsheet, Pakistan (via the National Accountability Bureau) gave notice to rescind the contract, alleging that Broadsheet had committed repudiatory breaches of contract.  Broadsheet denied that allegation, and commenced arbitration proceedings against Pakistan.  The tribunal awarded Broadsheet USD 21,589,460 in damages.  Approximately USD 19m of that figure related to Broadsheet’s “loss of a chance” claim in relation to the Sharif family. 

Pakistan then challenged the award in the English High Court under s 68, alleging a serious irregularity that caused it substantial injustice. 

The High Court’s decision

Pakistan’s primary complaint was that the tribunal did not explain, in any material way, the method by which it calculated the value of the Sharif family claim (i.e. the value of the chance that Broadsheet lost to receive payment in respect of recoveries made from Mr Sharif and his family).[5]  Pakistan relied principally on another recent High Court decision, Compton Beauchamp Estates Ltd v Spence, to contend that a failure of reasoning may constitute a valid challenge under s 68(2).[6]

Moulder J did not accept Pakistan’s submissions.  The Judge’s reasoning comprised three primary points.  First, as a matter of statutory interpretation, the Judge said the juxtaposition of ss 57 and 70(4) with s 68 means that “inadequate reasons” cannot found a legitimate challenge against an award under s 68.[7]  Section 57 entitles a party to apply to the tribunal to correct its award, or to issue an additional award.  Section 70(4) allows an English court to require an arbitral tribunal to state the reasons for its award in further detail, if the court considers that the tribunal’s reasons are insufficient, or perhaps “inadequate”, such that the court is unable to properly consider the merits of a challenge to the award under s 68.

Secondly, Moulder J did not accept the reasoning in the Compton decision as representing good law;[8] instead, the Judge preferred the contrary analysis given in Margulead Ltd v Exide Technologies[9]and UMS Holding Ltd v Great Station Properties SA.[10]  Because all relevant prior case law comprised other High Court decisions, the Judge was free to choose between the various analyses under the English system of stare decisis. 

Finally, Moulder J noted that a major purpose of the Arbitration Act was to reduce intervention by the English judiciary in arbitrations and arbitral awards.[11]  She considered that to allow challenges premised on “inadequate reasons” would be to expand unduly the scope of the High Court’s supervisory function in light of the Arbitration Act’s principles and objectives.[12] 

Analysis and appraisal of the decision

Moulder J’s decision should be applauded.  The Judge’s reasoning reflects an informed and pragmatic     approach to a section that, if interpreted erroneously, might have serious consequences for the future of arbitration in England.

First, the Judge’s statutory-interpretation point is correct.  If the UK Parliament had intended an inadequacy of reasons to be able to found a challenge under s 68, and such a challenge might lead to the award being set aside with the result that the parties have to “start from scratch”, then why would it provide the tribunal with the ability to give further reasons either on application of a party (s 57) or direction of the High Court (s 70(4))?  From reading the judgment, it appears, crucially, that Pakistan was never able to answer that question.  Inadequacy of reasons is not listed as one of the nine enumerated grounds in s 68(2).    The specificity of those available grounds means it is clear that the UK Parliament gave them substantial thought.  A traditional canon of English statutory interpretation is expressio unius est exclusio alterius.[13]  Where a statutory proposition might have covered many factors but only mentions some, unless those mentioned are listed merely by way of example, the rest are taken to be excluded from the proposition.[14]  Although not discussed by Moulder J, that canon applies with full force to s 68(2) and reinforces her reasoning.

Secondly, the Judge was correct to reject the analysis of Morgan J in Compton.  In that case, Morgan J stressed the importance of reasons in an arbitral award: “an arbitrator should explain why he has decided the essential issues in the way in which he has”.[15]  He reasoned, therefore, that “[a]n award which did not contain such reasoning would not comply with [the duty of an arbitrator to give reasons under s 52(4)][16] and that would give rise to an irregularity within s 68(2) of the 1996 Act”.[17]  No judge, in any of the relevant cases, has argued that an arbitral tribunal does not have a duty to give reasons for its award under s 52.  And no judge has doubted the importance of such reasons.  It is only natural and correct that parties are entitled to know the grounds upon which the tribunal has come to its conclusions, unless they waive that right.[18]  But that point still does not answer the question that Moulder J asked above: if a deficiency of reasons can be cured by a further award or clarification under either s 57 or s 70(4), then why should an award be liable to be set aside under s 68?  That remains the most crucial point of interpretation when evaluating the correctness of the decision in Islamic Republic.  Setting aside an award is simply too drastic a course of action to have available to litigants, when the relevant deficiencies can be cured with no prejudice to the complaining party.

Lastly, Moulder J’s reliance on the Arbitration Act’s objective of reducing judicial intervention in arbitration deserves both elaboration and applause.  The Judge made that point briefly, and did not cite any of the Act’s legislative history.  However, when that history is examined, it becomes clear that this is perhaps the strongest point in favor of disallowing an inadequacy of reasons to found a valid challenge under s 68.  Aside from the Bill itself, the most important piece of les travaux préparatoires to the Arbitration Act is the Departmental Advisory Committee’s 1996 report on the Arbitration Bill, where all provisions of the Bill were discussed in detail by the drafters, including the clause which was to be enacted as s 68.[19]  The drafters said that s 68 was intended only to be applied “by way of support for the arbitral process, not by way of interference with that process”.[20]  Furthermore, that s 68 was “really designed as a long stop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected”.[21]  In the light of these statements, it is very hard to see how the UK Parliament envisaged judges to be entitled to cast critical eyes over the reasoning in arbitral awards with an eye to invalidating them, particularly when further reasons are able to be requested or mandated under other provisions of the Arbitration Act.  The Act’s legislative history, then, adds further weight to Moulder J’s conclusions. 

An international comparison also highlights the propriety of the decision in Islamic Republic.  In enacting s 68, the UK Parliament deliberately provided for a variety of procedural challenges to awards that are not be able to be made under standard international practice.[22]  For example, under s 68, an award may be challenged on the grounds that the arbitral tribunal failed “to comply with the requirements as to the form of the award”.[23]  In contrast, art 34 of the UNCITRAL Model Law on International Commercial Arbitration contains comparatively few provisions upon which a party may apply to set aside an arbitral award rendered in an international arbitration.[24]  Those provisions parallel art 36 of the Model Law, which sets out the grounds on which a court may refuse to recognize or enforce an arbitral award.  Those grounds, in turn, parallel the grounds listed under art V of the New York Convention.[25]  In short, art V only allows for setting aside on grounds of incapacity, lack of jurisdiction, or major violations of due process.

In contrast, the longer list of procedural irregularities which may found a challenge under s 68 reflects the old English judicial tradition of heightened interference in arbitration.[26]  It must therefore be recognized that, if the approach taken by Morgan J in Compton was to stand — the same approach urged upon Moulder J by Pakistan in Islamic Republic — English judicial supervision of arbitration could substantially increase.  England already allows for heightened scrutiny of awards in contrast to international practice on this point and, should supervision from the bench extend to assessing the “adequacy” or “sufficiency” of a tribunal’s reasoning, parties might seriously think twice before choosing to seat their arbitrations in London.  After all, one of the key selling points of arbitration is a streamlined adjudicatory process.  Even acknowledging that international arbitration is far more complex and time-consuming than it was 50 years ago, it remains that a lack of a right of appeal on the merits can be a drawcard in attracting parties to arbitration.[27]  Allowing parties to challenge the adequacy of a tribunal’s reasons would undermine this.

Key takeaways and conclusions

Moulder J’s decision in Islamic Republic is an excellent one.  She has taken an arbitration-friendly approach to s 68 of the Arbitration Act and has ruled that English judges cannot invalidate an arbitral award for want of reasons on the tribunal’s part.  Instead, they have the power to request additional reasons, or an additional award, from the tribunal to address any perceived deficiencies in this regard.  Parties can have confidence that their arbitral awards will not be scrutinized in painful detail, as judges pore over every aspect of the tribunal’s thinking.  Moulder J’s decision supports the intention of the drafters of the Arbitration Act that s 68 really only function as a “long stop … in extreme cases”. 

The fact remains, however, that Moulder J’s decision is only another High Court judgment to add to the list that was cited to her by the parties in Islamic Republic.  Putting its compelling reasoning to one side, the judgment technically has no more authority than the contrary decision in Compton, given the English tradition of stare decisis.  Furthermore, it has not yet been cited or endorsed by any other cases.  Until appellate guidance is given, or Parliament amends the wording of the Arbitration Act to clarify matters, the issue remains unresolved.  That said, I consider that practically speaking, Moulder J’s analysis is persuasive and future High Court judges are likely to apply it.

Jack Davies is an LL.M. Candidate in the International Business Regulation, Litigation and Arbitration Program at NYU School of Law.  Prior to enrolling at NYU, Jack clerked for the current Chief Justice of New Zealand, Dame Helen Winkelmann, and then practiced commercial litigation in Auckland.

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[1]           Arbitration Act 1996 (UK), s 68(1). 

[2]           For any of the enumerated irregularities to lead to a successful challenge, the irregularity must have caused, or will cause, “substantial injustice” to the applicant: s 68(1).  Note also, in relation to s 68(2)(h), that pursuant to s 52(4) — a section titled “Form of award” — the award must “contain the reasons for the award unless … the parties have agreed to dispense with reasons”. 

[3]           Islamic Republic of Pakistan v Broadsheet LLC [2019] EWHC 1832 (Comm), [2019] WLR(D) 402. 

[4]           A broader summary of the background facts is given at [5]–[11] of the Court’s decision. 

[5]           See at [18(iii)]. 

[6]           Compton Beauchamp Estates Ltd v Spence [2013] EWHC 1101 (Ch). 

[7]           Islamic Republic of Pakistan v Broadsheet LLC, supra n 4, at [42].

[8]           Ibid. 

[9]           Margulead Ltd v Exide Technologies [2004] EWHC 1019 (Comm), [2005] 1 Lloyd’s Rep 324.

[10]          UMS Holding Ltd v Great Station Properties SA [2017] EWHC 2398 (Comm), [2018] Bus LR 650.

[11]          Islamic Republic of Pakistan v Broadsheet LLC, supra n 4, at [42].

[12]          Ibid.

[13]         FAR Bennion Understanding Common Law Legislation: Drafting and Interpretation (OUP, 2001, Oxford) at 88.

[14]          Ibid.

[15]         Compton Beauchamp Estates Ltd v Spence, above n 7, at [51].  Morgan J cited an older decision, Benaim (UK) Ltd v Davies Middleton (2005) 102 Cons LR 1 (QB), where the Court said in reference to s 68 at [95]: “It is strongly arguable that unless a party knows the reasons for an award there is automatically substantial injustice to him”. 

[16]          See footnote 3, supra. 

[17]          Compton Beauchamp Estates Ltd v Spence, above n 7, at [51].

[18]          See Arbitration Act 1996 (UK), s 52(4).

[19]         Departmental Advisory Committee on Arbitration Law “1996 Report on the Arbitration Bill” (1997) 13 Arbitration International 276.  See also Andrew Tweeddale and Keren Tweeddale Arbitration of Commercial Disputes: International and English Law and Practice (OUP, Oxford, 2005) at 765. 

[20]          At [280]. 

[21]          Ibid. 

[22]         Jean-François Poudret and Sébastien Besson Comparative Law of International Arbitration (2nd ed, 2007, Sweet & Maxwell, London) at 721. 

[23]          Section 68(2)(h). 

[24]         United Nations Commission on International Trade Law UNCITRAL Model Law on International Commercial Arbitration (1985, with amendments as adopted in 2006) accessible at: <https://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf>.

[25]         Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) (opened for signature 10 June 1958, entered into force 7 June 1959).   

[26]          Poudret and Besson, supra n 23, at 721. 

[27]         Frank-Bernd Weigand and Antje Baumann “Introduction” in Frank-Bernd Weigand (ed) Practitioner’s Handbook on International Commercial Arbitration (2nd ed, OUP, 2009, Oxford) 1 at 28.

At the end of November 2019, Professor Franco Ferrari, the Center’s Director, was appointed as a member of the Advisory Committee of the Saudi Center for Commercial Arbitration (SCCA). The Advisory Committee is composed of 14 Committee members (residing in 11 different countries with 10 different nationalities), each of whom was selected after a vigorous process of identifying leading international arbitration specialists. The Committee’s main task will be to advise the SCCA on its services and products to secure and promote international best practices and standards. In particular, the Committee will provide guidance on future revisions of the SCCA’s rules and procedures.

The Center will once again host Italian Supreme Court Justice Francesco Cortesi, a two-time scholar-in-residence at the Center, for this coming week. Justice Cortesi, who graduated in 1994 cum laude from Bologna University School of Law, and specialized in international commercial law at Tilburg University School of Law (Netherlands) under the supervision of Professor Franco Ferrari, the Center’s Director who at the time was professor at Tilburg University, was appointed Judge at Court of Bologna in 1999. In 2001, he was assigned to the Court of Rimini, where he mainly dealt with disputes regarding contracts, consumer law issues and professional malpractice torts. In 2007, he moved to the Court of Forlì, where he was able to focus on those very same areas of law. During his tenure there, he also rendered some of the most relevant decisions concerning the United Nations Convention on Contracts for the International Sales of Goods, many of which have been translated into various languages, including English. In 2006, Justice Cortesi was appointed to the Government Committee for the revision of the Italian Civil Code. In January 2016, Justice Cortesi was appointed to the Italian Supreme Court, thus becoming one of the two youngest justices ever appointed to the Italian Supreme Court. During his visit, Justice Cortesi will meet with graduate and post-graduate students. Justice Cortesi will also give a talk at conference to take place on Thursday, October 17th, 2019, at the Thurgood Marshall U.S. Courthouse, 40 Foley Square, Courtroom 506, New York, NY. Professor Franco Ferrari, the Center’s Director, will also participate in the conference, which will provide an overview of the methods by which U.S. litigators obtain evidence in foreign jurisdictions for use in U.S. legal proceedings. The conference will be moderated by Honorable Reena Raggi, U.S. Circuit Judge for the U.S. Court of Appeals for the Second Circuit.

On September 9th, 2019, the Federal Republic of Germany designated Professor Franco Ferrari, the Center’s Director, to the ICSID Panel of Arbitrators as per Article 13 ICSID Convention. This is Professor Ferrari’s second appointment by a government. In 2015, he was appointed by Saint Lucia to the ICSID Panels of Arbitrators and Conciliators. The appointment of Professor Ferrari comes after a vetting process by the competent German ministries. When reached, Professor Ferrari stated that he was “obviously very honored to be appointed by the Federal Republic of Germany.” Even though Professor Ferrari is not a German national, but an Italian national, he has links to Germany: Professor Ferrari was born and raised in Germany and also holds a post-graduate degree from Augsburg University School of Law. Professor Ferrari’s involvement in ICSID matters is extensive.

Professor Ferrari is not the only member of the NYU Law School community to have been appointed as arbitrators/conciliators to the ICSID by governments:

Professor Diego Arroyo, professor of law at Sciences Po Law School in Paris and former scholar-in-residence at the Center, was appointed by the Republic of Argentina

NYU Adjunct Professor Pedro Martinez-Fraga, partner and co-leader of the international arbitration practice at Bryan Cave Leighton Paisner, was appointed by the United States

NYU Adjunct Professor Brian King appointed by Saint Lucia

I. Introduction

On 6 August 2019, the Fifth Revision Chamber of Colombia’s Constitutional Court (the “Court”) issued judgment T-354/19 resolving a constitutional injunction (tutela) submitted by a state-owned company and its subsidiary against an international arbitral award (the “Tutela”). [1] In its decision, the Court recognized the admissibility of constitutional injunctions against awards issued in international arbitrations seated in Colombia. However, it concluded that the Tutela was not admissible in the specific case because the annulment proceedings had not been exhausted.[2]

II. Background

On December 22, 2010, Gecelca S.A E.S.P (“Gecelca”) and its subsidiary Gecelca 3 S.A.S E.S.P (“Gecelca 3”), and the Consortium CUC-DTC, constituted by China United Engineering Corporation and Dongfang Turbine Co. LTD. (the “Consortium”), executed an EPC contract to build a thermoelectric plant in Córdoba, Colombia (the “Contract”). During the development of the Contract certain disputes arose between the parties regarding, inter alia, the term for performance of the Contract, Gecelca 3’s alleged delay in the payment of invoices, and the alleged breach of the Contract by the Consortium.

On December 29, 2014, the Consortium submitted a request for arbitration under the arbitration clause of the Contract. The tribunal, seated in Bogota, was constituted on March 11, 2015 from the list of “international arbitrators” of Bogota’s Center of Arbitration.[3] The Parties disputed whether the arbitration was to be conducted as a national or an international arbitration.

On May 8, 2015, the Tribunal issued a partial award deciding that the arbitration was international because two of the four criteria provided for in Article 62 of Law 1563 of 2012 (Statute of National and International Arbitration) were met in the specific case,[4] i.e. that the parties were domiciled in different States at the time of execution of the arbitral clause and that the dispute affected international trade interests (the “Partial Award”).

On December 4, 2017, the Tribunal issued a final award declaring that Gecelca 3 had breached the Contract and ordering the payment of USD $40.827.427,7 to the Consortium (the “Final Award”).

On January 11, 2018, Gecelca 3 filed an action to set aside the Final Award before the Third Section of the Council of State (the “Third Section”), because, inter alia, it was inconsistent with Colombia’s international public order.

On February 28, 2018, Gecelca and Gecelca 3 (the “Gecelca companies”) presented a constitutional injunction (tutela) against the Final Award alleging that the Tribunal had violated their fundamental rights to due process and access to justice. Additionally, the Gecelca companies requested interim measures to suspend the payment ordered in the Final Award.

The Tutela was declared inadmissible in first and second instance. On July 26, 2018, the Fourth Section of the Council of State – the first instance competent judge –declared that the Tutela was inadmissible considering that this mechanism could not be used to re-open a legal debate addressed during the arbitral proceedings.  On September 12, 2018, the Fifth Section of the Council of State –the second instance competent judge– confirmed the first instance judgment and clarified that, since constitutional injunctions are subsidiary mechanisms, the Tutela was inadmissible because the decision to set aside the Final Award was still pending.

On October 29, 2018, the Constitutional Court selected the Tutela for revision.

III. The Constitutional Court’s decision

The first question facing the Court was whether the Tutela was admissible. To address this matter, the Court divided its analysis in three main issues: (i) the exceptional nature of constitutional injunctions against arbitral awards; (ii) the application of said exceptional nature to awards issued in international arbitrations; and (iii) whether the Tutela complied with the applicable requirements to be admitted.

• The exceptional nature of tutelas against arbitral awards

Recalling previous jurisprudence on this matter,[5] the Court concluded that arbitral awards are materially equivalent to judicial decisions considering that both are issued in the exercise of jurisdictional functions and have res judicata effects. For this reason, the admissibility of constitutional injunctions against arbitral awards must be analyzed under the same requirements applicable to judicial decisions.[6] However, said requisites must be more rigorously applied to  arbitral awards than to judicial decisions, considering that arbitral awards derive from the express will of individuals deciding to depart from the jurisdiction of the courts.[7]

Accordingly, the admissibility of constitutional injunctions against arbitral awards must be determined on the basis of the following criteria:[8] (i) constitutional relevancy: the arbitral award must have violated fundamental rights directly; (ii) subsidiarity: applicable remedies must have been previously exhausted (according to Article 40 of Law 1563 of 2012,[9] the only applicable remedy to arbitral awards is annulment); and (iii) compliance with “specific admissibility requirements”, which refer to the existence of substantive, organic, procedural, or factual defects of the award or the tribunal’s constitution, also known as the doctrine of “vías de hecho”.[10]

• The very exceptional nature of tutelas against arbitral awards in international arbitration

The Court concluded that the same criteria applicable to analyze the admissibility of arbitral awards issued in national arbitrations, must be applied to awards issued in international arbitrations. Additionally, it stressed that three additional issues must be taken into consideration in regard to international arbitral awards. First, the express prohibition of judicial intervention in international arbitrations provided for in Article 67 of Law 1563 of 2012.[11] Second, the applicable law to the arbitration. And third, the grounds for annulment in international arbitration.

As to the prohibition of judicial intervention in international arbitrations incorporated in Article 67 of Law 1563 of 2012,[12] the Court concluded that said proscription does not supersede the primacy of the Constitution and the right of any individual to access the tutela as a mechanism for constitutional protection. Therefore, such prohibition cannot be applied to proscribe –in the abstract and in general– the admissibility of tutelas against arbitral awards in international arbitration.

As to the applicable law, the Court concluded that when the substantive law applicable to the arbitration is foreign, constitutional judges shall only apply Colombia’s international public order as parameter of constitutional control. In consequence, “specific admissibility requirements” are only applicable when the award is “partially governed by Colombian law”, not when the substantive law applicable to the arbitration is foreign.

As to the grounds for annulment of international arbitral awards, the Court concluded that the admissibility of tutelas against international awards is even more exceptional than in the case of national awards, considering that the only competent authority to determine if the international arbitral award is contrary to Colombia’s international public order –which cannot be invoked as a ground to set aside an award issued in a national arbitration– is the one resolving the request to set aside the international arbitral award. Therefore, for a constitutional injunction to be admissible against an award issued in an international arbitration, annulment proceedings must be previously exhausted.

Based on the above, the Court concluded that tutelas against arbitral awards are admissible only in exceptional circumstances (“procedencia excepcional”) and tutelas against awards in international arbitrations seated in Colombia are admissible in very exceptional circumstances (“procedencia excepcionalísima”).

• Admissibility of the Tutela presented by the Gecelca companies

The Court concluded that the Tutela filed against the Final Award was not admissible considering that the Gecelca companies had not previously exhausted the proceedings to set aside the award, which are still pending before the Third Section of the Council of State. C

IV. Comments

The Court’s decision leaves several questions unresolved.

First, despite the fact that Colombia is a contracting party to the New York Convention of 1958 (the “Convention”), the Court did not address the interplay between Colombia’s international obligations under the Convention (Article V(1)(e) of the Convention) and the domestic legal regime.

Second, the Court’s analysis regarding the relation between “the law governing the award” and the admissibility of constitutional injunctions is unclear. The Court states that in those cases where the “the law governing the award” is foreign, there is no room to analyze the admissibility of a tutela in light of criteria different than Colombia’s international public order. Conversely, in those cases where “the law governing the award” is, at least partially Colombian, the constitutional judge may apply “specific admissibility requirements”, referring to the doctrine of “vías de hecho”, a catalogue of substantive, organic, procedural, and factual defects in which the award or the tribunal may incur. For instance, an award would incur in a “substantive defect” when the interpretation or application of a rule in a specific case, ignores constitutional judgments with erga omnes effects that have defined its scope.

While it is far from clear what the Court means by with “the law governing the award”, it seems to be referring to the substantive applicable law. If this is so, then a constitutional judge –when analyzing the admissibility of a tutela in an international arbitration where Colombian law is applicable to the merits– may review the merits of the case to determine if the arbitral tribunal incurred in vías de hecho.

Third, the Court states that national awards are “materially equivalent” to judicial decisions because arbitrators are temporarily invested with the function of administering justice according to Article 116 of the Constitution.[13] The Court seems to conclude that the same equivalency applies to awards issued in international arbitrations but does not explain how it arrives to such conclusion.

The Court does not explain whether, and if so, why an international arbitrator shall be deemed as a “judge” while acting as arbitrator in a particular case. To add another ingredient to the confusion, one of the Justices of the Court clarified its vote to the effect that, in his view, international arbitrators are not judges. Does it mean that the court considers that the arbitrators of the Tribunal were acting as judges?  If so, then may a non-Colombian be considered a Colombian judge exercising jurisdiction in Colombia? May non-Colombian arbitrators seated in an arbitration in Colombia trigger the international responsibility of the Colombian State?

V. Conclusion

This is a decision of one of the Chambers of the Court, not a decision of the plenary of the Court nor a decision to unify jurisprudence, and therefore it only applies to the specific case and may be revisited. 

In its review of the case, the Court invited scholars and institutions to provide comments on several questions related to the Tutela, the key one being whether constitutional injunctions should be admitted against awards issued in international arbitrations seated in Colombia. The majority of the opinions were in the negative based on the same point of departure: arbitrators in international arbitrations seated in Colombia are not judges, public officials, or private parties exercising public functions. The Court, however, seems to have departed from this premise and based its analysis on the thesis that international arbitrators comply with public functions.

*Eduardo Zuleta, Partner, Zuleta Abogados Asociados S.A.S; international arbitrator; lecturer at Georgetown University.

*Maria Camila Rincón, Associate, Zuleta Abogados; former adviser, Colombia’s National Agency for the Legal Defense of the State; former adviser, Colombia’s Directorate of Foreign Investment and Services of the Ministry of Trade, Industry and Tourism; lecturer at Universidad del Rosario.

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[1] The tutela is a constitutional injunction that aims to protect fundamental constitutional rights when they are violated or threatened by the action or omission of any public authority. This mechanism is incorporated in Article 86 of the Constitution. Tutelas proceed when: (i) fundamental constitutional rights are violated or threatened; (ii) when there are no other means to protect the right; and (iii) when by action or omission of a private individual in the event that said individual provides a public service, or exercises public functions; and (iv) when the actor is in a situation of defenselessness or subordination with respect to the individual against whom the tutela is brought.

[2] Colombian Constitutional Court, Judgment T-354 of 2019. Avaible at: http://www.corteconstitucional.gov.co/relatoria/2019/t-354-19.htm

[3] Bogota’s Chamber of Commerce, Arbitration and Conciliation Center. Available at: http://www.centroarbitrajeconciliacion.com

[4] Law 1563 of 2012, Article 62: “It is understood that an arbitration is international if: (a) The parties to an arbitration agreement have, at the time of the execution of said agreement, their domiciles in different States; or (b) The place of performance of a substantial part of the obligations or the place with which the object of the dispute has a closer relationship is located outside the State in which the parties have their domiciles; or (c) The controversy submitted to arbitration decision affects the interests of international trade.” Available at: http://www.secretariasenado.gov.co/senado/basedoc/ley_1563_2012_pr001.html#62

[5] Constitutional Court, Judgment SU-033 of 2018. Available at: http://www.corteconstitucional.gov.co/relatoria/2018/SU033-18.htm

[6] Constitutional Court, Judgment C-590 of 2005, Considerations of the Court, para. 25

[7] Constitutional Court, Judgment SU-500 of 2015.

[8] Constitutional Court, Judgment SU-174 of 2007. Available at:  http://www.corteconstitucional.gov.co/relatoria/2007/SU174-07.htm

[9] Article 40, Law 1563 of 2012 (free translation): “Against the arbitral award only proceeds the extraordinary request to set aside the award, which must be duly substantiated, before the arbitral tribunal, indicating the grounds invoked, within thirty (30) days following its notification or that of the ruling that resolves the clarification, correction or addition of the award. The secretariat of the tribunal will refer the matter to the other party within fifteen (15) days without the need of a specific ruling ordering it. Upon expiration of that term, within the next five (5) days, the secretary of the tribunal shall send the briefs presented by the parties together with the file to the judicial authority competent of resolving the annulment request.” Available at: http://www.secretariasenado.gov.co/senado/basedoc/ley_1563_2012.html#40

[10] Judgment T-466 of 2011, Consideration of the Court, para. 3.4 (free translation):

I. Substantive defect: It occurs when (i) the arbitrators base their decision on a rule that is clearly inapplicable to the specific case, and because of that, they do not directly recognize a fundamental right; (ii) the award lacks material motivation or its motivation is manifestly unreasonable; (iii) the interpretation or application made of the rule in the specific case, ignores judgments with erga omnes effects that have defined its scope; (iv) the interpretation of the rule is made without taking into account other provisions applicable to the case and which are necessary to make a systematic interpretation; and (v) the rule applicable to the specific case was neglected and therefore was left unapplied.

II. Organic defect: Occurs when the arbitrators have absolutely no competence to resolve the matter submitted to their consideration, either because they have manifestly acted outside the scope defined by the parties or because they have ruled on non-arbitrable matters.

 III. Procedural defect: It occurs when the arbitrators have issued the award in a manner completely contrary to the procedure established contractually or in the law, and thus have incurred in a direct violation of the right of defense and contradiction. For the aforementioned irregularity to be of sufficient magnitude to constitute a vía de hecho, it is necessary for it to have a direct impact in decision, so that if the tribunal would not have incurred in such irregularity, the decision reached by the tribunal would have been diametrically opposite.

IV. Factual defect: It occurs when the arbitrators (i) have not assessed evidence crucial for the case’s resolution; (ii) have made their assessment of the evidence directly violating fundamental rights, or (iii) have based their assessment of the evidence on a manifestly unreasonable legal interpretation. For the Court, it is necessary that the error in the assessment of the evidence has been decisive with respect to the decision. Available at: http://www.corteconstitucional.gov.co/RELATORIA/2011/T-466-11.htm

[11] Article 67, Law 1563 of 2012: “In matters governed by this section, no judicial authority may intervene, except in cases and for the purposes in which this section expressly so provides.” Available at: http://www.secretariasenado.gov.co/senado/basedoc/ley_1563_2012_pr001.html#67

[12] Article 67, Law 1563 of 2012: “In matters governed by this section, no judicial authority may intervene, except in cases and for the purposes in which this section expressly so provides.” Available at: http://www.secretariasenado.gov.co/senado/basedoc/ley_1563_2012_pr001.html#67

[13] Article 116 of Colombia’s Political Constitution (free translation): “private individuals may be temporarily invested in the function of administering justice in the condition of jurors in criminal, conciliators or arbitrators cases authorized by the parties to issue judgments in law or in equity, under the terms determined by law.” Available at: http://www.secretariasenado.gov.co/senado/basedoc/constitucion_politica_1991_pr003.html#116

Professor Ferrari, the Center’s Director, and Professor Stefan Kröll from Bucerius Law School in Hamburg (and two-time scholar-in-residence at the Center) have just published the second edition of their book entitled “Conflict of Laws in International Arbitration”, first published in 2011. The book covers the most disparate areas in which conflict of laws issues may arise in the arbitration context, including in the context of determine the law applicable to the extension of arbitration agreements to third parties, the assignment of claims subject to an arbitration agreement, the effect of overriding mandatory rules on the arbitration agreement, arbitrability, the arbitral tribunal’s power, the taking and evaluation of evidence in international arbitration, legal privilege, etc. For the table of contents, please click here.

On May 24, 2019, Professor Franco Ferrari, the Director of the Center, was awarded an honorary ph.d. from the National & Kapodistrian University of Athens in the presence of the President of the Hellenic Republic, Mr. Prokopis Pavlopoulos. The award ceremony took place at the end of a conference on “The Future of Global Law” and was preceded by a talk by President Pavlopoulos. On that occasion, after the laudatio by Professor Haris Pamboukis, Professor Ferrari gave a talk entitled “A New Paradigm for International Uniform Substantive Law Conventions”. For the full program, click here.

On Monday, July 29, 2019, Professor Franco Ferrari, the Director of the Center for Transnational Litigation, Arbitration, and Commercial Law, will start teaching a special course on private international law at the prestigious Hague Academy of International Law. The course is entitled “Forum shopping despite the unification on substantive law” and will examine the reasons why the claims that the unification of substantive law prevents forum shopping is not tenable, a topic which has been the focus of Professor Ferrari’s scholarship for some time.

Founded in 1923, the Hague Academy is a center for research and teaching in public and private international law, with emphasis on further scientific and advanced studies of the legal aspects of international relations. Because the Academy does not have a permanent teaching staff, its scientific body, the Curatorium, invites academics, practitioners, diplomats, and others to give courses in the form of lectures.

The summer courses take place over six weeks, with private international law running during the second three-week session from the end of July until mid-August. The lectures are usually published in the Collected Courses of the Academy of International Law.

Ferrari joins other distinguished NYU Law faculty who have taught courses at the Hague Academy, including Professors José Alvarez, Theodor Meron, Linda Silberman, and the late Professors Thomas Franck and Andreas Lowenfeld.

Montserrat Manzano[1]
Rafael Francisco Alves[2]

In June 2018, the international community celebrated the 60^th anniversary of the adoption of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, known universally as the ‘New York Convention’. At the time of writing, the New York Convention has 159 state parties[3], including each of the developed and developing economies of Latin America. The drafters of the New York Convention intended for such regime to provide for the prima facie recognition and enforcement of foreign arbitral awards, and for the exclusive grounds that rebut this presumption, found in Article V of the Convention, to be construed narrowly by national courts.

New York University’s professor Franco Ferrari posed an interesting question from which we have started this paper: How international should international arbitration be? Should it be as international as possible, subject only to the recognition of the applicable law chosen by the parties? While it is true that Article III of the Convention provides that courts are to enforce awards in accordance with their own rules of procedure, is it imperative that the standards of procedure applied to such an exercise are international, and not domestic? Following Professor Ferrari’s premise and the New York Convention’s purpose, it would be reasonable to expect that procedure would be interpreted autonomously in relation to domestic standards in order to achieve a uniform application of the New York Convention among its signatories.[4]

This text is prepared with our reflections after the Conference on the Application of the New York Convention in Latin America held at New York University School of Law on September 13, 2018. In it, we examine examples of recent Latin American case law and analyze the extent to which those courts apply the Article V(1) New York Convention grounds for refusal of recognition/enforcement in alignment to such autonomous international standards. Our focus in this paper is directed towards the grounds enshrined in Articles V(1)(b) of the Convention, which provides in general terms for the opposition to recognition/enforcement of foreign awards on the grounds of denial of due process.

In undertaking this task, we extracted case law materials from two primary sources: the New York Convention Guide (www.newyorkconvention1958.org) and the ICCA Yearbooks on Commercial Arbitration. A cursory glance at each of these sources will reveal the limited nature of the published case law emanating from Latin America. While there are 20 Latin American signatories of the New York Convention, only 12 have had a decision regarding the application of the New York Convention published in either of the aforementioned sources; and of those 12 states, 7 have had less than five decisions published since ratifying the Convention. Unsurprisingly, the states with the most published decisions are among the most developed economies in Latin America, with the Brazilian courts the most documented by far. With that in mind, we wish to stress that this text does not purport to (i) analyze all of such decisions exhaustively or even (ii) identify definitive trends throughout Latin America as a whole. This text is merely designed to draw tentative conclusions based on what presently exists in the public sources referred to in this paper.

I. The Relationship between Domestic law and the New York Convention

Most international conventions create rights and obligations that primarily benefit and oblige sovereign states directly. The New York Convention, however, has the uncommon characteristic of being designed to apply in domestic fora. National courts apply the Convention and it is for the benefit of private entities that have been subject to a foreign arbitral award. Accordingly, while most international conventions may carry out their effect while being left solely in the realm of international law, it is essential that the New York Convention has some means of translating into the domestic arenas of its signatories.

The implementation of treaties into domestic law is not a uniform exercise across the globe. Commentators commonly dichotomize the various legal systems into ‘monists’ and ‘dualists’. For a legal system to be ‘monist’ means that not all treaties need be implemented into domestic law by a separate piece of domestic legislation for a national court to be able to apply them, they must simply be approved by the state. Such legal systems include, inter alia, those in Mexico, Chile, Colombia, China, France, Germany, the Netherlands and Switzerland. In such states national courts can be expected to apply directly those international conventions that do not require implementation, unless the legislature decides to enact an implementing law in any event. In a ‘dualist’ system, conversely, international law must be positively ‘internalized’ into the domestic system in order for the treaty to have any normative effects in the jurisdiction. Such systems include, inter alia, those in the United Kingdom and nearly all other British Commonwealth states, in addition to most Nordic states. Courts in dualist systems do not apply the treaty directly – they apply the accompanying piece of domestic law that implements it and will only ever use the treaty at most to guide the interpretation of that domestic instrument. The position in Brazil is the subject of substantial debate, as its ratification process of international treaties requires approval by both the Brazilian legislative body and then the President. Recent case law would seem to suggest, however, that Brazil is at least a moderate monist system, if not dualist.[5]

UNCITRAL research reported in 2008 found that the clear majority of signatories viewed the New York Convention as self-executing and therefore directly applicable in their national courts, however for other states implementing legislation was deemed necessary for the Convention to gain force in their jurisdictions.[6] The attitude of Latin American signatories has concurred with the majority, however in accordance with international attitudes reinforced by UNCITRAL, many have nevertheless given effect to the New York Convention by way of enacting domestic legislation. In monist Mexico, for instance, the provisions of the New York Convention are incorporated into the Mexican Commerce Code and accordingly Mexican enforcing courts regularly apply the Commerce Code in lieu of the Convention. In Brazil, the New York Convention was adopted in 2002 by a Legislative Decree[7] followed by a Presidential Decree[8] promulgating the text of the Convention within the Brazilian territory. However, Brazilian judges (particularly the Superior Court of Justice – STJ, the competent court for the exequatur of foreign arbitral awards) continues to apply, in general, Brazilian domestic law on arbitration (Law 9,307/96 – the so-called Brazilian Arbitration Act), which provides for similar grounds for the refusal of exequatur of arbitral awards[9]. Accordingly, even if the STJ still applies the Brazilian Arbitration Act in most cases, it usually follows international standards when granting exequatur to foreign arbitral awards, as will be detailed in this article.

Naturally, in monist and dualist systems there exists differing degrees of attention to the substantive provisions of the New York Convention. However, it should not be forgotten that even in the most dualist systems there remains an irreducible minimum applicability of the New York Convention, and similarly even in the most monist systems domestic norms will be required to supplement the New York Convention’s application. There will always exist lacunae in each law that the other is required to fill. Where implementing legislation is unclear, in accordance with Articles 31-33 of the Vienna Convention on the Law of Treaties (to which all 12 of the aforementioned Latin American states are party, save for Venezuela), courts are to look to the context of the New York Convention and its text as a whole in forming an interpretation. Similarly, where a court applies the New York Convention directly (as the Colombian courts regularly do), we shall see below that ambiguities in the Convention may be resolved by reference to the enforcing court’s most fundamental domestic standards. As Professor Strong summarizes, the Convention does not “operate in isolation” – but it is buttressed by “national arbitration laws, institutional rules, soft law, and persuasive authority”.[10]

II. The Enduring Prevalence of Party Autonomy

Article V(1)(b) of the New York Convention, which like all the Article V(1) grounds may only be submitted by the party opposing recognition/enforcement, provides that the court may refuse to recognize and enforce the award if:

“(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case”.

The question of whether ‘proper notice’ has been given to the parties under Article V(1)(b) was elucidated in the historic 1977 Mexican enforcement decision in Presse Office S.A. v Centro Editorial Hoy S.A.[11] In that case, an award was issued in favor of Presse Office in an ICC arbitration seated in Paris against Hoy, and Presse Office subsequently sought enforcement before the Mexican courts (Eighteenth Civil Court of First Instance for The Federal District of Mexico). Hoy opposed enforcement under Mexican Public Policy and Article V(1)(b) of the New York Convention, as it submitted that as a principle of Mexican public policy the first notice of summons should be served personally upon a respondent – whereas Hoy served it by mail (postal service) pursuant to the ICC Arbitration Rules. The Court held that the arbitral procedure did not violate the formal requirements detailed in Article 619 of the Code of Civil Procedure and Articles 14 and 16 of the Mexican Constitution. By inserting the arbitral clause into the contract the parties were considered to have autonomously waived the formalities established by Mexican procedural legislation in order to instead be governed by the ICC Arbitration Rules and to French law.

A near identical decision was reached later that same year by the Mexican courts (Tribunal Superior de Justicia, Court of Appeals -fifth chamber- for the Federal District of Mexico), in Malden Mills Inc v Hilaturas Lourdes S.A (1977).[12]  In that case the Court overturned the Civil Court of First Instance, who denied enforcement of the award on the grounds that all notices had been served by mail, in violation of Mexican public policy. Just as in Presse Office, the Court held that the parties had waived Mexican procedural formalities when agreeing to arbitrate (in this case under the rules of the AAA).[13]

The more recent Keytrade (2013)[14] case decided by the Brazilian Superior Court of Justice confirms a party-autonomy-centric approach. In this case the complainant submitted that it had not been duly notified of the arbitration, however the Court held that, under Brazilian law, a party to a foreign arbitration residing or domiciled in Brazil may be notified of the appointment of the arbitrator or the arbitration proceeding in the manner prescribed by the procedural law of the place of arbitration (in this case, England). It held that because the English Arbitration Act does not set requirements for notification other than “by effective means”, the complainant was duly notified[LOB1] , as it appeared from the file that it had in fact received the e-mails sent to it for this purpose. The enforcing court looked to the autonomous will of the parties exercised in the arbitration agreement to determine the rules that govern the arbitral process, just as in the aforementioned Mexican cases.

This party-autonomy-centric approach is consistent with doctrine applied by enforcing courts across the globe, as occurred, for instance,  in Egyptian Concrete Company et al. v. STC Finance et al. (1996),[15] and in Kammergericht (2008).[16] It has the benefit of restricting the application of domestic standards to only those that the parties have autonomously selected when agreeing to arbitrate, and it accordingly engenders a uniform approach to the recognition and enforcement of awards globally – as the drafters of the New York Convention intended. Ultimately, the goal of the Convention is to ensure that one court enforcing a certain award follows the same process as another court enforcing that same award – and the approach described above does precisely that.

III. The Application of International Standards of Due Process

In addition to the above, Article V(1)(b) has a separate sub-ground for the opposition of recognition/enforcement:

“(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case”.

In effect, this objection is that there was a violation of due process. It was considered by the Supreme Court of Colombia in the Petrotesting (2011) case.[17]

Petrotesting and Ross Energy were members of a consortium working together under an oil exploration and production contract with Empresa Colombia de Petróleos. As part of their relationship, the consortium members entered various agreements to regulate their respective rights and obligations to each other in the performance of the contract. Each of these agreements contained arbitration clauses providing for settlement by the ICDR. These agreements also provided for those disputes to be conducted in English, and seated in Colombia, and that any translation costs would be incurred individually by the parties. Ross Energy defaulted under the agreements due to its financial impecuniosity, and Petrotesting filed a request for arbitration before the ICDR, as per the agreements.

The day before the preliminary hearing, Ross Energy’s representative stated that it would only participate in it if the hearing was held in Spanish, despite the arbitration clause stating that proceedings would be held in English. The parties and tribunal declined, and Ross Energy informed the tribunal and the Claimants that it declined to participate in the hearing because its impecuniosity meant that it was unable to pay for the hearings to be translated. Ross Energy’s representative stated that by insisting on the use of English, Ross Energy’s right to defend itself was denied. Months later, Ross Energy also declined to participate in the hearing on the merits.

By an award of 19 June 2006, a sole arbitrator found in favor of Petrotesting, holding that Ross Energy breached its obligations under the agreements. Petrotesting sought enforcement of the award before the Colombian Supreme Court.

Ross Energy resisted enforcement on several grounds, including “forgery”, “litispendence”, “arbitrability”, “public policy”, “excess of authority”, and in particular, “due process”. Under Article V(1)(b), Ross Energy submitted that because the proceeding had been held in English and because it did not have the financial means to pay for a translation and hire a lawyer to represent it in arbitration in the US, due process had been violated.

The Court explained that as Ross Energy’s impecuniosity and language-barrier complaints are not specifically provided for in Article V(1) of the New York Convention as grounds for refusing enforcement, enforcing courts often decide the question of due process under their legal system’s principles regarding procedure. It should be stressed that the Court considered that the application of its own legal system is strictly limited only to the system’s most “fundamental procedural guarantees”—which includes the notification to the defendant so that he can appropriately present his defense—, and not to its specific rules.[18]

Thus, in determining the standard of due process the court applied the Colombian principle of “the protection of fundamental rights”, which is derived from Article 29 of its Political Constitution. This provides that the minimum guarantees to be protected are, inter alia:

1. the right to access the administration of justice before a natural judge;
2. the right to be informed of the acts that lead to the creation, modification or extinction of a right or to the imposition of an obligation or sanction;
3. the right to express freely and openly one’s opinions;
4. the right to contradict or discuss claims or objections raised;
5. the right to the conclusion of the proceeding within a reasonable time and without unjustified delays; and, of course,
6. the right to submit evidence and discuss the evidence supplied [by the other party].

The Court held that as Ross Energy was duly informed of the commencement of the proceeding, and it was both able to and did present its case (since it both submitted a statement of reply and supplied evidence), Ross Energy was afforded the right to defend itself in the proceeding. It simply did not attend the hearings.

Also, it was held that the language difficulty faced by Ross Energy could not be deemed a violation of due process, because in the exercise of its autonomy the parties agreed in the arbitration agreement that the language to be used would be English and this was the language used to draw up the contracts between the parties. Thus, the Court held that Ross Energy could not claim to have been “surprised by a strange language”.

The Court also held that Ross Energy’s argument that it was economically impossible for it to hire a US lawyer could not be taken into account by the Court, as it was not raised in the arbitration proceeding and that the “cost of an arbitration” has not been deemed “a valid ground not to participate therein”. Ross Energy’s refusal to participate in the proceeding was based at the time solely on the language barrier – it did not mention any issue in hiring a lawyer. Moreover, the court considered that the fact that the parties agreed in their contracts that disputes would be decided by “such a specialised and reputed centre as the ICDR” meant that it could not possibly be accepted that Ross Energy was surprised by the costs of the proceedings. To do so would run contrary to the principles of pacta sunt servanda and of good faith expected between contracting parties.

Following similar reasoning, the Colombian Supreme Court laid down its judgment in the Drummond (2011) enforcement case.[19] In this case the party opposing enforcement of an ICC award rendered in Paris submitted that because it was in liquidation at the time of the arbitration the proceedings should not have been allowed to continue – as the party was unable to present its case. Just as in Petrotesting, the Court stated that the application of Article V(1) of the New York Convention to this question is not specifically provided for, and that the standards of the New York Convention are “imprecise” – so the Court once again applied the “fundamental procedural guarantees” of Colombian law to determine whether there had been a breach of due process. The Court found that the opposing party participated in the arbitration through two representatives, raised defenses and communicated to the tribunal that it was in liquidation; and that therefore “the minimum guarantees that constitute the hard core of due process were complied with”[20] in the arbitration. Further, the Court held that being represented by a liquidator is not a violation of due process.

When reading each of these cases, it is clear that the Colombian court was determined to apply the Article V(1) grounds of the New York Convention exhaustively. In Petrotesting, for instance, the Court explicitly rejected Ross Energy’s opposition on the ground of ‘res judicata’ by stating that “[t]he defence relied on is not included in the exhaustive list of Article V of the Convention. This is sufficient reason not to take it into consideration”. When the Court does consider the application of Article V(1)(b) to a case, since there is no defined “international standard”, this article was analyzed in light of the ‘fundamental procedural guarantees’ of the Colombian legal system. In doing so, it might seem that the Colombian Supreme Court has in Petrotesting and Drummond applied a domestic standard, derived from the Colombian constitution, to its application of the New York Convention grounds for refusal. As we stated earlier, however, while Article V is critical in identifying and safeguarding general principles of procedural law, it does not “operate in isolation”,[21] but rather in order to create a dispute resolution regime that prioritizes justice and consistency. As can be seen from the referred cases, Article V is applied “in tandem with national arbitration laws, institutional rules, soft law, and persuasive authority”.[22] Further, and fundamentally, research conducted by Peter Rutledge has found that the fundamental procedural rules of national constitutions and international due process norms are not mutually exclusive, but rather that the latter norms are derived from the former.[23] Thus, the Colombian Supreme Court’s limitation of its supplementation of the New York Convention to “fundamental procedural guarantees” enshrined in the Colombian constitution means that it, in reality, limited the supplementation to international standards of due process despite technically applying domestic law.

The Argentine Supreme Court of Justice decision in Milantic (2016)[24] approached the interpretation of Article V(1)(b) similarly but cast the interpretation as being supplemented by the “the Argentine international public order” rather than specifically by “fundamental procedural guarantees”. These phrases are evidently not wholly dissimilar, however, as the court stated:

“the validity and application of international conventions is carried out in our country if the resolution being executed (in this case, the award) has been the result of a process where the principles, guarantees, guidelines or canons that are established expressly in our national constitution or that may be undoubtedly derived from its provisions have been complied with”.[25]

Thus, the principle of due process given effect to in Article V(1)(b) of the New York Convention was applied in Milantic by reference to “the Argentine international public order”, which the court defines as consisting of the principles and guarantees enshrined in the Argentine Constitution. Though the Argentine court did not qualify the reference to only Argentina’s most “fundamental” constitutional norms, as the Colombian courts did in Petrotesting and Drummond, the fact that such norms must be derived from the Argentine constitution means that a largely similar approach was followed.

IV. Final reflections

The New York Convention has as its main objective the establishment of a uniform and pro-recognition enforcement regime, which Professor Ferrari asserts requires that arbitration be “as international as possible”, meaning that a nationalistic approach when interpreting the Convention shall generally be avoided, even in respect of those national provisions that transpose the New York Convention into domestic law. This, he notes, is essential so that the different interpreters of the Convention do not reach irreconcilably inconsistent conclusions. Accordingly, under his interpretation countries have a duty to analyze international arbitration by referring to “international standards” rather than domestic ones.

Crucially, however, the New York Convention cannot operate in isolation. Where ambiguities exist in the wording of the Convention, it is right that enforcing courts find solutions in light of not only Articles 31-33 of the Vienna Convention, but also in light of that jurisdiction’s most fundamental procedural guarantees enshrined in its constitution. This is so by virtue of the reality elucidated by Professor Rutledge – that international norms of due process are derived from those same fundamental principles.[26]The cases we have examined specifically regarding ground V(1)(b), the Petrotesting (2011) and Drummond (2011) cases, elucidate this reality. The Colombian Supreme Court contemporarily applied the Convention’s grounds restrictively and exhaustively – and supplemented ambiguities or lacunae in them with the most fundamental procedural principles enshrined in the Colombian Constitution, rather than any specific domestic rules. While Colombian national law was indeed applied by the court to buttress the New York Convention, those fundamental principles that it applied are considered to be the very source from which “international standards” are derived.

So how international should international law be? In our view, Professor Ferrari’s position that international law should be as international as possible holds true, but to resolve ambiguities in the Convention by resorting to domestic fundamental procedural guarantees does not frustrate that ideal. Nor, as we have explained, does applying the law autonomously chosen by the parties.

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[1] Partner of Von Wobeser y Sierra, S.C. The author wishes to acknowledge the assistance of Ana Toimil and Alex Barnes in the preparation of this article.

[2] Partner of L.O. Baptista Advogados Associados. LL.M. New York University (NYU), Class of 2010, Arthur T. Vanderbilt Scholar.

[3] Information available at https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXII-1&chapter=22&lang=en.

[4] Franco Ferrari, ‘How International should International Arbitration be? A Plea in Favour of a Realistic Answer’, 853.

[5] Rafael Alves: https://blogs.law.nyu.edu/transnational/2014/11/the-cisg-has-definitely-entered-into-force-in-brazil/

[6] UNCITRAL Report, 2008 – A/CN.9/656.

[7] Legislative Decree nº 52, 25 April 2002.

[8] Decree nº 4.311, 23 July 2002, available at http://www.planalto.gov.br/ccivil_03/decreto/2002/D4311.htm

[9] Rafael Alves, Jura Novit Arbiter under Brazilian law, in: Iura Novit Curia in International Arbitration, NYU Center for Transnational Litigation, Arbitration and Commercial Law, JurisNet, 2018, p. 50-53.

[10] S. I. Strong, ‘General Principles of Procedural Law and Jus Cogens’, Penn State Law Review (2018), 382-83.

[11] Reported in ICCA as Mexico No. 1 (Yearbook Commercial Arbitration 1979, Volume IV, pp. 301-302), Presse Office S.A. v Centro Editorial Hoy S.A., Tribunal Superior De Justicia, Eighteenth Civil Court of First Instance for The Federal District of Mexico, 24 February 1977.

[12] Reported in ICCA as Mexico No. 2 (Yearbook Commercial Arbitration 1979, Volume IV, pp.302-304), Malden Mills v. Hilaturas Lourdes SA, Tribunal Superior, Court of Appeals (5th Ch.) for the Federal District of Mexico, 1 August 1979.

[13] id. at page 303. The Mexican court stated that: “Even though it is clear that in this case the summons was not made with the formalities established in Arts. 116 and 117 of the Code of Civil Procedure, it is also clear that the parties agreed that any controversy arising from the purchase and sale agreement […] should be resolved through arbitration in the city of New York or Boston, […] in accordance with the existing Rules of the American Arbitration Association or the Arbitration Council […] It should be taken into consideration that, as in this case, if an express contract exists which provides for submission to the Rules of the American Arbitration Association, it results that the summons was made in correct form since the parties waived the formalities established by the Mexican procedural legislation regarding notices, and submitted themselves to the Rules of the American Arbitration Association, which permit notices by mail, and the lower court judge was not just in considering that the defendant should have been summoned in a different manner.”

[14] Reported in ICCA as Brazil No. 34, (Yearbook Commercial Arbitration 2014, Volume XXXIX, .364-366) Keytrade AG v. Ferticitrus Indústria e Comércio de Fertilizantes Ltda) Superior Tribunal de Justiça, 7 August 2013, SEC no. 4024.

[15] Egyptian Concrete Company & Hashem Ali Maher v. STC Finance & Ismail Ibrahim Mahmoud Thabet & Sabishi Trading and Contracting Company, Court of Cassation, Egypt, 27 March 1996, 2660/59.

[16] Kammergericht [KG], Berlin, Germany, 17 April 2008, 20 Sch 02/08.

[17] Reported in ICCA as Colombia No. 7 (Yearbook Commercial Arbitration 2012, Volume XXXVII, p.200-204) Petrotesting Colombia S.A. et al. v. Ross Energy S.A., Supreme Court of Justice of Colombia, 11001-0203-000-2007-01956-00, 27 July 2011.

[18] Petrotesting Colombia S.A., Southeast Investment Corporation v. Ross Energy S.A.S. / 11001-02-03-000-2012-02952-00, page 54. The Court stated: “As the standards of the New York Convention are vague and imprecise in respect of these issues, courts seized with an exequatur procedure have opted in several cases, when deciding on the recognition or enforcement of awards, for carrying out this scrutiny in the light of the procedural principles of their country, without applying specific rules but rather fundamental procedural guarantees. In the United States of North America, for example, this question was highlighted in the famous case ‘Parsons & Whittemore v. Rakta, US no. 7”.

[19] Reported in ICCA as Colombia No. 8 (Yearbook Commercial Arbitration 2012, Volume XXXVII, p.205-209), Drummond Ltd. v. Instituto Nacional de Concesiones – INCO et al., Corte Suprema de Justicia, Civil Cassation Chamber, 19 December 2011.

[20] Empresa Colombiana de Vias Ferreas Ferrovias (Colombia) v Drummond Ltd (US) / 11001-03-26-000-2003-00034-01(25261), page 42.

[21] see supra note 6.

[22] S. I. Strong, ‘General Principles of Procedural Law and Jus Cogens’, Penn State Law Review (2018), 382-83

[23] Peter B. Rutledge, Arbitration and the Constitution, 145-59 (2013).

[24] Corte Suprema de Justicia, 30 March 2016, causa A. 69.572 (Milantic Trans S.A. v. Ministerio de la Producción (Astilleros Río Santiago y otro)); not in the ICCA yearbook but full judgment accessible at: http://public.diariojudicial.com/documentos/000/067/912/000067912.pdf.

[25] id. at page 43

[26] see supra note 10.

One of the goals of the Center is capacity building in the areas on which the Center focuses. Over the years, the Center has hosted many capacity building events around the globe. From 10 to 14 June 2019, the Center, together with the Thailand Arbitration Center, once again hosted such an event, this one aimed at practitioners and government lawyers operating in Thailand and surrounding countries. The speakers included Professor Franco Ferrari, the Center’s Director, Dr. Friedrich Rosenfeld, a Global Adjunct Professor at NYU Law in Paris, as well as Mr. Darius Chan, a graduate NYU and Of Counsel with Norton Rose Fulbright (Asia) LLP.

On 10 June 2019, Professor Franco Ferrari, the Center’s director, and Dr. Friedrich Rosenfeld, currently a Global Adjunct Professor at NYU Law in Paris, a visiting Professor at the International Hellenic University in Thessaloniki and Lecturer at Bucerius Law School in Hamburg, will speak at a seminar entitled “Inherent Powers of Arbitrators” held in Seoul. The seminar, organized by the Center together with KCAB, will explore a fundamental question that commonly arises during international arbitrations: what are the boundaries of the powers of arbitrators? Are these powers limited to those explicitly provided for in the relevant laws or rules, or should there be some margin of flexibility, so that arbitrators may invoke powers which can be deduced from the characteristics and goals of their function? For the conference flyer, please click here.

Professor Franco Ferrari, the Center’s Director, has just edited the new issue of the European International Arbitration Review (“EIAR”). The EIAR is a law review that publishes monothematic issues, since Professor Ferrari took over as its editor-in-chief in 2016. The latest issue, EIAR 7.2, is dedicated to “Soft Law in International Arbitration”. Apart from contributions by Prof. José E. Alvarez (NYU) and Prof. Franco Ferrari himself, the issue features papers by authors who are all linked to NYU and the Center, more specifically, Prof. Gary Bell (a former scholar-in-residence at the Center), Mr. Ian Ming Choo (‘18), Prof. Giuditta Cordero-Moss (a former scholar-in-residence at the Center), Prof. Diego Fernandez Arroyo (a former Global Professor of Law at NYU Paris and a two-time scholar-in-residence at the Center), Prof. Caroline Kleiner (who will join the Center as scholar-in-residence), Dr. Friedrich Rosenfeld (a Global Adjunct Professor of Law at NYU Paris, who will join NYU next year as visiting professor), and Prof. Marco Torsello (a Global Professor of Law at NYU Paris and two-time visiting professor at NYU). The table of contents of issue 7.2. can be found here.

Professor Franco Ferrari, the Center’s Director, has just published a paper in the Oslo Law Review. The paper addresses the contentious relationship between uniform substantive law conventions and private international law rules in relation to contracts of carriage. In the paper, Professor Ferrari discusses why resort to private international law has to give way to the application of uniform substantive law conventions. The paper, which was presented at a  conference that took place in Oslo in May 2018, as well as other papers presented at the conference (convened by Professor Giuditta Cordero-Moss, a former scholar-in-residence at the Center) can be found here.

U.S. domestic arbitration changed its tradition of non-neutral party-appointed arbitrators. 2004 AAA/ABA Code of Ethics for Arbitrators in Commercial Disputes (the 2004 AAA/ABA Code) [1] was a symbolic step toward the international standards which typically require impartial party-appointed arbitrators. Unfortunately, the Second Circuit’s decision, Certain Underwriting Members of Lloyds of London v. Florida, 892 F.3d 501, 510 (2d Cir. 2018), turned to the opposite direction—though in a dictum—when it stated that “[e]xpecting . . . the same level of institutional impartiality applicable to neutrals [of party-appointed arbitrators] would impair the process of self-governing dispute resolution.” The court did not even sufficiently refer to the revised impartiality standards under the 2004 AAA/ABA Code. [2] This old-fashioned approach calls for criticism. [3]U.S. federal courts must neither downplay key guidelines, including ethical rules, nor create confusion in determining “evident partiality” under the Federal Arbitration Act, 9 U.S.C. § 10(a)(2) (2012).

Facts of the Dispute                                                                           

Insurance Company of the Americas (ICA) purchased two reinsurance treaties from certain underwriters of Lloyd’s of London (the Underwriters). Each treaty contains an arbitration clause providing that “[o]ne Arbiter shall be chosen by the Reinsured [ICA], the other by the Reinsurer [the Underwriter], and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd’s London Underwriters.” [4] ICA requested coverage from the Underwriters under the treaties, but the Underwriters declined ICA’s claim. In December 2014, ICA demanded arbitration against the Underwriters. Pursuant to the arbitration clause, ICA appointed Alex Campos as its designated arbitrator. At an organizational meeting among the umpire and two party-appointed arbitrators on May 11, 2015, Campos disclaimed any appreciable link to ICA. [5] On October 19, 2015, the arbitration panel issued an award granting ICA’s claim in its entirety.

Campos did not make additional disclosures during the arbitration. However, there were undisclosed dealings between ICA and a human resources firm named Vensure Employee Services (Vensure) of which Campos was the president and CEO. Specifically, ICA and Vensure operated out of the same suite in a business park in Mesa, Arizona. A former director of ICA, John Iorillo, was the CFO of a firm that provided consulting services to Vensure. A director of ICA, Ricardo Rios, was hired as the CFO of Vensure in the summer of 2015. Rios testified as a witness at the arbitration, and Iorillo’s name was mentioned repeatedly.

The Underwriters moved to vacate the award in the District Court for the Southern District of New York. The court granted the motion to vacate on the ground that Campos’s conduct demonstrated evident partiality, rejecting ICA’s contention that evident partiality standards either do not apply or are even more relaxed in the case of party-appointed arbitrators in tripartite industry arbitrations.

Sister Circuit Decisions and the Development of Impartiality Standards

On appeal, the Second Circuit declared that the FAA imposes a heightened burden of proving evident partiality in cases in which the allegedly biased arbitrator was party-appointed. After making a questionable general remark that “party-appointed arbitrators . . . are expected to serve as de facto advocates,” the Second Circuit noted that other sister circuits “distinguish between party-appointed and neutral arbitrators in considering evident partiality,” and “this distinction is salient in the reinsurance industry, where an arbitrator’s professional acuity is valued over stringent impartiality.” [6]

Since the Lloyds court cited sister circuit cases involving two non-reinsurance arbitrations, [7] the court is possibly of the view that the distinction between party-appointed and neutral arbitrators in considering evident partiality has broad application beyond the reinsurance industry. Both cases, however, do not support this distinction. This is especially true of the Eleventh Circuit’s decision, Sunkist Soft Drinks, which is even outdated. First, a former version of AAA rules bound the parties in Sunkist Soft Drinks, and the court referred to the Canon VII of the 1977 AAA/ABA Code. [8] Second, the AAA Commercial Arbitration Rules changed the presumption of party-appointed arbitrators’ neutrality in 2003. [9] Third, Canon IX of the revised 2004 AAA/ABA Code stipulates that “all three arbitrators are presumed to be neutral and are expected to observe the same standards as the third arbitrator.” [10] In view of all these differences, under the current rules, it is unlikely that the Eleventh Circuit will maintain its logic in Sunkist Soft Drinks regarding the distinction. Thus, Sunkist Soft Drinks is not a good authority to support the Second Circuit’s contention. [11]

Does the Qualification Clause of Three Disinterested Arbitrators Expect a Non-Neutral Party-Appointed Arbitrator?

The Second Circuit introduced a view that “[p]arties are free to choose for themselves to what lengths they will go in quest of impartiality [of arbitrators].” [12] This view dominates in the U.S. [13] Since ICA and the Underwriters did not agree on rules that apply to the matter of impartiality, [14] the key issue of the Lloyds case should have been whether the parties still intended to appoint non-neutral party-appointed arbitrators despite agreeing to a contractual qualification clause directing the appointment of three disinterested arbitrators. The Lloyds court, however, did not address this issue properly in two ways. First, as mentioned, the court attempted to base its conclusion on the historical notion of non-neutral party-appointed arbitrators, misapplying the sister circuit decisions. Second, the court did not fully articulate the meaning of disinterestedness.

As to the latter, the Second Circuit could have made a better effort to clarify the decision. In interpreting the agreement between the litigants, the Lloyds court referred to Paragraph 2.3 of ARIAS-U.S. Practical Guide to Reinsurance Arbitration Procedure (ARIAS-U.S. Practical Guide) (2004) with a focus on a portion that states “[t]he parties and Panel should interpret arbitration clauses requiring ‘disinterested’ arbitrators to mean that arbitrators may have no financial interest in the arbitration outcome and are not under any party’s control.” [15] The court, however, did not cite further parts of the Guide. To tackle the key issue, the court could have referred to Comment A on Paragraph 2.3 of the Guide which presumed that “[a]bsent specific contractual language to the contrary, it is generally understood in the industry that party-appointed arbitrators can be initially predisposed,” since this portion supports the court’s conclusion in the context of U.S.-seated arbitrations in the reinsurance industry. Certainly, as this presumption contradicts the position of the 2004 AAA/ABA Code, one expects the court to explain that referring to industry specific guidelines [16] is more proper than referring to the 2004 AAA/ABA Code. [17] In the Lloyds decision, however, an analysis of the relationship between ARIAS-U.S. Practical Guide and the 2004 AAA/ABA Code is missing. This makes the basis of the Second Circuit’s decision less stable. [18]

Prospects and Takeaways

In its 1984 Morelite decision, the Second Circuit took the standard of whether “a reasonable person would have to conclude that the arbitrator [is] partial.”  [19] The Lloyds court, however, did not apply the Morelite standard to party-appointed arbitrators’ evident partiality. Instead, the court required heightened burden of proof. [20] While the court remanded the case, it did not articulate how the standard was heightened. The court “decline[d] to catalogue all ‘material relationship[s]’ that may bear upon the service of a party-appointed arbitrator,” and enunciated only two “baseline limits” to which a party-appointed arbitrator is subject—disinterestedness and prejudicial impact on the award. [21]Thus, even if parties agreed on party-appointed arbitrators’ non-neutrality, one cannot accurately predict how the Second Circuit will decide evident partiality in future cases.

Conversely, the following two observations are relatively definite. First, it is unlikely that the Lloyds court’s reasoning for characterizing party-appointed arbitrators’ evident partiality standards will extend to non-reinsurance industry arbitrations. Second, courts will not look to the Lloyds decision in determining the matter of arbitrators’ impartiality when parties agree on rules that govern the matter, e.g., the international or domestic arbitration rules of ICC, LCIA, AAA (including ICDR), JAMS, and CPR. [22]

In a broader context, the evident partiality standards involve greater uncertainty. As the U.S. Supreme Court has neither tackled evident partiality since Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 147–50 (1968) nor settled the standards for evident partiality, the federal circuits vary on this issue. [23] The Lloyds decision addressed evident partiality standards based on both statutory interpretation (by referring to the historical notion of non-neutral party-appointed arbitrators and sister circuit decisions) and contractual interpretation (by introducing the view that parties can waive arbitrator’s impartiality to some extent [24]). This structure of the decision prompts questions on what legal sources and standards must be considered in determining evident partiality, whether the parties intended to waive impartiality, and how these standards must be applied. As the Second Circuit took into account ARIAS-U.S. Practical Guide in interpreting an agreement, it is worth studying why courts refer to such guidelines despite their non-binding status [25] and examining how agreeing on arbitrators’ partiality deviates from multiple norms. [26]

Kei Kajiwara

Kei Kajiwara is an LLM Candidate, Hauser Global Scholar and Starr Foundation Global Law School Scholar in the International Business Regulation, Litigation and Arbitration Program at NYU School of Law. He earned his JD cum laude in 2012 from the University of Tokyo School of Law, after which he practiced law in the dispute resolution group of Nagashima Ohno & Tsunematsu in Tokyo.

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[1] The 2004 AAA/ABA Code “establishes a presumption of neutrality for all arbitrators, including party-appointed arbitrators.” The 2004 AAA/ABA Code, Note on Neutrality. The 1977 AAA/ABA Code of Ethics for Arbitrators in Commercial Disputes (the “1977 AAA/ABA Code”), the former version of the 2004 AAA/ABA Code, provided that “party-appointed arbitrators should be considered nonneutrals unless both parties inform the arbitrators that all three arbitrators are to be neutral or unless the contract, the applicable arbitration rules, or any governing law requires that all three arbitrators be neutral.” The 1977 AAA/ABA Code, Canon VII, Introductory Note, X Y.B. Comm. Arb. 131.

[2] The Second Circuit noted disclosure requirements of the 2004 AAA/ABA Code. See 892 F.3d at 506 n. 2. The court, however, did not refer to the 2004 AAA/ABA Code in explaining why it took a different standard from its 1984 decision as to party-appointed arbitrators. See infra note 19.

[3] For one of the first critical analyses of this case, see John Fellas, Evident Partiality and the Party-Appointed Arbitrator, N.Y.L.J., June 28, 2018, available at https://files.hugheshubbard.com/files/Evident-Partiality-and-the-Party-Appointed-Arbitrator.pdf.

[4] Certain Underwriting Members at Lloyd’s of London v. Ins. Co. of Am., 2017 WL 5508781, at 3 (S.D.N.Y. Mar. 31, 2017) (emphasis added).

[5] At the organizational meeting, a participant mentioned “the ARIAS rules.” 2017 WL 5508781, at 10. This does not mean that the ARIAS rules or guidelines were applicable. In fact, both Lloyds courts (the district court and the Second Circuit) did not apply any of them to the case.

[6] 892 F.3d at 508, 509.

[7] Winfrey v. Simmons Foods, Inc., 495 F.3d 549, 552 (8th Cir. 2007); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 759 (11th Cir. 1993).

[8] See supra note 1.

[9] See R-12(b) of the Jan. 1, 2003 amended version and R-12 (b) of the July 1, 2003 amended version, https://www.adr.org/ArchiveRules (last visited Mar. 3, 2019).

[10] According to the district court in Lloyds, ICA purchased insurance treaties “[b]eginning in December 31, 2004” after the 2004 AAA/ABA Code became effective. See 2017 WL 5508781, at 1.

[11] In Winfrey, the other non-reinsurance case, “the parties signed an addendum to the contract that also contains no neutrality requirement for the party-appointed arbitrators.” The Winfrey court further noted that “it is industry custom that party arbitrators are frequently not required or expected to be neutral for ruling on disputes.” 495 F.3d at 552 (involving poultry growers and a food company as disputing parties). Considering both parties’ agreement in the case and the specific industry custom, Winfrey does not support the Lloyds decision’s reasoning either.

[12] See 892 F.3d at 508 (citing Sphere Drake Ins. v. All American Life Ins., 307 F.3d 617, 620 (7th Cir. 2002)).

[13] Institutional rules support this position. See, e.g., 2013 AAA Commercial Arbitration Rules, Rule 13(b); the 2004 AAA/ABA Code, Note on Neutrality, Canon IX. For comments on this position’s rationale and other treatments in foreign jurisdictions, see Gary B. Born, International Commercial Arbitration 1805–07, 1815–18 (2d ed. 2014).

[14] In addition to 2013 AAA Commercial Arbitration Rules and the 2004 AAA/ABA Code, see, e.g., ICDR International Arbitration Rules, Article 13(1) (2014); ICC Arbitration Rules, Article 11(1) (2017); LCIA Arbitration Rules, Article 5.3 (2014); CPR Rules for Administered International Disputes, Rule 7.1 (2019); JAMS Comprehensive Arbitration Rules and Procedures, Rule 7(c) (2014); CPR Administered Arbitration Rules, Rule 7.1 (2019); and ARIAS-U.S. Rules for the Resolution of U.S. Insurance and Reinsurance Disputes, Rules 2.3, 2.4, and 6.1 (2014).

[15] The Lloyds court cites Trustmark Ins. Co. v. John Hancock Life Ins. Co., 631 F.3d 869, 872–73 (7th Cir. 2011), in which the Seventh Circuit also referred to Paragraph 2.3 of ARIAS-U.S. Practical Guide to support its contractual interpretation. See 892 F.3d at 510.

[16] Considering developments after the Lloyds case as well, currently, industry-specific guidelines that support the Lloyds court’s conclusion include ARIAS-U.S. Code of Conduct, Canon II, Comments (2017) (stating that “party-appointed arbitrators may be initially predisposed toward the position of the party who appointed them (unless prohibited by the contract)”); and ARIAS-U.S. Neutral Selection Procedure (intending to “minimize the level of perceived bias inherent in utilizing party-appointed arbitrators”), https://www.arias-us.org/arias-us-dispute-resolution-process/practical-guide/neutral-selection/ (last visited Mar. 3, 2019).

[17] In this regard, Barry R. Ostrager & Mary Kay Vyskocil, Modern Reinsurance Law and Practice 538 (3d ed. 2014), one of the most influential authorities, concludes that, in the reinsurance industry, despite the 2004 AAA/ABA Code, party-appointed arbitrators are not required to be completely neutral (i.e., they can be predisposed to the positions of the parties who appointed them) unless otherwise agreed. A possible explanation for this view is that industry-specific guidelines are more tailored to parties’ specific situation. Ostrager & Vyskocil, however, refers to Comment to Canon 1 of the 2004 AAA/ABA Code on this point. See id. The Comment itself does not directly support their view, since the Comment only allows arbitrators to have views on certain general issues. That arbitrators have views on certain general issues does not mean they can be predisposed. The 2004 AAA/ABA Code prohibits party-appointed arbitrators to be predisposed unless they are excused by Canon X. See the 2004 AAA/ABA Code, Canon IX B.

[18] In Lloyds, as Fellas supra note 3, at 1 pointed out, the litigants might not have emphasized the 2004 AAA/ABA Code. Even in the insurance industry, some courts take into account the 2004 AAA/ABA Code. Borst v. Allstate Ins. Co., 291 Wis. 2d 361, 375 (2006), held, in a dictum, that the court “adopt[s] a presumption of impartiality among all arbitrators, whether named by the parties or not” under a state statute, explaining that its view is in line with the 2004 AAA/ABA Code.

[19] Morelite Const. Corp. v. New York City Dist. Council Carpenters Ben. Funds, 748 F.2d 79, 84 (2d Cir. 1984).

[20] The Second Circuit noted that “the district court’s sound findings on Campos’s improprieties are substantial under the traditional Morelite test.” 892 F.3d at 509.

[21] See 892 F.3d at 510–11. The Lloyds court explains that “disinterestedness” would be breached if the party-appointed arbitrator had a financial or personal interest in the outcome. This statement is based on a minimum consensus of disinterestedness according to ARIAS-U.S. Practical Guide, Paragraph 2.3. “Prejudicial impact on the award” is a signpost that, according to the Eighth Circuit, leads to a vacatur even in a case in which parties’ agreement authorized the selection of a party-appointed arbitrator who is “an officer, employee or shareholder of, attorney or auditor to, or otherwise interested in, either of the Parties or the matter to be arbitrated.” Delta Mine Holding v. AFC Coal Properties, 280 F.3d 815, 817, 821–22 (8th Cir. 2001).

[22] See supra note 14. Parties may also agree that guidelines, such as the 2004 AAA/ABA Code and ARIAS-U.S. Practical Guide, govern the matter. In a hypothetical scenario in which parties submit their case to AAA under 2013 AAA Commercial Arbitration Rules while they agree on ARIAS-U.S. Rules for the Resolution of U.S. Insurance and Reinsurance Disputes or ARIAS-U.S. Practical Guide, one might question whether there is a specific agreement regarding party-appointed arbitrators’ non-neutrality that overrides the AAA rules’ neutrality presumption. Especially, if a party raises an objection under Rule 18(c) to a party-appointed arbitrator’s qualification during such proceedings, it is hard to imagine that AAA disregards its own rules’ neutrality presumption under Rule 18(a) or Cannon IX of the 2004 AAA/ABA Code in ruling on the objection.

[23] See Born supra note 13, at 1768.

[24] See supra note 12.

[25] A plurality in Commonwealth Coatings Corp., 393 U.S. at 149, described non-governing AAA’s rules regarding arbitrators’ qualification and disclosure as “highly significant.” Referring to this plurality opinion, some courts look to the 2004 AAA/ABA Code in formulating an evident partiality standard that applies to a case. See, e.g., New Regency Prods., Inc. v. Nippon Herald Films, Inc., 501 F.3d 1101, 1109–10 (9th Cir. 2007); Positive Software Solutions, Inc. v. New Century Mortg. Corp., 436 F.3d 495, 503 (5th Cir. 2006), rev’d en banc, 476 F.3d 278 (5th Cir. 2007). These decisions appear to think that the 2004 AAA/ABA Code is relevant to statutory interpretation of the §10(a)(2) of the FAA as opposed to contractual interpretation.

[26] In the context of international arbitration, commentators discuss various legal instruments. One of them relates to arbitrators’ inherent powers, which may include “those necessary to ensure independent and impartial adjudication.” See Andrea K. Bjorklund & Jonathan Brosseau, Sources of Inherent Powers, in Inherent Powers of Arbitrators 1, 3 (Franco Ferrari & Friedrich Rosenfeld eds., 2018). Another publication comments on ethical rules, namely, the New York Rules of Professional Conduct and the 2004 AAA/ABA Code, in studying issues related to parties’ advance waivers of potential conflicts of interest, including standards of impartiality. See International Commercial Disputes Committee (Joseph E. Neuhaus, Chair), Advance Waivers of Arbitrator Conflicts of Interest in International Commercial Arbitrations Seated in New York, 27 Am. Rev. Int’l Arb. 21, 27–28, 34–35 (2016).

On 16 March 2019, the Center for Transnational Litigation, Arbitration, and Commercial Law alongside NYU’s International Arbitration Association will host the 8th Annual NYU Vis Practice Moot.

The 8th Annual Vis Practice Moot will welcome 12 teams from selected law schools from the United States and Europe as well as many distinguished professionals and academics, who agreed to act as arbitrators, including Professor Franco Ferrari, the Center’s Director.

The Practice Moot rounds aim to provide a helpful forum for the Willem C. Vis International Commercial Arbitration Moot participants to practice their oral advocacy skills by pleading before, and receiving constructive feedback from, panels of experienced arbitrators from all around the world. The Practice Moot also enables the participating teams to meet and have a chance to plead against each other before the rounds in Hong Kong and Vienna, where more than 3000 students from about 370 law schools from around the world will compete.

The Center will once again host Italian Supreme Court Justice Francesco Cortesi, a two-time scholar-in-residence at the Center, for this coming week. Justice Cortesi, who graduated in 1994 cum laude from Bologna University School of Law, and specialized in international commercial law at Tilburg University School of Law (Netherlands) under the supervision of Professor Franco Ferrari, the Center’s Director’s who at the time was professor at Tilburg University, was appointed Judge at Court of Bologna in 1999. In 2001, he was assigned to the Court of Rimini, where he mainly dealt with disputes regarding contracts, consumer law issues and professional malpractice torts. In 2007, he moved to the Court of Forlì, where he was able to focus on those very same areas of law. During his tenure there, he also rendered some of the most relevant decisions concerning the United Nations Convention on Contracts for the International Sales of Goods, many of which have been translated into various languages, including English. In 2006, Justice Cortesi was appointed to the Government Committee for the revision of the Italian Civil Code. In January 2016, Justice Cortesi was appointed to the Italian Supreme Court, thus becoming one of the two youngest justices ever appointed to the Italian Supreme Court. Over the years, Justice Cortesi has been lecturing at the Bologna University School of Law mainly on “Commerce and the law of consumers” and “Methodology of law”.