The Center will host the March 2015 session of the Arbitration Forum, entitled “Public Purpose in International Law: Rethinking Regulatory Sovereignty in the Global Era.” The event will take place on Monday, March 23^rd, 2015, from 6.00 – 8.00 pm, in the Lester Pollack Colloquium Room, Furman Hall 900 (245 Sullivan Street, New York, NY 10012).

The event will be moderated by the Center’s Executive Director, Franco Ferrari. Our distinguished speakers include Jack Coe, Jr., Faculty Director of Pepperdine’s LL.M in International Commercial Arbitration; Harold Hongju Koh,  Sterling Professor of International Law at Yale Law School; Pedro J. Martinez-Fraga, partner in Bryan Cave LLP’s International Arbitration and Litigation Practice Group; and C. Ryan Reetz, co-founder and office managing partner of the Miami, Florida office of Bryan Cave LLP.

On that occasion, the book just published by Cambridge University Press, co-authored by Mr. Pedro Martinez-Fraga and Mr. Ryan Reetz, with the same title will be discussed.

Since seating is limited, please rsvp by March 20th, 2015, by sending an email to cassy.rodriguez@nyu.edu.

Please note that the session will be videotaped.

Professor Linda Silberman has been selected as one of the Advisers on the American Law Institute’s recently launched project for The Restatement of the Law (Third) Conflict of Laws. The Chief Reporter for the project is Kermit Roosevelt (University of Pennsylvania).The Associate Reporters are Laura Little (Temple School of Law) and Christopher Whytock (UCLA).

The Center will host the February 2015 session of the Arbitration Forum, entitled “Iura novit arbiter” on Monday, February 23, 2015 from 6:00-8:00 p.m. in the Lester Pollack Colloquium Room, Furman Hall 900 (245 Sullivan Street, New York, NY 10012).

The event will be moderated by the Center’s Executive Director, Franco Ferrari. Our distinguished speakers include Mr. Christian Leathley, partner in the international arbitration group of Herbert Smith Freehills LLP; Mr. Christian P. Alberti, AVP/Director of the International Centre for Dispute Resolution (ICDR), the international division of the American Arbitration Association (AAA); and Mr. John Fellas, partner in the New York office of Hughes Hubbard & Reed LLP,  and co-chair of the Arbitration Practice and co-chair of the International Practice of that firm.

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

I. Introduction 

In 2005, the U.S. Congress adopted the Bankruptcy Abuse Prevention and Consumer Protection Act, which, among other things, incorporated an effective protection for sellers of goods when a bankrupt buyer received them without paying[1]. Less than 10 years after, two recent decisions of the United States Bankruptcy Court for the Eastern District of Pennsylvania made this protection less effective when the sale is governed by the UN Convention on the International Sale of Goods (hereafter the « CISG »)[2].

In the present paper, we will first expose the general context of the litigation (I), then discuss the interpretation of this protection in US case law (II). We will after explain why the CISG applies in the cases at hand (III). Finally, we will expose why the Court went wrong in its interpretation of the CISG (IV).

II. Legal and factual framework

The effective protection incorporated under section 503(b)(9) of the Bankruptcy Code states that the unpaid seller of a bankrupt buyer should be allowed administrative expenses[3] amounting the value of the goods. The Bankruptcy Code provides two conditions for this provision to apply. On the one hand, the transaction must occur within the ordinary course of debtor’s business. On the other hand, there is a strict time limit: the debtor shall have received the goods less than 20 days before going bankrupt.

The facts under which the discussed decisions arose are common and straightforward. Chinese sellers sent goods to an American buyer[4]. The goods were shipped FOB from different Chinese harbors more than 20 days before the bankruptcy proceeding began but arrived in the United States less than 20 days before. The core issue was to determine when the goods where received in the meaning of section 503(b)(9), in order to determine the starting point of the 20 days period.

 III. The interpretation of « received» under article 2 of the U.C.C.

The term « received » is not defined in section 503(b)(9) neither in the US Bankruptcy Code itself[5], and courts agree that the definition must be found in article 2 of the Uniform Code of Commerce (the « UCC »)[6]. This statute defines the « receipt of goods » as « taking physical possession of them »[7]. Despite the express reference to physical possession in the UCC, courts stated that possession could also be constructive[8].

It is worth noting that this definition is a uniform federal interpretation. Indeed, referring to a state interpretation of section 503(b)(9) would be impracticable in the context of large bankruptcies, given that the bankruptcy judge would have to look to the conflict of law rules of each interested state to determine the law applicable to the claim, then would define the word « received » in that law and finally apply this definition to the claim at hand[9].

IV. A different definition when the CISG governs the sale of goods: two decisions of the United States Bankruptcy Court for the Eastern District of Pennsylvania

Despite this uniform interpretation, the US Bankruptcy Court for the Eastern District of Pennsylvania decided that the CISG shall provide the definition of the word « received » when this Convention governs the sale of goods[10]. Even if the Court went fast on this point, we will present the exhaustive analysis of the application criteria of the CISG.

In fact, five conditions have to be met for the CISG to apply. First, the contract shall be a sale of goods. Even if the CISG itself does not define what a sale of goods is, case law has defined this notion by interpreting articles 30 and 53: « a sales contract is a contract by which the seller is obliged to deliver goods, transfer the property in the goods and eventually hand over all the documents relating to the goods, while the buyer is obliged to pay the price and take delivery of the goods[11]. » Secondly, the object of the contract shall be tangible and movable goods[12]. Thirdly, the contract shall be international, which means, under article 1(1) of the CISG, that the parties have their places of business in different states. Fourthly, an additional applicability criteria requires that the states in which the parties have their places of business are signatories of the CISG[13] or that the international private law rules of the forum lead to the application of the law of a contracting state of the CISG[14]. Finally, the parties shall not have agreed to exclude the CISG[15].

In the cases at hand, no doubt exists on the application of the CISG. There are sales of goods between parties having their places of business in different countries. Both China and the US are signatories to the CISG, and the parties did not exclude it.

V. The definition of the « receipt of goods» shall be based on the CISG, but not following the reasoning adopted by the Court

As the CISG applies, the Court was correct when stating that this Convention displaces the traditional definition found in the UCC (a), but erred in its interpretation of the CISG, mixing the interpretation of the Convention itself with the interpretation of parties’ intention (b). And since the parties did not modify the CISG provisions on the receipt of goods, the general principles of the CISG provide the definition of « receipt of goods » (c).

a. Interpretation of receipt of goods under the CISG: a case of first impression

As the CISG is the applicable law, the Court noted that it displaces the UCC[16]. Therefore, it displaces the interpretation of the « receipt of goods » as stated under article 2 of the UCC, only if this concept falls within the scope of the Convention. As article 4 of the CISG does not exclude the « receipt of goods » from the scope of the Convention, the above-mentioned case law based on article 2 of the UCC shall be disregarded. The interpretation of « receipt of goods » under the CISG is a case of first impression[17].

b. The Court baldy interpreted the CISG

This word « receipt » is not defined in the CISG[18], so that the Court shall interpret this Convention to determine the meaning of this concept. The reasoning of the Court on how to interpret the CISG is unfortunately very short and confusing. The Court decided first to rely on the gap-filling analysis under article 7(2), which requires interpreting the text of the CISG in accordance with the general principles on which it is based. Then, without any explanation of the relationship between both articles, the Court referred to article 9(2) of the Convention, which deals with the implicit application of international trade practice. On such basis, the Court held that the parties have impliedly made the Incoterms FOB applicable and that, under the Incoterms provisions on transfer of risks, the receipt was concomitant to the delivery by the seller, which occurred when the risks were transferred[19].

This reasoning mixes the interpretation of the CISG itself, governed by article 7, with the interpretation of parties’ agreement, provided in articles 8 and 9. The interpretation of the CISG itself, as opposed to the interpretation of the contractual framework, is convincing when the parties did not agree to derogate from CISG’s default provisions. On the contrary, when, under article 6 of the CISG, the parties derogated from the Convention, their intention shall be interpreted. Seeing the inconsistent provisions invoked by the Court, the question is whether the Incoterms provide a definition of « receipt of the goods », so that the court wrongly referred to article 7(2), or whether the Incoterms are not dealing with the receipt of the goods, so that the court correctly referred to article 7(2) but should have analyzed the general principles surrounding the CISG. In our opinion, the answer is the latter.

c. The parties did not modify the CISG provisions on the receipt of the goods

In the present case, the Court considered that the FOB term provided a contractual definition of the « receipt of goods ». The Court, in the decisions at hand, did not explain why its reasoning is limited to the transfer of risks. In the decision of 10 September 2014, plaintiffs were challenging the use, in the first decision, of the Incoterms as an interpretation tool to define the « receipt of the goods ». The Court refused to revise its position, stating first that there is « no reason to look outside the Incoterms for a definition of « receipt[20] » », given that the seller delivers the goods when they are placed on board of the vessel, and that this event is concomitant to the receipt of the goods by the buyer. Secondly, it refused to consider that the Incoterms make a distinction between delivery and receipt of goods[21].

This focus on transfer of risk is absolutely not convincing. Indeed, the definition of « receipt of goods » is not univocal, but can revert to different moments: when the risk of loss passes, when the title passes or when a party takes possession of the goods[22]. Therefore, the Court shall first determine the definition of « receipt of goods » under the CISG. Then, if this definition reverts to a provision superseded by the Incoterms, such as article 67(1) of the CISG on the transfer of risks[23], the Court shall apply trade terms.

d. General principles of the CISG concerning the receipt of goods

Article 7(2) helps to fulfill internal gaps, by referring to general principles and, in absence of such principles, by referring to the rules of private international law of the applicable law[24]. Concerning the « receipt of goods », a general principle can be deducted from different provisions of the CISG, which distinguishes this concept from the transfer of risks and reverts to possession by the buyer.

First, article 38 deals with the examination of the goods by the buyer. The receipt of goods is very important in this context, as it fixes the point in time from which the « short period » to examine the goods runs[25]. For contracts involving the carriage of goods, article 38 states that the examination can only occur when the goods arrive at destination. When trade terms such as FOB are used, delivery occurs when the goods are transferred to the first carrier. At this time, it is impossible, or at least unreasonable, that the buyer examines the goods. Therefore, article 38(2) provides that such examination can only be performed when the goods are at destination[26]. Thus, the CISG makes a distinction between the delivery by the seller, which occurs when the goods are handled over to the first carrier, and the reception by the buyer, which occurs when the goods are at destination. In the present cases, the former reverts to transfer of risks, governed by the Incoterms. The latter concerns receipt of goods, which occurs when the buyer takes possession of them.

In the same way, article 58 states that, unless otherwise agreed, the buyer must pay the price when the seller places the goods, or documents controlling their disposition, « at the disposal » of the buyer[27]. The threshold question to determine disposal of the goods is « the right to possession of the goods[28] ». When a sale of goods involves a carriage, the disposal takes place when the goods are at the place of destination, i.e. when the carrier passes the goods to the buyer[29]. This reverts to the possession of the goods by the buyer. This focus on possession has been confirmed by the CISG Advisory Council in its opinion no. 11, which stated, in analyzing which documents constitute a constructive possession, that the buyer may not be left in the position of having to pay for goods when the right to possession can still be transferred[30].

Hence, it arises out of these articles that the CISG distinguishes the transfer of risk from the receipt of goods by the buyer. And definition of « receipt of goods » reverts to the possession of the goods by the buyer. As the Incoterms deal with transfer of risks, the agreement of the parties does not change this definition in the present case. Concretely, this means that the American buyer received the goods when they arrived in the US harbor, and the Chinese sellers are entitled to an administrative expense.

VI. Conclusion

Two principles govern the interpretation of article 503(b)(9) of the US Bankruptcy Code in the context of an international sale of goods under the CISG. First, the CISG provides the definition of the word « received », dismissing the uniform federal interpretation found in article 2 of the UCC.  Secondly, the general principles surrounding the CISG distinguish the receipt from the transfer of risks, and state that the receipt occurs when the buyer takes possession of the goods.

Concerning the first principle, one may regret that this conclusion sounds the death knell of uniform federal interpretation of section 503(b)(9). However, from a practical perspective, the unmanageable burden of various states’ definitions, which was the rationale for uniformity, is not relevant, as every case governed by the CISG will use the same interpretation, unless the parties otherwise agree.

On the second one, the proposed solution reconciliates the CISG with US law. Indeed, shortly after the issue of the commented decisions, some law firms advised, among other tools, to exclude the CISG when contracting with a US buyer, in order to enjoy the broader protection of article 503(b)(b) interpreted under article 2 of the UCC[31]. If US courts adopt the interpretation proposed in this paper, the CISG will continue to be an interesting legal framework for international sales of goods when the buyer is American.

 

Alexandre Hublet

The author is a Class of 2015 LL.M student in the International Business Regulation, Litigation and Arbitration program at the New York University School of Law. He obtained his law degree at the Université libre de Bruxelles (ULB) in 2012, after which he took the oath at the Brussels’ bar and worked for two years in a major Belgian law firm. In the mean time, he collaborated with the Perelman Center for Legal Philosophy at the ULB, focusing his research on global justice.

____________________________

[1] See section 503(b)(9) of the US Bankruptcy Code; In re Momenta, Inc., 455 B.R. 353 (2011)

[2] In re World Imps., Ltd., 511 B.R. 738 (18 June 2014) and In re World Imps., 2014 Bankr. LEXIS 3858 (10 September 2014)

[3] An administrative claim is « a first priority claim that is much more likely than a general unsecured claim to be paid in full or substantially in full upon any distribution to creditors. » See Michael A. Tessitore, The U.N. Convention on International Sales and the Seller’s Ineffective Right of Reclamation Under the U.S. Bankruptcy Code, 35 Willamette L. Rev. 367 (1999), p. 383

[4] In fact each case concerns two Chinese exporters. In the June 18’s case, one exporter sent all the goods to the buyer, the second one sent a part directly to the buyer’s consumers, the other to the buyer. As the Court dismissed the case because of the 20 days limitation, it made no distinction between the goods sent to the buyer and the goods sent to the consumers. In the September 10’s case, one of the exporter sent all the goods directly to the buyer’s consumers. The other exporter sent a part of the goods directly to the buyer’s consumers, the other to the buyer. The Court dismissed the claim of the first corporation because the buyer never received the goods. The goods sent directly to the buyer were shipped less than 20 days before the bankruptcy, so that there was no time issue. However, the Chinese exporters contested the reasoning of the June 18’s case, but the court affirmed its position. See In re World Imps., Ltd., op. cit. (18 June 2014) and In re World Imps., op. cit. (10 September 2014)

[5] In re Wezbra, 455 B.R. 493 (2013), p. 770; In re Momenta, Inc., 455 B.R. 353 (2011), at 358

[6] In re Circuit City Stores, Inc., 432 B.R. 225, 228 (Bankr.E.D.Va.2010), at 228 ; In re Momenta, Inc., op. cit.. ; In re Wezbra, op. cit., p. 770-771

[7] Even if both statutes do not use the same wording, Courts consider both expressions as functional equivalent (see In re Circuit City Stores Inc., op. cit., at 229)

[8] The detailed reasoning can be found in In Re Momenta, op. cit., at 361; see also In re Wezbra, op. cit., p. 771

[9] In re Circuit City Stores Inc., op. cit., at 228

[10] In re World Imps., Ltd., op. cit. (18 June 2014), p.6

[11] Tribunale di Forli, 11 December 2008 at 2.2, available at http://cisgw3.law.pace.edu/cases/081211i3.html

[12] Tribunale di Forli, op. cit., at 2.3. The present cases do not mention the type of goods involved. As the issue is not raised, we will assume these are tangible and movable goods.

[13] Art. 1(1)(a) of the CISG

[14] Art. 1(1)(b) of the CISG; please note that both United States and China made a reservation under article 95 of the CISG not to be bound by article 1(1)(b)

[15] Art. 6 of the CISG

[16] In re World Imps., op. cit. (18 June 2014), p. 6

[17] In re World Imps., op. cit. (18 June 2014), p. 6

[18] In re World Imps., op. cit. (18 June 2014), p. 6

[19] In re World Imps., op. cit. (18 June 2014), pp. 6-8

[20] In re World Imps., op. cit. (10 September 2014), pp. 6

[21] In re World Imps., op. cit. (10 September 2014), pp. 5-7

[22] In re momenta, op. cit., at. 358

[23] J. CUOTZEE, The interplay between Incoterms © and the CISG, Journal of Law & Commerce, Vol 23, No. 1 (2013), p. 12

[24] H. MATHER,Choice of Law for International Sales Issues not Resolved by the CISG, 20 Journal of Law and Commerce 155 (2001), pp 156-158

[25] P. SCHLECHTRIEM & I. SCHWENZER, Commentary on the UN Convention on the International Sale of Goods (CISG), third edition, Oxford, 2010, pp. 607 et s.

[26] Id., p. 618

[27] See art. 58 of the CISG

[28] CISG Advisory Council Opinion, no. 11, at 5.3, available at http://www.cisg.law.pace.edu/cisg/CISG-AC-op11.html

[29] P. SCHLECHTRIEM & I. SCHWENZER, op. cit., pp. 847-848

[30] CISG Advisory Council Opinion, no. 11, op. cit., at 5.3

[31] See Gibson Dunn, International Shipments Deemed “Received” by Debtor When Delivered to Common Carrier “FOB Port of Origin” – Rather Than Physically Received – for Purposes of Granting an Administrative Expense Claim Under Section 503(B)(9) of the Bankruptcy Code, Aug. 18 2014 available at http://www.gibsondunn.com/publications/pages/International-Shipments-Deemed-Received-by-Debtor-When-Delivered-to-Common%20Carrier-FOB-Port-of-Origin.aspx; Montgomery McCracken, Bankruptcy and Commercial Transactions with Foreign Entities: What Law Governs?, July 8, 2014, available at http://www.mmwr.com/home/news-and-publications/alerts-and-resources/default.aspx?d=5826

I. Introduction

This paper considers the English Courts’ approach to the following hypothetical: All traditional connecting factors point to a foreign jurisdiction being the most natural place to hear a dispute but, that notwithstanding, the forum court ultimately decides the foreign jurisdiction is an unacceptable place to litigate and accepts jurisdiction in the interests of justice, i.e., it is a “forum of necessity” in its purest form.

International practitioners and academics have widely debated the “forum of necessity” concept and reached little consensus beyond recognizing the need for a doctrine simultaneously consistent with “comity” and “justice”; two fundamental (and generally uncontroversial) international dispute resolution doctrines.[1]  It has also provoked a range of judicial approaches.  While the Canadian Court of Appeal, for example, recently revisited the doctrine and continued its recognition of the theoretical possibility that a court may assume jurisdiction over a claim with no “real and substantial” connection with the forum,[2] other countries have reached different conclusions, requiring at least some connecting factor to the forum.[3]

Unlike many civil law jurisdictions, English courts do not directly employ the term “forum of necessity.”[4]  Instead, they consider issues such as the availability and suitability of alternative fora within the wider common law forum non conveniens doctrine.  Given the rapidly increasing number of international disputes being litigated in London, a more globalized approach to business resulting in substantive disputes arising in countries with less developed judicial traditions, and a (sadly) deteriorating worldwide security situation, jurisdiction challenges of this variety are likely to become increasingly frequent in English courts.

Given London’s status as a major international dispute resolution hub, this paper will hopefully be of interest to international practitioners generally, while offering some comparative value in respect of the English approach compared with other jurisdictions around the world.

II. The Jurisdictional Framework

The Brussels Regulation regulates jurisdiction amongst EU member states and gives primary importance to the domicile of the defendant.[5]  This restricts the application of the forum non conveniens doctrine (and thus the debate regarding “forum of necessity”) to jurisdictional disputes falling outside of the Brussels Regulation.[6]  In such cases (i.e., where the defendant is non-EU domiciled and the alternative forum is outside of the EU), the English courts retain a discretion to apply the forum non conveniens doctrine.  In Spiliada, the seminal English case on forum non conveniens, Lord Goff stated that the court has to identify the forum in which the case can be most suitably tried in the interests of the parties and for the “ends of justice”.[7]

III. Categories of “Forum of Necessity” Arguments

Parties before the English courts seeking to raise “forum of necessity” arguments have seized upon the second limb of Lord Goff’s test arguing that forcing claimants to litigate in unacceptable foreign jurisdictions deprives them of justice, so they should be allowed to proceed in England (notwithstanding the lack of connecting factors).  Such arguments fall broadly into two categories: (i) where the forum is “unavailable”, i.e., unacceptable risks to personal safety or ineffective state infrastructure; and (ii) where the forum is technically “available” (under category (i)) but the court directly attacks that forum’s integrity, i.e., arguing the relevant foreign court is untrustworthy.

(i) “Unavailable” Forum:  The forum non conveniens doctrine presupposes a functioning court system exists in the alternative forum, otherwise the English court is the only available court and, de facto, the most convenient forum.  English courts have (albeit in rare cases) rejected an alternative forum, where civil administration has so broken down that no effective judicial process exists, and permitted proceedings in England, regardless of any connecting factors.  In Katanga, for example, the court ruled the Democratic Republic of Congo (the “DRC”) unavailable as civil justice had entirely broken down.[8]  In his judgment, Tomlinson J. suggested a forum is unavailable if there is an “absence of a developed infrastructure within which the rule of law can be confidently and consistently upheld” and “[t]he normal infrastructure of a State does not exist in the DRC.”[9]  The judgment demonstrates the willingness of English courts to act as “forum of necessity” in such rare cases as war, lack of infrastructure or even barbarism in the alternative forum.[10]  Such cases are arguably uncontroversial as comity and justice can be reconciled (justice is served as the action only proceeds if the English court accepts jurisdiction and comity is essentially irrelevant given such states are unlikely to have functioning judicial infrastructure, thus negating any damage such a decision might inflict on legal reciprocity). Indeed, a limited transnational consensus on how to deal with this scenario has arguably begun to develop.[11]

(ii) Attacks on the Foreign Court’s Integrity:  A far more contraversial contention is that a foreign court, whilst functioning, is little better than no court at all, due to corruption or partiality.  Such holdings unavoidably strike at the heart of judicial comity and English courts have wrestled timidly with how to justify such holdings.

Historically, English courts were reluctant to even entertain disparaging comparisons between English and foreign legal systems, upholding only extreme examples.[12]  As Lord Diplock noted in the Abidin Daver, “judicial chauvinism has been replaced by judicial comity.”[13]  However, in a section of his judgment that would be seized upon by later courts, Lord Diplock also said that a plaintiff seeking to resist a stay on these grounds must at least support his allegations with “positive and cogent evidence.”[14]  Since 2008 a raft of decisions have either upheld direct attacks on a foreign court’s integrity (and accepted jurisdiction) or at least seriously considered such challenges, signifying a dramatic changing tide in the English court’s approach. [15]  These decisions provide guidance on the current English courts’ approach to this issue.

First, English Courts (adopting Lord Diplock’s wording) will require “positive and cogent” evidence to support such allegations.  This is clear from the infamous, Deripaska v. Cherney case in 2008, in which Mr. Cherney alleged he would not receive a fair trial in Russia of his claim against Mr. Deripaska (purported to be part of Putin’s close circle of advisors and one of the richest and most influential men in Russia).[16]

Second, courts will more reluctantly accept allegations of general endemic corruption than targeted criticism specific to the case at issue.  In Deripaska, the court carefully grounded its concerns in the specific facts of the case avoiding, to some extent, overly broad dispersions about Russian courts.[17]  In Kyrgyz Mobil, the Privy Council held that in endemic corruption cases (i.e., where the system itself is criticized) comity requires extreme caution before finding that justice might not be done by a foreign court although “there is no rule that the English court . . . will not examine the question whether the foreign court or the foreign court system is corrupt or lacking in independence.  The rule is that considerations of international comity will militate against any such finding in the absence of cogent evidence.”[18]

Third, although far from clear, the “cogent evidence” test requires more than general academic studies about a jurisdiction.  While the “cogent evidence” test is easily stated, commentators criticized it as difficult to apply in all but the most extreme cases.[19]  Potentially in response to such criticisms, the court in Ferrexpo, sought to clarify the “cogent evidence” concept.[20]  It rejected Transparency International studies and press articles, noting that while they indicated general concerns about Ukraine’s judicial system “[l]ooking at the material as a whole, it is too fragmentary, too vague and often too unreliable in its nature to justify such a conclusion.”[21]  Ferrexpo, thus made clear that general disparaging studies are not sufficient and evidence must be “sufficiently detailed and focused” to justify such allegations. [22]

IV. Conclusion and Observations

English law has not expressly endorsed a “forum of necessity” doctrine but its courts have plainly demonstrated a willingness to function as such when no alternative forum exists.  Notably, in accepting jurisdiction in such cases, English courts do not require a connection to England whereas many civil law systems do.[23]  The reason for this, particularly in commercial matters, can perhaps be traced to remnants of a historical entrenched idea of the English court, as the great commercial court of the trading world, able to accept jurisdiction provided parties are willing to submit.[24]  Whatever its roots, the removal of the requirement to show a connection to the jurisdiction negates a significant barrier to true recognition of the “forum of necessity” doctrine in England which persists in those civil law countries.

Recently, English courts have been more willing to accept or at least consider accepting jurisdiction based on criticisms of a foreign forum’s integrity (provided there is “cogent evidence”).[25]  The reason for this change of approach is unclear.  Briggs and Rees suggest the enactment of the 1998 Human Rights Act, requiring English courts to address claims that a party’s human rights will not be respected by a foreign judicial system, is significant.[26]  I would submit that another factor is the recent efforts by the English legal community and judiciary to promote London as a dispute resolution hub for international commercial parties.[27]  This willingness to welcome international cases has potentially, whether directly or indirectly, resulted in a greater openness to hearing the type of challenges to the integrity of a foreign forum that were previously taboo.

It is also worth highlighting two differences in the application of the forum non conveniens doctrine in England versus the United States (the other major common law dispute resolution forum), that theoretically renders England more amenable to the “necessity” doctrine.  First, U.S. jurisprudence contains a longstanding recognition that forum non conveniens should consider the public interest and weigh it against the parties’ private interests.  For example, a judge is required to consider the long queue of cases before him when deciding to stay proceedings, essentially respecting a U.S. claimant’s wish to sue in U.S. courts above a non-U.S. claimant’s desire to invoke U.S. jurisdiction.[28]  In stark contrast, this idea was expressly rejected in England where only the parties’ private interests are relevant in the forum non conveniens test.[29]  Second, the U.S. forum non conveniens doctrine operates within a wider jurisdictional regime fundamentally concerned with the affiliations between defendant and forum and is thus geared towards protecting defendants from litigation in inconvenient forums.[30]  Incorporating a (pro-plaintiff) “forum of necessity” concept into such a defendant-oriented system is understandably contentious.[31].  However, in the arguably more neutral English law interpretation (as espoused by Lord Goff in Spiliada) “forum of necessity” receives a more hospitable welcome.

This area will undoubtedly be subject to further development. Whatever the result, unless the English Parliament adopts statutory guidance or even a “black list” of inappropriate fora, uncertainty is an inevitable consequence of an overlap between the powers of the legislature and judiciary as this area impacts not only comity but also international policy and relations.  Indeed, a more comprehensive test than “cogent evidence”, without statutory intervention, could be deemed to further blur the lines between the separate powers.

 

Shaun Palmer

The author is a Class of 2015 LL.M. student in the International Business Regulation, Litigation and Arbitration program at the New York University School of Law. He obtained his undergraduate degree at Balliol College, Oxford University, in 2008, after which he completed his legal training in London, qualifying as a Solicitor in 2012.

 

[1] See e.g., C. Kessedjian, Synthesis of the work of the special commission of March 1998 on international jurisdiction and the effects of foreign judgments in civil and commercial matters, Hague Conference on Private International Law, Prel. Doc. No. 9, July 1998, p. 37 (To propose an agreed position in the Hague Preliminary Draft Convention on International Jurisdiction, various approaches were weighed up with no consensus reached).

[2] See, West Van Inc. v. Daisley, 2014 ONCA 232, ¶ 20 (“[a]ll jurisdictions in Canada that have recognized the forum of necessity [doctrine] have incorporated a ‘reasonableness’ test” and in Ontario, a plaintiff must establish “there is no other forum in which the plaintiff can reasonably seek relief”).  This built on the Court of Appeal’s decision in Van Breda v. Village Resorts Ltd., 2010 ONCA 84.  The Canadian Supreme Court affirmed this decision without directly addressing the “forum of necessity” doctrine but left room for its “possible application” in the future (2012 SCC 17, ¶ 100).

[3] See e.g., Art. 3 of the Swiss Federal Act on Private International Law: “When this Act does not provide for jurisdiction in Switzerland and proceedings in a foreign country are impossible, or cannot reasonably be required, the Swiss judicial or administrative authorities at the place with which the case has a sufficient connection have jurisdiction” (emphasis added); thus recognizing a codified limited application in cases where there is “sufficient connection” to the Swiss forum. In the French Courts, the forum of necessity doctrine is accepted but infrequently used (See A. Huet, Jurisclasseur Droit Civil, Art. 14 and 15, Fasc. 21 (Dec. 2001), n. 85 et seq.;presenting a detailed review of French case law on the subject).

[4] See B. Ubertazzi, “Intellectual Property Rights and Exclusive (Subject Matter) Jurisdiction: Between Private and Public International Law” (2011) 15:2 Marq Intell Prop L Rev 357 at 387-88 (Noting that Costa Rica, Estonia, Finland, Germany, Iceland, Japan, Lithuania, Luxembourg, Poland, Portugal, Romania, Russia, Spain, and Turkey expressly adopt the doctrine of “forum of necessity” either statutorily or via case law).

[5] European Council Regulation No 2201/2003 concerning jurisdiction and the recognition and enforcement of judgments (the “Brussels Regulation”). The revised Brussels Regulation (European Council Regulation No 1215/2012, “Brussels Recast”) takes effect from January 10, 2015 but the changes are not relevant to this paper.  Interestingly, the European Commission considered adding a forum necessitatis provision in the Brussels Recast (see Proposal for a Regulation of the European Parliament and of the Council on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Recast), at 3 COM (2010) 748 final (Dec. 14, 2010)) but no consensus was reached and the proposal was removed from the final version.

[6] Owusu v. Jackson and Others (Case C-281/02) [2005] QB 801 (where a member state has jurisdiction via the Brussels Regulation, English courts do not retain forum non conveniens discretion even with respect to non-member state courts).

[7] Spiliada v. Maritime Corp v. Cansulex, [1986] 1 AC 460 at 478.

[8] Alberta Inc v Katanga Mining Ltd, [2008] EWHC 2679. Tomlinson, J. in fact upheld the English court’s jurisdiction as he deemed the primary defendant domiciled in London (and hence open to suit in England under the Brussels Regulation); his comments on the suitability of the DRC as a forum were responsive to the plaintiffs’ arguments in the alternative.

[9] Id., ¶ 33.

[10] See e.g., Oppenheimer v Rosenthal [1937] 1 All ER 23 and Ellinger v Guinness Mahon & Co [1939] 4 All E.R. 16 (English courts permitted Jewish litigants to bring cases where the alternative forum was Nazi Germany).

[11] See e.g., Article 6 of the 2005 Hague Choice of Court Convention which provides an exception to recognition of choice of court agreements where proceedings before the chosen court are impossible.  T. Hartley and M. Dogauchi’s accompanying report explained the exclusion covered “exceptional” scenarios, i.e., war or non-functioning courts.  This evidences a limited consensus on the “forum of necessity” doctrine amongst the signatory states.

[12] See e.g., A/S D/S Svendborg v. Wansa [1997] 2 Lloyd’s Rep 183, 189 in which the English Court upheld its jurisdiction on the basis that the defendant openly boasted that he could manipulate the courts in Sierra Leone.

[13] The Abidin Daver, [1984] AC 398, ¶411 (the English court declined jurisdiction and rejected insinuations that the courts of Turkey were so corrupted by military pressure that they would not do justice in the case).

[14] Id. at 411.

[15] See Deripaska v Cherney [2009] EWCA Civ 849; Pacific International Sports Club Ltd v Igor Surkis and others, [2010] EWCA Civ 753; AK Investment CJSC v Kyrgyz Mobil Tel Ltd and others [2011] UKPC 7 (privy council case); Ferrexpo AG v Gilson Investments Ltd & Ors  [2012] EWHC 721 (Comm).

[16] Deripaska, ¶ 27 (“…so far as establishing that there are factors that make England an appropriate forum despite another forum being natural, one factor, that justice cannot be achieved in that natural forum, requires “cogent evidence” and the reason for that was spelt out by Lord Diplock in The Abidin Daver”).  Applying the “cogent evidence” test, the Court of Appeal concluded that, because of the unusual circumstances of this specific case, in particular, risks of: assassination in Russia, prosecution on trumped-up charges, and state interference by Russia in the judicial process, England was the most suitable jurisdiction for the interests of all the parties and the ends of justice (Id. ¶¶ 64-67).

[17] Id. ¶ 67; See also, Pacific Sports Club (it was not enough to show that there were inherent problems with the Ukrainian judicial system (it was accepted that there was general evidence of corruption and impropriety), the Court of Appeal held that the claimant had to show that he personally was unlikely to obtain justice in relation to the specific claims brought).

[18] AK Investment v. Kyrgyz Mobil, ¶101.  The Privy Council upheld the jurisdiction of the Isle of Man court noting: “There can be no doubt that Kyrgyzstan is the natural forum for claims under Kyrgyz law that the KFG Companies have been deprived of their shares in a Kyrgyz company through a conspiracy wholly or mainly carried out in Kyrgyzstan. But the fundamental point in this case is that, if there is no trial in the Isle of Man, there will be no trial anywhere.”

[19] See e.g., Briggs and Rees, Civil Jurisdiction and Judgments (5^th Edition, 2009) at 4.83 (“[T]he standards by which an English Court may make such an assessment in cases, in less extreme cases, in advance of any hearing of the foreign court are elusive . . . In truth, some such cases may be examples of a case in which the claimant, fearing that he will lose before the foreign court, seeks to cloak that irrelevant fact in allegations of unjudicial behavior by foreign judges.”)

[20] Ferrexpo, ¶ 35.

[21] Id., ¶ 96.

[22] Id., ¶ 44.

[23]  The only requirement is that the relevant defendant is served in accordance with English law; cf. fn. 3 supra.

[24]  See e.g., Unterweser Reederei G.m.b.H. v. Zapata Off-Shore Company [1968] 2 Lloyd’s L. Rep. 158. (English Court of Appeal upheld  jurisdiction on the basis of a forum selection clause over two non-English parties in a dispute concerning a breach of contract off the coast of Florida; there was no other connecting factor to England).

[25]  See e.g., Deripaska.

[26] Briggs and Rees, Civil Jurisdiction and Judgments at 4.29.

[27]  See e.g., http://www.ibanet.org/Article/Detail.aspx?ArticleUid=5dbd1c44-27d2-4568-8dfb-5a61287ac7db (“We have good Commercial and Chancery judges coupled with a sound and robust system of law. Further, there is a substantial amount of case law relating to litigation cases in England which makes it very appealing for litigants to bring cases here, even more so if the rule of law in their own countries is unpredictable or if judges are inexperienced in handling these types of cases.” (comments attributed to Katie Papworth, commercial disputes solicitor)).

[28] See Piper Aircraft v. Reyno (1981) 454 US 235 at 256.

[29] See Lubbe v. Cape Plc [2000] 1 WLR 1545, ¶ 33, holding that considerations of public interest were irrelevant to the Spiliada, forum non conveniens analysis.

[30] L. Silberman, “A Comparative Look at Judicial Jurisdiction in Transnational Cases.” 63 S.C. Law Review (2011).

[31] See e.g., Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (1984) at 416 (U.S. Supreme Court held Texas had no jurisdiction because the defendant did not have “continuous and systematic contacts” with the forum.)

Professor Ferrari, who joined NYU full-time in 2010, after serving as full professor of law at Tilburg University (the Netherlands), Bologna University (Italy) and Verona University (Italy), has just edited an article-by-article commentary on the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations, of which he is also the co-author.

As Professor Ferrari writes in the Preface to the book, parties to any transaction require predictability and legal certainty, as it is the predictability and legal certainty that allow the parties to assess the legal and economic risks involved in the transaction and, thus, allows them to decide whether to enter into the transaction at all. This need is felt even more strongly where the transaction is not a purely domestic one but is linked to more than one country. To reach the desired predictability and legal certainty in an international context, various approaches have been resorted to. The drafting of uniform rules of private international law is one such approach. It aims at guaranteeing that courts in the States where such uniform rules are in force will apply the same substantive rules no matter what court a dispute is brought before, thus reducing transactions costs by requiring a party to make provision for one law only. The Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) sets forth such a set of uniform private international law rules for (most of) the member states of the EU. The book provides students and practitioners with a concise and instructive article-by-article commentary which explains the underlying concepts and suggests solutions for problems that have arisen or may arise in the application of the Regulation.

The Federal Court of Justice of Germany cited various papers authored by Professor Franco Ferrari, the Executive Director of the Center, in a decision rendered on September 24th, 2014, concerning a dispute arising from a contract subject to the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG), which establishes a uniform international sales law that has come into force in more than 80 countries, including the United States.

The court was faced with the issue of the CISG’s applicability to a contract for goods to be manufactured and cited to paper by Professor Ferrari to justify its decision to apply the CISG. The court also had to decide whether one of the parties was entitled to terminate the contract due to opposing party’s breach. The court decided that in the case at hand the requirement for a termination did not exist, as the breach did not amount to a fundamental one, as required by Art. 25 CISG. To reach its result, the court did cite to a different paper authored by Professor Ferrari as well as to a book he co-edited.

The Center is co-hosting a two-day conference entitled “Convergence and Divergence of Investment and International Commercial Arbitration” to take place on Nov. 19^th and 20^th in Santo Domingo. During this conference, some of the foremost arbitration practitioners and scholars will look into whether there is cross-fertilization between international commercial arbitration and investment arbitration. What the speakers want to do, with the help of the audience, which will be allowed to ask questions after the various sessions, is to determine whether international commercial arbitration and investment arbitration are necessarily to be considered so different that they cannot influence each other.

 

For the conference program please click here

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

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

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

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

 I. Introduction

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

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

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

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

II. Ratification and approval process

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

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

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

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

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

III. Monism or Dualism?

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

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

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

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

IV. The Brazilian Supreme Court Position

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

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

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

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

V.  Conclusion

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

 

Rafael F. Alves

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

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

Ligia Espolaor Veronese

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

The Center will host the October 2014 session of the Arbitration Forum, entitled: “Mobility of Judgments in the EU: Reality, or just a Dream?” with Professor Bettina Heiderhoff and Professor Franco Ferrari.

The event will be held on Monday, October 27, 2014, from 6:00-8:00 p.m.  in the Lester Pollack Colloquium Room, Furman Hall 900 (245 Sullivan Street, New York, NY 10012).

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

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

 

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

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

The Center will host this academic year’s first session of the Arbitration Forum, entitled: The Foreign State in International Civil Litigation before National Courts on Monday, September 22, 2014 from 6:00-8:00 p.m.  in the Lester Pollack Colloquium Room, Furman Hall 900 (245 Sullivan Street, New York, NY 10012).

The event will be moderated by the center’s Executive Director, Franco Ferrari. Our distinguished speakers include Campbell McLachlan, Professor of International Law at Victoria University of Wellington, Linda J. Silberman, Martin Lipton Professor of Law at New York University and Co-Director of the Center and Harold Hongju Koh,  Sterling Professor of International Law at Yale Law School.

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

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

 

In a ruling of May 28^th, 2014, the Supreme Court of Germany cites a paper authored by Professor Franco Ferrari, the Executive Director of the Law School’s Center for Transnational Litigation, Arbitration and Commercial Law as well as a book co-edited by him. In its ruling, the Supreme Court relied on a paper by Ferrari asserting that the definition of sales contract governed by the 1980 United Nations Convention on Contracts for the International Sale of Goods can be derived from that Convention’s Articles 30 and 53. The Supreme Court also relied on a chapter authored by a German professor published in a book co-edited by Ferrari to get to its decision.

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

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

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

Eligibility

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

Application

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

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

 

Diego P. Fernandez Arroyo, Global Professor at NYU Paris  and April 2015 scholar—in-residence at the Center for Transnational Litigation, Arbitration and Commercial Law, has been elected Secretary General of the International Academy of Comparative Law at its XIXth International Congress held in Vienna from 20 to 26 July 2014.

The Academy, founded in 1924, has worldwide about 800 member, eighty of whom are Titular Members, including Professor Franco Ferrari, the Director of the Center for Transnational Litigation, Arbitration and Commercial Law, while the other members are associate members. According to the Academy’s Statutes, the Secretary General is responsible for the scientific programme of the Academy, overseeing the administrative operation of the Academy and supervising the publication of the Academy’s Acts and Proceedings.

Professor Fernández Arroyo is Co-Director of Global Governance Studies at Sciences Po Law School (Paris) where he teaches Arbitration, Conflicts of Laws, and International Dispute Settlement. He is also a member of the Curatorium of the Hague Academy of International Law. Recently, he has been designate Honorary Professor of the University of Buenos Aires.

 

Professor Franco Ferrari, the Director of the Center for Transnational Litigation, Arbitration and Commercial Law, was invited to teach a course on private international law at the prestigious Hague Academy of International Law. The Hague Academy, which, since its creation in 1923, has occupied premises at the Peace Palace in the Hague, alongside the highest judicial institutions such as the International Court of Justice and the Bureau of the Permanent Court of Arbitration, is a centre for research and teaching in public and private international law, with the aim of further scientific and advanced studies of the legal aspects of international relations. It does not have a permanent teaching staff, but its scientific body, the Curatorium, freely calls upon academics, practitioners, diplomats, and other personalities from all over the world whom it considers qualified to give courses, in English or French (with simultaneous interpretation). These courses are given in the form of a series of lectures, on general or special subjects.

Professor Ferrari joins the ranks of other NYU faculty who over the years have taught courses at the Hague Academy, such as Professor José Alvarez (The public international law regime governing international investment, 344 Collected Courses of the Hague Academy of International Law 193 (2009)), Theodor Meron (International law in the age of human rights, 301 Collected Courses of the Hague Academy of International Law 9 (2003), and Status and independence of the international civil servant, 167 Collected Courses of the Hague Academy of International Law 285 (1980)), Professor Linda J. Silberman (Cooperative efforts in private international law on behalf of children: the Hague Children’s Conventions,  323 Collected Courses of the Hague Academy of International Law 261 (2006)), and late Professors Thomas M. Franck (Fairness in the international legal and institutional system, 240 Collected Courses of the Hague Academy of International Law 9 (1993), and Minimum standards of public policy and order applicable to collective international commodity negotiations, 160 Collected Courses of the Hague Academy of International Law 395(1978)), and Andreas F. Lowenfeld (International litigation and the quest for reasonableness : general course on private international law, 245 Collected Courses of the Hague Academy of International Law 9 (1994), and Public law in the international arena : conflict of laws, international law, and some suggestions for their interaction, 163 Collected Courses of the Hague Academy of International Law 311 (1979)), as well as this November’s scholar-in-residence Peter D. Trooboff (Foreign state immunity: emerging consensus on principles, 200 Collected Courses of the Hague Academy of International Law 235 (1986)).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

VI.      Controversial issues

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

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

VII.     Conclusions

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

Ruggiero Cafari Panico

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

Email: ruggiero.cafari@unimi.it

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

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

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

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

[5] European Commission Consultation notice, 2014.

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

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

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

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

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

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

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

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

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

[15] Eu-secretdeals.info/ceta.

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

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

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

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

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

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