Arbitration Newsletter Switzerland National Iranian Oil Company v the State of Israel a never ending story?

Transcription

1 Arbitration Newsletter Switzerland National Iranian Oil Company v the State of Israel a never ending story? On February 19, 2013, the Federal Supreme Court put its most recent decision on its website, dated January 10, 2013, in an action for annulment of a partial arbitral award rendered in an arbitration between the State of Israel ("Israel") and the National Iranian Oil Company ("NIOC") 1, 2. For the benefit of providing a first information on this decision the following summary abstains on purpose from providing a detailed analysis of this Supreme Court decision. This is left to more talented authors. The Facts On February 29, 1968, Israel and NIOC entered into a "Participation Agreement" for the construction, use and maintenance of an oil-pipeline on the territory of Israel. This agreement contained in Art. 12a the following arbitration clause: "If at any time within the period of this Agreement or thereafter, any doubt, difference or dispute shall arise between the Parties concerning the interpretation or execution of this Agreement or anything connecting therewith or concerning the rights and liabilities of the Parties hereunder, the same shall, failing any agreement to settle it by other means, be referred to arbitration. Each Party shall appoint one arbitrator. If such arbitrators fail to settle the dispute by mutual agreement or to agree upon a Third Arbitrator, the President of the International Chamber of Commerce in Paris shall be requested to appoint such Third Arbitrator. The decision of the Board of Arbitrators so appointed shall be final and binding upon the Parties" On October 14, 1994, NIOC initiated arbitration proceedings, by nominating its arbitrator and invited Israel to do the same. Israel, however, objected to such proceedings since the subject matter in dispute was apparently not sufficiently identified and there were, in its view, also no settlement discussion held previously, as stipulated in the agreement to arbitrate. On August 26, 1995, NIOC requested the president of the Tribunal de Grande Instance de Paris to designate an arbitrator for Israel. The further course of the proceedings is not reflected in the factual summary of the Federal Supreme Court 3. Only on February 1, 2005, a final decision was reached by the Premier Chambre civil de la Cour de cassation 4. The Federal Supreme Court quotes part of this decision: " the impossibility for a party to access the court (or arbitral tribunal) entrusted with the settlement of that party's claim to the exclusion of all other state jurisdictions, and thus to exercise a right pertaining to international public policy, established by the principles of international arbitration and Art. 6(1) of the European Convention on Human Rights, is a denial of justice justifying the international jurisdiction of the president of Paris Court of First Instance within the context of the state court's mission to assist and cooperate in the constitution 1 BGE 4A_146/2012, in French and attached to the newsletter. The decision was rendered by five and not only three judges, which underlines its relevance. Nevertheless, the decision will not be part of the offical collection of the leading cases, as published by the Federal Supreme Court. 2 In the proceedings at the Federal Supreme Court Israel was represented by Dominique Brown-Berset and Dominique Ritter and NIOC by Wolfgang Peter, Sébastien Besson and Julia Xoudis. 3 The Federal Supreme Court speaks only "d'une serie de péripéties procedurales", which can be translated as "procedural twists and turns". 4 Arrêt Nr. 404 of the two procedures and ; 1 5

2 of an arbitral tribunal when there is a connection with France" 5 In this decision the highest court of France rejected the appeals filed by Israel against two decisions rendered by the Cour d'appel de Paris on March 29 and November 8, 2001, respectively, whereby Israel was requested to nominate its arbitrator. Whilst the "péripéties procedurales" 6 where on-going, the two arbitrators had already on October 8, 2002, issued a first procedural order 7 and, on December 24, 2003, NIOC submitted its statement of claim requesting approx. 800 Mio. $. In its statement of defense, of April 23, 2004, Israel rejected the jurisdiction of the arbitral tribunal due to the nomination of its arbitrator which, in its view, was not following the pertinent provision in the agreement to arbitrate. In addition, Israel also questioned the independence and impartiality of NIOC's arbitrator. On July 19, 2004, the two arbitrators determined the seat of the arbitral tribunal to be in Geneva, after NIOC accepted a pertaining proposal by Israel. In doing so Israel did, however, reserve its rights as to a challenge of the jurisdiction of the arbitral tribunal. As Israel continued in a further exchange of briefs to challenge the nomination of "its" arbitrator the parties and the arbitrators agreed to have a formal decision as to that issue and a hearing was then scheduled for December 18, 2006, in Paris. On February 10, 2012, the arbitral tribunal issued its decision in the format of a partial award 8. The objections raised by Israel against the nomination of its arbitrator where rejected and the independence and impartiality of the arbitrator of NIOC confirmed. The arbitral tribunal therefore held that it was regularly constituted. In its decision the arbitral tribunal confirmed that once a party has signed an agreement to arbitrate it enters also into an obligation to nominate its arbitrator. Failure to do so entitles the other party to seek the assistance of the competent state court. Israel had "four bites to the apple" to present its arguments as to that issue in the French courts and, therefore, its right to be heard on this issue was respected by far. Against this partial award Israel filed, on March 14, 2012, an action for annulment at the Federal Supreme Court. In its view the arbitral tribunal as constituted with its two arbitrators was not competent to hear this case. The Considerations In a first step the Federal Supreme Court had to briefly deal with the request of Israel that the decision of the Federal Tribunal be published in anonymised form only. No surprise that the Federal Supreme Court could just briefly indicate that it generally does so - and it did so also in the present case. But the ongoing dispute had already found significant coverage in the arbitration literature 9 and, therefore, the Federal Tribunal could not resist the temptation to qualify the request of Israel as not very realistic for the result to be achieved. Indeed, it is easy to detect the identity of the two parties involved! In its main point Israel argued that the Arbitral Tribunal was, in the sense of Art. 190(2)a PILA, irregularly composed. In dealing with this argument the Federal Supreme Court points out first that it has in this case to deal with two particularities, namely that this alleged irregular composition has already been pleaded and dealt under the French jurisdiction and, second, that the nomination of the arbitrator for Israel has already occurred before the seat of the arbitral tribunal has been fixed for Geneva. As to the first issue the Federal Tribunal recalls that in an ad hoc arbitration, as in the present case, the decision of the state court judge at the seat of the arbitration does not yet constitute res judicata for the arbitrators which can continue, in an independent way, to decide on their jurisdiction and their 5 Translation quoted from Poudret/Besson, Comparitive law of International Arbitration, 2nd edition, 2007, p See footnote 3 above. 7 The decision of the Federal Supreme Court is also silent as to detailed circumstances under which the arbitrator for Israel was appointed (when? by which court?) 8 The decision of the Federal Supreme Court does not indicate what has happened in the almost six years in between. 9 Such as: "Horatia Muir Watt, Revue de 'arbitrage, 2005, p. 695 ss; Thomas Clay, Revue critique de droit international privé, 2006, p. 142 ss; Simon Hotte, Dalloz, 2005, p ss; Philippe Fouchard, Revue de l'arbitrage, 2002, p. 442 ss; Daniel Cohen, Journal du droit international, 2002, p. 503 ss; Pierre Lalive, Bulletin de l'association Suisse de l'arbitrage [ASA], 2002, p. 553 ss. 2 5

3 composition 10 which decision subsequently can still be challenged at the Federal Supreme Court. This is, however, not the case here where the proceedings to designate the arbitrator appointed for Israel occurred in France. In addition, the Federal Tribunal rejects the argument of Israel that such nomination in France was an administrative act only, to be compared with the nominations made by the ICC. To the contrary, the question of the international jurisdiction of the French courts for the nomination of an arbitrator for Israel was debated at great length, supported also with legal opinions and finally resolved by the highest court in France and this not on a prima facie level but in full consideration of all the relevant arguments. Therefore, Israel could, in view of the Federal Supreme Court, no longer indirectly question the decision reached by the French courts as to their international jurisdiction for appointing the arbitrator for Israel. Israel was also prevented from raising this argument retroactively since it had apparently explicitly admitted at the hearing of December 18, 2006, in Paris, that the decision of the Court de cassation was final and binding. The same applied for the argument that the politically very tense situation between the two parties would have an impact on the nomination of the arbitrator to act on behalf of Israel. Also this argument was already raised and disposed of in the proceedings in France. Moving to the second issue to be resolved the Federal Supreme Court analysed the agreement to arbitrate, as entered into in the wording above, and restated its principles to be followed for such contract interpretation 11. According to Israel the agreement to arbitrate entered into in Art. 12(a) of the Participation Agreement was not a pathological arbitration clause but an agreement to arbitrate which carefully eliminated any state intervention in the arbitration proceedings, which avoidance was clearly justified by the particular nature of this contract between a state and a state owned entity. It was therefore, again in the view of Israel, also fully intentional that the agreement to arbitrate did neither mention the seat of the arbitration 10 BGE 115 II BGE 136 III 186, consid and 119 II 449, consid. 3.a nor the applicable law. The only reference to a third party (and not a state) was to the ICC, and thus a private organisation, for the nomination of the president in case the two co-arbitrators could not reach a consensus as to his nomination. Again, according to Israel the dispute resolution mechanism under the relevant provisions of the Participation Agreement would, in a first step, require the parties to resolve their disputes in an amicable way. Failing to do so, they would have to appoint their arbitrator each. If one party does not do so this puts an end to the arbitration since the parties, in the view of Israel, intentionally agreed upon this blocking mechanism. Once the two arbitrators nominated by the parties those two arbitrators then have to try to resolve the issues in dispute. Failing to do so, they have to enter into discussions for the nomination of a third arbitrator. If those negotiations fail again, such third arbitrator and president would then be nominated by the ICC in Paris. The Federal Supreme Court therefore interpreted the agreement to arbitrate, applying the principle of good faith. In doing so the arbitral tribunal found no support for the interpretation of the agreement to arbitrate following the interpretation used by Israel. The Federal Supreme Court saw no possibility that the agreement to arbitrate would allow a party to submit a dispute arising under the Participation Agreement still to state courts. According to the Federal Supreme Court the language used in the agreement to arbitrate did clearly provide for arbitration as exclusive dispute resolution mechanism. The fact that the agreement to arbitrate did neither mention the applicable law nor the venue of the arbitration had no impact on this qualification. The Federal Supreme Court then also rejected the interpretation made by Israel for the limited authority of the third arbitrator (pro futuro because not yet appointed). The Federal Supreme Court found no ground for the argument of Israel that such third arbitrator could not have the casting vote, i.e. that the final decision of the arbitral tribunal could only be rendered unanimously. Therefore, the Federal Supreme Court rejected the argument that the arbitral tribunal was irregularly composed. 3 5

4 More on a cursory note the Federal Supreme Court disposed in a few lines also of the argument that the arbitral tribunal lacked jurisdiction in the sense of Art. 190(2)(b) PILA. Apparently Israel raised for that purpose again the same arguments as for their plea for irregular composition of the arbitral tribunal - which did not please the Federal Supreme Court. Additionally, the two arbitrators had not already entered into the debate whether they actually had jurisdiction. So far the two arbitrators limited their arguments to formally state that they had been validly nominated to hear a case arising under Art. 12(a) of the Participation Agreement. Therefore, also Israel's second argument - lack of jurisdiction - had inevitably to fail. The Conclusions This case is certainly very peculiar and this under various aspects. 1. It starts with the two parties which entered into this agreement still under the regime of the Shah of Persia and opposes now two parties being the farest apart you could possibly imagine. 2. The long duration of the proceedings so far, started already in 1994 and now, in 2013, finally confirming the jurisdiction of an arbitral tribunal in Geneva, composed of - at least for the time being - two arbitrators only is certainly a further particularity. 3. In analysing the history of the case the particularities of the agreement to arbitrate have to be taken into account, as well. The parties explicitly provided for two-step arbitration. First the two arbitrators nominated by the parties (or, as in the case for Israel, nominated by French courts) have to come to a settlement of the case. Only "if such arbitrators fail to settle the dispute by mutual agreement or to agree upon a Third Arbitrator, the President of the International Chamber of Commerce in Paris shall be requested to appoint such Third Arbitrator." on the case, trying to find out whether they come to a unanimous decision. The Federal Supreme Court is right in referring to these two arbitrators already as "arbitral tribunal". The Federal Supreme Court did also already close a further door for Israel which made the argument that once the third, presiding arbitrator is nominated the arbitral tribunal thereafter has to render its decision by unanimous consent. The Federal Supreme Court very clearly rejected such argument. 4. The decision of the Federal Supreme Court is certainly to be welcomed. It properly respects the final decision reached by the French Cour de cassation and thus excludes further procedural innuendos on the composition of the arbitral tribunal in this particular case. 5. The real praise in this matter goes so far, however, to the French Cour de cassation, which rendered, according to Clay, a decision deserving a place of honour "au panthéon de grands arrêts du droit de l'arbitrage" 12. It is indeed remarkable that the Cour de cassation accepted jurisdiction of the French courts for the nomination of the arbitrator of Israel, though the agreement to arbitrate contains no specific links to France, in particular, the arbitral tribunal has not its seat in France nor does it have to apply French law; the only tie to France is the one to the ICC in charge of nominating the third, presiding arbitrator in case the two co-arbitrators fail to come to an agreement on that issue. This remote link sufficed to the Cour de cassation to accept jurisdiction thus preserving the integrity of this process. Of course, a lot of ink will still be spilled in this matter since this case will not find its end on short notice. Affaire à suivre! But the proceedings are not yet there. It seems that the two arbitrators are still working 12 See footnote 7 above 4 5

5 February 22, 2013 Hansjörg Stutzer For further information please contact: Hansjörg Stutzer Exhibit: decision 4A_146/