International Commercial Arbitration (15PLAC153)

Dr Emilia Onyema

Arbitrability

Learning Outcome

By the end of this seminar, you should:

  • Understand the meaning and relevance of arbitrability in ICA
  • Confidently determine the legal regime governing issues of arbitrability.
  • Be able to identify non-arbitrable issues in given fact scenario.

Definition

Tweedale & Tweedale at paragraph 4.23, “arbitrability refers to the issues in dispute and whether they are capable of settlement by arbitration”.

Source

  • International conventions
  • Art II (1); V (2) NYC – law applicable to arbitrability issues
  • National laws
  • Art 177 Swiss PIL; S. 1030 (1) Germany; Arts 2 & 3 China
  • Generally: refer to substantive law of the seat of arbitration or the law applicable to the arbitration agreement.
  • Arbitration practice
  • Lew, Mistelis & Kroll listed 8 ways tribunals treat issues of identifying the law applicable to arbitrability at page 196:
  • National law of the parties or one of them;
  • Law applicable to the contract itself
  • Law of the seat of arbitration
  • Law of the competent court in the absence of the arbitration agreement;
  • Law of likely place of enforcement of award;
  • Law of the arbitration agreement;
  • Combination of any of these laws;
  • Common & fundamental principles of law

Objective arbitrability

This relates to the subject matter of the dispute

  • Anti-trust and competition laws: regulations that forbid restrict practices in the market, restrict competition, create a dominant position or abuse of dominant position. Violation of these regulations make the transaction illegal. Examples:
  • Article 81 EC Treaty
  • Intellectual property rights
  • Differentiate between the grant of licences and the exploitation of such rights which is primarily contractual.
  • See WIPO arbitration
  • Fraud: where the main contract is alleged to be induced by fraud
  • Prima Paint - USA
  • Nafta Premium (Fiona Trust) –UK – the fraud or illegality must affect the arbitration clause.
  • Radhakrishnan v Maestro Engineers, decision of SC of Inida in Civil Appeal 7019/2009, of 22 October 2009: allegation of fraud is not arbitrable.
  • Bribery & Corruption
  • See the English courts attitude to this in Soleimany v Soleimany and Westacre v Jugoimport
  • ICC Case No 1110
  • HUBCO v WAPDA
  • Illegality
  • See the conflicting decisions of the Italian [XXI, YBCA 594 (1996)] and Swiss [XX, YBCA 766 (1995)] courts on the facts of Fincantieri v Iraq on the treatment of UN embargo
  • Dalmia Dairy Industries v National Bank of Pakistan [1978] 2 Lloyd’s Rep 223
  • Ertel Bieber & Co v Rio Tinto Co [1978] AC 260 – on illegality of arbitration clause.
  • Bankruptcy/Insolvency
  • Implicates companies law and order of priority in the distribution of assets
  • Syska (Elektrim) SA v Vivendi Universal SA & others [2009] EWCA Civ 677 – where London is the seat of arbitration and a party in arbitration proceedings became subject to insolvency proceedings in another jurisdiction, English law will determine the effect of the insolvency proceedings on the pending arbitration.
  • Re: Nortel Networks SA & others [2009] EWHC 206 (Ch)
  • Crime
  • WAPDA v HUBCO: contract tainted by fraud which is a crime in Pakistan
  • Crimes are offences against the state/public; requires investigation; punishable by imprisonment; standard of proof is beyond reasonable doubt.

Subjective arbitrability

This relates to the capacity of the parties

Article II(3) NYC – covers situations where the law deems the arbitration agreement invalid or defective.

  • Null & Void – where it promotes an illegal act or the agreement is unconscionable
  • Alexander v Anthony International, IntADR 19 August 2003 decision of Federal CA 3rd Circuit – agreement was unconscionable where it prevented an employee from recovering attorney’s fees and also from claiming punitive damages – this prevented the employee from claiming full compensation.
  • Where rights of third parties may be affected.
  • Where the agreement promotes illegal or immoral transactions or contrary to the public policy of the law of the seat.
  • Agreement infected with claims of fraud, duress, mistake and waiver.
  • Inoperative – applies where the arbitration agreement has ceased to have effect
  • Pathological clauses
  • Arbitration institution no longer exists
  • Arbitration rules incorrectly cited
  • Where underlying contract never came into existence
  • Where parties waive their right to arbitrate – this can arise by delay or inaction by the party
  • Incapable of being performed–
  • Where arbitration cannot be commenced
  • Arbitration agreement too vaguely worded

Effect

  • Defeat the arbitration agreement
  • Prevent recognition and enforcement of the award

Response of arbitrators to arbitrability

  • Deny jurisdiction
  • Take jurisdiction and deal with the dispute

Response of courts to arbitrability: See

  • Soleimany v Soleimany
  • Westacre v Jugiomport
  • Eco Swiss China Time v Benetton
  • Mitsubishi Motors v Soler Chrysler

Cases

  • Mitsubishi Motors Corp v Soler Chrysler Plymouth Inc, 473 US 614 (115 SCt 3346 2 July 1985) – anti-trust disputes arbitrable in international cases. Puerto Rican distributor agreement with Chrysler to sell automobiles produced by Mitsubishi Motors. Soler was to buy a certain number of automobiles from MM per year and disputes to be resolved by arbitration in Japan. Soler could not maintain the required number of sales and asked Chrysler for permission to sell outside its allocated territory which Chrysler refused. Soler sued for breach of Sherman Act in Puerto Rico & Chrysler applied for stay in favour of arbitration in Japan. SC held that the dispute was arbitrable and at enforcement the US courts can look at the application of the antitrust law.
  • Scherk v Alberto-Culver Co., 417 US 506 (S Ct 1974)
  • Shearson/American Express Inc v Eugene McMahon, 107 SC 2332 (S Ct 1987)
  • First Options of Chicago v Manuel Kaplan & MK Investments Inc, 115 S.Ct 1920, 1943 (1995)
  • Fincantieri-Cantieri Navali Italiani SpA & Oto Melara SpA v Ministry of Defence, Armament and Supply Directorate of Iraq, XXI, YBCA 594 (1996) UN embargo on Iraq made the dispute unarbitrable under Italian embargo legislation implementing the UN resolution.
  • Soleimany v Soleimany [1998] 3 WLR 811, [1999] QB 785, [1999] 3 all ER 847
  • Westacre Investment Inc v Jugoimport-SPDR Ltd [1998] 2 Lloyd’s Rep 111 for CA decision [1999] 2 Lloyd’s Rep 65; [2000] QB 288
  • Eco Swiss China Time Ltd v Benetton Int’l NV [1999] ECR 1-3055 – EC competition disputes
  • SNF v Cytec Industries BV, French Cour de Cassation judgment No 680 of 4 June 2008 – held that any review of the tribunal’s application of competition rules should be purely formal and not a ‘second look’ as in Eco Swiss v Benetton.
  • Smith Enron Cogeneration Ltd Partnership Inc & Others v Smith Cogeneration Int’l Inc, XXV YBCA 1088 (2000)
  • Matermaco SA v PPM Cranes Inc et al, XXV, YBCA 673 (2000)
  • The Hub Power Company Ltd (HUBCO) v Pakistan Water and Power Development Authority (WAPDA) & Federation of Pakistan, 15(7) Mealey’s IAR A1 (2000)
  • Prima Paint Corporation v Flood & Conklin Mfg Co, 87 S Ct 1801
  • Philip Alexander Securities & Futures Ltd v Werner Bamberger & Others, XXII YBCA 872 (1997)
  • SPP (ME) Ltd & Southern Pacific Properties Ltd v Arab Rep of Egypt & Egyptian General Company for Tourism & Hotels (the Pyramids Case) 23 ILM 1048 (1984)
  • Zimmerman v Continental Airlines Inc, 712 F.2d 55 (3rd Cir. 1983), cert denied 464 US 1038, 79 L Ed 2d 165, 104 S Ct 699 (1984) – bankruptcy matters are not arbitrable in the US.

Additional Reading

  • Redfern & Hunter, paras. 1.35; 3.12-3.24
  • Gaillard & Goldman, pp 822-824
  • **Lew, Mistelis & Kroll, chapters 9 & 19
  • ** Tweeddale & Tweeddale, para 4.23-4.4.54
  • W.W.Park, “Kompetenz-kompetenz: The Arbitrability Dicta in First Options” in Park (CUP 2006) page 81-101
  • Robert von Mehren, “The Eco-Swiss Case and International Arbitration”, 19(4) Arb Int 465 (2003)
  • Arfazadeh, “Arbitrability under the New York Convention: The Lex Fori Revisited”, 17 Arb Int 73 (2001)
  • Zekos, “Eco Swiss China Time Ltd v Benetton Int’l NV – Courts Involvement in Arbitration”, 17(2) JIA 91 (2000)
  • Hanotiau, “The Law Applicable to Arbitrability”, ICCA Congress Series no 9 page 146
  • Adam Johnson, “Illegal Contracts and Arbitration Clauses”, Int ALR 35 (1999)
  • Various authors in 12 Arb Int (pts 2 & 4) (1996)
  • Wetter, “Issues of Corruption before the International Arbitral Tribunals: The Authentic Text and True Meaning of Judge Gunner Lagergren’s 1963 award in ICC Case no 1110”, 10 Arb Int 277 (1994)
  • Donovan & Greenawalt, “Mitsubishi after Twenty Years: Mandatory Rules before Courts and International Arbitrators” in Lew & Mistelis (eds) Pervasive problems in International Arbitration (Kluwer, 2006) 11- 60

Exercise

  1. “It is the duty of the arbitrator to ensure the subject matter of the dispute is arbitrable”. Discuss
  2. Examine the rationale given by various courts for arbitrability.
  3. What restraints may exist on the arbitrability of disputes? Under what law(s) will it be raised and resolved? How should such a challenge to the tribunal’s jurisdiction be resolved?
  4. Why is public policy important in international arbitration? Is there any difference between domestic and international public policy?
  5. What should an arbitrator faced with an allegation of any of the following do:
  6. Fraud,
  7. Illegality
  8. Anti-trust or competition legislations
  9. Validity of an IP right

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