#arbitration procedure

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Arbitration and Allegations of Corruption in the Aviation Industry

Reportedly, many agents in the aviation industry have seen their payments halted and contracts terminated by the Airbus Group (“Airbus”)  in circumstances where they have done nothing wrong. Many agents have thus reportedly commenced arbitration against the Airbus Group on the basis of breach of contract.

This curious situation in the aviation industry appears to derive from investigations into the Airbus Group. In August 2016, the British anti-corruption agency, Serious Fraud Office, confirmed it had commenced a formal investigation into the dealings of the Airbus Group concerning business deals concluded via third-party consultants. With the use of such local consultants’ contacts and their knowledge of the region, groups such as Airbus Group could in principle efficiently enter markets without spending significant time and money for extensive market research. The problem was that some third-party consultants may have paid bribes in order to secure orders for Airbus.

After the British Serious Fraud Office’s investigations, the French authorities then also followed suit with investigations of Airbus’ dealings under fraud charges. Allegedly, more than 300 million Euros of funds were misappropriated through third-party consultant contracts for securing potential new business opportunities in China and South-East Asia.

The Airbus Group has since reportedly taken actions to remedy the issue internally and decided to stop using third-party consultants altogether. Also, the Group has appointed an independent panel of independent experts to investigate on the case. It has also been reported to have suspended all payments to third-party consultants while they are being phased out, which has pushed many of them to initiate arbitral proceedings against it on the basis of breach of contract.

What can a third-party consultant previously working with Airbus, or a similar company, whose contract was terminated or whose payments have been suspended due to the suspected misdeeds of other third-party consultants do in such a situation?

Of course, if a third-party consultant’s dealings were in fact tainted by corruption, then the consultant should avoid arbitration and obtain a criminal lawyer instead. Corruption is frowned upon at all levels and serious wrongdoing will doom nearly all claims.

Even innocent parties, however, should not rashly assume that just because Airbus was in breach of contract they will necessarily be entitled to compensation. This will depend on the applicable law and a careful reading of the parties’ agreement. Interestingly, the standards applicable in the investigations against Airbus are not necessarily the same standards which govern the relationship between Airbus and its agents. The applicable law may define what constitutes prohibited activities and may define the remedies available to the parties outside of the contractually agreed options. The Parties’ contract will also contain obligations that must be respected, which must be accurately interpreted in an attempt to ascertain whether there may have been a breach of contract and its consequences.

What may ultimately determine success on the merits, however, may be the burden of proof applied by the arbitrator. In arbitration, there is no single standard of proof with respect to proving allegations of corruption. In some cases, arbitrators have used a standard of proof of “clear and convincing evidence” or “beyond reasonable doubts” in determining whether allegations of corruption have been proven, a high standard of proof that is very difficult to satisfy. In most cases, tribunals proceed on the basis that a “preponderance of evidence” standard is more appropriate, with the burden of proof on the party making allegations of corruption. In some cases, however, arbitrators have used a lower standard, on the basis of that corruption is hard to prove and so circumstantial evidence and indirect evidence can and should be relied upon. In such a situation, even an innocent agent could see its claims fail after the revelation of facts that hint at, but do not prove, wrongdoing on its part.

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Colombia Arbitration Proceedings: Fool’s Gold?

What connects General José Fernández de Santillán, emeralds and Colombia arbitration proceedings? More than one would think.

If Mr. Fernandez de Santillán had defeated the British squadron on 8 June 1708, the myth of a galleon carrying vast amounts of treasure would never have been born. One of the most interesting recent international arbitrations would also not have been commenced, concerning approximately USD 1 billion in sunken treasure.

The Origins of the Dispute

An American company exploring coasts of Latin America for sunken ships, Glocca Mora Co. (GMC), located the famous Spanish galleon San José in the early 1980’s. San José carried worthy carriage composed of gold, silver and gems from the New World. Its precious cargo was intended to finance Spanish campaigns against the British. However, due to an unexpected attack by the British, the galleon sunk. Almost USD 1 billion in treasure in today’s prices sunk with it.

After its discovery of the galleon in the 1980’s, GMC assigned its rights to another American company named Sea Search Armada (“SSA”). SSA turned to the Colombian authorities, claiming 35% of the found treasure for itself. The Colombian government refused to cooperate. Instead, it enacted an act banning any further operations concerning the sunken ship by private entities. Colombian authorities guaranteed only 5% of the value of the finding to the explorers, however. This is when SSA’s tireless combat over its rights commenced.

Over the following years, SSA sought recourse through Colombian domestic courts. It even obtained a decision of the Colombian Supreme Court which, in 2007, ruled in favor of a 50-50 split of the profits from the find. Even though this decision seemed a beacon of light on a tormented sea, la conquista did not finish there as Colombia blocked salvage operations from taking place.

This led SSA to initiate proceedings before US Courts, but American courts ruled that SSA’s claims were time-barred. In the meantime, Colombian authorities undertook their own explorations and announced their own discovery of the sunken vessel. Recently, San José was made an exclusive State property and was named a State secret of Colombia.

Colombia Arbitration Proceedings

However, the story became even more interesting on 8 August 2017 when SSA expressed its intent to settle the issue once and for all before of an arbitral tribunal. By commencing arbitration proceedings against Columbia, the SSA would potentially have a chance to finally enforce the 30-year old agreement. However, such proceedings would also provoke an even higher level of scrutiny of the issue and would not settle the issue of whether Colombia would allow the resulting arbitral award to be enforced.

These arbitration proceedings would take the form of an investment arbitration. This stems from the fact that the company’s assets, time and capital gains were on the line and arguably represented an investment. Besides, a sudden withdrawal of the authorization by a public entity is another issue, potentially relevant to unfair and inequitable treatment. Finally,  the alleged breach of contract by the Colombian authorities should not be neglected, although a clearly applicable umbrella clause would normally be needed in order to resolve issues of contract violations per se at an international level. Still, it is unclear by which rules the proceeding would be organized and who would represent the parties.

The letter of 8 August 2017 announcing the intent of the SSA to commence arbitration is not a surprise. The parties participated in amicable settlement for months. Unfortunately, SSA, the Colombian Ministry of Culture and the Navy Maritime Administration of Colombia never reached a compromise. Thus, arbitration proceedings seemed necessary.

Kingdom of Spain Expressed Interest as Well

Another variable in the already complicated equation is the potential interest of Spain in the sunken treasure. At first glance, this might seem confusing. However, the galleon San José navigated under the Spanish flag. It also carried a Spanish crew. Besides, Spain was one of the most powerful forces at the time. Finally, the precious cargo arguably represents part of its cultural heritage.

The eventual success of the pending arbitration proceedings is still unclear. Will the myth of wealth and glory turn into an anecdote of fool’s gold?

Colombian maritime territory is reportedly packed with colonial shipwrecks – more than 1000. Regardless of the outcome, the eventual arbitration award is likely to serve as an example for similar arbitration proceedings concerning salvage operations in the future.

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Colombia Arbitration Proceedings: Fool’s Gold?

What connects General José Fernández de Santillán, emeralds and Colombia arbitration proceedings? More than one would think.

If Mr. Fernandez de Santillán had defeated the British squadron on 8 June 1708, the myth of a galleon carrying vast amounts of treasure would never have been born. One of the most interesting recent international arbitrations would also not have been commenced, concerning approximately USD 1 billion in sunken treasure.

The Origins of the Dispute

An American company exploring coasts of Latin America for sunken ships, Glocca Mora Co. (GMC), located the famous Spanish galleon San José in the early 1980’s. San José carried worthy carriage composed of gold, silver and gems from the New World. Its precious cargo was intended to finance Spanish campaigns against the British. However, due to an unexpected attack by the British, the galleon sunk. Almost USD 1 billion in treasure in today’s prices sunk with it.

After its discovery of the galleon in the 1980’s, GMC assigned its rights to another American company named Sea Search Armada (“SSA”). SSA turned to the Colombian authorities, claiming 35% of the found treasure for itself. The Colombian government refused to cooperate. Instead, it enacted an act banning any further operations concerning the sunken ship by private entities. Colombian authorities guaranteed only 5% of the value of the finding to the explorers, however. This is when SSA’s tireless combat over its rights commenced.

Over the following years, SSA sought recourse through Colombian domestic courts. It even obtained a decision of the Colombian Supreme Court which, in 2007, ruled in favor of a 50-50 split of the profits from the find. Even though this decision seemed a beacon of light on a tormented sea, la conquista did not finish there as Colombia blocked salvage operations from taking place.

This led SSA to initiate proceedings before US Courts, but American courts ruled that SSA’s claims were time-barred. In the meantime, Colombian authorities undertook their own explorations and announced their own discovery of the sunken vessel. Recently, San José was made an exclusive State property and was named a State secret of Colombia.

Colombia Arbitration Proceedings

However, the story became even more interesting on 8 August 2017 when SSA expressed its intent to settle the issue once and for all before of an arbitral tribunal. By commencing arbitration proceedings against Columbia, the SSA would potentially have a chance to finally enforce the 30-year old agreement. However, such proceedings would also provoke an even higher level of scrutiny of the issue and would not settle the issue of whether Colombia would allow the resulting arbitral award to be enforced.

These arbitration proceedings would take the form of an investment arbitration. This stems from the fact that the company’s assets, time and capital gains were on the line and arguably represented an investment. Besides, a sudden withdrawal of the authorization by a public entity is another issue, potentially relevant to unfair and inequitable treatment. Finally,  the alleged breach of contract by the Colombian authorities should not be neglected, although a clearly applicable umbrella clause would normally be needed in order to resolve issues of contract violations per se at an international level. Still, it is unclear by which rules the proceeding would be organized and who would represent the parties.

The letter of 8 August 2017 announcing the intent of the SSA to commence arbitration is not a surprise. The parties participated in amicable settlement for months. Unfortunately, SSA, the Colombian Ministry of Culture and the Navy Maritime Administration of Colombia never reached a compromise. Thus, arbitration proceedings seemed necessary.

Kingdom of Spain Expressed Interest as Well

Another variable in the already complicated equation is the potential interest of Spain in the sunken treasure. At first glance, this might seem confusing. However, the galleon San José navigated under the Spanish flag. It also carried a Spanish crew. Besides, Spain was one of the most powerful forces at the time. Finally, the precious cargo arguably represents part of its cultural heritage.

The eventual success of the pending arbitration proceedings is still unclear. Will the myth of wealth and glory turn into an anecdote of fool’s gold?

Colombian maritime territory is reportedly packed with colonial shipwrecks – more than 1000. Regardless of the outcome, the eventual arbitration award is likely to serve as an example for similar arbitration proceedings concerning salvage operations in the future.

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Colombia Arbitration Proceedings: Fool’s Gold?

What connects General José Fernández de Santillán, emeralds and Colombia arbitration proceedings? More than one would think.

If Mr. Fernandez de Santillán had defeated the British squadron on 8 June 1708, the myth of a galleon carrying vast amounts of treasure would never have been born. One of the most interesting recent international arbitrations would also not have been commenced, concerning approximately USD 1 billion in sunken treasure.

The Origins of the Dispute

An American company exploring coasts of Latin America for sunken ships, Glocca Mora Co. (GMC), located the famous Spanish galleon San José in the early 1980’s. San José carried worthy carriage composed of gold, silver and gems from the New World. Its precious cargo was intended to finance Spanish campaigns against the British. However, due to an unexpected attack by the British, the galleon sunk. Almost USD 1 billion in treasure in today’s prices sunk with it.

After its discovery of the galleon in the 1980’s, GMC assigned its rights to another American company named Sea Search Armada (“SSA”). SSA turned to the Colombian authorities, claiming 35% of the found treasure for itself. The Colombian government refused to cooperate. Instead, it enacted an act banning any further operations concerning the sunken ship by private entities. Colombian authorities guaranteed only 5% of the value of the finding to the explorers, however. This is when SSA’s tireless combat over its rights commenced.

Over the following years, SSA sought recourse through Colombian domestic courts. It even obtained a decision of the Colombian Supreme Court which, in 2007, ruled in favor of a 50-50 split of the profits from the find. Even though this decision seemed a beacon of light on a tormented sea, la conquista did not finish there as Colombia blocked salvage operations from taking place.

This led SSA to initiate proceedings before US Courts, but American courts ruled that SSA’s claims were time-barred. In the meantime, Colombian authorities undertook their own explorations and announced their own discovery of the sunken vessel. Recently, San José was made an exclusive State property and was named a State secret of Colombia.

Colombia Arbitration Proceedings

However, the story became even more interesting on 8 August 2017 when SSA expressed its intent to settle the issue once and for all before of an arbitral tribunal. By commencing arbitration proceedings against Columbia, the SSA would potentially have a chance to finally enforce the 30-year old agreement. However, such proceedings would also provoke an even higher level of scrutiny of the issue and would not settle the issue of whether Colombia would allow the resulting arbitral award to be enforced.

These arbitration proceedings would take the form of an investment arbitration. This stems from the fact that the company’s assets, time and capital gains were on the line and arguably represented an investment. Besides, a sudden withdrawal of the authorization by a public entity is another issue, potentially relevant to unfair and inequitable treatment. Finally,  the alleged breach of contract by the Colombian authorities should not be neglected, although a clearly applicable umbrella clause would normally be needed in order to resolve issues of contract violations per se at an international level. Still, it is unclear by which rules the proceeding would be organized and who would represent the parties.

The letter of 8 August 2017 announcing the intent of the SSA to commence arbitration is not a surprise. The parties participated in amicable settlement for months. Unfortunately, SSA, the Colombian Ministry of Culture and the Navy Maritime Administration of Colombia never reached a compromise. Thus, arbitration proceedings seemed necessary.

Kingdom of Spain Expressed Interest as Well

Another variable in the already complicated equation is the potential interest of Spain in the sunken treasure. At first glance, this might seem confusing. However, the galleon San José navigated under the Spanish flag. It also carried a Spanish crew. Besides, Spain was one of the most powerful forces at the time. Finally, the precious cargo arguably represents part of its cultural heritage.

The eventual success of the pending arbitration proceedings is still unclear. Will the myth of wealth and glory turn into an anecdote of fool’s gold?

Colombian maritime territory is reportedly packed with colonial shipwrecks – more than 1000. Regardless of the outcome, the eventual arbitration award is likely to serve as an example for similar arbitration proceedings concerning salvage operations in the future.

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Top 10 Tips for Drafting Better International Arbitration Clauses

Drafting international arbitration clauses in your contract appears like a simple task from the outset. There are many examples online – all you need to do is to take the existing template, copy/paste it and tailor it to your needs. However, is this really true?

Arbitration is generally considered as a faster, cheaper and more confidential dispute resolution method in comparison to litigation. This is only true if the underlying basis of each arbitration process – the agreement to arbitrate – is properly drafted, valid and enforceable. Through their agreement to arbitrate the parties express not only their willingness to submit their dispute to arbitration but also specify the aspects of a procedure they wish to require. In order to  have an eventually enforceable award, this first step – a properly drafted arbitration agreement is crucial. This article provides ten tips on what to include and pay attention to when drafting arbitration clauses in your contracts.

1. Express Agreement to Arbitrate

The first step is for the parties to be clear in expressing their willingness to submit their dispute to arbitration. The language used is very important- never use the permissive wording like “may”or “might” but instead use the words which expresses legally binding obligations like  “shall” or “will”. You want to be clear whether the arbitration is mandatory or optional.

2. Choose between Institutional or Ad hoc Arbitration

The second step is choosing between so-called institutional or ad hoc arbitration. In institutional (also called administered) arbitration, the parties choose an arbitral institution which will assist them in logistical aspects of the proceedings and other practical matters. Some common examples are International Chamber of Commerce (ICC), the London Court of Arbitration (LCIA), the Permanent Court of Arbitration (the PCA), the Stockholm Chamber of Commerce (SCC), the Singapore International Arbitration Center (SIAC) and the Hong Kong International Arbitration Center  (HIAC).  A full list of major arbitral institutions may be accessed here.  This assistance is for the exchange a small fee. Ad hoc arbitration, on the other hand, is more flexible in the sense that the parties have the freedom (and the obligation) to arrange the entire arbitration proceedings as they wish and tailor it to their own needs. There is no institution involved in the process, but there is still a need (and a recommendation) for the parties to designate a third, neutral party (known as an “appointing authority”) to have the final word on the selection of arbitrators if the parties fail to agree, as is often the case.

3. Choose a Set of Arbitration Rules

The third most important step is choosing the set of arbitration rules, which provide for the procedural framework for the proceedings. By choosing a complete set of arbitration rules the parties have saved themselves from having to agree upon all procedural aspects in relation to the proceedings, since the rules are a comprehensive set of rules which govern the procedural aspects of an arbitration and have been tried and tested. Each institution has a model clause suggested for parties who wish to include it in their contracts. A comprehensive list of suggested model clauses of the leading institutions is available here and parties are strongly encouraged to include one of the recommended clauses in order to avoid so called “pathological” and unenforceable clauses. In the case of ad hoc arbitration, parties usually choose the set of arbitration rules developed by UN Commission on International Trade Law (“UNCITRAL Rules”), which is specially tailored for  non-administered arbitrations.

4. Seat of Arbitration

The seat of arbitration (also known as the place of arbitration) is extremely important as it determines the law governing arbitration procedure (procedural law, or lex arbitrii). Parties should select a neutral place, for example they usually choose the place where the local courts would most likely enforce the agreement and support the arbitration process, such as Paris, Geneva or London. The seat of arbitration is the juridical home of the arbitration so the parties should pay special attention since the choice can have important legal consequences. As a general rule, the parties should always choose a place in a jurisdiction which is a signatory to 1958 New York Convention on the Recognition and Enforcement of the Awards (the “New York Convention”) and whose national law is generally supportive of arbitration.

5. Defining the Scope of Arbitration

Make sure to carefully define the scope of arbitration as well. Unless you agree that all disputes, including tort claims and other extra-contractual remedies, arising out of the contract and from the business relationship are to be arbitrated, be sure to exclude disputes which are not to be submitted to arbitration. Be careful about the law of the seat and whether it explicitly excludes certain subject matters and disputes as inarbitrable (such as family law in most jurisdictions).

6. Define the Governing law

The parties should also specify the governing law (also known as the “substantive law”) which is usually set out in a separate clause from the arbitration clause. It is important to note that the governing law to the contract is not the same as the arbitration law or procedural law governing the arbitration. Although the parties are allowed to explicitly agree that it will be the same law, it is quite common for the governing law to be different from the procedural law.

7. Arbitrators 

Careful consideration should also be given to the manner of appointment of arbitrator(s) and the constitution of the tribunal. In the majority of cases, proceedings will be before one arbitrator (a Sole Arbitrator) or a three-member panel (an Arbitral Tribunal). The number should be non-even in any event. The number of arbitrators has an impact on overall costs and the duration of the arbitration (three arbitrators will be more expensive than one arbitrator and may take longer to issue a ruling). It is unnecessary to specify the number of arbitrators in the arbitration clause. While the parties have an option of deciding this issue once the dispute arises, the main disadvantage of this approach is that if the parties disagree on the number of arbitrators, this causes unnecessary delays to the overall proceedings.

8. Appointing Authority 

In case of an institutional arbitration, many procedural rules provide for default rules on appointing arbitrators. However, in an ad hoc arbitration it is important to establish a method for selection and replacement of arbitrators. Absent such a specific provision, the courts at the place of arbitration may have to step in to make the necessary appointments/replacements since it is difficult for parties to agree on arbitrators once a dispute has arisen. Under the UNCITRAL Rules, in case the parties have not specified an appointing authority, it is the Secretary General of the Permanent Court of Arbitration who designates an appointing authority by default.

9. Language

When choosing the language of the proceedings, parties should not only take into account the language of the contract but also the related documentation. Note that choosing one language is always preferred to multiple options. This is an optional element, and absence of the explicit agreement of the parties, it is for the arbitrators to decide on the language of the arbitration.

10. Mediation/Negotiations- Multi-tiered Arbitration Clauses

Multi-tiered arbitration clauses – which provide for mediation, negotiations or some other form of alternative dispute resolution (ADR) prior to initiating arbitration are a frequent part of arbitration clauses drafted nowadays. It may be helpful for parties to try to negotiate the settlement of their dispute before engaging in lengthier and more expensive arbitration proceedings, although it may also simply be a waste of time and costs. An important issue to take into account when including multi-tiered clauses is to make it clear whether it is mandatory or optional. If the parties use mandatory wording such as “shall”, recourse to mediation or negotiations is a condition precedent for arbitration. In this case it is crucial to include the explicit time limit beyond which the dispute can be submitted to arbitration. If the parties use wording such as “may”, this can mean that mediation or negotiations are only optional and parties may resort to arbitration as soon as the dispute has arisen.

11. Confidentiality Obligations

Certain Arbitration rules provide for built-in confidentiality provisions. However, the parties are free and encouraged to include express confidentiality obligations and remedies for their breach, since not all arbitration clauses require confidentiality and the laws of many seats of arbitration do not require this either. The scope of this obligation can vary – from the disclosure of the existence of the arbitration, to confidentiality of the documents, evidence or any correspondence between the parties and the tribunal and interim and/or final awards.

This list is not exhaustive – and there are  other details and optional elements which the parties might wish to take into account. In 2010, the International Bar Association published IBA Guidelines for Drafting International Arbitration Clauses, available here, which is  a comprehensive guide to drafting arbitration clauses and making sure there is a valid and enforceable clause giving you full access to arbitration once a dispute has arisen.

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Provisional Measures in ICSID Investment Arbitration

The International Centre for the Settlement of Investment Disputes (ICSID) Convention allows parties to an ICSID arbitration to request provisional measures from arbitral tribunals. Provisional measures are frequently requested in the course of arbitrations, and the ICSID has compiled a comprehensive table with past requests for provisional measures, showing when requests for provisional measures in ICSID investment arbitration were granted and when they were rejected.

According to Article 47 of the ICSID Convention, arbitral tribunals are vested with the power to grant “any” provisional measures which they deem necessary.

“Except as the parties otherwise agree, the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respective rights of either party.”

Any such order that a tribunal makes is considered binding, despite the use of the word “recommend” in the text of the Convention.[1]

In addition, Rule 39 of the ICSID Arbitration Rules lays out the procedure for granting provisional measures in ICSID investment arbitration. An application to a tribunal must include the rights the party is seeking to preserve, the types of measures requested and the circumstances that make them necessary.

“(1) At any time after the institution of the proceeding, a party may request that provisional measures for the preservation of its rights be recommended by the Tribunal. The request shall specify the rights to be preserved, the measures the recommendation of which is requested, and the circumstances that require such measures.

(2) The Tribunal shall give priority to the consideration of a request made pursuant to paragraph (1).

(3) The Tribunal may also recommend provisional measures on its own initiative or recommend measures other than those specified in a request. It may at any time modify or revoke its recommendations.

(4) The Tribunal shall only recommend provisional measures, or modify or revoke its recommendations, after giving each party an opportunity of presenting its observations.

(5) If a party makes a request pursuant to paragraph (1) before the constitution of the Tribunal, the Secretary-General shall, on the application of either party, fix time limits for the parties to present observations on the request, so that the request and observations may be considered by the Tribunal promptly upon its constitution.

(6) Nothing in this Rule shall prevent the parties, provided that they have so stipulated in the agreement recording their consent, from requesting any judicial or other authority to order provisional measures, prior to or after the institution of the proceeding, for the preservation of their respective rights and interests.”

ICSID tribunals have accepted that, in order to be able to grant provisional measures pursuant to Article 47 and Rule 39, they must be satisfied that they have prima facie jurisdiction to hear the case. This assessment will not, however, prejudice their findings on jurisdiction in later stages of the dispute.

Furthermore, the threshold for granting provisional measures of any kind is usually high and tribunals are guided by the principles of urgency and necessity in their assessment of whether the circumstances warrant the requested protection to prevent irreparable harm to the rights of the party.

Provisional measures may take any form that the parties request or the tribunals consider appropriate. Among others, these may be measures that ensure the preservation of evidence, or provide for security for costs.

A controversial category of provisional measures includes measures ordering States to halt judicial proceedings against the investors in their jurisdiction. Such orders not only limit a State’s legitimate exercise of sovereignty, but at the same time arguably constitute an affront to the separation of powers, since they may involve an interference by the executive into judicial matters. In fact, a recent ICSID tribunal, when requested to order the cessation of criminal investigations in the Respondent State, declared that it lacked the ability to make such an order, considering that no convincing evidence of bad faith on the part of the Respondent State had been presented.[2] This decision is reproduced below.

Despite the high threshold required, provisional measures in ICSID investment arbitrations are an important tool for both investors and Respondent States, as they can guarantee both parties’ cooperation during the arbitration, safeguard the parties’ interests and help to ensure compliance with an eventual award.

Anastasia Choromidou, Aceris Law

Download the PDF file .

[1] Emilio Agustin Maffezini v The Kingdom of Spain, Procedural Order No 2, 28 October 1999, para. 9, available at https://www.italaw.com/sites/default/files/case-documents/ita0477.pdf.

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Customer (Italy) v. Service provider (Switzerland), Final Award CAM Case No. 1115/16, 10 December 2015

This case relates to the issue of the validity of a contract between two parties involved in an international arbitration under the arbitration rules of the Milan Chamber of Arbitration.

In the case, the Claimant filed for a request for arbitration before the Chamber of Arbitration in Milan seeking damages for the termination of the contract.

The Claimant argued that there was a valid contract between the parties, even if the initial offer was unsigned, since the parties had performed their contractual obligations. It also argued that there was a valid cession of the contract to the Respondent in the arbitration proceeding, which terminated the contract for assistance services, and that this termination caused losses to Claimant and entitled it to obtain damages.

The Respondent disagreed, arguing that the Respondent could not be a party as it had not consented to the cession of the contract. In addition, the Respondent argued that the Arbitral Tribunal lacked jurisdiction because the dispute was governed by the Respondent’s Terms of Service, which provided for the exclusive jurisdiction of the local courts in Lugano, Switzerland.

The Arbitral Tribunal ruled that it lacked jurisdiction in the absence of valid and binding arbitration agreement.

The Tribunal first observed that it had the competence to determine its own competence, as recognized in Italian arbitration law.

Then, it explained that in the absence of agreement by the parties, the law of the seat of arbitration was usually applicable to determine the existence and validity of an arbitration agreement. Here, the seat of arbitration was in Italy, thus Italian law was found to apply:

“This subject matter is widely discussed in doctrine and jurisprudence. However, it is most commonly held – an opinion that the Arbitrator shares – that lacking a choice by the parties, the law of the state where the arbitration has its seat (lex arbitri) applies.”

The Tribunal underlined the fact that an arbitration agreement was not concluded between the parties directly and thus could not bind the parties. As it explained, the offer was conditional on formalities to be performed by the accepting party, performance by the person to whom the offer was addressed was required, and payment was to be made on a monthly basis:

“Rather, the contrary appears from the Year X Offer’s formulation: the offeror conditioned the provision of the service to several formalities to be performed by the accepting party, including the filling in and signing of certain documents – ‘When accepting the service the Customer shall fill in and sign … (b) the following forms that are necessary for the provision of the service’ – and only after performance of these formalities and evaluation and acceptance of the Customer by the offeror, Company Acme ‘would commence providing the service’. Such formal requirements are not only completely incompatible with the cases foreseen in Art. 1327 CC: they can also be considered suspensive conditions for the overall conclusion of the contractual relationship. Further, they clearly do not prove an interest of the offeror in the immediate performance under the Offer.

Further, ‘the performance meant by Art. 1327 CC for the purpose of identifying the moment in which the contract is concluded is not the performance by the person who has already expressed his intention, the offeror, but rather the performance by the person to whom the offer is addressed’ (see, among many others, Supreme Court (Civil), First Section, 26 October 1977, no. 4592) – here, Company XYZ. Hence, the sole performance to which the offeror could theoretically prove that it had an interest would be the payment for the service. However, according to Art. 9 of the Year X Offer and p. 11 of the attached General Conditions, payment was to be made monthly against submission of an invoice by the service provider.

Hence, leaving aside other considerations (see also below), we do not find that Art. 1327 CC applies here in respect of the conclusion of the contract to which the Year X Offer between Company Acme and Company XYZ refers.”

It also pointed out that the cession never made reference to the original offer. Therefore, the arbitration agreement was not binding by way of cession.

Finally, in rejecting jurisdiction, the Tribunal ruled that, in any event, the arbitration clause did not comply with the formal requirements of Italian law and the 1958 New York Convention, since the arbitration clause was in a separate document without any specific reference to it:

“Both international treaties and Italian arbitration law require the written form for the valid conclusion of an arbitration agreement. According to Art. II(1)-(2) of the [1958] New York Convention, 

(1) Each Contracting State shall recognize an agreement in writing….

(2) The term “agreement in writing” shall include an arbitral clause in a contract …, signed by the parties or contained in an exchange of letters or telegrams.’ 

According to Art. 808[(1)] CCP, the choice to refer controversies arising out of a contract to arbitrators must result from a written agreement: 

‘The parties may establish, in their contract or in a separate document, that disputes arising out of the contract be decided by arbitrators, provided such disputes may be made subject to an arbitration agreement. The arbitration clause must be contained in a document meeting the form required for a submission agreement by Article 807.’ 

And according to Art. 807 CCP,

‘(1) The submission to arbitration must, under sanction of nullity, be made in writing and must indicate the subject matter of the dispute.

(2) The written form requirement is considered complied with also when the will of the parties is expressed by telegram, telex, telecopier or telematic message in accordance with the legal rules, which may also be issued by regulation, regarding the transmission and receipt of documents which are teletransmitted.’ …

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ENFORCEMENT OF AN ANNULLED ARBITRATION AWARD: SOCIETE PT PUTRABALI ADYAMULIA v. RENA HOLDING French Court of Cassation (2007)

The case Société PT Putrabali Adyamulia v Société Rena Holding et Société Moguntia Est Epices is one of the French landmark cases concerning the enforcement of an arbitral award in France, where the enforcement of an annulled arbitration award is possible.

In the case, Putrabali sold a cargo of white pepper to Rena Holding. The cargo was lost in a shipwreck and Rena failed to pay. Putrabali then filed for arbitration.

The contract provided for arbitration of disputes according to the Rules of Arbitration and Appeal of the International General Produce Association (IGPA).

The Arbitral Tribunal was constituted in London and issued an award in favor of Rena Holding.

Following this decision, Putrabali appealed to the High Court in London, which partially annulled the award. The court deemed that Rena’s failure to pay constituted a breach of contract. Afterwards, the Arbitral Tribunal issued a second award in favor of Putrabali and ordered Rena Holding to pay the price of the lost cargo.

Rena Holding then sought enforcement in France of the first award, and the President of the Paris Court granted enforcement of the award. The Paris Court of Appeal then denied Putrabali’s appeal from the enforcement decision.

Putrabali argued that Rena Holding violated the obligation to act in good faith and acted in abuse of right because the first award was replaced by a second award, which deprived it of all legal effect before the French court was seized, that the rule according to which the annulment of an award in a foreign state does not affect the enforcement of the award in France was not applicable here, that only the second award could be properly called an “award” and is the only one that could be subject to enforcement, and that recognition and forced execution of the replaced award was against the parties’ intentions and violated international public policy.

However, the French Court of Cassation confirmed the Court of Appeal’s decision and granted enforcement of the award.

The court reasoned that an international arbitral award is independent of a national legal order and its validity was to be ascertained by the laws of the country where enforcement is sought, in this case France.

Article VII of the New York Convention allowed Rena Holding to seek enforcement of the award as French rules do not refuse enforcement of an award by reason of its annulment at the seat of the arbitration.