ASYMMETRIC DISPUTE RESOLUTION CLAUSES Dmytro Marchukov Przemysław P. Krzywosz Polish/Ukrainian Twin Conference: International Commercial Arbitration Kiev, April 26th, 2013
Contents A. Asymmetric DR Clauses Introduction - Definition - Types of asymmetric clauses - Statutory asymmetry: Consumer protection B. Unilateral Option (hybrid) DR clauses - Description - Why consider them? Best of two worlds? - Hybrid DR clauses and counter-claims - Procedural issues: attack versus defense - EU: 1215 Regulation (in force: January 2015) 2
Contents cont. C. Law & Recent Cases - Poland & Ukraine - UK, Bulgaria & Italy - Russia & France D. Conclusions 3
Asymmetric DR Clauses Introduction Definition: The clause that gives/provides for different / better rights to one of the parties. Types of asymmetry: Contractual where the party gets unilateral right in the course of negotiations to decide unilaterally upon certain the elements of the process handling/ structure (examples: right to nominate arbitrators, select the forum, select the jurisdiction). Statutory where by law the party entertains certain rights not available to the other by law. Usually in consumer relations. 4
Asymmetric DR Clauses Introduction, cont. Statutory asymmetry examples: Consumer protection: Polish Bank Arbitrator regulations: a customer of the bank has the right to appeal from the decision while it is final and binding for the bank. Asturcom Telecomunicaciones SL v. Cristina Rodríguez Nogueira (6.10. 2009, C-40/08) - ECJ said that (i) a national court when enforcing award made in the absence of the consumer, has to assess ex officio whether an arbitration clause in it is unfair, (ii) Art 6 of Directive 93/13 /EEC on unfair terms in consumer contracts forms part of public policy. 5
Asymmetric DR Clauses Introduction, cont. Statutory asymmetry examples: Consumer protection, cont.: Art. 6.14 of the Domestic Arbitration Act (as amended in 2011): Courts of domestic arbitration shall be competent to consider any disputes save for disputes arising out of consumer protection, including consumers of the banks and credit unions. Cf.: Kiev Commercial Court judgment dated 10 November 2010 confirming the arbitration clause in the loan agreement: the dispute shall be settled by Arbitrator X. If Arbitrator X is unavailable, the dispute shall be settled by Arbitrator Y. If Arbitrator Y is unavailable, the dispute shall be settled by Arbitrator Z. 6
Asymmetric DR Clauses Introduction, cont. Hybrid asymmetric DR clauses: Arbitration clause with unilateral option for one party to subject the dispute to the selected court. Possible variations: Other way round: litigate with option to arbitrate One way exclusive jurisdiction for the public court One way exclusive jurisdiction for the court of arbitration Why consider them? Best of two worlds? Enforcement of debt easier on occasion in local courts (summary judgment). New York Convention vs. Lugano Convention and Brussels Regulation. Or, simply, the party has not made up its mind yet. 7
Asymmetric DR Clauses Introduction, cont. Procedural issues: attack versus defense Does the option protects in case of filing the claim under mutual part?: - NB Shipping Ltd v. Harebell Shipping Ltd [2005] 1 AER 200 fork in the road. - Law Debenture Trust Corporation Plc v. Elektrim Finnace BV and others [2005] AER 476 block other party with your option. EU: 1215 Regulation (in force: January 2015): intended corrective action on Tanker Allianz SpA v West Tankers (ECJ; Case C-185/07) 8
Law & Recent Cases Asymmetric DR clauses Polish law Civil Procedure Code ( CPC ) in Art. 1105.3 (one way jurisdiction clause does not exclude Polish courts jurisdiction) and Art. 1161.2 (ban as to unequal rights of the parties) effectively excludes asymmetry. Asymmetric provisions are ineffective. Selected cases: - Supreme Court (NS) Decisions of 19/10/2012, V CSK 503/11, Lex 1254742 and of 24/11/2010, II CSK 291/10, (Monitor Prawa Bankowego 2011) Analysis of the clause itself not the surrounding environment matters but Arbitration Court Rules (selection) could result in breach of equality of the parties in specific cases, including the procedures for arbiters nominations ( ZBP case ). 9
Law & Recent Cases, cont. Asymmetric DR clauses Ukrainian court practice Selected cases (hybrids): Kiev Commercial Court judgment dated 26 April 2011: the dispute shall be referred to [MKAS]. Notwithstanding the preceding provisions [ ], the seller shall have the right to submit any dispute [ ] to the competent Ukrainian court according to the Code of Commercial Procedure of Ukraine. Reasons to confirm the DR clause: [Respondent] had not objected against the terms [of the Contract] and, in particular against Art. 12 of the Contract Arbitration Agreement, [...] the mentioned article is in accord with the legal provisions because it is quite clear about the purported legal consequences. [...] Never did Respondent oppose Art. 12 Arbitration Agreement [...] until Claimant seized the court. 10
Law & Recent Cases, cont. Asymmetric DR clauses Ukrainian arbitration practice Selected cases (hybrids): MKAS award dated 18 November 2002: all disputes [ ] shall be within jurisdiction of the Pest Central Court or the Capital Court. If the claims arise against the Ukrainian party, the parties agree to the jurisdiction of [MKAS]. MKAS awards dated 18 February 2003 and 21 February 2003: all disputes and differences shall be referred to [VIAC]. Seller shall be entitled to submit the dispute to [MKAS]. 11
Law & Recent Cases, cont. Asymmetric DR clauses Ukrainian arbitration practice Selected cases: MKAS awards dated 18 January 2006 and 13 October 2006: the dispute shall be finally settled by three arbitrators [...]; lessee shall appoint one arbitrator and lessor shall appoint two arbitrators. MKAS award dated 27 February 2006: any dispute under the contract shall be considered and finally settled [...] by the sole arbitrator appointed by the claimant. MKAS award dated 14 March 2006: Arbitral tribunal shall be composed of the sole arbitrator, chosen and appointed by the seller. 12
Law & Recent Cases, Cont. Selected cases: England: Deutsche Bank AG v Tongkah Harbour Public Company Limited and Deutsche Bank AG v Tungkum Limited 2011 [2011] EWHC 2251 (QB) : unilateral arbitration agreement perfectly valid; fork in the road in relation to related contracts. Bulgaria*: Judgment No. 71 of 2/9/2011 in commercial case No. 1193/2010, Bulgarian Supreme Court of Cassation, Commercial Chamber, one way court/choice of law clause struck down in local loan agreement; arguments based on potestative rights similar approach to that taken in Mdame X, Italy **: Case 5705, 11/4/2012, Grinka in liquidazione v Intesa San Paolo, Simest, HSBC; open one-way jjurisdictional clause upheld despite potestative conditions doctrine being in place in Italian law as in French one. http://conflictoflaws.net/2012/bulgarian-court-strikes-down-one-way-jurisdiction-clause/ ** http://www.mondaq.com/x/231358/arbitration+dispute+resolution/italian+supreme 13
Selected cases: Russia & France Law & Recent Cases, cont. Russian vodka: DR clause invalidated (Sony Ericsson). Russian vodka (morning after): a party has been blessed with the option, which under the asymmetric DR clause only the other party has (Sony Ericsson with comments of A. Ivanov). French kiss: DR clause invalidated (Madame X). 14
Conclusions PRZEMKO: All this is not new and is as always was - about: Relevant business needs analysis Relevant legal system review Black swan /trend handling Safe be bilateral/mutual and build separated top option. DMYTRO: Avoid asymmetry. Go for alternative DR clause and choose the exact and proper judicial form. NB! Art. 76.1 Ukrainian PIL Act: if the parties have subjected their dispute [...] to the jurisdiction of the courts of Ukraine. If symmetry is not fun enough... divide and rule! NB! Russian vodka (morning after). 15
Conclusions, cont. DMYTRO: Art. V.1.a of the New York Convention, Art. IX.1.a of the European ICA Convention, Arts. 34.2.1 and 36.1.1 of the Ukrainian ICA Act (choose the exact and proper applicable law: agreement is not valid under the law to which the parties have subjected it ). NB! Art. II.1 of the New York Convention: an agreement in writing under which the parties undertake to submit to arbitration. Art. II.3 of the New York Convention and Art.8.1 of the Ukrainian ICA Act: unless [the court] finds that the said agreement is null and void, inoperative or incapable of being performed. 16
Thanks for your attention! Dmytro Marchukov & Przemysław P. Krzywosz Egorov Puginsky Afanasiev and Partners Przemysław P.Krzywosz Kancelaria Prawna 38 Volodymyrska St., Kyiv, 01030, Ukraine Nałęczowska 60/30, 02-922 Warsaw, Poland www.epap.ua www.ppk.com.pl Tel.: +380 (44) 492 8282 / Fax: +380 (44) 492 8272 Phone: +48-602413821 Email: d.marchukov@epap.ua E-mail: p.krzywosz@ppk.com.pl 17