Arbitration Clause / Constitution of the Tribunal. Arbitration Agreement - Jurisdiction of the Arbitral Tribunal. Homburger. Homburger.

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1 International Commercial Arbitration (FS 2015) Arbitration Clause / Constitution of the Tribunal Felix Dasser (felix.dasser@homburger.ch) Arbitration Agreement - Jurisdiction of the Arbitral Tribunal 2 Arbitration Agreement (13) Definition: "The arbitration agreement is an agreement whereby two or more parties agree that a dispute, which has arisen or may arise between them in connection with a particular legal relationship, will be finally settled by one or more arbitrators." (GirsbergerVoser, 54) cf. DFT 138 III 29 c

2 Arbitration Agreement (23) Core elements: Obligation to arbitrate Jurisdiction of an arbitration tribunal Exclusion of national courts Arbitration clause (usual) vs. submission agreement (rare) 4 Arbitration Agreement (33) Legal nature DFT 116 Ia 56 c. 3a: rather procedural Contrary view: Mixed partly substantive, partly procedural Substantive: obligations between the parties Procedural: exclusion of state courts; enforceability of award Not really relevant 5 Validity of the Arbitration Agreement Requirements: 1. Form 2. Essential elements 3. Objective arbitrability 4. Subjective arbitrability Basis: Article 178 PILA 6 2

3 Form Article 178 (1) PILA "The arbitration agreement must be made in writing, by telegram, telex, telecopier or any other means of communication which permits it to be evidenced by a text." No signature required Use of text by all parties to the original agreement (reciprocal writing requirement)? 7 Substantive Validity Article 178 (2) PILA: favor validitatis Law chosen by the parties, or Law governing the subject-matter, or Swiss law (law of the parties' domiciles? cf. Article 177 (2) PILA) (general principles of arbitration law?) Swiss law: Arbitration clause also valid if contained in another documents referenced in the signed contract (general conditions) 8 Essential Elements (12) 1. Consent to refer disputes to arbitration (DFT 129 III 675 E. 2.3) Restrictive interpretation concerning consent to refer to arbitration in general Once such general consent is established: application of the general rules for interpretation of contracts; presumption that parties wanted the arbitral tribunal to have jurisdiction to adjudicate all aspects of their dispute. (DFT 138 III 681 c. 4.4: "principle of utility") Watch out for carve-outs! 9 3

4 Essential Elements (22) 2. Designation of the legal relationship Designation of existing dispute or legal relationship out of which disputes might possibly arise E.g.: "all disputes arising from or in connection with the Agreement" 10 Additional Elements Seat (important!) Ad hoc vs. institutional arbitration Composition of the arbitral tribunal Language of the arbitration Applicable law Provisions for multi-party proceedings Jurisdiction for interim relief Preliminary alternative dispute resolution mechanisms (ADR) Issue of enforceability (FT 4A_18/2007 of June 6, 2007 c. 4.3) (Agreement to exclude the right to challenge the award) 11 Checklist (IBA Guidelines for Drafting Int. Arb. Clauses 2010 Basic Guidelines) The parties should 1. decide between institutional and ad hoc arb.; 2. select a set of arb. rules and use the recommended model clause as a starting point; 3. not limit the scope of disputes subject to arb.; 4. select the place of arb.; 5. specify the number of arbitrators; 6. Specify the method of selection and replacement of arbitrators and, when ad hoc arb. is chosen, an appointing authority; 7. specify the language; 8. specify the rules of law governing the contract and any subsequent disputes. ( 12 4

5 Example (14) Swiss Rules 2012 "Any dispute, controversy or claim arising out of, or in relation to, this contract, including the validity, invalidity, breach, or termination thereof, shall be settled by arbitration in accordance with the Swiss Rules of International Arbitration of the Swiss Chambers Arbitration Institution in force on the date on which the Notice of Arbitration is submitted in accordance with these Rules. [ ]" 13 Example (24) ICC Rules 2012 "All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. [...]" 14 Example (34) Liechtenstein Rules (2012) - Foundations "Any dispute, controversy or claim arising between the foundation, its executive bodies, the founder or beneficiaries in relation to the foundation, its formation, activity or liquidation, including the existence or scope of a beneficial interest, the designation of beneficiaries, the validity, invalidity, amendment or dissolution of the foundation, appeal of decisions, and supervisory measures, shall be resolved by arbitration in accordance with the Rules of Arbitration of the Liechtenstein Chamber of Commerce and Industry to the exclusion of the judicial authorities. [...]" 15 5

6 [CONTINUED FROM LAST SLIDE] "In any event by accepting a beneficial interest, the beneficiary shall submit to this arbitration agreement. The foundation may call upon the beneficiary to confirm this by signature. Refusal of this confirmation shall be deemed a waiver of the beneficial interest. [...] If a party is indigent, the foundation may in its discretion for the duration of the proceedings provisionally assume the costs of the proceedings, including advances on costs and reasonable representation of that party, reserving the right to reclaim these costs after a decision of the arbitral tribunal on the final obligation to bear the costs." 16 Example (44) Standard additional elements "The number of arbitrators shall be... [one or three]" "The seat of the arbitration shall be in... [city in Switzerland, unless the parties agree on a city abroad]" "The arbitral proceedings shall be conducted in... [insert desired language]" "The substantive law of... is applicable to the dispute." 17 Objective Arbitrability Article 177 (1) PILA: "Any dispute of financial interest may be the subject of an arbitration." Substantive rule of international private law Not arbitrable: e.g. Family law matters concerning status Claims of the debt collection procedure in its strictest sense ("rein betreibungsrechtliche Klagen"), including summary proceedings on dismissal of objection ("Rechtsöffnungsverfahren") pursuant to Article 82 of the Federal Debt Prosecution Act (DFT 136 III 583 c. 2.1) Arbitrable: e.g. employement matters Swiss domestic arbitration, Article 354 SCCP: "disputes, which are subject to the parties' free disposition" 18 6

7 Subjective Arbitrability Capacity of a specific entity or person to validly enter into an arbitration agreement Capacity to act as a party to arbitral proceeding Capacity to enter into an arbitration agreement in the name and on behalf of another person or entity Determined by PILA Articles (natural persons), Articles (legal entities) Articles 126, 155, 158 (voluntary/legal representation) Article 177 (2) This is not a matter of course, though transnational approach (e.g. French Cour de Cassation) 19 in case of bankruptcy Portugal - Poland 1:0 "Vivendi" - decision FT 4A_428/2008 of March 31, 2009, c. 3.2: Whether a party has the capacity to act in arbitration depends upon its own law (lex incorporationis). In Poland, a bankrupt party loses its standing to be sued in arbitration. DFT 138 III 714: (i) Left open whether "Vivendi" correctly applied Polish law (well, it probably didn't); Portuguese law is different. (ii) If, pursuant to its own law, a party has legal capacity in general, it has standing to sue or be sued in arbitration pursuant to Swiss law (i.e. "Vivendi" was wrong anyway) 20 Theory of "Separability" Validity of arbitration clause main contract (Article 178 (3) PILA) Two contracts To be assessed separately To be challenged separately Possibility of two different contract laws Limitations: Contrary agreement Nullity of the main contract that also extends to the arb. agreement (e.g. dissent; lack of capacity to execute) 21 7

8 Subjective Scope Matter of applicable substantive law, not of form (Art. 178 (2) PILA: favor validitatis; DFT 129 III 727) Parties who originally agreed Third parties (exceptionally): DFT 129 III 727: extension based on the real intent of the parties and the principle of good faith FT 4A_160/2009 of August 20, 2009: piercing of the corporate veil Group-of-companies doctrine (extension within the same group of companies, such as to a parent company; e.g. in French law; so far not accepted in Switzerland) 22 Subject-matter Scope Any contractual claims (incl. validity of contract, interpretation and termination) Counterclaims? Set-off claims? Group of contracts? Tort claims, unjust enrichment? (DFT 138 III 681 c. 4.4: if there is an arbitration clause, it should presumably apply to all aspects of a dispute) 23 "Competence-Competence" (12) Arbitral tribunal shall decide on its own jurisdiction (Article 186 PILA) Corollary to principle of "separability" Relative competence ultimate control by FT No ex-officio examination objection required Problem of parallel court or arbitration proceeding Article 186 (1 bis ) PILA 24 8

9 "Competence-Competence" (22) Exception: Article 7 PILA "If the parties have concluded an arbitration agreement concerning an arbitrable dispute, the Swiss court invoked shall decline jurisdiction except where: a. the defendant made an appearance in the proceedings without reservation; b. the court determines that the arbitration agreement is void, without effect, or cannot be fulfilled, or c. the arbitral tribunal cannot be constituted due to reasons for which the defendant in the arbitration proceedings is obviously responsible." Full review if foreign seat (DFT 121 III 42) Summary review if Swiss seat (DFT 138 III 681 c. 3.2) Full review of eventual award (Article 190 (2)(b) PILA) 25 Example (13) "The parties agree that any dispute or difference which may arise out of this Agreement or the execution or interpretation of any of the Clauses hereof shall be settled amicably. If such dispute or difference cannot be settled in the aforementioned manner they shall be finally settled under the Rules of Conciliation and Arbitration of the Zurich Chamber of Commerce, Zurich/Switzerland, in accordance with the UNCITRAL Arbitration Rules. The number of arbitrators shall be three (3). ICC shall be the appointing authority acting in accordance with the rules adopted by ICC for that purpose." (DFT 130 III 66) 26 Example (23) "ARBITRAZA Nesuglasice i sporove ugovorne strane rijesavaju suglasno. Ukoliko sporazum ne moze biti postignut ugovara se nadleznost Trgovackog suda Zürich, Kanton Zürich, Svicarska uz primjenu svicarskog materijalnog prava. Arbitrazna odluka je konacna i izvrsna." "ARBITRATION The parties will try to solve any disputes arising out of this Agreement by peaceful means. If no settlement may be reached, the dispute will be arbitrated by the Economic Court in Zurich, Canton of Zurich, with application of the Swiss material law. The decision of the arbitration is regarded as final and executory." (DFT 129 III 675) 27 9

10 Example (33) "The competent instance in case of a dispute concerning this Agreement is the FIFA Commission, or the UEFA Commission, which will have to decide the dispute that could arise between the club and the agent." (DFT 138 III 29) 28 Termination (12) Not (necessarily) together with main contract Contrarius actus: No requirement of form (FT 4A_305/2013 of October 2, 2013, c ) E.g. one party sues in state court, the other does not dispute jurisdiction ("Einlassung") may amount to consensual termination at least for the specific dispute 29 Termination (22) Time limit on clause or procedure (dangerous!) Impossibility. May arise if, e.g., institution ceased to exist, no replacement chosen arbitrator no long available By one party for cause E.g. penury of physical party (not of a company) 30 10

11 Constitution of the Arbitral Tribunal 31 Constitution is Crucial and Tricky The parties are in charge of constitution They decide how many, who, how Tricky as, once a dispute has arisen, one party (the defendant) often has a strong incentive to prevent the constitution May give rise to challenges, appeals, and reasons for not enforcing a foreign award 32 Number of Arbitrators Party autonomy Sole arbitrator vs. panel? More than three arbitrators? Even number of arbitrators? To be avoided (see Article 360 [2] SCCP: Problematic assumption that the parties really meant an uneven number and that, thus, a chairperson has to be added) 33 11

12 Requirements in General Only individuals Special knowledge Language skills Availability Nationality Certain professions? 34 Independence and Impartiality (12) Absolutely crucial (even if not a matter of course and difficult to define)! In principle same standard as for judges Article 30 Federal Constitution: right to be tried by an "independent and impartial court" Applies equally to all arbitrators, not just the president Test: "circumstances that give rise to justifiable doubts as to his independence [or impartiality]" (Article 180 (1)(c) PILA) 35 Independence and Impartiality (22) IBA Guidelines on Conflicts of Interest in International Arbitration 2014 Red List (non-waivable) Red List (waivable) Orange List Green List "not law, but a valuable working tool" (FT 4A_506/2007 of March 20, 2008, c ) 36 12

13 Appointment Procedure Party autonomy (Article 179 (1) PILA) Delegation: Arbitration institution Professional organisations; individual person State court judge Back-up: State court at the seat of the tribunal If no provision by the parties (Article 179 (2) PILA) If a partythe partiesa third party fail(s) to nominate as provided for Only summary examination of arbitration agreement (competencecompetence of the arbitral tribunal) (Article 179 (3) PILA) 37 Multi-Party Arbitration Very frequent (typically 1/3 of cases) Needs to be addressed by arbitration clause or rules Article 362 (2) SCCP Article 8 Swiss Rules Typically all claimants or respondents, respectively, have to nominate one arbitrator. If they fail: appointment by institution or court Dutco-Case: appointment by institutioncourt also of the other wing-arbitrator? Article 362 (2) SCCP: the court has discretion to appoint the missing arbitrator or also all arbitrators prevents foul play 38 Administrative Secretary Administrative arrangements Approval of the parties required Secretary must be impartial and independent Who pays? 39 13

14 Challenge of an Arbitrator (12) Grounds (Article 180 (1) PILA): Directly defined by the parties Contained in chosen arbitration rules "Justifiable doubts" suffice No wait-and-see attitude waiver! (cf. FT 4A_476/2012 of May 24, 2013, c. 3) 40 Challenge of an Arbitrator (22) Procedure (Article 180 (3) PILA): Party autonomy Default competence of the "juge d'appui" Stay during pending challenge? Not necessarily No recourse to FT against decision of the juge d appui, neither directly nor against award (DFT 122 I 370; 128 III 330; 138 III 270) 41 Example (16) O. Ltda, Rio de Janeiro, commenced arbitration proceedings against C. Aussenhandelszentrale, Katto-witz, in Zurich. O. nominated as its arbitrator Dr. X., District Court judge in Zurich. C. objected, because Dr. X's spouse was an associate in the law firm of O's Zurich counsel. (DFT 92 I 271) 42 14

15 Example (26) Swiss Pilots Association (SPA) and Swiss International Air Lines AG were parties in an arbitration. A first tribunal rendered two decisions. The Parties agreed that the same tribunal render another decision. However, one of the wing arbitrators had stepped down in the meantime. In his place, Swissair nominated Prof. X. SPA objected because Prof. X had been contacted by its counsel after the first two decisions and asked to comment on them. Prof. X asked for and received several documents (submissions, contracts), but failed to come back with comments. Instead, he published critical comments on those two decisions in newspapers. (DFT 133 I 89) 43 Example (36) X sold his notary business to Y. According to the sales agreement any dispute arising out of this contract should be settled by Z as a single arbitrator. In the ensuing arbitration proceeding Y objected, because Z was a director Z Ltd., which had granted a loan of CHF 100'000 to Y in connection with the purchase of the notary business. (FT 4A_162/2010 of June 22, 2010) 44 Example (46) X, Zurich partner of the international law firm A, B & C, is nominated as arbitrator for respondent. Two years ago, another partner of A, B & C, in New York, advised respondent in a local zoning law dispute with the New York city administration 45 15

16 Example (56) Y, a well known and highly regarded arbitrator in Zurich is nominated by Claimant. Claimant chose her because she had served as arbitrator for claimant in several cases before and proved to be highly know-ledgeable and professional. 46 Example (66) Respondent chose Prof. Z. as its wing arbitrator because Z. had repeatedly published strong opinions on legal questions that happen to favor Respondent's position in the case at hand. 47 Termination of an Arbitrator's Mandate Lapse of time set in arbitration clause Dismissal by the parties: By common declaration of both parties No legal remedy Removal by the state court (or arbitration institution): Unilateral motion of a party (challenge, Article 180 PILA) Good cause required (inability to fufill task) Resignation by the arbitrator Withdrawal for good reasons only (Article 404 CO not applicable), otherwise liability for breach of contract Acceptance by arbitration institution required? 48 16

17 Replacement of an Arbitrator Appointment in the same manner as his or her predecessor (or by institution) Arbitral proceedings have to be stayed in the meantime Continuation of proceedings or back to square one? Article 14 UNCITRAL Arb. Rules; Art. 14 Swiss Rules; Art.15.4 ICC Rules (see also Art. 371 (3) SCCP) 49 The Arbitral Contract Applicable law: Law at the seat of the arbitral tribunal (?) Contractual nature (receptum arbitri) Contract sui generis elements of a mandate agreement (Articles 394 et seq. CO by analogy) Obligations / rights of an arbitrator Decide the dispute Disclose issues of independence and impartiality Duty of confidentiality Civil liability (restricted) Fee (mostly depending on value in dispute) Swiss Chambers: 50 See you in (arbitration) court! 51 17

"It may also be desirable for the parties to stipulate in the arbitration clause itself:

It may also be desirable for the parties to stipulate in the arbitration clause itself: International Commercial Arbitration Module (FS 2015, March 17, 2015) 1 7 Handout re Arbitration Agreements I. Standard Clauses 1. Swiss Rules "Any dispute, controversy or claim arising out of, or in relation