The Euro zone crisis is a sovereign debt crisis. It results from the enormous amounts of debt accumulated by a number of currency union member states. The markets question the sustainability of their debt and suspect default. As a result, investors abstain from investing in sovereign bonds from these countries or require high risk yields. However, sovereign bonds are the main source of financing for modern industrialized nations. For a number of Euro zone countries the lack of market financing has been replaced by public funding, predominantly from other Euro zone member states.[1] In the case of Greece, this aid was insufficient. Greece debt was restructured in March 2012. Private creditors of the Hellenic Republic accepted an exchange offer which led to a haircut on their debt. Greek domestic bonds were exchanged for new bonds with lower principal, lower interest rates and longer maturity.[2]

I. Private Sector Involvement

The Greek restructuring took place in the form of a so-called Private Sector Involvement (PSI). It was a voluntary haircut accepted by the private holders of Greek bond debt that excluded the debt held by the public sector, in particular the substantial amount of sovereign bonds held by the Euro zone central banks.[3] Over 90% of Greek’s private creditors participated. However, the remaining holders of Greek bonds withstood political pressure and did not agree to what was called a “voluntary” bond restructuring. In particular some hedge funds did not trade in their old bonds. As a result, the restructuring was accompanied by Greece’s announcement that all remaining old bonds would never be paid. The remaining creditors who defied the exchange would either lose everything or be forced into an exchange. Greece intends to compel this exchange by the introduction of retroactive (also called retrofit) Collective Action Clauses.[4]

II. Retroactive Collective Action Clauses

Collective Action Clauses in sovereign bond issues can be defined as a compendium of standardized provisions in sovereign bond contracts.[5] Their major purpose is to introduce a principle of majority voting into the bond terms. If a (qualified) majority of bondholders agree to a proposed restructuring of the bond obligations all bonds are modified.[6] Majority provisions in Collective Action Clauses thereby deviate from one of the most basic principles of contract law. The contractual claims of the dissenting minority are modified without the creditors’ consent.[7] This mechanism intends to overcome the so-called holdout problem – the phenomenon that bondholders will wait for their peers to give in to the demands of the creditor in order to profit from the compromise and to get paid in full.[8]

Prior to the haircut, domestic bonds were issued under Greek law, and the underlying issuance contract does not contain terms that protect the investors from negative changes of the legal framework (e.g. in the form of a “stabilization” or “freezing” clause). Taking advantage of that, Greece plans to enact a law which automatically amends all domestic bonds if a set majority of the bondholders accepts the voluntary exchange offer. What sounds like a legislative measure that leaves the decision about the amendment to the private sector, is actually a mere paltry excuse: the decision by the (qualified) majority of bondholders had already been taken before the enactment of the law.

III. Legal issues

Therefore, the question arises whether such a procedure leads to an expropriation of the bondholders. An expropriation might violate the Greek constitution that protects the right of property.[9] It may also violate the European Convention on Human Rights (ECHR).[10] However, this contribution will leave these aspects aside and entirely focus on the effect of Bilateral Investment Treaties (BITs) on the Greek CACs. BITs generally contain rules on the expropriation of foreign investment and provide that expropriation measures “must generally be non‐discriminatory, for a public purpose, accompanied by prompt, adequate and effective compensation and in accordance with due process of law”.[11]

IV. Expropriation of bondholders

Bondholders’ protection under these provisions depends on the issue of whether the exchange of bond debt by way of retroactive Collective Action Clauses qualifies as an expropriation (and in the case of BITs additionally on the controversially assessed preliminary question whether sovereign bond debt is covered by BITs)[12]. It could be argued that the actual haircut follows from the voluntary decision taken by a qualified majority of the bondholders, not by the legislative act.[13] However, in the current scenario, this line of argumentation must fail. It is merely formalistic and ignores the predetermined outcome of the law as well as the obvious intentions of the legislator. The Greek scenario is incomparable to the general exercise of standard Collective Action Clauses. The necessary number of bondholders has given its consent prior to the enactment of the law. Furthermore, this law does not define (and amend) the legal situation in a general way and for an indefinite number of cases. It is meant for exactly one case, and the beneficiary is the country itself. These benefits do not come as a mere reflex, but are the very purpose that the law is being enacted for. In contrast to that, a typical legislative measure regulates legal relationships in a general way and with no regard to a specific case that benefits the government. If, for example, the legislator changes the laws on rental property, the government may well benefit as part of a multitude of affected landlords. However, this effect is merely reflexive and not the pursued legislative purpose. The principle should be that when a sovereign chooses to deal with investors on a contractual basis, it waives its sovereign powers. As a consequence, the entire legal relationship should be subject to general principles of private law. It seems contradictory to turn to sovereign powers when conflicts arise in order to avoid being held by contractual promises.

It is for these reasons that the Greek law is incomparable to what might be considered an example for the legitimacy of retroactive Collective Action Clauses. The German statutes on corporate bonds allow the introduction of retroactive majority provisions into existing bond terms by majority vote.[14] However, this law does not apply to German sovereign bonds, and the German legislator therefore enacted it in its general legislative capacity and regulated the contractual relationship of third parties in an abstract and general way.

V. Inequality of treatment

In addition to that, matters of inequality of treatment arise. The restructuring only affects the private sector. All public debt is exempted. This includes all bonds held by the European financial facilities and especially the high number of Greek bonds owned by the central banks. This does not necessarily manifest a breach of the principle of equal treatment. Unequal treatment is open to justification. This justification could lie in the fact that the public sector provided and provides the liquidity which is necessary to guarantee the future sustainability of Greek debt. The Euro system has purchased the bonds as part of their Securities Markets Program in order to – in the words of the ECB – implement its monetary policy in times of perturbed transposition mechanisms (see above at B. III.). However, a proper assessment requires that these reasons are communicated clearly by the legislator.

VI. Bilateral Investment Treaties (BITs)

Bilateral Investment Treaties (BITs) seem bondholders’ best chance to argue their case for expropriation compensation. BITs are bilateral treaties between two governments which intend to mutually protect private foreign investment. BITs give rise to individual claims and remedies. They generally protect foreign investment from expropriation by requiring strict conditions for expropriation and appropriate compensation. They further provide non-discrimination and fair and equitable treatment clauses which necessitate that the foreign investors may not be discriminated in comparison to nationals or third parties.[15]

1. Application of BITs to investments in bonds

The typical investment protected by BITs is a direct investment in the host’s territory including the acquisition of assets held in the host country or the acquisition of a majority shareholding position. It is, on the other hand, an unresolved issue whether indirect investment also benefits from the protection, especially investments in sovereign bonds.

a) The Argentine default

A recent arbitration decision, however, helps to shed light on the issue. The Arbitral Tribunal at the International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C., decided in Abaclat et al. and the Argentine Republic about various claims against Argentina resulting from sovereign bonds. It was decided on the basis of the Argentina-Italy BIT which entered into effect on 14 October 1990. It is a decision affecting the claims of over 180,000 individuals and corporations. Argentina had defaulted on its sovereign bonds in December 2001 and in the following years extended exchange offers to the investors. In 2005, Argentina enacted a law (the “Cram Down” or “Emergency” Law) which provided that the exchange procedure would not reopen for bonds that had not been exchanged.

b) Exercise of sovereign powers

One of the essential issues in Abaclat concerned the tribunal’s jurisdiction in light of the contractual nature of the investors’ claims against Argentina and is equally important in the Greek scenario. The tribunal held that “(…) with respect to a BIT claim an arbitral tribunal has no jurisdiction where the claim at stake is a pure contract claim (…) because a BIT is not meant to correct or replace contractual remedies (…).” But it added that “(…) where the equilibrium of the contract and the provisions contained therein” were “unilaterally altered by a sovereign act of the Host State” the claim could not be considered a pure contract claim. The tribunal decided to apply this exception where “(…) the circumstances and/or the behavior of the Host State appear to derive from its exercise of sovereign State power. Whilst the exercise of such power may have an impact on the contract and its equilibrium, its origin and nature are totally foreign to the contract.”[16]

The tribunal saw these circumstances in the Argentine Emergency Law of 2005.[17] In the case of Greece, the retroactive Collective Action Clauses enacted by a Greek law fulfill these exceptional requirements. By passing such a law Greece applies means which have no basis in the bond contracts and do not derive from its rights as a party to the contract, but are wholly based on its sovereign powers.

c) Qualification of investment

A further issue in the Argentine that is elementary to the Greek scenario concerns the meaning of “investment”. The BIT was only relevant insofar as the bond claims could be qualified as investment claims under the scope of the BIT. In determining the matter, the tribunal interpreted the wording of the BIT. It decided that the BIT pursued a wide approach. Art. 1 of the unofficial English translation provides that “(i)nvestment shall mean, in compliance with the legislation of the receiving State and independent of the legal form adopted or of any other legislation of reference, any conferment or asset invested or reinvested by an individual or corporation of one Contracting Party in the territory of the other Contracting Party, in compliance with the laws and regulations of the latter party”. Art. 1 further named certain examples of investments, among which were “bonds, private or public financial instruments or any other right to performances or services having economic value, including capitalized revenues”. The tribunal started its analysis by looking for “(…) rights and values which may be endangered by measures of the Host State, such as an expropriation, and therefore deserve protection”. It came to the conclusion that in respect to the protective purpose of the BIT and in light of the wording of Art. 1, the Argentine sovereign bonds were a form of investment covered by the protection under the BIT.[18]

A further issue was whether the bond purchases constituted an investment “in the territory of the other Contracting Party” which is a common requirement in BITs. Argentina argued that the bondholders’ purchases did not qualify as such investment since the investment had taken place between investors and banks as intermediaries. Therefore, no actual transfer of money from the investors to Argentina had taken place.  In answer to these objections, the tribunal defined the criteria applying to investments of purely financial nature. It held that it was essential “(…) where and/or for the benefit of whom the funds are ultimately used, and not the place where the funds were paid out or transferred.”[19] It dismissed the argument that the intermediaries as primary underwriters extended the principal to Argentina and only afterwards received payments from their customers. For the tribunal, the solely relevant factor was the fact that the underwriters extended their lump payment only in regard to the fact that they would “(…) be able to collect sufficient funds from the individual purchasers of security entitlements (…)” and that “(…) the funds generated through the bonds issuance process were ultimately made available to Argentina (…)”.[20]

All of these holdings by the tribunal support the qualification of Greek sovereign debt as investments under the BITs that Greece entered into.

d) Dissenting opinions

The decision in Abaclat is the holding of the majority of the tribunal members, and the dissenting opinion has argued for a more limited definition of investments.[21] Argentina has filed for an annulment of the decision, and the result of the annulment procedure seems unpredictable. This is due to the fact that there is no established opinion on the definition of an investment. Other ICSID have come to different conclusions. Whereas the majority in Abaclat held that the definition of investment should be decided independently on the basis of the provisions of the individual BIT, other tribunals favor a more general approach and base their definition of investments on the wording of the ICSID Convention. Art. 25(1) of the Convention provides that “(t)he jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (…) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre”. Some tribunals decided that this provision of the Convention contained an objective standard from which the parties to a treaty could not deviate.[22]

However, even the supporters of such an “objective standard theory” have not agreed on a uniform definition of investment. Whereas one tribunal excluded contingent liabilities form the scope of investment, another required that the investor participate in the risks of the transaction.[23] The latter approach could exclude sovereign bonds from the definition of an investment since the bondholders do not bear typical business risks. Their risks are limited to a sovereign default and therefore to the situation that gives raise to the dispute.

However, such a limited interpretation of the term “investment” seems unfounded. Bondholders are as exposed to arbitrary sovereign measures as other investors. Furthermore, the purpose of BITs and other treaties on the protection of Foreign Direct Investment (FDI) should be considered. The amount of money invested in sovereign bonds is enormous, and Argentina and Greece illustrate how vulnerable these investments are. Low levels of protection cause insecurities in the markets for foreign investments, and other sovereigns feel the negative impact.  In the absence of sovereign debt restructuring regimes (see above at C I), arbitration promises to (re-)establish market confidence. In the light of that, it is neither helpful nor required to limit the scope of arbitration on BITs to non-securitized forms of investment. Therefore and in unison with the majority in Abaclat, the matter whether sovereign bond debt qualifies as investment should be decided by interpretation of the wording of the individual BIT.

2. The Greek BITs

Greece has entered into 38 BITs. The contractual partners of these treaties are Albania, Algeria, Argentina, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Chile, China, Croatia, Cuba, Czech Republic, Egypt, Estonia, Georgia, Germany, Hungary, Republic of Korea, Latvia, Lebanon, Lithuania, Moldova, Romania, Slovenia, South Africa, Turkey, Uzbekistan, Serbia, Mexico, Kazakhstan, Morocco, Poland, Russian Federation, Syrian Arab Republic, Tunisia, Jordan, India and Iran.[24] As can be seen from this list, typical hedge fund hubs are not among these countries so that hedge funds will hardly profit from the protection provided form these BITs. However, not only hedge funds, but also retail investors are among the bondholders which oppose the voluntary haircut.[25]

Some of these BITs define the term investment in a very similar way as the Argentine-Italian treaty in the Abaclat decision. A randomly picked BIT, the one between Greece and Bosnia and Herzegovina, defines investment as “(…) every kind of asset by an investor of one Contracting Party invested in the territory of the other Contracting Party, and in particular, though not exclusively includes (…) claims to money or any performance having economic value, as well as loans connected to an investment (…)”. An expropriation is deemed lawful in this BIT if it takes place in the public interest, under due process of law, on a non-discriminatory basis and against prompt, adequate and effective compensation.[26]

Similar provisions can be found in other BITs that Greece signed. If the Abaclat interpretation is applied to these BITs, it could well follow that the investment in Greek sovereign bonds is protected by the BITs and that Greece infringed its obligations as to equal treatment because the entire public sector – Greek and foreign – had been spared by the latest restructuring.[27] In any case Greece would owe prompt, adequate and effective compensation. The Greek scenario is comparable to the findings in Abaclat in that “(i)t may (…) constitute an act of expropriation where the new regulations and/or laws deprive an investor from the value of its investment or from the returns thereof.”

Another problematic matter is the determination of the amount of compensation that would have to be granted to the bondholders for expropriation. Are the bondholders entitled to full compensation for the full principal and interest even if they purchased their bonds on secondary markets and paid significantly less than the bonds were sold for in the primary markets or should this fact reduce their claims to the market value of the bonds? If the market value seems appropriate, how should it be determined?

Purchases in the secondary market are problematic for another reason. Can they be considered investments in the territory of Greece given that the purchase price may flow from one foreign investor to another? This issue is not explicitly addressed in the Abaclat decision. However, the line of argumentation helps. The tribunal emphasizes the fact that in transactions involving intermediaries, the ultimate beneficiary is the issuer of sovereign bonds. From that it could be derived that transactions in the secondary markets are a consequence of the issuance of sovereign bonds and therefore indirectly benefit the sovereign. Investors in the primary markets may be found only because the bonds are transferable and therefore tradable on secondary markets. A different line of argumentation might simply hold that all further investors merely succeed into the legal position that the primary purchaser acquired.

The amount of compensation depends on the approach taken. If the rights of the bondholders are seen as derived from the primary purchasers, compensation should cover the full amount promised by the issuer at the time of the underwriting. The alternative approach which emphasizes the fact that every transfer of title is part of the bond scheme approved by the issuer would lead to the more satisfactory result that compensation would have to reflect the market value of the bond. The market value could be determined according to what can be considered a recognized standard for BITs. The 2012 U.S. Model BIT provides that the value of the investment is decided by the price paid prior to the act of expropriation and may not reflect any change in value occurring because the intended expropriation had become known earlier.[28] This corresponds to the findings of international arbitrators who applied customary international law to determine the standard of compensation for expropriation.[29]

3. New challenges to Arbitration

In respect to BITs, there is a dimension to the newly introduced inter-governmental financial facilities of the Euro zone which seems unique. The traditional wording of BITs seems ill-prepared for the new approaches taken by the Euro zone governments. Generally speaking, BITs include most favorable nation (MFN) clauses as well as fair and equitable treatment (FET) clauses. These clauses guarantee that all investors regardless of their nationality and affiliation to the public or private sector enjoy equal treatment. In the event of a sovereign default, these clauses intend to prevent investors from losses resulting from the preferential treatment of a third party. The new Euro zone financial facilities, however, create a category of investors for which the BITs seem ill-prepared. The European Stability Mechanism (ESM) which will start operating later in 2012 ESM[30] claims preferential creditor status.[31] This is not unheard of. The IMF enjoys this status, not explicitly granted by international law, but due to customs and general recognition.[32] However, with more and more emergency funding pouring into troubled Euro zone countries and enjoying preferred creditor status, the intention of the BITs to guarantee investor protection in the situation of sovereign default seems challenged.

E. Conclusions

The first restructuring in the Euro zone took place in March 2012 when Greece offered a voluntary exchange of its sovereign bonds and simultaneously announced that non-participating bondholders would be forced to comply. This event is remarkable since the imminent legal issues have not been addressed and might lead to a number of law suits of bondholders against the Hellenic Republic. It has been argued here that an involuntary restructuring could not only be challenged in Greek courts for infringements of the Greek constitution, but also find its way to arbitral tribunals for potential breach of BIT clauses. The holdings of the ICSID arbitration tribunal in its Abaclat decision against Argentina provide persuasive arguments that bondholders could use in disputes against Greece if they are nationals of a country that has entered into a BIT with Greece.

A further dimension of the current restructuring regime in the Euro zone deserves attention. The European Stability Mechanism (ESM) that is supposed to become a permanent source of funding for Euro zone sovereigns (and other benefactors such as financial institutions) claims preferred creditor status. This conflicts with traditional clauses in BITs. Non-Euro zone countries entering into BITs with Euro zone countries will have to decide whether they are willing to accept such a disadvantage to their investors. If they do they will not do it for free, and the Euro zone will face yet another increase in costs resulting from its rescue efforts.

Christian Hofmann

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[1] On the European Stability Facility see the framework agreement and the articles of incorporation, both available at http://www.efsf.europa.eu/about/legal-documents/index.htm; on an up-to-date summary of the lending operations of the EFSF see at http://www.efsf.europa.eu/about/operations/index.htm. On the future European Stability Mechanism (ESM) see the Treaty establishing the European Stability Mechanism of 2 Feb 2012, available at http://www.european-council.europa.eu/media/582311/05-tesm2.en12.pdf; see also the ECB Monthly Bulletin 7/2011, 71-84; on the financing by the European Financial Stability Mechanism (EFSM) see the Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism, OJEU 2010 L 118/1. On all of these funding mechanisms in detail J.-V. Louis, 47 Common Market Law Review (CMLR) 971 (2010); D. Zandastra, 3 Capital Markets Law Journal (CMLJ) 285; S. Seyad, 9 Journal of International Banking Law and Regulation 421 (2011).

[2] On some of the facts of the Greek restructuring see http://www.spiegel.de/international/europe/historic-opportunity-greece-pulls-off-debt-restructuring-deal-a-820343.html. On the negative effect of a restructuring on the markets see S. Choi/M. Gulati/E. Posner, 6 Capital Markets Law Journal 163, 175 et seq. (2011). However, restructuring of domestic bond by legislative means did happen in the past, see on Russia and Uruguay L. Buchheit/M. Gulati, How to Restructure Greek Debt, Duke Law Working Papers 2011, p. 6 and p. 11, available at http://scholarship.law.duke.edu, on the dangers involved.

[3] The Euro zone central banks have provided a number of measures to aid the indebted Euro countries. The most significant ones are the sovereign bond purchasing programs. On an updated list on the volume of the sovereign bond purchase programs see at http://www.ecb.int/mopo/liq/html/index.en.html#portfolios. On the latest announcement of the ECB of its new purchasing program, called “Outright Monetary Transactions (OMT)”, see at http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html.

[4] On retroactive Collective Action Clauses in general and the Greek restructuring see M. Boudreau, 2 Harvard Business Law Review 164, 166 (2012). Generally on Collective Action Clauses L. Dixon/D. Wall, 8 Financial Stability Review 142, 148 (2000); C. Hofmann/C. Keller, 175 Zeitschrift für das gesamte Handels- und Wirtschaftsrecht (ZHR) 684-723 (2011).

[5] On the terminology F. Elderson/M. Perassi, 4 European Banking and Financial Law Review (Euredia) 239, 241 (2003): “Collective action clauses (CACs) are the denominator usually given to a number of different clauses found in various forms and to a varying degree in bond contracts under the laws of various jurisdictions which have in common, principally, that they enable a majority of bondholders to bind a minority against their will to the amendment of the terms of the contract and to a number of other actions in relation to the bonds (such as acceleration and de-acceleration)“. Compare also the report by the G-10 of May 1996, “The Resolution of Sovereign Liquidity Crises“, p. 16.

[6] On majority provisions in Collective Action Clauses following the English law model L. Burn, “Bond issues under U.K. law: how the proposed German legislation compares“, in: Baums/Cahn (ed.), Die Reform des Schuldverschreibungsrechts, 2004, p. 219, 238. On New York law style Collective Action Clauses L. Buchheit/M.  Gulati, 51 Emory Law Journal (2002) 1317, 1329. On the impediments for Collective Action Clauses resulting from the Trust Indenture Act (TIA) which has been applied beyond its limited scope to sovereign bonds see G. Shuster, “The Trust Indenture Act and International Debt Restructurings“, 14 American Bankruptcy Institute (ABI) L.R. 431 (2006). On an international approach to majority provisions see the report of the G-10 Working Group on Contractual Clauses of 26.9.2002, p. 3.

[7] On this principle see H. Beale (ed.), Chitty on Contracts, Vol. 1 (General Principles), 29^th ed. 2004, para 1-5; E. McKendrick, Contract Law, Text, Cases and Materials, 3^rd ed. 2008, p. 939 et seq.; G. Treitel, The Law of Contract, 6^th ed. 2004, p. 312 et seq. On the protection of contractual expectations see p. 5 et seq.

[8] On the holdout problem L. Buchheit/M. Gulati, 48 U.C.L.A. Law Review 59, 65 et seq. (2000); L. Alfaro/N. Maurer/F. Ahmed, “Gunboats and Vultures: market Reaction to the ‘Enforcement’ of Sovereign Debt”, Working Paper 2007, p. 4, available at http://www.econ.ucla.edu/workshops/papers/History/Maurer,%20Gunboats%20and%20Vultures,%20version%205.2.pdf; P. Kenadjian, “Bond Issues under New York and U.S. Law: Considerations for the German Law Maker from a U.S. Perspective“, in: Baums/Cahn (ed.), Die Reform des Schuldverschreibungsrechts, 2004, p. 245, 263. See also S. Choi/M. Gulati/E. Posner, 6 Capital Markets Law Journal 163-187 (2011). The authors reach the conclusion that Collective Action Clauses should create creditor confidence and potentially lower the cost of financing, at least for financially stable sovereigns. On this see also F. Elderson/M. Perassi, 4 European Banking and Financial Law Review (Euredia) 239, 262 (2003); L. Dixon/D. Wall, 8 Financial Stability Review 142, 148 (2000). On the harmonized Colective Action Clauses of the Euro zone see the Common Terms of Reference of 17 February 2012, available at http://europa.eu/efc/sub_committee/pdf/cac_-_text_model_cac.pdf, as well as the supplemental provisions at http://europa.eu/efc/sub_committee/pdf/cac_-_supplemental_provisions.pdf.

[9] Art. 17(2) of the Greek constitution provides that “(n)o one shall be deprived of his property except for public benefit which must be duly proven, when and as specified by statute and always following full compensation corresponding to the value of the expropriated property at the time of the court hearing on the provisional determination of compensation (…)”.

[10] To a similar effect, Art. 1 of the Protocols to the European Convention on Human Rights (ECHM) guarantees that “(e)very natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law”.

[11] See Art. 6 of the 2012 U.S. Model Bilateral Investment Treaty; see also J. Dunoff/S. Ratner/D. Wippman, International Law, Norms, Actors, Process: A Problem-oriented Approach, 2^nd ed. 2006, p. 87 et seq.

[12] On the approach to covered debt and the investors entitled to claims see UNCTAD, Investor-State Dispute Settlement and Impact on Investment Rulemaking, p. 9 et seq, and also the changing opinion on minority shareholders on p. 15-17.

[13] Compare L. Buchheit/M. Gulati, How to Restructure Greek Debt, Duke Law Working Papers 2011, p. 11, available at http://scholarship.law.duke.edu, who consider Greek retroactive Collective Action Clauses in a less drastic scenario.

[14] See sec. 24(2) of the Gesetz über Schuldverschreibungen aus Gesamtemissionen of 31 July 2009, BGBl. I, p. 2512.

[15] On all of the above see J. Alvarez, The Public International Law Regime Governing International Investment, 2011, p. 30-33.

[16] Decision on Jurisdiction and Admissibility by the Arbitral Tribunal at the International Centre for Settlement of Investment Disputes Washington, D.C., Abaclat and others and the Argentine Republic of 4 August 2011, at 316-318.

[17] Abaclat (fn. 16), 321-326.

[18] Abaclat, (fn. 16), at 347-356.

[19] Abaclat, (fn. 16), at 374.

[20] Abaclat, (fn. 16), at 376-378.

[21] See the dissenting opinion by Georges Abi-Saab at http://italaw.com/documents/Abaclat_Dissenting_Opinion.pdf.

[22] ICSID tribunal decision Joy Mining Machinery Limited and The Arab Republic of Egypt (ICSID Case No. ARB/03/11) of 6 Aug 2004, at 50; Salini Costruttori SpA v Morocco (ICSID Case No. ARB/00/4), 42 ILM 609, 622 (2003).

[23] ICSID tribunal decision Salini Costruttori SpA v Morocco (ICSID Case No. ARB/00/4), 42 ILM 609, 622 (2003).

[24] See the full list of countries at http://icsid.worldbank.org/ICSID/FrontServlet.

[25] On the definition of a retail investor see Abaclat, (fn. 16), at 23: “Retail investors are those who are individuals, investing on their own behalf (…)”.

[26] See Art. 1 and 5 of the agreement on the Promotion and Protection of Investments between the Hellenic Republic and Bosnia and Herzegovina of 1 May 2002.

[27] On fair and equitable treatment Enron Corp. v. Argentine Republic, ICSID Case No. ARB/01/3 of 22 May 2007; J. Dunoff/S. Ratner/D. Wippman, International Law, Norms, Actors, Process: A Problem-oriented Approach, 2^nd ed. 2006, p. 814 et seq.

[28] Art. 6 No. 2 b and c of the 2012 U.S. Model Bilateral Investment Treaty provides that “(t)he compensation referred to in paragraph 1(c) shall (…) be equivalent to the fair market value of the expropriated investment immediately before the expropriation took place (“the date of expropriation”) and not reflect any change in value occurring because the intended expropriation had become known earlier”. See also the 1992 World Bank World Bank Guidelines on the Treatment of Foreign Direct on the Treatment of Foreign Direct Investment, available at http://italaw.com/documents/WorldBank.pdf. See also Metalclad Corp. and Mexico, ICSID CASE No. ARB(AF)/97/1 of August 30, 2000, para. 122: “(…)any award to the claimant should, as far as is possible, wipe out all the consequences of the illegal act and reestablish the situation which would in all probability have existed if that act had not been committed (the status quo ante)”.

[29] See the decision by the Iran-United States Claims Tribunal in SEDCO, Inc. v. National Iranian Oil Company and the Islamic Republic of Iran, 10 Iran-U.S. Cl. Rep. 180 (1986).

[30] On the ESM see the ESM treaty of 2 Feb 2012, above fn. 1. The ratification of the ESM was delayed by Germany because its federal constitutional court (Bundesverfassungsericht) had asked for a delay in the ratification process until its ruling in a preliminary hearing on the compatibility of the obligations arising from the ESM with the German constitution. On the ruling see the Press release no. 67/2012 of 12 September 2012 of the German Constitutional Court, available at http://www.bundesverfassungsgericht.de/pressemitteilungen/bvg12-067en.html.

[31] See the ESM treaty of 2 Feb 2012 at 13 (fn. 1). See also ECB Monthly Bulletin, July 2011, p. 82.

[32] On the preferred creditor status of the IMF see ECB Monthly Bulletin, July 2011, p. 80.

The Proposal for a Regulation on the Common European Sales Law and the CISG

On October 11, 2011, the European Commission adopted a Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law[1] (“Regulation proposal”). The Regulation proposal suggested by the Commission is primarily intended to provide rules governing the cross-border sale of goods for B2B as well as B2C contracts within the EU, but also extends to dealings with third countries. Out of 27 EU Member States 23 are also contracting states of the 1980 United Nations Convention on Contracts for the International Sale of Goods (“CISG”), governing the transboundary sale of goods for B2B[2] contracts. Therefore, questions of compatibility of the Regulation proposal and the CISG arise, which will be discussed in the following contribution.

In the following article, the structure of the Regulation proposal and its scope of application on the one hand (I.) and the scope of application of the CISG (II.) will be explained. The substantive provisions of both instruments will not be covered in this article. Then, the potential for a coexistence and/or conflict of both instruments will be elucidated (III.). Finally, we will end with a conclusion (IV.).

I. Background, structure and scope of application of the CESL

The CESL can be considered the outcome of a discussion about the harmonization of the European contract law, which has been taking place in the EU for more than ten years[3]. Despite the fact that there are respective academic proposals and though the Commission is open towards the idea of a far-reaching harmonization of substantial European contract law, there seems to be no political support for such attempts. What started as a proposal for a binding and comprehensive harmonization of European contract law, has found its end – at least for the time being – as an optional instrument on sales law.

The Regulation proposal consists of the actual body of the regulation as well as two appendices. The regulation is limited to mere provisions governing the applicability as well as definitions, while the text of the CESL is contained in Annex I.

The Commission not only has conceived the CESL as an optional instrument; the CESL applies only if the parties agree on its applicability (Articles 3 and 8). Thus, the Commission chose an “opt in”-solution instead of an “opt out”-solution like the CISG (see infra II.3). The validity of such an agreement has to be determined in accordance with the CESL itself[4], i.e. Articles 30 seqq. CESL on the formation of a contract. In addition, in case of a consumer contract the agreement has to be contained in a document separate from the contract itself. Also, the trader has to inform the consumer in advance about the intended inclusion of the CESL by using a notice form included as Annex II to the Regulation Proposal.

CESL is intended to apply only to cross-border contracts (Article 4). The contract is considered a cross-border contract whenever the parties have their habitual residence in different countries. In case of consumer contracts it is required that either the address of the consumer, the billing address or the place of delivery is located in an EU Member state different from the trader’s state of habitual residence.

Ratione materiae, CESL applies to sales contracts as well as contracts on the supply of digital content as well as related services (Article 5). Whenever the contract is a mixed-purpose contract, CESL shall not apply (Article 6). CESL’s scope of application ratione personae is determined by Article 7. CESL applies in B2C contracts between a trader and a non-trader. A contract concluded between two traders can only be governed by the CESL if one of the parties is a small or medium enterprise (“SME”). The term SME is further defined by Article 7(2) as a trader employing fewer than 250 persons or having an annual turnover not exceeding EUR 50 million. It has been rightly criticized that this definition will entail great uncertainty as the contracting parties may not know whether these criteria are met when the contract is concluded.

Although the Regulation proposal contains rules on CESL’s scope of application, it does not govern the “international” scope. The explanatory statement expressly mentions that the “Rome I Regulation and Rome II Regulation will continue to apply and will be unaffected by the proposal. It will still be necessary to determine the applicable law for cross-border contracts.”[5] In this regard, there is a great difference compared to other uniform law instruments like for instance the CISG, which prevails over any national conflict of law rules with the exception of those cases where it expressly refers to the private international law rules of the forum (see infra II.2).

II. The CISG’s scope of application

To allow a better comparison with the CESL, we will give a very brief overview about the substantive (1.) and territorial (2.) scope of application of the CISG. Furthermore, we will explain the option of parties to a sales contract to exclude the CISG by virtue of an agreement (3.).

1. Scope of application ratione materiae (Articles 2-3 CISG)

The CISG only applies to contracts on the sale of goods. There is some uncertainty whether the concept of goods also includes intangibles, such as Software. Some courts decided in the positive,[6] some in the negative. [7] The majority of judicative and also academic discussion seem to meet in a compromise: intangible good are included as long as they are fixed on a tangible medium, such as burned on a DVD. [8] The CISG does not apply if those goods are purchased for the personal, household or family use unless the seller neither knew nor ought to have known of the buyer’s intention (Article 2 lit a CISG). To meet those requirements, Article 2 lit. a CISG only focuses on the buyer’s intention by the time the contract is concluded and the seller’s ability to discern this intention, notwithstanding the actual use of the good afterwards. In contrary to the CESL, the CISG neither is limited to enterprises of a certain size nor does it require such a size.

Some circumstances of the contract conclusion and certain objects of the transactions are excluded in Article 2 CISG, as they touch special public interests (auctions, by authority of law, stock, vessels, electricity…). Finally, contracts on the sale and manufacturing/production of goods are treated as sale contracts as long as the manufacturing/production is not the preponderant part of the contract (Article 3).

2. Territorial scope of application

The CISG only applies to contracts, if the contracting parties have their place of business in different states and those places of business are either both located in Contracting States (Article 1 (1) lit. a CISG) or the lex fori’s private international law rules leads to the application of the law of a Contracting State (lit. b).

The Contracting States have some possibilities to further limit the scope of application of the CISG: The Convention offers the possibility to declare not to be bound by part II or III of the CISG (Art icle 92) or that Art. 1(1)(b) CISG is not applicable. Furthermore, Contracting States can limit the application in relation to certain other States (Art icle 94) or within their borders for certain territorial units (Art icle 93). Also, Contracting States can depart from the Convention’s general rule that a contract for the sale of goods does not require a special form (Art icle 96). Several States used these possibilities to limit the scope of application of the CISG.[9]

Finally, according to its Article 90, the Convention does not prevail over any actual or future international agreement that contains provisions concerning matters governed by the CISG. It has been argued that EU law should be treated as an international agreement in the sense of Article 90 CISG as it has the same function as such an agreement (harmonizing the international trade).[10] Article. 90 CISG has the function to regulate a possible conflict on the international law level, stepping back behind other rules of the same legal quality. Regarding the EU law, Primary Law, such as the TFEU would have the same legal quality as the CISG. TFEU and CISG do not collide as their substantial scopes are different. Secondary Law, on the other hand, derives its legitimacy and existence from the international agreement TFEU, but is not an international agreement on its own. Beneath this level of international law, the Convention has no conflict to resolve as it prevails. Therefore, Article 90 CISG does not deal with questions concerning the relation between the Convention and EU Secondary Law. Furthermore, there is no need to apply Article 90 CISG as the Member States always have the possibility to limit the CISG’s scope of application by a declaration in the sense of Article 94 CISG.[11]

3. Exclusion by Party Autonomy

Article 6 CISG allows the exclusion of the application of the Convention as a whole or the derogation of almost all provisions[12] by explicit or implicit party agreement.[13] In addition, the parties do not only have the possibility of a choice of law but they also can change the substantial CISG provisions by their private autonomy.

The requirements for an implicit exclusion of the CISG are not everywhere easy to meet. Some courts require a clear expression of intend to exclude the CISG.[14] Thus, the mere choice of the law of a Contracting State is not regarded as an implicit exclusion of the CISG as the CISG forms part of each domestic law of a Contracting State.[15] Likewise, the choice of two laws of two territorial units bound by the CISG (by declaration of Article 93 CISG), neither excludes the CISG.[16] Furthermore, the use of legal terminology of one domestic law system in the language of this law system neither is sufficient to state such a clear expression of intent.[17] Finally, according to one court, the parties must show awareness of the existence of the CISG in their agreement to be able to exclude it.[18]

Summarizing those decisions, the party agreement must expressly refer to the CISG to exclude its application. Only referring to the application of other law systems is not sufficient.

III. CISG and CESL: Coexistence or conflict?

Based on the findings from above, CISG and CESL have an overlapping scope of application. Therefore, the question of a potential or the feasibility of coexistence arises. The relationship between CISG and CESL is mentioned in Recital 25 of the Regulation proposal:

“Where the United Nations Convention on Contracts for the International Sale of Goods would otherwise apply to the contract in question, the choice of the Common European Sales Law should imply an agreement of the contractual parties to exclude that Convention.”

Therefore, the drafters of CESL are of the opinion that in a potential case of overlap the CESL would prevail over CISG. The agreement to apply CESL would be considered as an exclusion of CISG by Art. 6 CISG. A clear-cut distinction seems regarded as possible.

In the following, we want to discuss a hypothetical case that will show that there are borderline cases where both instruments can claim to be applicable (1.). Unlike suggested by the Recital 25, it is the prevailing view that a conflict between CISG and CESL would have to be solved under EU law to the benefit of the CISG (2.). However, we are going to argue that CISG can be interpreted to step back behind CESL (3.).

1. The hypothetical case and the two perspectives

A German company sells a machine to a US based company. The sales contract provides in its section on the applicable law that the contract is “construed in accordance with German sales law including the EU law”.

Based on the approaches discussed above, it is possible to consider the case from different perspectives: Based on a pure CISG approach, a court in a CISG Member State would have uphold that this is a case fulfilling the applicability requirements of Article 1(1)(a) CISG, as the parties have their places of business in different contracting states. The corollary question is thus, whether the wording “in accordance with German sales law including the EU law” can be considered an implicit exclusion of the CISG under Article 6 CISG. As has been discussed above, most courts accept an implicit exclusion of the CISG and only few require an expressed one. In a case like the one at hand, it may nevertheless be doubtful whether the wording is sufficiently clear to interpret the clause as an exclusion of the CISG. According to the strictest view (Tribunale di Padova), an exclusion of the CISG is impossible as the party agreement does not show any awareness of the CISG. But even some of the less strict approaches would very likely come to the conclusion that the contract indeed contains a choice of law in favor of the German law including EU law as part of the German substantial law as the CISG forms part of the German law. Furthermore, the CISG is part of the German law and so not clearly excluded. Therefore, it is conceivable that a court will come to the conclusion that CISG will apply to the case and the rest of the German and the EU law will apply in those matters where the CISG does not apply.

From an EU law perspective, the starting point would have to be to determine the applicable domestic law. Within the EU (with the exception of Denmark), the instrument primarily dealing with the law applicable to contracts is 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”)[19]. As the contract contains a choice of law clause, Article 3 Rome I would be relevant. Bearing in mind that the parties also have decided to “include” EU sales law, it is tenable that this was meant to be a reference to CESL and that this clause can be understood to be an implicit agreement to apply CESL pursuant to Articles 3 and 8 Regulation proposal.

In those cases, both CESL and CISG can claim to be applicable and a potential conflict is likely.

2. Solving the problem under EU law

However, the solution just explained as pure EU law perspective would only apply where the Rome I-Regulation applies.

As to those EU Member States, which have acceded to the EU after they became a party to the CISG, CISG will remain valid even if there was a conflict by virtue of Article 351 TFEU. Although this provision does not apply as to the “old member States”, it is at least arguable that the EU has to respect the international obligations of its Member States (like under the CISG) by virtue of Article 4(3) TEU.

Most likely the EU did not intend to displace the CSIG by adopting Rome I. According to Article 25(1) Rome I, the regulation “shall not prejudice the application of international conventions to which one or more Member States are parties at the time when this Regulation is adopted and which lay down conflict-of-law rules relating to contractual obligations”. Therefore, it is arguable that the CISG remains untouched pursuant to Article 25(1) Rome I. However, the EU Member States had to notify the Commission of those Conventions that they deem to be not prejudiced by virtue of Article 25(1) Rome I. The CISG was not mentioned in these notifications[20]. But this should not be understood in the sense that Rome I prevails over the CISG. According to Article 1(1) Rome I, the regulation only deals with “a situation involving a conflict of laws”. It is possible to interpret the concept “conflict of laws” in a narrow and technical sense, as those rules which in an international context determine the applicable substantial law. In cases where the CISG is applicable, there is no “conflict of laws” as the applicable substantial law is already determined[21].

Therefore, no conflict will arise as EU Law and in particular Rome I does not apply to the extent that CISG applies. Therefore, it seems to be a mistake to presume – as Recital 25 of the Regulation proposal does – that CISG will step back behind CESL because of a mere choice of the CESL. Such a choice is only possible where the parties have clearly excluded CISG and not only chosen the CESL.

3. Solving the problem under the CISG?

Based on the findings just made, the scope of application of Rome I and CESL will be determined by the CISG’s scope of application. But the question arises whether it is possible to interpret the CISG in the light of the CESL so that an implicit choice of CESL will nevertheless be read as an exclusion of the CISG as suggested by Recital 25 of the Regulation proposal.

Actually, such construction is possible: CISG is an international treaty and has to be interpreted in accordance with the principles applicable to those treaties, which are also codified by the Vienna Convention of the Law of Treaties (“VCLT”)[22]. According to Article 31(3)(b) VCLT, a treaty also has to be interpreted in the light of “any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation”.

In case 23 Contracting States of the CISG (i.e. those EU Member States that are parties to the CISG) adopt a piece of legislation that implicitly contains an interpretation of Article 6 CISG, this is subsequent practice under Article 31(3)(b) VCLT. Unless the other CISG Contracting States protest against this interpretation, this will have to be considered an “agreement of the parties”. This interpretation would not only have to be considered by the EU Member States and their courts, but by all courts applying the CISG.

IV. Conclusion

The scope of CISG and CESL partly overlap. Although this entails the potential for a conflict of these instruments, both instruments can be harmonized so that they, in the end, have a complementary scope of application. CESL and Rome I only apply where CISG does not apply. However, CISG’s Article 6 and the parties’ implicit agreement to exclude CISG can to be interpreted in the light of CESL (and the subsequent case law on its implicit inclusion). The implicit statement contained in Recital 25 Regulation Proposal, that any choice of the CESL would exclude CISG, thus not only would bind the courts of the EU Member States, but would have to be considered uniform practice regarding the interpretation of the CISG that binds even other CISG Contracting States.

Susanne Lilian Gössl               Jan Asmus Bischoff

Susanne Lilian Gössl studied law at the University of Cologne and in Naples from 2003-2008. After her graduation she worked as a research assistant at the Institute for International and Foreign Private Law, University of Cologne. She completed a Master of Laws at Tulane University Law School, New Orleans in 2009/2010 and afterwards was research assistant at the Institute for Media Law, University of Cologne. In this period she worked on her doctoral thesis on “Internet specific conflict of laws – possibility and necessity” under the supervision of Professor Dr. Heinz-Peter Mansel. She is expecting to defend her thesis in December 2012. Currently, she is working as a legal stagiaire (Rechtsreferendar) in Hamburg.

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

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[1] Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law, October 11, 2011, COM(2011) 635 final, available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52011PC0635:EN:NOT.

[2] See infra II.1.

[3] The Communication from the Commission to the Council and the European Parliament on European contract law, of July 11, 2001, COM(2001) 398 final, can be considered the starting point of this discussion; the document is available at: <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52001DC0398:EN:NOT>.

[4] Article 8(1).

[5] Regulation proposal, p. 6.

[6] Handelsgericht Zürich, 17.02.2000, http://www.cisg-online.ch/cisg/urteile/650.html (26.06.2012); Bridge, International Sale of Goods, No. 11.18; Diedrich, Maintaining Uniformity in International Uniform Law via Autonomous Interpretation: Software Contracts and CISG, 8 Pace Int’l L.Rev.303 (1996), 338; Fakes, The Application of the United Nations Convention on Contracts for the International Sale of Goods to Computer, Software and Database Transactions, 3 Software Law Journal 559 (1990), 587 seq.; Karollus, UN-Kaufrecht, Vienna Springer 1991, p. 21; Lookofsky, Understanding the CISG, 3rd ed.Kluwer Law International Alphen aan den Rijn 2008, p. 20 seq.

[7] (26 August 1994) Oberlandesgericht Köln, 19 U 282/93, http://cisgw3.law.pace.edu/cases/940826g1.html; (20 December 1993) Budapest Arbitration proceeding, Vb 92205 (Shares of stock case), http://cisgw3.law.pace.edu/cases/931220h1.html, Ferrari in: Schlechtriem/Schwenzer (ed.), Kommentar zum Einheitlichen UN Kaufrecht, 5nd ed 2008 Beck Munich, Art. 1 para 34; Achilles, Kommentar zum UN-Kaufrechtsübereinkommen, 2000 Luchterhand (Hermann) Neuwied, Art. 1 para. 4.

[8] (21. June 2005) Supreme Court, 5 Ob 45/05m (Software case), http://cisgw3.law.pace.edu/cases/050621a3.html; Ferrari in: Schlechtriem/Schwenzer (eds.), zum Einheitlichen UN Kaufrecht, 5nd ed 2008 Beck Munich, Art. 1 para. 36, 38.

[9] An entire list can be found at http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html (June 28, 2012).

[10] Mankowski in: Ferrari/Kieninger/Mankowski et al. (eds), Internationales Vertragsrecht, 2nd ed. 2011 Beck Munich, Art. 90 para. 9-11.

[11] Ferrari in: Schlechtriem/Schwenzer, Kommentar zum Einheitlichen UN Kaufrecht, 5nd ed. 2008 Beck Munich, Art. 90 para 3.

[12] Not Artice 12, if applicable, and neither some public international law rules laid down in Articles 89-101.

[13] E.g.   (2 July 1993) Oberlandesgericht Düsseldorf, no. 17 U 73/93 (Veneer cutting machine case), http://cisgw3.law.pace.edu/cases/930702g1.html.

[14] (6 January 2006) U. S. District Court, M.D. Pennsylvania, No. Civ.A. 1:05-CV-650, American Mint LLC, Goede Beteiligungsgesellschaft, and Michael Goede v. GOSoftware, Inc., http://cisgw3.law.pace.edu/cases/050816u1.html.

[15] (3 December 2002) Handelsgericht St. Gallen, HG. 1999.82-HGK (Sizing machine case), http://www.cisg-online.ch/cisg/urteile/727.htm, English Translation http://cisgw3.law.pace.edu/cases/021203s1.html.

[16] (27 July 2001) U.S. District Court, Northern District of California, San Jose Division, C 01-20230 JW, Asante Technologies, Inc. v. PMC-Sierra, Inc., (CLOUT) abstract no. 433.

[17] (15 January 2002) Tribunal de commerce [District Court] Namur, R.G. no. 985/01, SA P. v. AWS http://cisgw3.law.pace.edu/cases/020115b1.html

[18] (25 February 2004) Tribunale di Padova, No. 40552, http://cisgw3.law.pace.edu/cases/040225i3.html

[19] OJ L 177 of 4.7.2008.

[20] See: Notifications under Article 26(1) of Regulation (EC) No 593/2008 of the European Parliament and of the Council on the law applicable to contractual obligations (Rome I), OJ C 343, 17.12.2010, p. 3; but see: Jan von Hein in:  T Rauscher (ed.), Europäisches Zivilprozess- und Kollisionsrecht, Rom I-VO/ Rom II-VO, 2011 Sellier Munich, Art. 25, para. 7.

[21] Schilling, EuZW 2011, 776, 779 seq.; Wagner, TranspR 2009, 107; Hartenstein, TranspR 2008, 146; Brödermann/Wegen in: Prütting, Wegen, Weinreich (ed.), Bürgerliches Recht, 7th ed. Luchterhand Köln 2012, Art. 25 para. 4.

[22] See J Bischoff, Interpretation of Uniform Law, Max Planck Encyclopedia of European Private Law, 982 seqq. (Basedow et al., eds.,OUP, 2012).

Hon. Judge Francesco Cortesi, a former Fellow of the Center for Transnational Litigation and Commercial Law, renders a remarkable decision on the United Nations Convention on Contracts for the International Sale of Goods (CISG). In that decision, Judge Cortesi addresses various important CISG issues, such as the possibility of the CISG’s exclusion, the issue of non-conformity of the goods sold, the issue of interest rate, etc. In doing so, Judge Cortesi cites to decisions rendered by many foreign courts, thus conforming to the mandate set forth in Article 7(1) of CISG. For an English translation of the full text of the decision, prepared by Giulia Sambugaro, member of the New York State Bar and graduate of NYU School of Law, where she obtained an LL.M. in International Business Regulation, Litigation and Arbitration in 2011, click here.

In its Decision[1] of May 10, 2012, the Frankfurt Higher Regional Court (the “Court”) upheld the Award[2] on Jurisdiction, Arbitrability and Suspension (the “Award”) of 26 October 2010 in the UNCITRAL arbitration Eureko B.V. v. The Slovak Republic. The Award concerns a dispute between the Slovak Republic and a Dutch company, which arose out of the 1991 Netherlands-Czechoslovakian BIT (the “BIT”)[3]. In the Award, the Tribunal (Lowe, van den Berg, Veeder ) rejected the jurisdictional objections raised by the Respondent concerning the prevalence of European Union law over the BIT. The Frankfurt Higher Regional Court now confirmed that the Award is not in conflict with EU Law.

I. Background of the Dispute

The dispute underlying the Award arose out of a Slovakian legislation on health insurance from 2006.

In 1991, the Netherlands and Czechoslovakia signed the BIT, which entered into force in 1992. After the dissolution of Czechoslovakia, Slovakia became a party to the BIT by virtue of succession. On May 1, 2004, Slovakia acceded to the European Union.

Also in 2004, Slovakia opened its market for foreign insurance companies. However, the liberalization of the market was soon reversed in 2006 after a change of government. The Dutch insurance company Eureko B.V. (“Eureko”), which had invested in Slovakia after 2004, claimed that this legislation led to a de facto expropriation of its investment in Slovakia. In 2008, the Eureko filed a notice of arbitration under Article 8 of the BIT, which provides for arbitration according to the UNCITRAL Rules.

After its constitution, the Tribunal decided that the seat of arbitration would be Frankfurt am Main, Germany. Subsequently, the parties filed their written observations. In its Statement of Defence, Slovakia challenged the jurisdiction of the tribunal inter alia because the BIT would be superseded by the EC Treaty (now the Treaty on the Functioning of the European Union, “TFEU”). The Tribunal rejected this argument in the Award and held that it has jurisdiction.

On November 26, 2010, Slovakia filed a request with the Court, asking it to rule on the jurisdiction of the Tribunal pursuant to Section 1040(3) of the German Civil Procedure Code (Zivilprozessordnung, “ZPO”)[4].

II. The Decision of the Court

The Court affirmed the Award and thus rejected the Slovakian request. The Court reasoned that it has jurisdiction to review the jurisdiction of the Tribunal (1.), which rightly had assumed its jurisdiction (2.).

1. Jurisdiction of the Court to review the Award

Since the seat of the arbitration was Frankfurt am Main, Germany, the Court itself had jurisdiction to rule on the jurisdiction of the Tribunal according to Sections 1040(3) and 1062(1)(2) ZPO. In contradistinction to arbitrations under the auspices of ICSID, investment arbitrations according to the UNCITRAL Rules (as provided for in the BIT) are not de-nationalized. Recourse against the Awards according to the domestic law of the seat of the arbitration as lex arbitri remains possible[5].

2. Conformity of the Award with EU Law

After having affirmed that the arbitration clause in Article 8 BIT would satisfy the requirement of a written agreement under domestic German law (cf. Section 1029 ZPO), the Court turned to the central issues of this dispute: Whether the Award was in accordance with EU Law.

The first question to be discussed by the Court was the conformity of the arbitration clause with Article 344 TFEU, which provides that the “Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein.” The Court reasoned that this provision would only apply in relation between the EU Member States, but not in relation between an EU Member State and an individual. The apprehension expressed by Slovakia, that a future award on the merits would not be in accordance with EU Law or that EU Law could be completely disregarded, would not justify the application of Article 344 TFEU. The Court took into account that a future award on the merits would be itself – within certain limits – subject to review by the German courts. The Court pointed out that the Opinion 1/09 expressly limited the application of Article 344 TFEU to disputes between EU Member States. It could find to indicators that the Mox Plant-Judgment[6] would provide to the contrary. Finally, the Court stressed that the EU itself is a contracting party to the Energy Charter Treaty[7]. Therefore, the Court concluded that the EU has expressed its consent to investment arbitration under the auspices of ICSID as well as by other institutions.

The Court rejected the general proposition that only the ECJ would competent to apply EU law regardless of Article 344 TFEU. Instead, the courts of the EU Member States would be obliged to apply EU law. Conversely, the ECJ would not be competent to interpret treaties concluded by the EU Member States. In this regard, the Court referred to a judgment of the ECJ concerning the Swiss-Slovakia BIT of September 15, 2011[8]. No argument to the contrary could be inferred from the so-called ECJ’s Eco-Swiss Judgment[9]. In this judgment, the ECJ held that Community law can constitute a question of public policy, which has to be considered by the courts of the EU Member States when deciding whether an arbitral award is recognized or annulled.

Furthermore, the Court rejected the argument that the Article 8(2) of the BIT would be inapplicable because of Article 30 VCLT, which concerns the conflict of treaties governing the same subject matter. Since Article 8(2) of the BIT would not be in breach of Article 344 TFEU, there would be no conflict as required by Article 30 VCLT.

Neither the alleged contravention against the equal treatment principle under Article 18 TFEU nor against the principle of mutual trust could justify annulling the Award. Even if the BIT was discriminating third party nationals from EU Member States, the consequence could not be to disregard the BIT. Instead, nationals of another EU Member State would also be entitled to recourse to arbitration under the BIT. Although the Court recognized that there are ongoing discussions concerning the relationship between EU Law and investment arbitration, investment arbitration could not be as such incompatible with EU Law, as evidenced by the accession of the EU to the Energy Charter Treaty.

Finally, the Court justified its decision not to request a preliminary rules by the ECJ since the interpretation of Article 344 TFEU would be clear in this regard. Furthermore, a preliminary ruling by the ECJ could not clarify issues concerning the interpretation of Article 8(2) of the BIT, as the ECJ could only rule on EU Law.

III. Comment

The fact that, from the EU Law perspective, an investment agreement between the EU Member States might be “illegal” does not necessarily entail the consequence that, from an international law perspective, an arbitral tribunal, which derives its jurisdiction from an international treaty and which is authorized to apply only international law, should disregard the BIT. Investment tribunals confronted with this question have repeatedly rejected the argument brought forward by respondent EU Member States that EU Law would supersede the BIT[10]. Likewise, the Tribunal in Eureko B.V. v. The Slovak Republic followed this approach.

But the decision by the Court concerns a different constellation: In this case, a Court of an EU Member State had to rule on an arbitration based on an intra-EU BIT that was in force between two other EU Member States. Unlike an arbitral tribunal bound to apply international law in the first place, a Court of an EU Member State is bound to apply the law applicable in the EU Member State, which most notably includes EU Law as the supreme law of the Union[11].

After the entry into force of the Lisbon Treaty, the relationship between EU Law and Investment Treaties concluded by the EU Member States is complex. According to Article 207 TFEU, the Common Commercial Policy (“CCP”) now expressly extends to foreign direct investments. This competence is exclusive[12]. Thus, the EU Member States have no longer the competence to conclude BITs with third countries alone[13]. It is arguable that this applies a fortiori to BITs concluded with EU Member States, especially because the exception of Article 351 TFEU does not apply to intra-EU agreements. On the other hand, the CCP now belongs to “Part V” of the TFEU on the external action by the EU. Therefore, it is arguable that the compatibility of intra-EU BITs with EU law as to be primarily assessed in the light of the provisions governing the internal market. As the EU-competence for the internal market is a shared competence[14], one can suggest that the EU Member States still retain their competence unless and to the extent the EU has enacted legislation and the intra-EU BITs are incompatible with this EU legislation.

In its assessment, the Court merely took into account the compatibility of the dispute settlement provisions of the respective BIT and EU law. It did not consider the compatibility of the investment treaty as a whole with EU law. Although he acknowledged the possibility of conflicts between substantive provisions of EU law and the treaty, he considered this to be a matter to be discussed in potential annulment proceedings concerning the award. The consequential question is whether it is really possible to differentiate between the dispute settlement procedure and the actual dispute[15]? If the exclusive competence for the CCP also covers intra-EU BITs, it is hardly arguable that only the substantive provisions of the BIT are incompatible with EU law, but that the dispute settlement provisions remain in valid.

Therefore, the Court should have made use of its competence to request a preliminary ruling. The argument that this is a clear case and therefore requires no preliminary ruling is rebutted by the extensive reasoning by Court itself. Slovakia filed an appeal against the decision of the Court with the German Supreme Court (Bundesgerichtshof, “BGH”). Hopefully, the BGH will not try to avoid a preliminary ruling, as this would provide the much needed legal certainty regarding the extent of the EU’s external competences in the field of investment law.

Jan Asmus Bischoff

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

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[1] Decision of the Frankfurt Higher Regional Court, 10 May 2012, 26 SchH 11/10, available at: <http://www.italaw.com/documents/26schh01110.pdf>.

[2] Eureko B.V. v. The Slovak Republic, UNCITRAL arbitration, PCA Case No. 2008-13,

Award on Jurisdiction, Arbitrability and Suspension, 26 October 2010, available at: <http://www.italaw.com/documents/EurekovSlovakRepublicAwardonJurisdiction.pdf>.

[3] Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, available at: <http://unctad.org/sections/dite/iia/docs/bits/netherlands_slovakia.pdf>.

[4] A translation of the German arbitration legislation contained in the ZPO is available at: <http://www.dis-arb.de/de/51/materialien/german-arbitration-law-98-id3>.

[5] Douglas, The International Law of Investment Claims 115-116 (Cambridge University Press, 2009).

[6] ECJ, Judgment of May 30, 2006, Commission of the European Communities v Ireland, Case 459/03, ECR 2006, I-4635, <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62003CJ0459:EN:NOT>.

[7] As to questions on the relationship between the Energy Charter Treaty and EU Law in general, see the contributions in: Coop (ed.),  Energy Dispute Resolution: Investment Protection, Transit and the Energy Charter Treaty, part II (2011, Juris Publishing).

[8] ECJ Judgment of September 15, 2011, C-264/09, available at: <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62009CJ0264:EN:NOT>

[9] ECJ, Judgment of June 1, 1999, Eco Swiss China Time Ltd v Benetton International NV, Case C-126/97, ECR 1999, I-3055, available at: <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:61997CJ0126:EN:NOT>.

[10] AES Summit Generation Limited and AES-Tisza Emrömü Kft. v. Republic of Hungary, Award of September 23, 2010, para. 7.6; Telenor Mobile Communications A.S. v. The Republic of Hungary, Award of September 13, 2009, para. 47.; Eastern Sugar B.V. v. Czech Republic, Partial Awarad of March 27, 2007, paras. 114-181; Rupert Joseph Binder v. Czech Republic, Award on Jurisdiction of June 6, 2007, not published; Ioan Micula, Viorel Micula, S.C. European Food S.A., S.C. Starmill S.R.L., & Multipack S.R.L. v. Romania, Decision on Jurisdiction and Admissibility of September 24, 2008, para. 41; compare also: Saluka Investments B.V. v. Czech Republic, Partial award of March 17, 2006, para. 351; see also Happ and Bischoff, “Role and Responsibility of the European Union under the Energy Charter Treaty” in Coop(ed.), Energy Dispute Resolution: Investment Protection, Transit and the Energy Charter Treaty 156-63 (Juris Publ., 2011); Eilmannsberger, “Bilateral Investment Treaties and EU Law”, 46 CML Rev. 383, 399-401 (2009); Wehland, “Intra-EU Investment Agreements and Arbitration: Is European Community Law an Obstacle?”, 58 ICLQ 297 (2009); Burgstaller, “European Law and Investment Treaties”, 26 J. Int’l Arb. 181, 184-96 (2009); Ghouri, “Resolving Incompatibilities of Bilateral Investment Treaties of the EU Member States with the EC Treaty: Individual and Collective Options”, 16 ELJ 806 (2010).

[11] [No. 17. Declaration concerning primacy; C 83/344 Official Journal of the European Union 30.3.2010]

[12] Cf. Article 3(1)(e) TFEU.

[13] Bischoff, Just a little BIT of “mixity”?, 48 CMLR 1527, 1557 seq. (2011); see also in this Blog: <http://blogs.law.nyu.edu/transnational/2011/02/a-little-bit-mixed-%E2%80%93-the-eu%E2%80%99s-external-competences-in-the-field-of-international-investment-law/>.

[14] Cf. Article 4(2)(a) TFEU.

[15] The contrary is suggested by ECJ, Opinion 1/91, December 14, 1991 ECR, ECR 1991 Page I-6079, para. 40.

Professor Franco Ferrari, Director of the Center for Transnational Litigation and Commercial Law, has just published a paper (co-authored with Dr. Francesca Ragno from Verona University School of Law) in Spanish entitled “Jurisdiction in contract matters under the Brussels I Regulation” in La Notaria, a Spanish peer reviewed law review. The paper analyzes how the provision (Article 5.1) of the Brussels I Regulation dealing with jurisdiction in contract matters is interpreted in the courts of the various countries in which the Regulation came into force.

Professor Linda Silberman, Co-Director of the Center, will speak on 29 May 2012, at an event at the British Institute of International and Comparative Law, chaired by former S.Ct. Justice Lawrence Collins, who will be Fellow at Center in October. Mr.  Alex Layton, former Fellow of the Center, will also speak. More information can be found here.

The Swiss Chambers’ Arbitration Institution has recently revealed its revised Arbitration Rules, which are set to enter into force as of June 1^st, 2012 (the “Swiss Rules” or the “Rules”). The Rules build on the success of their 2004 predecessor, yet introduce some interesting and well-received changes. This contribution provides a brief overview of some of the more significant amendments.

Background

The former version of the Swiss Rules, adopted in 2004 (“2004 Swiss Rules“), was based on the 1976 Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL Rules“), adapting the latter to administered arbitrations and taking into account modern arbitral practice at the time. Since their entry into force, some 500 cases have been settled under the 2004 Swiss Rules. The aim in revising the 2004 Swiss Rules was to undertake a “light” revision, taking into consideration the revised 2010 UNCITRAL Rules, recent developments in arbitral practice and the experiences gained under the previous rules. The three main goals were (a) to further enhance the efficiency of the arbitral process, particularly in terms of time and cost; (b) to give certain additional powers to the institution administering the arbitration proceedings, again mainly in view of the efficiency of the process; and (c) to preserve the flexibility of the proceedings and the autonomy of the parties on the one hand and the arbitral tribunal on the other to the largest extent possible.

Strengthening of the Institution

One of the changes brought about by the 2012 revision of the Swiss Rules is the strengthening of the Swiss Chambers’ Arbitration Institution (the “Institution”).

Still comprised of the Chambers of Commerce and Industry of Basel, Bern, Geneva, Neuchâtel, Ticino, Vaud and Zurich, the Institution has established the Arbitration Court (the “Court”). As compared to the powers vested in the previous Arbitration Committee and Special Committee, the competences of the Court have been broadened in the interest of the efficient and smooth running of the arbitration proceedings under the Swiss Rules. Thus, new Article 1(4) of the Rules provides in general terms that by submitting their dispute to arbitration under the Swiss Rules, the parties confer on the Court, to the fullest extent permitted under the law applicable to the arbitration, all of the powers required for the purpose of supervising the arbitral proceedings otherwise vested in the competent judicial authority, including specifically the power to extend the term of office of the arbitral tribunal and to decide on the challenge of an arbitrator on grounds not provided in the Swiss Rules.

Furthermore, the Court has been given extended powers with respect to the constitution of the arbitral tribunal. For instance, pursuant to Article 2(3) of the Rules, the Court may extend or shorten any time-limit it has fixed or has the authority to fix or amend if the circumstances so justify. This can include the shortening of the time-limits for the appointment of arbitrators. Moreover, the Court has the power to ensure the due and prompt constitution of an arbitral tribunal in the event of any failure in such constitution under the Swiss Rules, which includes the express power to revoke any appointment already made, to appoint or reappoint any of the arbitrators and to designate one of them as the presiding arbitrator (Article 5(3)).

The Court has also been vested with extended powers with respect to any decision of the arbitral tribunal on costs. Whereas under the 2004 Swiss Rules cost decisions were only to be submitted to the Chambers for consultation, Article 40(4) of the 2012 Rules provides for the submission of cost decisions to the Court for approval or adjustment, expressly stipulating that any decision in this respect by the Court is binding upon the arbitral tribunal.

The Court is assisted in its work by the Secretariat of the Court (the “Secretariat”). As a general rule, it is now also the Secretariat and no longer the arbitral tribunal that holds the deposits to be paid by the parties (Article 4(1) of Appendix B).

Time and Cost Efficiency

One of the main goals of the revision was to further increase the efficiency of the proceedings. Unlike other recently revised sets of arbitration rules, the drafters of the Swiss Rules decided not to introduce a separate catalogue of case management tools. Instead, the existing rules were partially modified where deemed necessary.

The key provision in this regard is Article 15(7) of the Rules, providing that all participants in the arbitral proceedings shall act in good faith and shall make every effort to contribute to the efficient conduct of the proceedings and to avoid unnecessary costs and delays. Unlike for instance Article 37(5) of the 2012 ICC Rules, the Swiss Rules do not contain an express provision that a party not having conducted the arbitration in an expeditious and cost-effective manner may be faced with consequences as to the bearing of costs. However, Article 40 of the Swiss Rules, providing that the arbitral tribunal may apportion any of the costs of the arbitration among the parties if it determines that such apportionment is reasonable, taking into account the circumstances of the case, does not exclude that the parties’ behavior with respect to efficiency and cost-effectiveness is a circumstance to be taken into account by the tribunal when apportioning the costs of the proceedings.

Besides this general provision, the revised Rules provide for several additional, yet more minor amendments geared towards time and cost efficiency, such as the competence of the Court stipulated in Article 2(3) to shorten time-limits, the appointment of party-appointed arbitrators together with the Notice of Arbitration and the answer thereto, respectively (Article 3(3)(h) and 3(7)(f)), the introduction of a 15 day deadline for the challenge of an arbitrator after the circumstances giving rise to the challenge became known to that party (Article 11), the general rule that the Statement of Claim and the Statement of Defence shall include all documents and other evidence on which the parties rely (Articles 18(3) and 19(2)), or the express provision of witness or expert examination “through means that do not require their physical presence at the hearing (including by videoconference)” (Article 25(4)).

Consolidation and Joinder

Article 4 of the 2012 Swiss Rules introduces some amendments to the existing provisions on consolidation of and joinder of additional parties to pending arbitration proceedings.

Article 4(1) further increases flexibility with respect to consolidation of arbitration proceedings by vesting the Court with the power to revoke the appointment and confirmation of arbitrators and to appoint arbitrators itself if necessary to enable consolidation. It is noteworthy that the Swiss Rules are less restrictive in terms of the prerequisites for granting consolidation from the ICC Rules in that they give the Court greater discretion. This being said, it is to be expected that the Court will exercise this discretion with appropriate restraint, giving due consideration to the privity of the contractual relationships in question.

Article 4(2) brings about only minor changes to the provision on joinder. In particular, by amending the wording from “third parties” to “third persons”, the Rules clarify that the provision includes third persons who are not yet and may not become “full” or principal parties to the arbitral proceedings, but can act as secondary parties (Nebenpartei). Moreover, the 2012 Swiss Rules allow for the participation of third persons in arbitral proceedings without a claim being raised against such third person. It is noteworthy that the Swiss Rules offer more options with respect to joinder than the ICC Rules, which do not allow for a third party to join proceedings on its own motion or to request the joinder of a third party without filing a claim against it.

Interim Relief and Emergency Arbitrator

The 2012 Swiss Rules also introduce some changes with respect to interim relief.

Many of the changes to the wording of Article 26 on tribunal-ordered interim relief reflect current arbitral practice in Switzerland. Thus, Article 26(1) now expressly states that upon the application of any party or, in exceptional circumstances and with prior notice to the parties, on its own initiative, the arbitral tribunal may modify, suspend or terminate any interim measures granted. Furthermore, new Article 26(4) stipulates that the arbitral tribunal may rule on claims for compensation for any damage caused by an interim measure which later proves to have been unjustified. Also, Article 26(5) now expressly recognized the concurrent jurisdiction enshrined in many arbitration laws between state courts and arbitral tribunals to grant interim relief in support of arbitration, and provides that by submitting their dispute to arbitration under the Rules, the parties do not waive any right that they may have under the applicable laws to submit a request for interim measures to a judicial authority.

Article 26(3) of the Swiss Rules is an entirely new provision and reads as follows: “In exceptional circumstances, the arbitral tribunal may rule on a request for interim measures by way of a preliminary order before the request has been communicated to any other party, provided that such communication is made at the latest together with the preliminary order and that the other parties are immediately granted an opportunity to be heard.” In other words, the Swiss Rules expressly allow for ex parte interim relief, provided that the party against whom the ex parte measure is directed is immediately granted the right to be heard. This provision, which strongly resembles the provision on preliminary orders in the UNCITRAL Model Law in its 2006 version, reflects the common view in Switzerland that, in order to prevent frustration of the purpose of the requested interim relief and to effectively protect the parties’ rights, it is necessary in exceptional circumstances to grant such interim relief on an ex parte basis.

Finally, Article 43 of the Swiss Rules introduces a new emergency relief procedure, enabling a party to a Swiss Rules arbitration agreement requiring urgent interim measures pursuant to Article 26 before the arbitral tribunal is constituted to submit to the Secretariat an application for emergency relief proceedings. The emergency arbitrator provisions under the revised Swiss Rules resemble other recently introduced emergency arbitrator regimes (see, e.g., the emergency arbitrator under the 2012 ICC Rules), but introduce some provisions specific to the Swiss Rules. For instance, the emergency arbitrator under the Swiss Rules, by reference to Article 26 of the Rules as a whole, has the power to grant preliminary orders in exceptional circumstances, a power not vested in the emergency arbitrator under other comparable rules. Furthermore, pursuant to Article 43(2)(b) of the Rules, it is at the Court’s discretion to refrain from appointing an emergency arbitrator if it appears more appropriate in a given case to proceed with the constitution of the arbitral tribunal and refer the application for urgent interim measures to the arbitral tribunal.

Conclusion

In sum, the recent “light” revision of the Swiss Rules constitutes a successful attempt at reflecting current arbitral practice and time and cost efficiency of the arbitral process whilst at the same time maintaining the core attributes of Swiss Rules arbitration, which has over the past eight years proven to be a highly successful means of dispute resolution. Compared to other institutional arbitration rules, the Swiss Rules continue to offer a leaner and more flexibility, yet effective administration of arbitration proceedings.

Dr. Christopher Boog is a Partner in Schellenberg Wittmer in Zurich and a member of its International Arbitration Practice Group. He is a member of the Zurich bar and a graduate from the Law Schools of the Universities of Fribourg (Master of Law, with honors), Amsterdam (International Law Certificate) and Zurich, where he obtained his doctorate summa cum laude. Christopher Boog was a research fellow at Columbia Law School in New York and regularly publishes and speaks on topics of international arbitration and transnational litigation.

Introduction

The Brazilian Arbitration Act (the “BAA” or the “Act”)[1] does not distinguish between domestic and international arbitration. It does, however, set different mechanisms for parties to seek and resist enforcement of an arbitral award, depending on whether it is deemed domestic or foreign.

On May 24, 2011, the Brazilian Superior Court of Justice (Superior Tribunal de Justiça, hereinafter the “STJ” or the “Court”), the country’s highest court for non-constitutional matters, rendered a decision concerning the distinction between domestic and foreign arbitral awards (hereinafter the “Decision”).[2]

Under the BAA, domestic arbitral awards amount to judicial decisions rendered by the Brazilian courts (BAA, Article 31). While potentially subject to motions for annulment before said courts, domestic arbitral awards constitute res judicata. Additionally, if not complied with voluntarily by the losing party, domestic arbitral awards are enforceable before the Brazilian courts as such. In other words, the courts need not confirm domestic arbitral awards in order for their enforcement to be sought, and there is no judicial review of the merits of an award.

In turn, foreign arbitral awards — that is, “arbitral awards made outside the Brazilian territory” (BAA, Article 34, sole paragraph) — can only be recognized and enforced in Brazil upon the authorization of the STJ (Articles 105, I, i of the Brazilian Constitution, 35 of the BAA and 483-484 of the Brazilian Code of Civil Procedure).[3] This process is commonly referred to in Brazil as the “homologation” of foreign arbitral awards, and is consistent with the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention,” or the “Convention”), ratified by Brazil in 2002.[4]

If the proper requirements are met, the STJ will grant an order recognizing the foreign arbitral award (thus giving it res judicata effect within the Brazilian territory) and authorizing its enforcement at the Brazilian courts, like domestic arbitral awards or local court decisions.[5] As with domestic arbitral awards, the merits of foreign arbitral awards are not subject to judicial review, neither during the homologation process at the STJ nor at the enforcement stage at the lower courts.

Thus, while subject to annulment, domestic arbitral awards constitute res judicata and can be directly enforced in Brazil, as of their issuance. Foreign arbitral awards, on the other hand, cannot be annulled in Brazil, but will only be recognized and thus become enforceable in the country upon their homologation by the STJ.

The BAA establishes that the homologation process shall be carried out in accordance with international treaties in force in Brazil or, in their absence, strictly according to the provisions of the Act itself (BAA, Article 34, caput). Articles 37–39 of the BAA deal with this process and mirror Articles IV and V of the New York Convention.

Importantly, the BAA (which was enacted prior to the ratification of the Convention) stroke down the double exequatur requirement that long prevailed in the jurisprudence of Brazilian courts (BAA, Article 35).

Finally, it is worth mentioning that, although Brazil is a party to the Convention since 2002, STJ’s decisions have traditionally referred exclusively to the BAA and/or Resolution 9.[6]

I.            The Arbitral Award and the Brazilian Courts

A.        The Arbitral Award

The Decision herein analyzed derives from an arbitral award in favor of Nuovo Pignone SPA rendered by a sole arbitrator in a dispute against Maritima Petroleo e Engenharia Ltda. and Petromec Inc. The International Court of Arbitration of the International Chamber of Commerce (hereinafter referred to as the “ICC”) administered the proceedings in accordance with its Rules. The award was made in Rio de Janeiro, Brazil. The arbitration was carried out in Portuguese, with Brazilian law governing the merits.

B.        The District Court’s Decision

Nuovo Pignone sought to enforce the award in the courts of Rio de Janeiro. The competent District Court upheld jurisdiction and authorized the seizure of the defendant’s assets. Petromec Inc. then appealed to the Court of Appeals of the State of Rio de Janeiro (hereinafter referred to as the “Rio Court of Appeals”).

C.        The Rio de Janeiro Court of Appeals’ Decision

Surprisingly, the Rio Court of Appeals reversed the District Court’s decision.[7] By a majority, it held that the award emanated from a “foreign arbitration organ” — the ICC.

Misinterpreting the parties’ choice for ICC arbitration and apparently conflating the notions of an administering institution and an arbitral tribunal, the Rio Court of Appeals concluded that, since the parties chose “the International Arbitration Tribunal of the International Chamber of Commerce, which is headquartered in Paris, to resolve their controversy, they sought a foreign decision.” It went on to state that, “despite being Brazilian, the sole arbitrator represented and was administratively bound to a foreign arbitral institution, whose foreign rules were followed.”

Accordingly, the Rio Court of Appeals concluded that the award was a foreign one, dismissing the case and requiring the STJ’s homologation order for its enforcement to be sought in Brazil.

D.        The STJ’s Decision

Claiming violation of the BAA and of the Brazilian Code of Civil Procedure, Nuovo Pignone appealed to the STJ, the country’s court of last resort for federal matters. The issue at stake before the STJ was whether an arbitral award rendered in Rio de Janeiro by a sole arbitrator of Brazilian nationality, in Portuguese, with Brazilian law governing the merits, but administered by an institution headquartered abroad, in Paris (the ICC), is a domestic or a foreign arbitral award.

The Court unanimously reversed the Rio Court of Appeals’ decision and affirmed the original District Court’s ruling. Pointing out that under the system established by the New York Convention (Article 1), each contracting State is entitled to set forth its own rules governing the nationality of arbitral awards, the STJ concluded that the place where the award is made is the sole criterion enshrined by the BAA, irrespective of whether the award deals with transnational commerce, involves multiple legal systems, or is administered by a foreign institution in accordance with its rules.

The Court further noted that, while the parties’ choice for a Brazilian arbitrator, Brazilian law to govern the merits, and Portuguese as the language of the proceeding, does not affect the nationality of arbitral awards under the BAA, it serves as an indication that they intended the award to be deemed domestic.

In light of those findings, the Court reversed the Rio Court of Appeals’ decision and confirmed that arbitral awards rendered in Brazil are deemed domestic, and thus directly enforceable at the competent local courts, regardless of other factors surrounding the arbitration.

II.        Commentary

A.        Positive Aspects

Given that Article 34 of the BAA clearly endorses the notion that awards made outside the Brazilian territory shall be deemed foreign, the STJ’s final conclusion is hardly innovative.

However, its relevance cannot be understated to the extent that a different outcome would have provoked deeply negative consequences to Brazil’s reputation as an arbitration-friendly jurisdiction: Had the STJ concluded that any elements other than the place where the award is made can affect the nationality of the award, a wave of annulment requests would likely have been filed at the Brazilian courts in order to prevent awards made in Brazil but administered by foreign institutions (or containing foreign elements) from being enforced in the country without prior homologation by the STJ.

In this sense, although the Paris-based ICC’s administration of the dispute was the only “foreign element” allegedly affecting the nationality of the award (as per the defense raised by the party resisting enforcement and upheld by the Rio Court of Appeals), in dicta the STJ expanded the coverage of its decision to clarify that no factor other than the place where the award is made (be it the law governing the merits, the language in which the proceedings are conducted, or the nationality of the arbitrators) matters.

It is also noteworthy that the STJ expressly referred to the Convention in its Decision, thus breaking up with its tradition of applying it indirectly through the BAA and Resolution 9. Nonetheless, as explained below, this progress might have come late.

B.        Negative Aspects and Potential Controversy

(i)         The Controversial Reasoning

Undeniably, the STJ reached the right conclusion. However, it seems to have done so by (perhaps, inadvertently) advancing an interpretation of a New York Convention-based concept — contained in the BAA[8] and in the Decree that enacted the Convention in Brazil[9] — that contradicts international practice and possibly leaves room for undesired controversy in similar cases.

The Court pointed out that in most jurisdictions the nationality of arbitral awards is determined by reference to the country freely chosen by the parties or the arbitrators as the legal seat of the arbitration (which, it emphasized, bears no relation to and is not affected by the place where the award is made or where the proceedings occur).[10] On the other hand, the STJ further advanced in its reasoning that, contrary to the comparative experience, the BAA upholds a territorial/geographic (ius solis) approach whereby the sole element determining the nationality of an arbitral award in Brazil is the place where the award is made.[11]

The inevitable question is: Does the STJ perceive the place where an award is made as being something other than the seat of the arbitration? Regrettably, the Court seems to consider that, under Brazilian law, the place where an award is made and the legal seat of the arbitration are at least not necessarily one and the same. The Decision thus seems to suggest that the former — which, as a result of Article 34, sole paragraph, of the BAA, determines the nationality of the award and thus the appropriate avenues to seek and resist the enforcement of arbitral awards in Brazil — corresponds to the place where the award is physically signed, as a result of what it claims to be the geographic, ius solis criteria underlying the Brazilian approach.

(ii)        The Potential Uncertainty Deriving from the STJ’s Reasoning

In the case at stake, the place where the sole arbitrator physically made the award coincided with the contractually-designed seat of the arbitration — the city of Rio de Janeiro. However, this will not always be the case.

While made in dicta, the STJ’s reasoning in reaching a correct decision arguably leaves room for controversy in a foreseeable scenario in which one or all arbitrators physically sign the award in a location other than the seat of the arbitration. Perhaps because this issue did not arise in this case, the STJ took its position for granted and did not explore this possibility or its implications.

If, in the future, the STJ follows the approach it seems to advance, inappropriate outcomes could easily be achieved: An award deriving from an arbitration seated in São Paulo would have to go through the homologation process if a Danish sole arbitrator signs the award in his hometown, while an award stemming from an arbitration seated in Copenhagen would need no homologation in order to be enforced in Brazil so long as the arbitrators sign it in Rio, by occasion of their fortuitous meeting for a conference in that city.

Despite the STJ’s largely satisfactory track record on arbitration matters and the positive features of the Nuovo Pignone Decision outlined above, it is impossible to resist respectfully criticizing the Court’s apparent indication that the decisive factor in determining the nationality of an arbitral award is the location in which it is physically made.

(iii)       Appropriate Reasoning

While the conclusion would have been the same in this case because the arbitrator signed the award in the legal seat of the arbitration, we contend that the above-mentioned reasoning is in dissonance with a broader teleological view advanced by the drafters of the New York Convention (which contains the similarly drafted expressions “arbitral awards made in the territory of a State,” “the country where the award was made,” and “the country in which, or under the law of which, that award was made”) and overwhelmingly upheld by foreign courts.

The better view is that the place, country, territory, or venue (to cite frequently used expressions) where an award is made is the legal seat of the arbitration, as agreed upon by the parties (in their arbitration agreement or any further document) or, in the absence of any such agreement, by the arbitrators (or administering institution).

The legal seat of the arbitration determines the nationality of the award, irrespective of where the hearings take place or where the arbitrators physically sign the award. It essentially anchors the proceedings in one legal system, whose law and courts are attributed important roles.

Although the Convention does not expressly clarify what it means by the “place where an award was made,” eminent international scholars and practitioners, and a vast majority of local courts (including those in the United States, England, France, Germany, Italy, and Japan) share the view herein expressed.[12] Several local statutes governing arbitration (i.e., the 1996 English Arbitration Act and the Swiss Law on Private International Law), the 1976 and 2010 versions of the UNCITRAL Model Law (Articles 20(1) and 31(3), and 18, respectively),[13] and the rules of most leading international arbitration institutions (see, for example, Article 31(3) of the 2012 ICC Rules) do so as well.[14]

Ironically described as “territorial,” this approach is based upon legal fictions (“seat,” “venue,” “country,” or “place” of arbitration)[15], not geographic definitions. ICCA’s Guide to the Interpretation of the New York Convention is particularly clear: “The vast majority of Contracting States considers that an award is made at the seat of the arbitration. The seat of the arbitration is chosen by the parties or alternatively, by the arbitral institution or the arbitral tribunal. It is a legal, not a physical, geographical concept. Hearings, deliberations and signature of the award and other parts of the arbitral process may take place elsewhere.”[16]

Gary Born is equally supportive of this interpretation: “The correct view is that an award is “made” in the place that the parties have contractually-selected (or, absent agreement, that an arbitral institution or competent national court has selected pursuant to the parties’ delegation) as the seat of the arbitration.…Under this approach, the place where an award is “made” is not affected by the physical location where the award is signed or by the holding of hearings in particular places for convenience. Rather, the only relevant consideration is where the parties have agreed upon as the place or seat of the arbitration.”[17]

(iv)       Possible Explanation for the STJ’s Criticized Reasoning

A possible explanation for the STJ’s reasoning might lie in the translation into Portuguese of the instruments upon which the legal provisions at stake (i.e., the Decree No. 4,311 and Article 34, sole paragraph, of the BAA) are based: the New York Convention and the 1988 Spanish Arbitration Act (the “1988 SAA”).

The Decree No. 4,311 of 2002 (the “Decree”), which internalized the New York Convention in Brazil, consists of a translation of the Convention into Portuguese. Article 34, sole paragraph, of the BAA openly drew from Article I, 1 of the New York Convention[18] and Article 56(2) of the 1988 SAA.[19]

Having the English version of the Convention as a reference, the expression whose translation is controverted is “to make [an award]” (as in Article I, 1, first paragraph’s “arbitral awards made at…”). Both the BAA and the Decree used the Portuguese word “proferido” (from the verb “proferir”) as a translation of that expression. The French and Spanish official versions of the Convention adopted “rendues” and “dictadas,” respectively. Finally, the 1988 SAA used “proferidas.”

To an author, the specific choice in Brazil for the word “proferido” (clearly stemming from the 1988 SAA) in both the BAA and the Decree is semantically more restrictive than other words into which it could have been translated. This author argues that the word adopted by the Decree and the BAA is thus hardly compatible with the broader notion internationally associated with the seat of the arbitration.[20]

However, as another author adds, a strictly grammatical interpretation of the term found in the relevant Brazilian legal instruments would lead to inconsistencies and unacceptable outcomes. Thus, given the controlling role of the law of the seat of the arbitration, he advances that a logical interpretation of the BAA and of the Brazilian translation of the Convention suggests that “the place where the award is made” is a purely legal (non-physical) concept, to which the law governing the proceedings is closely related.[21]

(v)        Escape Valves from Arguably Misleading Translations

It might be argued that the Brazilian courts are bound to apply the legal instruments in force in the Brazilian territory as such, which would include the application of the arguably misleading translations contained in the BAA and the Decree. However, it must also be borne in mind that the Court enjoys some discretion in interpreting these far-from-clear provisions.

Accordingly, in issuing its decision the STJ was entitled and indeed should have resorted to other equally available and arguably more appropriate hermeneutic techniques (for instance, by pursuing teleological or historical interpretations, or resorting to comparative experience, to cite a few). Had it done so, the inevitable conclusion would have been that the “place” or “venue” where arbitral awards are made can only correspond to the contractually-designed legal seat of the arbitration.

There is no hierarchy amongst the five official versions of the Convention and it may be argued that, according to the reader, nuances may set the concept or scope of certain provisions apart. It is noteworthy that even within the same language — Spanish– the official Spanish version of the Convention and the 1988 SAA used different words to designate the same concept. Yet, all of this only operates to reinforce the case for an autonomous, a-national interpretation and application of the text of the Convention.

Thus, the Court’s interpretation might be justifiable as a result of a strictly grammatical analysis of the relevant legal provisions, but it does not find support in the uniform interpretation of the New York Convention and arguably paves the way for inconsistencies and uncertainty, in case the award is not signed in the legal seat of the arbitration.

A longer tradition of directly applying the Convention could have avoided the herein criticized interpretation and allowed the STJ to draw lessons from valuable international experience, while preserving its independent decision-making power.

Not coincidently, Article 34 of the BAA established the prevalence of treaties over domestic legislation and the drafters of the Convention aimed at its uniform application.[22] In light of that, it is worth invoking Born’s irresistible conclusion that “the applicability of Article V(1)(e) and Article VI cannot sensibly be made to depend on individual national law definitions of where an award is made” at the risk of undermining the Convention’s objective “to centralize actions to annul awards in a single forum” by allowing “individual Contracting States to entertain actions to annul an award in almost any matter they desired.”[23]

III.       Conclusion

The STJ held that whether an arbitral award shall be considered domestic or foreign depends exclusively on the place where it was made, irrespective of the presence of foreign elements.

This seems to provide important legal certainty to the extent that it clarifies that the administration of arbitral proceedings by foreign institutions in accordance with their rules will not affect the nationality of the award. It thus consolidates the perception that Brazilian courts are supportive of arbitration and prevents a backlash that could have been unleashed by a different outcome.

However, the right conclusion appears to have been partly reached through a reasoning that is unsupported by the predominant international experience. To the extent the arbitrators sign the award in the legal seat of the arbitration, the matter seems to be settled. The outcome would be less than certain and potentially highly unsatisfactory, however, when there is a discrepancy between the contractually-designed seat and the place where the signatures take place.

As this could lead to controversies in future cases, it would be of utmost importance for the Court to increasingly refer to the Convention in its decisions. While doing so, it should resort to an interpretation of its provisions that reflects the uniformity envisaged — and to a great extent, achieved, at this point — by its drafters.

Clarifying that the place where an award is made is the contractually-elected seat of the arbitration would be a positive start. For the time being, the safest approach is for the parties to expressly indicate the seat of the arbitration in their agreement to arbitrate and for the arbitrators to expressly refer to such venue (i.e., the legal seat) as the place where the award was made.

Daniel Aun

LL.M. candidate in International Business Regulation, Litigation & Arbitration at New York University School of Law and Vice President of the New York University School of Law International Arbitration Association. Formerly, practiced international arbitration with L.O. Baptista Advogados in São Paulo, acted as assistant professor of International Law at the Pontifical Catholic University of São Paulo, and interned at the Permanent Court of Arbitration at The Hague. The author can be contacted at daniel.aun@nyu.edu.

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[1] Law 9.307 of 1996.

[2] Superior Tribunal de Justiça, Recurso Especial No 1.231.554/RJ (2011/0006426-8), Reporting Justice Nancy Andrighi.

[3] The Code of Civil Procedure (“CCP”) broadly establishes that decisions rendered by foreign tribunals (which are deemed to include both judicial decisions and arbitral awards) will only be recognized (and later enforced, that being the case) in Brazil if homologated by the STJ. The BAA more specifically states that, in order to be recognized and enforced in the country, foreign arbitral awards will be subject exclusively to homologation by the Supreme Court (the internal competence to hear these requests was later transferred to the STJ, under Article 105, I, i of the Brazilian Constitution, by operation of the Constitutional Amendment 45/2004). (Carlos Alberto Carmona, Arbitragem e Processo, Atlas, 2009, pp. 445 and 449). It is noteworthy that the CCP is currently undergoing a revision at the Brazilian Congress as a result of which the homologation process might be amended.

[4] The New York Convention was internalized in Brazil through Decree No 4,311 of July 23, 2002, which contains its translation into Portuguese. While it does not represent one of the official versions of the Convention, this version and the similarly worded related provisions of the BAA (which incorporated its main features into the Brazilian legal system prior to Brazil’s ratification of the Convention) are the legal texts applied by the Brazilian courts to the cases within their scope and, as will be seen below, could arguably lead to future controversies.

[5] However, it its worth clarifying that, within the Brazilian judicial organization, requests for enforcement of domestic arbitral awards are heard by the competent District Courts, while requests for enforcement of foreign arbitral awards that have been homologated by the STJ’s are heard by the competent Federal Courts. The main difference between pursuing enforcement of an arbitral award in either of these courts is probably related to the variation in the length of each proceeding.

[6] Resolution 9 is part of STJ’s internal statute and generally incorporates relevant provisions of the BAA and the Convention. It also provides for matters beyond these instruments, such as the granting of provisional relief at the recognition and enforcement stage.

[7] Tribunal de Justiça do Estado do Rio de Janeiro, Décima Segunda Câmara Cível, Agravo de Instrumento No 0062827-33.2009.8.19.0000, dated February 23, 2010.

[8] Brazilian Arbitration Act, Article 34, sole paragraph: “Considera-se sentença arbitral estrangeira a que tenha sido proferida fora do território nacional.”

[9] Decree No. 4,311/2002, Article I, 1, first part: “A presente Convenção aplicar-se-á ao reconhecimento e à execução de sentenças arbitrais estrangeiras proferidas no território de um Estado que não o Estado em que se tencione o reconhecimento e a execução de tais sentenças, oriundas de divergências entre pessoas, sejam elas físicas ou jurídicas.”

[10] Decision, p. 5: “No direito comparado a “formula” mais consagrada for a que identifica a nacionalidade da sentença arbitral segundo o país eleito como sede da arbitragem.”

[11] Decision, pp. 6-7: “No ordenamento jurídico brasileiro, por sua vez, a adoção como elemento de conexão do ‘lugar onde foi proferida a sentença arbitral’ não suscita maiores dúvidas (…). (…) optou-se por uma definição mais simples e objetiva, ‘baseando-se apenas e tão somente no local onde o laudo sera proferido’ (…) Por conseguinte, apesar das criticas sofridas, (…) não ha dúvidas que o ordenamento jurídico pátrio adotou o sistema territorialista (…). O legislador pátrio, portanto, ao eleger o critério geográfico, do local onde for proferida a sentença (ius solis), desconsiderou qualquer outro element.”

[12] Gary B. Born, International Commercial Arbitration, 2009, pp. 2368-2369.

[13] Born, op. cit., p. 2369

[14].“…Beyond these provisions of national law and institutional rules, the better reading of the New York Convention is that it contains an international definition of where an award is “made,” which would prohibit Contracting States from adopting alternative definitions (and thereby affecting the scope of the arbitral awards subject to the Convention). That is, the Convention should be interpreted as contemplating uniform international standards defining where an award is “made” (to wit, in the contractual arbitral seat), which Contracting States are required to implement. The foregoing conclusion is consistent with the text of Article V(1)(e), which adopts an internationally-applicable formula (referring to the place where an award is “made”).” (Born, op. cit., pp. 2373-2374)

[15] “Thus, somewhat ironically, given what is described as the “territorial” applicability of national arbitration legislation only to arbitrations seated on local territory, the arbitral seat is itself defined entirely by reference to the parties’ agreement, and not as a purely geographic or territorial location (i.e., the place of the arbitral hearings). …Thus, the parties and the tribunal can proceed through an entire arbitration without ever setting foot in or otherwise engaging with the arbitral seat in any way – while being subject to the “territorial” arbitration legislation of the arbitral seat.” (Born, op. cit., p. 1249)

[16] ICCA’s Guide to the Interpretation of the 1958 New York Convention, p. 21.

[17] Born, op. cit., p. 2372.

[18] New York Convention, Article I, 1, first paragraph: “This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal”.

[19] Law 36/1988 (Spanish Arbitration Act), Article 56 (2): “Se entiende por laudo arbitral extranjero el que no haya sido pronunciado en España”.

[20] It is claimed that the ordinary meaning of the verb “proferir” is commonly associated the sole act whereby the adjudicator orally declares or communicates in writing its decision, while “fazer” or “realizar” encompass a broader sequence of acts carried out by an adjudicator (i.e. hearings, meetings) culminating in the rendering of a decision (José Augusto Fontoura Costa, Sobre Corvos e Ornitorrincos: Arbitragem Estrangeira e Internacional no Direito Brasileiro, RBA, n. 28, 2011, pp. 68-69).

[21] See Carlos A. da S. Lobo, A Definição de Sentença Arbitral Estrangeira, RAM, v. 9, 2009, pp. 62-69. The STJ cited another section of this article, but seems to interpret its central message differently.

[22] “The terms must be understood taking into account the context and the purpose of the Convention. Therefore, courts should not interpret the terms of the New York Convention by reference to domestic law. The terms of the Convention should have the same meaning wherever in the world they are applied. This helps to ensure the uniform application of the Convention in all the Contracting States.” (ICCA’s Guide, pp. 13-14). Brazilian authors also recognize the downside of the indirect approach traditionally employed by local courts: “…the survey of domestic precedents also shows that, in many ways, Brazil has not profited from adopting a mainly insular standpoint when enforcing foreign arbitral awards. Specifically, the interpretation given so far to standards and rules that are highly linked to the international practices…lack connection to the global knowledge accumulated around the New York Convention. …The problems faced abroad are analogous to those presented in the domestic setting. In that sense, the Brazilian practice would benefit significantly from broadening its legal interpretation to encompass the entire body of principles, policies, case law, debates, research and commentaries that encircle the New York Convention. …they would bridge the gap between the domestic reasoning and the argumentative repertory, methods of legal inquiry and set of legal materials employed in that Convention’s interpretation worldwide. In so doing, Brazilian case law would share the learning and achievements accumulated in fifty years of the New York Convention’s history, as well as join the international community in the ongoing development of this treaty.” André A. C. Abbud, Fifty Years in Five? The Brazilian Approach to the New York Convention, 2008, pp. 35-36.

[23] Born, op. cit., p. 2374.

Introducción

La Ley Brasileña de Arbitraje (la “Ley”)[1] no distingue entre arbitrajes domésticos e internacionales. Sin embargo, sí prevé mecanismos distintos para que las partes persigan o resistan la ejecución de laudos arbitrales, dependiendo de si estos son considerados domésticos o extranjeros.

El 24 de Mayo del 2011, la Corte Superior de Justicia de Brasil (Superior Tribunal de Justiça) (la “Corte”), el más alto tribunal infra-constitucional del país, dictó un importante fallo relacionado con la distinción entre laudos arbitrales domésticos y extranjeros (el “Fallo”).[2]

En virtud de la Ley, los laudos arbitrales domésticos equivalen a sentencias judiciales dictadas por los tribunales brasileños (artículo 31 de la Ley). Si bien están potencialmente sujetos a un proceso de anulación en los tribunales locales, los laudos arbitrales domésticos constituyen res judicata. Adicionalmente, los laudos arbitrales domésticos son inmediatamente ejecutables ante los tribunales brasileños. En otras palabras, los tribunales locales no necesitan confirmar los laudos arbitrales domésticos para que estos sean ejecutados y tampoco pueden revisar las cuestiones de fondo de un laudo.

A la vez, los laudos arbitrales extranjeros, es decir, “laudos arbitrales dictados fuera del territorio brasileño” (artículo 34, párrafo único, de la Ley), no podrán ejecutarse en Brasil sino hasta después de que sean homologados por la Corte, según el artículo 105, I, i de la constitución brasileña, el artículo 35 de la Ley y los artículos 483-484 del Código de Procedimiento Civil de Brasil.[3] Dicho procedimiento, denominado de “homologación” de laudos arbitrales extranjeros, es consistente con la Convención de Nueva York del 1958 sobre el Reconocimiento y la Ejecución de las Sentencias Arbitrales Extranjeras (“Convención de Nueva York”), ratificada por Brasil en el año 2002.[4]

Si se cumplen los requisitos correspondientes, la Corte dicta una sentencia reconociendo el laudo arbitral extranjero, otorgándole por lo tanto carácter de res judicata en el territorio brasileño y autorizando su ejecución ante los tribunales brasileños del mismo modo que los laudos arbitrales domésticos y los fallos judiciales locales.[5] Como sucede respecto a los laudos arbitrales domésticos, las consideraciones sobre cuestiones de fondo de los laudos arbitrales extranjeros tampoco podrán ser sometidas a revisión judicial, sea en la etapa de homologación por la Corte o en el momento de su ejecución en los tribunales inferiores.

En conclusión, aunque los laudos arbitrales domésticos estén sujetos a anulación, constituyen cosa juzgada y podrán ejecutarse en Brasil inmediatamente después de su dictado, mientras que los laudos arbitrales extranjeros no podrán anularse en Brasil, pero dependerán de la homologación de la Corte para constituir res judicata y poder ser ejecutados en Brasil.

La Ley establece que la homologación de laudos arbitrales extranjeros será conducida de acuerdo a los tratados internacionales vigentes en Brasil o, en su ausencia, estrictamente en conformidad con la propia Ley (artículo 34, caput). Los artículos 37-39 de la Ley gobiernan dicho proceso y reproducen el contenido de los artículos IV y V de la Convención de Nueva York.

Es importante notar que la Ley, promulgada anteriormente a la ratificación de la Convención de Nueva York por Brasil, eliminó formalmente el requisito de doble exequátur prevalente por mucho tiempo en la jurisprudencia anterior de los tribunales brasileños (artículo 35 de la Ley).

Finalmente, vale mencionar que a pesar de que Brasil es signatario de la Convención de Nueva York desde el año 2002, los fallos del STJ relacionados a laudos arbitrales extranjeros tradicionalmente hacen referencia exclusivamente a la Ley y/o a la Resolución 9.[6]

I.            El Laudo Arbitral y los Tribunales Brasileños

A.        El Laudo Arbitral

El Fallo aquí analizado se deriva de un laudo arbitral en favor de Nuovo Pignone SPA, dictado por un árbitro único en el contexto de una disputa comercial contra Maritima Petroleo e Engenharia Ltda. y Petromec Inc. El arbitraje fue administrado por la Corte Internacional de Arbitraje de la Cámara de Comercio Internacional (“CCI”) de acuerdo a su reglamento y conducido en portugués. El laudo fue dictado en Rio de Janeiro, Brasil, aplicándose al fondo de la disputa las leyes brasileñas.

B.        La Sentencia de Primera Instancia

Nuovo Pignone inició la ejecución del laudo arbitral ante los tribunales competentes de primera instancia de Rio de Janeiro, los cuales reconocieron su jurisdicción y autorizaron el embargo de los bienes de las demandadas. Petromec Inc. presentó luego una apelación a la Corte de Apelaciones del Estado de Rio de Janeiro (la “Corte de Apelaciones de Rio”).

C.        La Decisión de la Corte de Apelaciones de Rio de Janeiro

Sorprendentemente, la Corte de Apelaciones de Rio revirtió la sentencia de primera instancia.[7] Por mayoría, decidió que el laudo arbitral fue dictado por un “organismo de arbitraje extranjero”, la CCI.

Malinterpretando la elección de las partes de un arbitraje administrado por la CCI y aparentemente mezclando los conceptos de “institución administradora” y “tribunal arbitral”, la Corte de Apelaciones de Rio llegó a la conclusión de que, al elegir “el Tribunal Arbitral Internacional de la Cámara de Comercio Internacional, el cual tiene su sede en París, para resolver su disputa, buscaron una decisión extranjera”. Asimismo, “a pesar de su nacionalidad brasileña, el árbitro único, representaba y estaba administrativamente vinculado a una institución arbitral extranjera, cuyas reglas siguió”.

En vista de ello, la Corte de Apelaciones de Rio determinó que dicho laudo arbitral debería considerarse extranjero, rechazando la demanda ejecutoria en la ausencia de la homologación del STJ.

D.        El Fallo Dictado por el STJ

Alegando el incumplimiento de la Ley y del Código de Procedimiento Civil de Brasil, Nuovo Pignone presentó una apelación ante el STJ, la más alta corte infra-constitucional del país. El tema presentado ante la Corte fue si un laudo arbitral dictado en Rio de Janeiro, por un arbitro único de nacionalidad brasileña, tras un arbitraje conducido en portugués y regido por las leyes brasileñas, pero administrado por una institución con sede fuera de Brasil (i.e. la CCI, en París), debe considerarse domestico o extranjero.

El STJ revirtió, por unanimidad, la decisión de la Corte de Apelaciones de Rio y confirmó la sentencia judicial de primera instancia. Notando que, en el marco del sistema establecido por el articulo 1 de la Convención de Nueva York cada Estado signatario tiene la discreción para definir sus propias reglas relativas a la nacionalidad de los laudos arbitrales, la Corte concluyó que el lugar en que se dicta el laudo arbitral se presenta como el único criterio adoptado por la Ley, independientemente del hecho de que el laudo pueda tratar de temas de comercio internacional, involucre a diversos sistemas jurídicos o sea administrado por una institución extranjera de acuerdo con sus reglas.

La Corte además subrayó que, si bien el hecho que las partes eligieron un árbitro brasileño para decidir la disputa, la aplicación de las leyes brasileñas al fondo y el portugués como el idioma aplicable al procedimiento no afecta la nacionalidad del laudo, esos factores sirven como indicación de su deseo de obtener un laudo doméstico.

En consecuencia de lo anterior, el STJ revirtió la decisión de la Corte de Apelaciones de Rio y confirmó que los laudos arbitrales dictados en Brasil se consideran domésticos y, por tanto, directamente ejecutables ante los tribunales locales competentes, independientemente de otros elementos relacionados con el arbitraje.

II.        Análisis Critico

A.        Aspectos Positivos

Teniendo en cuenta que el artículo 34, párrafo único, de la Ley claramente establece que los laudos arbitrales dictados fuera de Brasil deberán considerarse extranjeros, la conclusión final del STJ no puede ser considerada innovadora.

Sin embargo, su relevancia no puede ser menospreciada, ya que una decisión en sentido contrario hubiera afectado negativamente la reputación de Brasil como jurisdicción favorable al arbitraje: si la Corte hubiera concluido que otros elementos además del lugar de dictado del laudo podrían afectar su nacionalidad, es probable que una gran cantidad de pedidos de anulación fueran presentados a los tribunales brasileños, con el propósito de impedir que laudos arbitrales dictados en Brasil pero administrados por instituciones con sede en el exterior (o involucrando a otros “elementos extranjeros”) fueran ejecutados sin su previa homologación por la Corte.

La administración del arbitraje por la CCI desde su sede en París fue el único “elemento extranjero” que supuestamente afectaba la nacionalidad del laudo arbitral invocado en la defensa presentada por la demandada y posteriormente reconocido por la Corte de Apelaciones de Rio. Sin embargo, en obiter dicta el STJ expandió el alcance de su Fallo y aclaró que ningún otro factor que el lugar en que se haya dictado el laudo arbitral afecta la definición de su nacionalidad  (sea la ley aplicable al fondo de la controversia, el idioma del procedimiento o la nacionalidad de los árbitros).

También merece destacar la referencia expresa a la Convención de Nueva York hecha por el STJ en su Fallo, en contraste con su tradición anterior de aplicarla de forma indirecta, a través de la Ley y de la Resolución 9. Sin embargo, quizás dicho avance haya ocurrido demasiado tarde, como veremos enseguida.

B.        Aspectos Negativos y Posible Controversia

(i)         El Razonamiento Controversial

Sin lugar a dudas, la Corte tomó la decisión correcta. Sin embargo, aparentemente el STJ lo hizo (quizás, sin intención) por medio de una interpretación de conceptos basados en la Convención de Nueva York – contenidos en la Ley[8] y en el Decreto que la promulgó en Brasil[9] – que contradicen la practica internacional y posiblemente crearán indeseadas controversias en casos similares.

La Corte indicó que en la mayoría de las jurisdicciones extranjeras la nacionalidad de laudos arbitrales es determinada en referencia al país elegido libremente por las partes o por los árbitros como la sede legal del arbitraje (la cual, opinó la Corte, no tiene relación con y tampoco es afectada por el lugar en donde el laudo es dictado o el sitio en donde ocurren los procedimientos).[10] En cambio, el STJ sostuvo en su fundamentación que, contrariamente a la experiencia del derecho comparado, la Ley establece un sistema territorial/geográfico (ius solis), en el que el único criterio relevante es el lugar donde el laudo arbitral sea dictado.[11]

La cuestión que inevitablemente se presenta, por lo tanto, es la siguiente: ¿cree el STJ que el lugar en el cual el laudo es dictado es algo distinto que la sede del arbitraje?

Desafortunadamente, la Corte aparentemente considera que, según la ley brasileña, el lugar en donde el laudo arbitral es dictado y la sede del arbitraje no serían necesariamente un único e idéntico sitio. El Fallo parece sugerir que el primer elemento – el lugar en que sea dictado el laudo, que, según el artículo 34, párrafo único, de la Ley determina la nacionalidad del laudo y, consecuentemente, los mecanismos apropiados para que las partes persigan o resistan su ejecución – corresponde al lugar en el que el laudo es físicamente dictado (i.e. firmado) por los árbitros, como resultado de lo que el STJ llama criterio territorial/geográfico (ius solis) que subyace el enfoque brasileño.

(ii)        La Posible Incertidumbre Resultante del Razonamiento Adoptado por el STJ

En el presente caso, el lugar en donde el árbitro único dictó físicamente el laudo arbitral coincidió con la sede del arbitraje elegida por las partes, es decir, la ciudad de Rio de Janeiro. Sin embargo, habrá casos en que dicha coincidencia no ocurrirá.

Aunque en dicta, el razonamiento utilizado por el STJ para alcanzar una conclusión correcta puede permitir que se presenten controversias cuando un árbitro o todo el tribunal firmen el laudo arbitral en un sitio distinto de la sede del arbitraje escogida por las partes. Probablemente porque esa circunstancia no se hizo presente en el caso, el STJ no llegó a analizarla ni a discutir las implicancias de su Fallo.

Si en el futuro el STJ aplica el argumento en que parece apoyarse para justificar su Fallo, sería sencillo obtener resultados inapropiados: la ejecución de un laudo arbitral resultante de un arbitraje con sede en São Paulo dependería de la homologación del STJ si un arbitro único danés lo hubiera dictado en su país, pero un laudo arbitral resultante de un arbitraje con sede en Copenhague no necesitaría la homologación del STJ para ejecutarse en Brasil si hubiera sido dictado en Rio en consecuencia del encuentro casual, para una conferencia en esa ciudad, de los árbitros que componen el tribunal arbitral competente para adjudicar la disputa.

A pesar de su jurisprudencia ampliamente satisfactoria en temas de arbitraje y de los aspectos positivos del Fallo mencionados con anterioridad, es imposible evitar una critica respetuosa a la indicación aparente de la Corte en cuanto a que el lugar en que los laudos arbitrales sean físicamente dictados es el criterio decisivo para la definición de su nacionalidad, ante el sistema establecido por la Convención de Nueva York

(iii)       El Razonamiento Apropiado

Aunque en el presente caso se alcanzaría un resultado idéntico ya que el árbitro firmó el laudo arbitral en la sede del arbitraje, proponemos que el razonamiento adoptado por el STJ en el Fallo entra en conflicto con una interpretación teleológica más amplia sugerida por los redactores de la Convención de Nueva York (que contiene expresiones similares como “las sentencias arbitrales dictadas en el territorio de un Estado”, “del país en que se haya dictado la sentencia”, “del país en que, o conforme a cuya Ley, ha sido dictada esa sentencia”) y confirmada por una gran mayoría de cortes extranjeras.

La mejor doctrina sostiene que el lugar, estado, país o territorio (para mencionar algunas expresiones frecuentemente utilizadas para designar el mismo concepto) en el que un laudo arbitral es dictado es la sede legal del arbitraje, escogida por las partes (en el convenio arbitral o documento posterior) o, en la ausencia de previsión en ese sentido, determinada por los árbitros (o la institución administradora).

La sede legal del arbitraje determina la nacionalidad del laudo arbitral, sin que importe el sitio en donde las audiencias ocurran o que el laudo sea físicamente dictado por los árbitros. La sede del arbitraje esencialmente radica el procedimiento en un sistema legal, cuya ley arbitral y tribunales judiciales adquieren roles importantes.

Aunque la Convención no defina expresamente el significado del concepto de “país en que se haya dictado la sentencia en que el laudo arbitral sea dictado”, eminentes académicos y abogados en ejercicio de la profesión y una inmensa mayoría de cortes judiciales (incluso las de Estados Unidos, Inglaterra, Francia, Alemania, Italia y Japón) comparten la interpretación propuesta en el presente estudio.[12] Importantes leyes de arbitraje (como la Ley de Arbitraje Inglesa del 1996 y la Ley Suiza de Derecho Internacional Privado), la Ley Modelo del CNUDMI (en sus versiones de 1976, artículo 20(1) y 31(3), y de 2010, artículo 18)[13] y los reglamentos de las principales instituciones arbitrales (incluyendo, por ejemplo, el artículo 31(3) del reglamento de la CCI versión 2012) también siguen dicha interpretación.[14]

Irónicamente descrita como “territorial”, esa interpretación no esta basada en conceptos geográficos, sino en ficciones legales (i.e. sede, lugar, local, territorio, Estado o país del arbitraje).[15] La interpretación de la Convención de Nueva York por el International Council for Commercial Arbitration (popularmente conocido como ICCA, por su acrónimo en inglés) es particularmente clara: “The vast majority of Contracting States considers that an award is made at the seat of the arbitration. The seat of the arbitration is chosen by the parties or alternatively, by the arbitral institution or the arbitral tribunal. It is a legal, not a physical, geographical concept. Hearings, deliberations and signature of the award and other parts of the arbitral process may take place elsewhere.”^[16]

Asimismo, Gary Born se expresa en igual sentido: “The correct view is that an award is “made” in the place that the parties have contractually-selected (or, absent agreement, that an arbitral institution or competent national court has selected pursuant to the parties’ delegation) as the seat of the arbitration. …Under this approach, the place where an award is “made” is not affected by the physical location where the award is signed or by the holding of hearings in particular places for convenience. Rather, the only relevant consideration is where the parties have agreed upon as the place or seat of the arbitration.”^[17]

(iv)       Una Explicación Posible para el Razonamiento del STJ

Una posible explicación para el razonamiento del Fallo del STJ podría estar en la traducción al portugués de los instrumentos sobre los cuales el Decreto 4.311 del 2002 (el “Decreto”) y el artículo 34, párrafo único, de la Ley se basaron: la Convención de Nueva York y la Ley Española de Arbitraje del 1988 (la “Ley Española”).

El Decreto internalizó la Convención de Nueva York en Brasil y contiene una traducción de su texto al portugués. A su vez, el artículo 34, párrafo único, de la Ley como es sabido se inspiró en el artículo I, 1 de la Convención de Nueva York[18] y en el artículo 56 (2) de la Ley Española. [19]

Teniendo la versión oficial en inglés de la Convención de Nueva York como referencia, la expresión cuya traducción se torna controvertida en el presente caso es “to make [an award]” (en el artículo I, 1, primera parte). En portugués, la Ley y el Decreto emplearon el termino “proferido” para expresar ese concepto. Las versiones oficiales en francés y en castellano optaron por “rendues” and “dictadas”, respectivamente. Finalmente, la Ley Española utilizó la expresión “proferidas”.

Para un autor, la elección en Brasil de la expresión “proferido”, la cual claramente proviene de la Ley Española del 1988, encontrada en la Ley y en el Decreto, sería semánticamente más restrictiva que otras palabras con las que pudiera haber sido traducida. Ese autor sostiene, por tanto, que difícilmente la palabra utilizada por el Decreto y la Ley podría compatibilizarse con el concepto amplio internacionalmente asociado a la sede del arbitraje.[20]

Sin embargo, otro autor aclara que una interpretación estrictamente gramatical del término utilizado en los textos legales brasileños aplicables conduciría a inconsistencias y a resultados inaceptables. Así, teniendo en mente el rol atribuido a la ley de la sede del arbitraje sobre los procedimientos, dicho autor sugiere que “el lugar en que sea dictado el laudo arbitral” (y expresiones similares utilizadas para designar la misma idea) representan conceptos puramente legales (no físicos), relacionados con la ley que rige el procedimiento (usualmente, la ley de la sede del arbitraje).[21]

(v)        Válvulas de Escape para Posibles Imprecisiones en la Traducción

Podría decirse que la cortes brasileñas están bajo la obligación de darle aplicación a los textos legales vigentes en Brasil tal como existen y están redactados, lo que incluiría las traducciones posiblemente imprecisas contenidas en la Ley y en el Decreto. Sin embargo, es necesario tener en cuenta que el STJ dispone de cierta discreción en la interpretación de dichos artículos cuyo significado no está inmune a cuestionamientos.

En consecuencia, en el razonamiento del Fallo la Corte debería haber recurrido a otras técnicas interpretativas disponibles y más apropiadas para la tarea que se le presentaba, como, por ejemplo, las interpretaciones teleológicas y históricas, o a la experiencia comparada, por citar algunas. Si lo hubiera hecho, la Corte hubiera llegado a la conclusión inevitable de que el lugar, sitio, Estado, país o territorio en que se hace el laudo arbitral sólo puede corresponder a la sede del arbitraje, según la determinación de las partes en el convenio arbitral u otro documento posterior.

No hay un orden de jerarquía entre los cinco idiomas oficiales en los que se hizo la Convención de Nueva York y se podría argumentar que, según el lector, hay diferencias sutiles respecto al concepto y alcance de ciertos términos. De hecho, incluso en el mismo idioma – el español – dos expresiones distintas fueron utilizadas para expresar conceptos idénticos en instrumentos legales distintos: la versión española de la Convención hace referencia a laudos arbitrales “dictados”, mientras que en la Ley Española los laudos arbitrales son “proferidos”. Eso no hace más que confirmar la necesidad de una interpretación y aplicación autónomas y a-nacionales del texto de la Convención.

En otras palabras, aunque la interpretación del STJ pudiera justificarse a partir de una lectura gramaticalmente estricta de las normas legales relevantes, no encuentra amparo en la interpretación uniforme que demanda la Convención de Nueva York. Es más, dicha interpretación abre el camino para inconsistencias e incertidumbre en los casos en que no se firme el laudo arbitral en la sede legal del arbitraje.

Una tradición más consistente en la aplicación directa de la Convención podría, por lo tanto, haber evitado el razonamiento imperfecto adoptado por la Corte y seguramente le hubiera permitido hacer buen uso de la relevante experiencia internacional, sin que tuviera que abdicar de su poder soberano de decisión.

No es casualidad que el artículo 34 de la Ley haya establecido la prevalencia de los tratados sobre las leyes internas en el reconocimiento y ejecución de laudos arbitrales extranjeros y que los redactores de la Convención de Nueva York vislumbraran la interpretación y aplicación uniforme de sus disposiciones.[22]

En conclusión, parece irresistible recurrir a la enseñanza de Gary Born, según la cual no se puede vincular la aplicación de los artículos V(1)(e) y VI de la Convención a definiciones locales del “lugar en que sea dictado el laudo arbitral”. Permitirlo implicaría sujetar el sistema creado por la Convención de Nueva York al riesgo inadmisible de que los pedidos de anulación de laudos arbitrales no se concentren en un único foro y pudieran ser adjudicadas de manera arbitraria por cualquier Estado contratante que desease hacerlo.[23]

III.       Conclusión

El STJ decidió en su Fallo que la nacionalidad de los laudos arbitrales – su carácter de domésticos o extranjeros – depende exclusivamente del lugar en donde hayan sido dictados, siendo irrelevante la presencia de elementos extranjeros para su caracterización.

La Corte parece proveer seguridad jurídica al aclarar de manera definitiva que la administración de arbitrajes por instituciones extranjeras (como la CCI) de acuerdo a sus reglas no afecta la nacionalidad de los laudos arbitrales. El Fallo, por lo tanto, refuerza la percepción positiva de la que gozan las cortes brasileñas en temas de arbitraje y, principalmente, evita la probable desestabilización del arbitraje en el país que resultaría de una decisión en sentido contrario.

Sin embargo, el STJ parece haber alcanzado la decisión correcta al menos en parte a través de un razonamiento que no encuentra apoyo en la experiencia internacional predominante. En la medida que los árbitros firmen el laudo arbitral en la sede del arbitraje, no habrán dudas sobre la nacionalidad del laudo. No obstante, bajo el razonamiento del Fallo, el resultado nos parecería insatisfactorio – o, a lo mejor, desnecesariamente incierto – cuando exista una discrepancia entre el lugar en que los árbitros dictaron físicamente el laudo (al firmarlo) y la sede del arbitraje escogida por las partes.

Teniendo en cuenta que lo anterior podría dar lugar a controversias graves, el STJ debería pasar a recurrir sistemáticamente y de forma directa al texto de la Convención de Nueva York en sus decisiones. Al hacerlo, debería igualmente utilizar una interpretación de sus artículos que refleje la uniformidad buscada – y, hasta cierto punto, satisfactoriamente alcanzada – por sus redactores.

Aclarar que el lugar en donde son dictados los laudos arbitrales será la sede legal del arbitraje sería un buen primer paso. De momento, sería recomendable que las partes contratantes hagan referencia expresa a la sede legal del arbitraje en su convenio arbitral (u otro documento posterior) y que los árbitros indiquen expresamente que dictaron el laudo en el lugar indicado como tal por las partes litigantes.

Daniel Aun

Candidato a LL.M. en International Business Regulation, Litigation & Arbitration, New York University School of Law, en donde es Vice-Presidente de la Asociación de Arbitraje Internacional. Anteriormente formó parte del equipo de arbitraje internacional de L.O. Baptista Advogados en São Paulo, fue profesor asistente de Derecho Internacional en la Pontificia Universidad Católica de São Paulo e hizo una pasantía en la Corte Permanente de Arbitraje de La Haya. El autor puede ser contactado en la dirección daniel.aun@nyu.edu.

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[1] Ley 9.307 del 1996.

[2] Superior Tribunal de Justicia, Recurso Especial No 1.231.554/RJ (2011/0006426-8), Ministra Nancy Andrighi.

[3] El Código de Procedimiento Civil de Brasil (el “CPC”) establece de modo amplio que las decisiones dictadas por tribunales extranjeros (las cuales se considera que incluyen decisiones judiciales y laudos arbitrales) serán reconocidas (y posteriormente ejecutadas, si sea el caso) si son homologadas por el STJ. Más específicamente, la Ley determina que el reconocimiento y la ejecución de laudos arbitrales extranjeros en Brasil está sujeta exclusivamente a la homologación de la Suprema Corte (aunque la Ley no haya sido posteriormente revisada, la promulgación de la Enmienda Constitucional 45/2004 modificó la competencia interna para adjudicar dichos pedidos homologatorios y se la atribuyó al STJ, en los términos del el artículo 105, I, i de la Constitución de Brasil) (Carlos Alberto Carmona, Arbitragem e Processo, Atlas, 2009, pp. 445 y 449). El CPC está actualmente en revisión en el Congreso Brasileño, por lo que el proceso de homologación podría sufrir cambios.

[4] La Convención de Nueva York fue internalizada en Brasil por medio del Decreto 4.311 del 23 de Julio del 2002, que contiene una traducción de su texto al portugués. Aunque no represente una versión oficial de la Convención, dicha traducción y los artículos relacionados de la Ley redactados de modo similar constituyen los textos legales aplicados por los tribunales brasileños en los casos que estén bajo su alcance. Como demostraremos en seguida, la traducción al portugués de expresiones provenientes de la Convención de Nueva York podría dar lugar a controversias.

[5] Sin embargo, es importante aclarar que, en el marco legal brasileño, los tribunales provinciales tienen competencia sobre las solicitudes de ejecución de laudos arbitrales domésticos, mientras que los tribunales federales tienen competencia para resolver solicitudes de ejecución de laudos arbitrales extranjeros. La principal diferencia entre dichos procesos probablemente radique en el tiempo necesario para su resolución.

[6] La Resolución 9 forma parte del estatuto interno del STJ e incorpora aspectos relevantes de la Ley y de la Convención. Además, aborda ciertos temas que exceden el alcance de la Ley y de la Convención, tales como la concesión de remedios provisionales en las etapas de reconocimiento y ejecución de laudos arbitrales extranjeros.

^[7] Tribunal de Justicia del Estado de Rio de Janeiro, Décima Segunda Cámara Civil, Agravo de Instrumento No 0062827-33.2009.8.19.0000, de fecha 23 de Febrero de 2010.

^[8] Ley Brasileña de Arbitraje, artículo 34, párrafo único: “Considera-se sentença arbitral estrangeira a que tenha sido proferida fora do território nacional.”.

^[9] Decreto 4.311/2002, artículo I, 1, primera parte: “A presente Convenção aplicar-se-á ao reconhecimento e à execução de sentenças arbitrais estrangeiras proferidas no território de um Estado que não o Estado em que se tencione o reconhecimento e a execução de tais sentenças, oriundas de divergências entre pessoas, sejam elas físicas ou jurídicas.”.

^[10] Fallo, p. 5: “No direito comparado a “formula” mais consagrada for a que identifica a nacionalidade da sentença arbitral segundo o país eleito como sede da arbitragem.”.

^[11] Fallo, pp. 6-7: “No ordenamento jurídico brasileiro, por sua vez, a adoção como elemento de conexão do ‘lugar onde foi proferida a sentença arbitral’ não suscita maiores dúvidas… optou-se por uma definição mais simples e objetiva, ‘baseando-se apenas e tão somente no local onde o laudo sera proferido’… Por conseguinte, apesar das criticas sofridas, (…) não ha dúvidas que o ordenamento jurídico pátrio adotou o sistema territorialista…. O legislador pátrio, portanto, ao eleger o critério geográfico, do local onde for proferida a sentença (ius solis), desconsiderou qualquer outro elemento.”.

[12] Gary B. Born, International Commercial Arbitration, 2009, pp. 2368-2369.

[13] Born, op. cit., p. 2369

[14] “…Beyond these provisions of national law and institutional rules, the better reading of the New York Convention is that it contains an international definition of where an award is “made,” which would prohibit Contracting States from adopting alternative definitions (and thereby affecting the scope of the arbitral awards subject to the Convention). That is, the Convention should be interpreted as contemplating uniform international standards defining where an award is “made” (to wit, in the contractual arbitral seat), which Contracting States are required to implement. The foregoing conclusion is consistent with the text of Article V(1)(e), which adopts an internationally-applicable formula (referring to the place where an award is “made”).” (Born, op. cit., pp. 2373-2374)

[15] “Thus, somewhat ironically, given what is described as the “territorial” applicability of national arbitration legislation only to arbitrations seated on local territory, the arbitral seat is itself defined entirely by reference to the parties’ agreement, and not as a purely geographic or territorial location (i.e., the place of the arbitral hearings). …Thus, the parties and the tribunal can proceed through an entire arbitration without ever setting foot in or otherwise engaging with the arbitral seat in any way – while being subject to the “territorial” arbitration legislation of the arbitral seat.” (Born, op. cit., p. 1249)

[16] ICCA’s Guide to the Interpretation of the 1958 New York Convention, p. 21.

[17] Born, op. cit., p. 2372.

[18] Convención de Nueva York, artículo I, 1, primera parte: “La presente Convención se aplicara al reconocimiento y la ejecución de las sentencias arbitrales dictadas en el territorio de un Estado distinto de aquel en que se pide el reconocimiento y la ejecución de dichas sentencias, y que tengan su origen en diferencias entre personas naturales o jurídicas.”.

[19] Ley 36/1988 (Ley Española de Arbitraje), artículo 56 (2): “Se entiende por laudo arbitral extranjero el que no haya sido pronunciado en España”.

[20] El autor argumenta que el verbo “proferir” estaría comúnmente asociado al acto único llevado a cabo por el adjudicador en que declara oralmente o comunica por escrito a las partes de su decisión. Mientras tanto “fazer” o “realizar” teóricamente alcanzarían una secuencia más amplia de actos llevados a cabo por el adjudicador (como audiencias y reuniones), finalizando con el dictamen del laudo arbitral (José Augusto Fontoura Costa, Sobre Corvos e Ornitorrincos: Arbitragem Estrangeira e Internacional no Direito Brasileiro, Revista Brasileira de Arbitragem, n. 28, 2011, pp. 68-69).

[21] Carlos A. da S. Lobo, A Definição de Sentença Arbitral Estrangeira, Revista de Arbitragem e Medicação, v. 9, 2009, pp. 62-69. El STJ hizo referencia a otra parte de ese estudio en su Fallo, pero no parece haber llegado a la conclusión aquí presentada.

[22] “The terms must be understood taking into account the context and the purpose of the Convention. Therefore, courts should not interpret the terms of the New York Convention by reference to domestic law. The terms of the Convention should have the same meaning wherever in the world they are applied. This helps to ensure the uniform application of the Convention in all the Contracting States.” (ICCA’s Guide, pp. 13-14). Académicos brasileños también reconocen las desventajas de aplicar la Convención de Nueva York indirectamente “…the survey of domestic precedents also shows that, in many ways, Brazil has not profited from adopting a mainly insular standpoint when enforcing foreign arbitral awards. Specifically, the interpretation given so far to standards and rules that are highly linked to the international practices…lack connection to the global knowledge accumulated around the New York Convention. …The problems faced abroad are analogous to those presented in the domestic setting. In that sense, the Brazilian practice would benefit significantly from broadening its legal interpretation to encompass the entire body of principles, policies, case law, debates, research and commentaries that encircle the New York Convention. …they would bridge the gap between the domestic reasoning and the argumentative repertory, methods of legal inquiry and set of legal materials employed in that Convention’s interpretation worldwide. In so doing, Brazilian case law would share the learning and achievements accumulated in fifty years of the New York Convention’s history, as well as join the international community in the ongoing development of this treaty.” André A. C. Abbud, Fifty Years in Five? The Brazilian Approach to the New York Convention, 2008, pp. 35-36.

[23] Born, op. cit., p. 2374.

This is to announce the March 2012 session of the Arbitration Forum of the Center for Transnational Litigation and Commercial Law, entitled “The non-enforcement of arbitral awards: A BIT (of a) problem with human rights and damage calculation” which will take place on Monday, March 26th, 2012, from 6.15 p.m. to 8.00 p.m., in the Lester Pollack Colloquium Room, Furman Hall 900 (245 Sullivan Street, New York, NY 10012).

It is a great pleasure to be able to announce that on the occasion of this session, which is co-hosted by the New York/Washington D.C. Chapter of the Spanish Arbitration Club, Dr. Stefan Kröll will give a talk on “International commercial arbitration awards as “investment” under BITs” and that Mr. José Alberro will speak on “Estimating damages when BITs are used to enforce commercial arbitration awards”. Mr. Brian King and Grant Hanessian agreed to act as commentators.

Dr. Stefan Kröll is one of the leading German experts on arbitration and a national correspondent for Germany to UNCITRAL for arbitration and international commercial law. He sits regularly as an arbitrator in national and international cases (ICC, DIS, VIAC, ad-hoc) and is member of the board of editors of several peer reviewed journals. Dr. Kröll is a Visiting Lecturer at the Bucerius Law School and Visiting Reader at the School of International Arbitration at CCLS (Queen Mary, University of London). He has published widely in the field of international commercial arbitration and commercial law, including the books “Comparative International Commercial Arbitration” (co-authored with Lew/Mistelis), “Arbitration in Germany – The Model Law in Practice” (co-edited with Böckstiegel/Nacimiento) and “Conflict of Laws in International Arbitration” (co-edited with Ferrari). Recently, he has been retained by UNCITRAL as one of the three experts to prepare the Digest on the UNCITRAL Model Law on International Commercial Arbitration.

Dr. Jose Alberro, who holds a Ph.D. in Economics from the University of Chicago, has taught as tenured full professor economics at universities in the United States, Mexico and the United Kingdom for 15 years. Dr. Alberro’s expertise focuses on applied economic and financial modeling; he has consulting experience across a wide variety of industries, with particular depth in the areas of energy, oil, petrochemicals, consumer goods, and network industries (telecommunications, natural gas, electricity). His expertise not only led him to give expert testimony in commercial and investor state arbitrations on damage valuation, most recently in The Hague, in the context of a multi-billion dollar case resulting from the confiscation of hydrocarbon assets, but also to his appointment as arbitrator in ICSID proceedings. Dr. Alberro, who is a member of the AAA’s National Roster of Arbitrators, he has published extensively in academic journals; one of his publications was cited in the 1995 Nobel Prize in Economics Lecture.

Brian King is a partner in the international arbitration group at Freshfields Bruckhaus Deringer.  Prior to returning to New York in 2007, he headed the arbitration group in the firm’s Amsterdam office for seven years.  Mr. King’s practice centers on acting as counsel or arbitrator in investment treaty and international commercial disputes. He has represented both investors and States, as well as some of the largest European and U.S. corporations.  A 1990 graduate of the NYU Law School, Mr. King regularly speaks and publishes on arbitration-related topics.

Grant Hanessian is Co-Chair of Baker & McKenzie’s International Arbitration Practice Group and Chair of the Litigation/Dispute Resolution Department of the firm’s New York office.  A graduate of NYU Law School, Mr. Hanessian has more than 25 years experience acting as counsel or arbitrator in international commercial and investment treaty arbitrations.  Mr. Hanessian is a member of the Commission on Arbitration of the International Chamber of Commerce and the ICC Task Force on Arbitration Involving States or State Entities and has published extensively on international arbitration topics.

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 R.S.V.P. by March 22^nd (by sending an email to Prof. Franco Ferrari at franco.ferrari@nyu.edu). On-site registration will not be available.

Franco Ferrari

A pesar de que los procedimientos arbitrales comerciales son confidenciales, los casos más importantes raramente son secretos; informaciones relativas a estos procedimientos son desveladas por acciones judiciales paralelas, informaciones relativas a títulos, valores, comunicados de abogados, empresas involucradas en el caso o prensa económica especializada. Por consiguiente, los procedimientos arbitrales más importantes son conocidos, analizados e incluso clasificados por orden de importancia. Según el Arbitration Scorecard de la American Lawyer magazine de Julio de 2011, uno de los diez mayores arbitrajes del período 2010-11 ha sido el laudo arbitral de la diputa entre la empresa argelina Sonatrach y la española Gas Natural Fenosa. Este arbitraje de la CCI en Ginebra ha sido,con 2.1 billones de dólares,uno de los mas importantes de los últimos años. Esta decisión no ha sido ni cumplida ni ejecutada porque el laudo ha sido desafiado con una negociación entre las partes. Evitar el cumplimiento de un laudo arbitral con una negociación entre las partes implicadas no es una excepción en arbitraje internacional. Esta técnica aporta nuevas oportunidades a las empresas para encontrar soluciones a sus conflictos, desarrollar nuevas oportunidades y  alianzas y mantener las relaciones comerciales entre ellas.

Este arbitraje fue consecuencia de una disputa entre Sonatrach y Gas Natural relativa al precio y volumen de gas natural. Sonatrach, proveedor de un 25% del gas del mercado español gracias al gaseoducto del norte de África, inició un procedimiento arbitral en 2007 cuando Gas Natural rechazó pagar precios más altos como consecuencia de la revisión del precio acordado inicialmente. Esta disputa fue resuelta en un primer momento con un arbitraje CCI en Ginebra donde Gas Natural fue representada por Freshfields y Sonatrach lo fue por Bredin Prat. La corte decidió, en 2010, autorizar a Sonatrach a aumentar el precio del gas, distribuido en España desde 2007 vía el gaseoducto que aporta gas a Europa a través del Magreb.

Consecuentemente, el tribunal arbitral confirmó el derecho de la compañía argelina a revisar los precios de gas. Así pues, Gas Natural fue condenada a pagar la diferencia entre el antiguo y el nuevo precio por todo el gas recibido durante este período. El laudo, muy adverso para Gas Natural, conllevó dos importantes consecuencias: la primera, un aumento de 30% del precio de gas entre 2007 and 2009; esta cantidad fue estimada por Gas Natural alrededor de 1,5 billones de dólares, y la otra consecuencia fue la modificación de la base de precios en el futuro. Este segundo punto nunca fue cuantificado por la compañía.

La estrategia del comité ejecutivo de Gas Natural fue de ganar tiempo para encontrar un nuevo acuerdo, puesto que incluso si la decisión arbitral era final y definitiva, una negociación entre las partes es siempre posible en arbitraje comercial internacional. Para ganar tiempo, la empresa española inicio una acción de anulación del laudo en septiembre de 2010 y obtuvo medidas preventivas por un tribunal suizo. Simultáneamente, la empresa española trató de analizar el coste del cumplimiento del laudo y desarrollar una mejor relación con el nuevo equipo directivo de la compañía argelina a partir de discretas negociaciones.

Un año después del laudo, en Agosto 2011, un comunicado de prensa de la empresa española informaba que : “Gas Natural Fenosa integra como accionista a la compañía Argelina,Sonatrach,  después de la ampliación de capital” Además, en el mismo comunicado la empresa española señalaba que las partes aceptaban renunciar a cualquier recurso pendiente entre ellas, lo que representaba la anulación del laudo arbitral. Así pues, Sonatrach entró a participar en Gas Natural Fenosa después que el comité ejecutivo de la española aprobase la ampliación de capital. Sonatrach pagaría €514m por el  3,85 por ciento del holding, lo que suponía 38,183,600 de las nuevas acciones.

Este acuerdo representa un cambio de rumbo para las relaciones entre las dos compañías, las cuales tienen fuertes relaciones comerciales e intereses en común pero también numerosas disputas en los últimos años.

Además, la reciente adquisición de una parte del capital por Sonatrach, ha subrayado la intensificación del negocio y los vínculos entre las compañías de hidrocarburos. Portugal ha visto un incremento de inversión de Angola en los últimos años con la presencia de empresas como Galp and Millenium BCP y tal vez más en los próximos meses. Pero el acuerdo de Sonatrach en España es el primero en España. Argelia, miembro de la organización de países exportadores de petróleo, tiene una capacidad de producción de 1.4 millones barriles al día de petróleo y exporta alrededor de 60 billones de metros cúbicos cada año.

Esta negociación de un laudo arbitral no es una excepción en la resolución de conflictos comerciales internacionales. Un estudio de 2008 de Price Waterhouse Coopers muestra la importancia de los acuerdos posteriores al laudo arbitral. Este estudio confirma que  un 40% de las compañías negocian el laudo arbitral frente el 30% que dicen no negociar la decisión arbitral. Este estudio también muestra que la nacionalidad de la compañía tiene una cierta influencia en la negociación o no post arbitral, pues las empresas sudamericanas, japonesas y de UK raramente negocian. Sin embargo, las suizas, mejicanas y americanas estan más abiertas a  negociar el laudo.

Negociar un acuerdo arbitral significa llegar a un acuerdo entre las partes implicadas en un proceso arbitral después de que el tribunal haya dictado el laudo, el cual es final y definitivo y no permite generalmente ni recurso ni apelación. Este acuerdo post arbitral puede modificar o ajustar el laudo, cambiar los términos de su performance por ejemplo con uno nuevo y de menos importante monto pero con un pago mas rápido. En muchas ocasiones, estos acuerdos son beneficiosos para ambas partes.

La parte beneficiada por un laudo favorable puede presionar a la otra parte para retomar una nueva relación comercial o para la abstención de la actividad  comercial. Si esta presión no funciona la parte ganadora siempre puede solicitar la ejecución del laudo arbitral, como si se tratara de una decisión judicial, si el país es signatario de la Convención de Nueva York de 1958.

La parte perdedora puede cumplir el laudo, usarlo como base de una negociación o tratar de anularlo en base de una de las razones previstas en dicha Convención de Nueva York. Sin embargo, las bases para solicitar la anulación de una decisión internacional arbitral, previstas en los artículos 5 y 7 de la Convención de Nueva York son pocos y muy estrictos. La forma más exitosa de anular un laudo arbitral es por razones procesales. Esto sucede cuando un árbitro no decide o decide mas allá de lo previsto y solicitado por las partes.

Así pues, en varias ocasiones, para la parte que pierde puede ser mas interesante substituir la cantidad de dinero por una prestación especifica, o un pago aplazado en el tiempo. Para la parte ganadora, renegociar el laudo puede ser más interesante que perder tiempo y dinero en abogados para solicitar su ejecución. Además, la negociación del laudo puede dar a las partes nuevas formas de colaboración para nuevos negocios y mantener así la relación de trabajo que pudo existir en el pasado.

La decisión arbitral, tiene incluso un precio de Mercado, y puede ser considerado como un titulo de crédito e incluso ser vendido a terceras partes. Algunas compañías prefieren vender el laudo arbitral a algunas empresas o a fondos especializados en el cobro de decisiones arbitrales. En otros casos el laudo es vendido con el conjunto de la sociedad. Estos casos confirman el interesante debate en la comunidad internacional del arbitraje, especialmente en arbitrajes implicando inversiones estatales, sobre el sentido de vender un laudo arbitral. Estos son algunos ejemplos en los que los laudos son vendidos con 50% o 75% del monto del laudo.

Esencialmente, las razones para obtener un acuerdo después de una decisión arbitral son las mismas que pueden motivar a las partes a obtenerlo antes del procedimiento arbitral, pero es más fácil con el peso de un laudo arbitral que pueda servir de punto de referencia para la negociación entre las partes. La ejecución de la decisión arbitral puede tener algunas consecuencias negativas para la parte perdedora, para la relación entre compañías, la reputación de estas empresas y por esta razón a veces es más interesante negociar un acuerdo y no ejecutar la decisión arbitral. Básicamente, las empresas deciden negociar los laudos arbitrales para ganar tiempo y dinero. Incluso si la ejecución de la decisión es posible, como hemos visto, gracias a la Convención de Nueva York de 1958, en algunas situaciones, las empresas prefieren salvar tiempo y dinero y mas allá de estos dos aspectos, las empresas desean mantener relaciones de trabajo y colaboración.

Además, la negociación puede ser parcial y afectar tan solo una parte del laudo, ya que es posible ejecutar parcialmente un laudo bajo los principios previstos en la Convención de Nueva York

Así pues, la resolución de un conflicto posteriormente a la decisión arbitral es una practica común adoptada por las compañías implicadas en procedimientos arbitrales. En la fase post-arbitral, la voluntad de acuerdo es generada por varios factores como hemos podido analizar previamente. Mas allá de los beneficios clásicos de los procedimiento arbitrales; rapidez, confidencialidad y libertad para elegir a un árbitro neutral y competente, podemos añadir la posibilidad de negociar el laudo arbitral entre las partes implicadas. El caso Sonatrcah v Gas Natural Fenosa, muestra este considerable ventaja del arbitraje: la posible negociación del laudo con el fin de encontrar nuevas soluciones para resolver conflictos y desarrollar así, incluso, nuevas cooperaciones y nuevos proyectos comerciales.

Eduard Beltran is LLM candidate in the program of International Business Regulation, Litigation and Arbitration at New York University School of Law, attorney at law member of the Barcelona Bar and former deputy head of the international cooperation office of the French ministry of justice, responsible for the legal cooperation between Europe and Latin America.

Although international commercial arbitration procedures are confidential, the biggest cases are rarely secret; they are disclosed by domestic court actions, securities disclosures, lawyers, companies involved in the case and trade press. Therefore, the biggest international arbitration procedures and awards are known, analyzed and even ranked. According to Arbitration Scorecard of American Lawyer magazine of July 2011, one of the ten biggest arbitral awards of the period 2010-11 has been the arbitral award rendered in the dispute between the Algerian state-controlled company Sonatrach and the Spanish Gas Natural Fenosa. This ICC arbitration seated in Geneva has been with 2.1 billion dollars award one of the most important of the last years. This decision has not been complied or enforced because the award has been challenged by a negotiation between the parties. Challenging an arbitral award by negotiation is not an exception in international arbitration and brings new opportunities to the companies to settle a dispute increasing new ties and finding new alliances between them.

This arbitration follows a dispute between Sonatrach and Gas Natural relating to the price and volumes of natural gas supplies. Sonatrach, which provides a quarter of gas to the Spanish market through its North African pipeline, began arbitration in 2007 when Gas Natural refused to pay higher prices. This dispute was settled the first time through an ICC arbitration in Geneva where Gas Natural Fenosa was represented by Freshfields and Sonatrach was represented by Bredin Prat. The court ruled in August 2010 that it recognized the right of Sonatrach to boost the price of gas supplied to Spain since 2007 through the Maghreb Europe pipeline, which crosses Morocco and extends into Spain and Portugal.

Consequently, the arbitral tribunal confirmed the Algerian company’s right to revise its price formula. Gas Natural was ordered to pay the difference between the old and the new rates for all the gas received under both contracts in the relevant periods. The award, extremely adverse for the Spanish company, had two main consequences: the first , an increase of 30% of gas supplies between 2007 and 2009; this quantity was measured with an estimation by Gas natural around 1,5 billion USD, and the other consequence was the modification of the base to fix supplies in the future. The company never quantified this second point.

The strategy of the board of Gas Natural was to gain time to find a new settlement because, even if the award was full and final, a negotiation between parties is always possible in commercial arbitration. To win time the Spanish company started an action for annulment of the arbitral award in Switzerland justice in September 2010 and obtained precautionary measures by the Swiss tribunal. Simultaneously, the Spanish company tried to analyze the cost of comply the award and tried to develop a new relationship with the new board of the Algerian company by discrete discussions.

One year after the award, in August 2011, a press release of the Spanish company stated: “Gas Natural Fenosa adds the Algerian state-owned energy company, Sonatrach, as shareholder following the capital increases”. Furthermore, in this press release, the Spanish company informed that parties accepted to give up every pending case and so this represented the annulment of the award. Thus, Sonatrach has taken a stake in Gas Natural Fenosa after the Spanish company’s Board approved a capital expansion. Sonatrach will pay €514m for a 3,85 percent holding, which represents 38,183,600 new stock.

This deal represents a reversal in relations between these two companies, which have strong commercial ties and common interests but also a series of disputes in recent years.

Moreover, the recent acquisition of a stake in leading Spanish utility by Algerian state-owned energy company Sonatrach, has underlined the intensification of business transactions and links between companies in gas and oil. Portugal may have seen an influx of Angolan investment in the last few years with sizeable shareholding in companies like Galp and Millennium BCP and maybe more in the next months. But the deal of Sonatrach in Spain is the first in Spain. Algeria, a member of the Organization of Petroleum Exporting Countries, has a production capacity of 1.4 million barrels a day of oil and exports about 60 billion cubic meters of gas a year.

This negotiation of an arbitral award is not an exception in dispute resolutions in international business transactions. A study of 2008 by Price Waterhouse Coopers shows the importance of settlement after an arbitral award. This study confirms that 40% of the companies negotiate the arbitral award against 30% who said that they do not negotiate the award. The study also shows that the nationality of the companies counts and so South American, Japanese and UK corporations rarely negotiate the award. However, Swiss, Mexican and US companies are more used to negotiate the award.

Settlement post arbitral award is referred to as an agreement reached by the parties after the tribunal has rendered the award, which is often full and final. This settlement post arbitral can modify or adjust the award, changing the terms of its performance for example by a new, less important amount but with a prompter payment. In many situations this kind of settlement is convenient for both parties.

The winning party can often use the arbitral award to put pressure on the losing party, whether through explicit or implicit threats of commercial reprisal or noncooperation, or through the threat of adverse publicity. If such pressure fails, the winning party may have to seek execution by court proceedings on the bank accounts or other assets of the losing party. If the award has been deposited or registered, it may then be enforced as though it were a judgment of the court, if the country of the arbitration is member of the New York Convention.

A losing party can comply with the award, use it as a basis for negotiating a settlement, or may challenge the award. However, the basis for challenge, stated in articles 5 to 7 of the New York Convention, are few indeed. The principal successfully way to challenge an arbitration award deal is for procedural issues. Challenges on procedural issues may be made, for example, where the arbitrator failed to decide an issue submitted by the parties, failed to allow a continuance of the hearing even though good cause was shown, or considered and decided issues beyond the scope of the agreement or submission by the parties.

Thus, in several situations, for the losing party it could be more interesting to substitute damages for a specific performance or to pay a substantial amount over a period of time. For the winning party, renegotiating the award could be more interesting than spending time and lawyer’s fees for the enforcement. Moreover the negotiation of the award and a new settlement could allow parties to find new ways of collaboration for a new business and keep the working relations after the dispute.

The arbitral award has a market value, in the sense that it could be considered as credit title and even been sold to third parties. Some corporations revealed that they prefer to sell the arbitral award to some companies or funds specialize in recovering the damages covered by the arbitral award. In other cases the award is sold with the whole business. These cases confirm the interesting debate in the international arbitration community, especially in investment arbitration against states, to have the sense to sell the award to another company, fund, or law firm specialized in the enforcement. These are some examples where the award is sold with a 50% or 75% of the amount of the award.

Actually, the reasons to get a settlement after an arbitral award are the same as before but it is easier after the award because the award gives a reference point of negotiation, an “anchor point”. The enforcement could have some negative consequences for the losing party or the relation between the companies; the reputations and sometimes is more interesting negotiate a specific performance more than money, and the fees of the lawyer for the enforcement. Basically, companies decide to negotiate the award to save time and money. Even if the enforcement is possible, as we know by the New York Convention of 1958, in some situations companies prefer to save time, money and moreover keep the working relations with the other company by a discrete negotiation.

Moreover, the negotiation can be partial and touch just a part of the award, because it is always possible to enforce partially an award under the New York Convention.

Hence, settlement post arbitral award is a common practice adopted by companies involved in an arbitration procedure. At the post award stage, the settlement is generated by various factors, including time and cost efficiencies and the will to maintain a working relationship with the other company. To all the known classical advantages of international arbitration: speed, cost, confidentiality and freedom to choose a neutral and competent arbitrator, we can add the negotiation of the award between the parties after the award is released. The case Sonatrach v. Gas Natural Fenosa shows this advantage of the arbitration: the possible negotiation of the award and the possibility to reach new solutions in order to settle the conflict and develop new projects, new transactions and more business.

Eduard Beltran is LLM candidate in the program of International Business Regulation, Litigation and Arbitration at New York University School of Law, attorney at law member of the Barcelona Bar and former deputy head of the international cooperation office of the French ministry of justice, responsible for the legal cooperation between Europe and Latin America.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[3] Roberto Aspiazu. Above note 1

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

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

[6] Ibid.

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

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

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

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

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

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

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

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

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

[13]The economist. Above note 5.

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

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

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

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

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

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

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

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

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

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

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

This is to announce the February 2012 session of the Arbitration Forum of the Center for Transnational Litigation and Commercial Law, entitled “Multi-party Arbitration:  From Paris to New York,” which will take place on Monday, February 27th, 2012, from 6.15 p.m. to 8.00 p.m., in the Lester Pollack Colloquium Room, Furman Hall 900 (245 Sullivan Street, New York, NY 10012).

It is a great pleasure to be able to announce that on the occasion of this session, which is co-hosted by the New York/Washington D.C. Chapter of the Spanish Arbitration Club, Professor Bernardo M. Cremades will give a talk on “Multi-party Arbitration under the New ICC Rules” and Mr. Joseph E. Neuhaus will speak about “Class Arbitration in the U.S. in the wake of Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. and AT&T Mobility LLC v. Concepcion.” Professors George A. Bermann and Loukas Mistelis will act as commentators for both presentations.

Professor Bernardo M. Cremades is the founding and managing partner of the law firm B. Cremades & Associates. Mr. Cremades acts as a highly respected arbitrator in both domestic and international disputes, including commercial and investment protection arbitration. He is also a lauded Professor at Madrid University and is devoted to training the next generation of lawyers in the field of arbitration. Mr. Cremades has served as Co-Chair of the International Financial and Secured Transactions Committee of the American Bar Association and as Co-Chair of the Arbitration and ADR Committee of the International Bar Association, as well as President of the Global Center for Dispute Resolution and as Vice President of the London Court of Arbitration. He is author of a number of books and publications related to international arbitration.

Mr. Joseph E. Neuhaus has been a partner at Sullivan & Cromwell LLP since 1992. His practice is focused on international commercial litigation in both arbitral and court settings, with particular emphasis on Latin American matters. Mr. Neuhaus, who is coordinator of Sullivan & Cromwell LLP’s arbitration practice, has served as counsel and arbitrator in many arbitral proceedings, including ad hoc proceedings and arbitrations administered by the International Chamber of Commerce and the American Arbitration Association. He is also the author of numerous publications in the field of international arbitration and he is currently serving as one of the two private-sector advisers to the United States’ delegation to the UNCITRAL Working Group on Arbitration.

Professor George A. Bermann is the Walter Gelhorn Professor of Law, the Jean Monnet Professor of European Union Law, and the Director of the European Legal Studies Center at Columbia Law School, as well as a Visiting Professor of the Institut des Sciences Politiques (Sciences Po) in Paris, France. He is also the Chief Reporter of American Legal Institute’s Restatement of the Law of International Commercial Arbitration, the former President of the American Society of Comparative Law, the past editor-in-chief of the American Journal of Comparative Law and the current President of the International Academy of Comparative Law.

Professor Loukas Mistelis, LLB, MLE, Dr Iuris, MCIArb, Advocate, is the Clive Schmitthoff Professor of Transnational Commercial Law and Arbitration, as well as the Director of the School of International Arbitration, at the Centre for Commercial Law Studies of Queen Mary University of London. Professor Mistelis, who acts regularly as arbitrator or expert in international commercial and investment disputes, is the author of twelve books and more than 55 articles. He is also a member of the editorial boards of Arbitration International, Journal of International Dispute Settlement and Global Arbitration Review. In addition, he serves as general editor of the World Arbitration Reporter.

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

Space is limited and thus those interested are kindly asked to R.S.V.P. by February 20th, 2012. On-site registration will not be available.

In an Opinion rendered on 8 September  2011 (for the text of the opinion click here: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62010CC0384:EN:HTML), CJEU Advocate General Trstenjak cited a paper by Franco Ferrari, Professor of law and Director of the Center for Transnational Litigation and Commercial Law at NYU School of Law, when dealing with the  relationship between 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) and 1980 Rome Convention on the law applicable to contractual obligations, which the former replaced to some extent. As for said relationship, the Advocate General stated that “[t]he changes [introduced by the Regulation] were intended to modernise certain provisions of the Convention and give them a clearer or more precise wording with a view, ultimately, to enhancing legal certainty but without introducing new elements which would substantially change the existing legal position”. When doing so, it cited to the paper by Professor Ferrari, entitled From Rome to Rome via Brussels: remarks on the law applicable to contractual obligations absent of a choice by the parties, published in  Rabels Zeitschrift für ausländisches und internationales Privatrecht 751 (2009).

Professor Franco Ferrari, Director of the Center for Transnational Litigation and Commercial Law, has just published the second edition of his book entitled “Contracts for the International Sales of Goods”. This book provides an examination of the United Nations Convention on Contracts for the International Sale of Goods (CISG). Extensively referenced, the volume focuses on three issues, which, due to particular attention from courts and arbitral tribunals, are considered “typical” of CISG related disputes. These include the exact determination of the CISG’s sphere of application; both the non-conformity of delivered goods and the notice of non-conformity; and the determination of the rate of interest on sums in arrears. The  analysis helps readers understand the broader context in which these issues are embedded, and ultimately illustrates how the CISG is interpreted and applied in different jurisdictions.

The Latin maxim iura novit curia means that the court knows the law. Civil law systems have interpreted this maxim as the authority of the court to base its decisions on legal theories that have not been advanced by the parties. Common law systems generally reject the maxim, favoring a more limited role for court in the adversarial search for the truth.

Because arbitration differs from both civil law litigation and common law litigation, the application of iura novit curia in the arbitration context gives rise to unique problems. These problems arise because the parties’ choice of law does not resolve the question of the applicability of the principle in the arbitration context. The arbitrator is, therefore, left with the difficult question of whether or not and more importantly to what extent to apply the principle to a case at hand.

To highlight the difficulties confronting arbitrators in the application of iura novit curia, I wish to focus on the interplay of the principle with two particular aspects of arbitration: party autonomy, and uniformity in the application of choice of law. I chose these two aspects because they highlight effectively the conflicting considerations that arbitrators must balance in deciding to how to use their discretion in the application of iura novit curia in the arbitration context.

The Parties’ Choice of Law Is Not Dispositive

The issue of whether and to what extent iura novit curia should be applied in the arbitration context is not settled by the parties’ underlying choice of law. This is due to two main reasons.

First, national law rules of procedure are do not apply in the arbitration context. Indeed, most arbitral tribunals follow predetermined rules of procedure, which, if selected by the parties to the contract, trump national procedural rules. As the United States Supreme Court recently reaffirmed in Preston v. Ferrer, 552 U.S. 346 (2008), the procedural law of the jurisdiction selected in a choice of law provision will not displace the procedural rules incorporated in an arbitration clause.  Thus, to the extent that iura novit curia is a procedural rule, the parties’ choice of law does not settle the question of its applicability in the arbitration context.

For this reason, some arbitral institutions have attempted to set default rules on exactly this issue. Article 22(1)(c) of the London Court of International Arbitration, for example, states, “Unless the parties at anytime agree otherwise in writing … the Arbitral Tribunal shall have the power … of its own motion … to conduct such enquiries as may appear to the Arbitral Tribunal to be necessary or expedient, including whether and to what extent the Arbitral Tribunal should itself take the initiative in identifying the issues and ascertaining the relevant facts and the law(s) or rules of law applicable to the arbitration, the merits of the parties’ dispute and the Arbitration Agreement.”[i] Most arbitral tribunals, including the International Court of Arbitration (ICC), however, have not yet developed default rules regarding the applicability of the iura novit curia principle.

Second, arbitration has a different statutory mandate than litigation. The English Arbitration Act of 1966, for example, states that an arbitral tribunal “shall” decide a dispute “in accordance with the law chosen by the parties” or “such other considerations as are agreed by them or determined by the tribunal.”[ii] Thus, to the extent that iura novit curia is not a purely procedural rule, there is still a question as to how much the parties should be able to vary the mandate of arbitrators by contract.

Party Autonomy Counsels Against Use of Iura Novit Curia in Arbitration

Arbitration clauses have now become commonplace in commercial agreements. Indeed, they have become so prevalent that some have infamously called “midnight clauses,” because negotiators leave them until the end, and then, late at night or early in the morning, simply use boilerplate arbitration language.[iii] Although no empirical data has been compiled on the frequency of arbitration provisions in international commercial contracts, an often-cited estimate is that “ninety percent” of all international commercial contracts contain arbitration clauses.[iv]

An important point to remember, however, is that arbitration is formed and governed by the agreement of the parties. Without an agreement among the relevant commercial parties, no arbitral panel has jurisdiction over a dispute that may arise between those parties. It has thus been said that party autonomy is the “core concept” of arbitration.[v]

This is the first important aspect of arbitration that makes the application of iura novit curia difficult. If parties to an arbitration proceeding, the existence of which is based entirely on the exercise of autonomy by those parties, do not present a particular legal claim to the arbitral panel, why should the panel do so on its own accord?

In fact, much of the attractiveness of arbitration lies in the autonomy of the parties to exercise control over the choice of law and procedure to be applied in potential future disputes. It is entirely plausible that a proactive and robust use of iura novit curia in arbitral proceeding may deter some commercial parties from agreeing to submit future disputes to arbitration. Party autonomy, as a core concept of arbitration, thus counsels against a robust application of the principle of iura novit curia in arbitral proceedings.

Uniformity in Application of Choice of Law Counsels In Favor of Use of Iura Novit Curia in Arbitration

Another important aspect of arbitration, however, is uniformity in the application of the parties’ choice of law. This is especially important when the parties have chosen a body of law that aspires towards uniformity: for example, an international convention, such as the United Nations Convention on Contracts for the International Sale of Goods (“CISG”). Developed by the United Nations Commission on International Trade Law (UNCITRAL), the CISG is a treaty offering a uniform international sales law that has been ratified by 77 countries as of 2010. Article 7(1) of the CISG states that in interpreting the CISG, “regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.” Commentators have interpreted this requirement to mean that courts and arbitral tribunals must construe the provisions of the CISG in a uniform manner and not against the background of their own domestic law, as difficult as that may be.[vi] But what if, in an arbitral proceeding, neither party introduces a legal theory that is required for the Convention’s uniform application?

Consider the following simple example. Article 84(1) of the CISG states, “If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid.” Suppose a case is brought before an arbitral panel, such as the ICC. Neither party disputes the ICC’s jurisdiction or that the CISG governs the case at hand. The seller claims that, although he must refund the price, he does not owe any interest on it. The buyer claims that he is entitled to both a price refund and interest, though not from the day on which the price was paid, but from the earlier date of the underlying contract. Neither legal theory is consistent with the express letter of Article 84(1); in fact, both legal theories contradict the express terms of the Article. What is the arbitral panel to do in this situation?

One can make a strong argument that the arbitral panel is under a duty to follow the CISG’s unambiguous text¾the choice of law of the parties anyway¾and its states purpose, to provide a uniform law governing commercial contracts. This example is admittedly simple, but one can easily think of more complicated situations. For example, what if both parties’ theories are consistent with the CISG’s text, but contradict earlier holdings by national courts and arbitral tribunals dealing with the same substantive issue? If uniformity was the ultimate goal, as some commentators have suggested, then the arbitral panel should apply a robust version of the iura novit curia principle. This, however, substantially undermines the parties’ autonomy, essentially rendering their choice of law autonomy devoid of much meaning.

What Is an Arbitrator to Do?

The issues raised above highlight just some of the difficulties associated with the application of iura novit curia to the arbitration context. These theoretical issues are compounded by the practical difficulties inherent in international commercial arbitration. For example, ICC statistics record that, in 2009 alone, 91 different laws or systems were applied in 817 cases.[vii] Applying iura novit curia requires intimate knowledge of the body of law to be applied. Do we really expect the ICC arbitrators to research and become experts in 91 different bodies of law in order to effectively administer the principle in arbitration proceedings?

Arbitral panels face further problems caused by the conflicting views of national courts on this issue. In the 2008 case Wefren Austria GmbH v. Polar Electro Europe B.V., the Supreme Court of Finland denied the respondent’s claim that its right to be heard was violated by the tribunal’s award of compensation for the termination of the commercial agreement between the parties, an issue that was never argued. The Court upheld the tribunal’s application of iura novit curia and found that the tribunal was not bound by the legal positions raised by the parties.

But awards have been set aside by other courts in similar circumstances. In a 2007 case OAO Northern Shipping Company v. Remolcaderos de Marin SL, the High Court of England and Wales annulled a tribunal award because of the tribunal’s improper reliance on iura novit curia. In OAO, the counsel for buyers had proceeded on the assumption that a specific point was no longer in issue, and therefore did not need to be addressed. The tribunal, without inviting submissions on the issue, went on to use it as an “essential building block” for its conclusion. The Court found this to be “a serious irregularity” causing “substantial injustice” to the buyers, therefore setting aside the award.

For now, at least, there seems to be no convergence on the application of iura novit curia in the arbitration context. A further difficulty is that it may be costly or premature for the parties to address their issue in their arbitration agreements. As noted earlier, most arbitration clauses are boilerplate and parties may not prefer to expend additional time and cost negotiating over the application of iura novit curia. Moreover, the appropriate scope of the principle’s application may depend on the specific issues in dispute or the qualification of arbitrators, and their expertise in the choice of law of the parties.

Perhaps a better solution is for arbitral institutions to follow the lead of LCIA and address this issue in their default rules of procedure. This approach will, at least, create certainty of expectations for the parties at the outset. Parties may then choose whether or not to opt out of the default rule under the particular circumstances of their case and depending on their level of trust in the tribunal.

Until then, this old Latin maxim of law will continue to cause headaches for practitioners and arbitrators alike.

Ali Assareh

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[i] See also the China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules, Articles 29(3) and 27; the Singapore International Arbitration Centre (SIAC), Article 24(d).

[ii] English Arbitration Act of 1996, Article 46(1).

[iii] Don Peters, Can We Talk? Overcoming Barriers to Mediating Private Transborder Commercial Disputes in the Americas, 41 Vand. J. Transnat’l L. 1251, 1301 (2008) (discussing “midnight clauses”); see also Kathy A. Bryan & Helena Tavares Erickson, Business Arbitration Can and Should be Improved in the United States, 14 Disp. Resol. Mag. 20, 21 (2008) (“There are more arbitration horror stories resulting from poor drafting than from any other single aspect of the process.”).

[iv] See, e.g., Brandon Hasbrouck, If it Looks Like a Duck: Private International Arbitral Bodies are Adjudicatory Tribunals Under 28 U.S.C. § 1782(a), 67 Wash. & Lee L. Rev. 1659, 1660–61 (2010); Christopher R. Drahozal, Commercial Norms, Commercial Cods, and International Commercial Arbitration, 33 Vand. J. Transnat’l L. 79, 94 (2000).

[v] Okuma Kazutake, Arbitration and Party Autonomy, 38 Seinan L. Rev. 1, 2(2005).

[vi] Franco Ferrari, The CISG’s Interpretative Goals, Interpretative Method and General Principles in Courts

[vii] ICC Bulletin, Volume 21(1) 2010, at 12.

Professor Linda Silberman has been elected as a Member of the Advisory Council of the Revista Espanol Derecho International (Spain).  She has also been selected to be an Associate Member of the Centre for Private International Law at the University of Aberdeen (Scotland).