International Commercial Arbitration Solution Outline for the exam SS 2013 (June 27, 2013)

Transcription

1 International Commercial Arbitration Solution Outline for the exam SS 2013 (June 27, 2013) Only the most relevant aspects of the exam questions are outlined. Therefore, this outline does not deal exhaustively with all alternative solutions. Examinees were expected to formulate their views concisely instead of answering in note form. In order to reach the maximum score, answers need to relate specifically to the questions. I. Questions Question 1 (1) Applicable law Swiss law differentiates between two internal sources of law: Chapter 12 of the PILA relating to international arbitration and Art. 353 et seq. of the CCP relating to the domestic arbitration. In the case at hand, both parties were based outside Switzerland at the time of conclusion of the contract (Art. 176 sec. 1 of the PILA). Therefore, Art. 176 et seq. of the PILA are applicable. (2) Formal validity Formal validity is governed by Art. 178 sec. 1 of the PILA-, which requires the arbitration agreement to be evidenced by text. This means that neither the signature of the parties nor an exchange of documents is required. In the case at hand, the arbitration agreement is included in writing in the main contract. Therefore, the arbitration agreement fulfils the formal requirements and is valid. (3) Substantive validity Substantive validity is governed by Art. 178 sec. 2 and 3 of the PILA. The arbitration agreement must as to its substance alternatively comply with the law chosen by the parties, the law governing the subject-matter of the dispute or with Swiss law. In the case at hand, the choice of law stipulated in the arbitration clause refers to Swiss law. Therefore, the validity of the arbitration clause needs to be examined according to the provisions of Swiss law. Under Swiss law, the necessary minimum content of an arbitration agreement requires the mutual intent in the sense of Art. 1 sec. 1 and Art. 2 sec. 1 of the Swiss Code of Obligations with regard to essentialia negotii of an arbitration agreement, i.e. to submit dispute to arbitration, and to sufficiently specify the object of the dispute/the legal relationship, out of which any dispute shall be resolved through arbitration. In the case at hand, both prerequisites are fulfilled: The arbitration clause is clear in the terms of reference of any disputes to arbitration and the legal relationship, out of which any disputes shall be resolved by arbitration, is defined as well. The consent of the parties on arbitration agreement is therefore to be assumed. (4) Objective arbitrability Objective arbitrability is governed by Art. 177 sec. 1 of the PILA, according to which, all pecuniary claims may be submitted to arbitration. The term «pecuniary claim» is to be un-

2 derstood in a broad sense. The dispute among the parties in the case at hand is clearly of pecuniary nature. 3 P. Question 2 According to the principle competence competence the arbitral tribunal is competent to rule on its own jurisdiction. The negative effect of competence-competence allows the arbitrators to decide on their jurisdiction prior to any state court or other judicial authority. This is stipulated in Art. 186 bis sec. 1 of the PILA, which states explicitly: it [the arbitral tribunal] shall decide on its own jurisdiction irrespective of whether an action having the same subject, is already pending between the same parties before a state court or another arbitral court, unless significant grounds exist that require that an arbitral procedure be stayed. Following this provision, the arbitral tribunal seated in Zurich, Switzerland, is not obliged to pay regard to the pending proceedings before the District Commercial Court in Warsaw and may commence, respectively continue the pertinent arbitral proceedings. On the other hand, according to Art. II sec. 3 of the NYC, the District Commercial Court in Warsaw, seized in a matter for which the parties have made an arbitration agreement, shall, at the request of one of the parties, refer them to arbitration. Question 3 (1) Constitution of an arbitral tribunal In the arbitration clause there is no provision as far as the constitution of the arbitral tribunal is concerned. The parties also did not declare any institutional rules of arbitration to be applicable. Hence, an arbitral tribunal shall be constituted ad hoc pursuant to the provisions of the lex arbitri, which in the case at hand, is Swiss law [cf. question 1 (1)]. Pursuant to Art. 179 sec. 2 of the PILA and in the absence of a specific agreement between the parties, the judge where the tribunal has its seat may be seized with the question of appointing arbitrator(s); he shall apply, by analogy, the provisions of the [CCP] on appointing, removing or replacing arbitrators. The state judge [pursuant to Art. 356 sec. 2 lit. a in connection with Art. 360 sec. 1 of the CCP] will appoint an arbitral tribunal consisting of three arbitrators to decide the case at hand. (2) Arbitral procedure According to Art. 182 sec. 1 of the PILA, the parties may, directly, or by reference to the rules of arbitration, determine the arbitral procedure; they may also subject the arbitral procedure to a procedural law of their choice. However, in the case at hand, the parties did not address any procedural issues in their arbitration clause. Hence, the arbitral tribunal as appointed by the juge d appui (cf. above) will determine the procedure, either directly, or by reference to a statute or to the rules of arbitration (cf. Art. 182 sec. 2 of the PILA). In doing so, the arbitral tribunal ensures equal treatment of the parties, and the right of both parties to be heard in the adversarial proceedings (cf. Art. 182 sec. 3 of the PILA). Question 4 According to Art. 187 sec. 1 of the PILA, the arbitral tribunal shall decide the case according

3 to the rules of law chosen by the parties or, in the absence thereof, according to the rules of law, with which the case has its closest connection. In the case at hand, the parties refer to Swiss law in their arbitration agreement. The question arises, if such a choice of law pertains solely to the arbitration clause or to the main contract as well. Assuming there is no other choice of law in the contract, it can be justifiably argued that the choice of law in the arbitration clause refers to both: to the arbitration clause and to the main contract. Therefore, the arbitral tribunal should decide the case at hand according to the pertinent provisions of Swiss law. 3 P. Question 5 Ad a) In order to answer this question, a reference to the IBA Guidelines on Conflicts of Interest shall be pointed out. Regarding the applicability of the IBA Guidelines, the Swiss Supreme Court stated in its decision of 20 th March 2008, BGer 4A_506/2007 cons : ( ) Such guidelines admittedly have no statutory value; yet they are a precious instrument, capable of contributing to harmonization and unification of the standards applied in the field of international arbitration to dispose of conflict of interests and such an instrument should not fail to influence the practice of arbitral institutions and tribunals ( ). The obligation to disclose all facts that might lead to a challenge by the arbitrators is one of the principles of international arbitration. However, according to para of the IBA Guidelines, previously expressed legal opinions by an arbitrator, e.g. in a law review article or in a public lecture, concerning an issue, which also arises in the arbitration should be ranged in the Green List, if this opinion is not focused on the case that is being arbitrated. Since the Green List contains a non-exhaustive enumeration of specific situations where no appearance of, and no actual, conflict of interest exists from a relevant objective point of view, the arbitrator is not obliged to disclose situations falling within it. Therefore, Prof. Z did not need to disclose the fact of publication, neither to the parties nor to the other members of the arbitration tribunal. Ad b) Pursuant to Art. 180 sec. 3 of the PILA: to the extent that the parties have not made provisions for this challenge procedure, the judge at the seat of the arbitral tribunal shall make the final decision. Hence, the Zurich state judge decides on any reasons for the challenge, since the parties have not conferred the exclusive jurisdiction on the challenge to any designated authority in the arbitration clause. Ad c) Pursuant to Art. 180 sec. 3 of the PILA, the decision of a state judge at the seat of arbitration shall be final. The Swiss Supreme Court has stated that the finality of a decision of the state judge based on Art. 180 sec. 3 of the PILA must be understood in such a way that it may not be subjected to any recourse, not only on a cantonal but also on a federal level, neither directly in the form of an appeal in civil matters, nor indirectly by means of an action for annulment on the grounds of Art. 190 sec. 2 lit. a of the PILA (cf. BGE 128 III 330 cons. 2.2). The reason for this is that the decision of the juge d appui constitutes an act of sovereignty, which, according to the Swiss Supreme Court, means that there is no need for any further judicial review of this decision by a state judiciary.

4 Question 6 Yes; the arbitral tribunal can issue an interim award pertaining solely to its jurisdiction, since according to Art. 186 sec. 3 of the PILA: the arbitral tribunal shall, in general, decide on its jurisdiction by a preliminary decision. A positive ruling on jurisdiction of the arbitral tribunal in the form of a preliminary decision may be challenged by a motion to have it set aside pursuant to Art. 190 sec. 3 of the PILA, which allows a challenge of a preliminary award solely on the grounds of Art. 190 sec. 2 lit. a (improper constitution of an arbitral tribunal) and lit. b (decision of the arbitral tribunal on jurisdiction). Hence, the legal basis for a challenge of an interim award confirming the jurisdiction of the arbitral tribunal is Art. 186 sec. 3 PILA in connection with Art. 190 sec. 3 and Art. 190 sec. 2 lit. b PILA). If the arbitral tribunal declines its jurisdiction prior to dealing with the case as such, it renders a negative ruling in form of a final award with the sole content that the arbitral tribunal has no jurisdiction over the dispute. Such a final award may be challenged based on Art. 190 sec. 2 lit. b of the PILA. Any argument of lack of jurisdiction must be brought before the arbitral tribunal prior to any defence on the merits of the case (Art. 186 sec. 2 of the PILA). Otherwise, any argument pertaining to the lack of jurisdiction shall be treated as having been irrevocably waived. 1 Total I 30 P. II. Further Questions for the course Legal Practice Question 7 Since the application of another law by the arbitral tribunal than that chosen by the parties is not listed as a ground for an annulment of an arbitral award in Art. 190 sec. 2 of the PILA, the only possible ground for an annulment in the case at hand could be the public policy provision under Art. 190 sec. 2 lit. e of the PILA. However, the mere application of a wrong law does not make an award incompatible with public policy, at least as long as the result of the award does not differ fundamentally from the presumptive result under the chosen law, i.e. as long as the discrepancy is compatible with public policy (cf. BGE 116 II 634, cons. 4, where the Swiss Supreme Court dealt with the submission that the arbitral tribunal had only pretended to apply the law chosen by the parties, but in fact had decided the case ex equo et bono). Hence, the Swiss Supreme Court can neither review nor repeal the arbitral award simply due to the fact that the arbitral tribunal applied another law than the one chosen by the parties, unless the findings resulting from an application of the wrong law violate international public policy. Question 8 In its decision of 31 st of March 2009, BGer 4A_428/2008 [Vivendi case], the Swiss Supreme Court qualified the impact of insolvency on pending arbitration proceedings as an issue of legal capacity. Accordingly, it applied Art. 154 sec. 1 of the PILA in connection with Art. 155 lit. c of the

5 PILA in order to determine the applicable law for the question at stake. Since the insolvent party was incorporated in Poland, the Swiss Supreme Court applied the accordant provision of Polish Law on Insolvency and Restructuring, pursuant to which, any arbitration clause concluded by the bankrupt shall lose its legal effect as at the date bankruptcy is declared and any pending arbitration proceedings shall be discontinued. Therefore, the arbitration proceedings against the Polish party in insolvency had been terminated. Several questions arise here. Firstly, it is questionable, if an issue of an impact of insolvency on arbitral proceedings is that of a legal capacity, since it could have been also qualified as an issue of a substantial validity of the arbitration agreement, as an issue of an objective arbitrability or as an issue of a legal succession. Secondly, it is justified to ask if the accordant provision of Polish law has been properly interpreted and applied by both the arbitral tribunal and the Swiss Supreme Court, since the plain wording of this provision pertains in no way to the legal capacity of the insolvent party. The decision of the Swiss Supreme Court referred to, has been repeatedly commented and largely criticised. In the subsequent decision of 16 th October 2012, BGE 138 III 714, the Swiss Supreme Court had to decide again, whether the opening of insolvency proceedings against one party of the arbitration had such an impact to terminate these arbitration proceedings; this time, however, under Portuguese law. As in the Polish Insolvency law, there is also such a provision in the Portuguese law regarding the impact of insolvency on pending arbitration proceedings, i.e.: without prejudice to provisions contained in applicable international treaties, the efficacy of arbitral agreements relating to disputes that may potentially affect the value of the insolvency estate and to which the insolvent is party shall be suspended. ( ). Hence, the Portuguese party (in insolvency) also applied for a termination of arbitration proceedings. In this case however, the Swiss Supreme Court qualified the question of the impact of insolvency on arbitral proceedings as affecting the substantive validity of the arbitration clause, which was to be examined pursuant to Art. 178 sec. 2 of the PILA. As under Swiss law, insolvency does not affect the validity of an arbitration agreement; the arbitration proceedings could have been continued, despite the opening of insolvency proceedings against one of the parties involved. The crucial question in this regard is how to qualify the impact of insolvency proceedings on pending arbitration. In casu, if the issue at stake were qualified as affecting the legal capacity of the party, and the effect of an accordant provision of Polish Law on Insolvency and Restructuring is that the insolvent party loses its capacity to take part in arbitration upon the opening of insolvency proceedings against it, the arbitral tribunal would terminate the arbitral proceedings against P, as in the Vivendi case. By referring to the abovementioned case law of the Swiss Supreme Court, however, it is actually not certain if the argument of P were indeed to be followed. If in the case at hand, P were a state-owned entity, the impact of insolvency on pending arbitration proceedings would not depend on the provisions of Polish law at all; the same applies if the issue of an impact of insolvency on pending arbitration proceedings had been qualified as affecting the legal capacity of the insolvent party, as decided in BGer 4A_428/2008. This is because, pursuant to Art. 177 sec. 2 of the PILA, A state, or an enterprise held by, or an organisation controlled by a state, which is a party to an arbitration agreement, cannot invoke its own law in order to contest its capacity to arbitrate or the arbitrability of a dispute covered by the arbitration agreement

6 Question 9 Ad a. Since Poland is a signatory of the New York Convention, the District Commercial Court in Warsaw will apply this in order to recognise and enforce the arbitral award. The basic prerequisites for the recognition and enforcement of the award according to the provisions of the NY Convention are fulfilled, since: - the arbitral award is made in the territory of a State other than the one where recognition and enforcement are sought (Art. I sec. 1 NYC) - the arbitration agreement, based on which the arbitral award has been issued, is valid (Art. II sec. 1 and 2 NYC) - the subject matter of a dispute seems not to be problematical in the terms of arbitrability (Art. II sec. 1 in fine NYC); The question arises, if there are any grounds for refusal to recognise and enforce the arbitral award in Poland. As mentioned above, the Polish party, against which the arbitral award is to be enforced, had become insolvent. Under Art. V sec. 1 (a) of the NY Convention the enforcement of an arbitral award may be refused, if the parties of the arbitration agreement were, pursuant to the law applicable to them, under some incapacity. Hence, if Art. 142 of Polish Law on Insolvency and Restructuring on the impact of insolvency on pending arbitration proceedings as referred to above in question no. 8 was to be understood as affecting the legal capacity of the insolvent party, the enforcement of the arbitral award could have been accordingly refused. Otherwise, the arbitral award shall be recognisable and enforceable in Poland, unless such a recognition and enforcement is contrary to public policy in the sense of Art. V sec. 2 (b) of the NY Convention. Ad b. Pursuant to Art. V sec. 2 (b), the recognition and enforcement of the arbitral award shall be refused, if such a recognition were contrary to public policy of the country, in which recognition and enforcement are sought. The question arises, if the fact, that the parties have waived the right to set aside the arbitral award in advance and therefore, the arbitral award could not have been reviewed by any state court, leads to the violation of Polish public policy in view of Art. 78 of the Polish Constitution. In Swiss legal doctrine, the waiver of annulment pursuant to Art. 192 of the PILA has also been facing criticism, in particular from a constitutional point of view. According to Art. 78 of the Polish Constitution, the parties shall have the right to appeal against the judgments and decisions of the courts made in the first stage. The fact that this principle is enshrined at constitutional level can indicate that it is of particular importance for the Polish legal system. However, it should be clarified, if this principle fulfils the criteria of public policy in the sense of Art. V sec. 2 (b) of the NY Convention. In Switzerland, an international arbitral award only infringes substantive public policy, if it violates the fundamental principles of law and is therefore plainly incompatible with the system of values (cf. BGE 116 II 634, cons. 4). According to the case law, these fundamental principles include pacta sunt servanda, prohibition of abusive use of rights, the principle of good faith, etc. It is not entirely clear, how the Polish courts interpret the public policy provision and in par-

7 ticular, if they differentiate between the domestic and international public policy. However, it can be assumed that the principle of double-instance-proceedings eventually does not fulfil the requirements for public policy reservation, since it may exceptionally deviate therefrom (cf. sentence 2 of Art. 78 of the Constitution). Apart from that, the arbitral award will still be reviewed in the context of the recognition and enforcement proceedings, namely by the Polish courts. Total II Total 1 30 P 60 P.