ICCA

INTERNATIONAL COUNCIL FOR COMMERCIAL ARBITRATION

YEARBO
COMMERCIAL ARBITR

VOLUME XXXV 2010

GENERAL EDITOR
ALBERT JAN VAN DEN BERG

with the assistance of the

Permanent Court of Arbitration
Peace Palace, The Hague
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 INTERNATIONAL COUNCIL FOR
COMMERCIAL ARBITRATION

YEARBOOK

COMMERCIAL ARBITRATION

VOLUME XXXV — 2010

GENERAL EDITOR
ALBERT JAN VAN DEN BERG

with the assistance of the

Permanent Court of Arbitration
Peace Palace, The Hague

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ISBN 978-90-411-3209-3

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 INTRODUCTION

Volume XXXV (2010) of the Yearbook marks a profound change in the way
materials are presented to the reader. As of this Volume, the Yearbook’s
selection of arbitral awards and court decisions — made accessible by translations,
indices and categorized lists — is available to the reader in a combination of print
edition and online publishing which takes into account the needs of an
increasingly mobile work environment.
The Yearbook’s contents have been streamlined and Parts have been re-
numbered. Arbitral awards continue to be published in print in their entirety, as
are Parts of the Yearbook providing various information. Court decisions are
presented at two levels of consultation: a Summary of each decision, prefaced by
a short recap, is published in print; a detailed Excerpt of the decision is available
online at <www.kluwerarbitration.com>. A code provided with the Yearbook
allows readers to access the relevant Volume online, as well as the preceding
Volume. Readers who have purchased Volume XXXV (2010) can therefore
access materials from both this Volume and Volume XXXIV (2009).
Information on how to access the online materials is provided in a Note to
the Reader at the beginning of this Volume (p. Xv).
All volumes of the Yearbook, along with ICCA’s International Handbook on
Commercial Arbitration and selected volumes of ICCA’s Congress Series, are also
made _ available by general subscription on the online service
<www. kluwérarbitration. com>.
The International Handbook on Commercial Arbitration functions alongside the
Yearbook in providing up-to-date information on arbitration law and practice in
more than seventy countries. The Handbook contains National Reports together
with the relevant legal texts. Its Table of Contents is reproduced in Part I of the
Yearbook.
In Part II of the Yearbook, new or amended rules of arbitral institutions are
announced, with a reference to the websites where the rules can be obtained.
This year, information is provided on Bahrain, PR China, Estonia, India, the
International Chamber of Commerce, Italy, Japan, Malaysia, Singapore, Sweden,
UNCITRAL and the United Kingdom.
Part III announces newly enacted arbitration legislation and informs readers
of other developments relevant to the practice of arbitration. In this volume,
information is provided on Argentina, Australia, Bahama, Belize, Brunei, PR
China, Fiji, Ireland, Kenya, Mexico, Qatar, the Russian Federation, Scotland,
Singapore, Spain and Vietnam.

Yearbook Comm. Arb’n XXXV (2010) V

 INTRODUCTION

under the
Part IV, Arbitral Awards, contains a selection of awards made
ation
auspices of the International Chamber of Commerce (ICC) and the Arbitr
Chamber of Paris. Topics discussed in the awards include European Union
legislation on competition law and food safety; the United Nations Convention
on Contracts for the International Sale of Goods (CISG); post-termination
contractual obligations; the res judicata effect of a withdrawal of claim; the
reasonableness of substitute purchases; the applicable law to the capacity of
corporations; the validity of arbitration clauses and the scope of trade usages.
The Yearbook no longer includes excerpts of awards made under the auspices
of ICSID and its Additional Facility, as well as other investment awards made
under bilateral investment treaties (BITs) and NAFTA, as the full texts of such
awards are promptly posted on various websites. In 2006, a “Digest of
Investment Treaty Decisions and Awards” by Devashish Krishan and Ania Farren
was included in the Yearbook. It comprised publicly available final decisions and
awards in investor-state arbitrations conducted pursuant to investment treaties
and provided basic information on the decisions and awards, and the websites
where they are posted, as well as subject matters. A biennial update of the Digest
by the same authors was published in Yearbook XXXIII (2008). A future update
is envisaged.
Part V of the Yearbook reports on court decisions on arbitration. Part V—A,
reporting on the 1958 New York Convention, traditionally constitutes the bulk
of the Yearbook. This Volume contains 86 cases from 25 countries, including,
for the first time, cases from Gibraltar and Uganda. The selection this year
includes eleven court decisions from Germany and two from Austria, two Israeli
Supreme Court decisions, five decisions rendered by courts of the Russian
Federation, five Spanish decisions and the decision of the Dutch Supreme Court
in the Yukos case. Decisions from Australia, Austria, Canada, Germany, Hong
Kong, India, Ireland, the Russian Federation, Singapore, Spain and Uganda
reflect the parallel application of the UNCITRAL Model Law as adopted in these
jurisdictions together with the Convention. In some decisions, the relationship
between the 1958 New York Convention, the 1961 European Convention and
the 1975 Panama Convention is mentioned. The reporting in Part V — A includes
cases from Argentina, Austria, Brazil, PR China, France, Germany, Israel, Italy,
Netherlands, the Russian Federation, Spain and Sweden, all translated from their
original language into English.
Recurring issues in the 1958 New York Convention decisions include the
status of a country as party to the Convention; anti-suit injunctions enjoining a
foreign lawsuit; the court’s discretion to stay enforcement proceedings pending
annulment proceedings; the period of limitation to request enforcement of a

vl Yearbook Comm. Arb’n XXXV (2010)

 INTRODUCTION

foreign award; the separability of the arbitration clause and sovereign immunity
from jurisdiction and execution. The nullity of arbitration agreements for, inter
alia, violation of mandatory European Union law provisions and on public policy
grounds was discussed, as was the meaning of “non-domestic award”. Two
decisions dealt with awards that had not been signed by one of the arbitrators or
had been rendered by a truncated tribunal. Several US decisions examined
choice-of-law and arbitration clauses in seafarers’ agreements that allegedly
deprived the seafarers of their rights under US statutes.
Part V—B, reporting on the 1961 European Convention, contains a decision
of the Court of Appeal in Dresden, Germany, granting enforcement of a Czech
award because the defendant, who argued that the award came as a surprise,
failed to show that the outcome of the arbitration would have been different had
he been given the opportunity to state his position in respect of the arbitral
tribunal’s opinion during the arbitral proceedings.
No new decisions are reported this year in Part V—C, reporting on the 1965
Washington Convention, and Part V —D on the 1975 Panama Convention.
Up-to-date lists of Contracting States and Signatories to the respective
Convention are also provided. In addition, Part V — A also contains an Index of
Cases reported in this Volume.
Part V — E, Other Court Decisions on Arbitration, contains a selection of
decisions on different topics that are relevant to the practice of (international)
arbitration. This year, two decisions of the European Court of Human Rights are
reported. In Kin-Stib v. Congo, an individual who had not been a party to the
arbitration but had later bought a stake in the original creditor under the ensuing
award could file a claim for violation of the European Convention on Human
Rights based on the partial enforcement only of the award. In Regent Engineering
y. Ukraine, the Court held that the right to demand payment of a debt under an
award is a “civil” right within the meaning of the same Convention.
In Asturcom Telecomunicaciones, the European Court of Justice held that a court
hearing a request for enforcement of a final award rendered in a dispute between
a seller or supplier and a consumer who did not participate in the arbitration
must assess of its own motion whether the arbitration clause in the contract
between the parties is unfair, insofar as national rules of procedure require the
court to assess at the enforcement stage whether the arbitration clause violates
public policy.
Part V — Ealso contains two decisions from, respectively, Switzerland and the
United States. In Club Atlético de Madrid v. Sport Lisboa e Benfica, the Swiss Federal
Supreme Court set aside an award of the Court of Arbitration for Sport (CAS),
because the CAS failed to take into account the res judicata effect of a prior

Yearbook Comm. Arb’n XXXV (2010) Vii

 INTRODUCTION

under
decision by a Swiss court finding that the 1997 FIFA Transfer Regulation,
and
which compensation was sought, was null and void for violation of European
Swiss competition law. In another case, the Federal Supreme Court annulled an
ICC award because a criminal investigation in another country had determined
that false witness statements had been made to the arbitrators, misleading them
into upholding an agreement that was in fact null and void because it was part of
an influence peddling scheme.
The Supreme Court of the United States decided in Rent-a-Center that a
provision within an agreement to arbitrate delegating to the arbitrator authority
to decide on all disputes relating to the validity of the agreement to arbitrate is
separable from the agreement to arbitrate itself and, unless challenged
specifically, must be enforced. In Stolt-Nielsen, the Supreme Court vacated for
excess of authority an award allowing class arbitration in a dispute concerning a
charterparty, finding that the arbitrators failed to identify a rule of law, basing
their decision instead on a perceived arbitral consensus that arbitration is
beneficial “in a wide variety of settings”.
A complete list of all court decisions and awards published in the Yearbook
since 1976 and a Consolidated Index of Cases are available online on the ICCA
website <www.arbitration-icca.org> under the Publications button.
The Yearbook concludes with the Bibliography, which this year includes
works on mediation and investment arbitration, commentaries of the arbitration
legislation and practice in India, Scotland, Singapore, Switzerland, the United
Kingdom and New York City, as well as collections of awards of the Permanent
Court of Arbitration (PCA) and the Belgian Arbitration and Mediation Centre
(CEPANI/CEPINA). Specific studies cover varied areas of interest such as bias
challenges, the enforcement of arbitration agreements, evidence and institutional
arbitration.
The Yearbook’s effort to reflect as many aspects as possible of the evolving
world of arbitration was supported as always by its numerous correspondents,
whose assistance is gratefully acknowledged. They are individually thanked in the
Introductions to the various Parts and in footnotes where appropriate.
Very special thanks go to the ICCA Editorial Staff, D.ssa Silvia Borelli,
managing editor, and Ms. Alice Siegel, assistant managing editor, who collected,
selected, translated, excerpted and edited the materials for this volume with the
able assistance of Ms. Helen Pin, and Ms. Lise Bosman, executive editor, who
assisted in preparing this year’s Bibliography.
On behalf of ICCA, I also wish to thank the Permanent Court of Arbitration
and its Secretary-General, Drs. Christiaan Kroner. For more than a decade, the
PCA has hosted the ICCA Editorial Staff at the headquarters of its International

viii
lll Yearbook Comm. Arb’n XXXV (2010)
 INTRODUCTION

Bureau at the Peace Palace. The administrative and technical support of the entire
PCA staff is greatly appreciated.
In all of its publications, ICCA is advised by ICCA’s Editorial Board. The
Editorial Board is presently composed of Professor Jan Paulsson, President of
ICCA and General Editor, International Handbook on Commercial Arbitration; Mr.
Kap-You (Kevin) Kim, Secretary-General of ICCA; Professor Martin Hunter and
the undersigned as General Editor of ICCA publications.
Since the inception of the Yearbook, readers throughout the world have been
a major source of material. Therefore, may I continue to call on you, as reader
and Yearbook user, to submit texts concerning:

— recent changes in arbitration legislation;

— newly enacted arbitration rules;
— arbitral awards (the confidentiality of which is ensured);
— court decisions of general interest and, in particular, court decisions
applying the New York Convention, the European Convention, the
Washington Convention and the Panama Convention.

Brussels Albert Jan van den Berg

November 2010 General Editor

Materials for the Yearbook are to be addressed to the General Editor or to the
ICCA Editorial Staff at their respective addresses as indicated below.

ICCA Publications Prof. Dr. Albert Jan van den Berg

c/o International Bureau of the c/o Hanotiau & van den Berg
Permanent Court of Arbitration IT Tower, 9th Floor
Carnegieplein 2 480 Avenue Louise, B.9
2517 KJ The Hague 1050 Brussels
The Netherlands Belgium
E-mail: [email protected] E-mail: [email protected]

1X
Yearbook Comm. Arb’n XXXV (2010)
 ONLINE RESOURCES

The ICCA website contains constantly updated information and useful tools to
make consultation of ICCA publications easier and more user-friendly.

The ICCA website contains:

* apresentation on ICCA and the current list of its officers and members
* the announcement of upcoming events, such as the next ICCA 50th
Anniversary Conference and Young ICCA Event in Geneva in May 2011
* aselection of recent articles by ICCA members
* a “latest news” section

Under the “Publications” button, the reader will find:

* the tables of contents of all volumes of the Yearbook and of the ICCA
Congress Series, as well as the current table of contents of the International
Handbook on Commercial Arbitration
* the Digest of Investment Treaty Decisions and Awards, by Devashish Krishan
and Ania Farren, providing information on final decisions and awards in
investor-state arbitrations conducted pursuant to investment treaties, updated
through 30 July 2008.
* a list of all court decisions and awards published in the Yearbook since 1976
* a Consolidated Index of Cases, which facilitates research of decisions applying
the 1958 New York Convention by subject matter and Article of the
Convention

Also included on the website are:

* historic materials from the archives of ICCA and its members
* resources for young arbitration practitioners and a link to Young ICCA
* full film footage of the presentations given at the XX ICCA Congress in Rio
de Janeiro in May 2010

The ICCA website can be found at <www. arbitration-icca.org>.

KluwerArbitration database

Materials published in the Yearbook Commercial Arbitration, the International

Handbook on Commercial Arbitration and selected volumes of ICCA’s Congress

Yearbook Comm. Arb’n XXXV (2010) xl

 ONLINE INSTRUMENTS

Series are also available by subscription in the KluwerArbitration database at

<www.kluwerarbitration.com>. All materials in this database are fully
searchable through a variety of search tools.

Yearbook Comm. Arb’n XXXV (2010)

 ICCA 50TH ANNIVERSARY CONFERENCE

19 May - 20 May 2011

Geneva, Switzerland

Anniversary Dinner

Conference: “Arbitration — The Next 50 Years”

Young ICCA Event

For program and registration information:

www.icca50.org

www.arbitration-icca.org

Yearbook Comm. Arb’n XXXV (2010) xi

 NOTE
TO. THE READER

This Yearbook Commercial Arbitration Volume XXXV (2010)

includes online access to the complete contents of the 2009 and
2010 Yearbooks at <www.kluwer arbitration.com>.
To activate your access, visit:

<www.kluwerlaw.com/forms/online+access+books>

Fill in your contact details and use the unique access code
P rovided on the cover of this Yearbook.

Online subscriptions last one year and need to be activated by

31 December 2011; your activation date is the start date.

This is a single-user subscription for personal use only.

Customer support can be contacted at <sales@kluwer

law.com> should there be any difficulty in activating the access.

Yearbook Comm. Arb’n XXXV (2010) XV

 TABLE OF CONTENTS

VOLUME XXXV — 2010

Introduction
Prof. Albert Jan van den Berg, General Editor

Online Resources xa

ICCA Conference 2011

Note to the Reader XV

Table of Contents XVll

Part I — National Reports

Note General Editor

Table of Contents of International Handbook on Commercial
Arbitration

Part II — Arbitration Rules

New and Amended Arbitration Rules LJ

Part III — Recent Developments in Arbitration Law and

Practice 21

Recent Developments in Arbitration Law and Practice 23

Part IV — Arbitral Awards 27

Note General Editor 29

Yearbook Comm. Arb’n XXXV (2010) XVli

 TABLE OF CONTENTS

France
Arbitration Chamber ofParis
30
¢ 1 September 2009, Final Award

International Chamber of Commerce (ICC)

40
© Case no. 12745, final award
129
e Case no. 13133, final award
© Case no. 13507, final award 158

° Case no. 13676, final award 168

® Case no. 13954, final award 218

° Case no. 14046, final award 241

Index of Arbitral Awards 273

Introduction 273
Index ofArbitral Awards 274

Part V — Court Decisions 283

Part V — A. Court Decisions on the New York Convention 1958 283

Introduction 285

List of Contracting States (as of 1 November 2010) 288

Index of Cases Reported in Volume XXXIV (2010)

Prof. Albert Jan van den Berg 295

Argentina
¢ No. 3. Camara Federal de Apelaciones, City of Mar del
Plata, 4 December 2009
Far Eastern Shipping Company v. Arhenpez S.A. 318

XViil Yearbook Comm. Arb’n XXXV (2010)

 TABLE OF CONTENTS

Australia
¢ No. 34. Federal Court of Australia, New South Wales District
Registry, General Division, 16 October 2009
George Nicola, et al. v. Ideal Image Development Corporation
Incorporated, et al.

Austria
¢ No. 19. Oberster Gerichtshof, 30 March 2009
C GmbH vy. S$ Aktiengesellschaft 325
¢ No, 20. Oberster Gerichtshof, 22 July 2009
L AS v. Jurgen H, et al. 328

Brazil
¢ No. 12. Superior Tribunal de Justica, 19 August 2009
Atecs Mannesmann GmbH v. Rodrimar $/A Transportes Equipamentos
Industriais e Armazéns Gerais 330

British Virgin Islands

° No. 2. Eastern Caribbean Supreme Court, High Court of
Justice, Commercial Division, 11 January 2010
Grand Pacific Holdings Limited v. Pacific China Holdings Limited 332

Canada
* No. 29. Court of Appeal for Ontario, 23 December 2008,
Superior Court of Justice, Ontario, 29 September 2009 and
Court of Appeal for Ontario, 22 February 2010
Donaldson International Livestock Ltd. v. Znamensky Selekcionno-Gibridny
Center LLC, et al. 335
* No. 30. Supreme Court of British Columbia, Vancouver Registry,
9 October 2009
H &H Marine Engine Service Ltd. v. Volvo Penta of the Americas, Inc., et al. 339
* No. 31. Supreme Court of Canada, 20 May 2010
Yugraneft Corporation v. Rexx Management Corporation 343

Cayman Islands
¢ No. 4. Grand Court, 19 February 2008
Unilever Plc, et al. v. ABC International and Molson
Coors Brewing Company, et al. v. ABC International 346

Yearbook Comm. Arb’n XXXV (2010) X1xX

 TABLE OF CONTENTS

China, PR
¢ No. 6. Higher People’s Court, Fujian Province, 12 October 2007
and Supreme People’s Court, 27 February 2008
First Investment Corp v. Not indicated 349

France
° No. 48. Cour de Cassation, First Civil Chamber, 6 May 2009
Mandataires Judiciaires Associés, in the person of Mrs. X, as liquidators of
Jean Lion et Compagnie SA v. International Company for Commercial
Exchanges — INCOME 353

¢ No. 49. Cour de Cassation, First Civil Chamber,

8 July 2009
Société d’études et représentations navales et industrielles — Soerni,
et al. v. Air Sea Broker Limited — ASB 356

Germany
¢ No. 125. Oberlandesgericht, Munich, 17 December 2008
Seller v. German Assignee 359
° No. 126. Oberlandesgericht, Munich, 19 January 2009
Ukraine Clothing Manufacturer v. German Textiles Manufacturer 362

¢ No. 127. Oberlandesgericht, Munich, 27 February 2009

Carrier v. German Customer 365

¢ No. 128. Oberlandesgericht, Munich, 11 May 2009

Creditor v. German Debtor 367

¢ No. 129. Kammergericht, Berlin, 11 June 2009

Construction Company Z v. State X 369
¢ No. 130. Oberlandesgericht, Munich, 22 June 2009
Spanish Exclusive Distributor v. German Manufacturer 371
¢ No. 131. Bundesgerichtshof, 2 July 2009
Claimant v. Defendant 374
¢ No. 132. Oberlandesgericht, Frankfurt, 27 August 2009
Buyer v. Seller aif
¢ No. 133. Oberlandesgericht, Munich, 1 September 2009
Buyer v. German Seller 381
¢ No. 134. Oberlandesgericht, Munich, 12 October 2009
Swedish Seller v. German Buyer 383

xx Yearbook Comm. Arb’n XXXV (2010)

 TABLE OF CONTENTS

* No. 135. Oberlandesgericht Diisseldorf, 15 December 2009

Seller v. German Buyer 386

Gibraltar
* No. 1. Supreme Court, 17 November 2003
Chernogorneft Joint Stock Company v. Wardour Trading Limited 389

Hong Kong SAR

* No. 24. Court of Appeal, 10 February 2010 and 5 May 2010
FG Hemisphere Associates LLC v. Democratic Republic of the Congo, et al. 392

India
° No. 44. High Court, Gujarat, 7 February 2005
Swiss Singapore Overseas Enterprises Pvt. Ltd. v. M/VAFRICAN TRADER 398
° No. 45. High Court, Delhi, 11 May 2010
Fittydent International GmbH v. Brawn Laboratories Ltd 401

Ireland
¢ No. 3. High Court of Ireland, 13 November 2009
Kastrup Trae-Aluvinduet A/S v. Aluwood Concepts Ltd. 404
Israel
° No. 4. Beit ha-Mishpat ha-Elyon, 24 January 2010
Teva Pharmaceutical Industries Ltd v. Proneuron Biotechnologies, Inc., et al. 407
* No. 5. Beit ha-Mishpat ha-Eliyon, 12 April 2010
Tyco Building Services v. Elbex Video, Ltd., et al. 409

Italy
* No. 180. Corte di Appello, Florence, 11 March 2004 and
Corte di Cassazione, First Chamber, 23 July 2009, no. 17312
Nigi Agricoltura srl v. Inter Eltra Kommerz und Produktion
GmbH 412
° No. 181. Corte di Appello, Milan, 29 April 2009
C.G. Impianti SpA v. B.M.A.A.B. and Sons International Contracting
Company WLL 415
* No. 182. Corte di Cassazione, First Civil Chamber, 23 July 2009,
no. 17291
Microware s.r.]. in liquidation v. Indicia Diagnostics S.A. 418

Yearbook Comm. Arb’n XXXV (2010) XXI

 TABLE OF CONTENTS

Malaysia
No. 4. Federal Court of Malaysia, 3 November 2009
420
Lombard Commodities Limited v. Alami Vegetable Oil Products SDN BHD

Netherlands
No. 34. Hoge Raad, First Chamber, 25 June 2010
OAO Rosneft v. Yukos Capital s.a.v.l. 423

Russian Federation
No. 25. Federal Arbitrazh Court, Moscow District, 27 August 2009
Capital Group LLC v. Eric van Egeraat Associated Architects BV 427

No. 26. Federal Arbitrazh Court, Central District, 7 September

2009; Supreme Arbitrazh Court, 12 November 2009; and Presidium
of the Supreme Arbitrazh Court, 2 February 2010
Lugana Handelsgesellschaft mbH y. OAO Ryazan Metal-Ceramic
Instrument Factory 429
No. 27. Supreme Arbitrazh Court, 1 March 2010
Edimax Limited v. S.P. Chigirinskiy 432
No. 28. Federal Arbitrazh Court, District of Tomsk, 7 July 2010
Yukos Capital $.A.R.L. v. OAO Tomskneft VNK 435

Singapore
No. 9. High Court, 29 December 2009
Jiangsu Hantong Ship Heavy Industry Co Ltd v. Sevan Holding I Pte Ltd 438
No. 10. High Court, 14 May 2010 and 10 June 2010
Strandore Invest A/S, et al. v. Soh Kim Wat

SP ain
No. 65. Juzgado de Primera Instancia no. 3, Rubi, 11 June 2007
Pavan s.r.1. v. Leng d’Or, SA
No. 66. Audiencia Provincial, Madrid, 1 April 2009
Cadena de Tiendas Venezolanas SA — Cativen v. GMR Asesores SL, et al.
No. 67. Audiencia Provincial, Burgos, 27 April 2009
Abonos y Cereales, S.L. v. Granit Negoce, S.A. 450
No. 68. Audiencia Provincial, Barcelona, 29 April 2009
Licensing Projects SL v. Pirelli & C. SpA 452

XXil Yearbook Comm. Arb’n XXXV (2010)

 TABLE OF CONTENTS

* No. 69. Audiencia Provincial, Zamora, 27 November 2009

Mr. Genaro, et al. vy. Majeriforeningen Danish Dairy Board 454
Sweden
* No. 7. Hogsta Domstolen, 16 April 2010
Lenmorniiproekt OAO y. Arne Larsson & Partner Leasing Aktiebolag 456

Uganda
° No. 1. Supreme Court of Uganda, 16 January 2004
Fulgensius Mungereza V. PricewaterhouseCoopers Africa Central 458

United Kingdom
* No. 88. High Court ofJustice, Queen’s Bench Division,
30 October 2009
Accentuate Limited v. Asigra Inc 460
* No. 89. Court of Appeal (Civil Division), 17 December 2009
Endesa Generacion SA v. National Navigation Co 463
* No. 90. Court of Appeal (Civil Division), 10 February 2010
Midgulf International Limited v. Groupe Chimique Tunisien 468
° No. 91. High Court of Justice, Queen’s Bench Division,
Commercial Court, 30 March 2010
Continental Transfert Technique Limited v. the Federal Government
of Nigeria, et al. 472

United States
¢ No. 680. United States District Court, Southern District of Florida,
22 June 2009 and 26 February 2010
Olena Bulgakova v. Carnival Corporation 475
* No. 681. United States Court of Appeals, Ninth Circuit,
2 October 2009
Romeo Balen v. Holland America Line Inc. 478
* No. 682. United States Court of Appeals, Second Circuit,
8 October 2009
Telenor Mobile Communications AS v. Storm LLC 481

Yearbook Comm. Arb’n XXXV (2010) XxXill

 TABLE OF CONTENTS

No. 683. United States Court of Appeals, Third Circuit,

15 October 2009
Century Indemnity Company v. Certain Underwriters at Lloyd’s, London,
Subscribing to Retrocessional Agreement Nos. 950548, 950549,
and 950646 485

No. 684. United States Court of Appeals, Third Circuit,

28 October 2009
Alexander Razo, et al. v. Nordic Empress Shipping Ltd., et al. 490

No. 685. United States District Court, District of Utah, Central

Division, 9 November 2009
William Belcourt v. Grivel, srl, et al. 493
No. 686. United States Court of Appeals, Fifth Circuit,
9 November 2009
Safety National Casualty Corporation v. Certain Underwriters at Lloyd ’s,
London, et al. 495
No. 687. United States District Court, Southern District of New
York, 13 November 2009
China National Chartering Corp. n/k/a China National Chartering Co.,
Ltd. v. Pactrans Air & Sea, Inc. 499
No. 688. United States Court of Appeals, Third Circuit,
19 November 2009
Steel Corporation of the Philippines v. International Steel Services, Inc. 501
No. 689. United States District Court, Northern District of Illinois,
Eastern Division, 25 November 2009 and 2 December 2009
Virginia Surety Company, Inc. v. Certain Underwriters at Lloyd’s, London 505
No. 690. United States District Court, Western District of Texas,
Austin Division, 4 December 2009
China National Building Material Investment Co., Ltd. v. BNK
International LLC 507
No. 691. United States District Court, Northern District of
California, San Jose Division, 9 February 2010
Key Asic, Ltd., et al. v. Innovative Semiconductors, Inc. 510
No. 692. United States District Court, Southern District
of Texas, Houston Division, 10 March 2010 and 4 August 2010
Astra Oil Trading NV, et al. v. Petrobras America Inc., et al. 512

XXIV Yearbook Comm. Arb’n XXXV (2010)

 TABLE OF CONTENTS

* No. 693. United States District Court, Eastern District of Virginia,

Alexandria Division, 11 March 2010
Trax Construction, Ltd. v. Dyncorp International, LLC 515
* No. 694. United States District Court, Southern District of Florida,
16 March 2010
Agnelo Cardoso v. Carnival Corporation 516
* No. 695. United States District Court, District of Columbia,
16 March 2010
G.E. Transport S.p.A., et al. v. Republic ofAlbania, Ministry ofPublic
Works, Transport and Telecommunications 519
¢ No. 696. United States District Court, District of Columbia,
23 March 2010
Continental Transfert Technique Limited v. Federal Government of Nigeria ya

¢ No. 697. United States District Court, Northern District of Florida,

Pensacola Division, 29 March 2010
Pactrans Air & Sea, Inc. v. China National Chartering Corp., et all. 526
¢ No. 698. United States District Court, District of Colorado,
2 April 2010
Colorado Mills LLC v. Sunrich, LLC, et al. 528
¢ No. 699. United States District Court, Middle District of Florida,
Orlando Division, 8 April 2010 and 14 June 2010
Nurettin Mayakan v. Carnival Corporation 530
¢ No. 700. United States District Court, Southern District of Florida,
15 April 2010
Sivkumar Sivanandi v. NCL (Bahamas) Ltd., d/b/a NCL 533
¢ No. 701. United States District Court, Southern District of Florida,
Miami Division, 11 May 2010
Anna Dockeray v. Carnival Corporation 536
* No. 702. United States District Court, Southern District of Texas,
Houston Division, 14 May 2010
Eres, N.V. v. Citgo Asphalt Refining, et all. 540
* No. 703. United States Court of Appeals, Second Circuit,
18 May 2010
Betzalel Schwartzman v. Yaakov Harlap, a/k/a Jacob Charlap 543

Yearbook Comm. Arb’n XXXV (2010) XXV

 TABLE OF CONTENTS

No. 704. United States District Court, District of Columbia,

7 June 2010
545
Republic of Argentina v. BG Group Pic
No. 705. United States District Court, Southern District of Florida,
Miami Division, 15 June 2010
John D. Watt v. NCL (Bahamas) LTD d/b/a NCL 549

No. 706. United States District Court, Southern District of

California, 17 June 2010
Trevino Hernandez, S. de R.L. de C.V. v. Smart & Final, Inc. 551

No. 707. United States District Court, District of New Jersey,

21 June 2010
CCP Systems AG v. Samsung Electronics Corp. Ltd., et al. 554

No. 708. United States District Court, District of New Jersey,

29 June 2010
Quanging (Changshu) Cloth-Making Co. Ltd. v. Pilgrim Worldwide
Trading, Inc. 558
No. 709. United States District Court, Southern District of
California, 15 July 2010
Leatt Corporation, et al. v. Innovative Safety Technology, LLC, et al. 560
No. 710. United States District Court, Southern District of New
York, 29 July 2010
Bogdan Dumitru v. Princess Cruise Lines, Ltd. 563
No. 711. United States District Court, Southern District of New
York, 10 August 2010
The Burton Corporation v. Shanghai ViQuest Precision Industries Co., Ltd. 568
No. 712. United States Court of Appeals, Third Circuit,
18 August 2010
Joel S. Ario, Insurance Commissioner of the Commonwealth ofPennsylvania,
in his official capacity as the statutory liquidator of Legion Insurance
Company (in liquidation), et al. v. The Underwriting Members of Syndicate
53 at Lloyd’s
for the 1998 Year ofAccount 571

Part V — B. Court Decisions on the European Convention 1961 575

List of Contracting States (as of 1 November 2010) 579

XXVl Yearbook Comm. Arb’n XXXV (2010)

 TABLE OF CONTENTS

Germany
* No. E19. Oberlandesgericht, Dresden, 18 February 2009
Czech Principal v. German Sales Agent 582

Part V —C. Court Decisions on the Washington

Convention 1965 585

List ofContracting States and Signatories (as of 1November 2010) 587

Part V — D. Court Decisions on the Panama Convention 1975 595

List ofContracting States (as of 1November 2010) 597

Part V — E. Other Court Decisions on Arbitration 599

European Court of Human Rights

¢ European Court of Human Rights, Fifth Section, 3 April 2008
Regent Engineering International Limited v. Ukraine 601
¢ European Court of Human Rights, Second Section, 20 April 2010
Kin-Stib LLC, et al. v. Republic of Serbia 604

European Court ofJustice

* European Court of Justice, First Chamber, 6 October 2009
Asturcom Telecomunicaciones SL vy. Cristina Rodriguez Nogueira 607

Switzerland
¢ Tribunal Fédéral, First Civil Chamber, 6 October 2009
X (formerly A) v. Company Y, in liquidation, et al. 610
* Bundesgerichtshof, First Civil Chamber, 13 April 2010
Club Atletico de Madrid SAD v. Sport Lisboa e Benfica — Futebol SAD 614

United States
¢ Supreme Court of the United States, 27 April 2010
Stolt-Nielsen S.A., et al. v. Animalfeeds International Corp. 617

Yearbook Comm. Arb’n XXXV (2010) XxXVil

 TABLE OF CONTENTS

* Supreme Court of the United States, 21 June 2010

Rent-a-Center, West, Inc. v. Antonio Jackson 621

Part VI — Bibliography 625

I. General 627
IJ. Countries 643
II. Journals on Arbitration 650

List of ICCA Officers and Members 661

XXVili Yearbook Comm. Arb’n XXXV (2010)

 Fart |

National Reports

Note General Editor. Since Volume XIII (1988) of the Yearbook, it has been the
policy to publish National Reports on arbitration law and practice in the
International Handbook on Commercial Arbitration, the companion publication to the
Yearbook (now under the general editorship of Prof. Jan Paulsson). Recent
developments in arbitration law and practice are reported in summary form in
Part III of the Yearbook.
The Table of Contents of the Handbook as of Supplement 61, September
2010, is reproduced below. Bold face type is used in the Table of Contents to
highlight the changes that have occurred since Yearbook XXXIV (2009).

TABLE OF CONTENTS

BINDER I

Note General Editor

OUTLINE FOR NATIONAL REPORTS (SUPPLEMENT 58, MARCH 2010)
OUTLINE FOR NATIONAL REPORTS (SUPPLEMENT 11, JANUARY 1990)

ARGENTINA: Prof. Horacio A. Grigera Naon

Note General Editor
National Report Argentina
ANNEX I: National Code of Civil and Commercial Procedure. Law 17.454 of
19 September 1967, text consolidated according to Decree 1.042 of 1981,
Book VI, Arbitral Procedure
ANNEX II: National Code of Civil and Commercial Procedure. Law 17.454 of
19 September 1967, text consolidated according to Decree 1.042 of 1981,
further Articles
AUSTRALIA: Prof. Michael C. Pryles
Note General Editor
National Report Australia
ANNEX I: Victoria: Commercial Arbitration Act, 1984

Yearbook Comm. Arb’n XXXV (2010) I

 NATIONAL REPORTS

ANNEX II: International Arbitration Act 1974

AusTRIA: DDr. Werner Melis
Note General Editor
National Report Austria
ANNEX I: Code of Civil Procedure, Part Six, Chapter Four, Arbitration
Procedure (in effect 1 July 2006)
ANNEX II: Law on Mediation in Civil Matters (in effect 1 May 2004)
BAHRAIN: Note General Editor
ANNEX I: Decree Law No. 9 of 1994 with Respect to Promulgation of
International Commercial Arbitration (adopted 16 August 1994)
BANGLADESH: Note General Editor
ANNEX I: The Arbitration Act 2001 (Act I of 2001)
BELGIUM: Prof. Guy Keutgen and Prof. Georges Albert Dal
National Report Belgium
ANNEX: Judicial Code, Sixth Part: Arbitration (adopted 4 July 1972 and last
amended 19 May 1998)
BERMUDA: Narinder K. Hargun and Jeffrey P. Elkinson
Note General Editor
National Report Bermuda
ANNEX I: The Bermuda International Conciliation and Arbitration Act 1993
ANNEX II: Arbitration Act 1986
BRAZIL: Carlos Nehring Netto
Note General Editor
National Report Brazil
ANNEX I: Law No. 9.307 of 23 September 1996
ANNEX II: Extracts from the Brazilian Civil Procedure Code (Law No. 5869,
of 11 January 1973)
BULGARIA, REPUBLIC OF: Assen Alexiev
National Report Bulgaria
ANNEX I: Law on International Commercial Arbitration (State
Gazette No. 60 of 5 August 1988 as amended through 20 July 2007)
ANNEX II: Civil Procedure Code, excerpts (State Gazette of 20 July
2007, as amended through 23 June 2009)
ANNEX III: Private International Law Code, excerpts (State Gazette
of 17 May 2005, as amended through 23 June 2009)
ANNEX IV: Law on Mediation, in effect 20 December 2004
CAMBODIA: Note General Editor
ANNEX I: The Commercial Arbitration Law of the Kingdom of Cambodia, 6
March 2006

2 Yearbook Comm. Arb’n XXXV (2010)

 NATIONAL REPORTS

CANADA: Mare Lalonde, Q.C.

Note General Editor
National Report Canada
ANNEX I: Canada Commercial Arbitration Act
ANNEX II: Canada, United Nations Foreign Arbitral Awards Convention Act
ANNEX Ill: Civil Code of Quebec, Arts. 2638-2643 and Code of Civil
Procedure, Arts. 382 and 940-951 .2
ANNEX IV: British Columbia, Commercial Arbitration Act
ANNEX V: British Columbia, International Commercial Arbitration Act
ANNEX VI: Ontario, Arbitration Act
ANNEX VII: Ontario, International Commercial Arbitration Act
ANNEX VIII: Alberta, Arbitration Act
ANNEX IX: Ontario, Reciprocal Enforcement of Judgments Act
CHILE: Andrés Jana L.
National Report Chile
ANNEX I: Law No. 19.971 on International Commercial Arbitration
ANNEX II: Code of Civil Procedure of 1902 (CCP) (excerpts)
ANNEX III: Code of Judicial Organization of 1943 (CJO) (excerpts)
CHINA P.R.: LU Song
Note General Editor
National Report China
ANNEX I: Decision of 6 May 1954 Concerning the Establishment of a Foreign
Trade Arbitration Commission
ANNEX II: Arbitration Law of the PRC
ANNEX II-A: Interpretation of the Supreme People’s Court on Certain Issues
relating to Application of the Arbitration Law of the PRC
ANNEX II-B: Notice of the Supreme People’s Court on Handling by People’s
Courts of Relevant Issues Pertaining to Foreign-related Arbitration and
Foreign Arbitration
ANNEX II-C: Notice of the Supreme People’s Court on Matters Relating to
Setting Aside of Foreign-related Arbitral Awards by the People’s Courts
ANNEX II-D: Notice of the Supreme People’s Court on Implementing the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
to Which this State Has Acceded
ANNEX III: Civil Procedure Law of the PRC (extracts)
ANNEX IV: CIETAC Arbitration Rules (2005)
ANNEX V: Ethical Rules for Arbitrators (CIETAC), adopted on 6 April 1993,
amended on 6 May 1994

Yearbook Comm. Arb’n XXXV (2010)

 NATIONAL REPORTS

, effective
ANNEX VI: Conciliation Rules of Beijing Conciliation Centre (BCC)
as from 1 January 1992
y
ANNEX VII: BCC Ethical Rules for Conciliators, effective as from 1 Januar
1992
ANNEX VIII: Beijing-Hamburg Joint Conciliation Rules 1987
COLOMBIA: Prof. Marco Gerardo Monroy Cabra
Note General Editor
ANNEX I(SUPPLEMENT 54, MARCH 2009): Decree 1818 of 1998 (Second Part,
Titles I, I] and III)
ANNEX Il (SUPPLEMENT 54, MARCH 2009): Law 315 of 1996 (Law on
International Arbitration)
ANNEX III (SUPPLEMENT 54, MARCH 2009): Article 116 of the Colombian
Political Constitution
ANNEX IV (SUPPLEMENT 54, MARCH 2009): Law 80 of 1993 (Arbitration in
State Contracts, Arts. 68-75)
ANNEX V (SUPPLEMENT 54, MARCH 2009): Law 270 of 1996 as amended
(Statutory Law on [the Administration] of Justice, Art. 13)
ANNEX VI (SUPPLEMENT 54, MARCH 2009): Law 640 of 2001 (Conciliation/
Mediation Law)
National Report Colombia
ANNEX I (SUPPPLEMENT 18, SEPTEMBER 1994): Decree No. 2279 of 7 October
1989 as amended 21 March 1991
CoOsTA RICA: Marcela Filloy Zerr
Note General Editor
National Report Costa Rica
ANNEXI: No. 7727, Law on Alternative Resolution of Disputes and Promotion
of Freedom from Social Unrest, 1997
ANNEX II: Code of Civil Procedure, 3 April 1990 (excerpts)
CROATIA: Prof. Alan Uzelac
National Report Croatia
ANNEX I: Law on Arbitration, 19 October 2001
ANNEX II: Law on Conciliation, 24 October 2003, as amended
effective 16 July 2009
Cyprus: Note General Editor
ANNEX I: The International Commercial Arbitration Law, 1987
CZECH REPUBLIC: Martin Maisner and Milos Olik
National Report Czech Republic

ft Yearbook Comm. Arb’n XXXV (2010)

 NATIONAL REPORTS

ANNEX I: Act No. 216/1994 Coll. on Arbitral Proceedings and

Enforcement of Arbitral Awards (The Arbitration Act), in effect
from | January 1995
DENMARK: Prof. Ole Spiermann
National Report Denmark
ANNEXI: Danish Arbitration Act, Act no. 553 of 24 June 2005 on Arbitration
ANNEX II: Decree No. 117 of 17 March 1973 regarding Recognition and
Enforcement of Foreign Arbitral Awards and International Commercial
Arbitration
ANNEX III: Danish Model Bilateral Investment Treaty (2008)
ANNEX IV: The Arbitration Act No. 181, 24 May 1972
EGyPT: Dr. M.I.M. Aboul-Enein
National Report Egypt
ANNEX I — AUGUST 1995: Law No. 27 for 1994 Promulgating the Law
Concerning Arbitration in Civil and Commercial Matters

BINDER II

ENGLAND: V.V. Veeder, Q.C.

Note General Editor
National Report England
ANNEX I: Arbitration Act 1996, Chapter 23
ANNEX II: The Arbitration Act 1996 (Commencement No. 1) Order 1996, 16
December 1996
FINLAND: Justice Gustaf Moller
Note General Editor
National Report Finland
ANNEXI: Arbitration Act (23 October 1992/967 including amendments to 27
June 2003/689)
ANNEX II: Enforcement Act (15 June 2007/705) (excerpt)
FRANCE: Yves Derains and Laurence Kiffer
National Report France
ANNEX I: Code of Civil Procedure, Book IV, Arbitration
ANNEX II: Civil Code, Third Book, Title Sixteen — Arbitration
Agreements
ANNEX III: Code of Civil Procedure, Book I, Title VI Bis — Mediation
ANNEX IV: French Model Bilateral Investment Treaty (2006)

Yearbook Comm. Arb’n XXXV (2010)

 NATIONAL REPORTS

GERMANY: Dr. Stefan Kroll

Note General Editor
National Report Germany
ANNEX I: German Arbitration Act 1998 (Book 10 ZPO)
ANNEX II: Arbitration Rules of the German Institution of Arbitration (DIS)
GREECE: Dr. Anghelos C. Foustoucos and Prof. Dr. Stelios Koussoulis
Note General Editor
National Report Greece
ANNEX I: Law 2735/1999, International Commercial Arbitration
ANNEX Il: Code of Civil Procedure, Book VII, Articles 867-903, Book VIII,
Articles 904-907, 918-919
ANNEX III: Introductory Law to Code of Civil Procedure
ANNEX IV: Investment Legislation: Law no. 2687 of 1953 (as amended),
Investment and Protection of Foreign Capital and Law 4171/1961 on
Economic Development (excerpts)
HONG KONG S.A.R.: Neil Kaplan, Q.C. and Robert Morgan
Note General Editor
National Report Hong Kong
ANNEX 1: Arbitration Ordinance (Cap. 341)
ANNEX II: Rules of the High Court (Cap. 4A) Order 73, Arbitration
Proceedings
ANNEX III: Arbitration (Appointment of Arbitrators and Umpires) Rules 1997
ANNEX IV: Arrangement Concerning Mutual Enforcement of Arbitral Awards
Between the Mainland and the Hong Kong Special Administrative Region
Huneaky: Prof. Ivan Sz4sz and Dr. Eva Horvath
Note General Editor
National Report Hungary
ANNEX I: Act No. LXXI of 1994 on Arbitration
ANNEX II: Law Decree No. 13 of 1979 on Private International Law (excerpts)
INDIA: Fali S. Nariman
Note General Editor
National Report India
ANNEX I: The Arbitration and Conciliation Act, 1996
INDONESIA: Karen Mills
Note General Editor
National Report Indonesia
ANNEXI: Law No. 30 of 1999 Concerning Arbitration and Alternative Dispute
Resolution (in effect 12 August 1999)

6 Yearbook Comm. Arb’n XXXV (2010)

 NATIONAL REPORTS

INTER-AMERICAN COMMERCIAL ARBITRATION: Adriana Polania

General Introduction
ANNEXI: Inter-American Convention on International Commercial Arbitration
(Panama Convention, 30 January 1975)
ANNEX II: Rules of Procedure of the Inter-American Commercial Arbitration
Commission, as adopted 1 July 2000; in force 1 April 2002
IRELAND: Nael G. Bunni
Note General Editor
ANNEX I: Arbitration Act 2010 (Number 1 of 2010) (SUPPLEMENT 61,
SEPTEMBER 2010)
National Report Ireland
ANNEX I: Arbitration Act, 1954 (No. 26 of 1954) (SUPPLEMENT 33, APRIL
2001)
ANNEX II: Arbitration Act, 1980 (No. 7 of 1980)
ANNEX Ill: Arbitration (International Commercial) Act, 1998

BINDER III

ISRAEL: Dr. Smadar Ottolenghi

Note General Editor
ANNEX I (SUPPLEMENT 56, SEPTEMBER 2009): Arbitration Law, 5728—1968
(as amended in 1974 and 2008)
National Report Israel
ANNEX I (SUPPLEMENT 2, AUGUST 1984): Arbitration Law, 5728—1968 (as
amended by the Arbitration (Amendment) Law, 5734-1974)
ANNEX II: Regulations for the Execution of the New York Convention (Foreign
Arbitration) 5738-1978
ANNEX III: Regulations for Procedure in Matters of Arbitration, 5728-1968
ITALY: Prof. Piero Bernardini
Note General Editor
National Report Italy
ANNEX I: Code of Civil Procedure Book Four, Title VIII Arbitration Amended
by Legislative Decree of 2 February 2006, No. 40
ANNEX II: Other Law Provisions Referred to in Legislative Decree of 2
February 2006, No. 40
ANNEX II A-F: Other Articles Referred to in the Report

Yearbook Comm. Arb’n XXXV (2010)

 NATIONAL REPORTS

dini
ITALY — ARBITRATION IN COMPANY MATTERS: Prof. Piero Bernar
Note General Editor
Arbitration in Company Matters
ANNEX I: Legislative Decree of 17 January 2003, no. 5 as amended by
Legislative Decree of 6 February 2004, no. 37, Title V— On Arbitration
ANNEX II A-C: Other Relevant Articles
JAPAN: Prof. Yasuhei Taniguchi and Prof. Tatsuya Nakamura
Note General Editor
National Report Japan
ANNEX I: Arbitration Law (Law No. 138 of 2003)
KENYA: Hon. Mr. Justice Edward Torgbor
National Report Kenya
ANNEXI: The Arbitration Act 1995
ANNEX II: The Arbitration Rules, 1997
ANNEX III: The Arbitration (Amendment) Act No. 11 of 2009 (in
effect 15 April 2010)
KorEA: Note General Editor
ANNEX 1: Arbitration Act, Law No. 1767
ANNEX Il: Commercial Arbitration Rules of the Korean Commercial
Arbitration Board (KCAB), 1 March 2004
ANNEX III: International Arbitration Rules of the KCAB, 1 February 2007
LATVIA, THE REPUBLIC OF: Girts LejinS and leva Kalnina
National Report Latvia
ANNEX I: The Law of the Republic of Latvia Civil Procedure Law,
Part D: Arbitration Court, in effect from 1 March 1999, as amended
ANNEX II: The Law of the Republic of Latvia Civil Procedure Law,
Part F: International Civil Procedure, in effect from 1 March 1999,
as amended
LIBYA: Khaled Kadiki
National Report Libya
ANNEXI: Code of Civil and Commercial Procedure of 1953, Articles 739-777
LITHUANIA: Vilija Vaitkute Pavan and Jurgita Petkute
National Report Lithuania
ANNEX I: The Republic of Lithuania Law on Commercial Arbitration
(1996)
ANNEX II: The Code of Civil Procedure of the Republic of Lithuania
(excerpts)
ANNEX III: Law on Conciliatory Mediation in Civil Disputes (2008)

8 Yearbook Comm. Arb’n XXXV (2010)

 NATIONAL REPORTS

ANNEX IV: Standard Draft Agreement of the Government of the

Republic of Lithuania on Promotion and Protection of Investments
(2005)
LUXEMBOURG: Ernest Arendt and Théa Harles-Walch
Note General Editor
National Report Luxembourg
ANNEX I: Code of Civil Procedure, Part Two, Book III
MALAYSIA: P.G. Lim
National Report Malaysia
ANNEX I: Arbitration Act 2005 (Act 646),
MALTA: Note General Editor
ANNEX I: Arbitration Act 1996, as amended through 2007
MAuRITIUS: Note General Editor
ANNEX I: International Arbitration Act 2008, 1 January 2009
MEXICO: Francisco Gonzalez de Cossio
National Report Mexico
ANNEX I: Commercial Code, Book V, Title IV on Commercial Arbitration,
Articles 1415-1463 (Official Gazette, 22 July 1993)
ANNEX Il: Federal Code of Civil Procedure, Sole Chapter, Incidental
Proceedings (Incidentes) Articles 358-360 and the Mexican Constitution, Writ
of Amparo, Articles 103 and 107 (excerpts)
ANNEX III: Investment Treaties and Instruments Entered Into by Mexico (per
January 2009)
THE NETHERLANDS: Prof. Albert Jan van den Berg
Note General Editor
National Report The Netherlands
ANNEXI: The Arbitration Act, Code of Civil Procedure, Book IV, 1 December
1986, as amended 1 June 2002 and 30 June 2004
NEW YORK CONVENTION
Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
10 June 1958
NEW ZEALAND: Tomas Kennedy-Grant
Note General Editor
National Report New Zealand
ANNEX I: Arbitration Act 1996, in force 1 July 1997
NIGERIA: Mrs. Tinuade Oyekunle
Note General Editor
National Report Nigeria
ANNEX 1: Arbitration and Conciliation Decree 1988

Yearbook Comm. Arb’n XXXV (2010)

 NATIONAL REPORTS

Norway: Anders Ryssdal and Kristian S. Myrbakk

National Report Norway
ANNEX 1: The Arbitration Act of 14 May 2004
ANNEX Il: The Courts Act, 13 August 1915 (excerpts)
ANNEX Ill: Dispute Act of 2005, 1 January 2008 (excerpts)
OMAN: Note General Editor
ANNEX I: The Law of Arbitration in Civil and Commercial Disputes,
1 July 1997, as amended through 2007
PAKISTAN: Note General Editor
PERU: Fernando Cantuarias Salaverry
National Report Peru
ANNEX I: Legislative Decree 1071 Regulating Arbitration, in effect
1 September 2008
ANNEX II: Conciliation Law No. 26872 of 1997
POLAND: Dr. habil. Tadeusz Szurski and Dr. Andrzej W. WiSniewski
Note General Editor
National Report Poland
ANNEX I: Code of Civil Procedure, Part V, as amended 28 July 2005
PORTUGAL: Joao Morais Leitao and Prof. Dario Moura Vicente
Note General Editor
National Report Portugal
ANNEX I: Law No. 31/86 of 29 August 1986 (as amended by Decree-Law no.
38/2003 of 8 March 2003) Voluntary Arbitration
ANNEX II: Code of Civil Procedure (as amended by Decree Law no. 38 2003
of 8 March 2003) Book III, Title IV, Chapter XII; Chapter XVIII, Section XX
ROMANIA: Prof. Octavian Capatina
Note General Editor
National Report Romania
ANNEX I: Book IV, Code of Civil Procedure, On Arbitration, Articles 340-
370, as amended by Law No. 59 of 23 July 1993
ANNEX II: Law on the Settlement of Private International Law Relations, Law
No. 105 of 22 September 1992, Chapter XII, Section 4 (Articles 165/178)
and Section 6 (Articles 180-181)
ANNEX III: Law on the Settlement of Private International Law Relations, Law
No. 105 of 22 September 1992, Chapter VIII, Section 1 (Articles 73-85)

10 Yearbook Comm. Arb’n XXXV (2010)

 NATIONAL REPORTS

BINDER IV

RUSSIAN FEDERATION: Note General Editor

ANNEX I: Law of the Russian Federation on International
Commercial Arbitration (14 August 1993)
SAUDI ARABIA: Nancy B. Turck
National Report Saudi Arabia
ANNEX I: Arbitration Regulation of Saudi Arabia, 25 April 1983
ANNEX II: Rules for the Implementation of the Saudi Arabian Arbitration
Regulation, 27 May 1985
ANNEX III: Convention of the Arab League on the Enforcement of Judgments
and Arbitral Awards, 14 September 1952
SCOTLAND: The Honourable Lord Dervaird
Note General Editor
ANNEX I: Arbitration (Scotland) Act 2010 (SUPPLEMENT 60, JULY 2010)
National Report Scotland
ANNEX: Arbitration (Scotland) Act, 1894 (SUPPLEMENT 19, AUGUST 1995)
ANNEX II: Administration of Justice (Scotland) Act 1972
ANNEX III: Law Reform (Miscellaneous Provisions) (Scotland) Act 1990,
Section 66 and Schedule 7 (excerpts)
SERBIA: Note General Editor
ANNEX I: Arbitration Act, Official Journal of the Republic of Serbia, No.
46/2006
SINGAPORE: Michael Hwang S.C., Lawrence G.S. Boo and Amy Lai
Note General Editor
ANNEX I (SUPPLEMENT 58, MARCH 2010): International Arbitration Act
(Chapter 143A) (Revised Edition 2002, incorporating amendments
as at | January 2010)
ANNEX II (SUPPLEMENT 58, MARCH 2010): Arbitration Act 2001
(Chapter 10) (Revised 2002 Edition, Incorporating amendments as
at 1 January 2010)
National Report Singapore
ANNEX 1(SUPPLEMENT 38, APRIL 2003): International Arbitration Act (Chapter
143A) (Revised Edition 2002)
ANNEX II (SUPPLEMENT 38, APRIL 2003): Arbitration Act 2001 (Chapter 10)
(Revised 2002 Edition) 1 March 2002
ANNEX III: Arbitration (International Investment Disputes) Act (Chapter 11),
10 September 1968

Yearbook Comm. Arb’n XXXV (2010) 11

 NATIONAL REPORTS

ANNEX IV: Reciprocal Enforcement of Commonwealth Judgments Act 1921

(Chapter 264)
ANNEX V: Reciprocal Enforcement of Foreign Judgments Act (Chapter 265)
(Revised Edition 2001)
SLOVENIA: Jernej Sekolec
Note General Editor :
ANNEX I: Law on Arbitration of Slovenia
ANNEX II: Law on Mediation in Civil and Commercial Maters of Slovenia
SOUTH AFRICA: Patrick M.M. Lane SC and R. Lee Harding
National Report South Africa
ANNEXI: Arbitration Act 1965, No. 42 of 1965, Date of Commencement: 14
April 1965
ANNEX II: Recognition and Enforcement of Foreign Arbitral Awards Act 1977,
No. 40 of 1977, Date of Commencement: 13 April 1977
ANNEX III: Protection of Businesses Act, 1978 (in effect 4 August 1978)
SPAIN: Prof. Bernardo M. Cremades
Note General Editor
National Report Spain
ANNEX I: Law 60/2003, of 23 December on Arbitration
ANNEXII: Code of Civil Procedure, Second Section, Judgments Handed Down
by Foreign Tribunals, Articles 951-958
ANNEX III: Royal Decree 1094/1981 Concerning Implementation through the
Superior Council of the Official Chamber of Commerce of International
Commercial Arbitration
SRI LANKA: Note General Editor
ANNEX I: Arbitration Act, No. 11 of 1995, in force 30 June 1995
SWEDEN: Ulf Franke
Note General Editor
National Report Sweden
ANNEX 1: The Arbitration Act of 1999 (SFS 1999:116)
SWITZERLAND: Dr. Robert Briner and Dr. Paolo Michele Patocchi
Note General Editor
National Report Switzerland
ANNEX I: Intercantonal Arbitration Convention, 27 March/29 August 1969
ANNEX II: Chapter 12 of the Federal Act on Private International Law of 18
December 1987, and selected Articles
THAILAND: Prof. Saowanee Asawaroj
Note General Editor
National Report Thailand

12 Yearbook Comm. Arb’n XXXV (2010)

 NATIONAL REPORTS

ANNEX I: Arbitration Act BE 2545 (AD 2002)

TUNISIA: Judge Ahmed Ouerfelli
National Report Tunisia
ANNEX !: Arbitration Code, Law No. 93-42 of 26 April 1993, in effect from
27 October 1993
TuRKEY: Prof. Mahmut T. Birsel, Prof. Ali Yesilirmak and Ahmet Erdinc
Cavusoglu
Note General Editor
ANNEX II: Private International and Procedural Law Act 2007
(SUPPLEMENT 59, MAY 2010)
National Report Turkey
ANNEX I: International Arbitration Law 2001
ANNEX II: International Private and Procedural Law 20 May 1982 (SUPPLEMENT
10, JUNE 1989)
ANNEX III: Law No. 4501 on Principles That Shall Be Complied with When
There Is Access to Arbitration for Disputes Arising from Concession Contracts
2000 (excerpts)
UGANDA: Note General Editor
ANNEX I: The Arbitration and Conciliation Act, 2000
UKRAINE: Prof. Igor G. Pobirchenko
National Report Ukraine
ANNEX I: Law on International Commercial Arbitration
ANNEX II: The Code of Civil Procedure of Ukraine
ANNEX III: Law of Ukraine on International Private Law, No. 2079-IV, 3 June
2005 (Extract)
UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION
Model Law on International Commercial Arbitration, 21 June 1985 (with
2006 amendments)
UNCITRAL, COMMENTARY ON THE UNCITRAL MODEL LAW: Dr. Aron Broches
UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL CONCILIATION
Model Law on International Commercial Conciliation, 28 June 2002
UNCITRAL ARBITRATION RULES
UNCITRAL Arbitration Rules, adopted 28 April 1976
UNCITRAL CONCILIATION RULES
UNCITRAL Conciliation Rules, adopted 4 December 1980
U.S.A.: Howard M. Holtzmann and Donald Francis Donovan
Note General Editor
National Report United States

Yearbook Comm. Arb’n XXXV (2010)

 NATIONAL REPORTS

ANNEX I: United States Arbitration Act (Federal Arbitration Act) (9 U.S.C.

Sect, 1 et seq.)
ANNEX II: Excerpts from the Patent Act (35 U.S.C. Sects. 135(d), 294)
ANNEX III: Excerpts from the Foreign Sovereign Immunities Act (28
U.S.C. Sects. 1605, 1607, 1610, 1611)
ANNEX IV: Uniform Arbitration Act
ANNEX V: Arbitration Statutes of the States of the United States, the
District of Columbia and Puerto Rico
ANNEX VI: Uniform Mediation Act
ZAMBIA: Note General Editor
ANNEX I: Arbitration Act, Government of Zambia Act No. 19 of 2000
ZIMBABWE: Note General Editor
ANNEX I: Zimbabwe Arbitration Act, 1996, No. 6 of 1996, in force 13
September 1996

14 Yearbook Comm. Arb’n XXXV (2010)

 Part II

Arbitration Rules

Yearbook Comm. Arb’n XXXV (2010)

 NEW AND AMENDED ARBITRATION RULES

In view of their universal availability on the websites of arbitral institutions,

arbitration rules are announced rather than reproduced in the Yearbook. A
selection of new or amended Arbitration Rules is listed below, with information
as to where they may be found on the respective Institution websites. Rules are
also published in the Kluwer arbitration database at <www.kluwer
arbitration.com> (subscription required).

BAHRAIN

Bahrain Chamber for Dispute Resolution (BCDR-AAA)

<www.bedr-aaa.org>
The Bahrain Chamber for Dispute Resolution was established by Legislative
Decree on 29 June 2009 and was inaugurated in partnership with the American
Arbitration Association (AAA) on 10 January 2010. The Chamber administers
domestic and international arbitrations under its own Rules, the rules of the
AAA’s International Centre for Dispute Resolution or the UNCITRAL Rules.
The Chamber’s Rules are available in English.

PR CHINA

China International Economic and Trade Arbitration Commission (CIE TAC)

<www.cietac.org.cn>
CIETAC implemented its Construction Dispute Review Rules (Trial) ona trial
basis with effect from 1 May 2010. The Rules are available in Chinese and
En glish.

ESTONIA

Arbitration Court of the Chamber of Notaries (ACCN)

<www.notar.ee>
The Arbitration Court of the Estonian Chamber of Notaries opened on 1
January 2010. It administers domestic arbitrations. Its Rules are available in
Estonian.

Yearbook Comm. Arb’n XXXV (2010)

 ARBITRATION RULES

Estonian Court of Arbitration (ECA)

<www.vahekohus.ee>
The Estonian Court of Arbitration opened on 1 March 2010. It handles
arbitrations in which the value of the case does not exceed € 25,000. Cases are
heard on a documents-only basis by sole arbitrators appointed by ECA from a list
of approved arbitrators. Its Rules are available in Estonian.

International Commercial Court for Mediation, Conciliation and Arbitration (ICCMCA)

<www.iccmca.com>
The United States-based International Commercial Court for Mediation,
Conciliation and Arbitration opened its Estonian branch in 2010. ICCMCA’s
Rules are available in English.

INDIA

LCIA India
<www.lcia-india.org>
LCIA India, an independent subsidiary of the London Court of International
Arbitration (LCIA), adopted Arbitration Rules as of 17 April 2010. The Rules
are based on the LCIA’s Rules but with certain provisions modified in light of the
Indian Arbitration Act 1996. The LCIA India Rules include several provisions
aimed specifically at expediting proceedings, including an express requirement
that all prospective arbitrators confirm that they can devote sufficient time to the
arbitration.
The Arbitration Rules, as well as LCIA India’s Mediation Rules and Notes for
Arbitrators, are available in English.

Delhi High Court Arbitration Centre (DAC)

<www.dacdelhi.org>
The New Delhi High Court inaugurated the Delhi High Court Arbitration
Centre (DAC) in November 2009. The Centre adopted Arbitration Proceedings
Rules, available in English.

INTERNATIONAL CHAMBER OF COMMERCE

<www.iccwbo.org>
The International Chamber of Commerce revised its schedule of arbitration

18 . Yearbook Comm. Arb’n XXXV (2010)

 NEW AND AMENDED ARBITRATION RULES

costs and fees, effective 1 May 2010 and applicable to all arbitrations commenced
on or after that date.

ITALY

Chamber of National and International Arbitration of Milan

<www.camera-arbitrale.it>
The Milan Chamber of National and International Arbitration adopted new
rules effective as of 1 January 2010. The Rules are available in Italian, English,
French, German, Spanish and Portuguese.

JAPAN

Tokyo Maritime Arbitration Commission (TOMAC)

<www.jseinc.org>
The Tokyo Maritime Arbitration Commission of the Japan Shipping Exchange,
Inc. amended its Rules on 10 February 2010; the amendments entered into force
on | April 2010. Among the amendments is TOMAC’s power to consolidate
multiple arbitral proceedings on the application of a party or at TOMAC’s
discretion. The Rules are available in Japanese and English.

MALAYSIA

Kuala Lumpur Regional Centre for Arbitration (KLRCA)

<www.rcakl.org.my>
On 15 August 2010, the Kuala Lumpur Regional Centre for Arbitration
adopted new arbitration rules incorporating the UNCITRAL Arbitration Rules
as revised in 2010. The Rules are available in English.

SINGAPORE

Singapore International Arbitration Centre (SIAC)

<www.siac.org>
The Singapore International Arbitration Centre issued revised rules effective
as of 1 July 2010. The Rules are available in English and Chinese.

Yearbook Comm. Arb’n XXXV (2010) 19

 ARBITRATION RULES

SWEDEN

Stockholm Chamber of Commerce (SCC)

<www.chamber.se>
On 9 December 2009, the Stockholm Chamber of Commerce adopted a
Provision on Emergency Arbitrator, making it possible for parties to request
interim measures before an arbitration has been referred to an arbitral tribunal.
The new provision was included in the SCC Arbitration Rules and Expedited
Rules, to which some amendments were also made. The new version of the
Rules is available in English.

UNCITRAL

<www.uncitral.org>
The United Nations Commission on International Trade Law adopted revised
Arbitration Rules effective as of 15 August 2010. The new Rules provide, inter
alia, that arbitrators have the power to grant interim measures in certain
situations, that joinder is permitted in limited circumstances and that arbitrators
must explain how they calculate their fees. Also, parties may ask the appointing
authority for a review if they are dissatisfied with the tribunal’s conduct of the
proceedings. The revised Rules are available in Arabic, Mandarin Chinese
English, French, Russian and Spanish.

UNITED KINGDOM

Centre for Effective Dispute Resolution (CEDR)

<www.cedr.com>
The Centre for Effective Dispute Resolution issued Rules for the Facilitation
of Settlement in International Arbitration in 2010. The rules outline steps which
arbitrators are to take with a view to facilitating settlement by the parties to
international arbitrations. The Rules are available in English.

20 | Yearbook Comm. Arb’n XXXV (2010)

 Part Ill

Recent Developments in
Arbitration Law and Practice

21
Yearbook Comm. Arb’n XXXV (2010)
 RECENT DEVELOPMENTS IN
ARBITRATION LAW AND PRACTICE

INTRODUCTION

The reporting in Part III on Recent Developments in Arbitration Law and

Practice consists of short announcements in respect of Argentina, Australia,
Bahama, Belize, Brunei, PR China, Fiji, Ireland, Kenya, Mexico, the Russian
Federation, Scotland, Singapore, Spain and Vietnam.

COUNTRIES

ARGENTINA: A new mediation and conciliation law came into force in

Argentina on 4 August 2010.

AUSTRALIA: The International Arbitration Amendment Act 2010 came into

force in Australia on 6 July 2010. The new Act, which reforms the International
Arbitration Act 1974, provides inter alia that jurisdiction over the enforcement
of foreign arbitral awards lies with the Federal Court.

BAHAMA: On 20 May 2010, the Arbitration Act (no. 42 of 2009) on domestic

arbitration and the Arbitration (Foreign Arbitral Awards) Act (no. 43 of 2009)
came into force in Bahama. Both Acts are modeled on the UNCITRAL Model
Law, as amended in 2006.

BELIZE: On 31 March 2010, Belize passed the Supreme Court of Judicature

(Amendment) Act. The Act provides that the Belize courts can issue injunctions
to prevent arbitration or proceedings to enforce an arbitral award if they are
deemed “oppressive, vexatious, inequitable” or if they “would constitute an abuse
of the legal or arbitral process”. Courts may also vacate arbitral awards made in
disregard of such an injunction. Parties in breach are subject to monetary
penalties and imprisonment. The Act came into force on the same date.

BRUNEI: Brunei promulgated the Arbitration Order, 2009 on domestic

arbitration and the International Arbitration Order, 2009. The International

Yearbook Comm. Arb’n XXXV (2010) 23

 RECENT DEVELOPMENTS IN ARBITRATION LAW AND PRACTICE

and is based on
Arbitration Order deals exclusively with international arbitration
the UNCITRAL Model Law, as amended in 2006.

PR CHINA: The Supreme People’s Court issued a notice to a Chinese lower

court affirming that ad hoc and ICC awards made in Hong Kong SAR are
enforceable in Mainland China under the 1999 Arrangement Concerning Mutual
Enforcement of Arbitral Awards Between the Mainland and the Hong Kong
Special Administrative Region.
On 1 January 2011, PR China’s first mediation law entered into force.

FIJI: Fiji became the 145th Contracting State to the 1958 New York Convention
on 26 December 2010, when the Convention entered into force following Fiji’s
ratification on 27 September 2010.

IRELAND: On 8 June 2010, the Arbitration Act 2010 came into force in
Ireland. It will apply equally to domestic and international arbitrations that are
commenced after that date. The Act adopts the UNCITRAL Model Law, as
amended in 2006. It provides, inter alia, that applications under the Act be heard
by a designated High Court arbitration judge.

KENYA: Arbitration (Amendment) Act 2009 (Act no. 11 of 2009) came into
force on 15 April 2010. It contains provisions amending the existing Arbitration
Nee 1995.

MEXICO: On 10 September 2009, the Federal District (Mexico City) adopted

the UNCITRAL Model Law.

RUSSIAN FEDERATION: The Federal Law on Alternative Dispute Resolution

Procedure with the Participation of an Intermediary (the Mediation Law) was
promulgated on 30 July 2010 and enters into force on 1 January 2011. A
separate federal law amending certain statutes in light of the new law also enters
into force on the same date.

QATAR: Qatar signed the 1965 Washington (ICSID) Convention on 30

September 2010.

SCOTLAND: The Arbitration Act 2010 came into force on 7 June 2010.

24 Yearbook Comm. Arb’n XXXV (2010)

 COUNTRIES

SINGAPORE: In January 2010, amendments were made to the Singapore

International Arbitration Act (Cap. 143A, as amended in 2002) and to the
Arbitration Act 2001 (Chapter 10, as amended in 2002), based on amendments
made to the UNCITRAL Model Law on International Commercial Arbitration
in 2006.

SPAIN: Spanish Law no. 13/2009 of 3 November 2009, on the establishment

of a new Judicial Office (Ley 13/2009 de reforma de la legislacion procesal para la
implantacion de la nueva Oficina Judicial) entered into force on 4 May 2010. It
amends the Spanish Arbitration Act of 2003 as well as articles of the 1881 Law
on Civil Procedure and the 2000 Law on Civil Procedure concerning arbitration.
The new Law assigns to court clerks certain duties in connection with the taking
of evidence, the setting aside of awards and the stay of enforcement proceedings
pending an action for setting aside. It also provides that in addition to courts of
first instance, commercial courts have jurisdiction over the recognition and
enforcement of awards issued on matters within their competence. Under the
new Law, their decisions may now be appealed. Parties to arbitrations taking
place outside Spain may request provisional measures from a Spanish court
“notwihstanding the applicable special rules provided in International Treaties
and Conventions or European Community regulations”, provided the legal
requirements are complied with and the principal matter of the dispute is not of
the exclusive competence of the Spanish courts.

VIETNAM: A new arbitration law was passed by the national assembly in June
2010 and comes into effect on 1 January 2011, replacing the Arbitration
Ordinance of 2003.

Yearbook Comm. Arb’n XXXV (2010) 25

 Part IV

Arbitral Awards

27
Yearbook Comm. Arb’n XXXV (2010)
 Note

General Editor

It is the long-standing policy of the Yearbook to respect the confidentiality of

arbitral awards. Therefore, in many of the excerpts of arbitral awards published
in the Yearbook, all data which might reveal the identity of the parties are
omitted. In certain circumstances, however, the award or the identity of the
parties may become a matter of public record, if, for example, the award has
been published in full elsewhere or has given rise to court proceedings. In such
cases, strict confidentiality is no longer required and the extract in the Yearbook
may report the names of the parties.
The arbitral awards are presented in a uniform style for the convenience of the
reader. To achieve this result, headings may have been altered or added and
minor editorial changes have been made which in no way affect the substance of
the award.
An Index of Arbitral Awards containing a subject index of the arbitral awards
appearing in Part IV of this Volume is included at the end of this Part.
A Consolidated Index of Arbitral Awards published in Volumes I (1976) — XV
(1990) was published in Yearbook Key 1990; an Index of Arbitral Awards
published in Volumes XVI (1991) — XX (1995) was published in Volume XX
(1995). An Index of Awards was also provided in each Volume after 1996.
The full texts of all the arbitral awards published in the Yearbook since 1976
are available by subscription online at <www.kluwerarbitration.com> where
they can be accessed on the basis of key words and full text.

Yearbook Comm. Arb’n XXXV (2010) 29

 FRANCE

ARBITRATION CHAMBER OF PARIS

Final award, 1 September 2009

Parties: Plaintiff: Seller (France)

Respondent: Buyer (France)

Place of
arbitration: Paris, France

Published in: No information available at time of publication;

Original in French

Subject matters: — FOB sale and transfer of risks

— EC Regulation no. 178 of 2002 on food law and
safety
— breach of contract by failure to comply with food
safety regulations

S ummary

Seller failed to timely inform buyer that goods being shipped might be contaminated by salmonella.
Though seller was owed the price of the goods under the FOB contract, the arbitrators also granted
buyer's counterclaim for damages in part, finding that the precautionary principle in the EC
Regulation on food law and safety requires operators to take measures of protection even when the
existence or extent ofany risk to human health is still uncertain. Byfailing to abide by this principle,
seller breached its contractual obligation to perform with diligence. Since buyer failed to mitigate its
damages by not appealing the order of the competent authority preventing discharge of the goods at
the arrival port, the arbitrators determined that seller should bear 60 percent and buyer 40 percent
of the damages sought in the counterclaim. The arbitrators preliminarily held that the counterclaim
was admissible, finding that the time limit ofsix months in the applicable INCOGRAIN Form applies
where there is a precise breach, not where non-compliance with a regulation is alleged. The general
statute of limitations (one year from the date of delivery of the goods) therefore applied. The
counterclaim was filed within that limit.

Seller bought a certain quantity of a soya product to be used as feed for poultry
from original seller X and resold it to Buyer. The contract of sale between Seller

30 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRATION CHAMBER OF PARIS

and Buyer referred to INCOGRAIN Contract no. 13, was Free-On-Board at a

French port and contained a reservation of property clause providing that Seller
remained the owner of the goods until full payment. It also provided for the
application of French law and contained a clause for arbitration of disputes at the
Chambre Arbitrale de Paris (Paris Arbitration Chamber).
Loading of various cargo onto the designated vessel Y commenced on 7
February at a French port; the soya product was loaded as last in the afternoon
of 8 February and loading operations were terminated that day around 21:00. At
20:42 in the evening of 7 February, original seller X issued an alert in accordance
with the rapid alert system established by EC Regulation no. 178 of 2002 on food
law and safety by informing Seller in a fax indicated as “urgent” that part of the
goods might be contaminated by salmonella. By a second fax sent at 19:37 on 8
February, original seller X informed Seller that new tests did not indicate
contamination; however, it insisted that the goods should not be used until the
competent authorities withdrew the alert. Vessel Y left the French port late in
the evening on 8 February, heading for a French Overseas Department (FOD).
Seller did not forward the information regarding the salmonella alert to Buyer
until 13 February, when it also informed Buyer that tests had proved negative;
more results disproving contamination of the goods were transmitted to Buyer
on 16 and 19 February. Seller advised Buyer, however, to have new tests carried
out on new samples upon arrival at destination and to isolate the goods awaiting
the outcome of the tests and the decision of the competent authorities.
On 23 February, the FOD’s Prefect (Préfet) issued an order forbidding the
marketing of the goods and ordering their destruction on board the vessel. Vessel
Y arrived at destination on 26 February and was forbidden to unload the suspect
goods. Buyer sought to unload at a port in nearby State A by seeking and
obtaining an order from a local court directing the competent authorities to allow
the goods to be unloaded in order to be tested. Notwithstanding the court order,
the authorities denied permission to unload and vessel Y eventually headed back
to the French port of departure. The goods were unloaded there on 17 April and
again tested; the Directorate General for Competition, Consumers and the
Suppression of Fraud (Direction générale de la concurrence, de la consommation et de
la répression des fraudes) eventually authorized their use for the feeding of animals
other than poultry and the goods were later sold at a lower price.
Seller commenced arbitration at the Paris Arbitration Chamber, seeking
payment of the sale price. Buyer filed a counterclaim seeking damages.
The arbitral tribunal rendered a draft award (Projet de Sentence) granting both
Seller’s claim and Buyer’s counterclaim with a few minor exceptions. Seller
sought re-hearing of the case, as provided for in the Rules of the Paris Arbitration

31
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Chamber. On 1 September 2009, a second-degree tribunal affirmed the first-

degree decision on essentially the same grounds.
The arbitrators granted Seller’s main claim, holding that under its FOB
contract with Seller, Buyer was obliged to pay the price of the goods, as it had
assumed all risks relating thereto when they had been loaded onto vessel Y.
As to Buyer’s counterclaim, the arbitral tribunal found that it was admissible
and founded almost in its entirety. The arbitrators first refused to apply the time
limit to bring a claim in arbitration provided for in INCOGRAIN Form no. 13
— six months “following the last day allowed for fulfilment of the obligations”.
Though this time limit “can be easily calculated where there is an objectively
qualifiable breach, it cannot apply where, as here, non-compliance with a
regulation is alleged”. As a consequence, the general statute of limitations
applicable to disputes between merchants applied, that is, a time limit of ten
years that under French law may not be extended and may be reduced to a
minimum of one year. Buyer’s right to file a (counter)claim in arbitration
therefore expired one year from the date of delivery of the goods. Here, the
counterclaim was filed four months before that date and was admissible.
The arbitral tribunal then held that Buyer’s counterclaim was founded. It
reasoned that the precautionary principle in EC Regulation no. 178 of 2002 —
which has been incorporated into French law — requires operators to take
measures of protection even when the existence or extent of any risk to human
health is still uncertain. Seller, a major operator in the sector at issue, could be
expected to process the information received by original seller X immediately,
even if it was unclear from the original information whether the goods were
indeed contaminated by salmonella. By failing to do so, Seller breached its
contractual obligation to perform with diligence.
The arbitrators agreed with Seller that Buyer failed to mitigate its damages by
not appealing the Prefect’s order; they therefore determined that Seller should
bear 60 percent and Buyer 40 percent of the damages sought in the counterclaim.
The arbitrators then quantified these damages, granting almost all of Buyer’s
requests but excluding the costs of buying replacement goods, since Buyer would
have had to buy replacement goods in any case, even if the goods suspected of
being contaminated by salmonella had not been loaded onto the vessel or had
been unloaded before departure.

32 . Yearbook Comm. Arb’n XXXV (2010)

 ARBITRATION CHAMBER OF PARIS

Excerpt

I. SELLER’S CLAIM

[1] “Operations for loading the goods that were the object of the contract
between Seller and Buyer onto vessel Y commenced in the afternoon of 8
February and were completed on the same day around 21:00. The vessel then
left the French port at around 23:00 heading for a port in a French Overseas
Department [FOD].
[2] “First of all, pursuant to the sale contract and the agreements binding the
parties, the risks relating to the goods were transferred to Buyer from the
moment of their loading onto the vessel bound for the FOD, that is, on 8
February around 21:00. The sale concluded between the parties is a FOB sale,
in which the risks relating to the goods are transferred to the buyer from the
moment the goods are loaded onto the vessel. This is provided for in Art. 32 of
the Law of 3 January 1969 — according to which in a [FOB] sale the buyer bears
the risks and expenses relating to the goods from the day they are delivered as
contractually agreed — and in clauses VI, VIII and IX of INCOGRAIN Contract
no. 13.
[3] “Thus, once the [goods] had been loaded, Buyer bore the risk of their loss,
notwithstanding the reservation of ownership made in favor of Seller. It ensues
that Buyer may not refuse to pay the price of the goods, which was fully justified
by the delivery of goods of sound and fair marketable quality [marchandise saine,
loyale et marchande] complying with all contractual specifications, as attested by
the documents supplied by Seller. Nor can Buyer rely on the provisions of Art.
1641 et seq. of the [French] Civil Code to avoid its obligation, arguing that the
goods were affected by a hidden defect, that is, the ascertained presence of
salmonella, since all tests concluded without exception that the goods were safe.
[4] “Further, a FOB buyer bears the risk of the loss of the goods to the extent
that this loss occurs after delivery. The application of the provisions of Regulation
(CE) No. 178/2002 of 28 January 2002! — specifically laying down procedures
in matters of food safety — can lead to cases of legal loss when the goods cannot
be returned, in application of the precautionary principle that obliges all
operators in the animal feed sector to inform the competent authorities
immediately if they deem or have reason to think that the food they are

1. Regulation (EC) No. 178/2002 of the European Parliament and ofthe Council, of 28 January2002,
laying down the general principles and requirements of food law, establishing the European Food
Safety Authority and laying down procedures in matters of food safety.

Yearbook Comm. Arb’n XXXV (2010) 35

 ARBITRAL AWARDS

marketing does not meet the provisions for animal feed safety, and [to inform
them] of the measures they are taking to prevent risks deriving from its use as
animal feed. The salmonella alert raised by the public authorities and transmitted
by the various operators must be deemed a risk affecting the goods and thus a
chance event extraneous to the parties.
[5] “It results from the considerations below that the damaging and
unforeseeable consequences of the alert of ‘suspected presence of salmonella’ in
the product at issue, which Buyer received on 13 February, when the goods were
on board the vessel heading for the FOD, must be borne by Buyer. Hence, we
must direct Buyer to pay to Seller the amount of the invoice at the contractually
agreed price, as well as interest running at the legal rate from the request of
arbitration, in application of Art. 1153(1) Civil Code.
[6] “Finally, Seller requests the application of clause XIII.C of INCOGRAIN
Form no. 13 on penalties for late payment, that is, 0.15% of the price per day of
delay after the date of the invoice, on the ground that payment was due on [a
certain date] and was never made. However, although Buyer must pay the [sale]
price and cannot be exempted from it other than in certain limited cases that are
not applicable here, under the specific circumstances of the performance of this
contract application of the penalty clause in force between the parties would be
manifestly excessive. Seller’s request on this point must therefore be denied.”

Tk BUYER’S COUNTERCLAIM

[7] “Buyer filed a counterclaim asking that Seller be directed to pay [a certain
sum] for the damage caused by its grave breach [faute] or at least negligence in
performing its contractual obligations as a Seller, amounting to gross negligence
[faute lourde]. Seller argues that the counterclaim expired on expiry of the
contractually agreed time limit of six months and more precisely more than six
months after delivery of the goods on 8 February. It argues subsidiarily that the
claim is unfounded, alleging that it processed the information diligently, that it
complied with European food safety norms and thus was not in breach.”

i}, Admissibility

[8] “Art. XVII — sub ‘(2) Other disputes’ of ‘(A) Notification’ — of

INCOGRAIN Form no. 13 provides that:

34 | Yearbook Comm. Arb’n XXXV (2010)

 ARBITRATION CHAMBER OF PARIS

‘For all other disputes not involving quality and condition, the party willing
to exercise his right of arbitration shall notify his claim to the other party
within the six months following the last day allowed for fulfilment of the
obligations.’

[9] “On [a certain date], Buyer reserved its right to seek payment of the price
and related costs, which it could not quantify at that moment. These
reservations, which are not provided for in the contract and are not the same as
a court action [demande en justice], did not validly interrupt the statute of
limitations for Buyer’s counterclaim in arbitration.
[10] “However, although the time limit of six months following the ‘fulfillment
of the obligations’ can be easily calculated where there is an objectively
qualifiable breach, it cannot apply where, as here, non-compliance with a
regulation is alleged. Hence, the statute of limitations applicable to Buyer’s
counterclaim must be determined according to the general provisions [droit
commun] on disputes between merchants arising in the course of their business:
ten years, as provided for by Art. L.110-4 of the Commercial Code as in force
at the time. Art. 2254 of the Civil Code specified, following Law no. 2008-561
of 17 June 2008, that:

‘The statute of limitations can be reduced or extended by agreement of the

parties. However it can neither be reduced to less than one year nor
extended to more than ten years.’

[11] “The time limit of six months in INCOGRAIN Form no. 13 excessively
reduces the statute of limitations and cannot apply in commercial matters. In the
case at issue, Buyer’s right to file a claim expired on [a certain date], that is, one
year from the date of delivery of the goods. It ensues that Buyer’s counterclaim,
which was filed [four months before], is admissible.”

2. Merits

a. Seller’s alleged breaches

[12] “Buyer argues that Seller is at fault on grounds of non-compliance with food
safety regulations — being a contractual breach that results in [Seller’s] liability —
because it failed to timely take into account the salmonella alert of which it had
been informed when the vessel had not yet put to sea— which would have made
it possible to withdraw the goods from the market — and because it failed to
supply information on this alert within a reasonable time limit.

Yearbook Comm. Arb’n XXXV (2010) 35

 ARDS
ARBITRAL AW
with
br ea ch an d that it complied
not in
in s that | it was nsumers was neve
r
[13] “Seller mainta It adds that th e sa fe ty of co
fety regulations. a public health issu
e but solely
European food sa no t co nc er n
the dispute does 3
in danger and that |
f e of a sale contract. in to th e [French] domestic le
gal
tr od uc ed
ary principle ( in Reinforcement of -
Lat.“The precaution ry 19 95 On th e
-101 of 2 Februa through the
system by Law no. 95 an d in cl ud ed in the Constitution
ronm en t, ns to take
<n e of the Envi t}) requires all institutio
harte de l’environnemen
Environmental Charter [C are uncertainties as to the existence or
extent
when the re
measures of protection il y wa it in g until such risks are
fully
lth withou t ne ce ss ar
of risks to human hea of 4 of re
use the words of the Court
proved real and serious — to ple] requires , ose who
Communities.[The precautionary princi ly or
European
to kee p inf orm ed, to tra nsmit any information direct
market goods to
the hea lth aut hor iti es and to adopt adequate measures
indirectly received by they are
uncertain, without waiting until
control risks, even when they are
confirmed or disproved. n the
02 of 28 January 2002, laying dow
[15] “Regulation (CE) no. 178/20 alert
of food law, further provides that an
general principles and requirements
ed from the moment a food product is
procedure must be launched and follow
, both the economic operator who
suspected of any contamination. Therefore
foreseeable risks and the operator
does not take measures to prevent known or
prudent approach — notably,
who in a situation of doubt does not take the most
moment he becomes
suspending the marketing of a dubious product from the
d safety provisions
aware of the risks affecting it — must be deemed at fault. Foo
sionals concerned,
thus pertain to public policy and are mandatory for the profes
ply with
especially the operators of this sector, and contractual parties must com
them on pain of being held contractually liable.
[16] “In the present case, the information on the risk [of salmonella] was
addressed to Seller in the form of an urgent alert on 7 February at 20:42 and was
confirmed on the following day 8 February at 19:37. It is undisputed that
notwithstanding the urgency and seriousness of this alert, Seller transmitted it to
Buyer only on 13 February, that is, six days later. This information ought to have
been analyzed and processed on 8 February by a company describing itself as [a
ete Sata PRI 2if the raw information [received by Seller]
. identification of the goods that were on the
point of being loaded onto the vessel as possibly contaminated, still Seller does
not prove that it used all diligence to verify that information On thne contrary,
quality d
Seller admits that an ‘underling’ in the
e e ere
message on 8 February y and conclu ded ;that Sel
lud ler was not concerned, laying the

36 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRATION CHAMBER OF PARIS

document on the desk of the department’s head, who was away from the
company on 8 and 9 February. Thus, the fact that the information was not
processed with the promptness the relevant professional community could
legitimately expect shows, on the part of Seller as a professional in the food
sector, a grave lack of organization in reacting promptly to an alert and suspicion
in respect of goods it was marketing. Its failure resulted in the impossibility to
carry out the necessary tests, stop the loading of the vessel — which was
completed on 8 February at 19:15 and even at 21:15 in respect of other goods
— and postpone departure, which only occurred a little before midnight.
[17] “By letting goods that were suspected under the applicable regulations
depart, Seller breached its obligation to perform with all the diligence required
of a professional, which Buyer, the purchaser of the goods, had the right to
expect. Hence, it committed a contractual breach that is largely the cause of the
damage suffered. It ensues that Seller must be held liable in the following
proportion.”

b. Buyer’s damage
[18] “Buyer claims [a certain amount] from Seller in its counterclaim without
distinguishing among the various heads of damage. In turn, Seller argues that
Buyer must bear the consequences of its decision to continue the journey toward
the FOD, neighboring State A and finally back to Europe and not to appeal the
Prefect’s order suspending the marketing of the goods and ordering their
withdrawal and destruction, thus failing to attempt to mitigate its damage.
[19] “While it appears from the record that Buyer, once aware of the alert, did
not generally fail to take steps and look for the appropriate measures to unload
the goods while complying with laws and regulations, it is surprising that it did
not file a recourse, either by way of an appeal to the Prefect or by commencing
an action (in summary proceedings) in the administrative court, seeking
annulment of the administrative decision prohibiting the marketing of the goods
and a solution to the main source of its difficulties while, a few days later, it did
not hesitate to seize the judicial authorities of neighboring State A. Thus, Buyer
can to a certain extent be deemed to have contributed in part to the damage it
suffered, by its negligence or at least its failure to assert its rights.
[20] “As to the respective responsibilities, it is determined that Seller shall pay
60 percent, and Buyer 40 percent, of the damages sought in the counterclaim.”

c. Amount of damages
[21] “Buyer seeks total sum X in damages, with interest at the legal rate starting
from the date of the filing of the counterclaim, so divided:

37
Yearbook Comm. Arb’n XXXV (2010)
 ARDS
ARBITRAL AW

ans lace the goods bought

from Seller;
s inc urred by Buyer to FP ds from the French port to the
— sum A for cost e goo
the carriage of th
sts © f
_ sum B for the co
nces,
t and related insura od s from the FOD port
to the port
rr ia ge of th e go
of the ca r stay
wee em the costs ba ck to th e French port, and thei
and from thi s po rt
Ooofneighboring State A
there;
D for unloading the goods at the French port;
— sum
French port;
— sum E for storage at the or samples).
_ sum F for various costs (tests, sending of documents
ed:
lowin g sums should be deduct
From sum X above the fol

bought by Buyer from Seller;

_ sum G for the price of the goods ds.
from the sale of the goo
— sum H for the amounts obtained

shall apply a conversion rate of

[22] “As certain invoices are in US dollars, we
and others include taxes.
1.307 to the Euro (€). Certain invoices are before taxes
sums before taxes in
Unless otherwise indicated, the tribunal took into account
ions.
its evaluation; the parties shall make the necessary calculat
ge that is
[23] “The costs and expenses incurred to replace the goods are a dama
d
not directly linked to Seller’s breach: if, because of the alert, the goods suspecte
of being contaminated by salmonella had not been loaded onto the vessel or had
been unloaded before departure to the FOD, Buyer would have had to buy
replacement goods in any case. It ensues that this head of damage cannot be taken
into account.
[24] “The costs for the carriage of the goods between the French port of
departure and the FOD port, and related insurances, are justified and must be
borne by Seller.
a bego rithe costs tor the carriage of the goods from the FOD port
ma wae port, via neighboring State A, and their stay there: (1) the
aie aati:ment of the charterparty are not justified; (2) since they are
cme ae .Sie charterparty, the costs for chartering the vessel for
the eipinal —, a :ow be calculated on the basis of the amounts in
ore fiekcs te de e costs of the vessel must be borne by the
an , Buyer shall be indemnified under this heading for [a certain

[26] “The costs for unloading the cargo at the French port of final
? « e

arrival shall
;
be fy byy Seller:
Satborne Seller; the same applies to the storage costs for the months of May

38
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRATION CHAMBER OF PARIS

[27] “Buyer shall also be indemnified for various stated and justified costs related
to the difficulties in the performance of this contract.
[28] “It follows that Buyer’s damages amount to sum Z. Based on the allocation
of responsibility in causing the damage, as determined above, Seller shall pay
Buyer 60 percent of that sum. Pursuant to Art. 1153-1 Civil Code, interest at the
legal rate shall be added from the day of the counterclaim.”

Ill. COSTS AND FEES

[29] “Seller requests that the costs and fees of the arbitration be borne by Buyer;
Buyer makes the opposite request. In consideration of the circumstances of the
case, these costs shall be borne by the parties equally.”

IV. ART. 700 CCP”

[30] “Seller requests that Buyer be directed to pay € 40,000; Buyer makes the
opposite request. Having considered the respective claims of the parties and their
validity, it appears equitable that each party bear its own costs.”

We. PROVISIONAL EXECUTION

[31] “Both Seller and Buyer sought the provisional execution of the future
award, notwithstanding any recourse, and the giving of security. They failed,
however, to justify their request on grounds of urgency or particular
circumstances. These requests do not appear to be justified and shall be denied.”
G4)

2. Art. 700 of the French Code of Civil Procedure reads:

“As provided for in Art. 75(1) of Law no. 91-647 of 10 July 1991, the court shall in all degrees
direct the party which is to bear the costs [of the proceedings] or, lacking this, the losing party to
pay to the other party a sum determined by the court for other expenditures not included in the
costs. The court shall take into account equity or the economic situation of the party which has to
pay. The court may, even on its own initiative and based on the above considerations, not so
direct.”

39
Yearbook Comm. Arb’n XXXV (2010)
 CHAMBER
INTERNATIONAL
OF COMMERCE

no. 12745
Final award in case

tionality not indicated)

Claimant: Company ABC (na SA
dent: (1) Company Z, International
meee Respon
ype
(nationality not indicated);
not indicated);
(2) Company W SA (nationality
indicated)
(3) Company Z SA (nationality not

Place of
arbitration: Paris, France

Published in: Unpublished

Subject matters: — breach of contractual warranty

— causal link between breach of contract and damages
— waiver of pre-emption right

Summary

A seller sold all shares in a holding company to a buyer. The holding company’s assets were solely the
shares in subsidiaries ofthe seller. The arbitral tribunal held that: (i) the seller violated its contractual
obligation of representation and warranty by stating that it had full and exclusive title to the
subsidiaries’ shares, while in fact itfailed to terminate the pre-emption right ofa third party (Mr. X)
on a subsidiary’s shares; (ii) the seller did not violate its delivery obligation under the contract, because
it duly transferred the shares in the holding company. Although some French courts take the substance
ofthe business transferred into account when requested to invalidate share sales:
for a fundamental error
of the purchaser, in the current state ofFrench case law the purchaser of a controlling interest in a
company may not rely on a breach of the seller’s obligation to deliver in relation to such company's
underlying assets; (iii) on the facts of the case, the seller did not breach its contractual obligations to
warrant title to the goods (garantie d’éviction), to conduct business as a bon pere de famille and to
cause employees to collaborate with the buyer; (iv) there was no causal link between the seller’s breach
of contract and the buyer’s losses, as the subsidiary’s collapse had been caused by Mr. X’s conduct.

Mr. X — who was not a party to this arbitration but whose activiti
es largely
determined the relations between the parties — founded and manage
d an Italian

40
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

company that bought advertising slots under “supplier agreements” and sold them
to customers wanting to advertise. The by-laws of the company provided that
Mr. X had a pre-emption right.
Company Z International SA (First Respondent) — a non-Italian company
jointly owned by Company Z SA and a wholly owned subsidiary of Company W
SA (Second Respondent) — entered the relevant Italian advertising market by (i)
incorporating a wholly owned subsidiary under the name Company Z Italia srl
and (ii) acquiring an interest in Mr. X’s company. Mr. X’s company was
renamed Company Z Italia SpA; First Respondent held 51 percent of its shares,
while Mr. X, who was also the company’s managing director, held 49 percent.
First Respondent and Mr. X entered into a Memorandum of Understanding
(MoU) in respect of the sale. The MoU provided, inter alia, that Mr. X could
oppose the first candidate chosen by First Respondent for the position of
managing director, if First Respondent were obliged to revoke Mr. X for good
cause; if Mr. X also opposed a second candidate and that candidate was
appointed, then Mr. X would have the right to sell his interest in the company
to First Respondent (the Put Option). Also, the parties undertook not to sell
their shares to a third party (with the exception of an affiliate company of First
Respondent) for a period of five years.
First Respondent subsequently entered into negotiations with Company ABC
(Claimant) — a joint venture owned in equal parts by Company DEF and
Company GHI — for the sale of First Respondent’s subsidiaries, including
Company Z Italia SpA. During the negotiations, which involved the subsidiaries,
Mr. X expressly mentioned his pre-emption right and the commitment of
Company Z Italia SpA’s shareholders not to sell their shares for five years. Mr.
X also pointed out the worrying financial situation of Company Z Italia SpA. (In
Italy, the relevant advertising business is characterized by a high need of working
capital.)
Claimant and First Respondent eventually reached an agreement for the sale.
First Respondent would incorporate a new holding company (Holdco or the
Holding) to which it would contribute all shares. First Respondent would then
transfer the shares in the Holding to Claimant on a certain date, date B (the
Closing Date).
In preparation of the sale, First Respondent entered into an agreement
(Accordo) with Mr. X. The Accordo provided, inter alia, that Mr. X waived his pre-
emption right on the condition that: (i) the Holding replace First Respondent as
party to the MoU as of the date (afar data) of the transfer of First Respondent's
participation in Company Z Italia SpA (the Participation) to the Holding; (ii) the
Holding sell the shares in Company Z Italia SpA to a purchaser selected

Yearbook Comm. Arb’n XXXV (2010) 4]

 5
- Cc
NO. 1274
OF COMMERCE
~ on

L CHAMBER
INTERNATIONA
EF, Claimant or any of their
| Company pany D » sale and purchase
GHI, Company agreement
exclusively among
a sidiari filiates; (iii) th
er than date B.
e e ea me yr oe ic ne e aaa be signed not lat
sone’ m e
ke . den
3 t g grant to Company Z Italia SpA
betweenordthe Ho that First Respon
The Acc o also provided d according to an agreed schedule.
advance of € 3,5 million, to be pai byy the
‘oneded 4 and received
aneif s it was not sign
atemporery®was to be no longer effective
The Accordo 7
a cer tai n dat e (da te A) preceding date B.
Parties within hase
sig ned , Cl ai ma nt en tered into a Share Purc
was
Shortly after the Accordo ies, Second
(SP A) wit h Fir st Re sp on dent and its parent compan
Agreement e of First
and Co mp an y Z SA (co lle cti vely, Respondents) for the sal
Respondent on of
sid iar ies . Cla use 12. 10 of the SPA provided for arbitrati
Respondent's sub
tribunal in Paris.’
disputes by an ICC arbitral ding and
Respondent incorporated the Hol
As agreed among the parties, First the
se agreements with it in respect of
then entered into several share purcha
. A share purchase agreement was also
shares in First Respondent's subsidiaries
pondent's 100 percent interest in
concluded, relevantly, in respect of First Res
t's Participation in Company Z Italia
Company Z Italia srl and First Responden
g/ First Respondent SPA
SpA (the Holding/ First Respondent SPA). The Holdin
ding on date B-2 at the
provided that title to the shares had to pass to the Hol
ption right had been
latest. First Respondent warranted that Mr. X’s pre-em
waived by the Accordo. }
The Participation was transferred to the Holding under the Holding/First
Respondent SPA by an act certified by a notary public in [an Italian city]. In the

1. The clause read:

“All disputes arising out of or in connection with this Agreement shall be finally settled under the
Rules of Arbitration of the International Chamber of Commerce (ICC) of Paris, which Rules are
deemed to be incorporated by reference into this Clause. The seat for the artitration roceedings
shall be Paris (France). The arbitration shall be conducted in the English language “mgthe nie
agree that no translation shall be needed for the use of documents in French or for the use of French
law materials. The arbitration award shall be written in English.
na So a be comprised ofthree arbitrators appointed as follows:
pie md Actin two Parties whatsoever, each of those Parties shall appoint an arbitrator
aisioassrau seule Sate $3 shall agree to appoint a third arbitrator who will act as
ei tenht Gad ite vi unal. In the event that one of the Parties falls to appoint an arbitrator
sedelehiai ach r aiptiien the two arbitrators on the choice of a third arbitrator, such
yf te de be ma © y the International Court of Arbitration of the ICC.
pute in question is between more than two Parties, the three arbitrators shall be
Spinte
appo hidnc teuantr to oak mich
purs the provivisi
sions of the¥ek eRules of the International Chamber of
Arbitrati

42
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

meantime, First Respondent paid the temporary advances under the Accordo to
Company Z Italia SpA.
Closing under the SPA (transfer of the shares in the Holding to Claimant) took
place on date B+10.
Following the Closing, Mr. X — who was still Company Z Italia SpA’s
managing director — showed a marked unwillingness to work with and under the
new shareholder and took several steps that allegedly worsened Company Z Italia
SpA’s financial situation. Inter alia, he terminated commercial agency contracts
with several agents and outsourced part of the company’s activity to Company
J srl, an Italian company held by one of Company Z Italia SpA’s former
employees. Company J srl was appointed exclusive commercial agent to sell
advertising space in the name of Company Z Italia SpA; it later appeared that
Company J srl, while receiving an agent’s fee, did not retrocede the amounts
billed to and paid by the customers to Company Z Italia SpA. Company Z Italia
SpA was thus emptied of all its assets and de facto liquidated, its business being,
according to Claimant, taken over by a company constituted by former
employees of Company Z Italia SpA, in particular the same employee behind
Italian CompanyJ srl.
Mr X. also claimed that he had not renounced his pre-emption right as one of
the three conditions under the Accordo — that the Holding succeed First
Respondent as a party to the MoU before the date on which the shares in
Company Z Italia SpA were transferred to the Holding — had not been met. He
therefore commenced an action against First Respondent, the Holding and
Company Z Italia SpA in an Italian court, seeking an order declaring that the sale
of First Respondent’s interest in Company Z Italia SpA was ineffective. His
request was denied, whereupon Mr. X appealed. This proceeding was pending
before an Italian appellate court at the time of the present award.
Mr. X’s claim was the source of the dispute that arose between Claimant and
Respondents and led to the present ICC arbitration and award. When Claimant
became aware of Mr. X’s claim, it notified Second Respondent — in its capacity
of agent for the guarantors (that is, Second Respondent itself, Company Z SA and
First Respondent) — that the Holding had a claim against them for several
breaches of the SPA, in particular, a breach of the representation and warranty
that First Respondent had the exclusive ownership of the shares in First
Respondent's subsidiaries, including Company Z Italia SpA.
Claimant then commenced ICC arbitration against Respondents as provided
for in the SPA. (Mr. X was not a party to the arbitration.) Claimant asked the
arbitral tribunal to rule that First Respondent: (i) failed to deliver to Claimant
(through the Holding) effective control over Company Z Italia SpA; (ii) breached

Arb’n XXXV (2010) 43

Yearbook Comm.
 OF COMMERCEE NO. 1 27 45
INTERNATIONAL CHAMBER

res of
possession of |the shaures
its obligation to W ant the purchaser a pe aceful
. breached it s obligation to prov| ide suf sufficient
Company Z Italia Sp A and
ony (iii)
n to
funding to Company Z Italia SpA
until the Closing, as well as its obligatio
loyees of Company Z Italia re
cause Mr. X and the management and emp ru rs*
imant. Claimant also asked the arbitrators to
cooperate loyally with Cla
with the losses suffere by
such hecnehees were in direct link of causation
pany Z Italia SpA, which
Claimant due to the destruction of the business of Com
costs of the
was by then in liquidation. It further sought damages, interest and the
,
arbitration and legal costs.
Admissibility. The arbitral tribunal held at the outset that the claims were
admissible, denying Respondents’ argument that Claimant failed to notify its
claims within forty-five days of becoming aware of the cause for a claim as
provided in the SPA. The tribunal held that the issue whether Claimant had
validly given notice of claim could be left open, as under the SPA the only
sanction of a failure to give valid notice of claim was the payment of damages, not
the inadmissibility of the claim. Damages were owed only if Respondents could
prove that the delay in giving notice adversely affected their defense.
Respondents failed to do so.
The arbitrators also denied Respondents’ defense that Claimant’s claims were
inadmissible to the extent that they concerned representations and warranties in
respect of matters that were disclosed in the (disclosure) schedules to the SPA.
The tribunal disagreed, holding that under the SPA Claimant’s knowledge was
not a complete bar to recovery but a limitation of Respondents’ liability as arising
from their representations and warranties. Hence, whether and to what extent
disclosures affected Respondents’ liability was an issue of
substance, not
admissibility,
Waiver of pre-emption right. The arbitral tribunal then exam
ined whether Mr.
X waived his pre-emption right, as a preconditi
on to determining whether
Respondents breached their obligations under the
SPA. Mr. X claimed that he
pitas vraiie aie Sch right because one of the conditions
set out in the
Si a leih . Z sts = met, namely, the Holding had not replaced
holecsevb wane aah i t AMoU on the date the shares in Company Z

appeared from the Accord i na 7 i ee sr os‘acme first held that it

Re ne ea -vi. pore that the parties to it — Mr. X and First
party athe Mol be ace e ra ee succession to First Respondent asa
shares to the Holding and a, Hse the transfer of Company Z Italia SpA’s
before date B. Hence. the sub abilbisis transaction had to be completed on or
ubstitution of First Respondent by the Hol
ding as a

Yearbook Comm. Arb’n XXXV (2010)

 ARBITRAL AWARDS

party to the MoU had to be effective on the date of the filing with the notary
public at the latest.
The tribunal then concluded that Mr. X’s pre-emption right had not been
waived because the MoU had not been assigned to the Holding, either expressly
or by means offacta concludentia (facta concludentia being a party’s conduct or
mode of action that unambiguously points to a certain position so that another
party may justifiably rely on such conduct).
The arbitral tribunal then examined whether First Respondent had breached
its obligations under the SPA, as alleged by Claimant.
Breach ofdelivery obligation (obligation de délivrance conforme). The arbitrators held
that First Respondent’s obligation under the SPA was to deliver the shares in the
Holding. First Respondent did meet this obligation. The issue whether the
obligation to deliver also concerns the business transferred — here, the shares in
Company Z Italia SpA — is “a controversial issue”. Although some French courts
have given consideration to the substance of the business transferred when
requested to invalidate share sales for a fundamental mistake of the purchaser, in
the current state of French case law the purchaser of a controlling interest in a
company may not rely on a breach of the seller’s obligation to deliver in relation
to such company’s underlying assets.
The arbitrators then noted that under French law, further to its obligation to
deliver the goods sold, the seller assumes two main obligations: to warrant title
to the goods (garantie d’éviction) and to warrant that the goods are free of defects.
Breach of the obligation to warrant title to the goods sold (garantie d’éviction). The
obligation to warrant title to the goods sold covers encumbrances resulting either
from personal actions of the seller and from third party claims. Only the latter
case arose here. In relation with third party claims, the scope of the seller’s
warranty obligation is restricted to legal actions (troubles de droit) the origin of
which already existed before the sale. In the present case it was undisputed that
Claimant relied on a trouble de droit — Mr. X’s Italian court action — the origin of
which existed before the Closing Date. However, such trouble de droit affected the
shares in Company Z Italia SpA, which were not the subject matter of the SPA.
As a consequence, the garantie d’éviction did not apply. The arbitrators
accordingly denied Claimant’s request that the arbitration proceedings be stayed
pending the outcome of Mr. X’s court proceedings in Italy.
Breach of representations and warranties. The arbitral tribunal found that
Respondents did breach the contractual representation made in a Schedule to the
SPA that Mr. X had waived his pre-emption right. The Schedule recited that the
Holding had “full, valid and exclusive ownership of the shares and securities in

Yearbook Comm. Arb’n XXXV (2010) 45

 BE R OF RC ENO. 12 745
‘CCOMMEER
L CH AM
INTERNATIONA
s not
in g Co mp an y Z Italia SpA. This wa
ud
Subsidiaries’, incl
the First Respondent |
cause
de famille and to
in fact true. uc t bu si ne ss as 4 bon pere
co nd d not
ld that Respondents di
gation to
Breach of the obli ib un al th en he
aborate. The arb itr al tr ing and
employees to coll
r the SP A to co nd uc t — and cause the Hold
gation unde
breach their obli
ir bu si ne ss as a bo n pe re de famille, in particular by
conduc t — the that re,
the subsidiaries to e su bsidiaries. The pipiens —
providing adequate funding to th was suc
id by Fir st Re sp on de nt to Company Z tt ia SpA
sum of € 3.5 million pa ying
tha t it ha d be en ma de du ly available; a slight delay in pa
adequate funding and se nt pr oo f of prejudice. Nor did First
wa s irr ele van t, ab
one of the installments lia SpA’smanagement
de nt br ea ch its ob li ga ti ons to cause Company Z Ita
Resp on ors found that
pl oy ee s to co op er at e wi th Claimant. The arbitrat
and em Company Z,
on de nt s co nv in ci ng ly de mo ns trated that the management of
Resp on of the
A du ly co ll ab or at ed wi th Cl ai mant, both before the conclusi
Italia Sp
g riod.
SPA and over the pre-Closin pe a causal link
mined whether there was
Causal link. The arbitral tribunal then exa
ch of contractual representation and
between Respondents’ contractual brea
ued that Respondents’ breaches
warranties and Claimant’s losses. Claimant arg
y Z Italia SpA and, eventually,
of the SPA led to the complete collapse of Compan
to its winding up.
nts breached certain
The tribunal noted that while it did find that Responde
in the shares
representations and warranties made regarding the Holding’s title
ption
in Company Z Italia SpA by failing to properly eliminate Mr. X’s pre-em
right, this did not in itself entail that Respondents must compensate Claimant’s
loss. Under French law, the loss suffered must directly result from the alleged
contractual breach and the compensation may not exceed the loss that the party
in breach foresaw or ought to have foreseen. Moreover, a concurrent fault on the
part of the aggrieved party may in certain circumstances exclude or reduce the
liability of the party in breach.
The arbitrators further reasoned that several causes usually precede and bring
about the same loss. To operate a choice between these causes and determine
which one is the relevant one from a legal point of view, French authors resort
to two legal doctrines: the doctrine of equivalent causes (équivalence des conditions)
and the doctrine of adequate causation (causalité adequate). Under the doctrine of
equivalent causes, all the circumstances that contributed to the occurrence of the
result will be deemed to have caused such result in an equal manner. Thus, there
is a causal link between the breach and the loss if the breach s inde the
pea conditions of the loss — without such breach, the loss would cael
curred. Differently, pursuant to the doctrine of the causalité adéquate only the

46
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

act or event that is considered as having been the true cause of a specific result
will be taken into account. An act or event will be deemed the cause of such
result if, by human foresight, such result could be anticipated as likely to follow
from this act or event.
The arbitrators noted that French courts tend to apply the doctrine of adequate
causation concurrently with the doctrine of equivalent conditions or even alone
in cases where several causes may be taken into account. In light of the above, the
tribunal examined whether Respondents’ breach of the SPA could be deemed the
adequate cause of the loss incurred by Claimant, that is, whether, by human
foresight, the collapse of Company Z Italia SpA could be anticipated as likely to
result from Respondents’ failure to properly waive Mr. X’s pre-emption right.
The tribunal answered this question in the negative, finding that the cause of
Company Z Italia SpA’s collapse was Mr. X’s conduct of the business after the
take-over. Respondents’ failure to obtain a proper waiver of Mr. X’s pre-
emption right offered Mr. X, who was clearly unwilling to work in the new
structure and lacked confidence in the new management imposed by Claimant,
the possibility to make it more difficult for Claimant to take effective control of
Company Z Italia SpA. However, Respondents’ breach of contract was not the
adequate cause of Company Z Italia SpA’s winding up; it only facilitated Mr. X’s
possibly disloyal actions against the new shareholder.
The arbitral tribunal then calculated damages and interest and refused to stay
a decision on the quantum of damages until a final ruling had been issued by the
Italian courts.

Excerpt

l. SUBSTANTIVE APPLICABLE LAW

[1] “In accordance with Clause 12.9 of the SPA, French law is the law
governing the SPA.
[2] “Art. 2(d) of the United Nations Convention on Contracts for the
International Sale of Goods (CISG) specifies that the CISG does not apply to sales
of ‘stock, shares, investment securities, negotiable instruments or money’.
Therefore, the CISG does not apply.”

47
Yearbook Comm. Arb’n XXXV (2010)
 COMMERCE NO.
E NO. 12 12745
CHAMBER OF COMMERC
IN TERNATIONAL

OF CLAIMS
il. ADMISSIBILITY

|
682
ce of Claims
l. Failure to Give Noti
cordance
Cl ai ma nt fai le dt o notify its claims in ac
bmit that : ims in,admissible.
‘ nder these c la
e.1" ofnthe
t SPA, whhiich woul d re shall
ee9.3
muse
“ ith Cla h the Arbitral Tribunal
two preliminary issues, whic im;
on argument raises qu ir em ents for a valid notice of
cla
(i) wh at are the re
address first, namely: to co mp ly with these requinemenge
on of a fai lur e
and (ii) what is the sancti ine whe ther Claimant validly gave
al sha ll the n det erm
[4] “The Arbitral Tribun therefrom.
its cla ims and , in the neg ati ve, what consequences follow
notice of

ice of claim
a. Requirements for a valid not
follows:
[5] “Clause 9.3.1 of the SPA reads as
action, fact or event that may give
‘If the Purchaser becomes aware of any im”),
this Agreement (a “Cla
rise to a claim against the Guarantors under y-five
rs’ Agent within fort
the Purchaser shall give a notice to the Guaranto
such action, fact or
(45) days of the Purchaser’s becoming aware of any
ed in Clause 9.2.1.
event, and in any event within the time limits provid
ed solely by the
Any delay in making such notification shall be sanction
tors’ Agent
payment of damages to the Guarantors, insofar as the Guaran
s’ defence
is able to prove that such delay adversely affects the Guarantor
(in such a case, the amount of the damages shall be equal to 125% of the
amount of the prejudice thus established).
Such notice shall set out such details as are available of the specific
actions, facts or events in respect of which the claim is made, together with
a first estimate of the amount of Losses which are the subject of the Claim.
The notice shall enclose a copy of all documents establishing the basis of
the Claim. The notice shall mention whether the Claim is ... a First
Respondent Claim.’

[6] , “The first sentence of Clause 9.3.1(i) of the SPA lays down the rule that
Claimant must notify any action, fact or event that may give rise to a claim
against Respondents and that the notification must take place within 45 days of
ae becoming aware of such action, fact or event. The primary purpase
ra“iee is not anevaaon in these types of transactions, is to enable
seller to assess the likelihood and amount of its liability and to

48
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

timely begin the process of defending itselfor to initiate legal actions against third
parties.
[7] “Clause 9.3.1(ii) is merely concerned with the substance of the notice of
claim. Its rationale is to ensure that the seller is in possession of all the
information required to efficiently assess its potential liability with full
knowledge of the facts. Absent such a provision, the very requirement that a
claim must be notified in advance would be meaningless.
[8] | “It follows from the above that a valid notice of claim under Clause 9.3.1
of the SPA must be lodged within 45 days of Claimant’s becoming aware of any
action, fact or event that may give rise to a claim (Clause 9.3.1(i)) and must
contain all the information listed at Clause 9.3.1(ii) of the SPA. In other words,
a notice given within the 45-day time limit of Clause 9.3.1(i) of the SPA may not
be considered timely unless and until it is properly substantiated.”

b. Sanction of an invalid notice of claim

[9] “Turning now to the next issue, the Arbitral Tribunal shall determine what
is the sanction attached to a failure to comply with the requirements mentioned
above.
[10] “The second sentence of Clause 9.3.1(i) of the SPA stipulates that ‘[a]ny
delay in making such notification shall be sanctioned solely by the payment of
damages to the Guarantors, insofar as the Guarantors’ Agent is able to prove that
such delay adversely affects the Guarantors’ defence (in such a case, the amount
of the damages shall be equal to 125% of the amount of the prejudice thus
established)’. Notwithstanding this provision, Respondents submit that the
implied sanction of a violation of Clause 9.3.1 of the SPA is the inadmissibility
of the claim that was improperly notified. In support of their position.
Respondents rely on the observation that Clause 9.3.1 (ii) of the SPA, as opposed
to Clause 9.3.1(i), does not provide that the exclusive sanction would be the
payment of damages. Besides, French courts have ruled on several occasions that
a claim that was improperly notified must be deemed inadmissible.
[11] “As stated above, Clause 9.3.1(ii) of the SPA has no existence of its own,
its purpose being limited to determine the contents of a valid notice of claim.
Besides, a notice given within the 45-day time limit of Clause 9.3.1(i) of the SPA
may not be considered timely unless and until it is properly substantiated.
Therefore, the fact that no express consequence is attached to the failure to
include the relevant information is not decisive.
[12] “As correctly pointed out by Claimant, it would be illogical that different
sanctions be imposed depending on whether the notice has not been made within
the prescribed time limit or whether it has not been properly substantiated. It

Arb’n XXXV (2010) 49

Yearbook Comm.
 qtr

INTERNATIONAL CHAMBER
7
OF COMMERCE | NO. 127 45
the notice did
to deem inadmissible a claim because
would not be less illogical t a claim
an estimate ot the incurred and to admi
losses
not mention
ing the fact that the notice was not lodged wr bed
within. the prescri
rj
ir :to
——— Se more so since the primary purpose ofa ——
As amatter ° 1 : . er
enable the seller to timely assess its potential liability.
cation is - ated, “A
situations are similar under one reservation: if thenotifi
in e case we
seller goes unaware of the potential case for its liability whilst,
timely unsubstantiated notification, the seller is cognisant of the buyer s possible
claim and thus in a position immediately to request supplemental information,
namely the allegedly missing substantiation ofthe claim. |
[13] “Finally, French case law is of no avail to Respondents. It is true that
French courts tend to deem inadmissible claims that are not notified in
accordance with a contractual mechanism. However, this is only where the
parties have not expressly determined the consequence of a failure to comply
with such mechanism. To the contrary, French courts will apply the contractual
sanctions contemplated by the parties:

‘La sanction du non-respect de I’obligation varie selon qu elle a ou non été

contractuellement prévue. Lorsque la sanction a été préevue par les parties, les juges
appliqueront la sanction contractuelle, visant d reprimer la mauvaise exécution des
procedures d’ information. Dans le cas contraire, c’est-d-dire en I’absence de
stipulation contractuelle, un débat s’instaurera le plus souvent sur la sanction
applicable.’ ;

In the instant case, Clause 9.3. 1(i) expressly provides that a delay in
notifying a
claim ‘shall be sanctioned solely by the payment of damages
to the Guarantors’.
[14] “Based on the above, the Arbitral Tribunal finds
that the only consequence
of a failure to give a valid notice of claim is the payme
nt of damages.”

e Whether claimant gave valid notices of

claims
[15] “The issue whether the notices of clai
ms given were valid may be left open.
As stated above, the only sanction of
a failure to give a notice of claim
accordance with Clause 9.3.1 of the in
SPA is the payment of damages. Howe
this sanction applies ‘insofar as the ver.
Guarantors’ Agent is able to prove
delay adversely affects the Guaranto that mck
rs’ defence (in sucha case, the
amount of the

2. “DANIS/TREGUER.
» No Note ad CA Paris, 3rd ch.. 17
Entreprises et Affaires, no, May 2 i
43, 23 October 2003, i idi
p. 724)” iis i pa
50
Yearbook Comm. Arb’n XXXV (2010)
 Fie DDE

ARBITRAL AWARDS

damages shall be equal to 125% of the amount of the prejudice thus established)’
(Clause 9.3.1(i)).
[16] “In their Submission No. 1, Respondents have alleged that ‘... the first
claims notified to Respondents were confusing and hindered Respondents’ ability
to reply to the claim with precision’ and that ‘Respondents therefore suffered a
damage’. A similar stance was contained in Respondents’ Submission No. 2.
However, Respondents have neither explained how their defense was affected
by Claimant’s alleged failure to give a valid notice of claim nor established the
existence and extent of the resulting prejudice. To avoid any ambiguity: whether
Respondents were handicapped in their defense is an issue discrete from a
possible increase of the damage sustained as a consequence of the time elapsed
from month Y to month Y+4 of the relevant year. This separate issue will be
addressed below.
[17] “Therefore, the Arbitral Tribunal finds Respondents’ defense that
Claimant’s claims must be deemed inadmissible based on Clause 9.3.1 of the SPA
to be without merit.”

2 Exceptions to Contractual Representations

[18] “Clause 8.1.3 of the SPA stipulates that:

‘All Representations and Warranties (except for the Z Contribution) are

made subject to any matter which is disclosed in Schedule 8 or any of the
Disclosure Schedules or in Part A of the Disclosure List, and the Guarantor
shall thus not be liable in respect of any Claim (except for the Z
Contribution) to the extent that the relevant actions, facts or events giving
rise to the Claim were disclosed in Schedule 8 or any of the Disclosure
Schedules or in Part A of the Disclosure List. Any disclosed matter shall
limit the contents and scope of such Representations and Warranties
(except for the Z Contribution) to the extent that such matter has been
properly disclosed in the Disclosure Schedule (contents and, where
applicable, amount) or in Part A of the Disclosure List.’

[19] “Based on the above provision. Respondents’ second defense is that

Claimant’s claims, to the extent they relate to actions, facts or events that were
disclosed prior to contracting, constitute exceptions to the representations made
by Respondents and, accordingly, must be deemed inadmissible. This defense
raises the issue of the effect of the purchaser’s knowledge on the seller’s liability.

Yearbook Comm. Arb’n XXXV (2010) i.IB RARY 51

NARAYAN RAO MEIGIRI

National Law School
BANGALORE ;
 2RCE NO. 127 45
CHA MBE R OF COMMERCE
INTERNATIONAL
made by
s are promises
entation
tractual repres
ansactions, COM
[20] “In M&A tr facts relating to the company or the
7
th r ey
+ or existing
incr ease te pur cha ser s pro tec tio nby os
he llnae liability and claim recovery in case of breach. in antie cipa in g ht
tion of
exercise =
ascertal
sell er will gene rall y carry out a disclosur
representations, t he —
ion of adisc losu re lett er which lists information
resulting in the preparat take exceptions to the rep
resentations an
The sell er may then
to the purchaser. free a determine
refe renc e to the disc losure letter. The parties ane
warranti es by
kno wle dge on the seller’s liability. In M&A
the effect of the purchase r's
rally dealt with explicitly.
transactions, this issue 1s gene dents (and by
“In the ins tan t case , the representations made by Respon
[21 ] sed to
wer e inc lud ed in Sch edu le 8 to the SPA. Information disclo
Claimant) sures
was col lec ted in Sch edu le 8 to the SPA, the various Disclo
Claimant
and Par t A of the Dis clo sur e List (Schedule 1.1.1(b2) to the SPA). The
Schedules ermined at Clause
pondents’ liability is det
effect of Claimant’s knowledge on Res
8.1.3 of the SPA.
.3 of the SPA may not clear up every
[22] “The first sentence of Clause 8.1
wledge on Respondents’ liability. As
ambiguity as to the effect of Claimant’s kno
‘the Guarantor shall thus not be
a matter of fact, such sentence provides that
s or events giving rise to the
liable ... to the extent that the relevant actions, fact
clude that disclosures
Claim were disclosed ...’, which may make one con
argued that claims
completely defeat breach claims. On this basis, it could be
ble.
relating to facts that were disclosed must be deemed inadmissi
r cifies
[23] “However, the second sentence of Clause 8. 1 .3 of the SPA furthe spe
that ‘[a]ny disclosed matter shall limit the contents and scope of such
Representations and Warranties ...” thus making it clear that the effect of
Claimant’s knowledge is not a complete bar to recovery but a limitation of
Respondents’ liability as arising from their representations and warranties. In
other words, whether and to what extent disclosures affect Respondents’ liability
is an issue of substance, which the Arbitral Tribunal shall address when assessing
nae a aaa breach claims and not a question of admissibility. To
inding, it is the Arbitral Tribunal’s view that the full disclosure of
tiie siege a
action, fact or event would not make a claim inadmissible but such claims
would be dismissed as not meritorious.”

E Conclusion

i
24 “B
ev on the foregoing
:
considerations,
: :
the Arbitral Tribunal shall dismiss
pondents motion that Claimant’s claims are inadmissible.”

52
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Ill. WAIVER OF PRE-EMPTION RIGHT

[25] “At this juncture, it is necessary to state what issue is really arising: it is not
as a first and foremost deciding factor to establish what the agreements between
Mr. X and Respondents were or how Italian law will give effect to such
agreements. The cornerstone is what the parties in this arbitration agreed to and
what effect French law does give to their agreement.
[26] “In this regard, it is fit to recall that the French civil code (hereinafter the
‘FCC’), which is not especially different from international arbitration practice,
lays down some rules for the construction of contracts (Art. 1156 et seq.). Thus,
Art. 1156 of the FCC provides that:

‘On doit dans les conventions rechercher quelle a été la commune intention des
parties contractantes, plutot que de s’arréter au sens littéral des termes.’

[27] “In agreements, one will seek what was the common intent of the
contracting parties, rather than to rest upon the literal meaning of their wording.
Art. 1157 of the FCC provides that when a provision may have two meanings,
it should rather be understood in the meaning that will let it produce some effect
than in such meaning where it would be of no effect. Such interpretation rules
are obviously not mandatory but they are common sense guidelines to which
judges and arbitrators will normally give considerable respect. Besides, they are
meant to extract from the contract the true and actual common intent of the
parties: they become unnecessary where such intent clearly results from any
other circumstances as interpretation is then not useful.
[28] “It follows that the exact meaning of the expression ‘a far data’, the
intricacies of Italian law (about which both parties supplied authoritative and
convincing legal opinions) will of necessity be less essential in the reasoning of
this award than the common purpose of the parties in the SPA; the issue is to
determine whether Respondents breached that agreement, especially their
delivery obligation or their representations and warranties.
[29] “It remains that the Arbitral Tribunal must determine a central and most
debated issue in this case, i.e., whether Mr. X’s pre-emption right on First
Respondent’s 51% interest in Company Z Italia SpA was properly waived. This
issue raises complex factual and legal questions, and the parties have devoted
considerable attention to it in their impressive pleadings. The reason is that
Respondents’ alleged failure to properly waive Mr. X’s pre-emption right is
behind several breach claims advanced by Claimant, namely:

53
Yearbook Comm. Arb’n XXXV (2010)
 1274
5

E NO.
AMBER OF C OMMERC
~
—“—

INTERNATIONAL CH
|
Re sp on de nt of its delivery obligation,
by Fir st
(i) The alleged breach igation to warrant title to
le ge d br ea ch by Fir st Re. spondent re) f its obl
(ii) The al
d ‘eviction );
the goods sold (‘garantie ons and
d bre ach by Re sp on dents of contractual representati
(iii) The all ege
warranties.

d waiver
pondents’ failure to provide a vali
Ultimately Claimant submits that Res ’s
ximate cause of Company Z Italia SpA
of Mr. X’s pre-emption right is the pro
)
collapse.
determine whether, as a purely
[30] “Therefore, the Arbitral Tribunal shall now
properly waived.
. ”

factual matter, Mr. X’s pre-emption right was

. .

‘i
VF Mr. X’s Pre-Emption Right

[31] “Art. 7 of the Articles of Association of Company Z Italia SpA reads as

follows:

‘Article 7 — TRANSFER OF SHARES

The shareholders who intend to transfer all or part of their shares must —
at the same conditions — offer them to the other shareholders who may
exercise their pre-emption right in proportion to the shares they hold.
This offer must be made through registered letter with acknowledgment
of receipt to be sent to the address that appears in the shareholders
register.
The pre-emption right must be exercised within thirty days from the
date of the acknowledgment of receipt of the registered letter.
The shares for which the pre-emption right is not exercised must be re-
offered under the same procedure to allow the shareholders who have
exercised their right to acquire the shares in their entirety.
The shares that may still not be so acquired by pre-emption may then be
freely transferred,’

Moreover, in accordance with Art. 5 of the MoU, Mr. X and

First Respondent
committed not to sell their shares in Company
Z Italia SpA to any third party
ris aic Bailine to First
save i Respondent for a duration
i of five years from the

[32] “In the first part of the releva

nt
ear, Mr. X
into the Accordo, whereby Mr. /
X agreed toTalpaewareigraags oo eyeruaieo:
waive his pre-empt ion right on First

54
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Respondent’s shares of Company Z Italia SpA and undertook not to object to the
transfer of First Respondent’s shares to the Holding (Art. 2). The Accordo was
drafted in Italian. Art. 3 of the Accordo reads as follows (emphasis added):

‘3. Efficacia. I] presente Accordo sard efficace dal momento della sottoscrizione di
[First Respondent]. Se non verra controfirmato e ricevuto dalle parti entro e non
oltre [date A] non potra in alcun modo essere considerato valido in nessuna delle sue
parti. Tuttavia, le rinunce di cui all’art. 2 da parte del [Mr. X] perderanno
efficacia nel caso cui una delle seguenti condizioni non sia rispettata da [First
Respondent] o [Holdco]:

(i) [Holdco] dovra subentrare a [First Respondent] nel MoU a far data dal
trasferimento della Partecipazione, che dovrd avvenire entro [date B];
(ii) l’Operazione dovra essere stipulata con un acquirente da _selezionarsi
esclusivamente tra una delle seguenti societa: [Company GHI]; [Company DEF];
[Claimant], o una qualsiasi delle loro societa controllanti, controllate o collegate
ai sensi dell’articolo 2359 del Codice Civile;
(iii) il contratto di compravendita delle azioni tra [Holdco] e I’acquirente
selezionato dovra essere firmato entro e non oltre [date B].’

The English translation of the above provision contemporaneously agreed upon

by the parties provides that:

‘3. Effectiveness. This Agreement shall be effective at the date of its signature
by First Respondent. However the Agreement shall not be longer valid in
the event it is not signed and received by the Parties within [date A].
Furthermore, the waiver granted by Mr. X shall be no longer valid if one
of the following conditions would not be fulfilled by First Respondent or
Holdco:

(i) Holdco shall succeed to First Respondent as Party to the MoU as of the
date of transfer of the Participation, which shall be performed within date
B;
(ii) the Transaction shall be entered into with a purchaser to be selected
exclusively among one of the following parties: Company GHI; Company
DEF; Claimant, or any of their parent companies, subsidiaries or affiliates
pursuant to Art. 2359 of the Italian Civil Code;

Yearbook Comm. Arb’n XXXV (2010) 55

 -
OF COMMERCE COMMERCE NO. 127 45
INTERNATIONAL CHAMBER
:
Holdco and - sele cted
between
ii) the sale and purchase agreement
l be signed not later than
haser contemplating the Transaction shal
at:cha
pur
{date B].’

to a
[33] “It is common ground between the parties that, a
e— : y .
rovision, the effectiveness of the Accordo — and, accordingly,
er ee
X of the rights conferred by the MoU and the Articles of Association )
Z Italia SpA — was dependent upon the fulfilment of three dissolving conditions,
namely that

(i) the Holding become a party to the MoU in the stead of First Respondent,
(ii) the purchaser of First Respondent’s interest in Company Z Italia SpA be
Company GHI, Company DEF or Claimant or an affiliate thereof; and
(iii) the SPA be signed no later than date B.

The parties also agree that the second and third conditions were met.
[34] “However, the parties’ views differ as to whether the first condition was
met. The disagreement stems from a differing understanding of the moment in
time at which the Holding had to replace First Respondent as a party to the MoU
(Art. 3(1)). According to Claimant, the Holding had to succeed to First
Respondent as a party to the MoU on the Closing Date at the latest. According
to Respondents, “as of the date of’ is not an accurate translation of ‘g far data’,
which means ‘on or after’. In other words, the Holding could succeed
to First
Respondent at any time, on or after the Closing.
[35] “The Arbitral Tribunal shall therefore determine when
the Holding had to
succeed to First Respondent as a party to the MoU
and whether the Holding
timely succeeded to First Respondent.”

2. When Was the Replacement of First Responde

nt by the Holding to Take Place?

[36] As already pointed out, there are two

discrete issues
of interpretation.
First, what did Mr. X and First
Respondent agree when they
entered into the
entered into the SPA? Obvi
ously,
First Respondent was a par
ty to the Accordo and to
necessarily be assume the SPA and may not
d to ha
compatible commitments.
Neve
issues, the latter bein
g obvious
arbitration than the
former.

56
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

[37] “According to Art. 3(1) of the Accordo, the Holding had to succeed to First
Respondent as a party to the MoU ‘afar data dal trasferimento della Partecipazione,
che dovra avvenire entro [date B]’. According to Respondents, the expression “a far
data’ must be translated by ‘on or after’ and means that the Holding could
succeed to First Respondent as a party to the MoU at any time after the transfer
of Company Z Italia SpA’s shares. In support of this stance, Respondents have
filed an unofficial translation into English of the Accordo, in which ‘a far data’ is
translated by ‘on or after’.
[38] “Respondents have also filed two expert opinions drafted by Prof. U,
confirming that the expression ‘afar data’ means ‘on or after’. The first opinion
reads as follows in its relevant part:

‘Turning now to the interpretation of the meaning of the first double

condition, it is clear that the contracting parties specified date B as the
deadline by which the shares in Company Z Italia had to be transferred by
First Respondent to Holdco. By contrast, the contracting parties agreed no
deadline in relation to Holdco’s adherence to the MoU but just a
commencement date: “Holdco shall succeed to First Respondent in the
MoU on or after the date of transfer of the Participation....”
There can be no doubt as to the meaning of the expression adopted by
the contracting parties since the meaning of the expression used in the
Italian language means on or after that date. In truth date B constitutes both
the deadline for the transfer of the shareholding from First Respondent to
Holdco and the commencement date starting from which Holdco is called
upon to adhere to the MoU in place of First Respondent.’

Prof. U confirms his view in his second opinion:

‘When the contracting parties talk of the succession of Holdco in the MoU
they refer to the expression “afar data”, that in Italian means “commencing
on this date”. Instead, when the parties talk of the transfer of the
shareholding they use the expression “entro il ...” which indicates the time
limit within which the expected action must take place.’

[39] “From a purely linguistic point of view, Prof. U’s opinion is not sufficient
to find in favour of Respondents’ position. Claimant’s experts (Z and H) have
clearly confirmed that ‘a far data’ could not be translated by ‘on or after’. Thus,
Expert Z stated that:

Yearbook Comm. Arb’n XXXV (2010) a4

 MERCEE NO. 127 45
TE RN AT IO NA L CHAMBER OF C . OM
IN
seems to be
b
»”

by on or after”
¥?
»” “

ation of “a far data

‘C onversely, the transl am ined eR IE
in the co nt ex t of the ex
substantially incorrect momen : .
temporality as far as the
it introduces an idea of ss
is co nc er ne d, wh ic h is not included in the Ita or
has to occur “a far ata a
ds, to say tha t an eve nt will have to be realised
In other wor er the indicated
that such event can occur aft
_..” does not necessarily mean
date.’

view:
Expert H confirmed the above

erly be translated by “as

‘In my opinion, the expression “a far data” can prop
ot in my view, be
of” or “as from” or even “with effect from”. It cann
on for this is that the
translated using the expression “on or after”. The reas
take place.
expression “a far data” refers to a date on which an event must
only
The expression “on or after”, as translated in the second version,
refers to a date from which the event should take place. There is,
therefore, no reference whatsoever to the date when such event takes
place. t

[40] “Both experts confirmed their written statements during the hearing.
Expert Z unequivocally confirmed that the substitution of the Holding could not
take place after the transfer of the participation in Company Z Italia SpA:

‘The Chairman: I will give you immediately all my questions. What I am

going to ask you — you told me now that the transfer of the participation
had to take place on or before date B. Now what I am going to ask you,
and, again, only a matter of language with respect to this sentence: The
substitution of First Respondent into the MoU, is it possible for this
substitution to happen before the transfer of the participation? Is it possible
to happen on the same day of the transfer of the participation, can it
happen after the transfer of the participation? And the fourth question: If
the transfer of the participation has happened on date B, could it happen
after date B? So my four questions again. You will tell me the language —
Expert Z: Excuse me, if you please, if you repeat the four questions, I say
yes or no to each of the four questions.
The Chairman: You say yes or no, or the language —
Expert Z: Okay.
‘ e Chairman: The first question is: Is it poss
Th . . 5 e .
ible for the substitution to
.

appen before the transfer of the participatio

n?

58
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Expert Z: No.
The Chairman: The second question, languagewise, the second question:
Is it possible for the substitution to happen the same day as the transfer of
the participation?
Expert Z: Yes.
The Chairman: Now is it possible for the substitution to happen after the
transfer of the participation, but before date B?
Expert Z: No.’

Finally, Expert Z went on to explain how he would translate the expression ‘on
or after’ in Italian:

‘The Arbitrator: The last paragraph, you say that you cannot translate “a far
data” by “on or after”, and then you explain why. If you would like to
express the meaning “on or after”, what would you say in Italian?
Expert Z: “Alla data o dopo.” It means that “after” is “dopo”, it is unequivocal
that “after” is “dopo”.
The Arbitrator: They are [clearly two] expressions. “A far data” means one
thing and “alla data o dopo” —
Expert Z: “Dopo” means “after”, yes.’

Expert H appointed by Claimant also confirmed orally that “afar data’ could not
be translated by ‘on or after’:

‘Q. Do you exclude that the words “a far data” can be translated by “on or
after”?
A. Absolutely, yes.’

And further:

‘Q. It doesn’t refer to the transfer of participation. So date B is the

deadline for the transfer of participation. So date B is the deadline for the
transfer of participation, is that what you are saying?
A. Holdco must replace First Respondent in the Memorandum of
Understanding with effect from the transfer of the shareholding, which
must take place by date B. That is how I would translate. ’

[41] “Moreover, Respondents appear to acknowledge in their post-hearing brief

that the expression ‘a far data’ may mean that an event ‘has to have effect from
a certain date, with, possibly, a retroactive effect from that date onwards’. Yet,

Yearbook Comm. Arb’n XXXV (2010) 59

 CE NO. 12745
AMBER OF COMMER
INTERNATIONAL CH

tance defended by Claimant, which argues

that the substitution
this is exactly the stance ‘ ‘had to take effect at the same date as the
sp on de nt by the Hol ding
of First Re
share transfer’ . int erp ret .
ation of the |
Accordo
lin gui s
ist ic app roa ch,
acl the
42] ? “Beyond thiis mere First
clu sio n tha t the par tie s to It intended that the succession of
a to ee con as from =
Respondent by the Holding as a party to the MoU be effective
and that the whole ‘Transaction’ ha
es
transfer of Company Z Italia SpA’s shar
to be completed on or before date B.
[43] “First, the English version of the Accordo agreed upon by the parties
that the Italian version of the Accordo
translates ‘a far data’ by ‘as of’. It is true
must prevail in case of discrepancy (Art. 10). However, this translation, which
t authoritative indication
is a contemporaneous document, gives a first and mos
hope (perhaps
of the parties’ intention at the time of contracting. One may
e and would
naively) that the parties did read this English translation in due tim
sent.
have reacted if ‘as of’ did not square with their common and actual con
[44] “Second, it appears that the succession of the Holding as a party to the MoU
was a primary condition laid down by Mr. X to consent to forfeit his pre-emption
right on First Respondent’s interest in Company Z Italia SpA. This is easily
understandable as the MoU did not only grant him a pre-emption right, but
virtually secured his position of managing director of the company by obliging
First Respondent to buy him out if it intended to revoke him. As a side note, the
Arbitral Tribunal observes that this is exactly what Mr. X pleaded in the Italian
proceedings:

‘(6) that the entry into the MoU in fact was and is [correction of the
translation [in the award]] the sole guarantee of the minority shareholder
on the one hand to be ensured management of the company and of the
other, in the event of its revocation to see his quota liquidated in
accordance with the parameters established therein. ...’

[45] “Yet, if one were to interpret Art. 3(1) of the Accordo as meani
ng that the
Holding could become a party to the MoU at any time on or after the transf
er of
Company Z Italia SpA’s shares, the condition laid
down by Mr. X would be
meaningless. As a matter of fact, Mr. X would have conse
nted to waive his pre-
emption right without any assurance that the Holding,
as the new majorit
shareholder, ever accept to be bound by
the MoU. . ge
[46] “It is worth recalling in this respect that und
er Italian law, a share sale does
not automatically oO per
ate the transfer to the purchaser of a sha
sh reh
agreement concluded by the seller, ;
Ape

60
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

[47] “It may well be that, as suggested by Respondents, Mr. X could then have
requested that a court set a time limit for the Holding to enter into the MoU.
However, this solution seems hardly compatible with the precautions taken by
Mr. X to ensure that his rights arising under the MoU survive the transfer of First
Respondent's interest in Company Z Italia SpA. Besides, Claimant’s expert Prof.
O doubted that a court could retain jurisdiction over the Holding:

‘Q. Prof. U [the expert appointed by Respondents] yesterday told us that

Mr. X could have resorted to the courts on the basis of Art. 1183 of the
Civil Code so as to obtain that a deadline be set down for the substitution.
What do you think of this possibility of having an order placed upon
Holdco for setting out a date for substitution?
A. I say that wouldn’t have been possible. The reason for this is that
Holdco was not the subject of the mandatory relationship that existed
between First Respondent and X. Instead, Holdco was a third party and,
as such, the judge would not have been able to set out any order applying
to Holdco.’

[48] “Following Respondents’ interpretation that the Holding could succeed to

First Respondent as a party to the MoU at any time on or after the transfer of
Company Z Italia SpA’s shares, the Holding, as the new majority shareholder,
would have had an opportunity to revoke Mr. X without being bound by the
provisions of the MoU before the outcome of any court action initiated by Mr.
X to force the Holding to become a party to the MoU.
[49] “Another argument militates against the interpretation proposed by
Respondents. The Holding was not a party to the Accordo, which was entered into
by First Respondent and Mr. X. Therefore, after the transfer of Company Z Italia
SpA’s shares to the Holding, Mr. X could only enforce the Accordo against First
Respondent, while the new majority shareholder would be the Holding.
[50] “The Arbitral Tribunal notes that Respondents’ expert, Prof. U,
acknowledged that Mr. X would have been very badly advised to accept a clause
such as Art. 3(1) as interpreted by Respondents:

‘Q. So you believe that Mr. X had stipulated a condition in his interest
which he had to go to the judge to prevail himself of?
A. Mr. X maybe was not assisted in a proper way, because if he was
assisted, if he had been assisted in a proper way, this clause should have
been written in a different way.’

Yearbook Comm. Arb’n XXXV (2010) 61

 COMMERCE NO. 1 2745
INTERNATIONAL CHAMBER OF
- . b s
an agreement made with a view to enabling
(S1] “In summary, the Acc ordo is
Z = SpA . ‘
First Respondent to transfer its participation in Company e
to a purc — —
Holding and then subsequently to transfer the Holding
t of Mr. X to imit
to Mr. X (see the last recital of the Accordo). It was the inten
any Z Italia
his waiver to a certain period (i.e., till date B) during which the Comp
€ 3.5mio to
SpA’s shares had to be transferred and First Respondent had to lend
h Mr. x
First Respondent (Art. 4). It is difficult to fathom a reason out of whic
should have accepted to delay beyond date B the substitution of the Holding into
the MoU: there is no logical reason then to single out this substitution.
[52] “However, the agreements between Mr. X and First Respondent are less
relevant than the actual intent of First Respondent and Claimant in this regard,
that is how they agreed to construe the Accordo in the framework of the SPA.
[53] “There is one argument that definitively speaks in favour of Claimant’s
interpretation of Art. 3(1) of the Accordo. First Respondent entered with the
Holding, then still its 100% subsidiary, into a share purchase agreement for the
sale of 51% of the issued share capital of Company Z Italia SpA. First Respondent
represented that the Company Z Italia SpA shares were freely transferable:

‘5. Pre-emption Rights and Standstill commitments

Pursuant to the agreement (‘accordo’) entered into by the Seller and Mr. X,
all pre-emption rights and standstill commitments have been waived, so
that the Shares are freely transferable.’

This defeats Respondents’ interpretation of the Accordo.

[54] “First, assuming arguendo that Art. 3(1) of the Accordo actual
ly did allow
the Holding to become a party to the MoU instead of
First Respondent on or
after the transfer of Company Z Italia SpA’s shares
to the Holding, First
Respondent was thus letting the Holding decide wheth
er its above representation
to the same Holding would be true. Logically,
it would have been for the
Holding to warrant to First Respondent
that it would timely enter into the MoU
and thus release First Respondent from
any obligation thereunder.
Pr “Second, [when the Holding/First
Respondent SPA was concluded], the
parties had already entered into the
SPA, so that First Respondent was
shortly to transfer the control of the boand
Holding to Claimant. It is inconceiv
able that
lawyers, a selling party would lea
ve it to the purchaser and possib
aa ly a third party
cause the occurrence of an event
which was the subject matter of
an rei namely that all the a
formalities related to the transf
ectively and duly completed er would be
(Clause 4.2.4 of the SPA).

62
Yearbook Comm. Arb’n XXXV
(2010)
 ARBITRAL AWARDS

[56] “Third, when Claimant formally notified Second Respondent of breaches

of representations and warranties, Second Respondent replied that the Holding
had acquired the title of ownership in the Company Z Italia SpA shares by virtue
of the share purchase agreement and the filing of the transfer of the shares with
a Public Notary in [an Italian city]. It was then Second Respondent’sposition that
this fulfilled before the Closing the condition precedent according to which on
the Closing Date, the Holding would have exclusive ownership of the shares in
the First Respondent Subsidiaries (including Company Z Italia SpA).... Second
Respondent was thus confirming that, when the SPA was registered with the
notary public, there was no step missing to make the transfer of the Company Z
Italia SpA shares to the Holding fully valid. A similar representation that the
Holding had full, valid and exclusive ownership of Company Z Italia SpA’s
shares, which were free and clear of all liens, was also made in the SPA (Clause
4.1.6 of Schedule 8 to the SPA).
[57] “In light of the above consideration, the Arbitral Tribunal reaches the
conclusion that the parties’ intention — as expressed in Art. 3(1) of the Accordo —
was that the substitution of First Respondent by the Holding be effective at the
latest on the date of the transfer of Company Z Italia SpA’s shares to the Holding,
which itself had to happen on or before date B.
[58] “The sale of First Respondent’s interest in Company Z Italia SpA to the
Holding was agreed upon in the share purchase agreement. In accordance with
Art. 6 of this agreement, title to Company Z Italia SpA’s shares had to pass to the
Holding at the latest on date B-2 by the delivery to the Holding of the relevant
share certificates:

‘6. Completion
Completion shall take place on date B-2 at the latest at which time the
Parties intend title to both the A Shares [Company Z Italia srl] and the B
Shares [Company Z Italia SpA] shall pass to the Purchaser.
At completion, the Seller shall deliver to the Purchaser duly executed
transfers in respect of both the A Shares and the B Shares in favour of the
Purchaser or its nominees together with the relative share certificates in
respect of both the A Shares and the B Shares.’

In the instant case, title to First Respondent’s participation in Company Z Italia

SpA appears to have passed to the Holding when the transfer was filed with a
notary public and the certificates were endorsed to the Holding.
[59] “Therefore, the Arbitral Tribunal finds that the substitution of First
Respondent by the Holding as a party to the MoU had to be effective the date of
the filing with the notary public at the latest.”

63
Yearbook Comm. Arb’n XXXV (2010)
 NO. 12745
BER OF COMMERCE
INTERNATIONAL CHAM

Assignment
r the Hol din g Tim ely Rep laced First Respondent by An
3 Whethe
in
waiver of Mr. X’s pre-emption right was
[60] “The effectiveness of the ceed to
d issolving condition that the Holding “suc
particular dependent upon the mon
th e MoU’ (Art. 3(1) of the Accordo). It is com
First Respondent as a Party to
law, the contemplated substitution
ground between the parties that, under Italian
of contract. In other words, First
had to be operated by way of an assignment
gations arising under
Respondent (the assignor) had to assign all its rights and obli
that Mr. X (the
the MoU to the Holding (the assignee). The parties also agree
by
assigned party) had authorized beforehand the assignment of the MoU
is the
concluding the Accordo and that, in such a case, Art. 1407 of the ItCC
relevant provision. Art. 1407 of the ItCC reads as follows:

‘Ifa party agreed beforehand that the other party would substitute itself a
third party in the contractual relationship, the substitution has efficacy
against such party only when it has been notified to it or when it has
accepted ie:

[61] “As the Italian Supreme Court has confirmed it, it follows from the above
provision that an assignment of contract authorized beforehand is not effective
unless and until it has been notified to the assigned party or the latter has
acknowledged it (Decision of the Italian Supreme Court of 25 August 1986):

‘Even when it has been previously authorized by one party, the assignment
of a contract does not materialize in respect to that party until it has been
notified to it or until that party has accepted it. As a matter of fact, the
assignment of a contract is a trilateral agreement, which requires the
consent of all interested parties, including the assigned party, in respect
to
whom it is essential to know when the substitution operates to
the effects
provided by Art. 1408.’

[62] “In the instant case, Mr. X authorized

the assignment of the MoU by
concluding the Accordo. It remains to determin
e whether the MoU was assigned
to the Holding and, in the affirmative, whether
such assignment was notified to
or acknowledged by Mr. X on or before
the transfer of Company Z Italia SpA’
shares to the Hold ing, i.e. on or before the date of the filing with s
the notar
public. y

64
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

a. Was the MoU assigned?

[63] “It is common ground between the parties that First Respondent did not
expressly assign the MoU to the Holding. Therefore, the Arbitral Tribunal must
ascertain whether the MoU was tacitly assigned by means offacta concludentia. As
observed by Respondents’ experts themselves, a tacit assignment of the MoU
would have had to be clearly and unequivocally understandable, including for
Mr. X who was party to the MoU:

‘Q. Let’s have a look at the substitution that Holdco had to do. So Holdco
had to substitute itself in First Respondent in the MoU. How could that
substitution be made? Was it necessary that such an assignment or a
substitution in the contract be done exclusively in writing?
A. Not necessarily in writing. This is a point I do not take in my opinion,
but in any case, it is a sufficient fact, behaviour, we call it “facta
concludentia’.
Q. What do you mean by “facta concludentia”?
A. “Facta concludentia” means by a behaviour which is understandable by the
other party, as if it is in consent or an expression of will.’

And further:

‘The Chairman: Let me rephrase my question. I would like to know

whether first this conduct has to be unambiguous, or can an ambiguous
conduct survive in a certain circumstance?
The Witness: No, it must be a conduct which is clear, I mean give evidence
to the fact that there is this will expressed by the conduct.
The Chairman: Let me just qualify my second question. What is really
relevant, if] understand well, is not so much the will of the party who had
some conduct as whether the other party would understand that conduct,
is that correct?
The Witness: Yes, it is correct.’

It thus appears that facta concludentia is amounting to a party’s conduct or mode

of action, which unambiguously points to a certain position so that another party
may justifiably rely on such conduct.
[64] “Respondents have argued that the Holding succeeded to First Respondent
as a party to the MoU by the mere effect of the share purchase agreement.
[65] “This argument must be rejected. Respondents do not appear to press it
further in their post-hearing brief. As a matter of fact, as explained by an Italian
legal author, shareholders’ agreements do not bind subsequent purchasers of

Yearbook Comm. Arb’n XXXV (2010) 65

 127 45
NA L CH AM BE R IFCCOMMERCE : NO.
OF
INTERNATIO
ione
o, Di ri tt o co mm er ci ale, Le societa, Ediz
y (F, Galgan ct effe
shares in a compan P- 17 4) . 7 eholde
Shar , r agreements have only
li Bo lo gn a, olders who have
1995/96, Zanichel ar e bi nd ing only for the shareh
g part ie s: th ey and the
between contractin of th e su bs : equen t| buyers of the shares
the ex ce p ti on ers of the
sii gned them, wi‘ith th e he ir s, or n the case of merg
as we ll as
a of new shares, s or on| the co,mpany. Prof. | O,
y bin din g on thi rd par tie
w company; nor are the owing
ed the pos iti on un de r Italian law in the foll
nfi rm
Claimant’soeexpert, co
=
words:
tution
the cas e in han d, you cat ego rically exclude that the substi
‘Q. So in of
n com ple te, may hav e bee n effective — realized, as a result
may have bee ?
First Respondent and Holdco
the transfer of shares between the
lude is that the assignment of
A. I can exclude, what I can exc
cts, the assignment of the contract.
participation also had, as one of its effe
ignments. The assignments of the
These are two quite different things to ass
ticipation itself, whereas the
participation relates, as it indicates to the par
t of the contract, which is
substitution is equivalent to the assignmen
something different.’

observations in this
[66] “The Arbitral Tribunal wishes to make two additional
Mr. X (or his
respect. The first one is that it would not have been necessary for
of the
lawyer) to subject the waiver of his pre-emption right to the succession
fer
Holding as a party to the MoU if such effect had followed from the mere trans
of Company Z Italia SpA’s shares. The second one is that the purchaser of
Company Z Italia SpA’s shares was not designated in the Accordo, Art. 3(11) of
which provided that it had ‘to be selected exclusively among one of the following
parties: Company GHI, Company DEF, Claimant or any of their parent
companies, subsidiaries or affiliates pursuant to Art. 2359 of the Italian Civil
Code’ [ItCC]. Actually, the Holding, which was set up on date B-32, did not
exist at the time the Accordo was concluded.
[67] “The share purchase agreement may therefore not constitute a clear and
unequivocal conduct of the parties showing their intention to assign the MoU.
Moreover, Respondents have not shown that such conduct would have been
understandable for Mr. X and that Mr. X would have taken Respondents’
conduct as a notification of the assignment.
[68] “In light of the above, the Arbitral Tribunal finds that the MoU was not
tacitly assigned to the Holding. Accordingly, there is no need to determine if, as
a matter of principle, as argued by Claimant, such a tacit assignment was
prohibited by the MoU.”

66
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

b. Even ifconcluded, the assignment was not effective

[69] “Evenif the MoU had been assigned to the Holding, such assignment would
not have been effective on the date of the transfer of Company Z Italia SpA’s
shares to the Holding.
[70] “As stated above, Art. 1407 of the ItCC requires that an assignment
authorized in advance be subsequently either notified to or acknowledged by the
assigned party. According to Respondents, the Holding notified Mr. X that it had
succeeded to First Respondent as a party to the MoU in the month following date
B. Thereafter, confirmations were sent to Mr. X twice later in the relevant year.
[71] “Given that Company Z Italia SpA’s shares were transferred to the Holding
at the date of the filing with the notary public, it appears that the assignment was
not timely notified to Mr. X. However, Respondents have argued that the
notification had a retroactive effect as of the date of the transfer of Company Z
Italia SpA’s shares.
[72] “According to the above-quoted decision of the Italian Supreme Court, the
assignment of a contract “does not materialize in respect to that party until [the
assignment] has been notified to it or until that party has accepted it’. In other
words, the notification to the assigned party or its acceptance has a constitutive
nature, which excludes that the assignment be effective retroactively.
[73] “The Arbitral Tribunal notes that a similar mechanism is enshrined in the
UNIDROIT Principles:

‘Clause 9.3.4 (Advance consent of the other party)

(1) The other party may give its consent in advance.
(2) If the other party has given its consent in advance, the assignment of the
contract becomes effective when a notice of the assignment is given to the
other party or when the other party acknowledges it.’

[74] “Respondents do not allege that Mr. X expressly acknowledged the

assignment of the MoU to the Holding. Yet, under Italian law, the assignment of
a contract by conclusive behaviour is excluded unless it has been brought to the
attention of the assigned party (Decision of 25 August 1986 of the Italian
Supreme Court):

‘The claimant, even though admitting such principle, sustains that the
acceptance by the assigned party does not require a particular form and can
be expressed by conclusive behaviour. According to the claimant, such
acceptance would have been in the present case manifested by the sisters
Gallo by receiving relevant advances paid by the cooperative and, in
written form, by signing receipts and exchanging correspondence before

Yearbook Comm. Arb’n XXXV (2010) 67

 R CE NO. 12 745
OF BCCOMMERSRCE
NA L CH AM BE
INTERNATIO
be — inv d' in the
ents SCcannot
ion. Such ar g um , é
of the liti 2 at - tailec motiva
t on
ti
he be g jnnin g ld, W ith a de
of Appeal he
urt at the
rese nt case be
cause the Co
to re vi ew by y th e present Court), th
not subject vances on
in fact (and, as such, th e sis ter s Ga llo the various ad
p ai d to
tlyi “La Famiglgliaia”
ooperaai of contract....
;
ntioning the alleged assignment
the price without ever me
on that
the Arb itr al Tri bun al has reached the conclusi
(75] “In the present case, n ent er into an assignment
of the
Ho ld in g did not eve
irst Respon dent and the determine whether
: con clu den tia . Ac co rd ing ly, there is no need to
oer by fact a 7
of the Mo U was tac itl y acknowledged by Mr. X.
eeon nts wou
eve nt, non e of the ci rc umstances cited by Responde
[76] “In any t
it ac kn ow le dg me nt . Re sp on dents first refer to the fact tha
constitute such tac asions in May of
atives of Claimant on three occ
Mr. X met personally represent ce of the
bunal fails to see how acceptan
the relevant year. The Arbitral Tri that Mr.
ing could be inferred from the fact
assignment of the MoU to the Hold the
fact that they all took place before
X attended these meetings. Beyond the
Holding (and that Mr. X did not
transfer of Company Z Italia SpA’s shares to the
re all dedicated to general
attend the last of these meetings), they we on the First
ction for the acquisiti of
presentations on the structure of the transa
tus of the subsidiaries.
Respondent Subsidiaries and on the financial sta
spondents’ counsel
[77] “Respondents then cite the fact that, on date B-31, Re
d o by First Respondent
sent to Mr. X the share purchase agreement entere int
ptance by Mr.
and the Holding. Again, the Arbitral Tribunal fails to see how acce
essed to Mr.
X of the assignment of the MoU could be inferred from a letter addr
X to which he did not react. In addition, it appears that this letter was sent prior
to the transfer of Company Z Italia SpA’s shares and that the share purchase
agreement of date B-31 attached thereto was replaced by a new agreement
concluded later in the relevant year. Finally, Respondents have not established
that Mr. X ever received the above communication, which appears to have been
sent to the ... office of Company Z Italia SpA and not in ... where Mr. X was
located. Thus, on the day of the filing with the notary public, Mr. X requested
:wi of the share purchase agreement, affirming that he had never received it
efore:

‘Upon receiving First Respondent Holding Limited letter, please note the
following:
1. Shareholding structure of First Respondent Italia: could you please send
me copy of the SPA, since up to now I have never received?
This is the first step to eventually proceed in the recording of the new
shareholder.’

68
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

[78] “Respondents then rely on an electronic message sent in the month ofdate
B by Company Z Italia SpA’s financial director to Mrs. S [of Company GHI]
asking that Claimant, in its capacity of new shareholder, notify the bank having
issued patronage letters to enable the amendment of such letters. The only fact
that could be inferred from this message is that Company Z Italia SpA’s
employees were aware early in the month of date B that the Holding’s shares
would be transferred to Claimant and, accordingly, that Claimant would
become, through the Holding, the new majority shareholder of Company Z Italia
SpA. Nothing more can be inferred either from another electronic message of the
same month sent by Mr. X to Mr. E [of Company DEF], providing him with
information about the two Company Z Italia SpA directors.
[79] “Respondents have also relied heavily on the fact that, at the shareholders’
meeting of Company Z Italia SpA held on date B-2, Mr. X appointed Mr. F [of
Company DEF] and Mrs. S members of the board of Company Z Italia SpA. This
meeting took place after the transfer of the shares of Company Z Italia SpA to the
Holding. Accordingly, even if Mr. X’s conduct at this meeting had established
that he accepted the assignment of the MoU, it would not have been sufficient for
a timely succession of the Holding as a party to the MoU. The Accordo stipulates
that the Holding ‘shall succeed to First Respondent as Party to the MoU as of the
date of transfer of the Participation which shall be performed within date B’ (Art.
3(1)). Thus, the text of the Accordo requires a simultaneous transfer of Company
Z Italia SpA’s shares and of the Holding succeeding to First Respondent as a party
to the MoU.
[80] “Obviously, this requirement made a lot of sense as it was Mr. X’s
guarantee to remain protected under the MoU in spite of the Holding having
become a majority shareholder in Company Z Italia SpA. It would not be fit to
give too much weight to this grammatical argument as Mr. X was protected as
of date B-2, which was two days before the date B deadline (as resulting from the
Accordo). However, this arbitration shows that Mr. X could possibly have made
use of this apparent departure from the text requirement of the Accordo. The
minutes of this meeting would rather show that Mr. X did not hold the Holding
as the new majority shareholder of Company Z Italia SpA:

‘The chairman remarks and requires that it be noted in the minutes that the
shareholder First Respondent, holder of 51% of the share capital, is not
present. In accordance to Art. 2369 of the civil code, the chairman declares
that the assembly is normally constituted.’

Remarkably, the only fact that could be inferred from the circumstances evoked
by Respondents is that Mr. X knew that First Respondent intended to sell its

69
Yearbook Comm. Arb’n XXXV (2010)
 NO. 12745
R OF COMMERCE
INTERNATIONAL CHAMBE

shares would then be

ia Sp A to the Holding, which
interest in Company Z Ital acquired the
sol d to Claimant. If he did actu
ally know that the Holding had
ld not be unlikely inthe circumstances,
Company Z Italia SpA shares, which wou
, even constructive, that either the
aes am points to his knowledge
the assignment of the MoU or that
alee or First Respondent had notified him
| |
he had accepted such assignment.
Tribunal finds that even
81 >.“In lightof the above considerations, the Arbitral
assignment would not
if the MoU had been validly assigned to the Holding, the
the substitution
have been notified to or acknowledged by Mr. X so as to render
due time.
of First Respondent by the Holding as a party to the MoU effective in

4. Claimant’s Subsequent Conduct Is Irrelevant

[82] “Respondents then point at two different sets of facts, which would denote
that Claimant also considered that Mr. X’s pre-emption right had been properly
waived.
[83] “First, in the Italian proceedings, Claimant took the position that Mr. X had
accepted the assignment of the MoU to the Holding. Such a consideration is
irrelevant when it comes to determine whether, on the Closing Date, Mr. X’s
pre-emption right had been waived in accordance with the Accordo. All the more
so since the Italian proceedings are primarily concerned with the proper exercise
of Mr. X’s pre-emption right rather than with the interpretation of Art. 3(1) of
the Accordo. Besides, the procedural position of the parties is totally different in
this arbitration and in the Italian proceedings, and justifies that different and
regrettably even contradicting stances be advocated by the parties.
[84] “Respondents then cite the fact that Claimant closed the transaction, even
though the SPA gave the exclusive ownership of Company Z Italia SpA’s shares
by the Holding the status of a condition precedent to the purchaser’
sobligations.
That Claimant may have considered, on the Closing Date, that
Mr. X’s pre-
emption right had been validly waived and, hence, actually
closed the
transaction, is irrelevant when it comes to interpreting
Art. 3(1) of the Accordo
and to determining whether the condition laid
down by this provision was met.
Whether, from a subjective point of view, a party regards, rightly or wrongly,
a condition as having been met has no bearing
on the actual accomplishment of
euditgacko factual a . This situation should not be

transaction knowing shuts conditio oma aa = ame pig:

be deemed to have ratified the n ; fiifn SHAK
hail Minctabteds , on-fu fi ment oftheiim as rae
conditi SL
on by R
its conduct
» De estopped from challenging the validity of the Closing.”

70
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

5. Estoppel

[85] “In their post-hearing brief, Respondents have argued that Mr. X was
foreclosed from exercising his pre-emption right at the end of the month of date
B. Hence, even if the waiver of Mr. X’s pre-emption right were to be considered
ineffective, Company Z Italia SpA’s shares were validly transferred to the
Holding before the Closing Date. Respondents’ position is based on the following
premises:

(i) Pursuant to Art. 7 of Company Z Italia SpA’s Articles of Association, the pre-
emption right must be exercised within 30 days from the date of the
acknowledgment of receipt of the registered letter offering the shares to the
other shareholders;
(ii) According to Italian case law, when the shares have been sold to a third party
without having been properly offered to the beneficiary of a pre-emption right,
the latter must challenge the effectiveness of the sale and declare its intention to
buy the shares within the relevant period of exercise, which starts running when
the seller’s intention to transfer the shares to a third party comes to its
knowledge;
(iii) The beneficiary of the pre-emption right must not only challenge the
effectiveness of the transfer, but must declare its intention to buy the shares.
Such declaration must be made either in the writ of summons challenging the
transfer or, at the latest, in a separate statement within the period of exercise
fixed by the by-laws;
(iv) In the instant case, Mr. X knew at date B-31 that Company Z Italia SpA’s
shares had been sold to the Holding. Accordingly, he had to challenge the sale
and declare his intention to buy the shares on date B-1 at the latest. At any rate,
Mr. X had to declare his intention to buy the shares at the latest 30 days after the
service of his writ of summons.

[86] “Respondents have mainly based their case on a decision of 23 September

1991 of the Court of Milan, which reads as follows in relevant part:

‘In light of this principle, it must be said that the substantive interest an
omitted shareholder seeks to protect by seeking a court declaration of
ineffectiveness (or nullity) is the interest in acquiring the shareholding on
the same terms and conditions as those agreed between the selling
shareholder and the third party purchaser. A court declaration finding that
the procedures laid down in the by-laws were not observed has sense only
if designed to set aside the previous transfer so as to place the omitted

Yearbook Comm. Arb’n XXXV (2010) 71

 COMMERCE NO. 12745
INTERNATIONAL CHAMBER OF

ire the shareholding of the

shareholder in a position whereby it can acqu
selling shareholder through exercising the right of pinarge een mr
rules d at the
Applying these principles to the case in point, this Court
The
plaintiff’ claim must be dismissed for lack of standing to bring suit.
plaintiff has limited itself to claiming the violation of its right of pre-
emption in that it did not receive from Mr. Trabujo the notice prescribed
by the pre-emption clause contained in Article 6 of the by-laws. The
plaintiff’ s allegation is true since there is no proof that the letter of 27 June
1988 reached the plaintiff. But in the writ of summons served between 22
and 24 June 1989 the plaintiff stated that she knew that Mr. Trabujo had
sold his shareholding (equal to 90% of the share capital) to Mr. Domenico
Caprioni for the nominal sum of ITL 18 million.
It is this Court’s view that such definite knowledge is a valid equivalent
of the notice prescribed by the by-laws. It follows that the plaintiff either
through the writ of summons or an independent statement, could have and
should have manifested its wish to exercise its right of pre-emption to
acquire the shareholding of Mr. Trabujo within the 15-day period fixed by
the by-laws.
But this wish was never manifested by the plaintiff, neither through the
writ of summons, nor a subsequent independent statement nor at the time
of clarifying its claims in these legal proceedings, and hence the plaintiff s
entitlement to exercise the right of pre-emption has lapsed. Therefore, the
plaintifP's action for voidness/avoidance is to be dismissed for lack
of
standing to bring suit.’

[87] “Respondents’ position does not stand analysis. First,

the above decision is
not authoritative in the present context. Admittedly,
the Court of Milan holds
that the pretermitted shareholder that has no inter
est in buying the shares has no
standing to challenge the sale made in breac
h of its pre-emption right. It also
rules that such interest must be declared withi
n the time limit prescribed by the
by-laws to exercise the pre-emption right
, which starts running when the
pretermitted share holder gains positive knowledge
of the sale.
[88] What it does not say, however, is
that the sale made in violation of
we right must a pre-
be challenged within such time
limit. To the contrary, the
; sierra ok pretermitt
ed shareholder must be replaced
in a
“ quire the shareholding of the selling
gn exercising the shareholder
right of pre-emption’.
[89] “Mr. X’s lack of standing :
for failure to exercise his alleg
emption is the ed right of pre-
3 very argument that Claal i ma nt
Italia SpA raised in the Ita , Fir
i st Respondent
lian proceedings:
agar ae
72
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

‘Therefore, date B-31 marks the commencement of the 30-day period

envisaged by Art. 7 of the by-laws and within which shareholders could
exercise their rights of pre-emption. That period expired on date B-1
without Mr. X ever having manifested any wish to exercise the right of
pre-emption granted to him in the by-laws.’

[90] “However, the defending parties in the Italian proceedings did not argue,
as Respondents are doing now late in this arbitration, that Mr. X was foreclosed
from exercising his pre-emption right due to the elapse of the time limit set in
Company Z Italia SpA’s by-laws. The Italian appellate court, in its decision,
dismissed Mr. X’s summary proceedings on the grounds that he did not declare
his intention to avail himself of his pre-emption right, and not because he was
foreclosed from exercising his pre-emption right:

‘The fact that Mr. X complains that the company purchasing the shares did
not succeed in the shareholders’ agreement (the so-called MoU) entered
into among Company Z Italia’s shareholders is not relevant in this case in
point, according to the Judges, since he did not declare his intention to
avail himself of the right of pre-emption even in light of such complaints.’

[91] “Yet, and according to the decision relied upon by Respondents, such
intention may be declared in the writ of summons whereby the pretermitted
shareholder challenges the sale or even in a subsequent statement made within
the time limit for the exercise of the pre-emption right. Applying these principles
to this case, it thus appears that Mr. X could have manifested his intention to buy
Company Z Italia SpA’s shares until 30 days after his writ of summons.
[92] “Second, even interpreting the above decision as suggested by
Respondents, it is far from certain that Mr. X would be deemed foreclosed on
date B-1. As a matter of fact, as stated above, Respondents have not established
that the date B-1 letter from law firm G, to which the date B-31 share purchase
agreement was attached, was ever received by Mr. X. It is noteworthy that even
Respondents acknowledge the likelihood that the foreclosure was completed
later in the relevant year.
[93] “In light of the above, the Arbitral Tribunal comes to the conclusion that
Mr. X was not barred from exercising his pre-emption right on the Closing
Date.”

73
Yearbook Comm. Arb’n XXXV (2010)
 NO. 12745
R OF COMMERCE
INTERNATIONAL CHAMBE

6. Conclusion

“ itral Tribunal finds that the pre-emption right of Mr. X on First

pa he Company Z Ita
lia SpA had not been waived on the
Respondent's erest in
int

Closing Date.”

IGATION DE DELIVRANCE CONFORME)

IV BREACH OF DELIVERY OBLIGATION (OBL

the
oe “Claimant submits that First Respondent undertook to deliver not only
Holding’s shares, but also the shares in Company Z Italia SpA, themselves
providing effective control over a business having definite characteristics.
Respondents object that the shares in Company Z Italia SpA were duly delivered
before the Closing Date and that any promises made by Respondents as to
specific characteristics of the company were kept. However, Respondents’ first
defence is that, under French law, a share sale cannot be considered as a sale of
the business carried out by the company. Accordingly, the seller’s obligation to
deliver is limited to delivery of stock or, possibly, of a controlling interest in the
company.
[96] “Therefore, the Arbitral Tribunal shall first ascertain whether Claimant
may, as a matter of law, rely on a breach of First Respondent’s delivery
obligation in connection with the transfer of Company Z Italia SpA’s shares to the
Holding. Should the Tribunal answer positively this question, it shall then
determine whether First Respondent breached its delivery obligation.
[97] “Art. 1603 of the French Civil Code (FCC) provides that the seller assumes
two obligations, namely ‘celle de délivrer et celle de garantir la chose qu’il vend’. Art.
1604 of the FCC specifies that the ‘délivrance est le transport de la chose vendue en la
puissance et possession de I’acheteur’.
reg rade holds that the seller must deliver goods that fully conform
goal pursued by the purchaser (Cass. 1 civ., 20 March 1989, referred to
in Malaurie/Aynés/Gautier, Contrats Speciaux, 13th ed., Cujas,
Paris 1999, no
299, p. 215):
. wel

Atte ndu que |obligati

¢

obligation de délivrance
5]i ne consiste pas seulement a livrer ce qui a eté
conven u, maisis aa mettre a] la disposition de |
iti ‘acquéreur une chose qui correspond en
tous points au but par lui recherch
é.’

[99] “Asa
iivead ds.corollary,
oc: — seller breaches its delivery obligation when the goods
eet the specifications agreed upon by the
parties (J.
74
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Pallusseau, Note ad Cass. com., 12 December 1995, in [1996] 20 Recueil Dalloz

Sirey 278):

‘En revanche, constitue une inexécution de |‘obligation de délivrance conforme la

non-conformité de la chose vendue aux specifications convenues entre les parties, aux
specifications contractuelles. Le vice [caché] s’apprécie par rapport a la destination
de la chose, et la non conformité par rapport au contrat. La delivrance d’une chose
différente de celle convenue au contrat constitue une violation de |‘obligation de
delivrance conforme.’

[100] “It is unquestionable that, in the instant case, the ‘chose vendue’ was the
Holding’s shares. Clause 2.1 of the SPA provides that (emphasis added):

‘2.1.1 Upon the terms and subject to the conditions of this Agreement
(including in particular the conditions precedent set out in Clause 4), the
Seller shall, with effect as at the Closing Date, sell to the Purchaser all of
the shares in the Company (the ‘Shares’) and the Purchaser shall, with effect
as at the Closing Date, purchase or have the Substituted Purchaser
purchase, all of the Shares from the Seller.’

The term ‘Shares’ is defined at Clause 1.1.1 of the SPA (Definitions) as ‘all of the
shares in the Company, existing as at the Closing Date, which will be sold by the
Seller to the Purchaser under this Agreement, as referred to in Clause 2.1’ (emphasis
added). Moreover, item 4 of the recitals specifies that “(t)he Seller wishes to sell
to the Purchaser and the Purchaser wishes to purchase from the Seller all of its
shares in First Respondent upon the terms and subject to the conditions set out in
this Agreement (said transfer and all the ancillary transactions set forth in this
Agreement altogether are referred to as the “First Respondent Transaction”)’
(emphasis added).
[101] “It is likewise undisputable and undisputed that, on the Closing Date, First
Respondent transferred 100% of the Holding’s shares to Claimant.
[102] “However, although the parties did not resort to a so-called ‘asset deal’, in
which specific assets of the target company are transferred, individually or as a
whole, to the purchaser, but to a so-called ‘share deal’, whereby the purchaser
acquires a controlling interest in the target company, the ultimate purpose of the
transaction set up by the parties was the transfer to Claimant of the advertising
business run by the First Respondent Subsidiaries. Therefore, the issue is
whether contractual representations made by Respondents in relation to the
substance of the business transferred should be taken into consideration when
determining whether First Respondent fulfilled its obligation to deliver.

Yearbook Comm. Arb’n XXXV (2010) 75

 OF COMMERCE NO. 12745
INTERNATIONAL CHAMBER
great
tro ver sia l issu e, whi ch has given and wage eC a
[103] “This is a con : gi
In sev era l dec isi ons , Fre nch courts indee
deal of debate. n requeste to
consideration to the substa
nce of the business transferred whe
take of the purchaser. perenne,
invalidate share sales for a fundamental mis sation eld (Cass.
French Cour de Cas
in a decision of 17 October 1995, the
6, 12th Cahier, p. 167):
com., 17 October 1995, in Recueil Dalloz Sirey, 199

traité si elleavait
‘Mais attendu qu’ayant retenu que la Sté Novopac n’aurait par
immobile dela
connu I’indisponibilité du matériel constituant I’essentiel de | actif
té ad a défaut
Sté APS, sans laquelle I’entreprise ne pouvait avoir aucune activi
e que vette
duquel l’acquisition perdait toute substance, la cour d ’appel a pu déduir
erreur, portant sur les qualites substantielles des parts sociales objet de la cession
litigieuse, entrainait la nullité de la convention....
/ ° ,

[104] “In the wake of the above decisions, an author has suggested that the seller’s
delivery obligation could encompass the purchaser’s expectations as to the
underlying assets or business (J. Pallusseau, Note ad Cass. com., 17 October
1995, in [1996] 12 Recueil Dalloz Sirey 167, 171; see also J. Pallusseau, Garantie
de I’acquéreur du contréle, in La prise de controle d’une societé, RJ Com. 1998, no. 44,
poss):

‘On I’a déja observe, assez curieusement personne n’a songé a appliquer I’obligation
de delivrance a la cession de controle. Or, si on la soumet au droit de la vente, on
ne voit absolument pas pourquoi, ni sur quel fondement, on exclurait |‘obligation
de délivrance de parts sociales ou d’actions des lors qu'on lui applique les autres
dispositions du droit de la vente.
L’obligation du vendeur de délivrer a 1‘acquereur une chose conforme a ce qui a
eté convenu convient trés bien a la cession de contréle. En effet, dans le protocole de
cession, les caracteristiques des parts sociales ou des actions cédées sont generalement
décrites par rapport a la réalité socio-économique de la société.’

[105] “At any rate, on 12 December 1995, the Cour de Cassa

tion nullified a
decision of the Colmar Court of Appeal, which had held that
the purchaser of
100% of the share capital of a company could rely upon the
seller’s warranty for
hidden defects in relation to a defect affecting
the hotel operated by the
company. The rationale of this decision is that the
extension of the scope of the
seller’s obligation to deliver to encompass
the substance of the business
transferred by operation of the share sale presu
pposes that one disregards the
basic principle that a corporate body and its
shareholders or parent compan are
separate and independent entities (Y. Guyon
, Note ad Cass. com., 12 emelell

76
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

1995, in [1996] JurisClasseur ed. No 111513; [1996] 12 Recueil Dalloz Sirey,

277):

‘L’arrét commenteé est une nouvelle application de la position tres ferme de la

chambre commerciale en matieére de personnalité morale. La Haute juridiction estime
que la sécurité dans les relations juridiques implique le rejet des théories qui, se
fondant sur la prise en compte des pretendues réalités économiques, méconnaissent
l’existence et les conséquences de la personnalité morale des sociétés.
(598:
Cette position doit étre approuvee car la personnalité morale, qui fait l'objet de
mesures de publicité, constitue une apparence aisément verifiable. Au contraire, il
est beaucoup plus hasardeux de prevoir les conséquences qui résulteront d’un lever
eventuel du voile de la personnalité morale.
(32%)
La personnalite morale est peut-étre une fiction, c ’est-a-dire selon la‘formule de
Geny, une alteration voulue du réel conduisant a des résultats utiles.... Mais rien
n oblige a constituer une société ou a acquerir des droits sociaux plutot que des actifs.
Si l’on fait ce choix, ilfaut en accepter les conséquences. '

[106] “It is true that the reasons of the above decision suggest that, under specific
circumstances, the seller’s warranty for hidden defects could apply to a share sale
(Cass. com., 12 December 1995):

‘Attendu qu’en statuant ainsi, alors que la non-conformité des locaux aux normes
de sécurité ne constituait pas un vice affectant les actions cédées des lors que la
société Hotel de |’Esplanade a pu, en engageant des dépenses supplementaires,
continuer a exercer I’activité économique constituant son objet social, la cour d’appel
a violé le texte susvisé.’

[107] “However, to date, the French Cour de Cassation has not followed this
route. As French legal authors confirm it, in the current state of French case law,
the purchaser of a controlling interest in a company may not rely on a breach of
the seller’s obligation to deliver in relation to such company’s underlying assets
(Malaurie/Aynes/ Gautier, op. cit., no. 304, p. 218):

‘Une cession de droits sociaux (par ex.: des parts sociales), ne constitue pas, selon la
jurisprudence dominante, la vente des biens faisant partie de D actif social de la
société (par ex. un immeuble dans une S.C.]., ou un fonds de commerce exploité par
une société), méme si la cession confére au cessionnaire le contréle de la societe (et
. : . A ~/ /
oJ / A .

donc la maitrise de I’immeuble ou des fonds de commerce).’

av
Yearbook Comm. Arb’n XXXV (2010)
 MMERCE NO. 12745
CHAMBER OF CO
INTERNATIONAL
oach and
Fr en ch co urt s ten d to adopt a restrictive appr
that
[108] “It thus appears a t a co rp or at e body and its shareholders
are
prin ci pl e th
to strictly enforce the es. In the case at hand, the
‘actif social’ of the
de pe nd en t le ga l ent iti
separate and in Quite to the
li mi te d to th e sh ar es of Compan yZ Italia SpA.
Holding is not in various
ld in g ac qu ir ed pr io r to the Closing Date participations
contrary, the Ho
subsidiaries.
to the obj ect ion der ive d from the above principle, one may
[109] “In addition obligation are
fora breach of the seller’s delivery
wonder whether the remedies er has made
where, as in the pr esent case, the sell
at all available to the purchaser t,
ties of a similar scope. In this respec
contractual representations and warran remedies or
that a purchaser may rely on the
even authors who take the stance
bre ach of the sel ler ’s del ive ry obl iga tion in relation to a share sale appear to
a ranties to the
e of contractual war
consider that this is only possible in the absenc
s taken as merely characterizing
same effect, unless such contractual warrantie are
cit., no. 32, p. 51):
the seller’s delivery obligation (J. Pallusseau, op.
poser des problemes
‘On le voit, les garanties conventionnelles ne sont pas sans
quand il n’y
importants et donc une certaine insécurité. De plus, que peut-on faire
s? La
a pas de garanties conventionnelles ou qu’elles sont obscures ou insuffisante
solution n’est-elle pas de rechercher dans le droit de la vente des mécanismes de
protection de ]"acquéreur?”

And further (Ibid., no. 40, p. 53):

dire: — que les déclarations et affirmations du cedant dans

;Ala limiite, on pourraitit dire:
‘

d garantie
ga l conventionnelle
1 actuelle ne constituent rien d’autre que ]‘aménagement
conventi onnel deI’
’ obligation
obligati de délivrance
3]i conforme (sous I’étiquette “garantie’)....’

110)“ | Reta
Hi ciosi.eecin ‘Tribunal s opinion, there are however conceptual
pears Zi ee Significantly, if the legal warranty did bear upon the
'
of a cor ti in this regard
would be unnecessary. poration, the contractual representations
‘
ba .

re above considerations, the Arbitral Tribunal finds that

1 1 1

tid ae
ike ri 7. on an alleged breach of First Respondent’s obligation to
delves ponte ets ines aed First Respondent effectively failed to
s sha
stage. Consequently, the pea colitis alleedismiss pd
Claim——. motionta that
ant’s ah ar
‘Company Z Internati ional failed to deli :
effective control over Company Zielissan aude (through the Holding)

78
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

V. BREACH OF THE OBLIGATION TO WARRANT TITLE TO THE GOODS SOLD

(GARANTIE D’ EVICTION)

ase
[112] “Claimant argues that First Respondent’s failure to provide a valid waiver
of Mr. X’s pre-emption right on its shares in Company Z Italia SpA enabled him
to challenge in court the Holding’s title to such shares. Hence, the argument
follows, Company Z Italia SpA’s shares were not transferred free of any liens.
According to Claimant, that constitutes a breach of both the seller’s obligation
to warrant title to the goods sold (‘garantie d’éviction’) and of specific contractual
representations made by Respondents. Respondents’ primary objection is that
Claimant may not avail itself of the statutory garantie d’éviction, which would not
apply to the shares in Company Z Italia SpA.
[113] “The Arbitral Tribunal has found above that Mr. X’s pre-emption right was
not properly waived on the Closing Date. Therefore, the Arbitral Tribunal shall
now first ascertain whether Claimant may, as a matter of law, rely on the garantie
d’éviction. It shall then determine separately whether such facts also amount to a
breach of the contractual representations made by Respondents.
[114] “Under French law, further to its obligation to deliver the goods sold, the
seller assumes two main obligations. The first one is to warrant title to these
goods (‘garantie d’éviction’) (Arts. 1625 and 1626 of the FCC) and the second one
is to warrant that these goods are free of defects. It is common ground between
the parties that the garantie d’éviction covers encumbrances resulting both from
personal actions of the seller and third party claims, and that the present case is
only concerned with the latter situation.
[115] “In relation with third party claims, the scope of the seller’s warranty
obligation is however restricted to legal actions (‘troubles de droit’) the origin of
which already existed before the sale (Malaurie/Aynes/ Gautier, op. cit., no.
355, p. 246):

‘La garantie que le vendeur doit a l’acquereur contre les tiers a un domaine plus
restreint: l’acquéreur n’est pas un incapable, le vendeur n’est pas son tuteur. Aussi,
la garantie suppose-t-elle que le trouble avait une cause antérieure a la vente, et
surtout, que le trouble soit un trouble de droit.
D’une part, le vendeur ne garantit pas les évictions dont la cause est postérieure
a la vente. La garantie suppose une faute du vendeur, c’est-a-dire que la cause
d’éviction doit étre antérieure a la vente.
D’autre part et surtout, le vendeur ne doit pas non plus garantir l’acquereur
contre les troubles de fait provenant des tiers. I] ne doit protéger l’acquéreur contre
les tiers que sil y a eu un trouble de droit antérieur a la vente....’

yb
Yearbook Comm. Arb’n XXXV (2010)
 ERCE NO. 12745
CHAMBER OF COMM
INTERNATIONAL
on a
ut ed an d un di sp ut ab le that Claimant —
[116] “In this case, it
is undisp ew ae "
h ex is te d be fo re th e =
in of whic
trouble de droit, the orig res in Co mp an y Z Italia Sp 20 nd.
fected the sha
such trouble de droit af we re not the subject matt
er : . : ~
by Re sp on de nt s,
correctly pointed out ie d’éviction Owe
y Fir
whether the garant
The question is therefore
ying assets.
lies to the Holding’s underl 8]]),
As noted above (see supra [at [10
ns wei is undoubtedly peers ly enforce the legal
trictive approach and to strict
French courts tend to adopt a res ers. As a
en ce exi sti ng be tw ee n a cor porate body and its sharehold
independ Paris, First
al aut hor exp res ses it (J. -J. Daigre, Commentary of CA
French leg mber 1999, pp.
Bull. Joly Societés, Dece
Chamber, Sect. A, 28 June 1999, in
1184-1185):
s sociaux et le patrimoine social,
‘Pour autant, il y a un lien évident entre les droit
intérét que de permettre d’exercer un
l’acquisition des premiers n’ayant aucun autre
omiques. Ce que l’on achete, en
pouvoir sur le second et d’en tirer les utilités écon
, et un pouvoir, sur les actifs de
acquerant des droits sociaux, c’est un bien, les titres
la société.
générale. Des lors,
Mais ce pouvoir est considéré abstraitement et de maniere
par principe. Ce
quelle que soit la composition du patrimoine de la société, il existe
itation,
n’est donc que lorsque la société est en réalité démunie de tout moyen d ’explo
r est
soit pour des raisons matérielles, soit pour des raisons juridiques, que le pouvoi
atteint parce qu’il y a défaut absolu. Ce n’est qu’en cette hypothese que la cession
manque son objet et peut étre annulee.
D’ou Ia position manichéenne de la jurisprudence: tant qu'il y a une possibilite
de poursuivre ou de relancer I’activité ou d’accomplir l'objet social, les titres
conférent le pouvoir de principe auquel ils permettent de prétendre. Qu’il presente
plus ou moins d’intérét par rapport a ce qu ‘il était précedemment est indifferent, au
moins dans la conception juridique actuelle.’

[118] “There is however an exception to the above principle. Thus, the Paris
Court of Appeal has ruled that the garantie d’éviction could be relied upon in
relation to the underlying assets of a company in circumstances where the
achievement of the corporate goal appears to be definitely compromised (CA
Paris, First Chamber, Sect. A, 28 June 1999):

Mais considérant que, s’agissant d’une cession d’actions, le principe de la

‘ @ ,

personnalite morale fixé par I’Article 5 de la loi du 24 juillet 1966 S'oppose a ce

er reconnu a I’ associé un quelconque droit de propriété sur les actifs sociaux;
qu il s’ensuit que'la garantie d’éviction ne peut jouer que dans les cas ow I’éviction

80
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

trouble l'objet méme de la vente, c’est-d-dire l’usage des droits sociaux vendus, ce
qui suppose que la poursuite de I’activité sociale ou la réalisation de l'objet social
s’averent impossibles....’

[119] “One should therefore find out whether Mr. X’s challenge of the validity
of the transfer of Company Z Italia SpA’s shares to the Holding made it
impossible for the latter to achieve its corporate goal.
[120] “This does not seem to be alleged by Claimant. Rightfully. The scope of the
transaction concluded between the parties was not restricted to the Italian
subsidiaries, but encompassed 24 subsidiaries located in 13 countries (see
Schedule A to the SPA). Therefore, the mere fact that Mr. X challenged in court
the validity of the transfer of the shares in Company Z Italia SpA was not up to
prevent[ing] the Holding from carrying its corporate goal. For this reason, the
garantie d’éviction does not apply to the transfer of the shares in Company Z Italia
SpA.
[121] “There is one further objection that disposes of Claimant’s reliance on the
garantie d’éviction. Under French law, eviction stricto sensu is suffered only once
the third party claiming title to the goods sold has succeeded in court
(Malaurie/
Aynes/ Gautier, op. cit., note 9, no. 356, p. 247):

‘En son sens strict, l’éviction est une deéfaite en justice, la perte d’un droit par un
jugement: elle suppose que |’acheteur est condamné en justice a deélaisser tout ou
partie de la chose vendue au tiers qui Ta poursuivi en justice. ;

[122] “While it is true that French courts have slightly tempered the above rule
by holding that eviction could exist even without a final judicial adjudication, it
remains that the third-party claim must be indisputable and that the purchaser’s
fears of an eviction must be legitimate (ibid.):

‘Un premier élargissement s’est produit; écartant un légalisme excessif, la

jurisprudence a admis que I’eviction pouvait exister meme en I’absence de jugement:
la garantie est engagée lorsque le tiers a engage une procedure contre |’acquereur,
que sa prétention est incontestable et qu’il existe donc pour I’acquereur un juste sujet
de craindre une eviction.
é ° ‘ ]

[123] “The Italian court dismissed the action initiated by Mr. X in summary
proceedings, holding that:

‘ .. the preliminary exception raised by all three defendants with regard to

Mr. X’s lack ofinterest in starting an action in order to achieve a judgment

Yearbook Comm. Arb’n XXXV (2010) 81

 COMMERCE NO. 1 2745
INTERNATIONAL CHAMBER OF

issue, seems to be
nd/or ineffectiveness of the transfer deed at
of nullity a to have judicially declared the:
ded. Indeed, the shareholder’s power
made in breach of his
oe nis or ineffectiveness of the transfer deed,
nullity med at the application : of
i = tion, seems to be exclusively ai
mr ee possible juridical situation; consequently, the wee
enting ' e
started by the shareholder cannot be merely aimed at prev
purchaser from entering the corporate structure... Inthis case in point,
not only has the plaintiff never requested the transfer in his favour of the
shares purchased from First Respondent Holding/ Claimant on the terms
of purchase effected by the latter, but also he has never showed his
intention to purchase them on such condition, hor ever declared that he
intends to purchase them on the same conditions.

This ruling was upheld by the Italian appellate court:

‘The fact that Mr. X complains that the company purchasing the shares did
not succeed in the shareholders’ agreement (the so-called MoU) entered
into among Company Z Italia’s shareholders is not relevant in this case in
point, according to the Judges, since he did not declare his intention to
avail of the right of pre-emption even in light of such complaints.
(is8)
If one admits that the shareholder may consider the transfer of shares, of
which he was aware, as null, due to a breach of the pre-emption right,
though the same has not been exercised, such reference would be an
exercise of a mere clause of approval, i.e. the power to censure or not a
transfer where the transferor does not meet its approval, neither provided
for in the corporate agreement nor claimed.
Gos)
uch remarks enable the Judges to conclude that the “fumus boni
iuris” of
the claim filed by Mr. X does not exist and, there
fore, the measures
invoked in the claim may not be accepted.’

[124] “Although this decision does not prejudge

of the outcome of Mr. X’s legal
action on the merits, it does suffice, in the Arbi
tral Tribunal’s opinion, to
conclude that Mr. X’s claim could not be deemed
undisputable and of such a
nature as to justify legitimate fears of éviction on the part of Clai
the Arbitral Tribunal shall dismiss mant. Therefore
Claimant’s claim that First Respon
breached its obligation to warrant title to the goods sold and Responde dent
nts’ claim
that the proceedings be stayed pendi
the out ;
before the Italian oaiee yee bending the outcome of Mr, X's legal proceedings

82
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Vi. BREACH OF REPRESENTATIONS AND WARRANTIES

[125] “Based on the same premise that Mr. X’s pre-emption right was not
properly waived on the Closing Date, Claimant has alleged that First Respondent
breached its obligation to warrant title to the goods sold and that Respondents
breached certain contractual representations. The Arbitral Tribunal has found
above that, as a matter of law, Claimant may not avail itself of the garantie
d’eviction. It shall now determine whether Respondents breached certain
contractual representations regarding Company Z Italia SpA’s shares....
[126] “Claimant maintains that the non-waiver of Mr. X’s pre-emption right on
the Closing Date constitutes a breach of contractual representations and
warranties made by Respondents.
[127] “Claimant first relies on Art. 5 of the share purchase agreement between
First Respondent and the Holding, which stipulates as follows:

‘Pursuant to the agreement (“accordo”) entered into by the Seller and Mr.
X, all pre-emption rights and standstill commitments have been waived,
so that the Shares are freely transferable.’

The above provision is of no avail to Claimant, which is not party to the

Holding/First Respondent share purchase agreement. Whilst Claimant could
have caused the Holding — which it now controls — to rely on this agreement and
to enforce it against First Respondent, it has not chosen this specific course of
action.
[128] “This being said, a similar representation was made in Art. 4.1.6 of
Schedule 8 to the SPA:

‘The Company [the Holding] has full, valid and exclusive ownership of the
shares and securities in the First Respondent Subsidiaries as listed in
Disclosure Schedule 4.1.6. Except as stated in Disclosure Schedule 4.1.6, these
shares and securities have not been redeemed and they are free and clear
of all Liens. These shares and securities represent the percentages of
capital, voting rights and dividend rights in each of the corresponding
companies as stated in Disclosure Schedule 4.1.6.’ (emphasis added)

It is undisputable — and undisputed - that the above representation directly

applies to the shares in Company Z Italia SpA, which was one of the ‘First
Respondent Subsidiaries’ (see Schedule A to the SPA).
[129] “It remains to be determined whether, on the Closing Date, the Holding
actually had full, valid and exclusive ownership of Company Z Italia shares, being

Yearbook Comm. Arb’n XXXV (2010) 83

 CE NO. 12745
INTERNATIONAL CHAMBER OF COMMER

the conclusion of the Holding/First

reca lled that, according to Claimant itself,
hip of
R espon dent share purchase agreement was sufficient to transfer owners
hares to the Holding. Sercteryes
mer “Both parties appear to agree that a sale made in violation of a pre-emption
to by both parties,
right is subject to subsequent annulment. In a case referred
the Court of Milan thus held that:

‘But the shareholders also have standing to protest against the transfer of
a company shareholding made by a fellow shareholder in breach ofthepre-
emption clause, since this breach involves an infringement of the individual
right-interest to be preferred to third parties in the purchase of the
shareholding that the fellow shareholder intends to transfer. It is thus a
question of establishing which civil law sanction should follow the
infringement of this right. Since the real effect (according to the prevailing
and preferable opinion) of the pre-emption clause contained in the by-laws
involves:

(i) its enforceability also against third party purchasers and

(ii) the limitation of the power of the shareholder to freely dispose of his
shareholding

it follows that a breach of it does not lead to the nullity (herein prevented
by (a) the fact that nullity applies solely in case of a breach of the
mandatory rules of law and not also contractual agreements, and (b) the
consideration that the lack of power can only be asserted by the transferor
and not also by third parties) but rather to the ineffectiveness of
the
transfer agreement, ineffectiveness that the shareholders can
legally assert
before courts.’

[131] “In this case, Respondents failed to properly

cause Mr. X to waive his pre-
emption right. As a result, on the Closing Date,
there was a possibility that Mr.
X would challenge the sale of Company Z Italia
SpA’s shares to the Holding
(which actually happened) and that such sale
be declared ineffective (which may
still happen).
[132] “Therefore, the Arbitral Tribun
al finds that, on the Closing Date
Holding had not full, valid and exc , the
lusive ownership of Company Z
shares. Italia SpA’s
[133] “For the same reason
» Company Z Italia SpA’s shares may not
to have been sold ‘free be deemed
a nd clear of all Liens’ on the Clo
by Respondents. sin g Date as represented

84
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

[134] “In the Black’s Law Dictionary, ‘lien’ is defined as a ‘charge or security or
encumbrance upon property’ (Black’s Law Dictionary, 5th ed., West, p. 832).
In turn, the term ‘encumbrance’ is characterized as a ‘claim, lien, charge or
liability attached to and binding real property’ (Ibid., p. 473). Be it as it may, the
parties had a farther-reaching common view of the ‘Lien’ which, according to
Clause 1.1.1 of the SPA includes among others any ‘security interest, mortgage,
lien, pledge, charge, encumbrance, easement, claim, privilege, covenant,
agreement, option, undertaking, retention of title clause, limitation or restriction
of any kind, right of first offer, right of pre-emption or other third party right,
that has the purpose or the effect of restricting in any manner the ownership, use
or transferability of any asset, right or security’. Obviously, the pre-emption
right of Mr. X constituted such an encumbrance on the Holding’s ownership of
Company Z Italia SpA’s shares.
[135] “Itremains to assess the bearing on Respondents’ liability of the disclosures
made by Respondents prior to contracting.
[136] “Representations are usually drafted in general terms and exceptions to
them are often agreed upon by the parties and recorded in disclosures. For
example, when the seller is asked to represent that a company is not affected by
any legal dispute but this is not true, then, instead of amending the terms of the
general representation, the seller will disclose details of all relevant disputes. If
the buyer accepts the disclosure, it will operate to exclude the seller’s liability
under the general representation in respect of the specific disputes disclosed.
[137] “The effect ofa disclosure on Respondents’ liability is determined in Clause
8.1.3 of the SPA:

‘8.1.3 All Representations and Warranties (except for the Z Contribution)

are made subject to any matter which is disclosed in Schedule 8 or any of
the Disclosure Schedules or in Part A of the Disclosure List, and the
Guarantor shall thus not be liable in respect of any Claim (except for the
Company Z SA Contribution) to the extent that the relevant actions, facts
or events giving rise to the Claim were disclosed in Schedule 8 or any of
the Disclosure Schedules or in Part A of the Disclosure List. Any disclosed
matter shall limit the contents and scope of such Representations and
Warranties (except for the Z Contribution) to the extent that such matter
has been properly disclosed in the Disclosure Schedule (contents and,
where applicable, amount) or in Part A of the Disclosure List.’

[138] “In the instant case, both the MoU and the Accordo were shown to Claimant
in the Data Room. The MoU and the Accordo were also listed in Part A of
Schedule 1.1.1.(b2) ‘Disclosure List’ to the SPA entitled “General Exceptions to

Yearbook Comm. Arb’n XXXV (2010) 85

 NO. 12745
R OF COMMERCE
INTERNATIONAL CHAMBE

2? ee Pe m os ist’ is preset the SPA as

ined
defin
the Representations _ ———
ac i OE ) E ntsto sthe Representations and Warranties’ (Clause 1.1.1 of

facts or events’ giving rise

: isthus undisputable that ‘the relevant actions,
to contracting, Hence, Company
to Claimant’s breach claim were disclosed prior
representation that, on the
Z Italia SpA should be excluded from the scope of the
exclusive ownership of the
Closing Date, the Holding would have full, valid and
shares in the First Respondent Subsidiaries.
ndents had
[140] “This is the conclusion that one should have reached if Respo
such a case,
only disclosed the existence of Mr. X’s pre-emption right. In
claim
Claimant would certainly be barred from advancing a breach of warranty
in relation with Company Z Italia SpA’s shares. However, Respondents went far
beyond that. Not only did they disclose the MoU, but also the Accordo, from
which Claimant could legitimately infer that Mr. X’s pre-emption right would
be waived on the Closing Date.
[141] “Respondents also confirmed that an agreement had been entered that
provided for the waiver of such right (see Disclosure Schedule 4.1.6 to the SPA
(‘Shareholdings’)):

‘Anew Memorandum of Understanding (“Accordo”) has been entered which

provides for the waiver of X’s pre-emptive rights (copy attached hereto).’

Besides, it is noteworthy that the Holding’s ownership of the shares in the First
Respondent Subsidiaries was not only represented by Respondents, but also
given the status of a condition precedent to Claimant’ s obligations under the SPA
(Clause 4.2.4). As stated above, the fact that Claimant nevertheless closed the
transaction is irrelevant. As a matter of fact, the above disclosure gave Claimant
the necessary comfort that, on the Closing Date, this condition would be
fulfilled. At the hearing, Mrs. L [of Company GH]] confirmed that, in Claimant’s
mind, the waiver of Mr. X’s pre-emption right was taken for granted:

— Non, = oe est non. D’apres mon souvenir, j’ai di participer, je

‘omg d une premiere reunion d introduction avec la personne qui avait
conduit la
negociation dans le mois qui précédait, puis, a la deuxiéme
réunion, au début de
cette reunion M. Vest venu en nous disant: cela y est, nous
avons un accord avec M.
X, c’est bon, donc il n'y a plus de souci du cété
de I’Italie.
aipense que cest un des seuls moments dans ces réuni
ons de négociation ou le
point a ete évoque, il nous a indiqué qu’ilavait eu
une réunion dans la semaine avec
qu il avait signé un accord avec lui qui levait les
M. X et ui : ° /

éléments concernant les

: .

86
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

problemes que l’on pouvait

\

avoir liés a cet actionnaire

, e e

minoritaire
.

mais trés
P a a ° ° .

significatif. :

[142] “Art. 1582 of the FCC defines a sale as the agreement whereby a party
agrees to deliver a good and the other party to pay for that good. As a matter of
French law, the seller will transfer title to the good sold and will have to comply
with ancillary obligations such as the delivery (Art. 1604), warranties against
eviction (Art. 1626 et seq.) or defects (Art. 1641 et seq.). Moreover, Art. 1602
of the FCC calls upon the seller to explain clearly to what he agrees to oblige
himself:

‘Le vendeur est tenu d ’expliquer clairement ce a quoi il s oblige. Tout pacte obscur
et ambigu s’interprete contre le vendeur.’

[143] “This is quite to the point. In so-called M&A transactions, the seller knows
that the buyer intends to purchase an interest in a company and not a litigation.
Even without interpretation to the expense of the seller as directed by Art. 1602
of the FCC, it seems clear that the disclosures made by Respondents gave the
necessary comfort that Mr. X would have validly waived his pre-emption right
and thus would not exercise such right. What Respondents are guaranteeing is
precisely that Mr. X will not call the validity of the sale of Company Z Italia
SpA’s shares into question. In other words, it was Respondents’ obligation to
avoid any loopholes that Mr. X could use, possibly with a certain amount of bad
faith, to jeopardize the acquisition. Therefore, Respondents may not take refuge
behind disclosures to disclaim their liability.
[144] “In light of the above, the Arbitral Tribunal finds that Respondents
breached the representation made in Art. 4.1.6 of Schedule 8 to the SPA.”

Vil. OTHER BREACHES

bax<)
J, Seller’s Obligation to Manage as a ‘Bon Pere De Famille’

[145] “Clause 6.3 of the SPA reads as follows:

‘6.3.1 Between the date of this Agreement and the Closing Date, the Seller
shall, and shall cause the Company and each of the Subsidiaries to conduct
their respective business only as a bon pere de famille in the ordinary course
of business, except as may be requested by the Purchaser or contemplated

Yearbook Comm. Arb’n XXXV (2010) 87

 OF COMMERCE NO. 12745
INTERNATIONAL CHAMBER

: is Agreement and to e its commercially

us
reasonable efforts to
: ; : :
in this Ag ine ss an d the relationships with employees,
e bus
preserve their respectiv |
|
<pp lie rs and cus tom ers .
and until the Closing
sh Seller undertakes from the date hereof
Date:

ied that
(a) to provide adequate funding to the Subsidiaries, it being specif
de €
the Seller has already provided € ... at the date hereof and shall provi
_ within the five (5) days following the date hereof; for indicative
purposes it is also specified that the funding requirement is estimated to be
€ 6,211,000 for the First Respondent Subsidiaries between ... and date B,
and
(b) to obtain prior approval of the Purchaser on the terms pursuant to
which any funding (other than incurred in the ordinary course of business)
is to be provided by the Company to any Subsidiary and in particular the
repayment of bank loan or the recapitalization of any Subsidiary.’

[146] “The parties have conflicting views of the following three issues that arise
out of this provision:

(i) the time range of First Respondent’s obligation to fund Company Z Italia SpA;
(ii) the contents of such obligation; and
(iii) whether Company Z Italia SpA’s funding needs were met.

The Arbitral Tribunal shall address these issues in turn.”

a. Time range of obligation

[147] “Pursuant to Clause 6.3.2(i) of the SPA, First Respondent undertook
to
fund the First Respondent Subsidiaries ‘from the date hereof
and until the
Closing Date’. Accordingly, First Respondent’s obligation was
clearly limited to
the period starting on the date of the SPA and termin
ated on the Closing Date,
i.e. date B-2.
[148] “Claimant’s submission that First Responde
nt’s obligation to provide
adequate funding to the First Respondent Subsidiari
es started in two months
before already is groundless. This submission
is based on the answer given by an
employee of the Bank, a Respondents’ advi
sor, to a question raised by Company
GHI two months before the date
of the SPA:

oT 2 “$If... the current sha

reholders of First Respondent ... reac
a formal and binding agreement by h
the deadline stated in your offer
letter
88
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

for the sale of the Target companies, the Vendors will take all necessary
steps to make sure that the operations of the Target companies are funded
until the Closing. Ifno agreement can be reached within this deadline, the
current shareholders of First Respondent will consider all the other options
available, including resuming the sale process of First Respondent’s
subsidiaries on a country by country basis.’

[149] “Nothing else can be inferred from this general statement made during the
negotiations of the SPA than the sellers’ accord in principle to fund the First
Respondent Subsidiaries between the date of the conclusion of the agreement
formalizing the transaction and the Closing Date. In particular, this statement
may not be interpreted as the sellers’ undertaking to fund the subsidiaries as of
two months before the SPA. As a matter of fact, the Bank makes it clear that any
such undertaking shall start in that month ‘[i]f... the current shareholders of First
Respondent ... reach a formal and binding agreement by a date in that month’.
In any event, even giving to the above statement the meaning Claimant wants to
ascribe to it, First Respondent’s undertaking would have been superseded by
Clause 6.3.2 of the SPA. As a matter of fact, Clause 12.8.2 of the SPA clearly
specifies that the SPA ‘replaces and annuls any agreement, communication, offer,
proposal, or correspondence, oral or written, exchanged or concluded between
the Parties relating to the same subject-matter’.
[150] “Therefore, the Arbitral Tribunal reaches the conclusion that First
Respondent’s obligation to fund Company Z Italia SpA began on the date the SPA
was entered into and ended on the Closing Date.”

b. “Adequate funding”
[151] “The parties have also conflicting views on the meaning of the expression
‘adequate funding’ , i.e. on the very contents of First Respondent’s undertakings.
Claimant attempts to confer an extensive interpretation to this expression. It thus
argues that First Respondent undertook to provide Company Z Italia SpA ‘with
sufficient working capital in order to allow it to maintain its portfolio of supplier
agreements until the Closing’ (fn. omitted) or ‘with sufficient funding until
Closing Date in order to allow it to preserve its business’ (fn. omitted). Claimant
appears to consider that First Respondent had to make up for Company Z Italia
SpA’s indebtedness at Closing Date (fn. omitted). Respondents appear to
consider that their obligation was limited to the payment of the € 3.5mio loan
recorded in the Accordo.
[152] “The SPA does not define ‘adequate funding’. However, the intention of
the parties may be ascertained both from the nature of the business operated by
Company Z Italia SpA and from the parties’ conduct prior to the negotiations.

89
Yearbook Comm. Arb’n XXXV (2010)
 OF COMMERCE NO. 12745
INTERNATIONAL CHAMBER

et in
It is common ground betwee
n the parties that a characteristic of the mark
ch advertising
operators, from whi
hich Company Z Italia SpA operates is that
st customers which buy such space
re is purc:hased, are paid in advance, whil
space
ertisement is actually shown. This
defer payment unti | the time at which the adv
relevant field of
in the operatin cycle means that companies active in the
S her liquid“assets to
cians kee have an enhanced need of cash and ot on
d in a. berms,
finance their everyday running of the business or, expresse
a high need of working capital. This is a first hint that adequate fun ing was
al,
intended to make up for Company Z Italia SpA’s chronic lack of working capit
i.e. to enable it to meet its current obligations. In this respect, it is noteworthy
that shareholders’ loans, together with suppliers credit, bank overdrafts or lines
of credit, are one of the mains sources of working capital.
[153] “The answer given by the Bank to questions raised by Company GHI at the
time the parties negotiated the SPA — upon which Claimant relied in support of
its affirmation that First Respondent undertook to fund Company Z Italia SpA as
of the month of the Accordo — confirms that ‘adequate funding’ was considered as
the financial support needed by Company Z Italia SpA to meet its short-term
obligations: ‘the Vendors will take all necessary steps to make sure that the
operations of the Target companies are funded until the Closing’. It is
noteworthy that the funds to be made available by First Respondent were not
intended to reduce or cancel the indebtedness of the First Respondent
Subsidiaries, which was to be repaid as part of the post-Closing adjustments.
[154] “Finally, Claimant has argued that the cash crisis encountered by Company
Z Italia SpA was the result of First Respondent’s decision to divest itself of its
Italian subsidiaries and the resulting withdrawal of its financial support. This may
well be the case. However, these considerations are completely irrelevant in the
present context. Claimant knew what was Company Z Italia SpA’s financial
standing at the time it decided to proceed with the acquisition
of the First
Respondent Subsidiaries. It knew in particular that, due to the specificities
of the
market in which it was operating or to an inappropriate
capital structure,
Company Z Italia SpA was regularly incurring cash shortfalls,
which were
compensated by First Respondent’s financial support.
[155] “This is precisely the reason why the parties agreed
to introduce a specific
clause in the SPA providing for the seller’s obligation
to fill in for Company Z
a
Itali SpA’s cash needs until the Closing.
Mr. E:

The message Coming out from the Ital

ian business was consistent with the
ae that was going out from
some of the other target compan
which was that there was an imm ies,
ediate funding issue. So clearly
back and discussed this with my col I went
leagues and bosses at Company DEF
.
90
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Clearly this changed things significantly for us in a sense at the time,

because it was a real issue that needed to be addressed. And so the
following week, | think it was the month over the following week, there
was an exchange of e-mails between my colleagues on the Company GHI
side of the due diligence team and the vendors’ advisors, where basically
we said: The funding issue — there are severe cashflow difficulties in
various territories, including Italy, how do you propose that we address
these issues? The reply came back: We will fund these businesses. And that
was then confirmed in meetings with the vendors later on in that week.
The vendor made it clear when we stated our position. We were not going
to buy these businesses unless the vendors address the funding issue pre-
close. And if that was accepted, it was accepted as a matter of principle,
that the vendors would fully fund the business pre-close, and that, on the
working capital front, they would ensure that all businesses had sufficient
funds to be able to pay all their suppliers in time, so that when we acquired
the company, there would be no overdue creditors.’

Then, Mr. E expressly confirmed that his understanding was that Company Z
Italia SpA would have sufficient cash to meet its needs in working capital:

‘The Arbitrator: May I ask you a question here? When you say fully funded
and adequate working capital, what is the difference between these two?
The Witness: They mean the same thing. Fully funded, I think, was the
phrase that was used in some of the documentation. But the principle, as
I understand in the business sense, is that the business will have sufficient
cash to meet their working capital requirements, in other words, sufficient
cash to meet their payment requirements to suppliers.... So that in really
what it means.’

[156] “In light of the foregoing considerations, the Arbitral Tribunal finds that
First Respondent’s undertaking to provide adequate funding to the First
Respondent Subsidiaries consisted in making available sufficient cash to fund the
Subsidiaries’ need of working capital until the Closing.”

Cc. Whether the financial needs were met

[157] “The contemporaneous record establishes beyond any doubts that the cash
contribution needed by Company Z Italia SpA until the Closing amounted to €
3.5 mio. In an e-mail to First Respondent, Mr. X stated that the cash needs of
Company Z Italia SpA for the period of ... through ... of the relevant year
amounted to € 3.5 mio. At a meeting held early that year with representatives

Yearbook Comm. Arb’n XXXV (2010) 91

 NO. 12745
BER OF COMMERCE
INTERNATIONAL CHAM
ia
y DE F and Co m pan) y GHI , Mr. X portrayed Company Z Ital
of both Compan ncial
sta ndi ng as wo rr yi ng an d indicated that its need of fina
SpA’s financial over the months of ...
at € 1mio in .. _and € 2.5mio
support could be estimated
and ...:

lle de Company Z Italia comme étant

‘I] a ensuite decrit la situation financiere actue ~ /

ilisées a P pres de 95% et la société

A 8)
\

utili
. /

sditit étant
pre ccupante, Ses lignes de créed
tres25 préo é
viter la cessation de
affaires chaque mois pour evit
/ . °

devant escompter son chiffre d’’affai

paiement. Company Z Italia a actuelleme nt un besoin definancement de 1m d’ Euros
’

fin ... et d’environ 2.5m € en.../....

neous
As a side note, the Arbitral Tribunal observes that this contempora
L,
document casts doubts on the accuracy of the testimonies of Mr. E and Mrs.
both of whom testified not remembering that Claimant had ever been informed
of the cash crisis encountered by Company Z Italia SpA before the SPA was
signed.
[158] “Earlier in the relevant year, Mr. X and First Respondent entered into the
Accordo. In this context. First Respondent undertook to grant Company Z Italia
SpA a temporary advance in the form of a shareholder’s loan of a maximum
amount of € 3.5mio. Two months later, Mr. X communicated to First
Respondent the following cash forecast model, which clearly establishes that
Company Z Italia SpA’s negative cash balance amounted to € 1mio at the end of
that month and € 3.2mio at the end of the following month, in other words that
the amount of cash needed from ... through ... was of € 3.2mio (table omitted).
[The table] also shows that, at the end of the preceding month, Company Z Italia
SpA had a positive cash balance of € 724,035.
[159] “After the Closing, Mr. X confirmed that the € 3.5 mio advance granted
by First Respondent had enabled Company Z Italia SpA to meet its ongoing
obligations until date B:

(3) Suppliers indebtedness. I want to confirm what I officially said several

times: Company Z Italia cash situation is really hard; we are losing
suppliers, we are spoiling our relationships with relevant business centers
and we are losing our market image. The € 3,5 mio financing has
just
solved our financial temporary problems as at date B, and
therefore our
financial structure problems have been just postponed.’

[160] “Claimant has objected that, on the Closing

Date, Company Z Italia SpA
was still short of funds. According to the
Independent Auditor’s report,

pt
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Company Z Italia SpA was short of funds in an amount of € 2,965 ,247 at Closing
Date, out of which € 1,428,354 represented arrears due to suppliers.
[161] “At the hearing, Mrs. L confirmed that the advance paid by First
Respondent enabled Company Z Italia SpA to survive until the Closing:

‘Mme L.: Ces 3,5 millions étaient sans doute le résultat d’un compromis entre M.
X et M. V qui permettait a la société de survivre mais sans doute pas de maintenir
son activité future, donc, d’étre gerée normalement, c’est-d-dire de pouvoir
renouveler ses contrats avec les grands [suppliers]. Ils ont sans doute, avec 3,5
millions, assuré les échéances qui, si elles n’étaient pas assurées, conduisaient au
depét de bilan de la société.’

This is exactly the point. The fact that the amount of € 3.5mio did not suffice to
avoid another cash crisis or did not enable to finance the growth of Company Z
Italia SpA’s business is irrelevant. As stated above. First Respondent undertook
to support the day-to-day operation of the company until the Closing. Nothing
more.
[162] “If the cause for Company Z Italia SpA’s demise is rooted in its funding in
whole or in part, then it thus appears that the true reason of Company Z Italia’s
collapse over the summer and fall of the relevant year lies in the lack of financial
support received by the company after the Closing and not in the alleged
inadequacy of the amount made available by First Respondent prior to or
immediately after the Closing Date:

‘Mme L.: Sans doute, je pense que si nous avions été en mesure, des [the months
following the Closing], de gérer directement les clients et de prendre les rénes de
la société, nous aurions sans doute pu construire cette relation que nous construisons
dans d’autres pays et avec des groupes comme (Group 1).’

[163] “Therefore, the Arbitral Tribunal considers that an amount of € 3.5mio was
the adequate funding required by Company Z Italia SpA until the Closing. As a
side note, the Tribunal observes that this sum represents more than 50% of the
overall amount of funding both parties estimated would be necessary for all the
24 subsidiaries included in the transaction (€ 6,211,000; Clause 6.3.2(i) of the
SPA).”

d. Whether the funding was made available

[164] “It is undisputable, and undisputed, that First Respondent paid the €
3.5mio temporary advance to Company Z Italia SpA, although with a slight
delay. Pursuant to the Accordo, Company Z SA had to pay this amount in two

Yearbook Comm. Arb’n XXXV (2010) 93

 NO. 12745
BER OF COMMERCE
INTERNATIONAL CHAM

eight working days from the

irst one to be effect ed no later than
instalments, the fir
one no later than datda e B. The advance was
the second
signing of the Accordo and
actually paid as follows:

date B;
_ € Imio in two months before
and
— € 850,000 two months later;
e B.
— € 1,650,000 four days after dat

in the payment of the above

Claimant, which alleges that the delay incurred tion, has
amount had dramatic consequences on Company Z Italia SpA’s situa
any material impact on the
failed to establish that such four-day delay had
er on that funding should
company’s situation. While Mr. X did complain earli
Respondents with
be forthcoming more rapidly, he apparently failed to supply
diate needs
the requested information as to Company Z Italia SpA’s exact imme
equences
and did not assert that the four-day delay had any material adverse cons
on the operation.”

e. Termination of the supplier agreement

[165] “Clause 4.4.2 of Schedule 8 to the SPA provides that:

‘4.4.2 Supplier Agreements

Disclosure Schedule 4.4.2 identifies all ... supplier agreements entered
into by the Company or First Respondent Subsidiaries. For the purpose of
this clause, “material supplier agreements” shall have the meaning referred
to in the paragraph (i) of the preamble to Clause 4.4. above.
All such ... supplier agreements contain an exclusivity clause in favour
of the Company or First Respondent Subsidiaries.
None of the suppliers having entered into the above mentioned
agreements with the Company or First Respondent Subsidiaries has
notified its decision to terminate such agreements prior to the normal
contractual expiring date provided by such agreements and, to the Seller’s
knowledge, there is no fact or circumstance, which are liable to result in
the termination of any such agreement prior to its normal contractual
expiring date.
The “most favourable nation” terms contained in the Second Respondent
supplier agreements have been duly honoured.’

;~ ae instant case, the Arbitral Tribunal has found

that First Respondent
illed its obligation to provide adequate funding to Comp
any Z Italia SpA.
ven assuming that such obligation was breached, Claim
ant fails to show that the

94
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

termination or non-renewal ofcertain of the supplier agreements in the fall of the

relevant year was connected in any way with a cash shortfall as of the Closing
Date. It rather appears that First Respondent’s contribution remedied as of the
Closing Date Company Z Italia SpA’s cash shortfall, which revived in the months
following the Closing.”

i! Withdrawal offinancial support

[167] “Claimant has also alleged that, early in the relevant year, First Respondent
decided to withdraw the financial support provided to Company Z Italia SpA,
which put the company in an almost irreversible situation of crisis and
deteriorated First Respondent’s relationship with Mr. X. In particular, the
argument follows: First Respondent decided not to renew certain bank
guarantees and to stop funding the amounts due by Company Z Italia srl to the
Group I network, thus forcing Company Z Italia SpA to distract resources to be
able to make these payments.
[168] “It may well be the case that, having decided to restructure the group, First
Respondent’s shareholders decided to cease to financially support Company Z
Italia SpA or to reduce the extent of such support to the minimum required. In
particular, it appears that Company Z Italia srl’s debt towards Group I was
effectively transferred to Company Z Italia SpA, thus worsening the latter’s
financial situation. Mr. X’s report:

‘Month 1: the serious international crisis of First Respondent causes Group

I to renegotiate the commercial agreements with First Respondent in the
various European countries in which commercial agreements are in place;
in particular, in Italy, the guarantees offered by Company Z Italia srl are
considered insufficient, not only in respect of the amounts already owed
but particularly in respect of the amounts becoming due.
Month 2: the debt is transferred by Group I to Company Z Italia SpA,
which therefore finds that it has to meet huge unplanned financial
liabilities, and in payment periods not foreseen at all in the revised budget
of November of the year before. All this pain of termination of the contract
with Company Z Italia srl by Group I, with the consequent readily
imaginable financial harm.’
4

[169] “However, what is relevant here is whether Claimant, at the time of

contracting, had a clear and true picture of Company Z Italia SpA’s financial
situation. In this respect, Claimant’s allegation that ‘[t]he purchaser became
aware of such situation of crisis only after the signature of the Agreement’ (fn.
omitted) is in direct contradiction with the record. As noted above, Mr. X drew

Yearbook Comm. Arb’n XXXV (2010) aS

 MMERCE NO. 12745
CHAMBER OF CO
INTERNATIONAL
situation of
re pr es en ta ti ve s to the weak financial
Claimant’s er? Tr
the attention of the month of the se
as early as early in
Company Z Italia SpA ssing Company Z Italia
Sp o cas —
‘w or ry in g’ an d as se " )
such situation as A fe w da ys lat er, Mr. E ( —
nth of da te B.
€ 3.5mio through the mo gence report drawn up
by a consulting
a co py of th e du e di li
was provided with Company Z
is sp ec if ie d tha t ‘[ b] ot h Company Z Italia sr] and
firm, in which it | same statement was
be on the ver ge of ba nkruptcy . The
Italia SpA seem to con sulting firm.
:
ft rep ort by ano the r
repeated in another dra set that Company Z Italia
nt knew from the out
[170] “More importantly, Claima sis, but
ill iqu id con dit ion was not the co nsequence of amere ephemeral cri
SpA’s tive
ed fro m its ver y fin anc ial str uct ure and, hence, that deeper correc
result mpany DEF:
first report sent to Co
actions would be necessary. Mr. X’s

pany for getting through its

‘To date, the financial requirements of our com
marised as follows: (i)
immediate liquidity problems may be sum
rdo; (ii) € 2,500,000
€ 1,000,000 within end of the month of the Acco
within date B.

ure and of
In fact, based on the analysis of the company’s financial struct
, it
its cash flow requirements, not only for the past but also for the future
ows
is clear that until now we coped with the mismatch between cash outfl
and inflows by means of advances on invoices. Apart from reducing our net
profit, this is a restraint to the company’s growth. Our financial structure
instead should ensure liquidity sufficient to meet — if not altogether at least
in great part — the structural cash mismatch of our business.
The solution we believe feasible to solve the financial structure problem
outlined above, and which we are in part following, are: (i) reduction of
the cash flow mismatch; (ii) further medium-term loan for at least
€ 3,000,000 or capital increase of at least € 3,000,000. ’

[171] “Finally, the Arbitral Tribunal notes that Company Z Italia srl’s debt
towards Group I was in any event charged by Company Z Italia srl to Company
Z Italia SpA, as Mr. X explains it in the very report quoted by Claimant in
support of its allegation that First Respondent withdrew its financial support to
Company Z Italia SpA:

‘Company Z Italia srl is an Italian company fully owned by Z International

SA which owns the rights and obligations deriving from the contract with
Group lf

96
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Company Z Italia SpA operates the commercial management of Group

I on behalfof First Respondent, through Company Z Italia srl, as provided
by a contract between the parties.
Company Z Italia SpA has always paid Company Z Italia srl in
accordance with the agreements between the parties, that is to say, in
instalments, and has borne the financial charges associated with payment
in instalments.’

[172] “Therefore, even assuming, arguendo, that First Respondent ceased to

financially support Company Z Italia SpA early in the relevant year, Claimant
contracted with full knowledge of the facts, especially as to the desperate cash
needs of Company Z Italia SpA and the € 3.5mio commitment by First
Respondent.”

2. Seller’s Obligation to Cause Management and Employees to Cooperate

[173] “Clause 6.2 of the SPA stipulates that:

‘6.2 Collaboration
Between the date of this Agreement and the Closing Date, the Seller shall
collaborate fully with the Purchaser and shall cause the Company’s
management and employees (as well as the management and employees of
each of the Subsidiaries, to the extent necessary) to collaborate fully with
the Purchaser in order to prepare and facilitate the change of control over
the Company and the Company’s integration in the Purchaser’ s Group.’

[174] “Claimant contends (1) that First Respondent’s obligation to collaborate

and cause Company Z Italia SpA’s management to collaborate extended beyond
the Closing Date and (2) that First Respondent breached this obligation.
Respondents dispute these allegations.”

a. Time range of obligation to collaborate

[175] “Claimant submits that First Respondent’s duty to collaborate and to cause
the First Respondent Subsidiaries to collaborate was not limited to the pre-
Closing period.
[176] “First and foremost, this submission is in direct contradiction with the text
of Clause 6.2 of the SPA, which expressly and unequivocally states that this
obligation is owed ‘[b]etween the date of this Agreement and the Closing Date’.
Claimant’s contention that the words ‘between the date of this Agreement and
Closing Date’ apply to First Respondent’s own obligation but not to the

Arb’n XXXV (2010) 97

Yearbook Comm.
 ~ . 5
4
OF COMMERCE NO. 1274
INTERNATIONAL CHAMBER

es
‘diariries
Subsidia supppportedbyy the
isis not
management of ; the First Respondent |
3
rammaticicalal inte
i rpretation 0 f this provision. |
saction set up by the parties, First
[177] “The fact that, pursuant to the tran
ol the management of the First
Respondent would not have any means to contr
with Claimant’s
dent Subsidiaries after the Closing is also in opposition
' ;
Respon ‘shall
‘s caus ‘ith
e’ — which, in: accordance with
‘nterpretation. The use of the words
the parties
ote 1.2.5 of the SPA, must be interpreted as the expression of
intention ‘to refer to the French law concept of “porte-fort” — would rather
reinforce this finding rather than contradict it. Indeed, it appears very unlikely
that First Respondent would have accepted to assume such a stringent obligation
knowing that it would have no means to ensure its fulfillment after having lost
and transferred the control of Company Z Italia SpA and the other First
Respondent Subsidiaries. —
[178] “Finally, an obligation to collaborate during the pre-Closing period is not
unusual in M&A transactions. As a matter of fact, such transactions are not
exhausted by the mere conclusion of the contract, on the one hand, and the
closing, on the other, and numerous operations must be carried through in the
meantime, which require the collaboration of the subsidiaries’ management. The
purpose of the parties is to have seller deliver to purchaser companies which are
run efficiently, without effecting any abnormal operations (not in the ordinary
course of business) so that, at closing, the latter will acquire what it negotiated
and is paying for. Obligations or representations of the seller surviving closing
are unusual and usually specifically mentioned (see especially Clause 10 of the
SPA). In this case, such pre-closing operations involved in particular the sale to
the Holding of First Respondent’s interest in its subsidiaries.
[179] “Therefore, the Arbitral Tribunal finds that First Respondent’s obliga
tion
to collaborate and to cause the management of the First Respondent
Subsidiaries
to collaborate with Claimant was limited to the pre-Closing
period.”

b. No breach of obligation
[180] “Claimant’s contention that First Responde
nt breached its obligation to
collaborate and to cause Company Z Italia SpA’
s management to collaborate is
whol ly unsubstantiated. As a matter of fact, Clai
mant merely refers to Mr. X’s
e-mail to Mrs. S [of Company GHI], in which
he asserts that ‘[t]he Company Z
Italia SpA’s major shareholder was
First Respondent and it is still First
Respondent since up to now I’ve not
been informed of any sale of shares’.
Besides the fact that this mail was sent
after the Closing and, hence, is not
relevant, it relates to the most debated
question in this case in which Mr.
personally involved, namely the waive X was
r of his pre-emption right, and,
as such, is

98
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

not conclusive as to the issue whether First Respondent fulfilled its collaboration
obligation.
[181] “Furthermore, Respondents have convincingly demonstrated that, ‘to the
extent necessary (Clause 6.2 of the SPA), the management of Company Z Italia
SpA duly collaborated with Claimant and its shareholders, both before the
conclusion of the SPA and over the pre-Closing period: (i) prior to the
conclusion of the SPA, a meeting was held in ... between representatives of
Company DEF and Company GHI and the management of Company Z Italia
SpA. On this occasion, Mr. X depicted the financial situation of Company Z Italia
SpA; (ii) during the pre-Closing period, Mr. X met Mr. F and Mrs. S in ... and
discussed Company Z Italia SpA’s financial situation; (iii) at a meeting held in ...
the CFO of Company Z Italia SpA made a presentation of Company Z Italia SpA
to Claimant’s management; (iv) shortly before date B, Mr. X communicated to
Mr. E (Company DEF) information requested by the latter on one of the two
Company Z Italia SpA directors, whom Mr. E was assessing as a member of the
board of directors of Company Z Italia SpA; (v) at the date B-2 shareholders’
meeting of Company Z Italia SpA, Mr. X appointed Mr. F and Mrs. S as
members of the board of directors.”

Z; Conclusion

[182] “The Arbitral Tribunal finds that First Respondent did not breach its
obligations to manage Company Z Italia SpA as a bon pére de famille and to cause
Company Z Italia SpA’s management and employees to cooperate with Claimant.
Therefore, Claimant’s motion that the Arbitral Tribunal ‘rule that, in any event,
First Respondent breached its obligation to provide sufficient funding to
Company Z Italia SpA until the Closing, as well as its obligation to cause X and
the management and employees of Company Z Italia SpA to loyally cooperate
with Claimant’ shall be denied.”

Vill. CAUSAL LINK BETWEEN BREACHES AND LOSSES

[183] “Claimant’s case mainly rests on the assumption that Respondents’

breaches of the SPA — which, inter alia, prevented it from exercising its
shareholder’s rights — led to the complete collapse of Company Z Italia SpA and,
eventually, to its winding up. Asa result, Claimant would have been deprived of
its investment and would thus have incurred an aggregate loss estimated at €
25,469,606 (fn. omitted), for which it seeks indemnification.

Yearbook Comm. Arb’n XXXV (2010) 99

 CE NO. 12745
AMBER OF COMMER
INTERNATIONAL CH
e
d ab ov e tha t Re sp on dents mes carn
unal has foun
[184] “The Arbitral Trib ga rding the Holding s tit
le in the s ares
wa rr an ti es ma de re
represen tation
s and emp
A by fai lin g to pr op er ly eliminate Mr. X's
in Company Z Italia Sp on de nts must compensate ,
or s
elf ent ail tha t Re sp
right. This does not in its er ed must directly result from
the
ch law , the los s su ff
alleged loss. Under Fren the loss that the
nt ra ct ua l br ea ch an d the co mpensation may not exceed
alleged co concurrent fault
ac h for esa w or oug ht to have foreseen. Moreover, a
party in bre duce
th e ag gr ie ve d pa rt y ma y in cer tain circumstances exclude or re
on the part of ibunal shall first
. Therefore, the Arbitral Tr
the liability of the party in breach nts
he r Cl ai ma nt ’s los s wa s su ff er ed as a consequence of Responde
ascertain whet determine the extent
the Tribunal shall
breaches of the SPA. In the affirmative,
is entitled, which Respondents have also
of the compensation to which Claimant
disputed.”

k French Law Principles Governing Causation

a. Necessary condition
tion of the
[185] “Art. 1151 of the FCC lays down the requirement that the obliga
is subject to
party in breach to indemnify the loss suffered by the aggrieved party
the existence of a causal link between the breach and the loss:

‘Dans le cas méme ou I’inexécution de la convention résulte du dol du deébiteur, les

dommages et interéts ne doivent comprendre a |’égard de la perte éprouvée par le
créancier et du gain dont il a été privé, que ce qui est une suite immediate et directe
de l’inexécution de la convention.’

[186] “However, more often than not, several causes will have preceded and
brought about the same loss. To operate a choice between these causes and
determine which one is the relevant one from a legal standpoint, French legal
authors have principally resorted to two legal doctrines, namely the doctrine of
equivalent causes (‘equivalence des conditions’) and the doctrine of adequate
causation (‘causalité adequate’) (Le Tourneau/Cadiet, Droit de la responsabilité et des
contrats, Dalloz, 2003, no. 1713, p. 446).
[187] “In accordance with the doctrine of equivalent causes, all the circumstances
that contributed to the occurrence of the result will be deemed to have caused
such result in an equal way (Malaurie/ Aynes, Les Obligations, 10th ed., Cujas
Paris 1999, Sect. 92, p+ 38):
| ,

100
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

L’ideée est que tous lesfaits sans lesquels l’accident ne se serait pas produit, qui, en
‘ >. / . ° e . .

d'autres termes, en ont été la condition nécessaire, en sont, de maniére equivalente,

, . . .

la cause, sans que l’on ne puisse a cet egard faire de choix ni de mesure.’

In other words, for the admission of the existence of a causal link between the
breach and the loss, it is sufficient that the breach be among the necessary
conditions of the loss (Viney, Les obligations, La Responsabilité: conditions, in Traité
de droit civil, LGDJ Paris, 1982, no. 339, p. 411). Without such breach, the loss
would not have occurred.
[188] “Pursuant to the doctrine of the causalité adéquate, only the act or event that
is considered as having been the true cause of a specific result will be taken into
account. An act or event will be deemed the cause of such result if, by human
foresight, such result could be anticipated as likely to follow from this act or
event (Ibid., Sect. 93, p. 59):

On estime qu un événement est la cause d’un autre lorsqu’on peut prévoir, en se

‘ : ’ / / I I / .

fondant sur le déroulement habituel des‘

faits tel que I’expérience le révele, qu il suit
un autre.’

The rationale behind the doctrine of adequate causation is that all the causes that
preceded the occurrence of a loss did not play the same role:

‘Tous les antécédents d’un dommage n'ont pas le méme réle. II se peut que, par suite
d’un enchainement de “circonstances exceptionnelles”, un événement provoque un
dommage: il n’en est point la cause (causa causans) mais seulement I’occasion
(occasio causans).’

[189] “Legal authors generally acknowledge that French courts apply both
doctrines equally and that none of them has precedence over the other (Le
Tourneau/ Cadiet, op. cit., no. 1717, p. 448; Benabent, Droit civil, Les obligations,
9th ed., Montchrestien 2003, no. 557, p. 373). Sometimes, French courts will
even apply both doctrines concurrently to establish the causal link (Viney, op.
cit., no. 347, p. 416). There seems to be nevertheless a propensity to apply the
doctrine of adequate causation (Benabent, op. cit., no. 558, p. 373), in particular
in cases where several causes may be taken into account (Flour/Aubert/Savaux,
Droit civil, Les obligations, 2. Le fait juridique, Armand Colin, 2003, no. 167, p.
159):

‘D’ assez nombreux arréts suivent cette deuxieme orientation. On constate, d’allleurs,
une semblable faveur a la théorie de la causalité adéquate, dans les hypotheses de

Yearbook Comm. Arb’n XXXV (2010) 101

 NO. 12745
RN AT IO NA L CH AM BER OF COMMERCE
INTE
V

nature.
avec u n événement de la
,
/

un dommage en sé conjuguant

doctrin es, only a breach without whi

ch
und er i
eit her of the se
“In anv event,
hav e bee n inc urr ed wil l be ch aracterized: as the cause of such
ons. would not 352, p: —
op. cit ., no. O1, -p: 38; Viney, op: cit., no.
eee y reject the doctrine of the
leg al aut hor s un an im ou sl
[191] “Finally, French ately preceded
im at e cau se, acc ord ing to wh ic h only the cause which immedi
prox no. 355,
occ urr enc e of the los s sho uld be taken into account (Viney, op. Cit.,
the
p. 420).”

b. Burden to evidence the causal link

existence of a causal link lies with
[192] “As a rule, the burden to evidence the
lité, in Traité de droit civil,
the aggrieved party (Viney, Les conditions de la responsabi
2nd ed., LGDJ, Paris 1998, pp. 181-182):

établir le lien de
‘En I’absence de présomption legale, c’est le demandeur qui doit
qui est
causalité entre le fait reproché au défendeur et le dommage. Cette regle,
les
admise par la plupart des systemes juridiques, est constamment affirmeée par
tribunaux frangais, qui en tirent les conséquences en décidant qu’a défaut d’apporter
la preuve du rapport de nécessité entre l’événement désigné comme “cause” et le
préjudice invoque, la victime doit étre déboutée de sa demande.’

[193] “That the burden of proving the causal link pertains to the aggrieved party
is subject to exceptions. In particular, French courts appear to consider that the
existence of a causal link may be presumed where an obligation to achieve a
certain result has been breached (Cass. Comm., 22 May 2002):

‘Et attendu, enfin, que I’arrét retient que Qapco et ses assureurs subroges étaient
bien fondeés a rechercher la garantie legale de [entrepreneur et que, le contrat
d'entreprise conclu par la société Alsthom ayant eu pour objet de transmettre la
propriete de la chose, I’entrepreneur se trouvait tenu d’une obligation de résultat qui
emportait presomption defaute et presomption de causalité; qu’ ainsi, la cour d’appel
n mi appliqué a la société Alsthom une clause relative a la garantie legale du
vendeur....’

[194]
194 “
“It appears that thisA rule isA limited
. .
to cases where there is a statutory
P resumptiption that the party in
i breach committed a fault, ini particular as regards
the main obligationg of th e contractor in contracts for works (Mazeaud/

102
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Mazeaud/Mazeaud, Legons de droit civil, II, 1st Volume, Obligations Théorie

generale, Montchrestien, 9th ed. 1998, no, 563, p. 656):

‘Le lien de causalité entre |’inexécution de l’obligation et le dommage doit étre

prouve par la victime. Cette régle comporte de rares exceptions: quand Ia loi édicte
une presomption de faute — ainsi contre les parents et les artisans —, elle édicte, du
méme coup, une présomption de causalitée; la victime n’a donc a démontrer ni le
defaut de surveillance des parents, ni que ce défaut de surveillance est la cause du
dommage.’

[195] “In this respect, the Arbitral Tribunal observes that all the decisions
referred to by Claimant, without exception, deal with disputes arising in
connection with work contracts, i.e. precisely agreements where the contractor
agrees to an ‘obligation de résultat’. Furthermore, the Cour de cassation is not fully
constant in its rulings and, in several instances, has limited the extent of the
reversal of the burden of evidence (Jourdain, Conditions de la responsabilité, in
Chroniques, July/September 2002, p. 515):

‘Elle fut approuvee par la premiere chambre civile de la Cour de cassation qui,
renon¢ant d faire jouer la présomption de causalité, énonga que “Ja responsabilité de
\ - . / e . / / (<4 -7- /

plein droit qui pese sur le vendeur-installateur ne s’étend qu’aux dommages causes
par le manquement a son obligation de résultat”. Puis, tirant les consequences de
cette regle, elle poursuivit en déclarant qu’il incombait en conséquence a la victime
de démontrer 5 que I’explosion
P avait trouvé son origine
g dans la Ppprestation effectuée,
ce qu elle n’était pas parvenue afaire en I’espece en raison de Ia pluralité de causes
hypothetiques retenues par les juges du fond. h

[196] “Finally, several commentators have criticized the rule that the breach of
an obligation to achieve a certain result gives rise to a presumption of causation,
stating that such presumption only applies to the causal link between the breach
and the fault of the party in breach, to the exclusion of the causal link between
the breach and the loss (Jourdain, RTD Civ., 1988, p. 708; see also Saint-Pau,
Droit a réparation, Conditions de la responsabilité contractuelle, Fait génerateur,
Inexécution imputable au debiteur):

‘La solution retenue en I’espéce s’explique en réalité par une autre distinction trop
rarement faite entre deux sortes de liens de causalité nécessaires pour relier le
dommage a la faute du debiteur d’une obligation de résultat.... I] doit exister
d’abord une premiere relation causale entre le dommage et I’inexécution de
l’obligation, c’est-a-dire I’absence du résultat promis; puis il en faut une autre qui

Yearbook Comm. Arb’n XXXV (2010) 103

 OF COMMERCE NO. 12745
INTERNATIONAL CHAMBER

débiteur dans I’execution. Seul le second

i absence de resultat a la faute du
parey la preuve d'u
etre deevuit queppuae a ne cause
snde
lien r causalite est présume et ne peut
veal et le
ee l’inexecution materielle
étrangere.... Qu ant dau premier lien de causalit|
e (entre
étre prouvé par la victime....
dommage), il n’est nullement présumé en droit et doit
encore établir l’inexécution
/ : a. / °
*

Prouver le dommage ne suffit donc pas; le créancier doit

/ »

/ ,’

dommage en resulte.
materielle de |‘obligation en démontrant que son

link
[197] “The aggrieved party seeking compensation must show a causal
between a breach by the other party and the damage sustained. However, where
a party promises the delivery of a specific occurrence, a result the failure for
this result to materialize will usually in itself be tantamount to misperformance.
It is uncertain whether French law does actually shift the burden of evidence
from the aggrieved party unto the other. One has to distinguish between the
wrongful act (faute) and the breach (inexécution). If an aggrieved party evidences
its damage, this party is dispensed with the proof of the causal link between the
wrongful act and the breach but it is left with the burden of proving the link
between the breach and the damage.”

2. No Presumption of Causal Link

[198] “In the case at bar, Respondents acted wrongfully in delivering Company
Z Italia SpA’s shares that were not fully unencumbered (free of liens). However,
Claimant still has to prove that the existence of such liens did cause the damage
it sustained.
[199] “At any rate, assuming for the sake of reasoning, that there should be a
reversal of the burden of proof, such shifting would be limited to what, under
normal expectations, a certain breach will entail as consequences. To be specific,
the failure to deliver stock free of encumbrances such as a right of pre-empt
ion,
is likely to result in a third party possibly exercising a right of first refusal
and
thus depriving the purchaser from the ownership and possession of
such stock.
The reasonably expectable damage is thus the loss resulting
from the deprivation
of the stock, namely its possible higher value than the price
paid, and any
ancillary costs (such as defending in a court order against
the beneficiary of the
right of pre-emption). The presumption of causal
link would thus attach to a
chain of events leading from the breach to such damages
but not to totally
differentdamages.
ces -a re the Apia oe finds that the existence of
a a pon ae reach and the actual losses incurred by
amare ea ie gna . Therefore, the burden to establish that such
olapse of Company Z Italia SpA lies with Clai
mant.”
104
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

3. Causal Link Between Breaches and Losses

[201] “As stated above, there is a propensity of French courts to apply the
doctrine of adequate causation concurrently with the doctrine of equivalent
conditions or even alone in cases where several causes may be taken into account.
Therefore, the Arbitral Tribunal shall now determine whether Respondents’
breach of the SPA may be considered as the adequate cause of the loss incurred
by Claimant, namely whether, by human foresight, the collapse of Company Z
Italia SpA could be anticipated as likely to result from Respondents’ failure to
properly waive Mr. X’s pre-emption right.
[202] “The answer is negative. Ascertaining the causation link is performing what
has been branded an objective retrospective prognosis. It is namely endeavoring
to go back to the time of the events from which the damage was subsequently to
arise and determine what a reasonable person would have predicted.
[203] “As of the Closing Date, the seller of stock loses all title to such stock and
the purchaser is the one who may exercise the stockholder’s rights. In the
acquisition of an enterprise or a company, it is the purchaser who should use his
newly acquired control. It is the purchaser who should forthwith, and subject of
course to different agreements with the seller, control and operate the acquired
company or undertaking. In particular, the purchaser as any entrepreneur will
have to ensure proper funding, staff, management of the company and to
supervise the operation.
[204] “If there is a difficulty in the actual transfer of a company, it is still in the
normal course of events that the purchaser will have some trouble enacting its
actual control and influence over the operation for a certain period. Litigation
with holders of pre-emption rights, labor disputes and conflicts with the
management are not unheard of. To be more specific, that a minority
shareholder seeks the annulment of a share sale made without consideration for
his pre-emption right may be anticipated as likely to follow from the failure to
waive such right prior to offering the shares to a third party.
[205] “In the present case, the events that took place from the Closing Date up
to three months later, in particular the challenge by Mr. X of the transfer of
Company Z Italia SpA’s shares to the Holding, were well in the predictable
normal course of events and were not yet the sign that there may be more than
a misunderstanding that could be dispelled. The conduct of the parties shows that
the events were taking a course which, obviously puzzling and possibly
detrimental, was however not beyond belief: thus, it was not impermissible to
await the end of the vacation period to go down to Italy and meet with Mr. X.
[206] “The contemporaneous perception of both parties, which legitimately
assumed that there was a misunderstanding with Mr. X and that proper funding

Yearbook Comm. Arb’n XXXV (2010) 105

 ERCE NO. 12745
TE RN AT IO NA L CHAMBER OF COMM
IN
the Italian
t would achieve a sm ooth and seamless take over of
and manage me n holder of a pre-emption right is
t lit iga tio n wi th the
ll illustrates
business, we
hat
expected event:
not a completely un

en main ce Groupe et cet te soci

eté, |’Italie est dans
Nou s veno ns de pre ndr e
‘Mme S:
clefs et importants pou r nous, ; c'est un
,

nous avons ini

déefinis comme etant
les pays que ° .
per
hyper
/ .
i
importante, M. X:
ant pour nous, c’est une activité
pays extremement import , c’est un homme qui
1lest a la téte de Company Z Italia
est l’homme de Ia situation, | wide
incarne son bus ine ss.
en justice
er intenter une quelconque action
Je n’imagine pas une seconde all
du que |’on va reussir d résoudse, iln’ya
contre M. X, pour moi ilyaun malenten
de problématiques peut-etre légales, je
pas de raison de ne pas y arriver s’agissant
nos conseils, donc il ne me vient pas du
ne suis pas juriste mais jefais confiance 4
qui est completement cruciale dans le
tout a l’esprit d ‘aller attaquer cette personne
développement de notre activité.’

ondent}:
This testimony was confirmed by Mr. V [of Second Resp
a dit
‘Counsel for Claimant: En [the month of the Closing], personne ne vous
que le probleme se posait?
Mr. V: En [the month of the Closing], je sais qu'il y a eu des problémes mais
cela ne m’avait pas paru dramatique dans la mesure ou il y avait des contacts, Mme
§ était allée d [an Italian city], Mr. K de Company DEF allait a [an Italian city],
cela me paraissait des choses qui étaient restées a peu pres dans le domaine du
négociable.
Counsel for Claimant: D’accord, mais vous saviez qu’il y avait un probleme?
Mr. V: Peut-étre, c’est possible mais je n’avais peut-étre pas pris conscience de la
gravite.
Counsel for Claimant: Vous savez qu’il y a un probleme, mais vous n’avez pris
mesure de la chose et vous pensez que cela se réglerait?
Mr. V: Cela pouvait se régler.
Counsel for Claimant: Les personnes de Claimant ont aussi pensé a ce moment que
si pouvait se regler, donc je crois que vous étiez bien sur la méme longueur d’onde
a ce moment-ld.
Mr. V: Jusqu’au mois de [two months after the Closing].
Counsel for Claimant: C’est cela. Lorsque vous dites dans votre affidavit ...
(reads English text) vous avez été “absolutely astonished” a partir de quand?
Mr. V: A partir du mois de [two months after the Closing].’

106
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

[207] “The record shows that Claimant had some contacts with Mr. X over that
period, such as the exchange of messages. Mr. X was challenging Claimant’s
indirect acquisition of the majority in Company Z Italia SpA stock capital but was
still (whatever his actual motivation) accepting Claimant as his discussion partner
for such an important issue as the funding. Thus, Claimant did endeavor to get
‘things on track’ and was legitimately entitled to do so, especially as Mr. X was
the entrepreneur it had ‘invested in’. It is also true that the summer vacation
period was dismissing any sense of urgency.
[208] “Two months after the Closing, Claimant notified Respondents of its claim
under the SPA, especially Clause 9.3, and stated that it was not yet in a position
to finally assess the damage resulting from this claim. Claimant described what
its damage would likely be (in the normal course of the events to use again the
concept predicating adequate causation) as follows:

‘We are not yet in a position to finally assess the damage resulting from this
claim; we shall provide you with further information in this respect as soon
as possible. However, this claim will in any case include all costs resulting
from the judicial proceedings entered into by Mr. X, as well as any cost,
expense, loss of profit or other liability connected with the impossibility
for First Respondent to exercise its rights as a shareholder and to take part
and control the management of Company Z Italia SpA. We hereby already
request the due indemnification of any such damage.’

[209] “The claim shows that, at that time, the damage incurred by Claimant was
in line with what would and could be expected from a difficulty in the transfer
of First Respondent’s interest in Company Z Italia SpA to the Holding. Such
damage was not arising from a loss of value of the Company Z Italia SpA
participation (the transfer of First Respondent’s interest had not had (yet) any
effect on Company Z Italia SpA operation) but from the costs incurred by
Claimant to defend itself in the legal proceedings initiated by Mr. X.
[210] “Admittedly, two months after the Closing Mr. X had presented to the
board of auditors of Company Z Italia SpA and to the two Company Z Italia SpA
directors a report describing what he called the critical nature of the situation
facing Company Z Italia SpA and what corrective measures he intended to take,
such as cost reduction and non-renewal of some supplier agreements. However,
it is likely that Claimant was not made privy to this report, which one of the
directors failed to communicate. (At the evidentiary hearing, the director
testified that he did not inform Claimant of this report.) At any rate, as will be
seen below, the contents of this report did not foretell the events that would
follow, in particular the actions of Mr. X over the coming months.

107
Yearbook Comm. Arb’n XXXV (2010)
 CE NO. 12745
AMBER OF COMMER
INTERNATIONAL CH
nths
e tha t the ev en ts tha t took place until two mo
abov
[211] “It follows from the al lenge by Mr. x of = —
a
1n pa rt ic ul ar the ch
after the Closing, co ul d be an ti ci pate as ikely to :
-
the Hold in g,
Z Italia SpA’s shares to ene ion rig
lur e to se cu re the waiver of Mr. X's ar
Respondents’ fai cause O
on de nt s’ fai lur e ma y be deemed to be the a Ee
Accordingly, Resp n costs).
Cl ai ma nt in thi s re sp ec t (such as, €.g., the litigatio
any loss suffered by wa te rshed. From then on, the
ths aft er th e Cl os in g is a
ever, two mon y
However, rap idl y and the eve nts went totally off any reasonabl
situation did change a
foreseeable track.
sibly asserting his rights as a wedge
ion, pos
[212] “Taking advantage of the situat e
n Cla ima nt and Res pon den ts to fos ter his own interest (and not anymor
betwee y
pose), Mr. X conducted himself ver
Company Z Italia SpA’s company pur g
y unpredictable at the time of the Closin
differently. This new attitude was totall
ked anymore to Respondents breach
and the ensuing damage is not causally lin
of the SPA:

y contract between
(i) Mr. X confirmed the termination of a commercial agenc
agreements were
Company Z Italia SpA and agent R. Several other identical
terminated later on;
J srl,
(ii) Company Z Italia outsourced part of its activity to Italian Company
sell
which was appointed Company Z Italia SpA’s exclusive commercial agent to
advertising space;
(iii) by identical letters, Company Z Italia SpA notified several operators that
their supplier agreements would not be renewed the following year;
(iv) according to the report of the first auditing firm, 14 employees of Company
Z Italia SpA left the company or were terminated.

[213] “No one could have foreseen that Respondents’ failure to cause the waiver
of Mr. X’s pre-emption right would result in such actions and events. The fact
of the matter is that the parties themselves did not foresee them, which is clearly
evidenced by the contemporaneous record. Thus, it appears that until the end of
the relevant year, the parties still believed that there was only a disagreement
regarding the transfer of Company Z Italia SpA’s shares to the Holding, which
would be clarified shortly:

(i) First Respondent contested Mr. X’s statement that the transfer of Company
Z Italia SpA’s shares to the Holding was ineffective and urged Mr. X to register
the Holding as the company’s majority shareholder;
(ii) on the following day, Mr. V (of Second Respondent) asked Mr. X for a copy
of the minutes of the date B-2 general assembly of Company Z Italia SpA;

108
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

(iii) on the day after, the Holding invited Mr. X to authorize its representatives
to examine Company Z Italia SpA’s accounts, to register the Holding as the new
majority shareholder as of the date of the filing with the notary public and to
appoint the directors designated by the Holding, namely Mr. F and Mrs. S;
(iv) again one day later, Mr. F confirmed that he accepted his appointment as
member of the board of directors of Company Z Italia SpA;
(v) five days later, Mrs. S accepted her appointment as member of the board of
directors of Company Z Italia SpA;
(vi) a week later, Second Respondent replied to Claimant’s notice of claim,
stating in particular that the claim did not meet the requirements of Clause 9.3.1
of the SPA and, hence, was inadmissible, and that the condition precedent set out
at Clause 4.2.4 that the Holding should have the exclusive ownership of First
Respondent's subsidiaries on the Closing Date had been fulfilled;
(vii) a few days later, First Respondent and the Holding sent a joint letter to Mr.
X, stating that First Respondent was no longer the majority shareholder of
Company Z Italia SpA and urging Mr. X to register the Holding in the company’s
share register;
(viii) on the same day, First Respondent requested from Mr. X a copy of the
minutes of the date B-2 shareholder’s meeting;
(ix) in a letter of a week later, Mrs. S stated that, under Italian law, no formal
acceptance was required for an appointment on the board of directors to be valid
and binding and that Claimant had contacted one of the directors and Mr. X with
a view to setting up an informal meeting aimed at solving outstanding issues and
identifying possible solutions;
(x) Claimant replied to Second Respondent's letter, confirming that the claim
was made by the Holding and giving an estimate of the loss it suffered;
(xi) one month Later, Second Respondent reiterated its objections to the
Holding’s notice of claim;
(xii) two weeks later, First Respondent refuted Mr. X’s statement that the
Holding never succeeded to First Respondent as majority shareholder of
Company Z Italia SpA and enclosed a copy of a share certificate of Company Z
Italia SpA endorsed by First Respondent in favour of the Holding;
(xiii) on the same day, by a registered letter anticipated by fax, First Respondent
reminded Company Z Italia SpA (attention Mr. X with a copy to the president
of the board of auditors) that the Holding had provided Company Z Italia SpA
with a copy of Company Z Italia SpA share certificate endorsed in favour of the
Holding on date B-2.

(214] “At the hearing, Mrs. S described the unpredictable nature of Mr. X’s
attitude in the following terms:

109
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BER OF COMMERCE
INTERNATIONAL CHAM
/e rapport qui nous
en (five months after the Closing]
‘Mais avant de découvrir
par e par (th e fir st au di ti ng firm], nous n’avions pas lieu de penser que
avait été pré i t une problematique d’actionnariat,
]‘ope ration elle-m éme était en danger. lly ava
quer M. X, non.
,

etat de cause, 0 n nallait pas révo

/

d’enreg istrement, mais en tout

t the events that took place over the fall of the

Mr. Q (of Claimant) confirmed tha
y unexpected:
relevant year were completel

reprise a la fin du mois de [four

‘Counsel for claimant: Vous avez acces a I’ent
the Closing], quelle
months after the Closing] /début [five months after
situation trouvez-vous d ce moment-la?
sar, une situation assez
Mr. Q: Une situation que nous n’espérions pas bien
que l’entreprise a eté
dramatique puisque c’est a cette occasion que nous découvrons
ement vides
quasiment mise en liquidation. ] ‘arrive dans des bureaux qui ont été total
plus de
de tout mobilier, d’archives, il n’y a évidemment plus de personnel, il n'y a
dossiers, il y a une entreprise completement vide, le seul personnel est une
standardiste submergée par les appels de fournisseurs, de clients, la société a
quasiment été mise en liquidation. ‘

This understanding was shared by Respondents....

[215] “The parties have advanced several explanations to elucidate Mr. X’s
attitude. According to Mrs. S, Mr. X never had the intention to collaborate with
a group such as the one represented by Claimant:

‘Je pense que M. X n’a jamais eu veéritablement le desir de travailler avec un

partenaire comme Claimant, je pense que c’était par essence un entrepreneur, il l’a
d ailleurs montré, il a construit, il a déconstruit, on pense qu’il a reconstruit a coté,
donc je pense qu’ilfaitfondamentalement partie des gens qui devaient étre en pleine
possession de leur business, de leurs moyens, de leur stratégie et qu il s’:accommodait
probablement mal d’un partenaire, si ce n’est un partenaire dormant, si ce n’est un
partenaire financier.
eee, a la lumiére de ce qu il s’est passé, le sentiment que j’ai de tout cela est
qu il nous a vu arriver. Je pense qu’il avait vraiment de gros besoins financiers, il
avait ae de crédit sur lesquelles il s’était engage, je pense que |’ambiance de
= societé avait été tres difficile a vivre parce que, lorsque vous courrez apres les
Jinancements pendant des mois cela use, et il n'y avait pas qu’eux qui étaient usés,
et, enfin, vous voyez arriver des moyens financiers mais avec probablement aussi
une
certaine rigueur de besoin de communication. Nous allions mettre
en place des
aaa je ne m’en suis pas a bi _ ai = demande de
pour mettre en place une société qui allait étre saine.’

110
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

And further:

‘Monsieur X était | ‘entrepreneur qui avait besoin d’un partenaire dormant financier,
nous n’allions pas étre ce partenaire dormant, financier, oui certainement, on en
avait les moyens, on a eu les moyens, mais pas dormant, et, pour nous il incarnait
la société, on l’aurait soutenu, on aurait été derriére lui mille fois parce qu’ilavait
le sens des affaires que nous ne connaissions pas beaucoup a |"époque mais sur
lesquelles nous pouvions construire sur la base de M. X, des fonds, de cet appetit que
nous avions dans ce business et de toutes les relations internationales que nous avons
pu creer apres avec [the suppliers], mais nous avions besoin de lui, lui ne souhaitait
pas trop que nous intervenions, donc il a gagné du temps.
Cela parait assez clair maintenant, il nous a promeneés avec ces mandats que I’on
devait signer, il nous a promenés et puis il a fermé la société et il nous a laissé tout
le poids financier.’

[216] “This thesis appears to be backed up by the description made by Mr. X of

his relationship with Claimant:

‘In general, I have found Claimant’ s continuous diktat to which it intends

to submit me and my whole management unpleasant. Even though |
appreciated your verbal attempt at smoothing the tones I cannot help
myself from hiding a general feeling of annoyance caused by the demands
of your client and the way in which such demands are made....’

[217] “Another explanation is that Mr. X saw in the dispute opposing Claimant
and Respondents a good opportunity to foster his own interests and used it as a
pretext to try and extract additional financial support from Claimant or to secure
his position as managing director of Company Z Italia SpA. Thus, according to
Claimant itself (fn. omitted):

‘The reality is that Mr X tried to use the weapon of his pre-emption right
to force Claimant to sign a new shareholders’ agreement, whereby the
minority shareholder would have had full and exclusive control over the
company. And, when he realized that he would not achieve that goal, he
decided to use his pre-emption right to prevent Claimant from gaining
access to the company for the time necessary to close it down and start
another business.’

[218] “The fact of the matter is that three months after the Closing Mr. X sent an
e-mail to Mr. E, stating that he would agree to meet representatives of Claimant

111
Yearbook Comm. Arb’n XXXV (2010)
 12745
R OF COMMERCE NO.
INTERNATIONAL CHAMBE
een
art ner s ag re em en t’ (b et ween shareholders and betw
provided t hat ‘an Interp [would] oblige
f the boa rd) [be sig ned ] in which Company Z Italia SpA
member s 0 strategy of
vot e in fav our of a I] [hi s] proposals concerning the financial
itself to ing
. In a letter late the sam
e months, Mr. X made the follow
the Company’
proposals (translation):
as soon as First Respondent
‘The solution is quite straightforward:
deem it appropriate, for the
indicates who the two directors are (if you
of a letter jointly signed
protection of the interests of your client, by way |
new directors.
also by your client) the board will appoint the
solved. Now | will
The above is the issue which can be immediately
the negotiations.
focus on my requests, which should be the object of
3
The possible solutions are in my view three.
with the
The first one is taking note of the impossibility to carry on
le
relationship between shareholders. Consequently, the only possib
solution, in order to avoid continuous disputes, would be that either
shareholder takes over the shares of the other. In this case, should I be the
one to sell my shares, I would resign as director unless I am requested to
co-operate with the company for an interim period aimed at handing over
my offices.
The second solution is to rebuild a co-operative spirit to be reflected in
anew Mol.
By way of a preliminary remark, please note that I do not trust at all the
people introduced to me during the previous negotiations and who were
even nominated for holding the significant and important role of members
of the Board of Directors. In particular, those people have repeatedly
showed me their inadequacy with respect to financial policy issues.
Therefore I deem that, for the benefit of the company, I should be
entrusted with full responsibility with respect to the financial handling of
Company Z Italia SpA.
An essential condition is that, by way of an amendment to the MoU, |
should be granted, in addition to the personal position of Managing
Director, also the power to appoint the President and the Financial
Director, whereas the other shareholder would be entitled to appoint two
directors without powers.
The roles of the parties would therefore be clear. I would not only deal
with the commercial management of the company, the acquisition of
advertising slots and their resale but also with the financial management
taking over full responsibility for the economic aspects. I could not accept
that this important role is assigned to inadequate individuals. . .’ eee

112
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

[219] “Be it as it may, it follows from the above that the events that took place
over the fall of the relevant year [were] totally unpredictable and that no one
anticipated them as likely to result from Respondents’ breach of the SPA.
[220] “In light of the foregoing, the Arbitral Tribunal finds that Respondents’
failure to cause the proper waiver of Mr. X’s pre-emption right was not the
adequate cause of Company Z Italia SpA’s collapse. The Arbitral Tribunal finds
that the cause was Mr. X’s conduct of the business after the take-over, his
unwillingness to work in the new structure and his lack of confidence in the new
management imposed by Claimant. Respondents’ failure to obtain a proper
waiver of Mr. X’s pre-emption right offered Mr. X the possibility to make it
more difficult for Claimant to take effective control but the Tribunal considers
that the Respondents’ breach of contract in this respect is not the adequate cause
of Company Z Italia SpA’s collapse; it only facilitated Mr. X’s possibly disloyal
actions against the new shareholder.
[221] “It is thus unnecessary to determine whether Claimant’s way to address the
Italian conundrum after the summer of the relevant year was amounting to a
negligence.”

IX. DAMAGES

hes:)
[222] “Claimant claims damages under the following heads:

(i) share of the global purchase price relating to Italy € 10,471,690

(ii) the liquidation costs of Company Z Italia SpA € 7,763,549.08
(iii) loss of profit € 103;7719,906
(iv) damage to reputation € 1,000,000
(v) fees and legal costs € 2,532,363.20
Total: € 25,487,507.08 according to Claimant or actually € 25,487,508.28.

[223] “In essence, Respondents have objected that Claimant’s calculation of its
loss is flawed; that their liability is capped; that Claimant’s claim for interest is
null and void; that any amount recovered by Claimant from third parties should
come in deduction of damages awarded to it; and that the Arbitral Tribunal
should stay its decision on the quantum until the final decisions of the Italian
courts.
[224] “The Arbitral Tribunal shall first determine whether — and, in the
affirmative, to what extent — the damages claimed by Claimant aim at
compensating losses sustained as a result of Respondents’ breach of contract, i.e.

113
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: ption
Mr. X’s; pre-em i ived. It sha
right waive shall
den ts’ fai
‘ai lur e to hav e
caused by Respon
then deal with Responde nts’ various objections.”

imant
l. The Damages Claimed by Cla
hed
Share of the purchase price
ion than to liquidate Comp: any
2
[225] ee
“Clai 4
mant submi ts that it had no other opt
ges corresponding to the portion of
Z Italia SpA and, on this basis, claims dama
any Z Italia SpA and Company Z
the global purchase price allocated to Comp
te Claimant’s calculation of the
Italia srl, i.e. € 10,471,690. Respondents dispu
the amount of cash left in the
purchase price. First, Claimant has failed to deduct
to include the value of
Holding (€ 4,201,418). Second, Claimant is not entitled
Company Z Italia srl (€ 890,937).
ase price
[226] “Whether Claimant’s calculation of the share of the global purch
include
allocated to Company Z Italia is flawed and whether such share should
of
the price paid for Company Z Italia srl’s shares may be left open. As a matter
fact, the Arbitral Tribunal has reached the conclusion that only the loss sustained
by Claimant as a result of the legal proceedings initiated by Mr. X had been
caused by Respondents’ breach of contract. Therefore, the Tribunal rejects
Claimant’s claim for indemnification of the loss corresponding to the purchase
price of the Italian business it incurred by being allegedly forced to liquidate
Company Z Italia SpA.”

b. Costs ofliquidation
[227] “Claimant has failed to establish that the liquidation of Company Z Italia
SpA was caused by Respondents’ breach of contract. Therefore, the Tribunal
dismisses Claimant’s claim for compensation of the costs it incurred to liquidate
Company Z Italia SpA.”

é. Fees and legal costs

[228] “Claimant claims payment of fees charged by various consultants it
commissioned both before and after the Closing, as well as the legal costs
incurred to defend itself in the Italian proceedings.
[229] “Among these fees and costs, the Arbitral Tribunal finds that only those
incurred by Claimant in relation to the legal actions initiated by Mr. X may be
deemed to have been caused by Respondents’ breach of the SPA. According
to
Claimant, these fees amount to € 860,147.09.
[230] “Respondents argue that the portion of law firm P’s fees directly relati
ng
to services rendered in connection with the breach they allege
dly committed
amounts to € 180,000. Claimant has submitted the invoices
issued by the law

114
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

firm P. All of them, without exception, refer to ‘professional services rendered

in favour of Claimant’ with respect to the ‘law-suit brought by X against
Claimant ...’. However, said invoices also include fees charged for services
rendered in connection with unrelated matters, such as ‘corporate advice and
assistance in respect of Company Z Italia SpA’, ‘advice or assistance on business
situation of Company Z Italia SpA, on relations with Company Z Italia SpA’s
counterparts and on creditors’ threatened litigations against the company’,
‘litigation brought by another company against SpA etc.’.
[231] “Claimant has failed to establish the precise amount of legal costs it
incurred in relation with the legal proceedings initiated by Mr. X. Therefore,
Claimant shall only be awarded the legal costs that Respondents have
acknowledged to be in connection with said proceedings, i.e. € 180,000.
[232] “At this juncture, the Arbitral Tribunal wishes to specify that the above
finding would not be altered by a decision of the Italian courts dismissing Mr. X’s
legal proceedings. As a matter of fact, the legal costs claimed by Claimant would
nevertheless have been incurred as a result of Respondents’ negligence in
providing a valid waiver of Mr. X’s pre-emption right.”

d. Loss ofprofit and harm to reputation

[233] “Claimant has not demonstrated that it sustained a loss of profit or that its
reputation was damaged. This issue may however be left open. As a matter of
fact, Claimant has failed to establish the existence of a causal link between
Respondents’ breach of the SPA and the loss of profit and harm to its reputation
and good standing it would have incurred. Therefore, the Arbitral Tribunal
rejects Claimant’s claim for indemnification from such losses.”

2. Respondents’ Objections

a. Contractual limitation ofliability

[234] “Respondents submit that, in accordance with the contractual limitation of
liability contained in Clause 9.2.4(ii) of the SPA, damages awarded to Claimant
may not exceed € 9,653,988. Moreover, pursuant to Clause 9.2.3(i) of the SPA,
a franchise of € 300,000 should be deducted.
[235] “It is correct that, with respect to First Respondent Claims (i.e. a claim
made in relation to representations and warranties granted by First Respondent),
the SPA caps Respondents’ liability by providing both a threshold and a ceiling.
First, pursuant to Clause 9.2.30(i) of the SPA, Respondents are only liable for
amounts claimed in excess of € 300,000:

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INTERNATIONAL CHAM
7
be liab le und er this Agr eem} ent in respect of any
Guarantors shall not
' ations and Warranties : (a
os i ing to the First Respondent Rep resent
ount of all the First
or si Claim”), +l the aggregate am nt
ou
,000; and where the aggregate am
Respondent Claims exceeds € 500 € 500,000,
st Respondent Claims exceeds
recoverable in respect of the Fir
amount in excess of € 300,000
the Guarantors shall be liable to pay the
only... ‘

SPA, a First Respondent Claim may

Second, pursuant to Clause 9.2.4(ii) of the
nt Aggregate Value’....
not exceed one third of the ‘First Responde
udes the
[236] “However, in specific cases, Clause 9.2.5 of the SPA excl
cular the case for claims
application of the above limitations. This is in parti
es or the existence of a
relating to the ownership of the shares in the subsidiari
Lien on such shares (Clause 9.2.5(iv)):

‘9.2.5 Exceptions to the threshold and cap

The limitations set forth in Clauses 9.2.2, 9.2.3 and 9.2.4 shall not apply
to any Claim related to:

(iv) the ownership of the shares in the Subsidiaries and/or the existence of
any Lien on the shares in the Subsidiaries. ’

[237] “In the instant case. Claimant’s claim is in particular derived from a breach
of the representation made at Art. 4.1.6 of Schedule 8 to the SPA that, on the
Closing Date, the Holding would have full, valid and exclusive ownership of the
shares in the First Respondent Subsidiaries, which would be free and clear of all
Liens. Therefore, the Arbitral Tribunal finds that Respondents’ liability is not
limited.”

b. Deduction of amounts recovered from third parties

[238] “In the year following the relevant year, Company Z Italia SpA (in
liquidation) initiated a legal action against Italian CompanyJ srl, seeking payment
ofamounts due under their contract and remained unpaid (€ 240,773.76). Later
in the same year, Company Z Italia SpA (in liquidation) initiated legal
proceedings against Mr. X, claiming payment of damages of € 15,894,291. These
proceedings are pending before the Italian courts.
[239] “Respondents submit that any damages that Company Z Italia SpA may be
awarded in the above proceedings should come into deduction of the amount
s
claimed in this arbitration. Moreover, Respondents refer to the
examination of

116
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Mr. Q, who testified that Company Z Italia SpA managed to recover from
various debtors about 75% of €9mio of overdue invoices (fn. omitted).
[240] “Clause 9.2.10 of the SPA reads as follows:

‘9.2.10 Insurance Proceeds and Other Recoveries from Third Parties

(i) Any amount for which the Guarantors would otherwise have been liable
under this Agreement in respect of any Losses suffered by the Purchaser or
the Company or any Subsidiary shall be reduced by the net amount of any
indemnification or other recovery actually received by the Purchaser or the
Company or any Subsidiary from any third party (including insurance
proceeds) in respect of such Losses.
(ii) The net amount of such indemnification or other recovery shall be
equal to the net amount received or to be received by the Purchaser or the
Company or any Subsidiary, less

(a) any reasonable costs and expenses incurred by the Purchaser or the
Company or the relevant Subsidiary in respect of such indemnification or
other recovery,
(b) any applicable Tax incurred with respect to such indemnification and
(c) when indemnification consists in insurance proceeds, the aggregate
amount, if any, by which an independent insurance broker, jointly
appointed by the Purchaser and the Guarantor, estimates that the
Company’s (and/or any of the Subsidiaries’) premiums are likely to be
increased during the two years following the making of the insurance
claim.’

[241] “It follows from the above provision that only amounts recovered by
Claimant and for which Respondents would have been liable should come into
deduction of damages awarded in this arbitration.
[242] “The Arbitral Tribunal has reached the conclusion that Respondents must
be held liable for the legal costs incurred by Claimant in connection with the
Italian proceedings initiated by Mr. X. Therefore, should the Italian courts award
to Claimant a sum aiming at compensating said costs, this sum if Claimant is in
fact able to collect it will come into deduction of the amount of € 180,000 which
the Arbitral Tribunal shall order Respondents to pay to Claimant.”

Yearbook Comm. Arb’n XXXV (2010) 117

 INTERNATIONAL CHAMBER OF COMMERCE NO. 12745

C. Deduction of tax savings

[243] “Respondents have failed to demonstrate that the losses incurred by
Company Z ItaliaSpA resulted in any tax savings.”

d. Interest
[244] “According to Respondents, Claimant’s claim for interest would be null
and void. It is true that Claimant did not give any justification for its interest
claim. It is also true that such claim was not included in the Terms of Reference.
[245] “However, Art. 1153-1, first paragraph, of the FCC provides that an order
to indemnify carries along interest at the statutory rate, even where there is no
express claim for interest:

‘En toute matiére, la condamnation d une indemnité emporte intéréts au taux legal
méme en I’absence de demande ou de disposition spéciale du jugement. Sauf
disposition contraire de la loi, ces intéréts courent a compter du prononce du
jugement a moins que le juge n’en decide autrement.’

In a recent case, the Cour d’ Appel of Paris confirmed the arbitrators’ entitlement
to impose interest on damages awarded to a party, even if payment of said
interest has not been expressly sought (CP, Paris, 1st = C, 6 November 2003,
in [2004] 3 Rev. Arb. 631 et seq.):

‘Considérant que la Banque a saisi les arbitres d’une demande tendant a la

condamnation du CMNE a lui payer | 651 133,38 F d’intéréts de retard du 19
septembre 2000 au 7 octobre 2001, capitalisés, en soutenant que la somme de 129
000 000 F lui avait eté accordée a titre d’indemnité et que les dispositions de
l’Article 1153-1 du Code civil étaient donc applicables;
Que le tribunal, au visa de I’Article 1475 NCPC, a confirmé le caractére
indemnitaire de la sentence et en a tiré les consequences en rappelant que selon
P’Article 1153-1 du Code civil les intéréts courent 4 compter du prononcé du
jugement, méme en I’absence de demande ou de dispositions speciales du jugement,
et en observant que la sentence n’étant exécutoire qu ‘une fois revétue de la formule
exécutoire il y avait lieu, en équite, de fixer au 12 octobre 2000, date de
l’ordonnance d exequatur, le point de depart des dits intéréts;
Qu’en statuant ainsi il s’est conformé a sa mission...’

[246] “Therefore, any damages awarded to Claimant shall bear interest at the
French statutory rate from the date of this Award as results from Art. 1153-1 of
the FCC and case law, as cited for instance by Malaurie/ Aynes (Malaurie/Aynés,
Les Obligations, 10th ed., Cujas, Paris 1999, footnote 4 ad No. 844, p. 495). Such

118 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRAL AWARDS

interest will be capitalized (Art. 1154 of the FCC) should payment not occur
within one year.”

e. Stay of decision on quantum

[247] “Respondents further request that the Arbitral Tribunal stay its decision on
the quantum until a final ruling has been issued by the Italian courts.
[248] “As already stated, there is no lis pendens exception between arbitration
and state proceedings. In any event, the Italian court proceedings, though they
arise from the same set of facts, do not bring together the same parties. Besides,
the Arbitral Tribunal notes that Clause 9.2.10(ii) of the SPA expressly
contemplates the possibility that Claimant recover amounts from third parties
after the adjudication of its claims under the SPA (see Clause 9.2.10(ii), ‘the
amount received or to be received’). Therefore, the Arbitral Tribunal shall
dismiss Respondents’ request that the Tribunal stay its decision on the quantum
until the Italian courts have handed down a final decision in the above
proceedings. ?

; Apportionment among the guarantors

[249] “Pursuant to Clause 9.3.5(iii)(b) of the SPA, ‘in case of a payment made as
a result of a First Respondent Claim, two thirds (2/3) of said payment shall be
said
made to the Purchaser by Second Respondent and one third (1/3) of
Tribunal
payment shall be made to the Purchaser by Z’. Therefore, the Arbitral
as
shall order that the damages awarded to Claimant (€ 180,000) shall be paid
follows: € 120,000 by Second Respondent; and € 60,000 by Z.”

& Conclusion

Claimant
[250] “Therefore, the Arbitral Tribunal shall order Respondents to pay
statutory rate
the amount of € 180,000 plus compound interest at the French
of such amount
from the date of this Award, being specified that two thirds
60,000) by Z.”
(€ 120,000) shall be paid by Second Respondent and one third (€

X. TAX CLAIM

(.--+) made in Art. 4.11 of

[251] “Representations regarding tax related matters were
des as follows:
Schedule 8 to the SPA, which, in relevant parts, provi

Li
Yearbook Comm. Arb’n XXXV (2010)
 NO. 12745
BER OF COMMERCE
INTERNATIONAL CHAM

‘4.11 Taxes e filed,

Co mp an y and eac h of the First Respondent Subsidiaries hav
The ct and complete
nd in a substantially exa
an
within the prescribed pene
l tax, tax-relat: ed, social and
ll foreign, national, regiona land loca :
reres laws and regulations.
mere betes iad by oe me d,
dent Subsidiaries have pai
The Company and each of the First Respon tly in
ed for by the laws and regulations curren
within the period provid
mpany and each of the First
force in the State of residence of the Co
Resp ondent Subsidiaries, all foreign, nation
al, regional and local taxes of
,
lected | under | any law or
any nature whatsoever impose d, assessed or col
without
payable pursuant to any tax sharing or similar contract, including
taxes, tax
limitation all income and capital taxes, business tax, real estate
in arrears, value added tax, sales taxes, withholding taxes, duties
(including, registration, transfer and stamp duties), excise, equalization
tax, advanced-payment tax, wages tax, social contributions or other
employment related taxes concerning the employees of the Company and
the First Respondent Subsidiaries, or tax-related contributions or any other
taxes or charges in the nature of the taxes described above, in principle and
interest (the “Taxes”).
20)
Neither the Company nor any First Respondent Subsidiary has
committed any act or carried out any transaction, which, if challenged by
any Tax Authorities, could, in good faith, be expected to result in a
liability. To the Seller’s knowledge, there are no circumstances in which
additional Taxes, or penalties, fines or surcharges in relation to Taxes may
be successfully charged against the Company or any First Respondent
Subsidiary.
gay
All material deficiencies of Taxes asserted or proposed in writing or
otherwise asserted or proposed, with respect to the Company and First
Respondent Subsidiaries as a result of any audit, examination, investigation
or similar proceeding by any Tax Authorities have been paid or adequate
provision therefore has been recorded in First Respondent Accounts for
(the year before the relevant year).
oa
The Company and each of the First Respondent Subsidiaries have duly
recorded in First Respondent Accounts for (the year before the relevan
t
year) their obligations in respect of all Taxes, or penalties,
fines or
surcharges in relation to Taxes, due or that may become
due by the
Company and each of the First Respondent Subsidiaries
with respect to any

120
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

periods prior to the Closing Date inclusive and the provisions for Taxes as
reflected in those First Respondent Accounts provide a fair image of the
potential exposure of the Company and each of the First Respondent
Subsidiaries in relation therewith as of the Closing Date and have not been
materially underestimated in any manner.
Except as stated in Disclosure Schedule 4.11, there is no pending
subpoena, request for information, audit, examination, investigation or
similar proceeding or any dispute with any Tax Authorities relating to the
Company or any First Respondent Subsidiary, nor have the Company or
the First Respondent Subsidiaries entered into any settlement agreement
therein.
The Company and First Respondent Subsidiaries do not own, have not
agreed to acquire any asset or to enter into any other transaction, and have
not received or agreed to receive any services or facilities (including,
without limitation, the benefit of any license agreement), the consideration
of which was or will be in excess of or below its market value or
determined otherwise than on at arm’s length basis. More specifically and
except as provided in Disclosure Schedule 4.11, neither the Company, nor
any First Respondent Subsidiary, nor their shareholders has entered into
or agreed to enter into any inter-company transaction or arrangement
which could lead to or result in a tax liability for the Company or First
Respondent Subsidiaries.’

[252] “However, by virtue of Clause 8.1.3 of the SPA, Claimant may not advance
a breach of warranty claim in relation to facts or events that were disclosed at the
time of contracting:

‘All Representations and Warranties (except for the Z Contribution) are

made subject to any matter which is disclosed in Schedule 8 or any of the
Disclosure Schedules or in Part A of the Disclosure List, and the Guarantor
shall thus not be liable in respect of any Claim (except for the Z
Contribution) to the extent that the relevant actions, facts or events giving
rise to the Claim were disclosed in Schedule 8 or any of the Disclosure
Schedules or in Part A of the Disclosure List. Any disclosed matter shall
limit the contents and scope of such Representations and Warranties
(except for the Z Contribution) to the extent that such matter has been
properly disclosed in the Disclosure Schedules (contents and, where
applicable, amount) or in Part A of the Disclosure List.’

121
Yearbook Comm. Arb’n XXXV (2010)
 NO. 12745
BER OF COMMERCE
INTERNATIONAL CHAM
dents properly
“ : d t dis ute that, in the instant case, Respon 5
[253] “Claimant does not csp y Z Italia SpA was being investigated by the Italian
mpan
disclosed the fact that Co
tax authorities:

‘Disclosure Schedule 4.11.

Taxes:
General comment:
arly controlled by the Tax
The First Responden t Subsidiaries are regul
customary procedures and
Authorities, as per local regu lations and
s are attached hereto.
practices. Moreover, copies of the services agreement

Company Z Italia srl — None

Company Z Italia SpA:
Disclosure 4.11. First Respondent Taxes
The Italian tax authorities are currently investigating Company Z Italia SpA
for the two years preceding the relevant year.’

Accordingly, Claimant is barred from relying on a breach of the representations

and warranties made by Respondents as such were made subject to disclosures
in Schedule 8 to the SPA.
[254] “However, Claimant contends that its claim is based on a specific warranty
given by Respondents with respect to investigations (Clause 10.1 of the SPA) and
which is not affected by Clause 8.1.3 of the SPA. Respondents dispute this
contention and assert that the parties’ intention was that the scope of Clause 10.1
would be limited to claims relating to investigations carried out by antitrust
authorities with respect to the supplier agreements. Therefore, the issue is
whether Claimant may claim indemnification of amounts owed by Company Z
Italia SpA to the Italian tax authorities on the basis of Clause 10.1 of the SPA.
[255] “In relevant parts, this provision reads as follows ...:

10.1 Specific warranties granted by the Guarantors with respect to

investigation(s)
10.1.1 The Guarantors shall indemnify and hold harmless the Company or
the relevant Subsidiary or, if the Purchaser so chooses, the Purchaser,
against any and all losses, damages and expenses incurred as a result of any
Investigation of any legal or regulatory authority, whether initiated prior
to the date hereof or thereafter, to the extent that such investigation relates
to any agreement, transaction, obligation, commitment, understanding,
or
sec arrangement, action or conduct, known or unknown.
or any
combination of the foregoing (hereafter, any “Matter”) relating
to the
122
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Company or any Subsidiary, and the origin or cause of which is prior to the
Closing Date. In particular, the Guarantors shall assume, or agree to pay,
satisfy or remain unconditionally liable for any and all fines and penalties
and reasonable fees, costs and expenses arising out or related to such
investigation. This guarantee shall remain in force as long as the Company
or the relevant Subsidiary could be held liable with respect to any Matter,
the origin or cause of which is prior to the Closing Date.
Moreover should any of the contracts listed in Schedule 1.1.1.(c), prior
to its normal contractual date, be terminated or modified by any legal or
regulatory authorities for the reason of such investigation, then the
Guarantors shall indemnify and hold harmless the Company or the relevant
Subsidiary, if the Purchaser so chooses, the Purchaser, against any and all
damages incurred by the Company or the relevant Subsidiary as a result of
such termination or modification, it being agreed that said damages shall
be calculated as set forth below.
The Parties shall then negotiate in good faith an amicable solution to
minimize and evaluate said damages, failing which the Parties shall appoint
an independent expert (the “Expert”). For the avoidance of doubt, it is
specified that Clause 12.10 shall not be applicable to said appointment of
the Expert. The Expert shall make a determination of such damages, which
shall be final and binding on the Parties and shall not be subject to any
recourse, except as necessary to enforce such determination. The Expert
shall fulfil its mission within a period of thirty (30) days after the date of his
appointment.
Should the Parties fail to appoint the Expert within a thirty-day period
as from the request by either of the Parties to such appointment, then the
most diligent Party may via a ‘référé’ proceeding request the President of
the Commercial Court of Paris to appoint an independent expert....

10.1.2 Warranties under Clauses 9 and 10

Should any factor event entitle the Purchaser to an indemnification under
both Clauses 9 and 10.1, then Clause 10.1 shall be exclusively applicable.
For the avoidance of doubt, it is specified that none of the limitations set
forth in Clause 9 shall be applicable to the specific warranties granted in
Clause 10.1.’

[256] “The grammatical interpretation of the above provision already shows that
the parties’ intention was that it should apply to investigations in connection with
the supplier agreements held by the First Respondent Subsidiaries. As a matter
of fact. Schedule 1.1.1(c) referred to in Clause 10.1.1(2) is a list of supplier

Yearbook Comm. Arb’n XXXV (2010) i235

 MMERCE NO. 12745
CHAMBER OF CO
INTERNATIONAL
parties’ conduct at
tain Subsidiaries. As will be seen, the
agreemen
tr at e s that the sco pe of Clause 10.1 of the
eIg also — demo ns
ntractin s
carried out by antitrust e
the time re te
f co
lim ite d to inv est iga tio ns
SPA was intended to be wit h a slightly different wording
an
that , alt hou gh
[257] “It thus appears in the draft share purchase agreement
was firs t inc lud ed
structure, this provision time, was being
to a sub sid iar y of Sec ond Respondent, which, at the
relating s provision was
by the Fre nch Dire ctio n Générale de la Concurrence. Thi
investigated with respect to antitrust
granted by the Sellers
then entitled ‘Specific warranties angen
investigation(s)’ ness statement that
[258] “Moreover, Mr. V explained convincingly in his wit
ion where
ly in order to cater for a situat
‘Clause 10 was inserted exclusive on
ed null and void by the competiti
supplier contracts would be declar .’
of the business that was going to be sold
authorities, thereby reducing the value
s hearing that this type of clause is usual
Mrs. L’s general affirmation at the witnes
art from this finding.
in M&A transaction does not enable to dep
disclosure of the ongoing tax
[259] “It is telling that the parties included the imant’s
investigation into the Disclosure Schedule 4.11 to the SPA. If Cla
correct, then this disclosure
construction of Clauses 9 and 10 of the SPA were
e no legal effect. It is a
would have been perfectly useless and would produc
ct in case of ambiguity
principle of interpretation that a provision of a contra
e e legal effect
should be constructed in such a way that it should produc som
s not in
rather than none (Art. 1157 of the FCC). Clause 10.1.2 of the SPA doe
any way impair such logic.
[260] “Moreover, Clause 9 of the SPA specifically refers to investigations led by
‘Tax Authorities’, a term which ‘has the meaning set forth in Art. 3.11 and 4.11
of Schedule 8’ (Clause 1.1.1 of the SPA), thus a rather limited and technical
meaning. On the contrary, the broad wording of Clause 10.1.1 of the SPA refers
to ‘any legal or regulatory agency’ a vocabulary that does not really fit the tax
authorities. Likewise, Clause 10.1.1(2) of the SPA refers to the damage incurred
if the said legal or regulatory authorities should terminate or modify a contract
listed in Schedule 1.1.1(c). Competition legal or regulatory authorities are more
often than not empowered to decree such kind of sanctions. It is most unusual
that the tax authorities may thus terminate or modify an agreement: in principle
they will merely reassess the tax payable. |
[261] “In light of the above, the Arbitral Tribunal finds that the parties’ intention
was to restrict the scope of Clause 10.1 to claims related to investigations from
antitrust authorities in connection with supplier agreements. It is thus
unnecessary to determine whether this Arbitral Tribunal would have jurisdiction
to apply Clause 10.1 of the SPA in view of the provision of Clause 10.1.1(3).”

124 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRAL AWARDS

XI. RESPONDENTS’ COUNTERCLAIM FOR ABUSIVE PROCEEDINGS

[262] “Art. 19 of the ICC Rules sets out the principle that the parties may not
advance new claims or counterclaims that are not within the limits fixed by the
Terms of Reference once these have been signed. In the instant case, it is
undisputable that Respondents’ counterclaim for abusive proceedings is a new
claim and that it falls outside the limits of the Terms of Reference. Accordingly,
this counterclaim should in principle be declared inadmissible.
[263] “However, Art. 19 of the ICC Rules confers upon the Arbitral Tribunal the
power to authorize the introduction of new claims after the signing of the Terms
of Reference in certain circumstances. The Arbitral Tribunal, which retains
broad discretion in this respect, must consider ‘the nature of such new claims or
counterclaims, the stage of the arbitration and other relevant circumstances’.
Respondents introduced their counterclaim for abusive proceedings in their first
written submission. Claimant could rebut it in both its second written submission
and its post-hearing brief. In other words, Claimant, which has had ample
opportunity to state its case in this respect, did not suffer any prejudice from the
fact that Respondents’ counterclaim was not mentioned in the Terms of
Reference.
[264] “This notwithstanding, the Arbitral Tribunal considers that this is not a fit
case for exercising its broad discretion. Respondents do not allege that Claimant
acted in bad faith during the proceedings but argue that the arbitration itself was
initiated in bad faith, which only came to light after the Terms of Reference were
signed.
[265] “This argument is without merit. Respondents knew perfectly the ins and
outs of Claimant’s action at the time the Terms of Reference were signed. In
fact, they were known to Respondents well before as, in accordance with the
SPA, Claimant had to file a notice setting forth the nature of its claim prior to
filing with the ICC. Moreover, it appears from the facts of this matter that
Respondents closely collaborated with Claimant until two months after the
Closing to try and resolve the situation in Italy. In fact, Respondents had already
stated four months after the Closing that Claimant’s position was not only
unwarranted but further inadmissible ‘dans la forme’. Therefore, the Arbitral
Tribunal shall not authorize Respondents’ counterclaim for abusive proceedings.
[266] “In any event, the general principle is that everyone has a vested right in a
discretionary possibility to seek judiciary (or arbitration) remedies in case of
injury. A limitation to such vested right is to be construed very narrowly. As a
matter of fact, the French Cour de Cassation requires fraud, bad faith or such
recklessness that it is tantamount to a fraud:

125
Yearbook Comm. Arb’n XXXV (2010)
 CE NO. 12745
AMBER OF COMMER
INTERNATIONAL CH
dé eénere
e dég
it et nne
ne act ion en jus tic e .. _ constitue en principe un dro
‘(I exercice d’u ages-interets que
po uv an t do nn er nai ssa nce a une dette de domm
en abus de droit au dol’.
,

rreur grossiere equivalent

/ -
oA

d’e
,

foi ou
~

vai se
°

dans le cas de malice , de mau

Comm..,
, 11 Jan uar y 197 3, in 197 3 Gaz ette du Palais II, p. 710; Cass.
(Cass. civ. tions,
in Bul l. Civ . IV, no 206 . See also Malaurie/Aynes, Les obliga
4 July 199 5,
122, p. 63, who expressly require an
10th ed., Cujas, 1999/2000, no.
ée’ ) wrongful act).
intentional or qualified (‘caractéris d
counterclaim for costs, Respondents shoul
[267] “In order to prevail on their
bus de droit’). Respondents have not
therefore show a misuse of law (‘a
undless claims in bad faith. It is true
demonstrated that Claimant relied on gro
Respondents. However, such a result
that this award finds largely in favour of
was not manifest from the outset.
bit of evidence in support of
[268] “Finally, Respondents did not adduce the first of
t of Claimant’s initiation
the extent of the loss allegedly curred as a resul
Tribunal shall dismiss
these proceedings (€ 50,000). Therefore, the Arbitral
s.”
Respondents’ counterclaim for abusive proceeding

XII. COST OF THE ARBITRATION

[269] “Claimant claims fees and expenses of € 1,028,161.27 (fn. omitted).

Respondents claim fees and expenses of € 812,376.67 (fn. omitted).
Respondents have objected to Claimant’s statement of costs, stating that no
description of the services rendered by Claimant’s counsel had been provided
whilst the latter handled other proceedings on behalf of Claimant and that the
‘in-house counsel time’ was extremely high, in particular as compared to the
time spent by Respondents’ executives. Based on this, Respondents requested
that, if appropriate, the Arbitral Tribunal reduce Claimant’s assessment to a
more reasonable figure.
[270 “Claimant’s counsel produced the detail of the services rendered to his
client. Moreover, counsel for Claimant confirmed that his firm did not represent
Claimant in any litigation before the French courts, the case referred to by
Respondents opposing Second Respondent to Company DEF and the services
rendered in this context being billed to Company DEF. Finally, Claimant's
counsel noted that the cost of Claimant’s defence was roughly equal to the cost
veRespondents and specified that only the time of the three most involved in-
etuerOounise! had been taken into consideration.
[271] “The ICC costs of arbitration amount to US$ 370,000.00. Towards this
amount, each of the parties paid an advance of US$ 185,000. ,

126
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

[272] “Within its Post-Hearing Brief, Claimant has asked the Arbitral Tribunal
to say that Respondents will bear all the costs of the arbitration and indemnify
Claimant for the legal costs it has sustained and will sustain in the present
proceedings, which precise amount will be provided to the Tribunal at a later
stage. Within their Submission No. 3 (post-hearing submission), Respondents
have requested the Arbitral Tribunal to rule that in any event, Claimant must
bear all costs of the arbitration and indemnify Respondents for the costs incurred
in the present proceedings.
[273] “Under Art. 31(3) of the ICC Rules, ‘the final Award shall fix the costs of
the arbitration and decide which of the parties shall bear them or in what
proportion they shall be borne by the parties’. It is accepted that this rule gives
the Arbitral Tribunal broad discretion in deciding on the costs of the arbitration,
which are defined at Art. 31(1). The only general requirement is that the Arbitral
Tribunal give the reasons for whatever solution it adopts, in accordance with Art.
25(2) of the Rules (Derains/Schwartz, A Guide to the New ICC Rules of
Arbitration, The Hague 1998, pp. 340-344 and references).
[274] “A common method is to award costs to the party having won the
arbitration or, where there is no clear winner, to allocate costs in proportion to
the outcome of the parties’ claims (‘costs follow the event’). Another criteria
adopted by arbitral tribunals under the ICC Rules is the general conduct of a
party and the more or less serious nature of the case it has defended
(Derains/Schvvartz, op. cit., pp. 341-342 and 344).
[275] “In the instant case, Claimant has lost on most of its principal claims. There
should be no reason to depart from the principle that costs follow the event. As
this principle is understood and applied in international arbitration, Claimant
would bear the costs of this arbitration as well as all of Respondents’ reasonable
legal and other costs.
[276] “However, Respondents do not fully prevail: the initiation of arbitration
proceedings was therefore neither abusive nor even unjustified. Moreover,
Respondents did breach the SPA. Claimant does not fall on the issue of breach
but rather on the issue of causation. It took significant effort and work for both
parties’ counsel to present their clients’ respective cases and to gather and submit
their evidence to the Tribunal on such issue and the final findings in this
connection were hardly discernible before the full evidentiary proceedings.
[277] “Within the broad discretion Art. 31(3) of the ICC Rules leaves to the
arbitrators, it thus appears fit to order that Claimant shall bear 75% of the costs
of this arbitration, which allocation shall apply to both ICC costs and the
Respondents’ reasonable legal and other costs, Claimant bearing its own legal
and other costs.

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ed Fa
ts’ costs has not been disput
[278] “The amount of Responden c o deter :
imant’s costs. There is no nee
is roughly comparable to Cla ggerate
e included by Claimant is exa
whether the in-house counsel tim amount Oo
d to pay Respondents the
Therefore, Claimant shall be ordere
le legal and other costs incurred
€ 609,282.50 as a contribution to the reasonab |
|
by Respondents for this arbitration.
0.00. Since both parties have
79] “The ICC costs have been fixed at US$ 370,00
each, Claimant shall pay
paid the advance in equal shares of US$ 185,000
Respondents US$ 92,500.00.”

XIII. AWARD

[280] “Therefore, the Arbitral Tribunal hereby makes the following Award:

(1) Ordering that Respondents pay to Claimant the amount of € 180,000.00,

plus compound interest at the French statutory rate on the amount so awarded
from the date of this Award until payment, being specified

(i) that two thirds of this amount (€ 120,000.00) shall be paid by Second
Respondent and one third (€ 60,000.00) by Z and
(ii) that any amount awarded to Claimant by the italian courts to compensate it
for the legal costs incurred in connection with the proceedings initiated by Mr.
X shall come into deduction of this amount.

(2) Ordering that Claimant bear 75% of the costs of this arbitration fixed by the
ICC International Court of Arbitration that is pay to Respondents the amount of
US$ 92,500.00.
(3) Ordering that Claimant pay to Respondents the amount of € 609,282.50 as
a contribution to the reasonable legal and other costs incurred by Respondents
for this arbitration.
(4) Denying all other claims of the parties.”

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 ARBITRAL AWARDS

Final award in case no. 13133

Parties: Claimant: Contractor (Tunisia)

Respondent: Supplier (India)

Place of
arbitration: Paris, France

Published in: Unpublished

Subject matters: — proof of damage

— United Nations Convention on Contracts for the
International Sale of Goods (CISG), Vienna 1980
— failure to comply with discovery order
— failure to release payment security
— post-termination contractual obligations
— costs of arbitration

Summary

The CISG applied to a case between parties from non-CISG States because the law applicable to their
contract was the law ofFrance, which is a CISG State. All ofclaimant’s claims were denied forfailure
to provide sufficient and convincing evidence. The CISG requires proof that a damage has been
“suffered”. Claimant did not supply such proof in respect of its alleged loss of profit and loss due to
fluctuation of the exchange rate between the Euro and the US dollar. Nor did it prove that, had it
suffered a loss, that loss would have been caused by respondent’s breach. As to an alleged loss ofbank
interest because respondent did not release a payment security immediately after the contract's
termination, the tribunal held that Art. 81(1) second sentence CISG — which relevantly provides that
avoidance of a contract does not affect the contract’s provisions “governing the rights and obligations
of the parties consequent upon the avoidance of the contract” —comprises implicit contract terms, one
ofthem being the release ofpayment securities. However, in this respect too claimant failed to establish
that it suffered a loss. The arbitrators also dismissed for lack ofproof claimant’s claims for (i) general
overhead costs, leaving open the question whether the salaries ofemployees and executives dealing with
the litigation could be claimed under this heading, and (ii) moral damages, leaving equally open the
question whether the CISG allows such claim. Although claimant failed in respect of all its claims, the
origin of the arbitration lay in the respondent’s breach, and the tribunal decided that the parties
should share the costs of the arbitration equally and bear their own legal costs.

Anentity of State X (the State X Entity) entered into a construction contract (the
State X Entity Contract) with a Tunisian contractor (Claimant) for the

Yearbook Comm. Arb’n XXXV (2010) 129

 NO. 13133
R OF COMMERCE
INTERNATIONAL CHAMBE

Project). Claimant subsequently

development of a project in State X (the
used in the
ded a sub con tra ct for the del ivery of a certain product to be
conclu ct
(the Con tra ct) wit h an Indi an supplier (Respondent). The Contra
Project
substantive law; it also contained an ICC
provided for the application of French
arbitration clause.
act, the State X Entity gave order
Upon conclusion of the St ate X Entity Contr
ransferabl| e Letter of Credit in favour
to a bank to open an irrevoca ble and non-t
,
expir y date was later extended
of Claimant with a specified expiry date (the
gn the Letter’s proceeds to
several times). It was agreed that Claimant would assi
the case at hand,
banks that would then pay Claimant’s subcontractors. In
of
Claimant was to assign the proceeds of the Letter of Credit to the State Bank
.
India (SBI) by a Letter of Assignment (the Assignment of Proceeds — AOP)
The Contract between Claimant and Respondent provided for delivery of the
product at a specified port of State X. The delivery was to take place in two lots,
twenty and twenty-four weeks, respectively, following the receipt by
Respondent of the AOP.
Claimant issued the AOP four months after conclusion of the Contract.
Respondent informed Claimant at first of the measures it had undertaken to fulfil
its obligations but, shortly thereafter, it sent Claimant an e-mail in which it
referred to the “war-like situation/Force Majeure conditions” in State X and
raised several issues: inter alia, that both the costs of the raw material for the
product and freight costs had risen and that it could not get insurance cover for
State X. Respondent concluded that it would have to stop production unless
these issues were resolved. Respondent claimed that it would have executed the
Contract had there not been a delay of four months between the signature of the
Contract and the issuance of the AOP.
Claimant insisted in turn that Respondent perform in accordance with the
Contract’s original terms. At that point, serious disturbances broke out in State
X and all deliveries thereto were temporarily stopped. When disturbances
ended, the Project was allegedly revived and Claimant asked Respondent
whether it was still willing to fulfil its obligations, to which Respondent replied
that the initial conditions were no longer applicable and requested a substantial
increase of the contract price. Claimant replied that if Respondent failed to
confirm within two days its willingness to perform under the original terms of
the Contract it would consider that Respondent had decided unilaterally to
terminate the Contract. When Respondent did not reply, Claimant
sent
Respondent an e-mail (the termination e-mail), stating that by not replying
Respondent had unilaterally terminated the Contract and asking Respondent
to
cancel the AOP in its favor

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 ARBITRAL AWARDS

Claimant subsequently commenced ICC arbitration against Respondent as

provided for in the Contract. The arbitral tribunal first rendered an Interim
Award on Provisional Measures, ordering Respondent to release the AOP.
Respondent complied with this award. Six months later, the tribunal rendered
a Partial Award on the Merits, followed by an Addendum, in which it held that
the Contract had been terminated by the termination e-mail, that the termination
was imputable to Respondent’s breach of contract and that Respondent was not
excused for this breach. The arbitrators reserved their decision on the quantum
of damages.
In the subsequent proceedings, Respondent filed a request for discovery by
Claimant in respect of (i) the status of the State X Entity Contract; (ii) the status
of any agreement replacing the Contract and (iii) the status of any subcontract
whose performance has been delayed and/or has caused delay in the performance
of the State X Entity Contract. By Procedural Order no. 6, the arbitral tribunal
ordered Claimant to submit certain categories of documents. In accordance with
this Order, Claimant supplied a certain number of documents.
At the oral hearing, Claimant announced that due to the expiry of the Letter
of Credit the State X Entity Contract had come to an end. No relevant
documents were submitted. It also withdrew two substantial claims, namely, the
request for payment of the difference between the contractual price of the
product and its current price and a penalty claim for late shipment.
By the present Final Award — which incorporated the Interim Award on
Provisional Measures, the Partial Award on the Merits and the Addendum
thereto — the arbitral tribunal rejected all of Claimant’s claims for lack of proof.
The arbitrators held at the outset that the United Nations Convention on
Contracts for the International Sale of Goods (CISG) of 11 April 1980 applied,
as the parties chose French law to govern their contractual relation; France is a
contracting state to the CISG, though Tunisia and India are not.
The arbitral tribunal stated that it had previously decided in its Partial Award
on the Merits that the Contract was terminated by the termination e-mail, that
Respondent breached the Contract and that it was not excused for this breach.
The Final Award therefore only concerned the issue whether Claimant was
entitled to damages and the issue of who would bear the costs of the arbitration.
The tribunal noted preliminarily that Claimant failed to fully comply with the
discovery order in Procedural Order No. 6, in particular in respect of the status
of the State X Entity Contract, the performance of other subcontractors and the
impact of the disturbances in State X. The tribunal was also “completely left in
the dark” in respect of the reaction of the State X Entity to the non-delivery of
the product by Respondent.

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explanation forthis— .ae

Claimant failed to give an acceptable
ument that the issue in aspn yi
the tribunal dismissed Claimant’s arg "
dent rather than :; ” a
Contract between Claimant and Respon
arbitrators a <6 wie O 7
Contract, reasoning that various claims before the
pondent s breach could not be
latter contract and that the consequences of Res
taking into consideration the main contract and its
appreciated without
erformance. |
ary to
. Before dealing with the specific claims, the tribunal stated that, contr
Claimant’s opinion, the Partial Award on the Merits did not find that Claimant
was entitled to damages. Rather, it found that Respondent committed a breach
of contract; this does not entail ipso facto an entitlement to damages. Thus, the
Partial Award had no res judicata effect on Claimant’s entitlement to damages.
The arbitral tribunal then examined Claimant’s claims. It first dismissed the
claim for loss ofprofit, holding that it was neither convinced that Claimant actually
suffered a loss, nor, if a loss was suffered, that it was caused by Respondent’s
breach of contract.
Art. 74 CISG explicitly includes loss of profit among the damages that have to
be compensated. It also requires that damage must have been “suffered”. In the
present case, it appeared at first glance that Claimant did suffer a damage, since
it could not realize a profit. However, several factors pointed in the opposite
direction and, in the absence of information on most aspects of the case, led the
arbitrators to doubt first and then conclude that Respondent’s breach did not
cause any damage to Claimant in this respect.
The tribunal noted in particular that Claimant failed to give a satisfactory
explanation for its choice not to make a cover purchase to meet its obligations
under the State X Entity Contract. The most likely explanation, found the
tribunal, was that Respondent’s product was no longer needed for the Project.
Further doubts arose because Claimant’s position as to the quantum of its loss of
profit was so “simplistic” as to hurt “common commercial sense”. Claimant
namely appeared to confound gross margin with profit. The arbitrators
stressed
that they had the impression that there were many facts which
Claimant did not
tell, most likely because they would have stood in the way
of its arguments.
These doubts “finally prevailed over the initial preparedness
to award damages
after the breach of contract committed by Respondent”,
since Claimant failed to
convince the arbitral tribunal that it suffered a dama
ge and that that damage was
caused by Respondent’s breach and not
by other factors.
The tribunal then dismissed Claimant’s request
for damages for loss of bank
interest. Claimant argued that due to Respondent’s
refusal to release the AOP
immediately after the contract was terminated,
it had not been able to request

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 ARBITRAL AWARDS

payment for certain goods and services and asa consequence lost the interest that
it would have earned if it had cashed the money and invested it.
The arbitral tribunal first found that Respondent was indeed obliged to release
the AOP following avoidance of the Contract. It noted that Art. 81(1) second
sentence CISG — which provides that avoidance does not affect any provision of
the contract governing the rights and obligations of the parties consequent upon
the avoidance of the contract — was not helpful since, taken literally, it seems to
refer only to specific contractual provisions that are applicable after the contract’s
termination (such as confidentiality clauses, clauses providing for restitution of
documents, etc.). Such provisions, in the tribunal’s experience, are seldom
concluded; this was also the case here. Nor were commentaries to the CISG of
assistance; specifically, reliance on the rules of undue enrichment when
describing the scope of post-avoidance contractual obligations was inadequate,
as these obligations may be substantial and complicated. The arbitrators
concluded that Art. 81(1) second sentence CISG also comprises implicit contract
terms, such as the release of payment securities. Thus, the tribunal held that
subsequent to avoidance Respondent had an obligation to release the AOP.
A failure to comply with this obligation can give rise to damages if a loss is
proven and a causal link is established. However, in the case at hand Claimant
again failed to establish that it suffered a loss, since the documents it supplied
were irrelevant.
Claimant also claimed damages for loss due to fluctuation of the exchange rate
between the Euro and the US dollar. It argued that it purchased equipment from
a supplier in Euros and, due to the fact that the AOP was still blocked when the
goods were ready to ship, it could not pay its supplier at that time. When
payment was finally made, the Euro had increased against the US dollar.
The arbitrators again found that the documents submitted by Claimant were
inconclusive and failed to justify the claim. :
Claimant’s claim for general overhead costs was equally unsuccessful, also for lack
of proof, as Claimant only submitted an estimate and did not support its claim
by any evidence. The tribunal therefore left open the question whether the
salaries of employees and executives dealing with the litigation could be claimed
under this heading.
The arbitral tribunal then dismissed Claimant’s claim for aggravated damages,
by which Claimant sought “moral damages” and damages for loss of reputation.
The tribunal held that the latter was not proven in any way and that it need not
decide whether the CISG allows a claim for moral damages because Claimant
failed to supply any evidence in this respect.

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t phase of
Claimant had prevailed in the firs
The arbitrators finally noted that substantial
arbi trat ion, whil e full y losi ng the second and withdrawing two
this t S breach.
arbitration was Responden
claims. On the other hand, the origin of the ion by taking
the costs of the arbitrat
The ssibieendl therefore decided to >allocate »”
It
r
end”.
°
in the
“
te, not only “who wins
into account th e origin of the dispu
the costs of the arbitration equally and
concluded that the parties should share
ony
bear their own legal costs.

Excerpt

[1] “The Tribunal summarises its understanding of the agreed payment

mechanism as follows:

(1) Upon conclusion of the Contract with the State X Entity, Bank X opened an
irrevocable non-transferable letter of credit [LC] in favour of Claimant with a
specified expiry date. With respect to the payment of the subcontractors and in
view of the non-transferable character of the LC, it was provided that the
proceeds of the LC were assigned to a bank which would procure the payment
to the subcontractor. In the present case the ‘assignment of proceeds’ or ‘Letter
of Assignment’ was issued to the State Bank of India [SBI]. The AOP has the same
irrevocable character as the letter of credit. The Tribunal understands that
payment under the AOP can be claimed according to the same documentary
conditions as set forth in the LC.
(2) Following the Interim Award on Provisional Measures, the AOP was
released.
(3) The validity date of the letter of credit issued in favour of Claimant was
initially fixed for a certain specified date. About five months after that date, the
LC was modified with an expiry date the following year.
(4) Claimant has not undertaken a cover purchase of the product.

[2] “During the Hearing, Claimant announced that the LC under the State
X
Entity contract had come to an end as well as the contract with the
State X
Entity. Whereas Claimant did not submit any evidence in this
respect,
Respondent produced two Exhibits from which it results that
indeed the
Claimant/State X Entity contract came to an end, but not
the Project. It further
results that the product has not been supplied under the origina
l contract. Items
3.4 to 3.6 of the first of the above two [Exhibits] — Minutes
of a Meeting of high
ranking officials of the State X Ministry concer
ned — reads: *

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 ARBITRAL AWARDS

‘3.4 To notify the Tunisian company (Claimant) through an appropriate

letter of the decision to consider that the materials it supplied are sufficient
as a preliminary step towards the termination of the contract and the
amicable and fair settlement of the outstanding matters.
3.5 To continue [illegible] in the Project.
3.6 To continue the proceedings for the purchase of a smaller quantity of
the product.’

[3] “Further facts will be set out when dealing with the respective claims.”

I. APPLICABLE LAW

[4] “The present Arbitration has been introduced on the basis of Art. 24 of the
Contract concluded between Claimant and Respondent, which reads as follows:

‘The present Contract shall be governed by and constructed under the

substantive law in force in France.
Any dispute arising in connection with this Contract that cannot be
solved amicably, shall be finally settled by Arbitration.
The Arbitration shall be conducted in English Language in accordance
with the Rules of Conciliation and Arbitration of the International
Chamber of Commerce.
The place of arbitration shall be Paris, France.’

[5] “Para. 1 of Art. 24 of the Contract provides: “The present Contract shall
be governed and construed under the substantive law in force in France.’ France
is a member state of the United Nations Convention on Contracts for the
International Sale of Goods (‘CISG’) of 11 April 1980 (Decree No. 87 — 1034
of 22 December 1987). The CISG applies to contracts of sale of goods between
parties whose places of business are in different states, when these states are
contracting states (Art. 1(1)(a)) or when the rules of private international law
lead to the application of the law of a contracting state (Art. 1(1)(b) CISG).
[6] “The Contract is a contract of sale; none of the exceptions of Art. 3 CISG
apply.' The parties have their places of business in different states, but neither

1. Art. 3 of the United Nations Convention on Contracts for the International Sale of Goods (1980) —
CISG reads:

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INTERNATIONAL CHAMBER

parties have agreed

Tunisia nor the Republic
of India are contracting states. The
The CISG is part of hin French law,
French law. Wit
though to apply French law. sequently
is lex spe cia lis wit h res pe ct to international sales contracts. Con
CI SG
case.”
the CISG applies in the present

Il. PROCEDURAL BACKGROUND

namely an Interim
[7] “The Tribunal rendered two awards in this arbitration,
l Award on the
Award on Provisional Measures and six months later a Partia
s and the
Merits followed by an Addendum the following month. The two Award
.
Addendum are hereby incorporated by reference into this Final Award
[8] “The subject matter of the Interim Award on Provisional Measures was to
order Respondent to release the AOP and to allow Claimant to use the
corresponding funds for the further execution of the contract with the State X
Entity. When ordering Respondent to release the AOP the Arbitral Tribunal
found that the Contract between Claimant and Respondent had been avoided
(terminated) by the termination e-mail. The AOP was released after the issuance
of the Interim Award on Provisional Measures.
[9] “The Partial Award on the Merits dealt with the issue of whether this
avoidance was imputable upon Respondent and whether Respondent was
excused for it. The Tribunal, with a decision supported by its majority, came to
the conclusion that Respondent breached the Contract and was not excused. The
dispositive part of this Award reads as follows:

‘(1) Respondent has breached the contract.

(2) Respondent is not excused for the breach.
(3) The termination by the termination e-mail was caused by Respondent’s
breach and is as such justified.
(4) Failing a breach of contract by Claimant there is no basis for
Respondent’s counter-claim which is hereby rejected.
(5) The decision on the Quantum of Claimant’s damages, the decision on
costs and all other decisions are reserved.’

(1) Contracts for the supply of goods to be manufactured or produce

d are to be considered sales
unless the party who orders the goods undertakes to supply
a substantial part of the materials
necessary for such manufacture or production.
(2) This Convention does not a ly to contracts in which th a siay ti
Ppty to contracts in which the preponderant part of the obligations
of the party who furnishes the goods consists in the supply of labour or other services.”

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[10] “Procedural Order No. 5 organised the sequence and the dates of the
Memorials to be submitted in this second phase of the Proceedings.
[11] “Subsequent to Claimant’s Memorial on Quantum, Respondent submitted
its ‘Memorial in Response on Damages’. Simultaneously it filed a request for
discovery, in which it asked the Tribunal to order Claimant to ‘completely
inform the tribunal and Respondent about (1) the status of the State X
Entity/Claimant agreement; (2) the status of any agreement replacing
Respondent/ Claimant subcontract as the case may be and (3) the status of any
subcontract the performance of which has been delayed and/or has caused delay
in the performance of the State X Entity/ Claimant agreement, and produce to
the tribunal and Respondent complete copies of the following documents ...’.
Respondent specified in six subsequent paragraphs the documents which it
requested,
[12] “After having obtained Claimant’s comments, the Tribunal issued
Procedural Order No. 6 and ordered Claimant, on the basis of Art. 20(5) of the
ICC Rules, to submit certain categories of documents. The Tribunal granted
Claimant an extension of time for the submission of its rejoinder and the
documents in fulfilment of the Discovery. Procedural Order No. 8 clarified upon
Respondent’s request one aspect of Procedural Order No. 6. Due to settlement
negotiations, the Tribunal granted, upon request of both parties, an additional
time for the submission of Claimant’s reply and for Respondent’s rejoinder
(Procedural Order No. 9). Both submissions were received in due time.
[13] “The Tribunal issued Procedural Order No. 10, fixing the hearing date. In
view of the preparation of the Hearing, the Tribunal instructed the Parties that
‘no new documents nor pleadings shall be accepted any more’. On the following
day, Claimant submitted pleadings in the form of a letter and ten new documents
(the post-expiry documents). It requested that the Tribunal disregard
Respondent’s letter addressed by the director general of the State X Entity to
Claimant’s chairman, submitted together with Respondent’s Memorial.
[14] “Claimant’s Counsel requested the Arbitral Tribunal that ‘the next Hearing
will be held as the previous Hearing in French’ and said that it would take in
charge the fees of the translator. The Chairman answered in the following terms:
‘The language of the Arbitration is English and not French, This cannot and will
not be modified. The previous Hearing was held in English with Claimant
speaking in French through an English translator. Only the English translation
was taken into account and transcribed by the Court reporter.’ This way to
proceed was accepted by Claimant’s Counsel in a fax.
[15] “With Procedural Order No. 11, the Tribunal rejected the post-expiry
documents and declined Claimant’s second request. Reference was made to

Arb’n XXXV (2010) 137

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No. 10. Cla ima nt obj ect ed and , on the basis of the Tribunal’s
r cedural Order
Pro ,
was discussed at the Hearing.
letter, the subject matt er l
ICC headquarters. Since Claimant’s Counse
[16] “The Hearing took place at the the
nc h, upon her request a translation from
wished to express herself in Fre
a was provided, the costs of which
*
:

French to the English language and vice vers

recor ded by a court reporter, who later
are borne by Claimant. The session was
. ,
distributed a verbatim transcript of the session.
y documents was
[17] “Atthe Hearing, the admissibility of Claimant ‘s post-expir
red that he was not
discussed as a preliminary issue. Respondent’s Counsel decla
ed that these
opposed to their admission, upon which the Tribunal decid
of the co-
documents were admitted. As a preliminary issue as well, one
arbitrators made a declaration with respect to Claimant’s Counsel's wish to plead
in French. In his opinion, even though the pleading is translated in English, this
is not in accordance with the Terms of Reference and the agreement of the
Parties for the use of the English language. The Chairman of the Tribunal
commented that statement by saying that this opinion was not shared by the
other members of the Arbitral Tribunal and that the Terms of Reference were
fully respected since only the translation into the English language would be
taken into account.
[18] “During her oral pleadings, Claimant’s Counsel announced that due to the
expiry of the Letter of Credit under the State X Entity contract, the contract
with the State X Entity had come to an end. No documents about this new
development were submitted. Further Claimant withdrew two of its claims,
namely the request for payment valued at US$ 5,695,211 being the difference
between the price fixed by the contract with Respondent and the ‘current price’.
Additionally, the penalty claim for late shipment of US$ 574,165 was
withdrawn.
[19] “On the second day of the Hearing, Respondent’s Counsel observed that,
even though he communicated the information of the termination of the State X
Entity contract to his client by phone, he reserved the right to comment on it
later on.
[20] “Subsequent to the Hearing, the Tribunal issued Procedural Order No. 12,
in which it ruled on comments to the transcript and the submission of additional
documents by Respondent with respect to the termination of the State X Entity
contract.
[21] “The Parties and two members of the Tribunal submitted ‘errata
lists’ to
the transcript which were exchanged and annexed to it. Respondent
handed in
a brief submission together with three additional documents on the
issue of the
termination of the State X Entity contract. Claimant was given
a time limit to

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comment on this submission. Claimant replied, upon which the Tribunal

informed the Parties that it would deliberate on the basis of the submitted
arguments and documentary evidence.
[22] “The submissions on the costs were made and one week later the Arbitral
Tribunal closed the proceedings (Art. 22(1) of the Rules).
[23] “By application of Art. 24(1) of the ICC Rules, the initial time limit for
rendering the Award was [a certain date]. The ICC International Court of
Arbitration extended this time limit for rendering the Final Award....”

Ill. | THE PARTIES’ CLAIMS

[24] “The Tribunal was initially seized with a Claim amounting to

US$ 14,809,000 and a counterclaim of US$ 2,083,155. After rejecting
Respondent’s counterclaim in the Partial Award on the Merits, Claimant
modified its claim by claiming altogether US$ 11,950,474 and € 300,000. At the
Hearing, Claimant declared that it withdraws two of its claims, namely the one
for the difference between the price fixed by the contract with Respondent and
the ‘current price’ for US$ 5,695,211, and the claim aiming at the payment of
the penalty for late shipment of US$ 574,165. Following the withdrawal of these
two claims and, upon invitation by the arbitrators to check the exact amounts of
its claims, Claimant requests the tribunal to order Respondent to pay to Claimant
as damages:

Loss of profit: US$ 3,973,864

Loss of bank interest: US$ 271,354
Loss due to fluctuation
of the exchange rate: US$ 483,082
General overhead costs: US$ 420,000
Aggravated damages: US$ 400,000
Interest: the amount as calculated by the arbitral tribunal
Legal costs: US$ 165,000 and € 400,000

These amounts take into account an increase of the claims made at the Hearing
for general overhead costs from US$ 400,000 to US$ 420,000 and the claim for
reimbursement of legal costs from € 300,000 to € 400,000. No additional
documents (except for legal costs within the submissions of [a certain date]) were
produced.
[25] “Respondent requests the Tribunal:

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| 7
all claims made by Claimant;
mages awarded to Claimant in
dismiss
ie ’ red uce the am ou nt of da
a ominknis s pursuant to Art. 77
accordance with Claimant’ s duty to mitigate its damage
CISG; of
co sts of the arbitration including the costs
(c) order Claimant to pay all the ,
pon den t's Cou nse ls and exp ert s; and
Res l deem just and
(d) grant Responden t any other relief that the tribunal wil
appropriate.

request under (c) and

At the Hearing, Respondent modified its previous »”

formulated a new one as recorded above.

Iv. ANALYSIS

[26] “The Tribunal has previously decided that the Contract between Claimant
and Respondent was terminated by the termination e-mail, that Respondent
breached the Contract and that it was not excused for this breach. The subject
matter of this Final Award is to determine whether Claimant is entitled to
damages pursuant to Arts. 74 to 77 CISG and the issue of who has to bear the
costs of this arbitration.”

I. Discovery

[27] “Prior to the examination of the individual claims, the Tribunal has to
address the issue of the discovery ordered by Procedural Order No. 6 and
commented in Procedural Order No. 8. The conclusion, which the Tribunal will
draw from this issue, has an influence on its position with respect to the claims.
Following Respondent’srequest and after having given Claimant the opportunity
to comment, the Tribunal ordered the production of documents as specified,
detailed and listed in Procedural Order No. 6. The Tribunal gave detailed
reasons for its decision and explained the relation and pertinence of the requested

2. Art. 77 CISG reads:

“A 7

éircums relies
party who to breach of contract
ae on a the ; must take such measures as are reasonable in the
cumstances mitigate loss, including loss of profit, resulting from the breach. If he fails to
take
- i,s measures, the party in i breach may claim i a reduction in the damages in the amount by
which the loss should have been mitigated.”

140
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documents with the issues at stake, After having granted the time requested by
Claimant, Claimant submitted thirty-five documents, out of which ten are legal
texts, others have been submitted and only the remaining documents were
submitted in fulfilment of Procedural Order No. 6.
[28] “In particular the following areas though covered by Procedural Order No.
6 were largely or totally omitted from Claimant’s submission:

(i) The execution of the State X Entity contract.

(ii) The impact which the war-like situation had on the execution of the State X
Entity contract.
(iii) The performance of the other subcontractors and how these performances
were influenced by the war-like situation in State X.
(iv) The claims made by the State X Entity.
(v) The claims made by Claimant against the State X Entity

Consequently, the Tribunal and Respondent are completely left in the dark with
respect to the conditions of the fulfilment of the State X Entity contract, to the
reaction of the State X Entity in view of the non-delivery of the product, the
impact of the disturbances in State X on this contract and the degree of contract
execution overall.
[28] “Through the comparison of the various modifications of the letter of
credit, the Tribunal understood that the contract amount was reduced from
initially US$ 51,932,155 to US$ 47,211,050 and the LC was finally reopened for
US$ 21,697,591.06. The Tribunal later on learned that the total amount
executed under the Contract was around US$ 24,000,000. Even if the Tribunal,
for calculation purposes only, adopts Claimant’s view that the AOP blocked the
Contract execution for an amount of around US$ 11,000,000, it has no
information why only part of the Contract was executed, nor why the initial
Contract amount was so drastically reduced.
[29] “A dim light was shed on these issues by one of Respondent’s submissions
and in particular [a certain document]. Even though it may well be that Claimant
is not in possession of that (internal) document, it ought to have informed the
Tribunal about a number of facts which implicitly result from the minutes of
meeting (no delivery of the product, reduction of the contract amount, and
consequently of the scope and the envisaged ‘amicable and fair settlement of the
outstanding matters’).
[30] “Claimant’s position in respect of non-compliance with the discovery is
unfounded. As far as it alleges a confidentiality agreement, the Tribunal has not
seen one and reminds Claimant that it specifically offered the possibility to black

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INTERNATIONAL CHAMBER

with this problem. The argume

nt that the issue of the
out or oth erw ise cop e
ract and not the State X Entity contract
pon dent cont
litigation is Claimant/Res ract. The
oun ded . Var iou s cla ims have a relation to the State X Entity cont
is unf
itu de of the State X Entity in respect of the non-
Tribunal needed to know the att e of the
ct, the time schedule, the influenc
fulfilment of Respondent contra
ch
es 0 f the breach of contract committed by
disturbances, etc. Consequenc
hout taking int o consideration the main
Respondent cannot be appreciated wit
contract and its fulfilment.
l Order No. 6. Non-
[31] “These reasons were clearly put forward in Procedura
of pertinent
compliance by Claimant with the Procedural Order and lack
ves the Tribunal
explanations in Claimant’s Memorials and at the Hearing depri
of this
and Respondent of knowing the relevant facts about the fundamental issue
a cover
second phase of the Arbitration, namely why Claimant did not make
purchase.
[32] “Claimant must have explained to the State X Entity the failure of one of
its suppliers and its own failure to supply the product for two and a half years.
How did the State X Entity react? How can it be explained that such a major part
of the Contract (around 20% of the whole contract value) was never supplied?
If one takes into account that the alleged profit on the product supply was, to say
the least, considerable, a ‘normal’ supplier would have been eager to proceed to
a cover purchase as quickly as possible. Claimant argues that the ‘windows’ for
using the LC were too short. Claimant had, as from the date the AOP was
released, the opportunity to use the eventually reopened and extended letter of
credit. Consequently, Claimant’s explanations might be right for certain time
periods but are not convincing for the whole period.
[33] “As it results from a Respondent’s letter, the Parties met in February of the
year following the Partial Award on the Merits. Had they reached agreement at
that time, Respondent stresses that it would have been possible to deliver the
new product within the time frame imposed by the new letter of credit. The
reason for not delivering was finally the disagreement on the sales price of
US$ 8,750,000. Claimant has not alleged to have made any other attempt to find
another supplier.
[34] “The Tribunal is not satisfied with the reasons given by Claimant. This
statement is of great importance, even after Claimant dropped its first claim for
thedifference of prices. Not having understood Claimant’s attitude — the Arbitral
Tribunal is composed of three arbitrators who have wide experien
ce in
international trade — the Tribunal was as well doubtful with respect to Claimant’s
other claims.

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[35] “The Tribunal wants to add that it indicated quite clearly, in particular in
Procedural Order No. 6, that Claimant bears the burden of proof for its
allegations. It added (page 4, sub 6 of Procedural Order No. 6):

‘Since neither Respondent nor the Tribunal are yet sufficiently informed
about the fullfilment of the State X Entity Contract and any replacement
contract, it is in Claimant’s own interest to submit any relevant
document.”

2. Res Judicata

[36] “The Tribunal has to discuss Claimant’ sarguments in respect of res judicata
of the first two Awards. Claimant argues that the Partial Award on the Merits
contains a statement that Respondent is liable to pay damages, whereas
Respondent’s position is that the Partial Award does no more than to state the
breach and its imputability and that Claimant is entitled, according to Art. 45
CISG,’ to claim damages as provided for in Arts. 74 to 77 CISG.
[37] “The Partial Award states on p. 15 under No. 4 just before the dispositive
part:

‘With respect to Claimant’s request, the majority of the Arbitral Tribunal

decided that the contract is terminated and that Respondent has committed
a breach of contract. Consequently, by applying Art. 45(1)(b) CISG
Claimant is entitled to claim damages from Respondent.’

[38] “The dispositive part of the Award is confined to stating that there was a
breach and that that breach is imputable on Respondent. It flows from that that
the Tribunal did not pronounce any entitlement to damages but, by quoting

3. Art. 45 CISG reads:

“(1) If the seller fails to perform any of his obligations under the contract or this Convention, the
buyer may:
(a) exercise the rights provided in articles 46 to 52;
(b) claim damages as provided in articles 74 to 77.
(2) The buyer is not deprived of any right he may have to claim damages by exercising his right to
other remedies.
(3) No period of grace may be granted to the seller by a court or arbitral tribunal when the buyer
resorts to a remedy for breach of contract.”

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7
rall y Art . 45 CIS G, onl y sai d that Claimant is ‘entitled pect
lite
seq uen tly , the Par tia l Awa rd onl y lays the ground for :c a mare
Con igen a e |
iberate or neg
[39] “The mere fact of a breach, be it del
CISG rendering superfluous any
which has no place in the system of the
o facto an entitlement to damages.
discussion on that subject) does not entail ips
ps at the statement that there is an
The res judicata effect of the Partial Award sto
d does not state that there is
entitlement to claim damages; the Partial Awar
sation. For this to be so, the
already an entitlement to damages or compen
fulfilled.
additional requirements of Arts. 74 to 77 have to be

3: Claims

[40] “The Tribunal will now examine, one by one, the individual claims raised
by Claimant. Claimant raises seven items (including the claim for reimbursement
of the costs of this arbitration). They will be examined in the order in which they
are raised.”

a. Loss ofprofit
[41] “Following abandonment of its initial claim for the difference between the
price fixed by the Contract and the ‘current price’, Claimant claims
compensation for loss of profit of US$ 3,973,864. It refers to one of the Exhibits
submitted. Items 7 to 14 of the itemised price list of the State X Entity contract
contain prices for the ‘product and its accessories’. The overall amount for the
listed quality and quantities of product is US$ 11,483,315. Claimant subtracts
from this amount the contract price agreed upon with Respondent, namely US$
7,510,136. Claimant rounds down, in its calculation, the contract sum with the
State X Entity to US$ 11,483,000 and increases the one concluded with
Respondent by US$ 315. Even though the figures are incorrect, the result is the
same. This subtraction results in a figure of US$ 3,973,864.
[42] “Claimant supports these heads of claim by relying on Art. 74 CISG*
according to which loss of profit is part of the loss to be compensated and quotes

4. Art. 74 CISG reads:

“Damages for breach of contract by one party consist of a sum equal to

the loss, including loss of
profit, suffered by the other party as a consequence of the breach. Such
damages may not exceed
the loss which the party in breach foresaw or ought to have foreseen
at the time of the conclusion
of the contract, in the light of the facts and matters of which he
then knew or ought to have known
as a possible consequence of the breach of contr
act.”
7

144 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRAL AWARDS

among others two decisions of ICC arbitral tribunals, having decided in this
sense.
[43] “Respondent replies that Claimant does not demonstrate that it suffered
any actual loss. It further submits that the calculation which Claimant makes is
‘simplistic’ since it is not established that the difference between the contract
with Respondent and the prices in the State X Entity contract were true ‘profit’.
A profit of 53% on an item as ordinary as the product at issue here is
extraordinary and requires specific justification which Claimant does not furnish.
No analytical accounting of Claimant’s business or the State X Entity contract is
submitted. According to Respondent, Claimant fails to take eventual additional
costs into consideration as these costs have been itemised in [an expert report].
[44] “Claimant replies to these arguments that additional costs like inspection,
erection, supervision and engineering are separate items and shown in Art. 4 of
the State X Entity contract. It does, however, not submit any further justification
nor information about how the profit is calculated.
[45] “The Arbitral Tribunal is neither convinced that Claimant actually suffered
a loss, nor, if a loss was suffered, that it was caused by Respondent’s breach of
contract, nor, subsidiarily, of the amount of damages.
[46] “Art. 74 CISG explicitly includes the ‘loss of profit’ into the damages which
have to be compensated. However, Art. 74 CISG specifically requires that the
damage, including the loss of profit, must have been ‘suffered’. That means that
the damage must have occurred, that it is not only hypothetical or potential.
[47] “It appears at first glance that Claimant ‘obviously’ suffered a damage since
it could not realise the ‘margin’ which it calls profit. If Respondent had
performed, Claimant would have received the difference between the purchase
price and the sales price, e.g. the amount which it claims. Important elements of
the case render, however, this conclusion highly doubtful.
[48] “Due to the fact that Claimant made no serious attempt to undertake a
cover purchase and that the Tribunal was insufficiently informed about the
fulfilment of the State X Entity contract, the members of the Tribunal became
more and more doubtful whether Respondent’s breach effectively caused a
damage to Claimant. Most of the questions raised in this respect remained
without a satisfactory answer. This leads to a situation where the doubts prevail
over the normal course of the events.
[49] “The Tribunal has all through the proceedings been wondering why
Claimant did not actively pursue to undertake a cover purchase. It can be safely
stated that there was no serious effort on Claimant’s side to do that. The offers
from three named companies are neither negotiated nor do they entirely
correspond to the Contract. Since then, no further effort was made. The

Yearbook Comm. Arb’n XXXV (2010) 145

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INTERNATIONAL CHAMBER OF COMM
on
n the procedure started _— -
Tribunal was indeed surprised that, whe pro = at the
same documents as
Partial Award on the Merits, it received the
the least, a preliminary exp oration
beginning of the arbitration, which are, to say
oOf mes suppliers. - A ‘normal’ business operator
would have acted differently.
so important that it would have
The margin which Claimant is alleging was
e it. There must have been
incited every reasonable business operator to realis
other reasons. .
purchase
{[50] “The only reason given by Claimant for not having made a cover
short. When
is that the successive validity periods of the letter of credit were too
the letter of credit was reopened three months after the Partial Award on the
of
Merits, it provided for shipment until April of the following year. The letter
credit was probably not reopened without prior negotiation between the
contracting parties (Claimant and the State X Entity). If it had been too short,
Claimant would have protested and claimed against the State X Entity that the
insufficient validity period prevented it from fulfilling the contract. Moreover,
in order to comply with a shorter validity, Claimant could have approached
suppliers and prepared the conclusion of the contract. The validity of a letter of
credit has to take into account the delivery periods of the suppliers. Additionally,
Claimant, in February of the year following the Partial Award on the Merits, was
able to deliver within the remaining time period even though it was much shorter
than the initial delivery period.
[51] “For all those reasons, Claimant’s arguments did not convince the Tribunal.
[52] “The Tribunal received very little information about the fulfilment of the
State X Entity contract. This was, however, one of the key elements of the
discovery order. On the basis of the documents submitted by Respondent, it
turned out that the product finally was no longer required. This may explain that
no real attempt for a cover purchase was made. It may be that the Project
suffered changes following the disturbances in State X. How did the State X
Entity react when it became aware that a major part of the contract could not be
supplied in time? No delay penalties were applied. It seems that there was a ‘de
facto’ reduction of the State X Entity contract which may have been the result
of
the disturbances and not of Respondent’s non delivery.
[53] “Further doubts result from the documents submitted by
Respondent
subsequent to the Hearing. Subsequent to the Hearing, Respondent
submitted
two documents. One is a document in a non-English langua
ge. Based on the
English translation, submitted as well by Respondent, it is a
Minutes of meeting
of high ranking officials of the State X Ministry conce
rned held [in the year
preceding the present Award]. The decisions resu
lting from this meeting are:

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 ARBITRAL AWARDS

‘3-1 The equipment and materials that have already been supplied are
sufficient (in addition to those which will arrive soon).
3-2 Department D shall prepare a new study in light of the latest technical
developments, and shall submit its required recommendations within one
month.
3-3 Company E shall, in light of the study referred to in clause (3-2),
[prepare] a study regarding the possibility of taking advantage of the
materials and equipment supplied under Claimant contract for the
rehabilitation of the Project and their preparation so that they are ready to
operate. 1
3-4 To notify the Tunisian company (Claimant), through an appropriate
letter, of the decision to consider that the materials it supplied are
sufficient, as a preliminary step toward the termination of the contract and
the amicable and fair settlement of the outstanding matters.
3-5 To continue [illegible] in the Project site.
3-6 To continue the proceedings for the purchase of the product for a
smaller amount.
3-7 To cancel the bid for further work at the Project site and to stop the
procedure of obtaining the approval of the Council of Ministers/the
secretariat-general for the referral of such bid.’

Respondent submitted additionally an e-mail from an anonymous source drafted,

as Respondent says, by an ‘agent’ who obtained the internal and confidential
document from the State X’s authorities. It explains that this ‘agent’ wants to
remain anonymous. It results from this document that the State X Entity contract
was only fulfilled as per shortly after the date of the meeting above for an amount
of US$ 24,400,000 and that US$ 4,000,000 of further equipment are ‘on the
way’. Numbers 5 to 7 of this e-mail correspond to the decision taken in the
meeting of the Ministry of State X.
[54] “Claimant, in a submission, vigorously attacks this submission. It contests
the authenticity of the document and the translation, since the original is largely
unreadable. It says that it did not know the document. It further attacks the
interpretation which Respondent makes from this document as tendacious. It says
that it did not receive the announced letter of termination and of an amicable
settlement and that the envisaged purchase of the product is not for the Project
but for another project than the initial object of the State X Entity contract.
Moreover, it concerns a smaller amount of the product.
[55] “The Tribunal is obviously very cautious to accept these documents as
authentic and, if the precise translation would be of relevance, it would order a

Yearbook Comm. Arb’n XXXV (2010) 147

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ene? whiich are

But there are enough elements in these
neutral translation. are
and corroborated by other facts that these documents
logical uncontested ! |
i
considerable impor
i tance.
indeed : of
i
the State X Entity contract 1s not executed
[56] “The documents confirm that mant does
materials are considered sufficient. Clai
any further, since the supplied er
terminated yet, but the announced lett
not contest this fact. The contract is not the
a preliminary step towards
and the envisaged ‘amicable settlement’ are only fulfilled
, the Tribunal learns that the contract was
termination. Additionally
says, the Tribunal did
for some US$ 28,400,000. Contrary to what Claimant
about 60% of the contract had
know neither this figure, nor the fact that only
partly the various reductions
been delivered. Partial fulfilment explains at least
of the letters of credit.
oned above announced
[57] “Item No. 3-4 of the minutes of the meeting menti
rs’. This seems to
an ‘amicable and fair settlement of the outstanding matte
y for the
indicate that Claimant will be indemnified from the State X Entit
reduction of the scope of the Project. These elements support the Tribunal’s
conviction that it is not sufficiently informed about the negotiations with the
State X Entity and that there was probably either an agreed or — unilaterally —
announced reduction of the contract scope which rendered the supply of the
product redundant — in any case that the non-delivery of the product drew no
sanctions from the State X Entity for non-fulfilment.
[58] “The effects of the disturbances in State X on the contract execution have
not been elucidated. Claimant was asked to submit information about the impact
which they had on the contract execution, but did not comply. The documents
which were submitted lately from Respondent strongly indicate that the project
performance has been modified and that the product was, after the disturbances,
probably no longer needed. In the eyes of the Tribunal, the logic of the behaviour
of the parties, mainly resulting from the lack of attempt to make a cover purchase
and the lack of any contractual sanctions from the State X Entity, appears to be
that, following the disturbances, the project underwent changes which rendered
the initial supply either redundant or not urgent anyway. If that is so, Claimant’s
loss of profit was not caused by Respondent’s breach, but rather by the
disturbances in State X and the modifications in the Project decided by the State
X Entity.
[59] “There are additional areas of doubt. The documents about settlement
negotiations were submitted by Respondent. Again, Claimant left the Tribunal
uninformed. When Claimant and Respondent tried to negotiate in February of
the year following the Partial Award on the Merits, the discussion was led in the
presence of the director general of the State X Entity. Claimant did not give any

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information why this person was there, and why, above all, after the deal with
Respondent failed, no alternative was sought.
[60] “Claimant had the opportunity to enlighten the Tribunal about these facts.
It was even formally requested to do so in the frame of the discovery. The
Tribunal moreover specifically drew Claimant’s attention to the fact that non-
compliance with the instructions in the discovery order would have serious
consequences on the outcome of its claims. Claimant chose not to comply and
thus did not dispel the doubts of the Arbitral Tribunal.
[61] “The doubts of the Tribunal were further nourished by Claimant’s position
with respect to the quantum of the loss. Claimant’s position is to such an extent
‘simplistic’ that it hurts common commercial sense. It is obvious that the margin
between purchase and sales prices is not equal to profit. The margin covers fixed
costs (overheads, financing, insurance and other items). Only the difference
between all the costs on the one hand, increased as the case may be by taxes, and
the sales price on the other may determine the profit. Claimant leaves all these
additional costs out. It rightly points to the fact that certain costs have been paid
under other Contract items (namely engineering, erection and supervision), but
there remain others (overheads, insurance, guarantee costs, financing of earlier
payments to sub-suppliers than prior to the payment being received under the
letter of credit, etc.) which cannot be found there. Claimant, in a way which the
Tribunal fails to understand, confounds ‘gross margin’ with ‘profit’.
[62] “The members of the Arbitral Tribunal had the impression that there were
many facts which Claimant did not tell and that there must have been reasons for
not telling them. If they were not told, the only conclusion which can be drawn
is that they would have stood in the way of Claimant’s arguments.
[63] “These doubts finally prevailed over the initial preparedness to award
damages after the breach of contract committed by Respondent. Claimant failed
to convince the Tribunal that it effectively suffered a damage and, even if a
damage was suffered, that it was caused by Respondent’s breach and not rather
by other factors.
(64] “The Tribunal has considered whether it should take, as a basis for
determining the loss of profit, the price which finally failed to be agreed between
the Parties in February of the year after the Partial Award on the Merits, namely
US$ 8,750,000. It has been suggested that the loss of profit would consist in the
difference between the initial price of US$ 7,510,136 and US$ 8,750,000 as
envisaged in February of that year.
[65] “These considerations are largely theoretical, since they cannot overcome
the compelling doubts of the Arbitral Tribunal explained above. On its own
account, this argument is not fully convincing either since the agreement with

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and which
de nt was no t fin ali sed for reasons which remain unexplained
Respon luenced
the exc lus ive kno wle dge of Claimant. Many factors may have inf
are in
ou nt (a ba nd on me nt of cla i ms, increase of prices, the State X Entity s
this am
dered as a reliable benchmark.
resence) so that it cannot be consi te to0 gra
grant Claimant
[66] “The Tribun al has considered whethe r it is appropria
ted
at leas t a ‘normal’ profit in the range
of what Respondent subsidiarily sugges
It finally decided not to do
as being the margin of a trader in the product at issue.
trading in the product
so. At first, the difference between a turnkey project and
ropriate.
is too important, rendering a simple comparison or analogy inapp
y suffered any
Secondly, there subsist serious doubts whether Claimant has reall
damage in this respect.
[67] “For all those reasons, the majority of the members of the Arbitral Tribunal
. . . . ,

came to the conclusion to dismiss this claim.”

.

b. Loss of bank interest

[68] “Claimant alleges that due to Respondent’s refusal to release the AOP
before the date in which it released it, following the Preliminary Award on
Provisional Measures, goods and services of an amount of US$ 17,425,487 were
ready to be shipped or were already on site. As a consequence of the AOP (‘sic’)
and knowing that all payments were blocked, Claimant argues that it could not
start the shipment or claim payment before release of the AOP. It specifically
refers to a paragraph in a telex of the AOP Bank where it is said: ‘If we receive
a complying presentation under the LC for a shipment of materials, we are not
in a position to tell you that we would pay the proceeds to Claimant and ignore
the AOP to SBI.’ Thus, Claimant claims to have lost the interest that it would
have earned if it had cashed the money and invested it for a period of
‘approximately’ nine months. The claim is calculated at a rate of 2.0767% p-a.
on the basis of an ‘attestation’ of a banking corporation for a period of nine
months.
[69] “Respondent raises [five] arguments against this claim, namely (i) that it
was not a party to the AOP; (ii) that the AOP was issued several weeks after the
conclusion of the Contract between Respondent and Claimant; (iii) that it could
not have released the AOP prior to the Tribunal’s decision; (iv) that it is not
established that the said amount of US$ 17,425,487 would have entirely accrued
to Claimant and (v) that only the gross margin to that amount would have
remained with Claimant. Finally, Respondent argues that the time period of nine
months is only qualified as ‘approximately’.
[70] “The Tribunal rejects this claim as well. The thrust of this claim
is that
Respondent allegedly, following the avoidance of the Contract, failed
to release

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the AOP. The Tribunal states at first that neither of its previous decisions has
decided on the merits of this particular claim. The Interim Award on Provisional
Measures was limited to determining the fact and the date of the avoidance, the
Partial Award on the Merits was limited to the imputability of the breach. The
Tribunal will consequently have to decide the merits and eventually the Quantum
of this claim.
[71] “The alleged breach took place after the avoidance of the Contract; prior
to that there was no obligation for Respondent to release the AOP since it still
had an entitlement to it which it could have used if it had decided to fulfil the
contract on its original terms.
[72] “Before deciding whether there was a breach, the Tribunal has to establish
that there was an ongoing obligation to restitute or release the payment security.
The answer to that question has to be found in Art. 81 et seq. CISG. The only
provision which provides for ongoing or subsisting contractual obligations is Art.
81(1) second sentence, which reads:

‘Avoidance does not affect any provision of the contract for the settlement
of disputes or any other provision of the contract governing the rights and
obligations of the parties consequent upon the avoidance of the contract.’

The text of Art. 81(1) second sentence CISG is not very helpful since it only
mentions other provisions of the contract consequent upon its avoidance. Taken
literally, this seems to refer only to specific contractual provisions applicable
after its termination (like confidentiality clauses, clauses providing for restitution
of documents, etc.). Experience shows, however, that contracts rarely contain
explicit provisions with respect to the surviving obligations of termination or
avoidance. This is as well the case in Respondent contract which is altogether
silent on these issues.
[73] “The commentaries to the CISG are not abundant in describing the scope
of surviving contractual obligations. They are even divided as to the essence of
these surviving obligations, between application of rules of undue enrichment
(Neumayer/ Ming, Convention de Vienne sur les Contrats de Vente Internationale de
Marchandises, Commentaire, Lausanne 1993, Art. 81 no. 3) and a reverse set of
obligations (Schlechtriem/Hornung, C/SG Kommentar, 4th ed., Munich 2004,
Art. 81 CISG no. 10).
[74] “The Tribunal finds that rules of undue enrichment are inadequate to
govern the subsisting obligations after avoidance. The parties’ obligations may be
important and complicated. It is of the opinion that Art. 81(1) second sentence
CISG comprises as well ‘implicit’ contract terms. One of the core obligations

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ase of
after avoidance, akin to reim
bursement of money, appears to be the rele
g, ibid.)).
payment securities (e. g.
guaranties (idem Schlechtriem/ Hornun
bank se
subsequent to avoidance Respondent had
Thus, the Tribunal is of the opinion that
an obligation to release the AOP. en
ons may give rise to damages. Art.
[75] “The breach of post-avoidance obligati
ri tions :and
ses con tract obliga
45 CISG applies in this case since it encomspas
on is one resulting re -
obligations under the CISG. The release obligati
ed by Respondent by
81(1) second sentence CISG. This obligation was breach
releasing the AOP only on the date in which it did. ~~
to fulfil the
[76] “A claim for damages for breach of this obligation has
a loss and the
conditions of Art. 74 CISG, namely the accrual and proof of
failed to
causality between the breach and the loss. Claimant has once again
establish that it suffered a loss.
[77] “Claimant relies on a number of documents. The documents are not
further explained by Claimant. They comprise four bills of lading and eight
invoices from Claimant to the State X Entity. All documents contain a reference
to the LC No. 0731683. The addition of the invoices arrives at the amount
alleged by Claimant of US$ 17,525,487.85. The submitted documents are no
proof at all. Claimant ought to have established that the AOP effectively blocked
payment from the State X Entity for a specified period and that it suffered a loss
of interest from this fact.
[78] “Claimant has submitted a telex from the AOP Bank from which it deduces
that any payment request, as long as the AOP was valid, might have lead to
payment to the SBI/Respondent. The text of this telex does, however, not
necessarily support this conclusion. The Arbitral Tribunal has understood the
payment mechanism as it set forth above; this understanding was already stated
in the Interim Award on Provisional Measures and has not been contested by
Claimant. This means that payment to SBI would only be made if the documents
submitted by Claimant did ‘comply’ to the AOP in favour of State Bank of India.
The Tribunal has expressed the opinion that the AOP requires the same
documents as the letter of credit; these documents are listed in the AOP Bank’s
telex. These documents contain under No. 5 ‘indication of the country of
origin’. Consequently, a supply from outside of India would not ‘comply’ with
the AOP. In addition to this more technical argument, the Tribunal is doubtful
whether this sentence alone bears out the position which Claimant adopts. A
specified letter of Claimant which would have revealed the precise question
which Claimant asked is not on record.
[79] “If Claimant’s position were right, it would mean that all payments from
the State X Entity, for the entire existence of the AOP in favour of
SBI were

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blocked, and that the AOP would have rendered unavailable any other payment
under the entire letter of credit. This is hard to believe in the absence of any
correspondence between Claimant and the State X Entity in this respect and,
moreover, in the absence of any correspondence between Claimant and its
suppliers informing the suppliers that no payment can be made.
[80] “Finally, as results from the claim filed by [another supplier, ABC], the
Tribunal learnt that there were other AOPs in favour of other suppliers. There
must have been a mechanism which the Tribunal is unaware of to clearly
distinguish which amounts had to be paid to the respective AOP beneficiaries.
Even if there remained some doubts in the mind of the Arbitrators, there are
other compelling reasons for dismissing this claim.
[81] “There is no invoice submitted from any supplier. There is no
correspondence between Claimant and the suppliers. If Claimant’s position were
right, the suppliers would have delivered but remained unpaid until the date on
which Respondent released the AOP. They must have insisted on being paid and
requested at least a loss of interest. Additionally, Claimant did not answer
Respondent’s argument that, if at all, it would only have suffered a loss on its
margin, but not on the entire amount. This argument is striking; it is plain
common sense. Finally, the duration of approximately nine months has not been
explained. If one takes as starting the latest date of the submitted bills of lading,
there are only seven months until the date on which the AOP was released (by
neglecting the time between delivery, submission of documents and effective
payment which have to be added at the suppliers’ and at Claimant’s end).
[82] “For all these reasons, this claim has to be dismissed.”

Cc. Loss due to fluctuation of exchange rate

[83] “Claimant argues that it purchased equipment from supplier ABC for an
amount of € 4,650,000. The goods were ready for shipment on date Y. Due to
the fact that the AOP was still blocked at that time, payment to ABC could not
be made. ABC finally presented the payment documents to the bank on date Z
after the cancellation of the AOP. Since the contract with ABC was concluded
in Euro and since the Euro increased against the US dollar, the currency in which
the LC is issued, Claimant alleges to have incurred a loss.... Claimant claims an
amount of US$ 483,082 being the difference between the higher and the lower
exchange rate, multiplied by the price of the ABC contract.
[84] “Respondent objects against this claim several grounds. It argues that this
claim initially amounted to US$ 651,000. It was not stated in Claimant’s first
Memorial on Quantum. Since this was the first submission after bifurcation, the
claim is ‘undoubtedly waived’. Respondent further argues that Claimant’s claim

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INTERNATIONAL CHAMBER

to p purchase on the basis

sion to
It was s ClaiClai mant , s deci‘sion
is a risk which it bears alone. in US dollars. It
y was
of Euros although the contract with the State X Entit
is usual in such a situation.
should have hedged this risk as it
not waived. Respondent did
[85] “The Tribunal holds as follows: The, claim is
or case law it relies. The Tribunal has
not specify on which provision, legal basis
French law.
examined whether a waiver might result from the ICC Rules or from
failure to comply with
Art. 33 of the ICC Rules does not apply since there is no
33 applies. Since
any provision of the Rules or any other situation to which Art.
that it was
the claim initially raised is stated in the Terms of Reference, the fact
idered as an
not stated in Claimant’s first Memorial on Quantum has to be cons
er under
omission only. If the Tribunal would consider the argument of a waiv
the substantive law of France, a waiver requires a specific declaration of
renunciation (Cass. civ., Second Chamber, 10 March 2005, Bull. civ. III, no. 68)
which is not the case here either.
[86] “The Tribunal has determined its position on the basis of specified
documents submitted by Claimant. The documents submitted by Claimant fail
to justify the claim. They are altogether inconclusive. They fail to establish that
payment was due and claimed on date Y, that payment was not made, and it
finally could only be made on date Z. The first document is the contract with
ABC. It stipulates that payment is made from an AOP just as the payment to
Respondent. This is puzzling since the Tribunal has difficulties to understand that
this payment guarantee could have been disturbed by the separate AOP in favour
of SBI (see above). Appendix 1 to the contract which lays down the wording of
the assignment of proceeds is not submitted. The second document is an
inspection certificate but not, as contended by Claimant, a payment request
(invoice). The third document does not support that allegation either. It has been
dealt with above [at [77]] and the Tribunal has expressed its views on it.
[87] “The fourth document is as well inconclusive. It bears no reference nor
indication that it has anything to do with the ABC contract. It refers to a different
contract number than the ABC contract; its context is unexplained. It is a
Claimant document and not one from ABC. The difference of contract numbers
is puzzling and remained unexplained. There is no evidence that the payment was
made on that date.
[88] “All these reasons are more than sufficient to justify the Tribunal’s decisio
n,
to reject this claim as well.”

d. General overhead costs

[89] “Claimant argues in this respect that, due to Respondent’s breach of
contract, Claimant had to pay personnel, experts, travel
and hotel costs to

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manage this arbitration and negotiate with new suppliers. Before the Hearing,
Claimant ‘estimated’ the additional costs at US$ 400,000 and increased this
amount to US$ 420,000 during the Hearing. Respondent considers this claim as
frivolous, in particular due to the fact that it is not supported by any
documentation.
[90] “The Tribunal notices in fact that Claimant fails to submit any documentary
evidence at all. The Tribunal rejects this claim as well.
[91] “General overheads’ as a consequence of a breach of contract may very
well be claimed under Art. 74 CISG. They may be caused by a breach of contract
and are a foreseeable consequence of such a breach. It is, however, doubtful
whether the salaries of employees and executives who have to deal with the
litigation are the consequence of a specific case or matter. It may be argued that
their origin is the employment contract with the specific employee and that the
costs arise irrespective of a specific procedure. It would flow from that that these
costs would have arisen anyway, thus excluding a causal link between the breach
and the payment of salaries. The Tribunal does, however, not have to decide this
issue, since the claim has to be rejected for lack of proof. Claimant has just
submitted an estimate and did not support its claim by any evidence at all.
[92] “The Arbitral Tribunal has no basis to examine any amounts claimed and
has to reject this claim as well for lack of proof. The Tribunal has no other choice
but to reject this claim as well.”

é. Aggravated damages
[93] “Claimant claims under this heads of claims US$ 400,000. It supports this
claim with the argument that the refusal to release the AOP ‘held Claimant
prisoner of Respondent’, and was used by Respondent as a tool to make Claimant
accept commercial concessions or the withdrawal of the arbitration. It complains
about an ‘ultimatum’. Claimant further relies on a sentence in the Preliminary
Award where the Tribunal expressed the opinion that the release of the AOP was
necessary to prevent a ‘considerable increase of damages’. In its earlier
submission, Claimant had called this claim ‘moral’ damages and alleged that it
suffered a loss of reputation and standing, in particular in the eyes of the State X
Entity. During the Hearing, it was debated whether the CISG indeed just not
mentions compensation of moral damages or whether they are specifically
excluded.
(94] “After due consideration, the claim has to be dismissed. The Tribunal
makes a distinction between a financial loss caused by a loss of reputation,
business opportunities or the like and moral damages. The Tribunal is of the
opinion that under CISG a financial loss caused by a loss of reputation, business

Yearbook Comm. Arb’n XXXV (2010) 135

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Under this — oe =
opportunities or the like, is compensable.
at that tim
foundation of the claim was in line with the CISG. However, even
culties with the
Claimant failed to submit any evidence that it encountered diffi
ondent.
State X Entity or other business partners due to the failure of Resp
Consequently, even though such loss may be claimed, there is no evidence in the
present case that there was indeed a loss. In the eyes of the Tribunal, the loss is
purely theoretical and cannot be compensated for.
[95] “When considering the claim under the aspect of the refusal to release the
AOP, which is different from the previous one, the result is the same. As already
set out above with respect to the claim under b, the Tribunal disposes of no
evidence that the refusal to release the AOP has effectively caused a loss to
Claimant. It may well have caused one, but due to the total lack of evidence, the
Tribunal cannot identify such a loss. Consequently, the Tribunal has to decide
that a loss has not been proven; if there had been one, Claimant would have
found means to put it under proof.
[96] “This does as well away with the argument that the Interim Award was
rendered to avoid an increase of damages. At that time, Claimant had already
claimed damages but had not yet proven them. At that time, such proof was not
yet required. The Tribunal expected though that due to Respondent’s refusal to
deliver, Claimant would suffer a damage and that Claimant would be able to
prove it. This is, however, not the case today.
[97] “Due to the fact that Claimant did not submit any evidence with respect to
this item and since no damages are proven, the Tribunal is not compelled to
decide whether the CISG may allow a claim for pure “moral damages’ .”

Sf Interest
[98] “Due to the fact that all claims fail, there is no need to discuss
this heads of
claim.”

g- Costs of the arbitration and legal costs

[99] “Following claims of initially more than US$ 16,8
92,000 anda subsequent
reduction to somewhat more than US$ 12,000,0
00, which was valid until the
Oral Hearing, the amount at. stake is at
present slightly more than
US$ 6,000,000.
[100} “Claimant requests that Respondent
bears entirely the costs of the
arbitration and its ancillary legal costs. Res
pondent initially claimed that Claimant
bears entirely the costs of the second
phase of the arbitration, but accepted
bear its share for the first stage. At the to
Hearing, Respondent requested howeve
that Claimant bears the entire costs r
of the arbitration and the entirety
of the

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ancillary legal costs. It argues that Claimant knew from the beginning that it had
not suffered any damages and that its contract with the State X Entity would not
be performed due to the situation in State X. It made Respondent go through a
useless and wasteful arbitration.
[101] “The Tribunal’s decision with respect to legal costs is based on the
application of Art. 31(3) of the ICC Rules. This arbitration is peculiar in so far
as it is split into two totally different phases. Claimant won the first phase and
fully loses the second. It is true, on the one hand, that Claimant finally fails in all
its claims, and that it withdrew an important part of it at the very last moment.
On the other hand, the origin of the arbitration was set by Respondent. It was
Respondent’s breach of Contract which caused the arbitration. Respondent
refused to release the AOP and failed as well entirely with its counterclaim. For
these reasons, the Tribunal will not allocate the costs of the arbitration by taking
only into account who wins in the end, but as well by looking at the origin of the
dispute.
[102] “Consequently, the Tribunal decides that both Parties shall pay half of the
arbitration costs (i.e., fees and expenses of the Arbitral Tribunal and ICC
administrative costs fixed by the Court at US$ 400,000). Since both have
contributed with identical amounts to the advance on costs, each Party has to
bear the amount which it has already paid, i.e. US$ 200,000.
[103] “With respect to the legal costs, the Tribunal finds as well that it is
appropriate to make a similar distinction. Even though Claimant did finally not
succeed in obtaining damages, the arbitration was nevertheless caused by
Respondent’s breach of contract. This leads the Tribunal to decide that each
Party has to bear its own legal costs and cannot claim reimbursement of them
from the other Party. ‘

V. AWARD

[104] “Based on the preceding developments, considerations and findings, the

Tribunal decides:

(1) The Tribunal rejects Claimant’s claims in their entirety for lack of proof.
(2) Each Party has to bear half of the arbitration costs fixed by the Court at
US$ 400,000 and bears the entirety of its own respective legal costs.”

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13507
Final award in case no.

Claimant: Company X (Spain)

);
Satie Respondents: (1) Company Y (Switzerland
)
(2) Company Z, in liquidation (Switzerland

Place of
arbitration: Barcelona, Spain

Published in: Unpublished

Subject matters: — res judicata effect of withdrawal of claim (no)

— allocation of costs and legal costs

Summary

Applying a Spanish law provision on withdrawal ofclaims in court actions — in the silence ofthe ICC
Rules and Spanish Arbitration Law — the Sole Arbitrator held that when the claimant withdraws its
claim and the respondent does not oppose this withdrawal, the arbitrator’s decision terminating the
arbitration has no res judicata effect.

Spanish Company A and Company B entered into a contract under which

Company B undertook to erect a plant in Spain (the Plant) and to supply the
know-how, license, engineering and equipment relating thereto (the Contract).
The Contract contained a clause providing that, if a good faith attempt to
negotiate a settlement failed, the parties could agree to refer the dispute to
mediation. If the parties did not reach an agreement for mediation or mediation
failed, the dispute would be referred to ICC arbitration in Barcelona.
The parties subsequently entered into an Amendment to the Contract,
pursuant to which Spanish Company A transferred all its contractual rights and
obligations under the Contract to Spanish Company X (Claimant) and Company
B transferred all its rights and obligations under the Contract to Swiss Company
Y (First Respondent). Five months later, First Respondent informed Claimant,
by an Assignment Letter, that Swiss Company Z (Second Respondent) was taking
over First Respondent’s work on the Plant and that the Contract
had been
oN alae caste,a eee to second Respondent.
Mi FE Reason een the parties. Claimant commenced ICC arbitration
pondent and Second Respondent (collectively, Respondents),

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 ARBITRAL AWARDS

alleging losses and seeking damages. A Sole Arbitrator was appointed. Initial
differences between Claimant and First Respondent as to the language of the
arbitration were settled by Procedural Order no. 1, by which the Sole Arbitrator
ruled that the language of the arbitration was English. Shortly thereafter, a
liquidator appeared on behalf of Second Respondent, indicating that Second
Respondent had become bankrupt and asking that the arbitration proceeding be
stayed. By Procedural Order No. 2, the Sole Arbitrator denied this request.
Claimant and First Respondent signed Terms of Reference; Second
Respondent refused to sign. The Sole Arbitrator then issued Procedural Order
No. 3, by which he (i) finally rejected the Respondents’ application to stay the
arbitration; (ii) denied the Respondents’ objection to his jurisdiction because of
the bankruptcy proceedings pending in Switzerland in respect of Second
Respondent and because the condition precedent (amicable settlement and
mediation) in the Contract had not been complied with. He further (iii)
dismissed the Respondents’ request for bifurcation of the proceedings and (iv)
requested additional briefing from the parties prior to deciding on (a) First
Respondent’s jurisdictional objection seeking the determination of certain
technical matters by an expert before resorting to arbitration and (b) Claimant’s
application for an order to attach Respondents’ third-party credits in Spain.
By Procedural Order No. 4, the Sole Arbitrator rejected First Respondent’s
jurisdictional objection and denied the attachment order sought by Claimant,
finding that he lacked jurisdiction, without prejudice to Claimant’s right to seek
and obtain such order from a court of law.
Subsequently, in view of the reservations expressed by First Respondent
regarding the confidentiality of information and documentation to be supplied
as evidence in the arbitration and the failure of the parties to reach an agreement
in this respect, the Sole Arbitrator circulated among the parties a draft
confidentiality agreement; the draft was later incorporated into a Protective
Confidentiality Order. The Sole Arbitrator then issued various Procedural
Orders dealing with document production issues and evidentiary matters.
First Respondent also experienced financial difficulties and its shareholders
eventually filed for liquidation in Switzerland. Claimant then applied for interim
measures premised on these liquidation proceedings; subsidiarily, it applied for
a declaration that First Respondent was in default and asked the Sole Arbitrator
to proceed to “immediately issue and award on the merits for Claimant”. The
Sole Arbitrator rejected Claimant’s application by Procedural Order no. 8.
The above proceedings lasted approximately two years.
Two days after issuance of Procedural Order no. 8, the Sole Arbitrator
received a letter by e-mail from Claimant (the Claimant Letter), in which

Yearbook Comm. Arb’n XXXV (2010) 159

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withdraw from the — or:——

Claimant expressed its intention to ner :
lied bya First re
of the Sole Arbitrator, First Respondent rep
which Claimant reacted by e-mail (the Claimant E-Mail). The parties fur her
Letter, Claimant Second Letter, First
hanged First Respondent Second
Respondent First and Second
cenectael Third and Fourth Letters and Second
ae oe spondent did not oppose the withdrawal of Claimant's claims; it asked ;
udice, that is, entitling
however, that it be deemed a withdrawal with prej
an order that Claimant
Respondents to a final award with res judicata effect and
d this argument in its
bear all arbitration and legal costs. Claimant conteste
ng because
Claimant Second Letter, arguing that it withdrew from the proceedi
that
+t believed that it would not be able to recover its losses and damages, and
and
an award was not appropriate at this stage as nothing had yet been proved
concluded in the arbitration.
By the present award, the Sole Arbitrator held that Claimant’s withdrawal had
no res judicata effect.
The Sole Arbitrator first reasoned that Claimant’s withdrawal was
unconditional. Under Art. 38(2)(a) of the Spanish Arbitration Act — which
provides that the arbitrators shall issue an order for the termination of the arbitral
proceedings when the claimant withdraws his claim, unless the respondent
objects thereto and the arbitrators recognize the respondent’s legitimate interest
in obtaining a final settlement of the dispute — only the respondent has the right,
once the withdrawal is announced, to seek the continuation of the arbitration. In
the present case, First Respondent did not oppose the withdrawal of Claimant’s
claims and the termination of the arbitration, merely expressing its disagreement
in respect of the legal effects of this withdrawal and termination.
Claimant only sought to condition its withdrawal on the legal effects of the
ensuing award, and the allocation of costs, by its Claimant Second Letter. By that
time, however, its withdrawal had become final, absent an opposition by
Respondents. The Sole Arbitrator held that allowing Claimant to modify its
unilateral and unconditional withdrawal would both be contrary to Art. 38(2)(a)
of the Spanish Arbitration Act and infringe the principles of good faith and
fairness of proceedings.
The Sole Arbitrator then noted that neither the ICC Rules nor the Spanish
Arbitration Act deal with the (res judicata) effect of a withdrawal. He found
guidance in the Spanish Code of Civil Procedure, which provides in respect of the
withdrawal of court actions that a withdrawal with the respondent’s consent
or
without its opposition terminates the proceedings without res judicata
effect.

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This provision covered the case at issue, since Respondents did not oppose the
withdrawal.
The Sole Arbitrator determined the issue of the costs of arbitration and legal
costs under the ICC Rules rather than the Spanish Code of Civil Procedure, on
which Claimant relied, noting that the Rules expressly regulate the arbitrator’s
power to determine costs. Other than in respect of the issue whether a
withdrawal has res judicata effect, there is no “gap” in this respect in the Rules.
Under the broad discretion granted to him by the Rules, the Sole Arbitrator
then determined that the costs of the arbitration be borne entirely by Claimant,
which unilaterally took the initiative both of commencing the arbitration and
withdrawing its claims. Though Claimant alleged that its withdrawal was
prompted by the liquidation of First Respondent, there was no evidence that such
liquidation necessarily frustrated Claimant’s rights.
The Sole Arbitrator viewed the issue of legal costs differently. He reasoned
that Claimant succeeded in overcoming numerous unsuccessful applications by
both Respondents to obtain a stay of the arbitration and challenge the jurisdiction
of the Sole Arbitrator. Such applications substantially slowed down the pace of
the proceedings, which might possibly have ended otherwise by a final award on
the merits before or shortly after the liquidation of First Respondent. Under such
circumstances, the Sole Arbitrator ordered each party to bear its own legal costs.

Excerpt

[1] “In the Claimant Letter, Claimant wrote the following:

‘After having received the Arbitrator Procedural Order No. 8 ({emphasis] in

original Arbitrator’s Note) this party has no other option than to present
the renunciation to continue the action against First Respondent in
Liquidation and Second Respondent in Bankruptcy on the ICC Ref. 13507.
According to Appendix III of the ICC Rules Art. 2.6 please proceed in the
notification of the costs and expenses to be covered by each party,
including Arbitrator fees.’

Such renunciation was clearly unconditional and meant to put an end to the
proceedings by the unilateral withdrawal of Claimant’s claims and _ final
settlement of arbitral and general legal costs and fees by the Sole Arbitrator.
[2] “The First Respondent Letter did not reject or oppose such withdrawal, but
characterized it as a renunciation and withdrawal of Claimant’s claims with

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 NO. | 3507
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res judicata
a ee itling the Respo ndents to a final award with
general legal costs and
pre udice; te:
h Cla
aes
ima nt’ s obl iga tio n to2 b ear all arbitral and
effects, wit
-
fees. drawal
on regard ing the legal effects of the with
[3] “First Respondent's positi . In the Claimant E-Mail
accepted by the Claimant
of Claimant’s claims was not
Claimant stated as follows:

writ, the renounce to the

‘Entering into the analysis of First Respondent's
is to continue with this
party to continue with this procedure, clearly,
not to other kind of
arbitration procedure ({emphasis] in the original) and
inal) [aimed] to
actions, particularly criminal actions ({emphasis] in the orig
control First
evidence the criminal liabilities of the corporate bodies that
unce to civil
Respondent. In this sense this party also does not want to reno
t....
actions derived from the breach of the Contract signed with my clien
e
The reason why this party does not continue with the arbitration procedur
is no other that the fact evidence that we will never be able to execute our
legitimate right to be paid by the losses and damages caused and these
because we can do nothing against the illegal measures adopted by First
Respondent out of this arbitration procedure.’

Further, Claimant added:

‘It is clear that this procedure cannot end with an award at this stage,
because nothing has been proved and _ concluded until today...
Concluding, again and not having many hopes to be success, we ask that
none of the considerations of First Respondent can be accepted,
determining the costs that this gullible party, in the minimum possible due
to the circumstances occurred and of course not declaring Mr. Arbitrator
“res judicata” this matter, that it has to be said, will not end the
continuation at this stage.’

[4] “The above paragraphs show that Claimant was then insisting on the
unilateral withdrawal of its claims and termination of the arbitration, although
denying that such termination may have res judicata effects or impose the arbitral
and legal costs and fees on Claimant despite the fact that the text of Claimant E-
mail cited above suggests that Claimant expects bearing at least part of such costs
and fees. Nothing indicates that Claimant subordinated the termination of the
arbitral proceedings it had unilaterally initiated to the acceptance by its
counterparts that such termination would not have res judicata effects.

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[5] “On the other hand, the disagreement of First Respondent with Claimant’s
position did not rest on the withdrawal of Claimant’s claim or on the ensuing
termination of the arbitral proceedings, but on their legal effects. This already
appeared from the First Respondent First Letter and became even more apparent
from the First Respondent Second Letter, where it is stated that:

‘The withdrawal of a claim has per se a material res judicata effect (without
further proceedings and without a judgment on the merits by the
Tribunal). The res judicata is limited, however, to the scope of claims and
relief sought by Claimant according to the Terms of Reference.’

[6] “On the basis of their pleadings referred to above, the Sole Arbitrator
requested the Parties to frame their respective positions in terms of Art. 38(2)(a)
of the Spanish Arbitration Act, that recites as follows:

‘The arbitrators shall also order the termination of the proceedings where:
(a) the claimant withdraws his claim, unless the respondent objects thereto
and the arbitrators recognize the respondent’s legitimate interest in
obtaining a final settlement of the dispute. J

[7] “Clearly, such provision only applies in case of the unilateral withdrawal
from the arbitral proceedings by a claimant. Such scenario — the one presented
by Claimant when communicating its withdrawal of the action — was the only one
possibly being considered by the Sole Arbitrator when requesting the Parties to
formulate their arguments regarding the termination of this arbitration under
Art. 38(2)(a) of the Spanish Arbitration Act. This was understood by First
Respondent when, pursuant to such Article, it expressed in the First Respondent
Third Letter that it did not object to the withdrawal of Claimant’s claims and
requested the termination of this arbitration.
[8] “The Claimant Second Letter does not attempt to address Art. 38(2)(a) of
the Spanish Arbitration Act, nor denies its application, but argues that:

1. “The Spanish text recites as follows:

‘Los arbitros también ordenaran la terminacién de las actuaciones cuando: (a) El] demandante desista de su
demanda, a menos que el demandado se oponga a ello y los arbitros le reconozcan un interés legftimo en obtener
una solucion definitiva del litigio.’ :

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renounce to continue with the

_ under Spanish Civil Code, the
itis t he same in any contract or
bilateral
arbitration procedure (ag e has
ed or rejec ted by the parties and therefor
obligation —has to be accept
to be a consensual measure .
]

that:
On such basis, Claimant further argues

First Respondent has

‘In our particular case, as far as we understand,
but insisting
answered not accepting this proposal ({emphasis] in the original)
ses,
in the fact that we should be condemned to pay all the costs and expen
also
including fees, costs and expenses incurred by First Respondent and
to consider that our rights has to be considered “res judicata”.’

[9] “Art. 38(2)(a) of the Spanish Arbitration Act does not subject the
effectiveness of a withdrawal to the agreement of the respondent so that so long
as the respondent shall not have accepted the withdrawal it may be retracted by
the withdrawing party. Under this provision, once the withdrawal is made, only
the non-withdrawing party has the right to request the continuation of the
proceedings. As shown above, First Respondent did not reject or oppose the
withdrawal of Claimant’s claims and the accompanying termination of these
arbitral proceedings, but only limited itself to expressing its disagreement on the
legal effects purportedly and unilaterally assigned by Claimant to such withdrawal
and termination. Neither First Respondent nor Second Respondent required the
continuation of these proceedings after receiving the withdrawal of Claimant’s
claims.
[10] “Before the Claimant Second Letter, Claimant did not condition its
withdrawal on the legal effects or the arbitral fee and cost allocation to ensue
therefrom. By then, the absence of opposition to such withdrawal — expressed
in the First Respondent First and Second Letter, confirmed by the First
Respondent Third Letter addressing the application of Art. 38(2)(a) of the
Spanish Arbitration Act in compliance with the Sole Arbitrator’s request, and
evidenced by the silence of Second Respondent — had rendered the withdrawal
of Claimant’s claims firm and final in accordance with such provision. Thus, such
withdrawal was irrevocably consummated with full legal effects before the
Claimant Second Letter.
[11] | In view of such circumstances, allowing Claimant to change its positio
n by
modifying its originally unilateral and unconditional withdrawal of
its claims
os contrary to Art. 38(2)(a) of the Spanish Arbitration Act and

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infringe the principle of good faith consecrated by Art. 7(1) of the Spanish Civil
Code, as well as fairness principles embodied in Art. 15(2) of the ICC Rules.
[12] “It now remains for the Sole Arbitrator to determine the legal effects to be
attributed to the withdrawal of Claimant’s claims in view of the disagreement of
Claimant and First Respondent on such effects.
[13] “The ICC Rules do not address the question of whether the express
unilateral withdrawal of claims by the claimant has res judicata effects or not. A
withdrawal of claims resulting from the application of Art. 30(4) of the ICC
Rules for lack of payment of the advance on arbitral costs is without prejudice,
but such withdrawal may only occur after the ICC Court Secretary General has
proceeded as provided for in such Article, which has not happened so far in this
case. The Spanish Arbitration Act does not address this question either.
[14] “Only Art. 20(3) of the Spanish Ley de Enjuiciamiento Civil (Code of Civil
Procedure) regarding the withdrawal of court actions provides guidance to settle
this issue. This provision recites as follows:

‘Emplazado el demandado, del escrito de desistimiento se le dara un traslado por un

periodo de diez dias. Si el demandado prestare su conformidad al desistimiento 0 no
se opusiere a el dentro del plazo expresado en el parrafo anterior, el tribunal dictara
auto de sobreseimiento y el actor podra promover nuevo juicio sobre el mismo objeto.
Si el demandado se opusiera al desistimiento, el juez resolvera lo que estime
oportuno.’

My free, of course unofficial, translation into English of this provision is as

follows:

‘The withdrawal petition shall be answered within ten days after served on
the respondent. If the respondent agrees with or does not oppose the
withdrawal within such time-limit, the tribunal will decree the termination
of the proceedings and the claimant may initiate new proceedings on the
same subject-matter. If the respondent objects to the withdrawal, the court
will decide as it finds appropriate.’

[15] “Clearly, this provision indicates that a withdrawal of a claim with the
respondent’s consent or without its opposition terminates the proceedings to
which the withdrawal relates without res judicata effects. It has been found above
that First Respondent has not opposed the withdrawal of Claimant’s claims in
terms of Art. 38(2)(a) of the Spanish Arbitration Act and has, indeed, acquiesced
such withdrawal. Second Respondent did expressly refuse to pronounce itself or

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INTERNATIONAL CHAMBER OF COMMERCE

co mment on the withdrawal of Claimant’s claims, as stated by Second

Respondent in its Second Respondent First Letter and, for that reason, has not
opposition or objection to such withdrawal.
=ment Be the case, having in mind the letter and — :se— 3) .
the Spanish Ley de Enjuiciamiento Civil and the powers veate in 7 = ve rr ‘
by Art. 15(1) of the ICC Rules, the Sole Arbitrator finds that dle withdrawal o
Claimant’s claims is without prejudice and deprived of res judicata effects.
[17] “Regarding the issue of arbitral costs and fees fixed by the ICC Court, the
Sole Arbitrator is well aware of the fact that Claimant has invoked Art. 396 of the
Ley de Enjuiciamiento Civil. According to this provision, if the withdrawal of the
claim has been acquiesced by the respondent, none of the parties has to support
the costs of the other. However, the Sole Arbitrator does not consider that the
matter of costs is not covered by the ICC Rules or by general international
arbitration practice, that unequivocally vest the arbitrators with broad powers
and flexibility to decide on cost allocation issues. In particular, Art. 31(2) and (3)
of the ICC Rules entitle the Sole Arbitrator to decide on arbitral and general legal
costs allocation without subjecting him to any rigid or predetermined rules, of
national or of any other source, commanding any specific cost allocation in the
case of withdrawal of arbitral claims. Unlike the issue of whether a withdrawal
of claims has or not res judicata effects, there is no gap in the ICC Rules
regarding cost and fee allocation by ICC arbitrators. Thus, the Sole Arbitrator
shall not take into account or apply Art. 396 of the Ley de Enjuiciamiento Civil
when elaborating and reaching conclusions as to cost and fee allocation
in the
instant case.
[18] “Pursuant to such powers vested in him, the Sole Arbitrator
considers that
it is fair to decide that the arbitral costs fixed by the ICC Court
shall be borne in
their entirety by Claimant, which unilaterally took
the initiative both of
commencing these arbitral proceedings and withdrawing
its claims after almost
two years in arbitration. The Sole Arbitrator has
taken into account for reaching
such conclusion that, although Claimant alleges
that the withdrawal of its claims
was prompted by the liquidation of First Respondent,
there is no evidence that
such liquidation necessarily frustrated Claimant’s rights
within or without
arbitration. That such liquidation could not
have the radical effect of jeopardizing
Claimant’s ability to further pursue
its claims in this arbitration or by
commencing future court or arbitral proceedings is confirmed
erratic conduct, initially seeking the
by
Claimant’s own
termination of these arbitral proceedings
without prejudice in order to pursue its
claims elsewhere, including, possibly,
rea new arbitration, and later the continuation
of these arbitral proceedings
espite First Respondents ongoing
liquidation.

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[19] “However, the issue of general legal costs, fees and expenses should be
viewed differently and in light of other fairness considerations. Claimant has
succeeded in overcoming numerous and repeated applications by both
Respondents to obtain a stay of these arbitral proceedings and to challenge the
jurisdiction of the Sole Arbitrator to hear this case. Such applications — proven
without merit — substantially slowed down the pace of these arbitral proceedings
and unnecessarily delayed, among other things, the completion of the Terms of
Reference and the general organization of this arbitration, including the timing
for the submission of memorials, production of evidence and scheduling of a
hearing on the merits. It is not to be excluded that had such disruptions not taken
place, these arbitral proceedings would have ended by a final award on the merits
before or shortly after the initiation of the liquidation of First Respondent. Under
such circumstances, the Sole Arbitrator concludes that each Party shall support
its own general legal costs, fees and expenses.
[20] “In view of the foregoing findings and considerations, the Sole Arbitrator
decides and declares as follows:

(1) Claimant’s claims are withdrawn, and the present arbitration proceedings are
accordingly terminated, without prejudice;
(2) Claimant shall bear, in their entirety, the arbitral costs and fees, fixed by the
ICC Court in the sum of ... ; and
(3) Each Party shall bear its own general legal costs, fees and expenses.”

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13676
Final award in case no.

Parties: Claimant: Buyer (Bahamas)

tine Respondent: Seller (Thailand)

Place of
arbitration: Singapore

Published in: Unpublished

Subject matters: — United Nations Convention on Contracts for the

International Sale of Goods (CISG), Vienna 1980
— substitute purchase must be made in reasonable
manner
= freight costs not included in computation of damages
— interest runs from date of non-performance

S ummary

The arbitral tribunal examined the issue ofsubstitute purchases caused bya seller’s non-delivery under
both Swiss domestic law and the CISG, as the relevant contractual provision was ambiguous and the
parties’ experts agreed that there were no substantial differences in this respect between the two regimes.
Substitute purchases must be made in good faith (Swiss law) or in a reasonable manner (CISG). Under
Swiss law, in application ofthe principle ofmitigation oflosses, the good faith requirement means that
substitute purchases must be made in a reasonable manner: at a reasonable price in line with the
market conditions, within a reasonable time and at a reasonable place given the type ofgoods at stake.
Under the CISG, substitute purchases must be made in a reasonable manner and within a reasonable
time after avoidance. A buyer making a substitute purchase need only act reasonably in the
circumstances and is not obliged to carry out extensive investigations as to how the substitute goods can
be purchased on the most advantageous terms. On the evidence, the tribunal |found that the substitute
purchases here had been made in a reasonable manner.
There could be no set-off of the damages owed by the seller against alleged freight savings made
by the buyer, because Swiss law requires that the party arguing set-off must have a head of claim that
can be used against the opposing claim. This was not the case here. Also, under Swiss law, an injured
party cannot claim from a defaulting party profits the latter has earned |
from its breach; similarly, the
defaulting party here (the seller) could not claim alleged profits made by the injured party (the buyer)
as a consequence of the seller’s breach of contract. Freight costs are not included in
the computation
of damages under the CISG.

The Bahamian buyer (Claimant) and the Thai seller (Responden

t) entered into
three agreements (the Contracts) under which Respondent
agreed to sell and

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 ARBITRAL AWARDS

deliver — and Claimant agreed to purchase — a quantity of acertain product over

three consecutive years, Year A, Year B and Year C. The terms of each Contract
were identical but for the price of the product: US$ X per metric tonne for Year
A, US$ X+0.50 for Year B and US$ X+1 for Year C. Payment was by Letter of
Credit to be opened by Claimant at the latest seven days before arrival of the
vessel at the loading port. The Contracts also provided for certain destinations
to which the product was to be delivered and regulated laycan, demurrage and
despatch money. The Contracts further contained the following clause:

“The parties hereby agree that Swiss internal law shall be applicable to this
Contract. In case [...] any dispute, difference or question shall at any time
hereafter arise between the parties in respect of or in connection with this
Contract, the parties shall use their best efforts to settle such disputes
amicably, but in the event that such resolution is not possible, or disputes
arising in connection with present contract shall be finally settled under the
rules of Conciliation and Arbitration of the International Chamber of
Commerce. Place of Arbitration shall be in Singapore and the language
shall be in English. Insofar as applicable and to the extent, in which they do
not contravene with the terms hereof INCOTERMS 1990 shall apply.”

A dispute arose between the parties when, after some initial shipments,
Respondent declined to make the shipments requested by Claimant under the
Year A Contract; it made no shipments at all in Year B and Year C. Claimant
made substitute purchases and commenced ICC arbitration against Respondent,
seeking damages. Respondent argued in reply that it did meet its obligations
under the Contracts until 11 April of Year A, when the parties allegedly entered
into an Oral Agreement which provided that Claimant would from then on
provide Respondent with a Letter of Credit for each shipment a few weeks in
advance of the scheduled arrival of the nominated vessel (Respondent later
argued that it was agreed that Claimant would provide a Letter of Credit one to
two weeks in advance of the first day of laycan). As Claimant failed to provide
Letters of Credit timely as agreed in the Oral Agreement, Respondent deemed
that Claimant had terminated or cancelled the remainder of the Contract for Year
A and the Contracts for Year B and Year C and made no further deliveries.
Respondent also filed a counterclaim for despatch money in respect of the
deliveries made.
The arbitral tribunal held that no Oral Agreement had been concluded to vary
the terms of the Contracts and that Respondent was in breach of contract. It also
granted Respondent’s counterclaim.

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the parties concluded the Oral Agr

eement because
Respondent claimed that the product in
in re lation to the first shipments of
there had been “problems” , any
tribunal held that, on the contrary
Year A. On the evidence, the arbitral and
culty that aros e in resp ect of thes e shipments was resolved with alacrity
diffi
rnational commerce. Respondent’s
could be deemed anormal occurrence in inte
ers of Credit timely was one such
argument that Claimant’s failure to open Lett
occasions Respondent declined
problem was disproved by the fact that on several
lines for the issuance of
Claimant’s request for a shipment well before the dead
Oral Agreement. Nor
a Letter of Credit under either the Contract or the alleged
it as a reason
did Respondent ever give Claimant’s failure to open Letters of Cred
. An expert
for its non-performance, alleging, rather, production problems
k been
report also showed that at the relevant times Respondent’s buffer stoc had
insufficient, pointing in the direction of a scarcity of the product.
As a consequence, the arbitrators were not convinced by Respondent's
contentions and concluded that no Oral Agreement had been entered into, that
Respondent had been in breach of contract and that Claimant was entitled to
damages.
The arbitral tribunal then proceeded to assess such damages. Claimant sought
damages to compensate for eighteen substitute purchases. The tribunal first
noted that Swiss law applied, as it was the law chosen by the parties to govern
their relationship. The relevant clause in the Contracts provided for the
application of “Swiss internal law”. The Claimant’s expert opined that this
referenced Swiss domestic law, consisting of primarily the Swiss Code of
Obligations and the Swiss Civil Code (the CO/SCC); Respondent’s expert
contended that the 1980 United Nations Convention on Contracts for the
International Sale of Goods (CISG) applied as an integral part of Swiss law. The
experts agreed later in the arbitration that there were no significant differences
between these two regimes in respect to the issues at hand. The tribunal
therefore directed that the experts discuss the issues on the basis of both regimes
and that there would be no need for the tribunal to decide which regime applied.
Under both the CO/SCC and the CISG, a buyer need only show that seller has
defaulted, that substitute purchases were made and that these purchases were
performed in good faith (SCO) or in a reasonable manner (CISG). Claimant’s
expert opined that under Swiss law, in application of the general principle that
an aggrieved party has a duty to take all reasonable measures to mitigate its
losses, the good faith requirement means that substitute purchases must be made
ina reasonable manner, that is, at a reasonable price in line with the
market
conditions, within a reasonable time and at a reasonable place given
the type of
goods at stake. Respondent’s expert did not disagree with this proposition
,

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noting that Art. 75 CISG states that substitute purchases must be made in a
reasonable manner and within a reasonable time after avoidance. A buyer making
a substitute purchase need only act reasonably in the circumstances and is not
obliged to carry out extensive investigations as to how the substitute goods can
be purchased on the most advantageous terms.
On the evidence before them, the arbitrators held that Claimant’s substitute
purchases had been made in a reasonable manner.
The arbitral tribunal then examined whether alleged savings made by the
Claimant on the freight paid in respect of fifteen out of its eighteen substitute
purchases — though not specified by Respondent — were earnings and should be
set off against the increased cost of the product paid by the Claimant in the
substitute purchases. The tribunal held that they should not.
It appeared from an expert’s report that under Swiss law the party arguing set-
off must have a head of claim that can be used against the opposing claim. Here,
Respondent did not assert a claim or cause of action in respect of the freight
savings and did not provide any evidence. Also, under Swiss law if a defaulting
party profits from its breach — for instance by selling the goods to a third party
at a profit — these profits may not be claimed by the injured party. Since the
savings on freight by Claimant were not different in principle from such profits,
Respondent should not be allowed to rely on them as a ground for set-off. The
tribunal reached the same conclusion under the CISG, reasoning that the costs
of transporting goods does not appear to be included in the computation of
damages according to the CISG’s relevant provisions. This interpretation is
confirmed by commentaries. The tribunal also noted that the shipments under
the Contracts were or would have been on a Free-on-Board basis, so that freight
costs were solely for Claimant.
The arbitrators then dealt with and granted Respondent’s counterclaim for
despatch monies earned under the Year A Contract.
Claimant claimed interest to accrue from the time it paid for the substitute
purchases. The tribunal relied on the evidence of Claimant’s own expert to
dismiss this request, finding that in application of Swiss law default interest ran
here from the expiry of the time allowed to Respondent to perform. Hence, in
relation to substitute purchases in Year A, default interest would only accrue
from the end of Year A, while default interest in relation to Year B and Year C
was payable for substitute purchases made before the dates of Respondent’s
scheduled deliveries in those years.
The tribunal finally directed that Respondent bear the costs of the arbitration
and compensate Claimant for ninety percent of its legal costs.

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Excerpt
disputes:
fol low ing are the ter ms of the Contracts germane to the
[1] “The

| |
‘Clause 1 Commodity shed
ufacturing a certain type of fini
The product to be suitable for man
product. set

‘Clause 2 Quantity
of the Year A and plus
— 80,000 metric tons (+/- 10%) for first quarter
buyer’s option of:
of the Year A and plus
— 80,000 metric tons (+ /- 10%) for second quarter
buyer’s option of:
(July-
— 120,000 metric tons (+/- 10%) for the second half of the Year A
December).’

‘Clause 5 Payment
By an irrevocable at sight letter of credit to be opened by the [Claimant]
favoring the [Respondent], at [Respondent]’s nominated bank, latest in
seven days before vessel's arrival at load port, which shall be opened by the
bank acceptable to the [Respondent].’

‘Clause 7 Destination
[certain countries]’

‘Clause 9 Notice and Nomination

The [Claimant] shall propose [its] preferable laycan to the [Respondent] at
least seven days spread between first layday and cancelling date. The
[Respondent] shall clarify [its] position on proposed laycan and confirm it
or counter with another seven days spread reasonably within one working
day after the [Claimant]’s proposals. Any difference in both parties’ option
on laycan shall be settled with mutual discussion. Latest seven days prior
to the first layday of the vessel’s agreed laycan at loading port, the
[Claimant] shall nominate vessel with full particulars including
nationality /flag/ class, DWT, built year, ETA loading port and cargo intake
10% more or less in [the Claimant]’s option but it should satisfy the
shipment size Clause 6. The [Claimant] shall fix the performing vessel
subject to the [Respondent]’s approval within one working day after the
receipt of the [Claimant]’s vessel nomination. Such approval shall only

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 ARBITRAL AWARDS

apply to the [Respondent]’s ability to load the vessel in accordance with the
terms of this contract and shall not be unreasonably withheld.
The vessel will give five, three, two, one arrival notice to the
[Respondent] or ship agent which will be nominated by [the Claimant].’

‘Clause 10 Shipping Terms and Shipping Related Issues

10.1 [Claimant is] to nominate a single-desk bulk carrier with minimum 20
tons geared capacity, in good working order of minimum safe single pull
load of 20 mt each....

10.3 [Respondent] to load into vessels holds, free of any risk, liability and
expense whatsoever to the [Claimant] at the guaranteed rate of 7,000
metric tons PW WD of 24 consecutive hours.... [Claimant] shall guarantee
that nominated vessel has minimum four (4) workable gears and loading
rate per day as outlined above shall be based on four workable gears and
pro-rata to the number of gears available.

10.5 Lay-time to commence counting at 1300 hrs the same day of NOR
tendered before noon and lay-time to commence counting the following
morning at 0800 hrs if NOR tendered after noon, unless sooner
commenced in which case actual time used to count. Lay-time stop
counting on completion of loading.’

‘Clause 11 Demurrage and Despatch Money

Demurrage money at loading port to be paid by the [Respondent] to the
[Claimant] will be as per charter party but at the maximum rate of
US$ 8,500 per day or pro-rata for any part of a day for all time lost.
Despatch money at loading port to be paid by the [Claimant] to the
[Respondent] at the half rate of the Demurrage per day or pro-rata for any
part of a day for laytime saved.
Demurrage and Despatch money to be settled within 30 (thirty) days
after B/ L date. [Claimant] will present the following documents....’

hoes )
[2] “The Terms of Reference provided for the following questions to be
determined:

(1) What were the parties’ obligations under the Contracts?

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nt’s
ib un al hav e jur isd i cti on to hear and determine the Responde
(2) Does the Tr S 19,670.00 relating to spot
sales
de sp at ch mo ne y of US
counterclaim for
contracts in Year A-1? obligations
the Respondent or both, breached any
(3) Have the Claimant o r
under the Contracts?
been breached by the Claimant or the
(4) If so, which obligations have
Respondent or both?
damage in consequence of any breach by
(Sa) Has the Claimant su ffered loss and
the Respondent; and if so,
mant?
(Sb) What are the damages suffered by the Clai
consequence of any breach
(6a) Has the Respondent suffered loss and damage in
by the Claimant; and if so,
(6b) What are the damages suffered by the Respondent?
, and if
(7) Whether interest is recoverable by the Claimant or the Respondent
so, on what basis?
(8) Whether the Claimant or the Respondent is entitled to costs and expenses
arising out of this arbitration, including but not limited to reasonable attorneys’
fees?
(9) Whether the Claimant or the Respondent is entitled to any other relief?”

ie THE PARTIES’ OBLIGATIONS UNDER THE CONTRACTS

ie Sale and Purchase

[3] “The fundamental obligations of the parties under each Contract were the
sale by the Respondent and the purchase by the Claimant of the stipulated
quantities of the product conforming to identified specifications. The ae
quantity to be sold and purchased was 80,000 MT (+/-10%) dunn, the first
ace Msvosie ceteae had options to purchase an additional quantity
-10%) for the second quarter of each year
j oan of 120,000 MT (+/-10%) oriialte second half of an rare
shipment was to be of a size of about 40,000 MT. ad

2. Shipment and Payment

[4]... aa
ai “Claw 5 7 9 of the Contracts contain the terms, inter alia, relating to
on of a vessel and payment for each shipment of the product to be

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 ARBITRAL AWARDS

made under each Contract. Clause 10 of the Contract, inter alia, sets out the
terms relating to calculation and commencement of laytime.
[S] “It is common ground that the obligations under clause 5 and clause 9 are
independent. It is also common ground that ‘laycan’ is an abbreviation for
‘laydays cancelling’ and means the period (usually expressed as two dates) during
which a vessel must arrive at the load port and be ready to load. Readiness to
load is evinced by the tender of a notice of readiness (usually abbreviated to
NOR). If a vessel arrives earlier than the first of the two dates there is no
obligation to commence loading but if she arrives after the second date a
charterer or shipper has the option of cancelling. ‘Laytime’ means the period of
time within which the cargo loading/discharging operation is required to be
completed. Laytime is usually either stipulated as a specific number of days or,
per clause 10 of the Contracts, calculated on a specified daily/hourly rate of
loading/ discharging (in which event the amount of time available on laytime is
ascertained by dividing the total amount of cargo by the daily/hourly rate). Thus
a vessel has to arrive sometime during laycan after which NOR can be tendered.
Laytime will start to run at a specified time after NOR is tendered. A vessel’s
arrival, tender of NOR and commencement of laytime are discrete events and
all may occur on the same day but this would be a coincidence unless
contractually stipulated.
[6] “Thus the plain meaning of the three clauses read together, is that the
sequence of steps relating to each shipment and payment therefor is as follows:

(i) first, laycan is agreed between the parties. The laycan is to have a seven-day
spread between first layday and cancelling date;
(ii) second, the Claimant nominates a vessel no later than seven days prior to the
first layday of the agreed laycan;
(iii) third, the Claimant fixes the vessel, if it receives the Respondent’s approval
within one working day after receipt of vessel nomination;
(iv) fourth, the Claimant causes an irrevocable letter of credit favouring the
Respondent to be opened no later than seven days before the arrival at the load
port of the vessel that has been fixed pursuant to steps (ii) and (iii) above;
(v) fifth, the vessel must arrive at the load port within the agreed seven-day
spread laycan and, before her arrival, the vessel must notify the Respondent of
the estimated time of arrival five days, three days, two days and one day before
arrival;
(vi) sixth, after the vessel’s arrival at the load port NOR may be tendered;
(vii) seventh, laytime commences at 13:00 hrs if NOR is tendered before noon
and at 08:00 hrs the following day if NOR is tendered after noon.

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2. Oral Agreement

only the following shipments

[7] “It is the Claimant’s case that in the Year A
of the product Ww ere made under
the Year A Contract: [table omitted]. In its
and Counterclaim as amended (Amended Answer and
dated
Answer
d that the following two further shipments
Counterclaim) the Respondent pleade
the Year A Contract: [table omitted]. The
of the product were made under
were ‘spot sales’ and were not made
Claimant says that these two shipments
made under the Year A
under the Year A Contract. No further shipments were
at all were made under the Year B and Year C
Contract. No shipments
Contracts.”

a. Respondent’s arguments
[8] “The Respondent’s original defence as pleaded in the Answer and
Counterclaim and Amended Answer and Counterclaim was essentially:

(i) that the Claimant had breached clause 5 of the Year A Contract by failing to
open any irrevocable letter of credit in relation to the Claimant’s requests for
further shipments of the product between April and December of Year A
notwithstanding the Respondent’s oral requests therefor in April, July, August,
October and November of Year A. The Respondent was thus not obliged to
accept or propose any laycan period and was entitled to refuse to deliver any
further quantities of the product. The Respondent deemed that the pending
contracts for the Year A, Year B and Year C were cancelled.
(ii) Further, as for the Year B and Year C Contracts, although the Claimant had
made inquiries as to the availability of the product it failed to open any
irrevocable letter of credit and the Respondent deemed that the Claimant had
terminated these two Contracts. This defence matured as the arbitration
progressed: First, in his witness statement, Mr. X (Assistant Vice-President,
Marketing Department of the Respondent) states that he reached an oral
agreement with Ms. Y, the Claimant’s Senior Vice-President (‘Oral
Agreement’), after the first shipment had been completed, to the effect that the
Claimant would provide a copy of the application for a letter of credit a few
weeks in advance of the scheduled arrival of a vessel nominated by the Claimant
and, second, in its Re-Amended Answer and Counterclaim amplified by Mr. X
in the course of his cross-examination the Respondent’s defence was that the oral
agreement called for the Claimant to provide a letter of credit application or a
letter of credit one to two weeks in advance of the first day of laycan.

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[9] “The Respondent says that the Oral Agreement came about because of the
following ‘problems’ encountered in relation to the very first shipment of the
product in February of Year A (M/V ONE shipment):

(i) The laycan for M/V ONE was agreed to be 1 to 8 February of Year A.
According to Mr. X the Claimant provided the Respondent with a copy of the
application for a letter of credit on 26 January of Year A and caused the letter of
credit to be opened on that day. The Respondent was notified of the opening of
the letter of credit a few days later, on 30 January of Year A. M/V ONE arrived
at the load port on 4 February of Year A. She commenced loading the same day.
(ii) The Respondent requested some amendments to be made to the letter of
credit. These amendments in the main corrected the description of the
documents required to be tendered under the letter of credit and were advised
by the issuing bank on 30 January Year A and 31 January Year A.
(iii) Thereafter the Claimant requested a further amendment to the letter of
credit which was essentially to change one of the documents required to be
presented by the Respondent under the letter of credit from a ‘non-negotiable
clean on board ocean bill of lading’ to a ‘Mate’s receipt’. The Respondent agreed
to this amendment which was advised by the issuing bank on 7 February of Year
A, the day before loading of the product on board the M/V ONE was completed
and two days before she set sail.

[10] “Mr. X makes the following complaints concerning the above events in his
witness statement:

‘These amendments took time and put Respondent in a difficult position

because the letter of credit was opened only eight or nine days before
Claimant’s nominated vessel arrived and it was not in good order on the
date that Respondent started loading the product and was not in good
order until 7 February Year A, one day before Respondent completed
loading of the product. I felt these days were unworkable and after the
First Shipment was completed I informed Ms. Y on the telephone that she
had to provide me with the LC Applications at least a few weeks in advance
for me to check and ensure that all its terms were in order. Ms. Y agreed
with my request to do so and she did so for the Second, Third and Fourth
Shipments. ’

However, in the next paragraph of his witness statement, inter alia, he says:

Yearbook Comm. Arb’n XXXV (2010) 177

 COMMERCE NO. 1 3676
INTERNATIONAL CHAMBER OF

, arrived at Port X on 4 February

‘Claimant’s nominated vessel, M/V ONE
ary Year A was opened nine days
Year A. The letter of credit dated 26 Janu
rdance with Clause 5 of the
before the M/V ONE arrived at Port X in acco
payment for the First
Year A Contract. Respondent was assured of
it and proceeded to
Shipment as it had received Claimant’s letter of cred
d loading of the
load the product into the vessel. Respondent complete
uary Year
product in the total volume of 34,410.20 metric tons on 8 Febr
A. Annexed hereto are copies of the Laytime Calculation M/V ONE, the
. ’
Statement of Facts and the Mate’s Receipt for the First Shipment

As at 5 May Year C, (the date of Mr. X’s witness statement) therefore, the
Respondent’s chief or only complaint was in respect of the status of the letter of
credit during the period 4 February (the day loading commenced) to 7 February
Year A (the day before loading was completed).
[11] “In the Respondent’s Closing submissions the alleged problems
experienced with the M/V ONE shipment took on new dimensions. The
Respondent submitted that the procedure to be followed pursuant to clauses 5
and 9 of the Contract proved to be unworkable and that it was reasonable for
Respondent to have had real concerns as it was not assured of payment for the
M/V ONE shipment because the letter of credit was not in order by the
contractually stipulated deadlines and during the loading of the product by reason
of the facts that:

(i) Respondent was notified of the letter of credit only on 30 January Year A,
‘just’ two days before the first day of the agreed laycan, 1 February Year A and
five days before M/V ONE’s arrival on 4 February Year A;
(ii) there were three amendments to the letter of credit, the first two being made
on 30 and 31 January Year A respectively and the third being made on 7 February
Year A; and
(iii) on or about 7 February Year A Respondent had in its possession a letter of
credit requiring presentation of a bill of lading when ‘suddenly’ it was informed
by Claimant that only a mate’s receipt would be provided and the letter of credit
had to be amended accordingly.

Respondent could not have refused to agree to Claimant’s proposed

amendment
because if it did refuse it would only have been able to tender a
mate’s receipt to
the bank and it then would not have been paid under the letter
of credit.
[12] “The Tribunal has difficulty in accepting all these point
s which do not
accurately reflect the factual position.

178
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

(i) First, as noted above, Mr. X, in his witness statement, does not make much
fuss of the fact that the letter of credit was issued just two days before the first
day of the agreed laycan of 1 to 8 February and five days before the vessel’s
arrival on 4 February Year A. The Claimant had provided Respondent a copy of
the Claimant’s 26 January Year A application for a letter of credit.
(ii) Second, it was the Respondent who requested the first two amendments to
the letter of credit.
(iii) Third, these two amendments were commonplace amendments and were
made timeously as the Respondent was notified of the amendments around the
time it received notification of the letter of credit itself on 30 January Year A.
(iv) Fourth, amendments to letter of credit terms are a regular occurrence in
international trade and, in the Tribunal’s view, the Respondent, a large business
concern engaged in the international sale of goods and Mr. X, who impressed the
Tribunal as an astute man of business well versed in international commerce,
would have been well aware of this.
(v) Fifth, it cannot be gainsaid that letters of credit can only be amended after
they are issued. Requirements for amendments may arise whether a letter of
credit is issued seven days or seventy days before a vessel’s arrival. The provision
by a buyer and subsequent tender to a bank by a seller of non-conforming
documents do occur in the course of international sale transactions. Two options
are then available: (i) the non-conforming document is amended so as to make
it conform to the letter of credit terms or (ii) the letter of credit terms are
amended to substitute the non-conforming document in place of the document
originally stipulated.

[13] “What transpired concerning the M/V ONE Shipment before 7 February
Year A was not a different scenario. Any ‘problem’ was resolved with alacrity —
the amendment to the letter of credit (allowing a mate’s receipt to be tendered
to Respondent’s bank in place of bills of lading) was issued by 7 February Year A
and the Respondent faced no impediments in obtaining payment under the letter
of credit. None of the points adverted to above should have or could have given
rise to any concern on the part of the Respondent that it would not have been
paid on the M/V ONE shipment or subsequent shipments. Glitches in
international commerce do occur from time to time and those that did occur in
relation to the M/V ONE shipment cannot be said to have been major ones.”

b. Claimant’s arguments
[14] “Counsel for the Claimant submitted that there were other matters that
substantiated the Claimant’s position that there was no Oral Agreement between

Yearbook Comm. Arb’n XXXV (2010) 739

 OF COMMERCE NO. 1 3676
INTERNATIONAL CHAMBER

consider the
Contracts. The Tribunal willnow
the parties to vary clause 5 of the ters.
sions relating to these mat
parties’ evidence and submis
ts
i. Respondent’s declination of requests by Claimant
mant made several requests In Year
[15] “First, it is not in dispute that the Clai
r the Year A Contract and that the
A for further shipments of the product unde ces
led from its earlier acceptan
Respondent either rejected these requests or resi
sets out these requests and the
of the Claimant’s requests. The following table |
.
Respondent’s declination of them: [Table 1 omitted]
at least on five
[16] “Second, it will be readily apparent from Table 1 that
of or rejected
occasions the Respondent either resiled from its earlier acceptances
issuance of
the Claimant’s requests for laycan well before the deadlines for the
a letter of credit under either Clause 5 of the Contract (seven days before arrival
of vessel) or the alleged oral agreement (one to two weeks before first day of
laycan).”

ii. Reasons given for declination of requests

[17] “Third, in respect of all seven requests for laycan set out in Table 1 the
Respondent offers various reasons for the ‘non-performance’ on its part:

(i) in its pleadings as amended the Respondent states that despite the
Respondent’s repeated oral requests therefor (in April, July, August, October
and November of Year A) the Claimant, in breach of its contractual obligation
to provide a letter of credit or letter of credit application a few weeks in advance
of the first laycan day, failed to do so. The Respondent was therefore not obliged
to accept or counter-propose any laycan period (including the laycan period of
8 to 15 May Year A requested by the Claimant on 2 May Year A) and the
Respondent was left with no alternative but to refuse to deliver any further
quantities of the product.
(ii) In his witness statement Mr. X said that after M/V FOUR shipment Claimant
ordered further quantities of the product but provided neither applications for
letters of credit nor letters of credit pursuant to the terms of Clause 5.
Consequently Respondent was not assured of payment and could not make any
delivery of the product. In relation to the six proposed shipments (numbered 2,
3, 5, 6 and 7 in Table 1) Mr. X makes no mention whatsoever in his written
statement of proposed shipments number 2 and number 3. He gave no reasons
why the Respondent resiled from its previous acceptances of the Claimant’s
a ag for laycan twelve and eighteen days respectively, before the first day of
aycan.

180
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

(iii) Mr. X did give details of Claimant’s failures to provide letters of credit or
applications therefor in respect of the proposed shipments numbered 5, 6 and 7
that led the Respondent to retract its earlier acceptance of the Claimant’s
requests for laycan. He states that in each of the three instances, (a) on receiving
the Claimant’s request for laycan he spoke to Ms. Y and reiterated that it was
necessary for the Respondent to receive an application for a letter of credit; and
(b) the Claimant failed to send to him a letter of credit application. These three
proposed shipments were cancelled by the Respondent twenty-five days, forty-
nine days and nineteen days respectively before the first day of the agreed laycan.
In his witness statement Mr. X did not explain why the Claimant was obliged to
provide any application for a letter of credit so well in advance of either the
seventh day before the first of laycan or one to two weeks before the first day of
laycan in respect of each of these three proposed shipments.
(iv) Mr. X was questioned in cross-examination in relation to the shipments
numbered 2, 3, 5, 6 and 7 and, specifically, why the Respondent had cancelled
these five proposed shipments before the deadlines fixed by the alleged Oral
Agreement for providing a letter of credit or application therefor and had thus
not even given the Claimant the opportunity to comply with the alleged Oral
Agreement. In his answers Mr. X recanted his earlier evidence. He said that
because the Claimant had failed to provide applications for letters of credit on two
occasions (i.e. for the agreed laycans of 16 April to 23 April Year A and 8 May
to 15 May Year A, proposed shipments numbered 1 and 4 respectively in Table
1) the Respondent had lost confidence and was constrained to reject all other
shipments without affording the Claimant the opportunity to comply with the
Oral Agreement (hereafter, also ‘problem shipments 1 and 4’).”

ili. Reasons given are unconvincing

[18] “Fourth, the Tribunal finds the reason given by Mr. X in cross-examination
for the Respondent’s disavowal of its contractual obligations difficult to accept.
First, it ignores the fact that, even on its own account, the Respondent had
encountered no difficulty with three actual shipments (M/V FIVE, M/V SIX and
M/V FOUR) that had been made before problem shipments 1 and 4. Second, Mr.
X’s excuse contradicts the chronology of events. Even before problem shipment
4, the Respondent had already resiled from its agreements to the Claimant’s
requests for laycan in respect of proposed shipments numbered 2 (laycan 23
April to 29 April Year A) and 3 (laycan 29 April Year A) twelve and eighteen
days respectively before the first day of laycan. As noted above Mr. X said
nothing whatsoever in his statement about these two shipments.

181
Yearbook Comm. Arb’n XXXV (2010)
 OF COMMERCE NO. 13676
INTERNATIONAL CHAMBER

n when he ne = — _
(19] “Third, earlier in his cross-examinatio before
Responden t had not waited
until one week before 23 April Year A.
Year A)
cancelling proposed S hip
ment numbered 2 (laycan 23 April to 29 April
X would say at first was that as the
Claimant had failed to provide a letter
all Mr.
(laycan 16 April to 23 ~— a
of credit application for problem shipment 1
t would receive a letter : credit
A) there was no f guarantee’ that the Responden
wer bespeaks a willingness
application for proposed shipment number 2. This ans
sion of alleged default on
on the part of the Respondent to treat one previous occa
her shipments. When
the part of the Claimant as justification for not making furt
not exact sure
pressed further in cross-examination Mr. X ultimately said ‘I am
rred by this
I can answer this one correctly.’ However, Mr. X was not dete
n answer
difficulty and he went on a little later in cross-examinatio to give the
adverted to above viz. that the Respondent had lost confidence and was
constrained to reject all other shipments because of the two alleged occasions
when the Claimant failed to provide applications for letters of credit timeously.
It seems to the Tribunal that Mr. X was not much bothered by the inconsistent
answers and was prepared to titivate the reason for the Respondent's cancellation
of all the proposed Year A shipments notwithstanding that he never overcame his
earlier inability to answer ‘this one correctly’.
[20] “Fourth, even onacursory examination of the events surrounding problem
shipments 1 and 4, it will be readily apparent that there were in fact no
‘problems’ concerning these shipments. Mr. X makes no complaint about
problem shipment 1 (laycan 16 April to 23 April Year A) in his witness
statement. The Respondent also made no averment relating to this shipment in
its pleadings. There was thus no joinder of issue regarding this proposed
shipment and the Claimant was unaware that the Respondent would make an
issue of it. Nevertheless, Ms. Y was cross-examined on this shipment at some
length by Respondent’s counsel. It was put to Ms. Y that seven days before the
first day of laycan was 9 April Year A and that the Claimant had not caused a
letter of credit to be issued by that day. Ms. Y’s not unreasonable reply was that
the Claimant was not obliged to open a letter of credit on the first day of laycan
but only seven days before the vessel’s arrival and that the vessel could arrive on
the last day of laycan. The following scenario was then put to Ms. Y:

‘If Mr. X had replied on 10 April Year A accepting the nomination of the
vessel, ifMs. Y had then contacted the shipowner on the same day and was
informed that the vessel was scheduled to arrive on the 16 April Year A,
the first day of laycan, then there would only have been six days before the

182
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

vessel’s arrival and even if Claimant managed to issue a letter of credit

within a day, they would have been in breach of contract.’

Ms. Y could but only agree and she did. She went on to say that if the
Respondent was so concerned by a day’s delay it could have made the vessel wait
one day. It was then put to Ms. Y that there was no provision in the Contract that
allowed the Respondent to make the vessel wait one day.
[21] “This line of cross-examination was based on conjecture and supposition
and was nothing to the point. In its submissions the Respondent states and it is
not in dispute that the Claimant nominated the vessel M/V TWO ‘around or just
before’ 9 April Year A. Ms. Y said in cross-examination that the Claimant could
procure the issuance of a letter of credit in one day. This was not challenged. The
Respondent could have responded to this nomination by asking for a letter of
credit to be issued by 9 April Year A and by pointing out that as a letter of credit
is to be issued seven days before the first day of laycan and that the Claimant
should ensure that the letter of credit would be issued forthwith failing which
laycan would be deemed to start seven days after receipt of the letter of credit
and the Respondent would not accept any NOR tendered by the vessel earlier
than the seventh day after the letter of credit had been received. Instead of this
simple expedient the Respondent chose to reject the nomination of the M/V TWO
on 9 April Year A.
[22] “There was in truth no ‘problem’ concerning this proposed shipment and
that is why Mr. X said nothing about it at all in his witness statement. It seems
to the Tribunal that problems regarding this shipment were thought up much
later in the day and surfaced, first, in the cross-examination of Ms. Y and,
subsequently, when Mr. X gave answers in cross-examination.
[23] “As for problem shipment 4 (agreed laycan 8 May to 15 May Year A) the
Claimant by its e-mail of 30 April Year A nominated the vessel M/V THREE and
requested the Respondent to confirm the nomination by the next day, 1 May
Year A. The Respondent rejected the nomination on 2 May Year A. In its written
submissions the Respondent stated that ifRespondent had accepted Claimant's
nomination on 2 May Year A and if the M/V THREE had arrived on 8 May Year
A, the first day of laycan, then any letter of credit would not have been opened
seven days before the vessel’s arrival and Claimant would then have been in
breach of its clause 5 obligations.
[24] “This submission is again based on conjecture and supposition. Of course
the vessel may have arrived on 8 May Year A. Indeed she may have arrived before
or after laycan or any day during the agreed laycan or she may not have arrived
at all! The point is that on the 30 April Year A or 2 May Year A the Claimant was

Yearbook Comm. Arb’n XXXV (2010) 183

 COMMERCE NO. 13676
INTERNATIONAL CHAMBER OF
pondent's
ct. There is nothing in the Res
not in breach of the Year A Contra
|conclusion that as of 1 or 2 May
Year A it could be
supposi tions to lead to the
If the
nt would have been in breach of Clause 5.
said with certainty the Claima
ibility of the vessel arriving too early
Respondent had any concern about the poss
or 2 May Year A along the lines
‘t could have written to the Claimant on 1
if the letter of credit was
suggested above viz. notifying the Claimant that
imated time of arrival (ETA)
received less than seven days before the vessel’s est
r receipt of the letter
then laycan would be deemed to start only seven days afte
NOR tendered
of credit and the Respondent would not be obliged to accept any
had at least
earlier by the vessel. It is to be noted that the Respondent would have
paragraph
five days’ notice of any nominated vessel’s arrival by reason of the last
of Clause 9 of the Contracts which stipulates that the vessel is to give five, three,
two and one days’ notice of her ETA. It was not suggested by either party that
this contractual provision was not complied with in the shipments that were
carried out.
[25] “Mr. X did say in his witness statement that he was surprised by the
Claimant’s late nomination of the M/V THREE, that it would have been very
difficult for him to have approved any application for a letter of credit on the
same day it was received, that pursuant to Clause 5 of the Contract a letter of
credit must be opened at least seven days before the vessel’s arrival, that
nonetheless he was prepared to accommodate Ms. Y’s request if Claimant
opened a letter of credit in accordance with the payment terms, that he called
Ms. Y on the same day and informed her that delivery would be made provided
[a named bank] opened a letter of credit. He says he also told Ms. Y that as the
vessel was to arrive on 8 May Year A, Claimant had to open the letter of credit
seven days prior i.e. on 30 April Year A itself (1 May being a public holiday) and
that Ms. Y agreed to this and stated that she would open the letter of credit
immediately. He then says that Respondent did not receive a letter of credit on
30 April Year A and that on 2 May Year A he instructed his assistant to e-mail
Ms. Y to inform her that Respondent could not deliver the product pursuant to
the order. Ms. Y’s evidence was that she could not recall having a telephone
conversation with Mr. X regarding this shipment.
[26] “It is not at all clear to the Tribunal why Mr. X asserted that the vessel ‘was
to arrive on 8 May Year A’. He would have known that the vessel could have
arrived, legitimately, anytime during the seven-day spread of the laycan.
However, it is interesting to note that in recounting the alleged events of 30
April Year A, Mr. X, in his written statement, does not refer to the
Oral
Agreement (which he says, elsewhere in his evidence, came about soon
after the
first shipment on M/V ONE on or about 8 February Year A) but refers
instead to

184
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Clause 5 specifically and to the contractual requirement for a letter of credit to

be opened seven days before a vessel’s arrival. It strikes the Tribunal as peculiar
that in his alleged telephone conversation with Ms. Y, Mr. X would not have
reminded her of the Oral Agreement. After all it was his evidence that the Oral
Agreement came about as a result of the problems encountered in the course of
the M/V ONE shipment in early February Year A. Here then, on the 30 April
Year A, the Respondent was allegedly facing yet another ‘problem’ but Mr. X
appears to have forgotten all about the earlier problems and the alleged Oral
Agreement which resulted therefrom and calls on Ms. Y to adhere to the original
contractual arrangements.
[27] “Even if the Tribunal were to take a generous view of Mr. X’s tale it is
unable to understand why Mr. X acted with such alacrity and in a peremptory
manner on 2 May Year A given, as he himself states, that 1 May Year A was a
public holiday. It is perhaps because Mr. X’s version of the events of 30 April
Year A is so incredible that counsel for the Respondent stayed well clear of it in
his submissions.
[28] “The position is quite simply that no ‘problem’ of any sort is discernible
from either the Respondent’s evidence or submissions in relation to problem
shipment 4.
[29] “Fifth, the events surrounding problem shipments 1 and 4 were not much
different to those that occurred previously. The M/V FIVE shipment ... is
instructive. On 27 February Year A Ms. Y sent an e-mail to the Respondent
nominating the M/V FIVE for a laycan 15/22 March Year A to be ‘narrowed into
six days’ by 8 March Year A. On the same day, the Respondent replied to Ms.
Y accepting the nomination but stipulated that it was ‘subject to receipt of your
clean L/C seven working days in advance before loading’.
[30] “On 8 March Year A Mr. X sent a facsifirile to Ms. Y referring to a
‘tentative laycan’ of March 16/22 for the M/V FIVE, complaining that he had not
‘received any progress’ from the Claimant and stating that he would like to
remind Ms. Y that the letter of credit should be provided ‘within five working
days prior to the first day of layday ...’. Ms. Y replied by e-mail on the same day
and informed Mr. X that the letter of credit had in fact been issued on 2 March
Year A and that she would be sending a copy of it via facsimile. In this e-mail
Ms. Y also informed Mr. X that the //V FIVE’s ETA was 18 March Year A. In
the event, M/V FIVE arrived on 19 March Year A.
[31] “Thus it would appear that:

(i) as at 27 February Year A (almost three weeks after the alleged problems
encountered over the M/V ONE shipment) the Respondent: (a) was prepared to

Yearbook Comm. Arb’n XXXV (2010) 185

 MERCE NO. 13676
INTERNATIONAL CHAMBER OF COM

can a nd vessel nomination on the same

day it
and did accept a proposed lay n
tion from the Claimant subject to the provisio
received the proposal and nomina
s before lo ading; (b) did not require sight of
of a letter of credit seven working day
two wee ks in advance of the first day of
a letter of credit application one to

en days before the first day of the

<a 8 March Year A (although only sev
ry Year A e-mail and eight
15/22 March laycan mentioned in Ms. Y’s 27 Februa
X’s 8 March Year A
days before the 16/22 March laycan mentioned in Mr.
nt to provide a
facsimile) the Respondent: (a) was content to remind the Claima
t day of laycan; (b) still did not
letter of credit five working days prior to the firs
, arently,
require sight of a letter of credit application; and (c) was aware and app
ng on the first
prepared to accept that the nominated vessel would not be arrivi
day of laycan but a few days after it.

[32] “Mr. X has put forward the M/V FIVE shipment as one example of a
shipment that was performed without problems. Problem shipment 4 was used
by Mr. X as an instance of an occasion when the Claimant failed to provide a
letter of application well in advance of the first day of laycan which caused a loss
of confidence on the part of the Respondent who was thus constrained to reject
all other shipments.
[33] “It will be readily apparent from the discussion above that there is no such
appreciable difference between the M/V FIVE shipment and problem shipment
4 as to cause the first to be classified as a ‘flawless’ shipment and the other to be
a ‘problem’ shipment. Indeed, in problem shipment 4, the Respondent could
have done what it did for the M/V FIVE and responded to the Claimant’s 30 April
Year A nomination of the M/V THREE on the same day accepting the nomination
and stating that it was subject to a letter of credit being provided in compliance
with Clause 5.
[34] “The communications between the parties relating to the M/V FIVE
adverted to above demonstrate that

(i) the parties were prepared to and did make minor adjustments to laycan and
(ii) the Respondent and Mr. X must have been well aware that a vessel does not
have to arrive on the first day of laycan and she can do so anytime during it.”

iv. Alleged real reason also unconvincing

[35] “It will be seen from Table 1 above that on each of the occasions the
Respondent either rejected the Claimant’s nomination of a vessel or resiled
from
a previously agreed laycan[;] the reason for doing so given by the Respon
dent in

186
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

contemporaneous correspondence was that it was facing production problems.

In not a single instance in such correspondence did the Respondent mention a
failure by the Claimant to comply with either clause 5 of the Year A Contract or
the Oral Agreement.
[36] “In his witness statement and oral evidence Mr. X sought to explain away
the Respondent’s contemporaneous correspondence. He said that in fact the
Respondent had excess product to meet the Claimant’s orders. The Respondent
had not faced production problems but gave this reason for non-performance
because it would have been impolite to accuse a customer in writing of a sensitive
matter such as failing to perform a contractual obligation.
[37] “The Tribunal is unable to accept this explanation. First, refraining from
being impolite is one thing but then to lay the blame for non-performance on
oneself when it is the other party who is supposed to be in default is quite
another thing. Second, Mr. X did in fact write to Ms. Y in terms that were, by
his standards, impolite or bordered on the impolite. His facsimiles to Ms. Y
dated the February 27 Year A and March 8 Year A read as follows:

‘27 February Year A

Subject: L/C for the product shipment
Regarding to tentative laycan during 5-12 March Year A, until this present,
we have not received any progress from your side. We would like to
remind you that L/C and vessel nomination should be sent us within five
working days prior to the first day of layday to arrange cargo without delay
since loading schedule in this month is quite congested.
Looking forward to hearing from you soon.’

‘8 March Year A
Subject: L/C for the product shipment to ...
Regarding to tentative laycan during 16-22 March, M/V FIVE, until this
present, we have not received any progress from your side. We would like
to remind you that L/C should be sent us within five working days prior
to the first day of layday to arrange cargo without delay since loading
schedule in this month is quite congested.
Looking forward to hearing from you soon.’

If the Respondent did not feel inhibited from writing such letters to the Claimant
when the Claimant was not in breach of contract then nothing could have been
simpler than to adopt these or a form of these words when writing to the
Claimant on the occasions when the Claimant was allegedly in breach.

Yearbook Comm. Arb’n XXXV (2010) 187

 INTERNATIONAL CHAMBER OF COMMERCE NO. 1 3676

[38] “Third, the contemporaneous exchange of correspondence between the

Claimant and the Respondent relating to proposed shipments 2, 3, 5, 6 and 7 in
Table 1 gives the lie to the explanation proffered by Mr. X. The first set of
correspondence commenced immediately after Mr. X’s facsimile of 9 April Year
A rejecting the Claimant’s nomination of the /V TWO (vide above). Replying
on the same day to Mr. X’s 9 April Year A facsimile, Ms. Y reminded Mr. X that
the Claimant had agreed the 16/23 April Year A laycan for the M/V TWO on 14
March Year A and she requested Mr. X to review the position and to revert with
his confirmation of the nomination. There was no reply. Over the next two days
Ms. Y then followed up with inquiries about the status of two other agreed
laycans 23/29 April Year A (proposed shipment 2 in Table 1) and 29 April/5
May Year A (proposed shipment 3 in Table 1).
[39] “The following is the exchange of e-mails between Ms. Y and Ms. Z (Mr.
X’s assistant at Respondent’s).

‘10 April Year A

Dear Ms. Z,
Since there is a problem at your plant, I would like to make sure
that our
delivery ... With lay/ can 23-29 April is secure. I would
appreciate if you
can re-confirm it to me by tomorrow/noon time.
Many thanks / Regards, Ms. Y’

‘10 April Year A 5:13 PM

Dear Ms. Y,
We are now waiting production plan from Prod
uction Manager, and will
come back to you soon.
Best regards, Ms. Z’

‘11 April Year A

Ms. Z,
If possible, Iwould appreciate to know abo
ut this issue today. As 23 April
is not too far
away, I do not want to risk my supply
delivery to our plant
in country N, They in fact needed this
cargo as early as possible and any
unexpected delay would put us in a
very difficult position. If you confir
that the laycan does not carry risk, we’l m
l start looking for a vessel today.
Many thanks for con sidering our situation as well
Best regards, Ms. Y’ and

188
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

‘11 April Year A 12:19 PM

Dear Ms. Y,
We just received updated production status from factory and learn that we
will be facing serious production problem till next month. Therefore, we
have to decline all your shipments proposed to load in April due to above
reason. As long as the said problem has been resolved as well, we would
inform you straight away. Hopefully, you fully understand our hard
situation and we deeply apologize for inconvenience caused.
Best regards, Ms. Z’

‘11 April Year A

Dear Ms. Z,
Thanks for informing us. I hope, the breakdown will be recovered soon
and you will all go back to normal business. I just would like to know if our
lay/can 29 April-5 May will also be a problem.
Good luck and best regards, Ms. Y’

‘11 April Year A 3:16 PM

Dear Ms. Y,
So far, we are unable to absolutely expect cargo availability until we got
the progress on production situation after [a holiday]. Then, we will
contact you soon.
Best regards, Ms. Z’

[40] “It is clear from this exchange of e-mails that Ms. Y was concerned about
the status of the two agreed laycans subsequent to the M/V TWO laycan of 16/23
April Year A that had been cancelled. There was no question of having to be
impolite to Ms. Y as it cannot be said and no suggestion has been made that at the
time of the e-mail exchange of the 10 and 11 April Year A the Claimant was in
breach of any contractual obligation or the Oral Agreement in relation to the two
laycans for which Ms. Y was making inquiries. It is startling then that three times
in this e-mail exchange the Respondent would rely on its production problems
as the only excuse for non-performance.
[41] “The same can be said for proposed shipments 5, 6 and 7. Twenty-five days
before proposed shipment 5, forty-nine days before proposed shipment 6 and
nineteen days before proposed shipment 7 (when the Claimant could not have
been said to be in breach of any contractual obligation) the Respondent also
relied on these production problems as the only excuse for non-performance on
its part. Thus it would seem, whether or not its customers were in default, the

Yearbook Comm. Arb’n XXXV (2010) 189

 OF COMMERCE NO. 1 3676
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ed to use the same excuse for not

performing its
den t wou ld be pre par
Respon e to
blam
moreov er, use an excuse that attributed
contractual obligations and,
also false — because in fact th
e Respondent had sufficient
itself but which was
quantities of the product to fulfil
the proposed shipments to the Claimant.
problems, the
[42] “Fourth, w hether or not the Respondent faced production
uct at the relevant times
evidence that the Respondent had a shortage of the prod
had admitted that: a)
in Year A is overwhelming. In cross-examination Mr. X
its [storage facility]
in his view, the safety stock for the Respondent to maintain in
product; and
is about half a month of its monthly sales i.e. a given quantity of the
, May, June
(b) the Respondent in fact suffered from shortages of stock in April
and July Year A. A summary of the Respondent’s product stock levels for Year
A is set out below: (table omitted). It is evident that for the months of March to
September Year A, when the Respondent was rejecting the Claimant’s laycan
requests, the Respondent's product stock was substantially less than the safety or
buffer stock.
[43] “The Tribunal notes the evidence given by the Claimant’s expert on the
relevant industry, Mr. W. Mr. W filed a report analyzing the Respondent's
historical records of the level of the product production in Year A, Year B and
Year C, the length of stoppage hours in the Respondent’s plants and the
corresponding [storage facility] records for the same period. Mr. W reached the
conclusion that the Respondent did not appear to have sufficient buffer stock on
several occasions, including during the times when it rejected the Claimant’s
laycan proposals. Mr. W’s analysis and conclusion is consistent at least with Mr.
X’s evidence.
[44] “In the Tribunal’s view, the main issue is not so much whether the
Respondent had sufficient stock of the product but whether the Respondent was
in breach of the Contracts to make shipments of the product. The Tribunal notes
that in the morning of the day on which Mr. W was due to give evidence, the
Respondent announced that it did not wish to cross-examine Mr. W.”

4. Findings on Issue no. |

[45] “The Tribunal finds that the Contracts had not been varied by any Oral
Agreement. The Tribunal finds that:

(i) the Claimant was obliged to

(a) nominate a vessel only after the parties had agreed a laycan;

190
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 ARBITRAL AWARDS

(b) fix the vessel subject to the Respondent’s approval within one working day
after receipt of vessel nomination;
(c) cause a letter of credit to be opened within seven days of the vessel’s arrival
at the load port; and

(ii) the Respondent was obliged to accept the Claimant’s requests for laycan and
for shipments of quantities of the product made in conformity with the Contracts
and to make shipments of such quantities in accordance with the terms of the
Contract.”

Il. BREACH OF THE CONTRACTS

1. Year A

[46] “It follows from the discussion above that, in relation to the proposed
shipments set out in Table 1 above, the Respondent was in breach of its
obligations under the Year A Contract in failing to make shipments of the
product pursuant to the Claimant’s various requests therefor.
[47] “It has been noted above that there is also dispute between the parties over
the exact quantity shipped under the Year A Contract. What the actual quantity
shipped was turns solely on whether the M/V FIVE shipment was made pursuant
to a discrete, ‘spot sale’ contract or under the Year A Contract.
[48] “Ms. Y gave evidence that in discussions with Mr. X leading to the
agreement on the M/V FIVE shipment, they had agreed to adopt the terms of the
Year A Contract, in particular the price of US$ X per metric tonne as the terms
for this spot sale. The Claimant submitted that this shipment was a spot sale and
was clearly not intended to be a shipment under the Year A Contract. The
Claimant relied on the following in support of this submission:

(i) the M/V FIVE shipment was bound for Country X, which is not a destination
agreed on under the Year A Contract;
(ii) under clause 2 of the Year A Contract, the Respondent was only obliged to
deliver 80,000 metric tonnes (+/- 10%) of the product to the Claimant in the
first quarter of Year A. If this shipment onboard M/V FIVE constituted a shipment
under the Year A Contract, the total quantity of the product delivered to the
Claimant in the first quarter of Year A would have exceeded 80,000 metric
tonnes (+/- 10%);

Yearbook Comm. Arb’n XXXV (2010) 191

 OF COMMERCE NO. 13676
INTERNATIONAL CHAMBER

tract
d M /V FIVE was 62,000 MT but the con
(iii) The qua ntity shipped onboar “—
only envisage s shipments of
40,000 MT each;
t;
(floating crane) was differennt;
-..) The loading method for the M/V FIVE
shipment was US$ 10,000 per day
me ener rate for the M/V FIVE
r the Year A Contract.
compared to the US$ 8,500 per day unde

that reliance on these factors was

49] “Counsel for the Respondent submitted
contract terms as
, laced as on the evi dence the parties did not treat the
misp
immutable:

are [certain
(i) First, the contractual destinations under the Year A Contract
if
countries]. However, by an e-mail dated 26 March Year A, Ms. Y asked
Respondent could make a delivery to a non-included country, ‘Country N’.
Ms. Y admitted under cross-examination that when she made that request for
delivery to Country N, she believed that that was a delivery to be made under the
Year A Contract.
(ii) Second, whilst the delivery quantity stipulated by the Year A Contract was
40,000 MT +/- 10%, that same request for a delivery to Country N by Ms. Y
called for a shipment of only 25,000 MT. Therefore, if a shipment size of 25,000
MT is acceptable when the contract stipulates 40,000 MT, then a shipment size
of 62,000 MT must also be acceptable.
(iii) Third, Mr. F (the Claimant’s Vice-President), in his oral evidence frankly
conceded that the Country N shipment and the //V FIVE shipment ought not to
be distinguishable — either both came within the Year A Contract or both fell
outside it.
(iv) Fourth, with respect to Cumulative Quantity, the Year A Contract calls for
a total of 160,000 MT of the product to be delivered in the first half of Year A.
Even without taking into account the M/V FIVE delivery, this 160,000 MT
quantity would have been exceeded if all of Claimant’s requests for the product
had been fulfilled.
(v) Fifth, Claimant’s conduct at the material times also shows that it had in fact
treated the delivery onboard the M/V FIVE as being performed under the Year
A Contract:

(a) in an e-mail dated 25 November Year A, Ms. Y wrote to Respondent asking

if ‘there is a possibility to provide us remaining quantity of our existing Year A
contract which is 101,612 m[etric] tons’. The remaining quantity of 101,612 MT
under the Year A Contract mentioned by Ms. Y is only correct if the
delivery

192
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

onboard the M/V FIVE is counted as having taken place under the Year A
Contract.
(b) by a letter dated 4 December Year A signed by Ms. Y and the ‘President &
COO’ of Claimant, Claimant stated that ‘in respect to our contract of Year A,
we had performed 178,387 m{[etric] tons of the product under May of Year A’.
This figure of 178,387 MT performed under the Year A Contract is only correct
if the delivery onboard the M/V FIVE is counted. In addition, the table attached
to the said letter furnished by Claimant clearly lists M/V FIVE as a delivery
performed under the Year A Contract.
(c) in a letter dated 1 April Year C from Claimant’s solicitors to Respondent, it
is stated that ‘our clients have instructed us that you have delivered only a
quantity of about 178,387 metric tonnes in Year A out of the contractually
agreed quantity’. Again, this figure of 178,387 MT is correct only if the delivery
onboard the M/V FIVE is counted.

[50] “On the evidence, the Tribunal finds that the M/V FIVE shipment
constituted part of the deliveries made under the Year A Contract. It follows that
the quantity of the product not delivered under the Year A Contract is
101,612.63 MT.”

2. Year B and Year C

[51] “Ms. Y wrote to Mr. X on 25 November Year A in the following terms:

‘From: Ms. Y — Sent: 25 November Year A, 8:38 PM

To: Mr. X
GonMsuZ
Subject: Respondent / Year A + Year B
Dear Mr. X,
I refer to telephone call of Ms. Z on 20 November. She was indicating that
there is a possibility to provide us remaining quantity of our existing Year
A contract which is 101,612 metric tons.
As requested over our telephone call of the following day with you, we
would like to indicate how much of this quantity can be delivered when.
Please give us an assurance by writing us your capability to supply a/m
quantity. Since June, we have been setting delivery time from your source
and you were declaring us your inability to perform, sometimes at the last
minute. We do not want it to happen again. This has been causing us
money/time/effort, not to be able to function our existing contract. |

Yearbook Comm. Arb’n XXXV (2010) 193

 NO. 13676
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y sincere
und ers tan d our situ atio n; we expect to rec>ceive your
ion;
hope you
reply. of 20
h regards to your telephone call
Please clarify your position wit of
your position for our existing Contract
November. Please also clari fy
ld not comp lete the commitments of Year
Year B. Since Respondent cou
ar explanatio n if Respondent will not
A, we would like you to give us a cle
r B.
be able to perform Contract of Yea
rds, Ms. xi
Thanks for your attention / Best rega

stating:
Mr. X replied on 28 November Year A

3:20 PM
‘From: Mr. X — Sent: 28 November Year A
To: Ms. Y
Cc: Ms. Z
Subject: Re: Respondent / Year A + Year B
Dear Ms. Y,
With reference to your e-mail message dated 25 November, please be
noted that, at this moment, we are unable to make a commitment
regarding the quantity as well as loading period to be shipped next year
since Production Manager can not give me a clear picture of production
plan for Year B. However, we will try our best to inform you soonest
when things turn out.
Thanks for your kind understanding and very sorry for any
inconveniences.
Yours truly, Mr. X’

[52] “Mr. X’s reply avoids Ms. Y’s question regarding the balance quantity
remaining to be delivered under the Year A Contract. As to whether the
Respondent will be able to perform the Year B Contract Mr. X again alludes to
production problems. There can be no question that, as at 28 November Year A,
there was no basis for suggesting that the Claimant could be considered to be in
breach of the Year B Contract.
[53] “In his witness statement Mr. X states that in light of Claimant’s persistent
failure to open letters of credit in the second half of Year A, he was very doubtful
NesClaimant would fulfil its obligations under the Year B Contract. He also said
at

In light of Claimant’s numerous breaches of the Year A Contract by not

opening letters of credit pursuant to payment terms in Clause 5,

194
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

Respondent treated all the Contracts as repudiated by Claimant. Clearly

Claimant was not sincere in its orders of the products and I had given up
hope that it would fulfil the remainder of the Year A Contract or the Year
B Contract and Year C Contract at all. I treated the Contracts as
repudiated by Claimant since the end of Year A because Claimant did not
send any LC application or open the letters of credit pursuant to Clause 5
of the Contracts.’

According to the Respondent’sSwiss Law expert, Dr. S, even if the Claimant had
been in breach of the Year A Contract, the Respondent would not have been able
to rely on such a breach to terminate the Year B and Year C Contracts.
[54] “The Claimant sent the following facsimile to the Respondent on 4
December Year A:

‘Re: Contract for Year A

In respect to our contract of Year A, we had performed 178,387 m[etric]
tons of the product until May Year A.
Our Contract was signed on 6 December Year A-1 for 280,000 mtons.
Since May Year A, we have been requesting stem dates in order to perform
remaining quantity of our Contract. Although all our stem dates have been
rejected up to today by stating production breakdowns at the plant, we
have been observing the product and bulk product deliveries in the market
which are originating from plant.
Considering that we hold the same quantity contracted for Year B and
Year C, you will understand that we are concerned by the discontinuation
of our co-operation. We would like to receive your views about your
company’s performance for the contracted product deliveries to our
company.
Therefore, as Claimant does not want to interrupt its cordial co-
operation with you, we request you to transmit your kind reply with a
proposal for this Year A in accordance with the Contract within fifteen
calendar days from the date of the present letter.
We look forward to receiving your favorable reply in order to continue
our cooperation. ’

The Respondent did not reply to the Claimant's 4 December Year A facsimile.
[55] “The Respondent did not deliver any quantities of the product under the
Year B Contract notwithstanding the Claimant’s requests for laycans to be
agreed. In its written submissions the Respondent states that although the

Yearbook Comm. Arb’n XXXV (2010) 195

 CE NO. 13676
INTERNATIONAL CHAMBER OF COMMER

Claimant made several proposals for laycan periods it never — -

Agrecment err ae
Respondent with a letter of credit pursuant to the Oral that there
findings above
of the Year B Contract. In the light of the Tribunal’s
not obliged to open a letter
was no Oral Agreement and that the Claimant was
ion is berelt ofsubstance and,
of credit before any laycan was agreed, this submiss
x s witness statement
in any event, flies in the face of the reason given in Mr.
n by the end of Year
referred to above viz. that he had already formed an intentio
repudiated. |
A to treat and did treat the Year B and Year C Contracts as
Claimant's
[56] “By its letter dated 1 April Year C to the Respondent the
y of
solicitors, inter alia, made a claim on behalf of the Claimant for the recover
of the
losses said to have been sustained by reason of the Respondent’s breaches
Year A and Year B Contracts and inquired of the Respondent whether it intended
to fulfil its Year C Contract obligations. The Respondent did not reply to the
Claimant’s solicitor’s letter.
[57] “In these circumstances Mr. X’s statement in his witness statement that
Claimant never took delivery of any the product pursuant to Year B and Year C
Contracts and the Respondent’s submission that in Year C the Claimant never
proposed any laycan period nor placed any orders for the product pursuant to the
Year C Contract are nothing short of facetious.
[58] “It behoves the Tribunal to deal with Mr. X’s allegation in his witness
statement that he had a telephone conversation with one Mr. T of Claimant’s
Singapore office during which, inter alia, Mr. T is said to have acknowledged that
the Contracts had been treated as terminated by the parties. For the reasons
discussed at length above the Tribunal has every reason to treat Mr. X’s evidence
with the utmost caution. Be that as it may, the Tribunal is unable to understand:
(i) what legal effect this supposed ‘acknowledgement’ in mid-Year B would have
had given that Mr. X’s own evidence was that at the end of Year A he had already
treated the Year B and Year C Contracts as terminated; and (ii) why the
Respondent did not inform the Claimant of this alleged telephone conversation
between May Year B, when it was supposed to have taken place, and February
Year C when Mr. X served his witness statement.
[59] “In all the circumstances, in relation to issues 3 and 4 the Tribunal is
satisfied and finds that

(i) the Claimant had not breached any obligations under the Contracts (save for
despatch monies discussed below) and
(ii) the Respondent was in breach:

196
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

(a) of the Year A Contract by failing to deliver to the Claimant 101,612.63 MT

of the product;
(b) of the Year B Contract by failing to deliver to the Claimant 280,000 MT of
the product; and
(c) of the Year C Contract by failing to deliver to the Claimant 280,000 MT of
the product.”

Ill. LOSS AND DAMAGE

b: Despatch Money

[60] “It will be convenient at this stage to deal with the Respondent’s
Counterclaim for despatch monies earned under the Year A Contract and issue
2: does the Tribunal have jurisdiction to hear and determine the Respondent’s
Counterclaim for despatch money of US$ 19,670.00 relating to spot sales
contracts in Year A-1?
[61] “In its closing submissions the Respondent confirmed that it was not
pursuing this claim for despatch money said to have been earned in Year A-1.
The Respondent accepts that this claim falls outside the arbitration clause of the
Contracts. The Tribunal finds accordingly.
[62] “In relation to the Year A Contract, the Tribunal has found that the M/V
FIVE shipment formed part of the deliveries under the Year A Contract. The
Respondentis therefore entitled to the despatch money of US$ 26,402.28 earned
on this shipment and $ 918.50 being interest thereon computed at 5% per annum
(for the reasons set out [at [111]-[112]] below) from 23 April Year A until 31
December Year A. The Claimant also did not challenge Mr. X’s computation of
despatch money earned in the other Year A shipments. For the M/V ONE
Shipment the Respondent is entitled to despatch money of US$ 2,829.40 and
$ 110.00 being interest thereon computed at 5% per annum from 20 March Year
A until 31 December Year A. For the M/V FOUR Shipment the Respondent is
entitled to despatch money of US$ 6,416.40 and $ 204.50 being interest thereon
computed at 5% per annum from 12 May Year A until 31 December Year A.
[63] “The Tribunal therefore finds that despatch monies and interest thereon
totalling US$ 36,641.30 are due from the Claimant to the Respondent. In his
closing submissions counsel for the Respondent submitted that Respondent
should be entitled to set off any despatch monies found to be owing by Claimant
to Respondent against any damages that may be found to be payable by
Respondent to Claimant. The Tribunal agrees.”

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INTERNATIONAL CHAMBER

ses
2 Claimant’s Substitution Purcha

the application of ‘Swiss internal

[64] “Clause 13 of the Contracts provides for
law’ t o the Contracts. The parties have called
expert witnesses to testify as to the
Originally, the meaning and
applicability of Swiss law in this Arbitration.
Contracts gave rise to some
application of the p hrase ‘Swiss internal law’ in the
expert, and Dr. S,the
differences of opinion between Prof. M, the Claimant’s
s domestic law,
Respondent's expert, Prof. M opining that this referenced Swil
’) and the Swiss
consisting of primarily the Swiss Code of Obligations (the “SCO
ons
Civil Code (the ‘SCC’), with Dr. S$ contending that the United Nati
Convention on Contracts for the International Sale of Goods (the ‘CISG’) applied
as an ‘integral part of Swiss law’ and that the reference to ‘Swiss internal law’ only
results in an ‘exclusion of the provisions of Swiss private international law’.
[65] “However, in the course of the Arbitration, the parties’ experts met and
agreed that there were no significant differences between either regime based on
its understanding of the facts. It was thus agreed that both experts would present
the issues on the basis of both regimes (i.e. the SCO/SCC and the CISG) and that
there would be no need for the issue of which regime to apply to be decided by
the Tribunal.
[66] “By reason of the Respondent’s breaches of its obligations under the
Contracts, the Claimant proceeded to make substitution purchases of the
product. In contracts for the commercial sale of goods, the position under Swiss
internal law as set out in Prof. M’s expert report is that the Claimant (as buyer)
is entitled, in the event of default by the seller (the Respondent), to make a
substitution purchase for an amount up to the quantity for which the seller is in
default and thereafter to request compensation for the difference between the
agreed purchase price of the undelivered goods and the price he had to pay in
good faith for the substitution purchase. The same rule applies under the CISG
Art. 75. This forms the basis of the Claimant’s claims in this Arbitration. Hence,
the Claimant need only show: (i) default of the Respondent (as seller); (ii)
performance of the substitution purchases; and (iii) that the substitution
purchases were performed in good faith (SCO Art. 191(2)) or in a reasonable
manner (CISG Art. 75).
[67] “Ms. Y and Mr. F gave extensive evidence on the details of the Claimant’s
substitution purchases and the circumstances under which these purchases had
to be and were made. These witnesses also produced contracts, invoices,
shipping and other documents relating to the substitution purchases. The
Claimant’s witnesses evidence that the Claimant required the entire 280,000
metric tonnes of the product which they were entitled to purchase
from the

198
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 ARBITRAL AWARDS

Respondent under each of the Year A, Year B and Year C Contracts to meet the
needs ofits plants during that period and that the Claimant had no alternative but
to make various substitution purchases of the product to meet such needs was not
seriously challenged. Due to the higher FOB price per metric tonne of the
product purchased from the alternative suppliers, the Claimant says it made a
total loss of US$ 3,370,060.12. In view of the Tribunal’s findings above that the
M/V FIVE shipment is to count as part of the total quantity delivered under the
Year A Contract, the substitution purchases said to have been made by the
Claimant must be reduced by the amount of that shipment.
[68] “The Respondent sought to attack the Claimant’s quantification of its losses
on various grounds some of which were not pleaded or even stated in its witness
statements and they surfaced in the course of the Respondent’s cross-
examination of Mr. F and Ms. Y. In its closing submissions the Respondent
confirmed that it was relying on three grounds:

‘Respondent’s case on the quantum of damages it owes to Claimant

consists of three submissions made in the alternative. First, Respondent
submits that by failing to explain the large discrepancy between its estimate
of damages in April Year C and the damages now claimed in this
arbitration, Claimant has breached its good faith obligations and should not
be allowed to recover any damages.
Second and in the alternative, Claimant has overstated the price of the
product in Year A, Year B and Year C.
Third and in the alternative, if the Tribunal does not agree with the
above submissions, Respondent will show that the quantum of damages
payable is less than that sought by Claimant on account of the following
four matters:

(i) The shipment to Country X onboard the M/V FIVE should have formed
part of the deliveries made under the Year A Contract;
(ii) The freight savings made by Claimant should be set off against the
losses incurred by Claimant in its substitute purchases;
(iii) The increased costs of the four substitute deliveries in Year C resulting
from the termination of the contract made between Company ABC and the
Claimant should not be claimed against Respondent; and,
(iv) The commissions paid to agents for substitute contracts should not be
counted against Respondent.’

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, which
t g round is without merit. Ms. Y's evidence
[69] “The Respondent's firs ulated in
t w hen the Claimant’s claim was first form
the Tribunal accepts, was tha
properly to the computation of losses
Year C she had not applied her mind
’s solicitors. Errors may have
prepared by her office and provided to the Claimant
y included or inadvertently omitted.
been made and certain transactions wrongl
in this arbitration was being prepared
It was only when the Statement of Case
thorough consideration to the
that she and other officers from the Claimant gave |
)
actual losses suffered by the Claimant.
has been explained
[70] “The Tribunal is satisfied not only that any ‘discrepancy
on purchases
but also that the evidence substantiating the fact that the substituti
act is
were made after the Respondent had breached the Year A Contr
overwhelming.
[71] “Under Swiss internal law a general principle is that an aggrieved party has
a duty to take all reasonable measures to mitigate against its losses
(Schadenminderungspflicht / Schadensbegrenzungspflicht). The Claimant relies on SCO
Art. 191(2) which sets out the standard of mitigation required of a buyer in
commercial/sale contracts. Art. 191(2) states:

‘In commercial transactions, the buyer may claim as damages the difference
between the purchase price of the undelivered object of the purchase and
the price he had to pay in good faith for that replacement product.’

[72] “Prof. M opined that under the SCO, the good faith requirement means
that the substitution purchases are to be made in a reasonable manner, i.e.: (i) at
a reasonable price in line with the market conditions; (ii) within a reasonable
time upon waiving the seller’s performance; and (iii) at a reasonable place given
the type of goods at stake.
[73] “Dr. S does not disagree with this proposition. The standard of mitigation
required under the CISG is set out in Art. 75 which states that substitution
purchases be made ‘in a reasonable manner and within a reasonable time after
avoidance’. The duty and standard of mitigation is also expressly required under
CISG Art. 77 which states

‘
a party who relies on a breach of contract must take such measures as are
.

reasonable in the circumstances to mitigate the loss ...’.

ss buyer making a substitute purchase need only act reasonably in the

circumstances and ‘ought not to be obliged to carry out extensive investigations
as to how he can purchase the substitute goods on the most advantageous terms’

200
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

(Schlechtriem/Schwenzer, Commentary on the UN Convention on the International

Sale of Goods (CISG), 2nd ed., 2005 on Art. 75 no. 6 at page 777).
[74] “In ICC Arbitration Case No. 8128 of 1995, the arbitral tribunal noted
that:

‘The buyer may claim the costs following from purchase of goods in
replacement as damages if the transaction is reasonable in conformity with
Art. 75 of the Convention. The buyer concludes such a contract if he
behaves as a careful and prudent businessman undertaking in this purchase.
The buyer who has to buy goods in replacement does not have an
obligation to conduct a deep investigation in order to get the most
advantageous goods.... In the present circumstances, the price of the
purchase in replacement is reasonable in the sense of Art. 75 of the
Convention. A purchase in replacement, which must be made in a very
short period of time so that the goods can be delivered to the client within
the terms of contract, justifies a price higher than that agreed upon when
there was enough time.’

[75] “The Respondent pleaded that the standard required of the Claimant in
mitigating its losses was to purchase ‘alternative supplies at reasonable prices’.
It further stated that ‘reasonable prices’ would refer to the ‘current market price
at the material time in Thailand or an equivalent market’. The prevailing market
price for the product exports from Thailand for Year A was in the range of
US$ X+2 to US$ X+3 per metric tonne as evidenced by the following.... For the
Year B, the market price for the product exports from Thailand was in the range
of US$ X+2.50 to US$ X+9 per metric tonne as evidenced by the following...
The Respondent itself quoted the Claimant an export price of US$ X+9 as at
May Year B. For the Year C, the market price for the product exports from
Thailand was in the upper end of the range of US$ X+2.50 to US$ X+9 per
metric tonne as evidenced by the following.... Further, the export prices for the
product from Thailand as set out above are also substantiated by:

(i) documentary evidence from various Thai and Indonesian suppliers;

(ii) evidence from independent industry publications as to the range of prices in
the Thailand export market; and
(iii) unchallenged evidence from Mr. W, an expert in the concerned industry,
that the prices of its substitute purchases of the product were in line with the
market conditions.

Yearbook Comm. Arb’n XXXV (2010) 201

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INTERNATIONAL CHAMBER OF

unal to support the Respondent s

“There was no evidence before the Trib
uct in Year B and Year C was US$ X
aetention that the mar ket price of the prod
con
per metricic tonne. v
of the hearing t
[77] “At the eleventh hour, after the commencement
invoices of sales -
Respondent sought the Tribunal’s leave to produce two
US$
product in an attempt to show that the market price in Year A was about
ant to an
or less.... Ms. Y’s evidence was that the first sale was made pursu
existing contract which fixed the price of the product sales in Year A at US$ X-
V,
0.50 FOB Port V, Indonesia. The price for sale of the product through Port
Indonesia is cheaper also because the load port is unable to export large quantities
due to the constraints of the loading conditions. Hence, the first sale was only for
18,600 metric tonnes as opposed to a normal shipment size of about 40,000
metric tonnes. As for the second sale, Ms. Y explained that this is not indicative
of the prevailing export market price of the product because Port G, like Port V,
is not able to export large quantities of the product due to the loading conditions.

“The Respondent did not produce any invoices of or other documents

relating to its own sales in Year B and Year C to show that the prices at which it
was selling the product were nowhere near the prices at which the Claimant
bought its substitute supply of the product. The Claimant has invited the
Tribunal to draw the inference that if the Respondent had disclosed evidence of
its sales, such evidence will show that the prices at which the Respondent sold
the product in Year B and Year C were substantially higher than US$ X+0.50
and US$ X+1, and that the Respondent had intentionally breached the Contracts
with the Claimant to make a quick profit from the escalating prices for the
product.
[79] “The evidence as discussed above shows clearly that the prices Claimant
paid for its substitution purchases of the product in Year A, Year B and Year C
were in line with market prices. Indeed, in the Tribunal’s view there is merit in
the submission by Counsel for the Claimant that in all the circumstances clear
inferences can and should be drawn that the market prices in Thailand for export
of the product escalated rapidly since the end of Year A, that the Respondent
chose to sell the product to third parties at the substantially higher prices
obtaining from the second half of Year A and that this was the real reason why the
Respondent disavowed its obligations under the Contracts. The Tribunal
therefore rejects the Respondent’s second ground of complaint about
the
Claimant’s quantification of losses viz. that the Claimant had overstated the
price
of the product in Year A, Year B and Year C.

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[80] “As for the Respondent’s four matters constituting its third ground of
complaint about the quantification of the Claimant’s losses (see [at [68]] above),
the Tribunal has already dealt with the M/V FIVE shipment. As to the remaining
elements the Tribunal proposes to deal with elements (iii) (Company ABC) and
(iv) (agents’ commission) first before considering element (ii) (freight savings).
[81] “Mr. F testified that the contract the Claimant made with Company ABC
for the supply of the product was one of the substitution purchases to procure the
product to make up for those quantities of the product the Respondent failed to
provide under the Contracts. Mr. F also testified that the Company ABC contract
was mutually terminated towards the end of Year B for commercial reasons but
when questioned by Respondent’s counsel, he refused to expatiate what these
reasons were notwithstanding the Tribunal’s direction that he should answer
Counsel’s questions.
[82] “It is clear from Mr. F’s evidence that if the Company ABC contract had
not been terminated, the Claimant could and would have purchased the product
from Company ABC in the first half of Year C instead of making the first four
Year C purchases [from another company]. Claimant’s counsel submitted that
there is no basis to assume that there was any insidious motive to deliberately
terminate this contract.
[83] “In the Tribunal’s view, this is beside the point. Having entered into the
Company ABC contract as a substitution purchase the Claimant has to explain
why it agreed with Company ABC to terminate it. In the absence of satisfactory
explanation, the Tribunal is of the view that Claimant has not discharged the onus
on it to show that the first four substitution purchases in Year C were made in a
reasonable manner.
[84] “In the circumstances the Tribunal is of the view that the Claimant’s losses
in respect of the first four substitute purchase shipments in Year C would be: (i)
for the first, second and fourth substitute purchases, the difference between
US$ X+1/- per mt (the FOB price under the Year C Contract) and the FOB
price under the Company ABC contract of US$ X+5; (ii) for the third substitute
purchase, the difference between US$ X+1/- per mt and the actual FOB price
of US$ X+3.46 paid for this shipment as this actual price was in fact less than the
Company ABC FOB price.
[85] “The Claimant paid its agents a commission of US$ 0.25 per mt for three
substitute purchase shipments made in Year A and six substitute purchase
shipments in Year B. The agent involved in these six Year B shipments was the
one who facilitated the procurement of the Company ABC contract. The
contract with this agent provides that the agency services to be rendered would
include services ancillary to the main job of facilitating and procuring sales of the

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INTERNATIONAL CHAMBER OF

reports and
viding finished product market
product to the Claimant such as pro
ice trends. t of
[86] “The Respondent submit that it ought not to be made to bear any par
natively, it should bear only half of
the commission paid by the Claimant or, alter ,
|
such commissions.
ided by the Claimant's agent for
[87] “The Tribunal notes that the services prov
not include any ancillary
the three substitute purchase shipments in Year A did
services.
nt
[88] “Counsel for the Claimant submitted that, on the evidence, the Claima
t of
would not have entered into any agency agreement requiring the paymen
agents’ commission but for the Respondent’s breaches of the Contracts and that,
for some [countries], it would have been quite difficult for the Claimant to
conclude contracts for the purchase of the product directly with producers
without the intercession of agents well placed to facilitate the making of such
contracts.
[89] “That may well be so but the Claimant has not attempted to demonstrate
to the Tribunal that the Claimant could not have entered into an agency
agreement to procure the Company ABC Contract that either (i) did not call for
the provision of ancillary services or (ii) attributed discrete fees to the agent for
the different tasks of facilitating contracts and provision of ancillary services.
[90] “The Tribunal agrees with Counsel for the Respondent that the Respondent
should not have to bear the entire agency fee of US$ 0.25 per MT in relation to
the six Company ABC shipments in Year B. In the Tribunal’s view an agency fee
of US$ 0.15 per MT for each of these shipments would be a fair amount.”

3. Freight Savings

[91] “The Claimant made eighteen substitution purchases. In fifteen of these the
freight paid by the Claimant was probably lower than the freight it would have
had to pay to transport the product from the Respondent, if the Respondent had
performed the Contracts. It is not entirely clear on the evidence what the freight
savings amount to. The Respondent submits that these savings in freight were
earnings made by the Claimant and such earnings should be set off against the
increased cost of the product paid by the Claimant in the substitution purchases.
The Respondent also submit that the victim of a breach must be put into the
situation in which the victim would have been had the contract been performed
and, consequently, when ascertaining the loss and damage actually suffered by
the Claimant, from the Claimant’s perspective, both the losses arising from the

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increased product prices and increased freight costs and any savings from reduced
freight costs ought to be taken into account.
[92] “The Respondent’s expert Dr. S testified that the principle of set-off
requires that the party arguing set-off must have a head of claim that can be used
against the opposing claim. Under Swiss law, this principle is confirmed by Art.
120 of the SCO which states:

‘If two persons owe each other a sum of money ... each may set off his
obligation against his claim, provided both claims are due.’

Thus it would appear that the Respondent cannot at Swiss law seek to set off any
savings in freight made by the Claimant against the Claimant’s claim for damages
arising from substitution purchases, because the Respondent must first establish
a head of claim for those freight savings before this can be set off against the
opposing claim. The Respondent has not asserted any claim or cause of action in
respect of any such freight savings and it has not provided any evidence of the
same.
[93] “Dr. S also testified that there is no basis under Swiss law for profits earned
by a defaulting party to be claimed by the injured or innocent party. Thus, even
if the Respondent, the defaulting party, were shown to have profited from its
breach of the Contracts (e.g., by selling the product to third parties at a profit),
the Claimant has no basis to claim against the Respondent for a disgorgement of
such profit. Since the savings on freight, being earnings or profits made by the
Claimant, are not different in principle from any profits made by the Respondent
on its sales to third parties of the product that should have been shipped to the
Claimant under the Contracts, then it seems to the Tribunal the Respondent
ought not to be entitled to make a claim against the Claimant, the innocent party,
to effectively disgorge its earnings made by way of freight savings.
[94] “Under the SCO, in the case of commercial sales transactions, the measure
of damages has been expressly set out under Art. 191(2) SCO to be ‘the
difference between the purchase price of the undelivered object of the purchase
and the price [the buyer] had to pay in good faith for replacement’. In other
words, unlike in the case of the general rule on torts (Art. 41 SCO) and the
general rule on breaches of contract (Art. 97 SCO), where the concept of
damage has not been defined by the legislature, Art. 191(2) SCO expressly sets
out how the damage is to be computed.
[95] “Arts. 74 to 76 of the CISG provide as follows:

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to
by one party consist of a sum equal
‘74. Damages for breach of contract
suffered by the other party as a
the loss, including loss of profit, ch
consequen ce of the breach
. Such damages may not exceed the loss whi
have foreseen at the time ofthe
the party in breach foresaw or ought to
facts and matters of which he
conclusion of the contract, in the light of the
sible consequence of the
then knew or ought to have known, as a pos
breach of contract.

and within a
75. If the contract is avoided and if, in a reasonable manner
goods in
reasonable time after avoidance, the buyer has bought
es
replacement or the seller has resold the goods, the party claiming damag
may recover the difference between the contract price and the price in the
substitute transaction as well as any further damages recoverable under
article 74.

76 (1). If the contract is avoided and there is a current price for the goods,
the party claiming damages may, if he has not made a purchase or resale
under article 75, recover the difference between the price fixed by the
contract and the current price at the time of avoidance as well as any
further damages recoverable under article 74. If however, the party
claiming damages has avoided the contract after taking over the goods, the
current price at the time of such taking over shall be applied instead of the
current price at the time of avoidance.
(2). For the purposes of the preceding paragraph, the current price is the
price prevailing at the place where delivery of the goods should have been
made or, if there is no current price at that place, the price at such other
place as serves as a reasonable substitute, making due allowance for
differences in the cost of transporting the goods.’

[96] “Counsel for the Respondent suggested to Prof. M that under these three
CISG Articles, in computing loss one ought to take into account not only any
difference in the price of the goods but also any difference in transportation
costs. Prof. M disagreed and Respondent’s counsel submitted that Prof. M’s
answers were unconvincing. The Tribunal disagrees.
[97] “Art. 75 expressly provides in the case of a buyer who has entered into a
substitution purchase, that (i) the measure of damages, in relation to price of the
goods, is the difference between the contract price and the price in the
substitution purchase and that (ii) the buyer may recover any further damages
recoverable under Art. 74.

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[98] “Art. 76 on the other hand is concerned with the situation where a buyer
has not made a substitution purchase. In such a situation, the buyer may also
recover any further damage recoverable under Art. 74 but, in relation to the
price of the goods, the measure of damages is provided to be the difference
between the contract price and the ‘current price’ either at the time of avoidance
of the contract or, if avoidance of the contract occurs after the buyer has taken
delivery of the goods, at the time of taking over of the goods. Art. 76(2) sets out
a definition of the ‘current price’ referred to in Art. 76(1) and provides that in
ascertaining the ‘current price’, due allowance be made for differences in the
cost of transporting the goods.
[99] “Thus, ‘current price’ (or any necessary allowance for differences in the
cost of transporting the goods in determining current price) is not at all relevant
to the express measure of damages provided in Art. 75. The framers of the CISG
could have included in the Art. 75 measure of damages the need to make
allowance for differences in the cost of transporting goods along the lines they
did in Art. 76(2). They did not. As it stands, therefore, the measure of damages
expressed in Art. 75 is the full measure and not just a prima facie one.
[100] “However, even if the Art. 75 measure of damages is only a prima facie
one, there are learned commentaries on the CISG that support the conclusion
that freight expenses should not form part of the reckoning of losses:

(i) ‘{T]he buyer has no grounds to complain if the seller makes a profit from a
substitute transaction; such a profit cannot be offset against additional damages
claimed by the seller. The same principle applies to a profit made by the buyer
when purchasing goods in a substitute transaction.’
(ii) ‘If a party makes a profit on the substitution transaction, he is not obliged to
return such profit or to impute it to any other damages.’’
(iii) ‘Advantages gained are not to be taken into account if there is no adequate
connection with the loss and [they] are related to the injured party’s own
expenditure (e.g., Insurance benefits); it would be contrary to the principle of
good faith (Art. 7(1)) for the liable party to be exempted by them.’

[101] “Any international sale of goods on an FOB basis would involve insurance
and transportation contracts and costs as discrete elements. If ‘insurance benefits’

1. “Schlechtriem/Schwenzer, Commentary on the UN Convention on the International Sale of Goods

(CISG), 2005 on Art. 75 no. 4 at page 775).”
2. “Brunner, CISG, 2004, Art. 75 no. 7).”
3. “Schlechtriem/Schwenzer, Commentary on the UN Convention on the International Sale of Goods
(CISG), 2005 on Art. 74 no. 32 at page 762-763).”

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ing losses the Tribunal cannot see how

are not to be taken into account : in comput : |
ount.
freight would have to be taken into acc ,
of the Respondent’s Swiss Law expert
1109]“A proper analysis of the evidence
conclusion. The shipments made or
Dr. S. discloses that he also agrees with this
were or would have been on an
that wie have been made under the Contracts
OTERMS 1990 (which applies
FOB basis. The definition of FOB under the INC
by virtue of clause 13 of the Contracts) is:
deliver when
“Pree on Board” means that the seller fullfils his obligation to
of shipment.
the goods have passed over the ship’s rail at the named port
or
This means that the buyer has to bear all costs and risks of loss of
damage to the goods from that point. The FOB term requires the seller to
clear the goods for export. ;

All the shipments made in relation to the substitution purchases were also on an
FOB basis. Dr. S, in his evidence, stated that any increase in freight rate is a risk
borne solely by a buyer. Dr. S opined that where a seller had properly performed
a sales contract a buyer would have no claim against the seller if transportation
costs increase. By parity of reasoning, if the seller breaches a sales contract, any
decrease in transportation costs must also be of no concern to the defaulting
seller.
[103] “Both parties’ experts were in agreement that where there are separate
contracts there is no room for any set-off of benefits incurred under one contract
against losses incurred in another. Prof. M at para. 74 of his Expert Report on
Swiss law (the ‘Expert Report of Prof. M’) opines that:

‘There would neither be any room for a set-off, for each substitution
purchase, between the various categories of losses/benefits, for instance
a possible loss on freight and benefit on FOB price of a given substitution
purchase.’

Dr. S was questioned by Counsel for the Claimant and the Tribunal on this issue:

‘Q: Dr. S, next I would like to examine with you the principle regarding
the computation of damages. Would you agree that there is a general
principle of Swiss law, sir, that if there has been a breach of a sale contract,
and an innocent buyer has to make a substitution purchase, at a better price
than the agreed contractual price, then the buyer is entitled in principle to
keep the benefit of the substitution purchase, and we would say in this case

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 ARBITRAL AWARDS

buyer’s damages would be nominal, there would be no damages, it would

be zero, but being the innocent party, he is not obliged to return or
account for the benefit, for any benefit he made to the seller. And I think
we have asserted, Prof. M has asserted, that this arises out of the principle
that the innocent buyer cannot somehow be considered as the agent of the
seller. Would you agree with that as a general principle?
A: Yes, as a general principle as you have expressed it, yes.
Q: Now, I am taking two contracts and they are two contracts. You make
two substitution purchases pursuant to both these contracts, but then you
decide to sue in one suit, because it’s the same seller, so you list in your
suit, these two contracts, and I suppose the losses you make, and our
contention is that you would make a loss on the first contract of 50 dollars,
and in relation to the second contract, you would not make a loss, so the
loss would be zero. So you would claim as damages 50 dollars being the
loss that you make under the first contract?
A: Yes, if we are — we have to distinguish a claim made in a procedure and
the contract out of which a claim, a particular claim is derived. So, if — the
damages must be assessed according to a certain number of facts and these
are the damages arising out of a particular contract, so we have contract A
where there is a damage. And then in your case, there is a different
contract where there is no damage.
Q: Contract B, yes.
A: And then, there is a claim which deals with damages so I assume the
claim is based on the first contract.
Q: Yes.
A: In that situation, where we are talking about two different contracts, the
respondent cannot derive rights from the second contract because he is not entitled
to the benefit and he cannot compensate, therefore these rights against or set off
such rights which he does not have against an obligation he might have out
of the first contract to pay damages, because he just does not have the right
out of the second contract. (Emphasis added)
Q: That’s correct.
Co-Arbitrator: Could I just ask you this question, Dr. S$. Supposing you
have a seller and a buyer and the seller enters into two contracts with the
buyer, one contract is to sell him 1,000 tonnes of grapes at $100 a tonne,
and the other contract is to sell him 1,000 tonnes of apples at $100 a
tonne. The seller then defaults on the contract, on both contracts, so the
buyer has to go elsewhere to buy. The price of apples goes up, but the
price of grapes goes down, and apples go up by $50 a tonne, grapes go

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INTERNATIONAL CHAMBER OF COMMER

down by $50 atonne. Sot he buye

r loses $50 or has to pay an extra $50 per
to pay $50 a a less i
tonne in respect of the apple contract, but has
add the two a er, his
respect of the grape contract. Now, if you
one contract, he oses on
position remains the same, because he makes on
ves on one against the
the other. Does he have to set off the gain he recei
r, ‘Look, I had
loss he suffers on the other, or is he entitled to tell the selle
have to compensate
to pay $50 a tonne more on the apple contract, so you
have to pay
me for that. As far as the grape contract is concerned, I didn’t
anything more for the grapes, so you don’t have to compensate me on that.
But I don’t have to give you credit, I don’t have to set off the benefit that
I have got from the grape contract against that.
A: My answer would be, if we are dealing with two separate contracts —
Co-Arbitrator: I’m talking about two separate contracts.
A: And it’s not one contract where in the same contract one has to sell
grapes and later — I mean, the situation of successive deliveries. So if it is
two different contracts, then you have to determine the damage in each
contract, and in the first contract, there is a damage, and in the second,
there is none and if there is a profit, what the doctrine says in this separate
contract is that you can keep it. So if you deal with separate contracts, you
cannot set off because if — the other party cannot set off, because to set off
you must have a claim, a sort of — that is the principle of set-off and since
in the other contract, the other party is entitled to keep the profit, the
other party does not have the claim to this money because it belongs to the
others and it cannot set off something he possesses, a claim he possesses
against the damages for which he sued in the other contract, but that is
because there are two different contracts. When we have one contract then
in my mind, there is a totally different situation.’

[104] “It would follow that it is a principle of Swiss law that where an innocent
party makes a benefit, he need not disgorge or account for the same, and there
will be no room for such benefit to be set off against or be imputed to the losses
incurred in respect of another contract. This is so even where: (i) the contracting
parties are the same in both cases; i.e. the same parties entering into two separate
contracts; and (ii) the subject matter of the contracts is the same in both cases;
e.g., the supply of the product.
[105] “Thus it is common ground that under Swiss law:

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 ARBITRAL AWARDS

(i) An innocent party may keep any benefit he may have obtained in a substitution
transaction (which arose due to the defaulting party’s breach of contract) without
having to set off / account for any part of it to the defaulting party; and
(ii) Where there is a breach of two separate contracts between the same parties,
and there is a loss incurred on one, with a benefit obtained on another, consistent
with the principle enunciated above, the innocent party can claim under the
contract on which he made a loss, and does not need to set off any of the benefit
obtained in the other contracts.

[106] “Counsel for the Claimant submitted that in the context of contracts for the
international sale and supply of goods, at least five separate and distinct
contractual relationships are likely to be present:

(i) the supply contracts between the vendor and purchaser;

(ii) the substitution purchase contracts between the purchaser and various third-
party suppliers;
(iii) the contracts of affreightment between the purchaser and various third-party
shippers;
(iv) the contracts of insurance between the purchaser and various third-party
insurers; and
(v) the resale contracts between the purchaser and the subpurchasers.

[107] “Counsel submitted further that all of these contracts could thus give rise
to the potential for losses or savings that could have been incurred as a result of
one party’s breach of the contracts, but that does not mean that one would go
into each contract to try and arrive at a ‘net’ position. Counsel asked
theoretically: should the Tribunal look into the difference in insurance premiums
between the original and substitute purchases? Should they also inquire as to
whether the Claimant’s resale contracts (of finished product, as well as the
product) have been affected by the failure in delivery, and to what extent? Yet
the Respondent would have this Tribunal make an isolated inquiry into freight
costs, without looking into other, equally relevant, items.
[108] “In the opinion of the Tribunal, applying the principles of Swiss Law
discussed above, in an FOB contract:

(i) where a seller is in default and a buyer, in making a substitution purchase,

pays less for the substitute goods purchased and for the transportation of such
substitute goods then the buyer will not have to disgorge or account for earnings
or profits made either

Yearbook Comm. Arb’n XXXV (2010) 211

 CE NO. 13676
AMBER OF COMMER
INTERNATIONAL CH

ods or
h avi ng pa id a les ser price for substitute go
(a) by way of on costs.
id lower transportati
(b) by way of h aving pa
an innocent buyer incurs
It se em s to the Tr ib un al that it mus t follow that if
(ii )
fre igh t cos ts onl y and , ass uming the buyer paid a lower
a loss because of higher a lower price for
e for sub sti tut e goo ds the n any profits he earned in paying
ric reduce losses.
sti tut e goo ds pur cha sed can not be taken into account to
the sub re an innocent
(iii) In the view of the Tribun al the obverse must also follow: whe
but
a los s bec aus e of hig her pri ces he had to pay for substitute goods
buyer inc urs not be
h freight savings or profits also can
if he makes savings in freight then suc
the buyer’s losses.
taken into account to reduce

concludes that the Claimant’s claim

[109] “In these circumstances, the Tribunal provided
prices for the product
for damages, being the difference between the
paid for the product on the
under the Contracts and the higher prices they s that
ld not be reduced by any savings in freight cost
substitution purchases, shou
may have been made.
Claimant’s losses to
[110] “In the premises the Tribunal computes and finds the
A to Year C
be as follows: (table omitted). Total loss for Year
(US$ 3,000,792.49).”

IV. INTEREST

[111] “SCO Art. 104(1) provides that:

If an obligor is in default as to the payment of a financial debt, he shall pay

default interest at five percent per annum, even if the contract provides for
a lower rate.’

ag) “In the case of JdT 2001 A I 289, before the Swiss Federal Tribunal, a
dispute arose in relation to a letter of credit issued by a Saudi Arabian bank in
favour of a Lebanese company. The governing law was Saudi Arabian law. The
Swiss Federal Tribunal held that as the dispute was governed by Saudi Arabian
law, the issue of interest had to be determined according to Saudi Arabian law as
the substantive law applicable to the merits of the case. The substantive law
would govern the existence, scope and effects of the obligations between the
Parties. This includes the consequences of non-performance of the laid
obligations, such as damages payable and interest. The Swiss Federal Tribunal

212 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRAL AWARDS

denied the plaintiff's claim for interest as Saudi Arabian law did not award
interest,
[113] “The Claimant has asked for interest to accrue from the time it made
payments for its substitution purchases. However the evidence of its Swiss Law
expert, Prof. M, is clear: default interest will run from the expiry of the time
allowed to the Respondent to perform and, in relation the Year A substitution
purchases, default interest would only accrue from the end of Year A. The
Tribunal has no reason to disagree with Prof. M’s opinion in this regard. It would
follow that default interest for Year B and Year C will only be payable from the
31 March, 30 June and 31 December of each year in respect of substitute
purchases made by the Claimant before each of these dates.
[114] “The Tribunal therefore computes and finds the interest payable by the
Respondent to the Claimant to be as follows:

Year A
— Interest on US$ 257,211.00 (being the difference between US$ 293,852.30
and US$ 36,641.30 in respect of despatch monies and interest found by the
Tribunal to be payable by the Claimant to Respondent per [[60]-[63]] above
computed at 5% per annum from 31 December Year A until final payment.

Year B
— Interest on US$ 300,012.00 (being losses on substitute purchase shipment 1
in Year B) at 5% per annum from 31 March Year B until final payment;
— Interest on US$ 365,792.25 (being losses on substitute purchase shipments 2
and 3 in Year B) at 5% per annum from 30 June Year B until final payment;
— Interest on US$ 763,274.25 (being losses on substitute purchase shipments 3
to 7 in Year B) at 5% per annum from 31 December Year B until final payment.

Year C
— Interest on US$ 319,864.64 (being losses on substitute purchase shipments 1
and 2 in Year C) at 5% per annum from 31 Year C until final payment;
— Interest on US$ 263,739.59 (being losses on substitute purchase shipments 3
and 4 in Year C) at 5% per annum from 30 June Year C until final payment;
— Interest on US$ 694,257.46 (being losses on substitute purchase shipments 5,
6 and 7 in Year C at 5% per annum from 31 December Year C until final
payment. ‘

Yearbook Comm. Arb’n XXXV (2010) 213

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v. COSTS

tration, Art. 31.3 of the

[115] “As for costs and expenses arising out of this arbi
to decide which party shall
ICC Rules of Arbitration provides for the Tribunal
the costs of the arbitration. In
bear them and in what proportion and to fix
or what proportion
coming to its decision on which party should bear the costs
general principle that
of the costs should be recoverable, the Tribunal follows the
y that prevails should
costs should normally follow the event viz. the part
)
normally be entitled to the costs incurred.
[116] “The Claimant has succeeded on liability and virtually entirely on quantum.
ent
The Respondent complains that the Claimant employed five lawyers to repres
‘t in this reference and that this number was excessive. The Tribunal rejects this
submission. First, the Respondent itself employed two (or perhaps even three)
Singapore lawyers to represent it and two Thai lawyers to assist in the conduct
of the defence and one of the Thai lawyers attended the hearings in Singapore.
Second, the Respondent requested that this dispute be submitted for
determination to a panel of three arbitrators, after having first agreed to have the
dispute determined by a sole arbitrator. This signifies that the Respondent
recognized that the disputes involved issues of law and fact warranting a three-
member tribunal to hear and determine them.
[117] “One issue on which the Claimant did not succeed (despatch monies
payable under the Year A Contract) and one on which it did not succeed entirely
(commission payable to the agent who procured the Company ABC Contract)
did not take up that much time that would warrant a significant reduction in the
amount of costs recoverable by the Claimant. In the Tribunal’s view the Claimant
should have ninety percent of its legal costs.
[118] “The Claimant claims the following costs: (table partly omitted)

Total legal costs (US$) 420,000.00

Total Disbursements (US$) 212755 u33

The Tribunal considers that a sum of US$ 400,000.00 for costs of the Claimant’s
legal representation would be a reasonable sum. The Claimant is therefore
entitled to legal costs of US$ 360,000.00.
[119] “The Tribunal has considered the items of disbursements claimed and finds
these to have been reasonably incurred and to be reasonable. The Respondent has
not challenged the Claimant’s computation of the conversion into US dollars of
the items of disbursements incurred in other currencies.

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[120] “The advance on costs fixed by The ICC International Court of Arbitration
at US$ 240,000.00 has been paid by the parties in equal shares. The Court fixed
the costs of the arbitration at US$ 240,000.00 comprising: (i) ICC administrative
expenses at US$ 30,692.00 and (ii) the Tribunal’s fees and expenses at
US$ 209,308.00.
[121] “In relation to issue eight, the Tribunal finds that the Claimant is entitled
to costs and expenses arising out of this arbitration, including the ICC
administrative expenses, the fees and expenses of the Tribunal and reasonable
attorneys’ fees and disbursements incurred in and about this arbitration. The
Tribunal allows legal costs and disbursements recoverable by the Claimant at
US$ 572,755.33. The Respondent is to bear the costs of the arbitration fixed by
the Court at US$ 240,000.00 and the Respondent is to reimburse the Claimant
US$120,000.00 being the amount paid by the Claimant as its share of the
advance of costs fixed by the Court.”

VI. SUMMARY OF FINDINGS

[122] “The Tribunal’s decisions on the issues to be determined in this arbitration

may be summarized as follows:

1. What were the parties’ obligations under the Contract?

(i) The Claimant was obliged to:

(a) nominate a vessel only after the parties had agreed a laycan;
(b) fix the vessel subject to the Respondent’s approval within one working day
after receipt of vessel nomination
(c) cause a letter of credit to be opened within seven days of the vessel’s arrival
at the load port and

(ii) The Respondent was obliged to accept the Claimant’s requests for laycan and
for shipments of quantities of the product made in conformity with the Contracts
and to make shipments of such quantities in accordance with the terms of the
Contract.

2. Does the Tribunal have jurisdiction to hear and determine the Respondent’s
counterclaim for despatch money of US$ 19,670.00 relating to spot sales
contracts in Year A-1?

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has no jurisdiction and has withdrawn

The Respondent agrees that the Tribunal s in Year A-1.
ting to spot sale contract
its claim for despatch money rela

ched any obligations under

3. Have the Claimant or the Respondent or both, brea
the Contracts?
Both have breached.

ant or the
4. If so, which obligations have been breached by the Claim
Respondent or both?
the
(i) The Respondent breached its obligations to supply 101,612.63 MT of
product under the Year A Contract and 280,000 MT of the product under each
of the Year B and Year C Contracts.
(ii) The Claimant breached its obligation under the Year A Contract to pay
despatch money and interest of US$ 36,641.30 to the Respondent.

5. (i) Has the Claimant suffered loss and damage in consequence of any breach
by the Respondent; and if so, (ii) What are the damages suffered by the
Claimant?
(i) Yes.
(ii) The damages suffered by the Claimant amount to US$ 3,000,792.49, and
after taking into account the despatch money and interest of US$ 36,641.30
payable to the Respondent, the amount recoverable by the Claimant is
US$ 2,964,151.20.

6. (i) Has the Respondent suffered loss and damage in consequence of any breach
by the Claimant; and if so, (ii) What are the damages suffered by the
Respondent?
(i) Yes.
(ii) The damages suffered by the Respondent amount to US$ 36,641.40 being the
despatch money and interest payable to it by the Claimant under the Year A
Contract and this amount has been applied to reduce the amount recoverable by
the Claimant.

7. Whether interest is recoverable by the Claimant or the Respondent, and if so,

on what basis?
Yes. Default interest computed at 5% per annum is recoverable under Swiss
Law, the law governing the Contracts.

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 ARBITRAL AWARDS

8. Whether the Claimant or the Respondent is entitled to costs and expenses

arising out of this arbitration, including but not limited to reasonable attorneys’
fees?
The Claimant is entitled to costs and expenses arising out of this arbitration,
including reasonable attorneys’ fees.

9. Whether the Claimant or the Respondent is entitled to any other relief?

Neither party has claimed other relief.”
6533)

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13954
Final award in case no.

Parties: Claimant: Commodity trader (The Netherlands)

Respondent: Service company (France)

Place of
arbitration: Paris, France

Published in: Unpublished

Subject matters: = applicable law to capacity of a corporation

— guarantee contract
— trade usages do not include good faith and apparent
authority
— good faith and apparent authority to conclude
contract

Summary

Respondent undertook to pay all expenses due by a third company io claimant under a related contract.
The parties had made a choice of applicable law. However, as the parties’ autonomy to choose the
governing law does not extend to the determination of the law applicable to the issue of a party’s
capacity and power to contract, the sole arbitrator determined the applicable law to that issue. Noting
a strong consensus for applying the lex societatis to a corporation’s capacity, he applied that law (in
casu, French law). Under French law, respondent’s undertaking was a “lettre d’intention avec
obligation de résultat” (a letter ofintent creating an obligation to achieve a specific result). A statutory
provision ofFrench law provides that such undertaking, ifgiven by a corporation, must be authorized
in advance by the corporation’s board of directors. As no such authorization had been given, the
agreement was unenforceable. The principles ofgood faith and apparent authority did not change this
conclusion, because (i) trade usages, though they must be taken into account in international
arbitration, neither include the principles of good faith and apparent authority nor can supplant
statutory provisions and (ii) good faith and apparent authority do not apply to supplant or correct lex
societatis in respect of the capacity of corporations in the context of international arbitration. In any
event, even applying these principles there was no capacity in the present case, as apparent authority
requires that the other party be reasonably diligent. This was not the case here as claimant had not
made the necessary enquiries into respondent’s capacity.

On 18 October of Year X, the Dutch commodity trader (Claimant) entered into

a Three-Party Agreement with two companies incorporated in non-European
Country Z: Company ABC and Company DEF, which was owned in part by the

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Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

French service company (Respondent). Company ABC operated a warehouse in

Country Z; the Three-Party Agreement concerned the receipt, storage and
shipment of a certain commodity owned by Claimant (the goods) in and from the
warehouse. Company DEF agreed, under the Three-Party Agreement, to certify
receipt of the goods in the warehouse and take control over them for Claimant,
warrant the quantity and quality of the goods to Claimant and compensate
Claimant for any and all costs and consequences that may result from the
wrongful release, loss or destruction of the goods. The Three-Party Agreement
provided that any dispute be decided by a competent court in London.
On the same 18 October of Year X, Respondent sent a letter to Claimant (the
18 October Letter), in which it undertook to keep at least fifty-one percent of
the shares of Company DEF during the contract period and “see that [Company
DEF] fulfils its obligations” under the Three-Party Agreement. Respondent also
undertook to “pay all expenses” due by Company DEF for prejudices faced by
Claimant under the Three-Party Agreement. Respondent’s Board of Directors
did not issue a prior authorization for the 18 October Letter. The Letter
provided that French law applied to the relationship between the parties; it also
provided that any dispute be resolved by ICC arbitration in Paris.
A dispute arose between the parties when Company DEF failed to maintain
control over a consignment of the goods and deliver the consignment to
Claimant. Claimant commenced ICC arbitration against Respondent, seeking
compensation under the 18 October Letter for Company DEF’s breach of the
Three-Party Agreement.
By the present award, the Sole Arbitrator held that the 18 October Letter was
not enforceable against Respondent because it had not been authorized in
advance by Respondent’s Board of Directors as provided for under the applicable
French law.
The Sole Arbitrator first determined the nature of the 18 October Letter
under French law, which governed the parties’ relationship. Respondent’s first
two obligations under the Letter — to keep at least fifty-one percent of the shares
of Company DEF during the contract period and to see that Company DEF
fulfilled its obligations under the Three-Party Agreement — corresponded
undisputedly to a lettre d’intention, since they did not involve any payment
obligation. The parties disagreed, however, as to the nature (cautionnement,
constitut or lettre d’intention) of Respondent’s third undertaking — to “pay all
expenses” due by Company DEF for prejudices faced by Claimant under the
Three-Party Agreement — on which Claimant’s claim for compensation was
based.

Yearbook Comm. Arb’n XXXV (2010) 219

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the third a was a lettre

The Sole Arbitrator concluded that also a
er both a cautionnement and a ao
intention under French law, since und
in the event that the debtor ails . Oo
arantor undertakes to pay a specific debt
paying the debt in “ P=
so — either by substituting for the debtor and
a mtn = ent
(cautionnement) or by undertaking to pay an amount equal to
chtor a pringipa : —
whose quantum can be specified by reference to the
ntion a — erta ns
to pay a sum of money (constitut). By contrast, a lettre d inte
es sultered as aresu t
by a third party to compensate the creditor for the prejudic
trator’s opinion,
of the debtor’s failure to perform an obligation. In the Sole Arbi
er corresponded
Respondent's third undertaking under the as October Lett
exactly to the definition of a “lettre d’intention . | |
The Sole Arbitrator further held that Respondent’s third undertaking
amounted to an “obligation de résultat” (an obligation to achieve a specific result)
rather than an “obligation de moyens” (a best efforts obligation). The 18 October
Letter was therefore properly characterized as a “lettre d’intention avec obligation
de résultat” under the applicable French law.
The Sole Arbitrator added, however, that this finding had a very limited
impact on the ultimate outcome of the arbitration, as all the above types of
undertakings are subject to the French statutory requirement for prior
authorization by the Board of Directors, whose undisputed lack led the Sole
Arbitrator, as set out below, to conclude that the 18 October Letter was
unenforceable against Respondent.
The Sole Arbitrator first noted that while French substantive law applied to the
substance of the contract, the principle of party autonomy in the choice of the
governing law does not extend to the determination of the law applicable to the
issue of a party’s capacity and power to contract. The law applicable to such
issues is usually determined in accordance with the method used to determine the
law governing the contract in the absence of a choice by the parties. Under both
the ICC Rules and the French Code of Civil Procedure, where the parties have
not chosen the governing law the arbitral tribunal may determine that law
directly. It must also give reasons for its determination.
In the present case, the Sole Arbitrator noted that there is a strong consensus
in private international law that a corporation’s power to contract is governed
by the lex societatis, i.e., either the law of the corporation’s head office or the law
under which the corporation is organized. Here, the lex societatis was French law
in either case. The Sole Arbitrator therefore examined the issue of Respondent's
capacity to enter into the 18 October Letter under French law, and concluded
that the 18 October Letter was not enforceable against Respondent because it
was not authorized by Respondent’s Board of Directors.

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Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

This finding was based on strict compliance with the relevant statutory
provisions of French law. Claimant relied on the concept of “trade usages” to
argue that the strict rules which may apply to the powers of corporate
representatives under the /ex societatis are considerably attenuated in international
arbitration. Claimant also suggested that international arbitrators may in any
event have recourse to substantive legal rules such as good faith, apparent
authority and estoppel.
The Sole Arbitrator disagreed. He held that the concept of trade usages in the
ICC Rules and the French CCP does not include substantive law principles such
as good faith, apparent authority and estoppel. Also, trade usages do not
constitute rules of law and cannot take precedence over the applicable law. Nor
do substantive principles such as good faith and apparent authority apply to
supplant or correct Jex societatis in respect of the capacity of corporations in the
context of international arbitration. The Sole Arbitrator found that the arbitral
and court jurisprudence on which Claimant relied could be distinguished, inter
alia, because almost all decisions related to the enforceability or validity of
arbitration clauses, not the substantive contractual obligations of the parties.
While there is a strong consensus that the principles of good faith and apparent
authority provide a legal basis for upholding the validity of arbitration clauses, it
is equally clear that the French courts have not extended these principles to other
substantive contractual obligations of the parties, in particular to guarantees.
In any event, the Sole Arbitrator found that good faith and apparent authority
would not provide a basis for holding that the 18 October Letter was enforceable
against Respondent. While the general principle of apparent authority is widely
recognized at the international level, it is also subject to an important limitation —
the other party must be reasonably diligent. Here, Claimant neither alleged nor
proved that it made enquiries regarding the authority of Mr. X, who signed for
Respondent, or regarding Respondent’s power to conclude the 18 October
Letter. The Sole Arbitrator added that the existence of specific legal
requirements for the enforceability of guarantees given by corporations — such
as the prior authorization of the Board of Directors — should not come as a
complete surprise to sophisticated commercial parties active in international
trade, in particular where the Jex societatis of the corporation granting the
guarantee is the same as the substantive law governing the undertaking itself,
The Sole Arbitrator finally found that Claimant and Respondent should bear
the arbitration costs equally and each bear its own legal costs. He recognized the
current trend in favor of the principle of “costs follow the event”, but decided in
his discretion not to apply it here, reasoning that Claimant failed to meet the
standard of reasonable diligence and that, in turn, Respondent only questioned

Yearbook Comm. Arb’n XXXV (2010) 221

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of the
r Letter after the commencement
the enforceability of the 18 Octobe
arbitration.

Excerpt

I. JURISDICTION

arbitration
ft} The jurisdiction of the Sole Arbitrator is derived from the
to Claimant,
agreement contained in the 18 October Letter from Respondent
which provides as follows:

‘Any dispute will be definitively solved according to the Arbitration Rules

of the International Chamber of Commerce (ICC) located in Paris by one
or three arbitrators duly nominated according to these Rules which is
accepted by the Parties. ;

The Parties agree that the Sole Arbitrator has jurisdiction under this arbitration
agreement to decide issues relating to the 18 October Letter, including its
enforceability against Respondent.
[2] “There is, however, a dispute between the Parties on the scope of the Sole
Arbitrator’s jurisdiction under this arbitration agreement. Specifically,
Respondent argues that the Sole Arbitrator does not have jurisdiction to decide
on Claimant’s claims because this would necessarily require findings in respect
of Company DEF’s liability under the Three-Party Agreement.
[3] “For the reasons set forth below [at [19]-[55]], the Sole Arbitrator has
reached the conclusion that Claimant’s claims must be dismissed because the 18
October Letter is not enforceable against Respondent. As a result of this finding
on the merits, there is no need to rule on the jurisdictional objection raised by
Respondent.”

II. NATURE OF THE 18 OCTOBER LETTER

[+] “Asa first step in deciding on the merits of this arbitration, it is necessary
to consider the proper legal characterization of the 18 October Letter. This
question of legal characterization requires a careful analysis of the precise
nature
of Respondent’s obligations to Claimant.

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 ARBITRAL AWARDS

[5] “It is common ground that Respondent’s first two undertakings in the 18
October Letter correspond to a ‘lettre d’intention’ since they do not involve any
payment obligation:

‘We will keep at least 51% of the shares of Company DEF during the
above contract period;
We will see that the company fulfils its obligations under the execution
of these contracts and keeps the human, technical administrative and
financial means to do so....’

[6] “Claimant’s claims for compensation in this arbitration are, however, based
primarily on Respondent’s third undertaking in the 18 October Letter, which
provides as follows:

‘We will pay all expenses due by [Company DEF] for prejudices faced by
Claimant under execution of the said contracts [the Three-Party
Agreement].’

Claimant argues that this third undertaking is properly characterized as a

‘constitut’ (or, alternatively, a ‘lettre d’intention avec obligation de résultat’) while
Respondent maintains that it amounts to a ‘cautionnement’.
[7] “It should be noted at the outset that the Parties rightly agree that the new
Livre IV: Des siretés of the French Code civil, which came into force in March 2006
(Ordonnance No. 2006-346 of 23 March 2006), is not applicable to the 18
October Letter. This is because Art. 2 of the French Code civil makes clear that
such amendments do not have retroactive effect.
[8] “In any event, whether one applies the law before or after entry into force
of Livre IV: Des siretés of the French Code civil, there is a fundamental difference
between the nature of ‘cautionnements’ and ‘constituts’, on one hand, and ‘lettres
d’intention’, on the other hand. In view of this fundamental difference, it is
evident that the 18 October Letter can only be properly characterized as a ‘lettre
d’intention’ under French law.
[9] “In the case of both a ‘cautionnement’ and a ‘constitut’, the guarantor
undertakes to pay a specific debt in the event that the debtor fails to do so: “A
“cautionnement” is an undertaking by the guarantor to substitute for the debtor and
pay a debt in its place.' As shown by Art. 2013 (now Art. 2290) of the French
Code civil, a ‘cautionnement’ is not an open-ended indemnity. Rather, it is an

1. “P. Simler, Cautionnement et garanties autonomes, 3rd ed. (2002: Litec) at para. 31, pp. 29-30.”

Yearbook Comm. Arb’n XXXV (2010) 223

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eed the amount of

fi money debt and it+ c can never exc
speciific
undertakiing to pay a spec
that debt:

est du par le debiteur, ni étre

‘Art. 2013 Le cautionnement ne peut excéder ce qui
contracté sous des conditions plus onereuses.
° e /

des conditions plus

Le cautionnement qui excéde la dette, ou qui est contracte sous
mesure de I’obligation
, : °

onéreuses n’est point nul: il est seulement réductible a la

/ . \

principale. :

[10] “Similarly, a ‘constitut’ is an undertaking to pay an amount equal to a

e to
specific debt. A ‘constitut’ is not an open-ended indemnity. It must be possibl
verify the existence of the debt and the quantum of the debt by reference to the
debtor’s principal obligation to pay a sum of money. In this regard, Professor
Simler, one of the leading French commentators on this subject, has observed:”

‘{L]e constituant s’oblige a payer, non la dette méme du debiteur garanti, mais la
méme dette.... Le montant de cette dette (du débiteur principal) reste I’elément
essentiel de détermination du montant da Ia garantie... I]faut donc que la dette
garantie existe et soit liquide mais non qu elle soit certaine et exigible. wi

Another leading French legal commentator has described the nature of the
‘constitut’ in the following terms:°

‘Le constitut est un engagement indépendant de payer une somme, pris

a titre de garantie, non d’un risque, mais d’une dette (de somme
d’argent, on va le voir ) toujours precise et si ce n’est déja née, du moins devant
naitre d’apres le cours normal des choses.’ (Emphasis added)

[11] “By contrast, a ‘lettre d’intention’ is not an undertaking to pay a specific

money debt. Rather, it is an undertaking by a third party to compensate the
creditor for the prejudices suffered as a result of the debtor’s failure to perform
an obligation. Professor Simler has explained this fundamental difference

z. “P. Simler, Cautionnement et garanties autonomes, supra fn. 1, para. 899, p. 809; P. Simler, ‘Garanties
elie Nature juridique, caractéres, typologie’, Jurisclasseur, Fasc. 387, 2005 at para. 54, p. 20:15.”
3. -F. Jacob, Le Constitut ou l’engagement autonome de payer la dette d’autrui a titre de garantie, (1995:
LGD)J) at paras. 223-224, pp. 191-192.”

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 ARBITRAL AWARDS

between ‘cautionnements’ and ‘constituts’, on one hand, and ‘lettres d intention’, on

‘ e > ® Dia .

the other hand:*

‘Certains engagements de tiers garants n’ont pour objet ni la dette

méme du débiteur (cautionnement ou constitut), ni une somme
forfaitairement déterminé (garantie autonome stricto sensu), mais la réparation
du prejudice causé a4 un créancier par le défaut d’exécution de
l’obligation du débiteur.
Tel est le cas de la lettre d’intention, lorsqu’elle est constitutive d’une
obligation de faire, de résultat ou méme seulement de moyens.... Une telle
obligation se résout, en effet, en dommages et intéréts, comme le
prescrit l’article 1142 du Code civil. Si lobligation principale était de somme
d'argent, le résultat final est souvent le méme que celui d’un cautionnement pur et
simple de la ou des dettes garanties. Mais lefondement reste différent.’ (Emphasis
added)

[12] “It is clear that Respondent’s third undertaking of the 18 October Letter
corresponds exactly to the above definition of a ‘lettre d’intention’. Respondent
did not agree to pay a specific money debt in the place of Company DEF. Rather,
Respondent agreed to compensate Claimant ‘for all expenses due ... for
prejudices’ resulting from Company DEF’s failure to perform its obligations
under the Three-Party Agreement. In other words, Respondent agreed to pay
whatever damages Claimant would suffer due to Company DEF’s failure to
perform its obligations, not a specific sum of money.
[13] “Given the nature of this undertaking, the Sole Arbitrator finds that the 18
October Letter is properly characterized as a ‘Jettre d’intention’ under French law.
Having reached this conclusion, the next issue to be decided is whether
Respondent’s third undertaking amounts to an ‘obligation de moyens’ (a best efforts
obligation) or an ‘obligation de résultat’ (an obligation to achieve a specific result).
[14] “Under French law, it is well established that a ‘lettre d’intention’ constitutes
an ‘engagement contractuel de faire ou de ne pas faire’ (contractual undertaking to do
or not do certain acts) that can, depending on its specific terms, extend as far as
an ‘obligation de résultat’, without constituting a ‘cautionnement’.’ This is also
confirmed by Commentary on Art. 2322 of the new Livre IV of the French civil

4. “P. Simler, ‘Garanties autonomes, Nature juridique, caracteres, typologie’, supra fn. 2, at para. 55, p.
20;
5. “Cass. com., 21 December 1987 (Bull. civ. IV, no. 281); P. Simler, Cautionnement et garanties
autonomes, supra fn. 1, at para. 32, p. 30.”

Yearbook Comm. Arb’n XXXV (2010) 225

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extent that it reflects the current posi tion under

code, which is relevant to the is
re d ‘intention avec obligation de resultat’
French case law. The party issuing a ‘lett
creditor as a result of the a S
fully liable for all damages sustained by the y
f that the damages wene cause
failure to perform its obligations, absent proo
l effect a hectee d’ intention avec
some external factor. Consequently, the practica
‘cautionnement
obligation de résultat’ is very similar to that of a
the French Cour de
[15] “As a result of several relatively recent decisions of
nsption in the
cassation, it is now settled law that an undertaking to pay compe
d, the
place of the debtor necessarily constitutes an ‘obligation de résultat’.’ Indee
Cour de cassation has even extended the concept of an ‘obligation de résultat’ to:

(a) an undertaking to do the necessary so that a subsidiary would have sufficient

funds in its treasury to meet its obligations;* and
(b) an undertaking to do the necessary to bring the restructuring of a subsidiary
eastgo
to a successful conclusion.

In view of these decisions of the Cour de cassation, there can be no doubt that
Respondent undertook an ‘obligation de résultat’ when it agreed to compensate
Claimant ‘for all expenses due ... for prejudices’ resulting from Company DEF’s
failure to perform its obligations under the Three-Party Agreement.
[16] “This conclusion is consistent with the general trend in the French case law
— contractual undertakings of this nature given by a parent corporation for the
benefit of its subsidiaries or affiliates are usually characterized as ‘Jettres d’intention
avec obligation de résultat’ . 9
[17] “For all of the above reasons, the Sole Arbitrator finds that the 18 October
Letter is properly characterized as a ‘lettre d’intention avec obligation de résultat’
under French law.
[18] “Asa final matter, it should be noted that the decision on the proper legal
characterization of the 18 October Letter has a very limited impact on the
ultimate outcome of this arbitration. The Parties have argued that the 18 October
Letter should be characterized either as a ‘cautionnement’, a ‘constitut’ or a ‘lettre
d’intention avec obligation de résultat’. All three of these types of undertakings are,

. “P. Simler, Cautionnement et garanties autonomes, supra fn. 1, at para. 32, pp. 30-31.19.”
7. “Cass. com., 26 January 1999 (Dalloz 1999, No. 38) at p. 577; Cass. com., 26 February 2002
(Dalloz 2002, No. 15) at p. 1273; Cass. com., 9 July 2002 (Dalloz 2002, No. 29) at p.
2327;
Cass. com., 19 April 2005 (Court File no. 01 12 347).”
8. “Cass. com., 26 February 2002 (Dalloz 2002, No. 15) at
Al 13."
9. “Cass. com., 9 July 2002 (Dalloz 2002, No. 29) at p. 2327.”
a
« .
;
Simler, Cautionnement et garanties autonomes, supra fn. 1, at para. 32, p. 31.23.”

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 ARBITRAL AWARDS

however, subject to the French statutory requirement for prior authorization by

the Board of Directors, as will be discussed below [at [19]-[55]]. Only a ‘lettre
d’intention avec obligation de moyens’ is not subject to this statutory requirement."!
Accordingly, the outcome of this arbitration could only be different if the 18
October Letter were characterized as a ‘lettre d’intention avec obligation de moyens’ .
However, neither Claimant nor Respondent has advocated such a
characterization and, as discussed above, Respondent’s third undertaking in the
18 October Letter is inconsistent with such a characterization under French law.”

Ill. ENFORCEABILITY OF THE 18 OCTOBER LETTER

[19] “In this arbitration, Respondent asserts that its Board of Directors did not
authorize the 18 October Letter. Claimant has not disputed this fact.
Accordingly, the Sole Arbitrator will decide the question of enforceability on the
basis that the 18 October Letter was not authorized by the Respondent Board of
Directors.
[20] “The enforceability of the 18 October Letter turns on the legal
consequences, if any, resulting from the lack of board authorization. In order to
determine these legal consequences, it is necessary to consider the following
matters:

(i) the law applicable to Respondent’s power to contract;

(ii) the requirement for authorization of the Board of Directors under French
law; and
(iii) the applicability of this requirement under French law in the context of
international arbitration.”

i. Applicable Law to Respondent's Capacity

[21] “This is an ICC arbitration with its seat in Paris, France. In deciding on the
law applicable to Respondent’s power to contract, it is therefore necessary to
consider the relevant provisions of the ICC Rules and the French [New Code of
Civil Procedure — NCCP].
[22] “Art. 17(1) and (2) of the ICC Rules provides as follows in regard to the
question of applicable law:

11. “Cass. com., 26 January 1999 (Dalloz 1999, no. 38) at p. 577; J. Mestre, Obligations et contrats
spéciaux (RTD civ. 1999) at pp. 833-834.”

Yearbook Comm. Arb’n XXXV (2010) 227

 OF COMMERCE NO. 1 3954
INTERNATIONAL CHAMBER

ied
agree upon the rules of law to be appl
‘(1) The parti es shall be free to nce of any
by the Arbitral Tribun a | to the merits of the dispute. In the abse
Tribu nal shall apply the rules of law which it
cach agreement, the Arbitral 7
determines to be appropriate.
t of the provisions
(2) In all cases the Arbitral Tribunal shall take accoun
’
usages.
of the contract and the relevant trade

as follows:
Similarly, Art. 1496 of the French NCCP provides

que les
‘Art. 1496 — L’arbitre tranche le litige conformément aux régles de droit
e
parties ont choisies; a défaut d’un tel choix, conformément a celles qu’il estim
appropriees. I] tient compte dans tous les cas des usages du commerce.’

[23] “Due to the fact that the Parties have made an express choice of law in the
18 October Letter, there is no dispute that this contract itself is governed by
French substantive law. It is, however, well established that the principle of party
autonomy in the choice of governing law does not extend to the determination
of the law applicable to issues such as a party’s capacity and power to contract.
Accordingly, arbitral tribunals usually determine the law applicable to such issues
in accordance with the method used to determine the law governing the contract
in the absence of a choice by the parties. ie
[24] “Where the parties have not made a choice of law or the choice of law does
not extend to the matter in question, Art. 17 of the ICC Rules and Art. 1496 of
the French NCCP empower arbitral tribunals to determine the applicable law
directly and without reference to any conflict-of-laws rule. Under this direct
choice method (‘voie directe’), arbitral tribunals are free to choose the rules of law
which they determine to be appropriate.’
[25] “Notwithstanding the very broad discretion under Art. 17 of the ICC Rules
and Art. 1496 of the French NCCP, arbitral tribunals are required to provide a

12. “E. Gaillard and J. Savage, eds., Fouchard Gaillard Goldman on International Commercial
Arbitration (1999: Kluwer Law International) at para. 1532, p. 860.”
13. “E. Gaillard and J. Savage, supra fn. 12, at para. 1552, p. 876; Y. Derains and E. Schwartz, A
Guide to the ICC Rules of Arbitration, 2nd ed. (2005: Kluwer Law International) at pp. 240-242;
W.L. Craig, W.W. Park and J. Paulsson, International Chamber of Commerce Arbitration, 3rd
ed. (2000: Oceana Publications, Inc.) at para. 17.01, pp. 319-320; J.-L. Delvolveé, J. Rouche and
G. Pointon, French Arbitration Law and Practice (2003: Kluwer Law International) at paras. 270-
271, pp. 146-147; J.-F. Poudret and S. Besson, Comparative Law of International Arbitration, 2nd
ed. (2007: Thomson — Sweet & Maxwell) at para. 685, pp. 586-587.”

228 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRAL AWARDS

reasoned explanation for their choice of law in accordance with the legitimate
expectations of the parties. a
[26] “In the present case, the enforceability of the 18 October Letter depends
on Respondent's power to enter into a specific form of contractual undertaking.
The Sole Arbitrator finds that there is a strong consensus in private international
law that a corporation’s power to contract is governed by the Jex societatis, i.e.
either the law of the corporation’s head office or the law under which the
corporation is organized. As
[27] “Respondent is incorporated under French law and maintains its head office
in Paris, France, as evidenced by the 18 October Letter. Asa result, whether one
looks to the law of the corporation’s head office or the law under which the
corporation is organized, it follows that the Jex societatis of Respondent is French
law.
[28] “Having reached this conclusion, it is necessary to:

(a) examine the requirement for board authorization of guarantees under the
French Jex societatis; and
(b) determine whether it is appropriate to apply this requirement of the French
lex societatis in the context of international arbitration.”

2: Requirement for Board Authorization Under Applicable French Lex Societatis

[29] “For the following reasons, the Sole Arbitrator finds that, under the French
lex societatis, the 18 October Letter is not enforceable because it was not
authorized by the Respondent’s Board of Directors.
[30] “Firstand foremost, Art. L 225-35 of the French Code de commerce (formerly
Art. 98(4) of Law No. 66-537 of 24 July 1966) sets forth an express statutory

14. “Y. Derains and E. Schwartz, supra fn. 13, at p. 242 (and ICC Awards cited at fn. 118); J.-L.
Delvolve, J. Rouche and G. Pointon, supra fn. 13, at para. 273, p. 148; J.-F. Poudret and S.
Besson, supra fn. 13, at para. 685, p. 587.”
15. “M. Menjucq, Droit international et européen des sociétés (2002: Domat Droit Prive) at paras. 7879,
pp. 99-101; E. Gaillard and J. Savage, supra fn. 12, at para. 1532, p. 860 as well as paras. 459-
462, pp. 245-247; W.L. Craig, W. W. Park and J. Paulsson, supra fn. 13, at para. 17.02, p. 328
citing ICC Case No. 2694/1977 (JDI 1978) at p. 985; J.-F. Poudret and S. Besson, supra fn. 13,
at para. 271, p. 234; J.-L. Delvolvé, J. Rouche and G. Pointon, supra fn. 13, at para. 99, p. 59;
L. Collins, ed., Dicey, Morris & Collins: The Conflict of Laws, 14th ed. (2006: Thomson — Sweet
& Maxwell) at Rule 162(2) and paras. 30-23—30-24, pp. 1345-1348; A. Redfern, M. Hunter, N.
Blackaby and C. Partasides, The Law and Practice of International Commercial Arbitration, 4th
ed. (2004: Thomson — Sweet & Maxwell) at para. 3-27, p. 146.”

229
Yearbook Comm. Arb’n XXXV (2010)
 OF COMMERCE NO. 1 3954
INTERNATIONAL CHAMBER

M ust be authorized by the issuing

a J

avals et garanties
requirement that all ‘cautions,
corporation's Board of Directors:

des socials autres

‘Art. L 225-35 .... Les cautions, avals et garanties donnés par
font l’objet d'une
que celles exploitant des établissements bancaires ou financiers
décret en Conseil d Etat.
autorisation du conseil dans des conditions déterminées par
sement de cette
Ce décret détermine également les conditions dans lesquelles le dépas
. ’
A /
peut etre oppose aux fers.
autorisation

the
Unlike many cases relating to the authority of corporate representatives,
enforceability of the 18 October Letter against Respondent thus turns on the
application of a French statutory provision, not on the internal rules and
regulations of the corporation.
[31] “Second, it is clear that Art. L 225-35 of the French Code de commerce applies
to the 18 October Letter whether it is characterized as a ‘caution’, a ‘lettre
d’intention avec obligation de résultat’ or a ‘constitut’. The French Cour de cassation
has expressly ruled that the statutory requirement for board authorization applies
.'°
to both ‘cautions’ and ‘lettres d’intention avec obligation de résultat’
[32] “Moreover, the Cour de cassation has made clear that Art. L 225-35 of the
Code de commerce also applies to any other form of undertaking, such as a
‘constitut’, which involves the financial guarantee of another’s performance:"’

‘.... [QJuels que soient les termes employes, tout engagement entrainant une
obligation susceptible d’avoir des consequences financiers pour la societé garante en
cas de defaillance de la personne garantie doit étre regardeée comme entrant dans le
champs d’application de I’Art. 98 de la loi du 24 juillet 1966, devenu L 225356
du Code de commerce....’

[33] “There can be no doubt that Respondent’s third undertaking in the 18

October Letter constitutes a financial guarantee of Company DEF’s performance:

16. “See for example: Cass. com., 28 April 1987 (Dalloz 1988, No. 23) at p. 341 re: application to
‘caution’; Cass. com., 23 October 1990 (JCP G 1990 No. 50) at p- 417 re: application to ‘lettre
d’intention avec obligation de résultat; Cass. com., 26 January 1999 (Dalloz 1999, No. 38) at p. $77
(with Comment by L. Aynés at paras. 4-6, pp. 578-579) re: application to ‘Jettre d’intention avec
obligation de résultat’; Cass. com., 26 February 2002 (Dalloz 2002, No. 15) at p. 1273; P. Simler,
Cautionnement et garanties autonomes, supra fn. 1, at para. 33, p. 32 and para. 167, p. 144: ‘/L’Art.
L 225-35] doit logiquement s’appliquer d toutes les: formes de garanties remplissant les mémes ;
fonctions, telles
que les garanties autonomes ... ou les lettres d’intention.’”
17. “Cass. com., 25 February 2003 (RJDA, 2003/7) at p- 656; see also: P. Simler, Cautionnement et
garanties autonomes, supra fn. 1, at para. 33, p. 32 and para. 167, p. 144.”

230 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRAL AWARDS

‘We will pay all expenses due by the company [Company DEF] for
prejudices faced by Claimant under execution of the said contracts [the
Three-Party Agreement].’

Accordingly, the 18 October Letter falls within the scope of Art. L 225-35 of the
Code de commerce.
[34] “Third, the French Cour de cassation has insisted for many years on strict
compliance with Art. L 225-35 of the Code de commerce:

(a) In numerous decisions, the Cour de cassation has consistently held that
guarantees given without prior authorization by the issuing corporation’s Board
of Directors are not enforceable (‘inopposable’) against the corporation."
(b) The Cour de cassation has also found that affiliated corporations remain distinct
legal entities and, accordingly, a parent corporation must obtain board
authorization for guarantees granted in respect of its subsidiaries, including those
in which it holds a 100 percent interest. 4
(c) Moreover, the Cour de cassation has even concluded that the failure to obtain
prior authorization cannot be remedied by the board of director’s subsequent
ratification of the guarantee.””

[35] “Fourth, as a matter of French law, it is well established that the principles
of good faith and apparent authority do not override the requirements of Art. L
225-35 of the Code de commerce.*' The French courts have made this position clear
in a number of decisions:

18. “Cass. com., 28 April 1987 (Dalloz 1988, No. 23) at p. 341; Cass. com., 23 October 1990 (JCP
G 1990 No. 50) at p. 417; Cass. com., 8 October 1991 and Cass. com., 15 October 1991 (JCP
G 1992, No. 26) at p. 221; Cass. com., 5 March 1996 (Rev. soc. (2) April-June 1996) at p. 276;
Cass. com., 26 January 1999 (Dalloz 1999, No. 38) at p. 577. See also: P. Simler, Cautionnement
et garanties autonomes, supra fn. 1, at para. 32, p. 32 and paras. 167-169 at pp. 144-147 (as well
as other legal commentators cited at fn. 76, p. 32).”
19. “Cass. com., 29 November 1982 (JCP G IV 1983), p. 59; Cass. com., 28 April 1987 (Dalloz
1988, No. 23) at p. 341; Cass. com., 5 March 1996 (Rev. soc. (2) April-June 1996) at p. 276; P.
Simler, Cautionnement et garanties autonomes, supra fn. 1, at para. 167, p. 144.”
20. “Cass. com., 8 October 1991 and Cass. com., 15 October 1991 (JCP G 1992, No. 26) at p. 221;
CA Paris, 28 February 2003 (RJDA No. 734) at pp. 656-657.”
21. “P. Simler, Cautionnement et garanties autonomes, supra fn. 1, at para. 167, p. 145; J.-F. Barbieri
‘Note on Cass. com. 8 October 1991 and Cass. com 15 October 1991’ (JCP G 1992, No. 26) at
p. 222.”

231
Yearbook Comm. Arb’n XXXV (2010)
 COMMERCE NO. 13954
INTERNATIONAL CHAMBER OF

1987, the Cour de cassation — that a

(a) In a decision dated 24 February s
tee given by its president wi Lame
corporation was not bound by a guaran
de cassation overturned the decision re)
board authorization. In doing so, the Cour
ed on apparent authority and the
the Cour d’appel to enforce the guarantee bas isite
s president had the requ
beneficiary’s legitimate beliet that the corporation’
authority. aa
courts have repeatedly held
(b) Moreover, in a long line of decisions, the French
nt authority,
that the beneficiary of a guarantee is not entitled to rely on appare
n given by
but rather is obliged to verify that board authorization has in fact bee
g.
requesting an extract of the minutes of the relevant board meetin

[36] “According toanumber of French legal commentators, this strict approach

is justified because the theory of apparent authority presupposes that the third
party made a legitimate error. However, in these cases, the error relates to the
legal requirement for prior board authorization of a guarantee under Art. L 225-
35 of the Code de commerce. An error of law cannot constitute a legitimate error,
except in very exceptional circumstances (e.g., where there is a longstanding
relationship of trust between the parties).”* Indeed, the French Cour de cassation
has expressly held that ignorance of the French legal requirement for board
authorization of guarantees does not constitute a legitimate error even where the
beneficiary of the guarantee is a foreign corporation.”
[37] “While there has been some criticism of this strict approach, French legal
commentators acknowledge that it continues to reflect the current state of
French law.*° Some have suggested that the Cour de cassation may be unwilling to
permit any exceptions based on good faith and apparent authority because Art.
L 22535 of the Code de commerce is considered to be a matter of French ‘ordre

22. “Cass. com., 24 February 1987 (Rev. soc. 1988) at p. 407. For a similar decision see: CA Paris,
8 December 1995 (Rev. soc. 1996) at p. 356.”
23. “Cass. com., 6 May 1986, (Bull. civ. IV, no. 86), p- 74; Cass. com., 24 February 1987 (Rev. soc.
1988) at p. 407; Cass. com., 18 June 1991, (Dr. sociétés 1991, no. 343); CA Paris, 19 February
2003, (Rev. soc. 2004) at p- 434; Cass. com., 16 November 2004, (Bull. Joly Sociétés 2005, no.
3), p. 366.”
24. “Y. Guyon, Comment on Cass. com., 24 February 1987 (Rev. soc. 1988) at pp. 408-409;
Y. Guyon, Comment on CA Paris, 8 December 1995 (Rev. soc. 1996) at p. 356; Commentary
on CA Paris, 19 February 2003, (Rev. soc. 2004) at p- 434; M.-N. Jobard-Bachellier, Comment
on Cass. com., 21 December 1987 (Rev. critique DIP 1989) 347).”
25. “Cass. com., 8 November 1988 (Rev. critique DIP 1989) at p. 371.”
26. “D. Cohen, ‘L’engagement des sociétés a l'arbitrage’ (Rev. arb. 2006) 35 at paras. 54-60,
pp. 5153;
Commentary on CA Paris, 19 February 2003 (Rev. soc. 2004) at p. 434.”

Zz 32
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

public’ (public policy).*’ In this regard, it has been noted that Art. L 225-35 of the
Code de commerce serves an important public interest — it protects the corporation,
its shareholders and creditors from improper schemes by management.~
[38] “In summary, Art. L 225-35 of the Code de commerce requires prior
authorization of the Board of Directors for all guarantees, failing which the
guarantee is not enforceable against the corporation. As a matter of French law,
it is clear that this statutory requirement applies to the 18 October Letter. The
French courts have insisted on strict compliance with Art. L 225-35 of the Code
de commerce and all attempts to circumvent or override this statutory requirement
based on principles of good faith and apparent authority have been rejected.”

3. Applicability ofLex Societatis in International Arbitration

[39] “Having found that strict compliance with Art. L 225-35 of the Code de
commerce is required under the French lex societatis, the next issue to be
determined is whether this statutory provision is applicable in the context of an
international arbitration such as this one. Specifically, it is necessary to determine
whether substantive legal principles such as good faith, apparent authority and
estoppel should take precedence over or have a corrective effect on the French
lex societatis. There are two main arguments to be considered in this regard.
[40] “First, as noted above, Claimant relies on the concept of ‘trade usages’ in
Art. 17 of the ICC Rules and Art. 1496 of the French NCCP as the basis for
arguing that the strict rules which may apply to the powers of corporate
representatives under the lex societatis are considerably attenuated in international
arbitration. Second, although not specifically framed in these terms, Claimant has
suggested that international arbitrators may in any event have recourse to
substantive legal rules such as good faith, apparent authority and estoppel either
on freestanding basis or as a corrective measure applied to the relevant national
law.
»”

a. Trade usages in international arbitration

[41] “In view of Art. 17 of the ICC Rules and Art. 1496 of the French NCCP,
it is clear that the Sole Arbitrator is obliged to take into account international
trade usages. There has, however, been debate among legal commentators

27. “M.-N. Jobard-Bacheliier, Comment on Cass. com., 21 December 1987 (Rev. critique DIP 1989)
347 at pp. 356-358.”
28. “P. Simler, Cautionnement et garanties autonomes, supra, at para. 33, p. 32, referring to the pleadings
of the Advocate General before the Cour de cassation in its decision of 21 December 1987.”

233
Yearbook Comm. Arb’n XXXV (2010)
 OF COMMERCE NO. 13954
R
INTERNATIONAL CHAMBE

de usages’. Some arbitrators —

regarding the exact meaning of ‘tra
uld | be given a broa
commentators have argued that ‘trade usages sho l
interpretation which equates this
concept with general principles of internationa
sometimes included within the notion of
commercial law. T hese rules of law,
ive law or other international
‘lex mercatoria’, are derived from comp arat
sources.” : a h
better view is that the concept of ‘trade usages’ is muc
[42] “The prevailing and
s’ are confined to:
more limited. Under this strict interpretation, ‘trade usage

industry
(a) practices known to and customarily followed in a particular business,
or professional field; and
(b) practices arising out of the parties’ own course of dealing. *° Unlike general
principles of international commercial law or ‘lex mercatoria’, trade usages are
therefore internal, not external, to the parties’ agreement. }

[43] “Trade usages are clearly important for the interpretation and application
of international contacts. However, the fact that such practices must be taken
into account in all cases does not enable one to ignore the applicable law,
whether it is chosen by the parties or the arbitrators. Trade usages do not
constitute rules of law and cannot take precedence over the applicable law or
dispense with the necessity of identifying it. 2
[44] “Given the prevailing view on this question, the Sole Arbitrator finds that
the strict interpretation of trade usages is the correct one and should be adopted.
Consequently, the Sole Arbitrator cannot agree with Claimant’s submission that
legal principles such as good faith, apparent authority and estoppel fall within the
meaning of trade usages. It follows that the concept of trade usages under Art.
17 of the ICC Rules and Art. 1496 of the French NCCP does not provide a basis

29. “See for example: ICC Case No. 4667, Award of 1984 (JDI 1987) at p- 1047; B. Goldman, ‘La
lex mercatoria dans les contrats et 1‘arbitrage internationaux: réalité et perspectives’ (JDI 106) 475 at p.
478; E. Loquin, ‘La réalité des usages du commerce international’ in Revue générale de droit
économique (1989), at p. 163. For one of the seminal articles describing and criticizing the broad
interpretation of ‘trade usages’ see: E. Gaillard, ‘La distinction des principes généraux du droit et des
pee du commerce international’ in Melanges Bellet (1991: Litec) (‘E. Gaillard — Usages’) at pp. 201-

30. “Y. Derains and E. Schwartz, supra fn. 13, at pp. 243-244; E. Gaillard and J. Savage, supra fn. 12,
at paras. 1513-1514, pp. 844-846; E. Gaillard — Usages, supra fn. 29, at pp. 216-217; J.-F.
Poudret and S. Besson, supra fn. 13, at para. 689, pp. 589-590.”
31. “Y. Derains and E. Schwartz, supra fn. 13, at p. 243.”
32. E. Gaillard and J. Savage, supra fn. 12, at para. 1514, p. 846; E. Gaillard —
Usages, supra fn. 29,
at pp. 214-217; J.-F. Poudret and S. Besson, supra fn. 13, at para. 689, pp. 589-590.”

234
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

for finding that the aforementioned legal principles take precedence over the lex
societatis in international arbitration.”

b. Impact of substantive law rules

[45] “In considering the capacity and power of corporations in the context of
international arbitration, it has been suggested by some legal commentators that
the /ex societatis may be supplanted entirely or corrected by substantive legal rules
such as good faith and apparent authority. ’‘
[46] “As noted above, Claimant relies on several international arbitral awards
and French court decisions where good faith and apparent authority have
provided the legal basis for enforcing agreements concluded by corporations.”*
For two main reasons, the Sole Arbitrator finds that these legal authorities are
not relevant to the enforceability of the 18 October Letter:

(a) First, almost all of these legal authorities relate specifically to the
enforceability or validity of arbitration clauses, not the substantive contractual
obligations of the parties. There is a strong consensus that the principles of good
faith and apparent authority provide a sound legal basis for upholding the validity
of arbitration clauses. Indeed, these principles have been elevated to the status
of substantive rules of international arbitration in France.” It is, however, equally
clear that the French courts have not extended these principles beyond the realm
of the arbitration clause to other substantive contractual obligations of the parties
and, in particular, the French courts have not done so in respect of guarantees.
While this position may once again be open to criticism, it represents the current
state of French law.
(b) Second, none of the legal authorities cited by Claimant address the situation
where the enforceability or validity of a contact turns on the effect of a specific

33. “See for example: D. Cohen, ‘L’engagement des sociétés a |’arbitrage’, supra fn. 26; E. Gaillard and
J. Savage, supra fn. 12, at paras. 463-470, pp. 247-253.”
34. “ICC Case No. 4667, Award of 1984 (JDI 1987) at p. 1047; ICC Case No. 4381, Award of 1986
(JDI 1986) at p. 1103; ICC Case No. 10982, Award of 2001 (JDI 2005) at p. 1256; CA Paris, 10
June 2004 (Rey. arb. 2006) at p. 154 (cited by Claimant at Droits des Societés (2002: Juris-
Classeur) at p. 23); CA Paris, 28 October 2004 (Rev. arb. 2006) at p. 189; CA Paris, 24 February
2005 (Rev. arb. 2006) at p. 210.”
35. “See legal authorities cited above at fn. 34; D. Cohen, supra fn. 26, at pp. 47-55; E. Gaillard and
J. Savage, supra fn. 12, at paras. 463-470, pp. 247-253; J.-F. Poudret and S. Besson, supra fn. 13,
at para. 278, pp. 240-241 Pg
36. “D. Cohen, supra fn. 26, at paras. 54-59, pp. 51-53: This legal commentator is critical of the
French courts’ decision to limit the application of apparent authority to the arbitration clause but
nevertheless acknowledges that this position represents the current state of French law.”

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INTERNATIONAL CHAMBER OF COM

«at ther than o n the internal rules and regulations of the

statutory provision, rathe lind wahaels distinguishes all of these legal
point
corporation. This is a critical
authorities from the present case.

as good
[47] “In any event, the Sole Arbitrator finds that general principles such
provide a
faith and apparent authority do not, on the facts of this arbitration,
e against
basis for concluding that the 18 October Letter is enforceabl
ly as a
Respondent. This is so whether these principles are applied direct
l
substantive legal rule or as a corrective of the Jex societatis. While internationa
arbitrators are committed to holding parties to their contractual obligations, it
is important to recognize there is no general principle of favor validitatis. The
validity of the contract, in itself, is not something deserving of protection.
Rather, the validity of the contract is dependent on compliance with the
applicable rules of law, whether they result from a national law or general
principles. uf
[48] “It is clear that the general principle of apparent authority is widely
recognized at the international level. This principle is, however, subject to an
important limitation — the other party must be reasonably diligent. Specifically,
the other party has a duty to take such steps as are reasonable in the
circumstances to verify that its counterparty is duly empowered to sign the
contract in question.” In this regard, the general principle of apparent authority
is entirely consistent with the position under the French lex societatis, as
previously discussed.
[+9] “Turning to the facts of this arbitration, Claimant has not alleged nor has
it tendered any evidence to show that it made enquiries regarding:

(a) Mr X’s authority to sign the 18 October Letter on behalf of Respondent; or

(b) any other factual or legal issue relevant to Respondent’s power to conclude
the 18 October Letter. Rather, Claimant relies exclusively on the statement
contained in this letter that Respondent was ‘duly represented by Mr X’.”

37. “E. Gaillard and J. Savage, supra fn. 12, at para. 1466, p- 822.”
38. “M. Menjucgq, supra fn. 15, at paras. 80-81, pp. 101-104; E. Gaillard and J. Savage, supra fn. 12,
at para. 1464, p. 821; J.-L. Delvolvé, J. Rouche and G. Pointon, supra fn. 13, at para. 274, p.
149; J.-F. Poudret and S. Besson, supra fn. 13, at para. 697, pp. 598-599; P. Simler,
Cautionnement et garanties autonomes, supra fn. 1, at para. 167,
p. 145.”
aS. “In this regard, see the following Passage relating the need to
verify board authorization of
guarantees under French law — P. Simler, Cautionnement et garanties autonome
s, supra fn. 1, at para.
167, p. 145: ‘[LJe tiers doit verifier la réalité de I’authorisation. I] ne peut
se contenter de la mention de
ce om dans I’acte de cautionnement’ (citing inter alia Cass. Com., 6 May 1986 (Bull.
civ. IV
0. 86)).” , ’ ’

236
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

In the absence of any evidence to show that relevant enquiries were made by
Claimant, the Sole Arbitrator finds that Claimant did not fulfil its duty to verify
the power of Respondent to enter into the 18 October Letter at the time of
contracting and thus failed to meet the standard of reasonable diligence.
[SO] “Furthermore, the existence of specific legal requirements for the
enforceability of undertakings such as ‘cautions, avals et garanties’ should not come
as a complete surprise to sophisticated commercial parties active in international
trade. Unlike ordinary commercial contracts, guarantees are subject to special
conditions and rules in many different legal systems around the world.
[51] “It is particularly difficult to accept that such specific legal requirements
would come as a surprise where the /ex societatis of the corporation granting the
undertaking is the same as the substantive law governing the undertaking itself.
Indeed, several leading French legal commentators have specifically concluded
that, where the law governing a guarantee is the same as the law applicable to the
capacity or power of the corporation issuing the guarantee, a creditor claiming
to be ignorant of the content of such law must be regarded as negligent and
undeserving of protection.”
[52] “In the present case, the Parties expressly chose French law as the
substantive law governing the 18 October Letter. Moreover, Claimant was fully
aware that Respondent was a corporation subject to French law. Claimant has,
in fact, emphasized that securing a guarantee from a European corporation such
as Respondent was an ‘essential condition’ for its purchase of the Goods from a
Country Z firm. In these circumstances, a reasonably diligent commercial party
would have verified that all requirements of French law pertaining to the validity
and enforceability of the 18 October Letter were satisfied before proceeding with
the transaction.
[53] “Considering the evidence on record and the fact that the requirement for
board authorization of all guarantees results from a clear and longstanding French
statutory provision, the Sole Arbitrator finds that Claimant did not meet the
standard of reasonable diligence and therefore its ignorance of French law was
not legitimate. Accordingly, even if one were to assume that the principles of
good faith and apparent authority should take precedence over or have a
corrective effect on the French lex societatis, Claimant is not entitled to the benefit
of these principles in this arbitration.”

40. “M. Menjucgq, supra fn. 15, at paras. 80-81, pp. 101-104; see also: R. Libchaber, Note on Cass.
com. 9 April 1991, ‘La loi applicable aux sociétés et aux pouvoirs des dirigeants sociaux’ (Rev. soc. 1991)
at p. 747; P. Simler, Cautionnement et garanties autonomes, supra fn. 1, at para. 167, p. 145. See
also: Cass. com., 8 November 1988 (Rev. critique DIP 1989) at p. 371.”

Yearbook Comm. Arb’n XXXV (2010) 237

 COMMERCE NO. 13954
INTERNATIONAL CHAMBER OF

18 October Letter
4. Conclusion on the Enforceability of the

concludes that the 18

[54] “For all of the above reasons, the Sole Arbitrator
Accordingly, Claimant’s
October Letter is not enforceable against Respondent.
be dismissed. , , |
claims against Respondent in this arbitration must
ss Claimant S
[55] “Asa final matter, it should be noted that the decision to dismi
liability
claims is based on the Parties’ factual and legal submissions regarding the
y
of Respondent. The Sole Arbitrator provided the Parties with a full opportunit
to file evidence and make legal submissions in this arbitration. Moreover, after
several exchanges of written submissions, the Sole Arbitrator requested the
Parties to address several specific legal issues including inter alia the following:

‘3. If the October Letter is unenforceable due to the fact that it was not
authorized by the Respondent’s Board of Directors, do the facts alleged in
this arbitration give rise to any other legal cause(s) of action and, if so,
what defences are applicable to such cause(s) of action?’

In response to this request, the Parties took the position that the sole cause of
action or legal claim to be decided in this arbitration is Claimant’s claim for
breach of contract in regard to the 18 October Letter (i.e. other than the
subsidiary claims for interest and costs). The Sole Arbitrator has therefore
decided the liability of Respondent based on this position.”

No COSTS

[56] “Under Art. 31(1) of the ICC Rules, the costs of the arbitration are divided
into two main categories:

(a) the fees and expenses of the arbitrators and the ICC administrative expenses,
which are fixed by the ICC Court (the ‘arbitration costs’); and
(b) the reasonable legal and other costs incurred by the parties for the arbitration
(the ‘party costs’).

In this arbitration, the ICC Court has fixed the arbitration costs at US$ 24,000.
Claimant and Respondent have each paid equal advances of US$ 12,000
in
respect of the arbitration costs.
[57] “In Claimant’s Rebuttal and Final Submission as well as its oral submis
sions
during the Hearing for Oral Argument, Claimant has requested an
order that

238
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 ARBITRAL AWARDS

Respondent pay all costs of this arbitration, including Claimant’s party costs in
the amount of approximately € 60,000. In Respondent’s Rebuttal and Final
Submission as well as its oral submissions during the Hearing for Oral Argument,
Respondent has requested an order that Claimant pay all costs of this arbitration,
including Respondent’s party costs in the amount of approximately € 50,000.
[58] “Art. 31(3) of the ICC Rules provides:

‘The final Award shall fix the costs of the arbitration and decide which of
the parties shall bear them or in what proportion they shall be borne by the
parties. ,

It is well established that ICC arbitral tribunals have broad discretion in deciding
on the costs of the arbitration. The only general requirement is that the arbitral
tribunal must give reasons for its decision on costs in accordance with Art. 25(2)
of the ICC Rules.*!
[59] “Traditionally, there have been three approaches to the allocation of the
costs of the arbitration:

(a) the parties bear the costs of the arbitration equally;

(b) the costs are divided between the parties based on the outcome on the merits;
or
(c) the party that is unsuccessful on the merits bears the entire costs of the
arbitration.”

In recent years, it has become increasingly common for arbitral tribunals to

prefer the third approach, which is often referred to as the principle of ‘costs
follow the event’.*?

41. “Y. Derains and E. Schwartz, supra fn. 13, at pp. 371-374; E. Schafer, H. Verbist and C. Imhoos,
ICC Arbitration in Practice (2005: Kluwer Law International) at p. 154; E. Gaillard and J. Savage,
supra fn. 12, at para. 1255, pp. 685-686.”
42. “Y. Derains and E. Schwartz, supra fn. 13, at pp. 371-374; E. Schafer, H. Verbist and C. Imhoos,
supra fn. 41, at p. 154.”
43. “E. Gaillard and J. Savage, supra fn. 12, at para. 1255, pp. 685-686; Award in ICC Case No. 8486
of 1996, Vol. XXIVa (1999) Y.B. Com. Arb. 162 at pp. 172-173; J. Lew, L. Mistelis and S. Kroll,
Comparative International Commercial Arbitration (2003: Kluwer Law International) at para.
2482, p. 652; M. Buhler, ‘Awarding Costs in International Commercial Arbitration: An
Overview’ (ASA Bulletin Vol. 22, No. 2 2004) 249 at pp. 259-262: this legal commentator
confirms the growing acceptance of the principle of ‘costs follow the event’, while noting that it
is not of universal application particularly in arbitrations involving state parties.”

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INTERNATIONAL CHAMBER OF COMMERCE

w the event’,
[60] “While recognizing the current trend in favour of ‘costs follo
principle in the
the Sole Arbitrator does not consider it appropriate to apply this
present arbitration. As found above, Claimant did not fulfil its duty to verify the
of
power of Respondent to enter into the 18 October Letter at the time
contracting and thus failed to meet the standard of reasonable diligence. 3
[61] “Notwithstanding this finding, Claimant’s decision to commence this
arbitration was not entirely unreasonable. The evidence on record indicates that
Respondent did not put in question the enforceability of the 18 October Letter
until after the commencement of this arbitration. If Respondent had taken this
position clearly and unequivocally at an earlier stage, it is possible that Claimant
would have chosen to commence legal proceedings against Company DEF and
Company ABC before the English courts rather than to commence this
arbitration against Respondent. While Respondent’s conduct does not have any
impact on the merits of this dispute, the Sole Arbitrator considers it appropriate
to take this conduct into account in deciding on the allocation of costs.
[62] “Considering these circumstances and the fact that both Parties acted
reasonably during the course of this arbitration, the Sole Arbitrator finds it fair
and reasonable that Claimant and Respondent should:

(a) bear the arbitration costs equally; and

(b) each bear its own party costs incurred in connection with this arbitration.”
eed)

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 ARBITRAL AWARDS

Final award in case no. 14046

Parties: Claimant: Company A (Italy)

Respondent: (1) Respondent 1 (Italy);
(2) Respondent 2 (Italy);
(3) Respondent 3 (Italy);
(4) Respondent 4 (Italy);
(5) Respondent 5 (Italy)

Place of
arbitration: Geneva, Switzerland

Published in: Unpublished

Subject matters: — applicable law to validity of arbitration clause

—arbitrability of anti-trust issues
— restriction of competition
— EU and Italian competition law
— reduction of penalty for breach of contract
— legal costs for ancillary court proceedings

S ummary

(i) In accordance with Art. V(1)(a) 1958 New York Convention, the validity of the arbitration clause
was examined under the law of the seat of arbitration (Switzerland), lacking a choice by the parties.
Under Swiss law, the clause was valid as to both form and substance. (ii) The non-competition clause
in the context of a concentration agreement was examined under Italian competition law, which
applied even ifthe concentration fell below the threshold for mandatory communication to the Italian
anti-trust authority. Under Italian law on concentrations, the non-competition obligation was reduced
from five to two years. The arbitrators found that they had full jurisdiction under Swiss law to decide
competition issues. (iii) The non-competition clause need not be signed separately as provided by Art.
1341 Italian Civil Code, because it had been negotiated, was not included in standard conditions of
contract and respondents had been aware ofit. (iv) The respondents had breached the non-competition
clause. The penalty for this breach was halved on the facts of the case. (v) Costs relating to ancillary
court proceedings were granted.

The Italian Company A (Claimant) entered into a Framework Agreement with

the Italian company XYZ srl and Respondents 1 to 5 to acquire the XYZ
trademark and commercial network and other assets. Respondents | to 5 were
identified in the Framework Agreement as warrantors of any and all undertakings

Yearbook Comm. Arb’n XXXV (2010) 241

 OF COMMERCE NO. 14046
INTERNATIONAL CHAMBER

pondents 1 and 2 under ee

made and/or breaches committed by Res
Art. 10 of the Framework Agreement provided that Respon “ef wou :
claim, aeete nee re
indemnify Claimant for “any loss, damage,
y out, whether ~~ y -
that Respondents 1 and 2 undertook not to carr €
ch could compete wit
indirectly, any trading or business activities whi
s after conclusion of the
activities of the XYZ business for a period of five year
00,000 in case of
Agreement. Art. 11 further provided for a penalty of € 3,0
Art. 17, substantive
breach of the non-competition obligation. According to
referred
Italian law applied to the contractual relationship; disputes were to be
usive
to ICC arbitration in Geneva, while the Italian courts in Milan had excl
d not
jurisdiction over all matters relating to the Framework Agreement that coul
e referred to arbitration.
; Pursuant to the Framework Agreement, the parties subsequently entered into
a public Deed of Transfer in Italy. The Deed purported to be “a mere execution”
of the Agreement, which did neither “affect nor novate the provisions contained
herein, which shall continue to be wholly and exclusively valid and enforceable
between the Parties”. It was governed by Italian law and repeated verbatim both
the non-competition clause and the arbitration clause contained in the
Framework Agreement.
Two ee after the Framework Agreement was concluded, Respondent 1
requested Claimant to be relieved from the non-competition obligation in
respect of part of the business. This request was rejected by Claimant.
A dispute arose between the parties when Claimant discovered that Italian
Company S, which was active in the field of the business at issue in the Milan
area, was linked to Respondents 1 and 2. Specifically, the registered office of
Company S was located beside the former premises of Company XYZ and
Company S carried out its business at premises leased to a company owned by the
daughter of Respondent 2, Respondent 1 and the wife of Respondent 1. Also,
Respondent 1 worked for Company S on a daily basis.
Claimant first filed an application with the Milan Court of First Instance,
seeking and obtaining an injunction to stop any of Respondent 1’s activities that
were in breach of Art. 11 of the Framework Agreement. The Milan Court of
Appeal upheld this decision. At Claimant’s request, the Milan court of first
instance subsequently ordered the attachment of assets of Respondents 1 to 4 for
an amount of € 3,000,000, that is, the penalty provided by the Framework
Agreement in the case of breach of the non-competition clause.
Claimant also commenced ICC arbitration against all Respondents as provided
for in the Framework Agreement. Respondents 2 and 3 appeared before
the
arbitral tribunal; Respondents 1, 4 and 5 did not. The arbitral tribunal held
in its

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 ARBITRAL AWARDS

award that Respondents 1 and 2 breached the non-competition clause in the

Framework Agreement, which was valid and binding upon them for two rather
than five years as provided for in the Agreement. It also directed all Respondents
to jointly and severally pay Claimant the contractual penalty, which it reduced
to € 1,500,000.
The arbitrators noted at the outset that in case of (partial) default of the
respondents an arbitral tribunal must, on its own initiative, consider the matter
of its own jurisdiction. Under Art. V(1)(a) of the 1958 New York Convention,
the validity of an arbitration agreement is examined either by reference to the
law stipulated by the parties or, failing such a stipulation, to the law of the place
of arbitration. In the present case, Swiss law (the law of the seat) applied as the
parties, as is usually the case, did not make a separate stipulation in respect of the
law applicable to the arbitration clause.
The arbitration clause was valid as to both form and substance under Swiss
law. The arbitrators noted in respect to form that the Framework Agreement
was signed and each page thereof initialed by each and any of the Parties. As to
substance, the dispute concerned the implementation of the Framework
Agreement and therefore fell within the scope of the arbitration clause therein.
Having found that it had jurisdiction, the arbitral tribunal concluded, on the
evidence before it, that Respondents 1 and 2 breached the non-competition
clause by carrying out the relevant business through Company S. The same
conclusion had been reached by the first instance and appellate courts in Milan.
The arbitrators next considered whether the non-competition clause in the
Framework Agreement was compatible with EU and Italian anti-trust laws. They
noted preliminarily that under Swiss law they had the power to decide this issue.
The arbitrators first held that EU competition legislation did not apply.
Specifically, Art. 81 (agreements limiting competition) and Art. 82 (abuse of
dominant position) of the EU Treaty did not apply because the relationship
between the parties did not affect interstate commerce and the parties’ market
share did not reach the standard, forty percent, for a dominant position. Nor was
the EU legislation on concentrations applicable, because of the parties’ limited
turnover.
The arbitral tribunal then examined whether the non-competition provision
in the Framework Agreement was compatible with Italian antitrust law. It
reasoned that under Italian law, the agreement between the parties undisputedly
constituted a concentration. Concentrations involving a sum above a certain
minimum must be mandatorily communicated to the Italian antitrust authority,
the Autorita Garante. This was not the case here, where the sums involved were
below that sum. However, opined the tribunal, the basic principles of Italian

Arb’n XXXV (2010) 243

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 OF COMMERCE NO. 14046
INTERNATIONAL CHAMBER

isions in the EU rea _—

competition law, which mirror the prov
are not subject tot ’weer * :
apply to all concentration deals, even if they by
Autorita Garante. Thus, as pro
vided by EU competition law — and con irmed
several decisions of the Auto rita
Garante in the context of Italian competition
allowe d, competition restrictions that are
law — where a concentration is
the c oncentration are justified. However,
necessary to the implementation of
s when the transfer of the
they are only allowed for a maximum of three year
in other cases.
undertaking includes goodwill and know-how, two years
to the
In the present case there was no transfer of goodwill and know-how
only.
buyer. Therefore, the clause could be considered legitimate for two years
The arbitrators denied Respondents’ objection that the non-competition clause
was formally invalid under Art. 1341 of the Italian Civil Code, which requires
that clauses containing restrictions to contractual freedom — such as the non-
competition clause at issue — be separately approved and signed. The tribunal
reasoned that Italian jurisprudence has made clear that (1) a separate signature is
necessary only where the clause is included in standard conditions of contract;
(2) there is no need of a separate signature where the conclusion of the
agreement has been preceded by negotiations and (3) as the scope and purpose
of the rule is to ascertain the contracting party’s knowledge of the contractual
clause restricting its freedom, no separate signature is required where it is proved
that the party was aware of the restriction.
On the facts of the present case, the tribunal concluded that the parties had
negotiated the Framework Agreement and that the Framework Agreement could
not be characterized as general conditions of contract within the meaning of Art.
1341 Italian CC. Also, the tribunal found that there was no doubt that
Respondents were perfectly aware of the non-competition clause, inter alia,
because the clause was repeated in the Deed of Transfer.
The arbitral tribunal next dealt with the contractual penalty provided in the
Framework Agreement for breach of the non-competition clause, holding that
the penalty was applicable but granting Respondent's request that it be reduced.
The penalty should be reduced € 1,500,000 from the original € 3,000,000,
because € 3,000,000 represented more than half of the price paid for Company
XYZ and, while justified by Claimant’s interest in the performance of the non-
competition clause by Respondents, represented a substantial amount for
Respondents, private persons, who did not have the same economic means as
Claimant, a large corporation. Also, Claimant did not show that competition by
Respondents had a negative impact on its business, which on the contrary
increased significantly after the purchase of Company XYZ through the
Framework Agreement. The tribunal added that the consequences of the breach

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 ARBITRAL AWARDS

remained limited to the activity developed by Company S, a small company with

a share capital of € 20,000, in a limited geographical area.
The tribunal granted interest on the penalty at the rate of 6 percent agreed in
the Framework Agreement.
The arbitrators finally dealt with the issue of costs. Claimant sought legal costs
in respect of both the arbitration and the Milan court proceedings. The tribunal
noted that costs associated with ancillary judiciary proceedings are increasingly
allowed in (ICC) arbitrations. Since in this case the costs were made in
connection with Respondents’ breach, they could be qualified as damages for
which Claimant should be indemnified as expressly provided by the Framework
Agreement. They were also reasonable.
The arbitral tribunal allocated legal costs between the parties — 70 percent for
Respondents and 30 percent for Claimant — reasoning that while Claimant won
on the principle of its claims (breach of the non-competition clause, validity of
the non-competition clause and validity of the penalty clause), Respondents won
on both the partial invalidity of the non-competition clause (which was reduced
from five to two years) and the reduction of the penalty (from € 3,000,000 to
€ 1,500,000). The costs of the arbitration, which had been advanced by Claimant
also on behalf of Respondents, were to be borne by Respondents, with interest.

Excerpt

I. JURISDICTION

[1] “Asaconsequence of the Respondents not having answered the Request for
Arbitration, the ICC Court, being prima facie satisfied that an arbitration
agreement under the Rules may exist, decided that this arbitration shall proceed,
it being specified that ‘this decision being administrative in nature, the Arbitral
Tribunal must still decide on its own jurisdiction in accordance with Art. 6(2) of
the Rules’.' Art. 6(2) of the ICC Rules provides that:

‘If the Respondent does not file an Answer, as provided by Art. 5

[obligation for the Respondent to file an Answer within 30 days from the
receipt of the Request from the Secretariat] ... the Court may decide,
without prejudice to the admissibility or merits of the plea or pleas, that
the arbitration shall proceed if it is prima facie satisfied that an arbitration

1. “See Letter of the Secretariat of the ICC Court to the Arbitral Tribunal.”

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agreement unde r the Rules may

exist. In such a case, any decision as to the
jurisdiction of th e Arbitral Tribunal
shall be taken by the Arbitral Tribunal
itself.’

the Arbitral Tribiinal

[2] “It is indeed widely admitted that, in case of default,
own jurisdiction.* In the
must, on its own initiative, consider the matter of its
part in the arbitral
case under scrutiny, it is true that Respondents 2 and 3 took
nal s
proceedings without challenging the arbitration clause and the Arbitral Tribu
did not
jurisdiction. But still, three Respondents, namely Respondents 1, 4 and 5
participate at all in the arbitration proceedings.
[3] “Under Art. V(1)(a) of the New York Convention for the Recognition and
Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention),
the agreement to arbitrate is examined either by reference to the law stipulated
by the parties or, failing such a stipulation, to the law of the place of arbitration.
Given the generally recognized principle of the autonomy of the arbitration
clause on the one hand, and the fact that the law applicable to the arbitration
clause is rarely the subject of a specific stipulation, on the other, most national
courts’ decisions under the New York Convention have applied the law of the
country where the award was rendered.’ It is worth noting that the Italian
Supreme Court has declared that Art. II of the New York Convention constitutes
a lex specialis rendering inapplicable the general Italian rules of form concerning
arbitration agreements.
[4] “In the case at hand, the arbitration clause does not contain any reference
to the law applicable to it. As a consequence thereof, the validity of the
arbitration clause must be examined under the law of the seat of the arbitration,
namely Swiss law.
[5] “Art. 178(1) of the Swiss Private International Law Act (the PIL Act)
provides that:

2. “Yves Derains and Eric A. Schwarz, A Guide to the ICC Rules of Arbitration, 2nd ed. Kluwer,
p.
104 and references.”
3. oe Laurence Craig, William W. Park, Jan Paulsson, International Chamber
of Commerce
Arbitration, 3rd ed., Oceana Publications, Inc., 2000, no. 5.05, pp. 53 and 54
with reference to
ene, XI YEARBOOK 450 (1986); see also Deutsche Schachtbau- und Tiefbohrge
sellschaft mbH
v. Ras Al Khaimah National Oil Co. et al., decision of the Court of Appeal
of England of 24 March
1987, [1987] 2 Lloyd’s L. Rep. 246, [1987] 2 All. E.R. 769.”
4. “Cass. 7 October 1980, 1980, Riv. Dir Int. pp. 178, summarized
in VII Yearbook 342 [1982].”

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 ARBITRAL AWARDS

‘As to form, the arbitration clause shall be valid if it is made in writing, by

telegram, telex, telecopier, or any other means of communication that
establishes the terms of the agreement by a text.’

In the case under scrutiny, not only the Framework Agreement has been
executed by each and any of the Parties thereto, including each and any of the
Respondents, but in addition each page of this Agreement, including the page
containing the arbitration clause, has been initialled by each and any of the
Respondents. There is no question therefore that the arbitration clause contained
in the Framework Agreement is valid as to form.
[6] “As to substance, Art. 178(2) of the PIL Act reads as follows:

‘As to substance, the arbitration agreement shall be valid if it complies with

the requirements of the law chosen by the parties or the law governing the
object of the dispute and, in particular, the law applicable to the principal
contract, or with Swiss law.’

Pursuant to Swiss case law, the hypothesis of the choice by the Parties of the law
applicable to the arbitration clause is relevant only where the parties have elected
for the arbitration clause a law different from the one applicable to the contract
itself.” The arbitration clause under scrutiny does not contain such a reference.
[7] “The validity as to substance of the arbitration clause contained in the
Framework Agreement shall therefore be examined under Swiss law. Pursuant
to Swiss case law, when the existence of an arbitration clause is established, as it
is the case here, there is no ground for a restrictive interpretation. Quite to the
contrary, one has to consider that the parties want that the arbitral tribunal be
vested with a general jurisdiction, and, in case of doubt, that they did not intend
to refer to arbitration only their disputes relating to the implementation of their
respective obligations, but also the ones concerning the validity of the agreement
that embodies such obligations.°
[8] “The formal validity of the arbitration agreement at stake having been
ascertained by this Tribunal, there is no doubt therefore that this agreement
contends the arbitral tribunal’s jurisdiction on all and any disputes arising out of
the implementation of the agreement in dispute, namely the Framework
Agreement. The dispute at hand precisely relates to the implementation of the
Framework Agreement.

5. “ATF 117 II 94, 98, JdT 1992157.”

6. “ATF 116 la 56, 58-59, JdT 1990 1 563.”

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ute, an issue which also relates to the

[9] “As regards the arbitr ability of the disp unal
validity as to substance oO f
the arbitration agreement, the Arbitral Trib
mines the issue in concret > belo
w to conclude that the dispute at hand is
exa
arbitrable. ee
the arbitration clause contained in
[10] “It results from these explanations that
form and substance. This
the Framework Agreement is valid as regards to both
e on the merits
Arbitral Tribunal is therefore vested with the jurisdiction to decid
of the case.”

Il. ANALYSIS

[11] “The existence of the non-competition clause contained in Art. 11 of the

Framework Agreement is a matter of fact.

(1) The first issue to examine therefore is whether, as alleged by the Claimant,
the obligees to this contractual clause, namely Respondent 1 and Respondent 2,
actually breached it or not.
(2) Should the answer to the question put above be affirmative, then the Tribunal
would have to examine Respondent 3 and Respondent 2’s first defence, namely
the compatibility of the non-competition clause with EU and Italian anti-trust
Laws.
(3) Should the answer to the question of compatibility with EU and Italian anti-
trust laws be affirmative, then the Tribunal would have to examine the second
defence of Respondents mentioned above, namely the formal validity of the non-
competition clause pursuant to Art. 11 of the Framework Agreement and Art.
1341 of the Italian Civil Code (It.cc).
(4) Should the Tribunal find that the non-competition clause is valid with respect
to both (i) EU anti-trust law and (ii) the formal requirements for such a clause,
then the Tribunal would have to examine whether the penalty clause must be
applied as such (Claimant’s contention) or reduced ex aequo et bono
(Respondents 3 and Respondent 2’s contention).
(5) Finally, should the Tribunal conclude that the penalty clause is applicable (as
such or reduced) the Tribunal would have to decide whether or not the
warrantors, as defined by the Framework Agreement, are jointly and severally
liable for the payment of the penalty together with the obligees to the non-
competition clause.

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The Tribunal will then decide on the issue of costs of the arbitration and of the
Milan Court proceedings (injunction and attachment).”

i Breach of Non-Competition Clause

[12] “The Claimant contends that Respondent 1, directly or indirectly (ice.

through Company S), breached the non-competition clause of Art. 11 of the
Framework Agreement in carrying out the business activity at issue in favour of
Company S on a daily basis during a certain period. The Claimant states that this
activity competes directly with the Business subject matter of the sale provided
for in the Framework Agreement.
[13] “The Claimant has produced Company S’s company register which indeed
shows that this company is active in the field of the business at issue. Company
S is domiciled near Milan. In addition, the Claimant has proven that the premises
where Company S carries out its business is leased to a company named ABC.
With respect thereto, the Claimant submitted an agreement by which Company
XYZ, represented by its sole Director Respondent 2, sells this real estate to a
company named DEF, which in turn leases the same real estate to ABC
represented by Respondent 1 in his capacity as Managing Director of the latter.
The Claimant also demonstrated that Company ABC is owned by Respondent 2’s
daughter, Respondent | and Respondent 1’s wife. Moreover, the Claimant has
submitted investigation reports ...

(i) showing that Respondent 1’s wife and/or Respondent 1 spent entire days on
the premises of Company S, that Respondent 1 and Respondent 1’s wife are
actually the managers of Company S, and that they behave as such with the
latter’s clients;
(ii) confirming that Respondent 1 and Respondent 1’s wife behave as the actual
managers of Company S.

Employees of the investigation agency that made the reports confirmed the
authenticity of the reports when heard by the Arbitral Tribunal. The director of
the investigation agency expressly declared to the Arbitral Tribunal, in presence
of Respondent 1’s wife, that she was the individual identified as such in the
reports. This was not denied by Respondent 1’s wife.
[14] “Respondent 2 admits that the premises where Company S carries out its
business are leased to the latter by a company named ABC of which Respondent
1 is a 25 percent shareholder. Respondent 2 briefly disputes however the
seriousness and veracity of the investigation reports and submits that Respondent

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latter's activities. In their common

. .
> . .

‘a ssisted’ his wife in the

Pe al °

1 ha d sometimes ndent 3 dedicate a few

st-hearing brief, Respondent 2 and Respo
wc oe saa the ee are of all three investigation reports. os
pondent 1 acted in breac
Respondents however never expressly deny that Res
of the Framework
of the non-competition clause contained in Art. 11
ar in these
Agreement. In addition, Respondent 1 chose neither to appe
ch.
proceedings nor to defend himself with respect to the alleged brea
[15] “In light of the contractual non-competition clause as per Art. 11 of the
Frame Agreement, and in particular of Art. 11.1.(a) and (c) of the same, and the
clear undertaking of Respondent 1 (and Respondent 2) contained therein ‘not to
carry out, whether directly or indirectly, any trading or business activities which
may compete with the Seller Business’ and ‘not to act, whether directly or
indirectly, as director, agent or employee, assist, cooperate or consult with or
howsoever provide information to third parties, whether on a full or part time-
basis, in the Business and the Territory’, the Arbitral Tribunal is led to conclude
that Respondent 1 did breach the non-competition clause of Art. 11 of the
Framework Agreement.
[16] “In this respect, the Arbitral Tribunal therefore confirms the facts on which
the Court of Milan based its decision; a decision that has been upheld by the
Court of Appeal of Milan (injunction prohibiting Respondent 1 from pursuing
any competing activities) and again by the Court of Milan in its subsequent
decision (attachment proceedings).”

2 Compatibility ofthe Non-Competition Clause with EU and Italian Anti-Trust Laws

d. Arbitrability
[17] “The first question that the Arbitral Tribunal must examine with respect
to the Respondent 3 and Respondent 2’s allegation of the nullity of the non-
no clause consists of the arbitrability of a dispute relating to anti-trust
aws.
[18] “The question of the arbitrability of anti-trust disputes has encountered a
decisive turning point with the famous American Mitsubishi decision of 1985.7 In
this case, an arbitral tribunal sitting in Japan had to decide, under Swiss law, a
dispute between Mitsubishi and its Puerto Rican distributor Soler. Soler
argued
that the issue of antitrust law (in that case, American) was not arbitrable.
The
American Supreme Court decided that such a dispute must be held
as arbitrable.

7. “472 U.S.614 (1985).”

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[19] “In Switzerland (the seat of the present arbitration, and therefore (a) the
law according to which the issue of arbitrability must be decided® and (b) the
place where the arbitral award is first subjected to judicial control), the Supreme
Court has held on various occasions that the arbitral tribunal to which an anti-
trust law issue is submitted must decide on the merits of such issue.” The Swiss
Supreme Court indeed no longer questions whether issues of anti-trust laws are
arbitrable or not. In other terms, the Swiss Supreme Court implicitly admits that
an arbitral tribunal can declare that a determined agreement is contrary to Art.
81(1) of the EU Treaty and declare it null in terms of Art. 81(2) of that same
Treaty. 19
[20] “This being said, it is clear that the EU law is part of the public policy of the
lex causae, namely Italian law. As set forth by the Swiss Supreme Court: ‘the
arbitral tribunal must, in any event, comply with the public policy of the country
of which it must apply the law’."!
[21] “As to the arbitral tribunal’s powers with respect to the control of the
conformity of a given agreement with EU anti-trust law, the European
Commission has the power to order a cessation of the contravention by means
of fines or injunctions. However, when the agreement at hand has not been
notified to the Commission, the arbitral tribunal is fully empowered to decide
its conformity with Art. 81 of the EU Treaty.”
[22] “The conclusion to be drawn from this overview is that the Arbitral
Tribunal has full jurisdiction to decide on the validity of the non-competition
clause contained in the Framework Agreement in dispute under anti-trust
legislation (both EU and Italian).”

b. Compatibility with EU competition rules

[23] “Art. 81 of the EU Treaty prohibits

‘all agreements between undertakings, decisions by associations of

undertakings and concerted practices which may affect trade between

8. “Art. 177 of the Private International Law Act (PIL Act).”

9. “See Swiss Supreme Court, decision of 13 November 1998, considération 1.a), no. 3, referred to
in Antonio Rigozzi, ‘Arbitrage, Ordre Public et Droit Communautaire de la Concurrence, in ASA/Bull
1999/1 pp. 455 et seq., 459 and fn. 15; more recently, Swiss Supreme Court, decision of 8March
2006, ATF 132 III 389.”
10. “Antonio Rigozzi, op. cit., p. 460, with reference to Nico Spiegel, ‘EuGH: Schiedsspriiche und EG-
Kartellrecht’, EuZW, 1999, p. 568; also ATF 132 III 389 quoted above.”
11. “ATF 120 II 155; ASA/Bull 1994 p. 419.”
12. “See Antonio Rigozzi, op. cit., p. 460.”

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INTERNATIONAL CHAMBER

as their obje : on,

ct or effect the preventi
Member States an d which have
petition wit hin the common market’.
restriction or distortion of com

to agreements limiting
Thus. Art. 81 of the EU Treaty applies exclusively
connection — directly or
competition within the Union, in other words, in
indirectl y- with interstate commerce. This
connection. has to be clearly
ement violates Art. 81 of the
demonstrated by the entity claiming that an agre
Treaty.
(the
[24] ‘einthe case at hand, it is undisputed that the agreement concerned
Framework Agreement) relates to the (Italian) domestic market. The
the
Respondents do not allege, let alone prove, that the commerce concerned by
Framework Agreement has a connection, directly or indirectly, with interstate
commerce. The Arbitral Tribunal must therefore conclude that Art. 81 of the EU
Treaty is not applicable to the non-competition clause under scrutiny.
[25] “Art. 82 of the EU Treaty sanctions the abuse of a dominant position in the
common market as follows:

‘Any abuse by one or more undertakings of a dominant position within the

common market or in a substantial part of it shall be prohibited as
incompatible with the common market in so far as it may affect trade
between Member States.’

Here again, the first condition to be fulfilled for the application of Art. 82 is that
the deal must relate to the common market. As already set out, the agreement
under scrutiny relates to the Italian (domestic) market only. The Respondents
never contended, let alone demonstrated, that the Framework Agreement truly
affects interstate commerce, be it directly or indirectly.
[26] “In addition, pursuant to the case law of the Court of the European
Communities, there cannot be a dominant position where the market share is
below 40 percent." In the case at hand, Respondents 3 and Respondent 2 and the
Claimant agree that the market share concerned was between 14 and 18 percent
in the relevant year. The Respondent 3 and Respondent 2 contend that Claimant
purchase of Company XYZ would ‘certainly’ have increased this share to 22
percent due to Claimant’s increase of turnover of 17.6 percent for the following

13. “See European Court of Justice, decision of 3 July 1991 in re AKZO v. Commission; decision of 13
February 1979 in re Hoffman La Roche v. Commission; Tribunal of First Instance, decision of 12
December 1991 in re Hilti v. Commission.”

252 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRAL AWARDS

year. Respondent 3 and Respondent 2 draw this last figure from Claimant’s
report to the balance sheet for the following year.
[27] “It stands to reason that the market share of an enterprise can in no possible
way be based upon — directly or indirectly — its turnover, to which the market
share is entirely foreign. Indeed, Respondent 3 and Respondent 2 do not explain
the link they make between turnover and market share. In addition, even if one
had to consider the figure of 22 percent alleged by Respondent 3 and Respondent
2 as fact, this figure remains much below the threshold of 40 percent set by EU
practice and the case law mentioned above. Respondent 3 and Respondent 2’s
reasoning therefore, can only be dismissed by this Tribunal.
[28] “Be that as it may, the extract of Claimant’s report to the balance sheet for
the following year filed by the Respondents mentioned above mentions the issue
of market share as follows (in free translation):

“We consider that our efforts have resulted in a further reinforcement of

our position amongst the specialists in the field, who represent in any event
less than 30 percent of the market. The Italian market indeed continues to
be extremely fragmented, with a share hold by not specialized enterprises
superior to 70 percent.’

The conclusion to be drawn from this statement is clear: Claimant’s market share
is inferior to 30 percent of the relevant Italian market, no matter how it is
calculated, and is therefore below the threshold set by EU practice and case law
for the characterization of a dominant position.
[29] “The Parties’ limited turnover also makes inapplicable the third pillar of the
EU competition discipline, namely that relating to concentrations: i.e. Council
Regulation (EC) No. 139/2004 of 20 January 2004 on the control of
concentrations between undertakings (the EC Merger Regulation). The Tribunal
deems worth noting that this Regulation submits all concentrations to the control
of the Commission when the concentration has an impact on competition within
the European common market. '* However, the Regulation provides in Art.
6(1)(b), second paragraph, in Art. 8(1), second subparagraph and in Art. 8(2),
third subparagraph that a decision declaring a concentration compatible with the
common market ‘shall be deemed to cover restrictions directly related and
necessary to the implementation of the concentration’ .

14. F. Pocar, Commentario Breve ai Trattati della Comunita e dell’ Unione europea, CEDAM, Milano, 2001,
ad Art. 81, note 9 p. 368.”

Yearbook Comm. Arb’n XXXV (2010) 253

 CE NO. 14046
INTERNATIONAL CHAMBER OF COMMER

2005/C 56/03" that 6 ronan

(30) “Thus it results from Notice
a concentration can be considere anct ary
necessary to the implementation of
with the concentration itself.
to it and be cleared by the Commission together
rdance with Art. 81 and Art.
Additional restrictions remain ‘to be assessed in acco
notices. They may also be
82 EC Treaty and the related regulatory texts and
.’ This statement is confirmed
subject to any applicable national competition rules
in the notice as follows:

not
‘Hence agreements which contain a restriction on competition, but are
considered directly related and necessary to the implementation of the
concentration pursuant to this notice, may nevertheless be covered by
those provisions. ’

[31] “The EU discipline of restriction to competition provided for in the Notice

is clearly stated (at 18-20 of the same), and is summarized as follows:

‘Non-competition clauses are justified for periods of up to three years,

when the transfer of the undertaking includes the transfer of customer
loyalty in the form of both goodwill and know-how. When only goodwill
is included, they are justified for period of up to two years.’

[32] “The practice of the European Commission in the application of the rules
is consistent and offers clear confirmation of the rule: non-competition clauses
are legitimate if they are limited to three years in the case of goodwill and know-
how being transferred to the buyer, and are limited to two years in all other
cases.
[33] “Concluding in this respect, the Tribunal, having shown that there are no
grounds for the application of the EU rules in the case under scrutiny since the
latter does not relate to inter-member state commerce, shall now address the
question under the Italian antitrust law, and specifically Law 287 of 10 October
1990 (hereafter referred to as: Law 287/90).”

Ps Compatibility with Italian competition rules

[34] “Italian antitrust Law 287/90 applies to agreements, dominant positions
and concentrations (Art. 1). The basic provisions are Arts. 2 and 3, which are the
equivalent of Arts. 81 and 82 of the EU Treaty, and Arts. 5 and 6 which relate

= ae )
Notice on Restrictions directly related and necessary to Concentrations (2005/C
;

254
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

to concentrations, corresponding to the EC Merger Regulation referred to

above. Art. 1.4 of Law 287/90 provides that ‘the interpretation of the norms
contained in the present chapter [i.e. Arts. 1 to 9] is made on the basis of the
principles of the European Community regulations in matter of the discipline of
competition’. The Tribunal will therefore examine the relevant provisions of
Law 287/90 in light of the EU rules and practices.
[35] “Art. 2 of Law 287/90 prohibits agreements that restrict the competition
entered into by enterprises or associations of enterprises, while Art. 3 of the Law
prohibits the abusive exploitation of dominant positions in the market.
[36] “The issue of concentration is governed by Arts. 5, 6 and 16 of Law
287/90. Art. 5 provides the definition of ‘concentration’ . In particular, Art. 5.b
states that a concentration is deemed to arise when ‘one or more persons
controlling at least one undertaking or one or more undertakings, acquire the
direct or indirect control of the whole or parts of one or more undertakings
whether through the acquisition of shares or assets, or by contract or by any
other means’. It is clear to the Tribunal that the Framework Agreement presently
at issue fits this definition.
[37] “Art. 6 of Law 287/90 dictates the ‘Prohibition on concentrations
restricting free competition’, when the competent Authorities (Autorita Garante
della Concorrenza e del Mercato) ascertain that these concentrations ‘create or
strengthen a dominant position on the domestic market with the effect of
eliminating or restricting competition appreciably and on a lasting basis’. Art.
16.1 of Law 287/90 sets precise thresholds for mandatory communication to the
Autorita Garante, namely that the total turnover made at national level by all
interested companies be superior to € 258 ,228,449.54 or that the total turnover
made at national level of the company that is being sold be superior to
€ 25,822,844.95.
[38] “In the case under scrutiny, the Claimant has declared to the Tribunal that
no notification to the Italian Autorita Garante was required (nor indeed carried
out) according to Art. 16.1 of Law 287/90. In addition, whilst the Tribunal has
no information as to the total turnover of the interested companies in the Italian
market, the information provided by the Parties (and in particular the
Framework Agreement itself) shows that the sold company, Company XYZ, was
far from contributing to the figures required by Art. 16.1 of the Law mentioned.
The conclusion to be drawn therefrom is that the Framework Agreement
constitutes a concentration as defined by Art. 5.b of Law 287/90, although this
was not communicated to the Autoritd Garante due to an absence of the required
minimum dimension.

Yearbook Comm. Arb’n XXXV (2010) 255

 MERCE NO. 14046
INTERNATIONAL CHAMBER OF COM

ing is henceforth
[39] “The q uestionto be answered at this stage of the reason
within the scope of Law 287/90
whether a non-competition clause falls
n of the concentration at issue was
notwithstanding the fact that the communicatio
not compulsory under Art. 1 6.1 of the
given Law. In other words, ddo the basic
ly to non-competition clauses
prohibitions of Law 287/90 (Arts. 2 and 3) app
iny of the Autorita
contained in a concentration deal not subject to the scrut
Garante?
Notice on
[40] “In this respect the Tribunal makes reference to the Commission
/C 56/03)
restrictions directly related and necessary to concentrations (2005
n law that
mentioned above, which is part of the body of European competitio
must be used for the construction and application of Law 287/90 as per Art. 1.4
of the latter. This Notice contains a clear statement to the effect that the approval
by the Commission of concentration agreements automatically covers only the
restrictions to competition which are ancillary and necessary to the
implementation of the concentration. By contrast,

‘for restrictions that cannot be regarded as directly related and necessary

to the implementation of the concentration, Arts. 81 and 82 of the EC
Treaty remain potentially applicable.... The mere fact that an agreement
or arrangement is not deemed to be ancillary to a concentration is not, as
such, prejudicial to the legal status thereof. Such agreements or
arrangements are to be assessed in accordance with Arts. 81 and 82 of the
EC Treaty and the related regulatory texts and notices. They may also be
subject to any applicable national competition rules. Hence, agreements
which contain a restriction on competition, but are not considered directly
related and necessary to the implementation of the concentration pursuant
to this Notice, may nevertheless be covered by those provisions.’ 3

Furthermore, the Commission Notice discussed here states that:

‘Disputes as to whether restrictions are directly related and necessary to

the implementation of the concentration, and thus automatically covered
by the Commission’s clearance decision may be resolved before national
courts.’'”

16. “92 Commission Notice 2005/C 56/03, no. 7.”

17. “Commission Notice 2005/C 36/035, 10. 2."

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[41] “The Arbitral Tribunal recalls that the substantive Italian (and European)
competition rules are part of the law to be applied in order to solve the present
dispute. The relevant rules are compulsory for enterprises, and must be applied
by antitrust authorities, state courts and/or arbitral tribunals, according to their
respective functions and powers. In the case at hand, any such antitrust authority
(in the present case the Autoritd Garante) is not competent for reason of the
absence of the necessary prerequisites, i.e. the dimension of the acquisition. The
substantive rules however remain valid, applicable and enforceable, and must be
abided by the addressees and applied by the other competent organs, i.e. judicial
courts or arbitral tribunals.
[42] “In this respect the Tribunal finds worth recalling that in the present case
the parties have included in Art. 11.1 (penultimate paragraph) an express
provision as to the consequences of a possible partial annulment or modification
of the non-competition clause ‘by any court or authority of competent
jurisdiction’. Therefore, the parties themselves were fully aware, and had even
expressly foreseen, that judicial courts or other competent authorities (surely
including the Arbitral Tribunal to which the settlement of disputes was
conferred) could be called to verify the validity and enforce the non-competition
clause of Art. 11. And that in a context where the parties considered that their
concentration did not possess the necessary prerequisites to be subjected to the
scrutiny of both the European Commission and the Italian Autorita Garante.
[43] “The direct application of the Italian competition rules to the Framework
Agreement by the Tribunal means that the Tribunal has not to evaluate the
concentration in itself, but only its non-competition clause according to the
criteria provided for by Law 287/90, taking into account that this Law is shaped
and must be constructed and applied following the European model.
[44] “As for concentrations, the European rules are those stated in the Notice
on restrictions directly related and necessary to concentrations described above.
Thus only non-competition clauses that are limited to three years if goodwill and
know how is transferred, and that are limited to two years in all other cases, are
legitimate and enforceable.'* The practice of the Italian Autorita Garante fully
complies with, and indeed makes direct application of, these EU rules as shown

18. “See Commission Notice 2005/C 56/03, no. 20 and Commission Decision of 12 April 1999
(IV/M.1482 — King Fisher/Grosslabor, no. 26); Commission Decision of 14 December 1997
(IV/M.884 — KNP BT/Bunzl/Wilhem Seiler no. 17).”

Yearbook Comm. Arb’n XXXV (2010) 257

 OF COMMERCE NO. 14046
INTERNATIONAL CHAMBER

which were communicated to the

by numerous decisions on concentration
. & £2
Autoritd.
Parties agree that there was no
[45] “In the present concentration deal the
r. Therefore, the clause can be
transfer of goodwill and know-how to the buye
accordingly automatically
considered ‘ancillary’ to the concentration and
contractually stipulated
legitimate for two years only. For the remaining period
be conducted on
in Art. 11 of the Framework Agreement, the evaluation must
3 of the Law 287/90.
the basis of the general rules incorporated in Arts. 2 and
of a dominant
Excluding Art. 3 of the Law, because no sufficient evidence
on must be
position by Claimant has been presented to the Tribunal, the evaluati
ing
conducted according to Art. 2 which relates to agreements restrict
competition.
[46] “In this regard the Tribunal notes that the contractual engagement not to
compete contained in Art. 11 of the Framework Agreement clearly falls within
the prohibition of Art. 2 of Law 287/90. This is due to the fact that the
restriction on competition caused by the engagement is ‘consistente’ [sizeable], as
requested by Art. 2.2 because the share of Claimant in the relevant market,
admitted by Claimant itself, is between 14 and 18 percent. Respondent 3 and
Respondent 2 claim that this share is approximately 25 percent, but this is not a
decisive point in view of the fact that the market share necessary for the
application of the general exception ‘de minimis’ is 10 percent.””
[47] “In this respect the Tribunal notes that

(a) the Notice 2001/C 368/07 referred to here clarifies that, ‘Although not
binding on them, this notice also intends to give guidance to the courts and
authorities of the Member States in their application of Art. 81 21 and
(b) this Notice indeed constitutes a basic parameter for the construction,
application and enforcement of the entire Law 287/90 and, specifically, of the
definition of ‘restrizione consistente’ to competition requested by Art. 2.2 of the
Law.

19. “C. 7488 -MCC— Sofipa Societa di Gestione del Risparmio Vending Sistem Italia — Provvedimento no.
15144; C. 7666 — Thyssenkrupp Airport Systems/Ramo di Azienda di Team Tecnologia europea applicata
al movimento Trabosa — Provvedimento no. 15435.”
20, ~ Commissi
« Fs 2 ‘
on Notice on agreements of minorFy e
importance which do not appreciably restrict
competition under Article 81(1) of the Treaty establishing the European Community (de minimis)
(2001/C 368/07), Art. 7(a).”
21. “Commission Notice 2001/C 368/07, Art. 1.4.”

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Yearbook Comm. Arb’n XXXV (2010)
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[48] “In conclusion the Arbitral Tribunal finds that the five years non-
competition clause of Art. 11 of the Framework Agreement is null and void for
the part exceeding the restriction of two years which is to be considered
legitimate as ancillary and necessary to the concentration deal in conformity with
both European and Italian law, and practice on concentrations. The restriction
for the additional three years constitutes a violation of Art. 2 of Law 287/90
interpreted and applied in conformity with the principles of the European legal
order concerning competition (Art. 1.4 of the Law).
[49] “It is hereby noted that the reasoning above and the conclusion deriving
therefrom express the opinion of the majority — and not the unanimity — of the
Arbitral Tribunal.”

FP Formal Validity of Non-Competition Clause under Italian Law

[50] “Respondent 2 and Respondent 3 contend that Art. 1341 It.cc provides
that any restriction to contractual freedom requires a formal and written
approval from the obligee. According to the Respondents mentioned, such
approval must be separate and distinct from the underwriting of general
conditions of a contract predisposed by the other party.” Respondent 2 and
Respondent 3 allege that the signatures of the Framework Agreement do not
comply with the requirements set forth in Art. 1341 It.cc. The Respondents
mentioned infer therefrom that the non-competition clause is null and void under
Italian law.
[51] “In answer thereto, Claimant states that the Framework Agreement was
not a ‘unilateral’ predisposed act, but an agreement negotiated in the course of
various meetings over several months. A letter of intent was executed more than
seven months before the execution of the Framework Agreement. The Letter of
Intent already contained the key elements of the Framework Agreement. That
aside, throughout the negotiations, the Respondents were legally advised by a
lawyer. In addition, the Public Deed of Transfer reiterated the non-competition
clause contained in the Framework Agreement.
[52] “Referring to Italian caselaw,”’ the Claimant asserts that clauses contained
in agreements executed by public deeds cannot be considered as general

22. “Respondents’ answers, with reference to Cass. 23657/04; Cass. 23560/04; Cass. 13807/04;
Cass. 13359/04; Cass. 9990/90; Cass. 6340/90; Cass. 742/80; Cass. 1009/80; Cass. 4680/80;
Cass. 1141/69.”
23. “Claimant’s post-hearing brief, with reference to Cass. 21 September 2004 no. 18917, Giust. Civ.
Mass. 2004; Cass. 21 January 2000 no. 675, Foro It. 2000, 1.1153.”

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INTERNATIONAL CHAMBER

It.cc and therefore, in no event require

C onditions of contracts under Art. 1341
approval.
any specific written
es that:
[53] “Art. 1341 of the It.cc provid
effective as to the
‘Standard conditions prepared by one of the parties are
knew of them
other, if at the time of formation of the contract the latter
ence.
or should have known of them by using ordinary dilig
in
In any case conditions are ineffective, unless specifically approved
writing, which establish, in favour of him who has prepared them in
advance, limitations on liability, the power of withdrawing from the
contract or of suspending its performance, or which impose time limits
involving forfeitures on the other party, limitations on the power to raise
defences, restrictions on contractual freedom in relations with third
parties, tacit extension or renewal of the contract, arbitration clauses, or
derogations from the competence of courts.’

[54] “There isno doubt in the Arbitral Tribunal’s view that the non-competition
clause contained in the Framework Agreement constitutes a ‘restriction to the
contractual freedom in the relationships with third parties’ and therefore falls
within the scope of Art. 1341 It.cc mentioned above. However, pursuant to
constant Italian case law:

(i) the conditions of Art. 1341 It.cc are met only and to the extent that the
conditions set by one of the parties to the contract are conditions used for an
unlimited number of contracts of the same type. Conversely, Art. 1341 It.cc
finds no application where the contract at hand constitutes a specific and unique
contract;”*
(ii) there is no necessity of the so-called ‘doppia firma’ (double signature) (i.e. a
formal acceptance of the clause at stake, in addition to the formal subscription of
the contract itself) where the conclusion of the agreement has been preceded by
actual negotiations;””
(iii) the very scope and purpose of the rule is to ascertain the contracting
party/parties’ actual knowledge of the contractual clause restricting its freedom,
a knowledge that cures the absence of ‘doppia firma’ .”*

24. “Cass. 86/230; Cass. II 04/23560.”

25. “Cass. 91/4638; Cass. 88/3091; Cass. 87/136; Cass. 86/4847; Cass. 82/2428: Cass. I
04/23560.”
26. “See Genovese, Contratto di Adesione, [entry in Enciclopedia del Diritto}.”

260 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRAL AWARDS

[55] “In the case under scrutiny, the Claimant denies the characterization of
‘General Conditions of Contract’ to the Framework Agreement. According to
the Claimant, the Framework Agreement had been specifically drafted and
negotiated for the acquisition by the Claimant of the XYZ network and the
regulations of the relationships between the Claimant and the Respondents in
that respect. The Claimant explains that the negotiations lasted several months,
and indeed submitted to the Arbitral Tribunal the ‘Heads of Agreement’ (Lettera
di Intenti) dated seven months before the Framework Agreement was actually
executed, that already contained the general terms of the non-competition clause
in dispute. The Claimant further alleges (without being contradicted by the
Respondents) that the Respondents were assisted throughout the negotiations by
an Attorney from Rome.
[56] “In such circumstances (that are not disputed by the Respondents), the
Arbitral Tribunal can only conclude that there had been concrete negotiations
amongst the Parties to the Framework Agreement (the Framework Agreement
is in fact much more elaborated than, and partially different from, the Heads of
Agreement) and that the Framework Agreement can in no possible way be
characterized as “General Conditions of Contract’ in the meaning of Art. 1341
It.cc quoted above.
[57] “In addition, there is no possible doubt in the opinion of the Arbitral
Tribunal, that the Respondents were perfectly aware of the non-competition
clause under scrutiny. This knowledge is demonstrated by three distinct factors:

(i) as set out above, the clause (in general terms) was already contained in the
Heads of Agreement;
(ii) the clause is contained — in unambiguous terms — in the Framework
Agreement;
(iii) the clause is again confirmed in the public Deed of Transfer that was resigned
by all of the Respondents, being emphasised that the non-competition clause of
Art. 11 of the Framework Agreement is entirely reproduced in this Deed of
Transfer. It is worth emphasizing here that pursuant to Italian case law, Art. 1341
It.cc is not applicable where, as it is the case here, the agreement has been made
by public deed.’

In addition, the knowledge by the Respondents of the non-competition clause is

confirmed by Respondent 1’s letter to Claimant whereby he formally asks the

27. “Cass., Chamber I, 21 September 2004, no. 18917; Cass., Chamber III, 21 January 2000, no. 675,
no. 1.”

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the
-competition obligation contained in
latter to be (partially) freed from the non |
Framework Agreement. of
bunal notes that the requirement
[58] “Ex rik ae cautela, the Arbitral Tri
when, as it is the case for the
the double signature is held as complied with
all pages of the contract are
Framework Agreement under scrutiny, every and 28
the contract.
signed in addition to the signatures at the end of
conclude that
[59] “For the aforementioned reasons, the Arbitral Tribunal must
Respondent 3 and
Art. 1341 It.cc is not applicable in the case at hand.
declared null
Respondent 2’s argument that the non-competition clause is to be
ion can
and void for non-compliance with the conditions set in this legal provis
therefore only be rejected.”

4. Penalty Clause

[60] “In addition to Respondent 3 and Respondent 2’s allegation that the nullity
of the non-competition clause automatically triggers the nullity of the penalty
clause (argument that does not need to be addressed since this Tribunal has
concluded that the non-competition clause is valid for a period of two years), the
Respondents mentioned allege that the penalty clause is obviously excessive and
must be reduced ex aequo et bono in accordance with Art. 1384 It.cc. Respondent
3 and Respondent 2 contend that the reduction can be effected ex officio.”
[61] “The Claimant answers the Respondents’ allegations mentioned above by
stating that Art. 1384 It.ccindeed allows the judge to reduce an excessive penalty
taking into account the interest of the concerned party to the performance of the
obligation connected thereto. The Claimant explains that, pursuant to Italian case
law

‘The principle which the judge has to consider when exercising its power
to reduce the penalty is not the performance considered abstractly as such,
but the interest that the party has, in relation to the circumstances, to the
execution of the performance to which it has the right, taking into account
the consequences of the non-performance on the balance of the mutual

28. “Cass., Chamber I 17 December 2004, no. 23560, no. 5.1.”

29. “Respondent 1’s answer, with reference to Cass. civ. Plenary Session no. 18128/05; R3, pp. 17
and 18, with reference to Cass. civ. Plenary Session no. 18128/05; Cass. 3998/03; Cass.
7528/02; Cass. 6380/01; Cons. Stato 11 January 1996, no. 3157.”

262 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRAL AWARDS

obligations and of the actual incidence of the non-performance on the very

contractual situation.’ ”

The Claimant also contends that the Supreme Court specifies that the judge has
to consider the party’s interest to the performance and not the strict and sole
amount of the damages suffered.*' In addition, the judge should avoid an
evaluation of the damages effectively suffered by the party.” Thus the judge has
to take into primary consideration the creditor’s interest to the performance at
the moment of the closing of the contract. ?
[62] “In light of these principles, the Claimant explains that the main subject
matter of the acquisition was the trade mark ‘XYZ’ and its commercial network,
which necessarily involved the acquisition of the goodwill of the business
purchased. Claimant paid approximately € 5 million for that purchase. In
addition, as specified in the Framework Agreement, Claimant entered into
various agreements with various companies directly or indirectly connected to
the Respondents’ family for the acquisition of a number of franchisees of
Company XYZ for a further consideration of € 3 million. These agreements have
to be considered as part of the acquisition of the XYZ network.
[63] “Thus, the penalty was aimed at securing the permanent and total
acquisition by Claimant of the goodwill of the business. In this respect (and even
if the damages caused by the breach of the non-competition clause cannot be
assessed), the amount of the penalty must be held as fair. Consequently, the
reduction of the same under Art. 1384 It.cc requested by Respondent 3 and
Respondent 2 must be rejected.
[64] “Art. 1384 It.cc provides that:

‘The penalty can be reduced equitably by the judge if the main obligation
has been implemented partially or if the amount of the penalty is manifestly

30. “Claimant’s post-hearing brief, with reference in particular to: Cass. 26 March 1997, no. 2655,
Giust. Civ. Mass. 1997, 460; Cass. 5 November 2002 no. 15497, Giust. Civ. Mass. 2002, 1909;
Cass. 3 November 1999 no. 9298, Giust. Civ. Mass. 1999, 1897; Cass. 26 March 1997 no. 2655,
Giust. Civ. Mass. 1997, 460; Cass. 4 December 1982 no. 6643, Giust. Civ. Mass. 1982; Cass.11
June 1981 no. 3789, Giust. Civ. Mass. 1981.”
31. “Claimant’s post-hearing brief, with reference to Cass. 23 May 2002, no. 7528 Giust. Civ. Mass.
2002, 905; Cass. 8 May 2001 no. 6830, Giust. Civ. Mass. 2001, 940; Cass. 14 April 1994 no.
3475, Giust. Civ. Mass. 1994, 483.”
32. “Claimant’s post-hearing brief, with reference to Trib. Como 10 March 2005, Redazione Giuffre
2005.”
33. “Claimant’s post-hearing brief, with reference to Rescigno, Trattato di Diritto Privato, Obbligazioni
e Contratti, Il. Torino, 2004, 452 et seq.”

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INTERNATIONAL CHAMBER

the interest that the creditor had in

excessive, taking always into account
the implementation. ’

the case law confirms that the judge can also

It is noted that after some : hesitation, ie ents 34
iative.
reduce the penalty on his/her own init
gh the penalty and, as
[65] “The criteria according to which the court has to wei
judge has to take
the case may be, reduce it, can be summed up as follows: the
mentation of the
into consideration the interest of the party in the imple
es of the
performance to which it is entitled, on the one hand, and the consequenc
actually
violation of the obligation to perform on the balance of the services contr
the
agreed upon and the effective impact of the violation on the interest to
performance of the party concerned, on the other. The latter must be evaluated
not only at the time of the agreement, but also at the time of the violation itself.”
With respect thereto, the duration of the said violation has to be taken into
account. *°
[66] “In applying these criteria to the facts under scrutiny, the Arbitral Tribunal
notes that:

(i) with respect to the contractual balance at the time the Framework Agreement
was made, the amount of the penalty (€ 3,000,000) represented more than half
of the price paid for the company (Company XYZ was acquired for € 5,000,000,
paid mainly through assumption of obligations). The Tribunal notes that the
amount of the penalty, while justified by Claimant’s interest in the performance
of the non-competition clause by the Respondents, represents a substantial
amount for the Respondents, who clearly do not have the same economic
conditions as the Claimant;
(ii) with respect to the violation of the non-competition clause that took place
shortly after the conclusion of the Framework Agreement, the Claimant did not
show (and indeed did not allege) that such a violation had any impact whatsoever
on the development of its business. Quite to the contrary, the facts of the case
show that the Claimant’s business increased significantly after the purchase of
Company XYZ through the Framework Agreement. This situation is consistent
with the breach ascertained by this Tribunal that, whilst the Respondents’
activities constitute a clear violation of the contractual obligations which they
freely and validly accepted, the facts of the case show that the consequences of

34. “Cass. 10511/99; Cass. 8188/03; Cass. Plenary Session 18128/05.”

35. “Cass. Chamber III, 3 September 1999, no. 9298.”
36. “Cass. Chamber II, 23 May 2002, no. 7528.”

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 ARBITRAL AWARDS

this breach remain limited to the activity developed in a small company

(Company S, with a share capital of € 20,000) whose activity is restricted to a
limited geographical area;
(iii) that the duration of the non-competition clause, initially of five (5) years, has
to be legally reduced to two years. This decision implies that the duration of the
violation cannot exceed two years.

[67] “For the reasons set out above, the Arbitral Tribunal might substantially
reduce the penalty at stake,*’ albeit the fact that the duration of the non-
competition clause as reduced by the Arbitral Tribunal cannot be considered —
pursuant to the constant case law mentioned — as a factor in this respect.
However, the Arbitral Tribunal holds that Respondent 1’s violation of the non-
competition clause shortly after the Framework was entered into, and continuing
violation of this same clause even after the issuance, by the Court of Milan, of the
order prohibiting to the Respondents the carrying on of any competing activity,
is simply unacceptable under the principle of good faith prevailing in commercial
relationships.
[68] “For all these reasons, the majority of the Arbitral Tribunal concludes that
the penalty clause must be reduced by € 1,500,000 (one and a half million Euros)
only. Thus, the Respondents will be ordered to pay to the Claimant a penalty of
€ 1,500,000 (one and a half million Euros).
[69] “The Claimant asks that interest be added to the amount of the penalty. The
Claimant does not give any indication as to the rate and period of such interest.
Art. 10.5 of the Framework Agreement provides for interest

‘on any amount to be paid pursuant to Art. 10.1 ... at 6 percent (the
Agreed Rate) for the period comprised between the date on which any
liability, loss or damage to be indemnified thereunder is actually ...
incurred by the Buyer and the 5th Business Day following the date on
which demand for the payment of such indemnity is made in writing to the
Buyer and thereafter at a rate per annum equal tor kas percentage points
over the Agreed Rate until payment is actually received by the Buyer’.

[70] “According to the evidence brought in these proceedings, the violation (and
therefore the right to the penalty) is ascertained for the first time on the date of

37. “Cass. Chamber II, 26 March 1997, no. 2655, where the penalty of ITL 500,000. -per day as from
30 October 1989 up to the date of enforcement of the judgement has been reduced altogether to
ITL 10,000,000.”

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INTERNATIONAL CHAMBER OF COMMER

tion of the non-competition

the first investigation report evidencing the viola
pursuant to Art. 10.5 of the
clause. This date must therefore be held —
ing date of the computation
Framework Agreement quoted above — as the start
of interest due on the penalty.
ent of the penalty
[71] “As regards the moment at which the demand for paym
evidence produced —
was made, the Tribunal — on the basis of the facts and
est for Arbitration.
concludes that the demand was first made with the Requ
- will bear interest
[72] “Therefore, the penalty in the amount of € 1,500,000.
investigation
at the rate of 6 percent (the Agreed Rate) from the date of the first
ntage points
report until the date of the Request for Arbitration, plus 1.5 perce
by the
over the Agreed Rate of 6 percent until payment is actually made
Respondents.”

5. Joint and Several Liability of the Warrantors

[73] “Respondent 3, one of the warrantors under the Framework Agreement

.
disputes that the Agreement ever implied a guarantee with respect to the penalty
Respondent 3 in particular was only a 3 percent shareholder in Company XYZ.
He was not in a position to control the main shareholders’ (Respondent 2 and
Respondent 1) behaviour. Respondent 3 had never undersigned the non-
competition clause. He could only guarantee (like the other warrantors) the
obligations which may concern him directly. According to Respondent 3
allegation, this was not the case for the non-competition clause and the penalty
connected thereto.
[74] “The Arbitral Tribunal cannot follow Respondent 3’s reasoning when
declaring that he did not undersign the non-competition clause or any of the
clauses contained in the Framework Agreement. For the reasons set out above,
based on the facts and documents of the case, it is clear that all the Respondents
validly and consciously (in the meaning of Art. 1341 It.cc) executed the
Agreement and each and any of the clauses contained therein. Therefore, Art.
10.1 of the Framework Agreement providing for a joint and several liability of
the Seller and the Warrantors (i.e. all the Respondents) for all and any
consequences of all and any breaches of all and any covenants or undertakings to
be performed under the Agreement must be held as binding upon all the
Respondents, jointly and severally.
[75] “The Court of Milan stated in its decision of attachment that Respondent
5 was not to be included in the order. In addition to the fact that the decision was
of a provisional nature by essence, on the one hand, and that the summary
analysis by the Court leads to a confusion between the non-competition clause
and the clause of warranty contained in the Framework Agreement on the other,

266 Yearbook Comm. Arb’n XXXV (2010)

 ARBITRAL AWARDS

the Tribunal notes that Respondent 5 has chosen not to participate in the
arbitration proceedings. In the absence of any conclusion by the Respondents
aimed at excluding the liability of Respondent 5, the Tribunal is bound to sustain
the conclusion reached of the joint and several liability of all the Respondents for
any breaches of the Framework Agreement.”

Ill. COSTS

[76] “Claimant asks to be indemnified of the arbitration fees, the costs incurred
in presenting the interim injunction applications before the Court of Milan and
its case before the arbitration Panel; the attorney’s fees incurred and all other
expenses, not limited to the legal and accountancy relevant costs occurred as a
consequence of the dispute. Upon request of the Arbitral Tribunal, the Claimant
submitted its Statement of Costs together with a Note. The Respondents did not
file any statement of costs. The Claimant’s costs as per the Note are the
following:

Procedure for an Interim Injunction before the

Court of Milan (court costs and attorney’s fees) €°G39554079
Appeal procedure against the decision rendered by the
Court of Milan (court costs and fees) Eni 22935234
Sequestration proceedings € 43,781.41
Execution of sequestration (City A) € 8,465.79
Execution of sequestration (City B) €sdi2. 95122450
Execution of sequestration (City C) € 8,009.10
Arbitration proceedings (costs and fees) € 67; 2610k4
Arbitration administrative costs and Tribunal fees US$ 225,000.00
nt made by
(plus interest calculated at the Italian rate from the date of the payme
on behalf of the
Claimant to the International Chamber of Commerce
Respondents to
Respondents to the date of payment of the sum due by the
Claimant).
Grand Total € 193,130.04 and US$ 225,000

to the case read as

[77] “Arts. 31.1 and 31.3 of the ICC Rules applicable
follows:

fees and expenses of the

“1. The costs of the arbitration shall include the
fixed by the Court ... as
arbitrators and the ICC administrative expenses
appointed by the Arbitral
well as the fees and expenses of any experts

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INTERNATIONAL CHAMBER OF

other costs incurred by the parties

Tribunal and the reasonable legal and
for the arbitration.

ration and decide which of

3.The final award shall fix the costs of the arbit
they shall be borne by the
the parties shall bear them or in what proportion
parties.

As pointed out by the prevailing doctrine:

‘This wording is intended to permit the arbitrators the greatest possible

discretion in fixing the costs of the arbitration pursuant to Art231@3)
the manner in which the relevant language of Art. 3(1) should be construed
is left to the appreciation of the arbitrators in each case.’**

[78] “In this respect, the Tribunal is bound neither by the substantive law
applicable to the Agreement in dispute nor by the procedural law of the place of
arbitration. Likewise, the Tribunal is not compelled to follow the rule ‘costs
follow the event’.*”
[79] “Typically, the ‘legal and other costs’ include such items as the fees and
expenses of legal counsel, the costs of experts, consultants and witnesses, and
other costs associated with the production of documents. The allowability of
costs associated with ancillary judiciary proceedings is increasingly accepted.
Thus in ICC Case no. 6345 (1991), the Arbitral Tribunal held that the fees
incurred for the (failed) negotiation preceding the arbitration were part and
parcel of the ‘arbitration costs’. Likewise, in ICC Case no. 6959 (1992), the
Tribunal held that all costs (i.e. not limited to the assistance to the arbitration
proceedings), had to be taken into account.
[80] “In light of the principles recalled above, the Arbitral Tribunal considers
first that the costs and fees incurred in the judicial proceedings initiated by the
Claimant were made to have

(i) a Court Order prohibiting to the Respondents to continue to breach the non-
competition clause and

38. Be: Derains, Eric A. Schwarz, A Guide to the ICC Rules of Arbitration, Kluwer, 2nd ed., p.
66.”

“a “W. Laurence Craig, William W. Park, Jan Paulsson, International Chamber of Commerce
Arbitration, Oceana Publications Inc. NY, 3rd ed., 2000, no. 21.04 pp. 393 and 395.”

26 8
Yearbook Comm. Arb’n XXXV (2010)
 ARBITRAL AWARDS

(ii) the Respondents’ assets attached to secure the payment of the penalty clause
have to be considered as part of the arbitration costs.

This conclusion is all the more justified in that it is common understanding that
the costs incurred for a defence are to be characterized as ‘damages’ .*°
[81 “The Framework Agreement indeed provides that Claimant will be
indemnified for ‘any loss, damage, claim, proceedings ...’.
[82] “As to the amounts claimed, the Tribunal holds that the costs claimed by
Claimant are reasonable in the meaning of Art. 33.1 of the ICC Rules. The
Claimant indeed had to revert on three occasions to the ordinary courts to have
(i) the order (and confirmation of the same) to the Respondents to stop their
competing activities in breach of the Framework Agreement and (ii) the amount
of the penalty attached and the attachments executed in various fora. With
respect to the arbitration proceedings that lasted one full year, the Claimant
developed an in-depth defence and had to participate in the hearing of witnesses.
[83] “With respect to the allocation of such costs, the Tribunal notes that whilst
winning on the principle of its claims (i.e. the breach of the non-competition
agreement by the Respondents, the validity as such of the non-competition
clause, and the validity as such of the penalty clause), the Respondents won on
both the partial invalidity of the non-competition clause (that has been reduced
from 5 to 2 years) and the reduction of the penalty (from € 3,000,000 to
€ 1,500,000).
[84] “In such circumstances, it seems reasonable to apportion the Claimant’s
costs and fees in the amount of € 193,130.04 and the arbitration administrative
expenses and the fees of the tribunal as fixed by the ICC Court in the amount of
US$ 225,000.— as follows: 70 percent to be paid by the Respondents and 30
percent to be supported by the Claimant. As a result, Respondents will have to
pay to the Claimant

(a) the amount of €135,191 as participation to the latter’s costs and fees and
(b) the amount of US$ 175,000 as participation to the arbitration administrative
expenses and arbitral tribunal’s fees.

In the absence of any indication on the Respondents’ side, the Tribunal cannot
take any decision on the costs incurred —as the case may be — by the Respondents
in these proceedings.

40. “W. Laurence Craig, William W. Park, Jan Paulsson, op. cit., no. 21.04, p. 294.”

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interest be paid on the advance on

[85] “The Claimant further requires that
pay to the ICC in lieu of the (defaulting)
arbitration costs that it had to
ha d to pay both its own share on advance
Respondents. The Claimant indeed
of US$ 125,000 and the Respondents’
towards costs to the ICC in the amount
share in the same amount of US$ 125,000.
that:
[86] “Art. 30.3 of the ICC Rules indeed provides
shares
‘The advance on costs fixed by the Court shall be payable in equal
by the Claimant and the Respondent. ’

The prevailing doctrine and case law affirm the contractual nature of this
provision.”
[87] “Inacommunication of 1 January 1993 on Cost and Payment, the Secretary
General of the ICC Court of Arbitration declares:

‘it is not an accepted practice in ICC arbitration for a party to refuse to pay
all or part of its share of the advance on costs and to leave it to the other
party to pay for the defaulting party... The fact of nonpayment will be
brought to the attention of the arbitral tribunal so that it may be taken into
account in fixing the final costs of the arbitration.’

This note is a consequence of both parties’ obligation to pay the advance on costs,
an obligation that results from both parties agreeing to the ICC arbitration
Rules.*”
[88] “The Tribunal is of the view that the Claimant’s claim for interest on the
amount paid in lieu of the Respondents corresponds to an actual damage resulting
from the latter’s breach of its contractual obligation as per Art. 30.2 of the ICC
Rules quoted above, and is therefore justified. The Respondents will therefore
have to pay to the Claimant interest at the Italian legal rate on the amount of US$
125,000 as from the date on which Claimant paid in lieu of Respondents until the
date of notification of the present award.”

41. “See — Buhler, ‘Non-payment of the advance on costs by the respondent party —is there
really
a remedy?’, in ASA/Bull. 2/2006 pp 290 et seq.”
42. “See e.g. ICC Interim Award, 26 March 2002, in ASA/Bull 4/2003 pp. 803 et
seq.; ICC, Interim
Award, 27 March 2001, in ASA/Bull 1/2001 , pp. 205 et
seq.”

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IV, AWARD

[89] “(1) The non-competition clause contained in Art. 11 of the Framework

Agreement is valid and binding upon Respondent 1 and Respondent 2 for a
duration of two years as from the date of the Agreement. This non-competition
clause has ceased to be effective [two years after the Framework Agreement was
signed];
(2) The non-competition clause referred to above has been breached by
Respondent 1;
(3) The penalty clause contained in Art. 11.3 of the Framework Agreement is
valid and binding upon all the Respondents;
(4) All the Respondents, jointly and severally, must pay to the Claimant the
amount of € 1,500,000 (one and a half million) for the penalty together with
interest at the rate of 6 percent as from the date of the first investigation report
until the date of the Request for Arbitration, plus 1.5 percent over the said rate
until payment is actually made by the Respondents;
(5) All the Respondents, jointly and severally, must pay to the Claimant the
amount of € 135,191 corresponding to 70 percent of the costs and fees incurred
by the Claimant for its defence in the present arbitration and in the court
proceedings in Italy;
(6) All of the Respondents, jointly and severally, must pay to the Claimant
interest at the Italian rate on the amount of US$ 125,000.- (one hundred twenty
five hundred) as from the date on which Claimant paid in lieu of Respondents
until the date of the notification of the present Award;
(7) All the Respondents, jointly and severally, must pay to the Claimant 70
percent of the arbitration costs fixed by the ICC Court in the amount of US$
225,000, namely US$ 175,000.
[90] “Any and all other claims by the Parties are dismissed.”

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 Index of Arbitral Awards

INTRODUCTION

When using this Index, the reader should note that only the first principal
mention of a subject matter in a given award has been recorded. For indexing
purposes, dissenting opinions are treated as separate awards. Thus, when the
same subject matter is discussed in the award and in the dissenting opinion, there
will be two entries in the Index. Apart from this exception, subsequent
discussions of the subject are not included in the Index. After having
examined the first principal mention of the subject matter, the
reader is advised to examine the remainder of the award or
dissenting opinion for additional information.
This Index of Arbitral Awards covers the arbitral awards published in Part IV
of this Volume XXXV (2010) of the Yearbook. A Consolidated Index of Arbitral
Awards published in Volumes I (1975) — XV (1990) was published in Yearbook
Key 1990; an Index of Arbitral Awards published in Volumes XVI (1991) — KX
(1995) was published in Volume XX (1995). An Index of Awards was also
provided in each Volume after 1996.

275
Yearbook Comm. Arb’n XXXV (2010)
 Index of Arbitral Awards

Arbitral award (types)

Abuse of process
125 See also Arbitral award
— by commencing ICC arbitration,
—on damages, 140
final —, 30; 40; 129; 158; 168; 218; 241
Applicable law (to procedure)
res judicata of partial — on final —, 143
See also Choice of law clause
second-degree —, 30
— to arbitrability, 251
termination — due to withdrawal of claim, 158
— to arbitration clause, 246
— to capacity to contract is lex societatis, 227
— to issue of capacity determined by arbitrators, Arbitral clause
228 See Arbitration clause
— of place of arbitration, 158; 227; 241
Arbitral institutions
Applicable law (to substance) See also International Chamber of
Seealso Choice of law clause, Commerce (ICC)
Conventions (in general), France
General principles of Arbitration Chamber of Paris
(arbitration/ international) law, final award of 1 September 2009, 30
and Validity of arbitration
agreement/clause Arbitral proceedings
choice of French law as —, 30; 40; 129; 218; abuse of process by commencing ICC —, 125
choice of French law as — and CISG, 129 default of parties in—, 245
choice of Italian law as —, 241 discovery in —, 140
choice of Swiss law as —, 168 discretion of arbitrators to allow new claim
choice of Swiss law as — and CISG, 168 in—, 125
— determined by parties, 30; 40; 129; 168; 218; second-degree —, 30
241 termination of — because of withdrawal, 158
United Nations Convention on Contracts for the waiver by not repeating claim in second-
International Sale of Goods (CISG), Vienna phase —, 153
1980, 135; 198
Arbitration
Arbitrability (scope of arbitration costs of —
agreement / clause) second-degree —, 30
See Arbitration agreement and Arbitration
clause See Costs of arbitration and Costs
(legal —)
Arbitrability (as to subject matter)
applicable law to —, 251 Arbitration agreement
— of antitrust issues, 250 Seealso Validity of arbitration
agreement/clause and Writing
Arbitral award
See also Arbitral award (types)
(in-)
applicable law to —, 246
—not declared provisionally enforceable, 39 applicable law to — not chosen by parties, 246
— terminating proceeding because of withdrawal,
158

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 INDEX OF ARBITRAL AWARDS

Arbitration clause — by failure to comply with food safety

See also Arbitration agreement and regulations, 35
Validity of arbitration — by failure to deliver goods, 191
agreement/clause — by failure to manage as a bon pére de famille,
applicable law to —, 246 87
~—“in writing”, 247 — by non-conformity of goods, 74
no separate signature required for —, 259 —and obligation to warrant title, 78
scope of —, 247 causal link required between — and damages,
validity of — 99
See Validity of arbitration
agreement/clause

Arbitration rules Capacity

See International Chamber of apparent —, 236
Commerce apparent — principle not included in trade
usages, 234
Arbitrator(s) applicable law to — determined by arbitrators,
— determine applicable law absent choice by 228
parties, 228 choice of law by parties does not extend to
— may hear antitrust issues, 250 issue of —, 228
— must give reason for determination of general principles of (international) law do not
applicable law, 228 apply to issue of —, 235
discretion of — in allocating costs, 127; 157; 166;
214; 239; 268 Cession
discretion of — to allow new claim, 125 See Assignment
discretion of — in determining applicable law,
228 Choice of law clause
discretion of — to reduce contractual penalty, See also Applicable law (to procedure)
262 and Applicable law (to
substance)
Assignment — for French law, 30; 40; 129; 218
advance consent to —, 64 — for French law includes CISG, 129
— of contract, 64 — by parties does not extend to issue of
authorization to — of contract, 64 capacity, 228
tacit — of contract, 65 — for Swiss law, 168; 241
— for Swiss “internal” law and CISG, 168

Behavior of party Company

See Party/ parties (behavior of) capacity of — to contract, 227
guarantee by — requires approval by board of
Bona fides directors, 226
See Good faith
Competition
Breach of contract See also EU competition law
See also Contract, Damages, Perfor- arbitrability of antitrust issues, 250
mance and Termination of — law of Italy, 251
Contract — law of Switzerland, 251
— by breach of contractual warranties, 83 non — clause, 248
— by breach of non-competition clause, 248 restriction of —, 251
~ by failure to cause employees to cooperate, 97

Yearbook Comm. Arb’n XXXV (2010)

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 INDEX OF ARBITRAL AWARDS

-and post-termination contractual obligations,

Contract
of contract, 151
See also Breach
on of contract, —and substitute purchase, 198
Interpretati
Liability /liabili ties out of
Obligation out of Conversion rate
contract,
Performance and See Rate of exchange
contract,
Termination of contract
Costs of arbitration
Note: for types of contract, see individual entries
advance payment of —, 270
assignment of —, 64
apportionment of —, 127; 129
interpretation of —, 53
modification of, 176 — shared equally by parties, 39; 157; 240
— shared proportionally by parties, 127; 269
non-competition clause in —, 248
obligation under — to cause employees to — for unsuccessful party, 215
cooperate, 97 discretion of arbitrators in allocating —, 125;
obligation under — to manage as a bon pere de 157; 166; 214; 239; 268
famille, 87 interest on sums paid for —, 270
obligations of parties under —, 74; 174 party withdrawing claim bears —, 166
termination of —
See Termination of contract Costs (legal)
warranties under —, 83 apportionment of —, 214; 269
warranty obligation under —, 79 — include costs of related court proceedings,
269
Conventions (arbitration) definition of —, 268
New York Convention on the Recognition and discretion of arbitrator in awarding —, 127;
Enforcement of Foreign Arbitral Awards (1958) 157; 166; 214; 239; 268
Art. V(1)(a), 246 discretion of arbitrators in allocating —, 127;
157; 166; 214; 239; 268
Conventions (in general) parties bear own —, 39; 127; 157; 167; 240
See also European Community reasonable —, 128; 214
United Nations Convention on Contracts for the
International Sale of Goods (CISG), Vienna 1980 Court proceedings
Art. 1(1)(a), 135 damages from costs of related — 114
Art. 1(1)(b), 135 legal costs include costs of related —, 269
Art. 3, 135
Art. 45, 143 Customary international law
Art. 74, 144; 206 See General principles of
Art. 75, 198; 206 (arbitration f international) law
Art. 76, 206
Art. 77, 140; 200 Customs
Art. 81(1), 151 See Trade usages
choice of French law as applicable law and —, 129
choice of Swiss “internal” law as applicable law
and —, 168 Damages
— applies to sales/ purchase contract, 129; 168 Seealso Breach of contract, Goods,
damages under —, 144 Loss and Penalty (contractual —)
damages under — do not include transportation award on —, 140
costs, 206 calculation of —, 37
— does not apply to sale of shares, 47 causal link required between breach of contract
—and moral damages, 155 and —, 99

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 INDEX OF ARBITRAL AWARDS

contractual limitation of —, 115 EU competition law

costs of related court proceedings, 114 anti-competitive practices under —, 251
— under CISG, 144
deduction of amounts recovered from third Evidence
parties, 116 — of damages, 144
deduction of freight savings, 204
duty to mitigate —, 37; 200
general overhead costs, 155 Fees of arbitrators
interest to be awarded on —, 118 See Costs of arbitration
loss of bank interest, 150
loss due to exchange rate fluctuation, 153 FOB (Free-on-board)
loss of profit, 115; 144 See INCOTERMS
loss of purchase price, 114
loss of reputation, 115 Food safety
loss of value, 113 EU — regulations, 30
moral —, 155
France
Default of party in arbitration See also Arbitral Institutions
— of some parties, 245 Civil Code
Arts 2° 238
Delivery Art. 1151, 100
refusal of —, 191 Art. 1153(1), 34; 118
Art. 1156, 53
Disclosure Art. 1157, 53
effect of — on contractual warranties, 51 Art. 1582, 87
Art. 1602, 87
Discovery Art. 1603, 74
failure to comply with — order, 140 Art. 1604, 74
Art. 1625, 79
Art. 1626, 79
Employee Art, 1641 etiseqs, 33
contractual obligation to cause —(s) to cooperate, Art. 2013, 223
97 Art. 2254, 35
Art 22907223
Estoppel Code of Civil Procedure
See also Waiver Art. 1496, 228
— from exercising pre-emption right, WW Commercial Code
Art. L 110-4, 35
European Community Art, L 225-35, 229
See also Conventions (in general) and EU Law no. 95-101 on Environment Protection,
competition law 36
Commission Notice 2005/C 56/03 on law of— applied, 30; 40; 129; 218
Restrictions related to Concentrations, 254 law of — includes CISG, 129
Council Regulation no. 139/2004 on
Concentrations, 253
Council Regulation no. 178/2002 on Food General principles of (arbitration/
Safety, 33 international) law
EU Treaty ~ do not apply to issue of capacity, 235
Art. 81(1)-(2), 251 —and trade usages, 234
Art. 82, 252

Yearbook Comm. Arb’n XXXV (2010)

 AWARDS
INDEX OF ARBITRAL

Art. 24(1), 139

Good faith | Art. 25(2), 127; 239
purchase, 198 270
— in making substitute
ly to issue of cap aci ty, Art. 30(3),
- principle does not app Art. 30(4), 165
235
trade usages, 234
Art. 31(1), 127; 238; 267
= principle not included in Art. 31(2)-(3), 166
Art. 31(3), 127; 157; 214; 267
Goods Art. 33, 154
See also Damages
discretion to allocate costs of arbitration
non-conformity of —, 74 under —, 127
substitute purchase of —, 145; 198
discretion to allocate legal costs under —, 127
discretion to allow new claim in — arbitration,
Guarantee
125
lettre d’intention, 222
no provision in — on res judicata effect of
release of payment —, 129
termination award due to withdrawal, 158
— regulate issue of costs, 166
Guarantee contract
board of
— requires approval by company’s
International law
directors, 226
See General principles of
(arbitration/ international) law

INCOTERMS (International Rules for the

Interpretation of Trade Terms)
Interpretation of contract
FOB contract, 33; 207 See also Contract
— according to (real) intention of parties, 53
Interest
See also Rate of interest Italy
arbitrators must award — on damages, 118 Civil Code
default —, 212 Art. 1341, 259
—on contractual penalty, 265 Art. 1384, 262
— from date time to perform expires, 213 Art. 1407, 64
loss of bank —, 150 Law no. 287/90 (Antitrust Law), 254
law of — applied, 65; 241
International Chamber of Commerce
(ICC)
in re: Legal costs
case no. 12745, 40 See Costs (legal)
case no. 13133, 129
case no. 13507, 158 Letter of credit
case no. 13676, 168 failure to open —, 176
case no. 13954, 218
case no. 14046, 241 Lex fori
abuse of process by commencing — arbitration, See Arbitration, Applicable law (to
125 procedure) and Place of
Arbitration Rules arbitration
Art. 6(2), 245
Art. 15(2), 165 Liability /liabilities out of contract
Art.
ee 17(1)-(2), 227 contractual limitation of —, 115
Art. 19, 125 Art. 20(5), 137 disclosure and limitation of —, 51
Art. 22(1), 139 joint and several —, 266

278 Yearbook Comm. Arb’n XXXV (2010)

 INDEX OF ARBITRAL AWARDS

Limitation period Italian Company A vy. Italian Respondents | to

See also Time limit 5, 241
— to file claim, 35 Spanish Company X v. Swiss Company Y, 158
— to give notice of claim, 48 Tunisian contractor v. Indian supplier, 129

Loss Party/ parties (to arbitration )

See also Damages default of some —, 245
— of bank interest, 150
— due to exchange rate fluctuation, 153 Party/parties (behavior of —)
— ofprofit, 115; 144 —and tacit assignment of contract, 65
— of purchase price, 114
— of reputation, 115; 155 Party/ parties (to contract )
— of value, 114 capacity _
See Capacity

Market price Payment

difference between contract and —, 201 release of — security, 129

Mitigation of damages Penalty (contractual —)

See Damages See also Damages
discretion of arbitrator to reduce —, 262
Modification excessive —, 262
— of contract, 176
Performance
See also Breach of contract, Contract,
Notice (in general) and Obligation out of contract
— of claim, 48 non— because of failure to open letter of credit,
sanction for failure to give — of claim, 49 176

Place of arbitration
Obligation out of contract law of — applies to validity of arbitration clause,
See also
Breach of contract, Contract and 246
Performance — chosen by parties, 30; 40; 129; 158; 168;
—and assignment, 65 218; 241
— to deliver conform goods, 74
— to cause employees to cooperate, 97 Precedents (arbitral)
— to manage as a bon pere de famille, 87 —as to definition of legal costs, 268
— of parties, 174 —as to substitute purchase, 201
post-termination —, 150
warranty —, 79 Precedents (judicial)
—as to authorization to assignment of contract,
64
Parties (list of — to arbitration) —as to award of (not requested) interest, 118
Bahamian buyer v. Thai seller, 168 —as to breach of warranties, 84
Company ABC v. Company Z International SA, —as to company’s capacity to contract, 230
40 —as to default interest, 212
Dutch commodity trader v. French service —as to estoppel of pre-emption right, 71
company, 218 —as to guarantee, 226
French seller v. French buyer, 30 — as to requirement of causal link between
breach of contract and damages, 99

Yearbook Comm. Arb’n XXXV (2010) 279

 ARDS
INDEX OF ARBITRAL AW

of Security
failure to give notice
_ as to sanction for release of payment —, 129
|
claim, 50
substance of bus ine ss
— as to shares sale and Shares
transferred, 75 CISG does not apply to — sale and purch
ase
80
—as to warranty obligation, contract, 47
liens on —, 74
Price
sale of — and pre-emption right, 53
See also Market price
market —, 201 sale of — and shareholder agreement, 65
difference between contract and
substitute sale of — and substance of business transferred,
difference between contract and_
75
purchase —, 204
204
difference between transportation —s,
Spain
loss of purchase —, | 14
Civil Code
Public policy
Art. 7(1), 165
251 Code of Civil Procedure
EU competition law is part of Italian —,
Art. 20(3), 165
Art. 396, 166
Law on Arbitration 2003
Rate of exchange
computation of —, 214
Art. 38(2)(a), 163
loss due to fluctuation of —, 153 effect of withdrawal of claim under —, 158
law of — applied, 158
— determined by arbitrators, 38

Rate of interest Standard/ general conditions (list of —)

See also Interest INCOGRAIN contract no. 13, 33
contractual —, 266
legal — (France), 118 Statute of limitations
See Limitation period
Res judicata of arbitral award
— of termination award due to withdrawal of Switzerland
claim, 158 Code of Obligations
— of partial award on final award, 143 Art. 41, 205
Art. 97, 205
Risk Art. 104(1), 212
transfer of — under FOB contract, 33 Art. 191(2), 200
Art. 120, 205
Private International Law Act (PILA)
Sales/purchase contract Art. 178(1), 246
CISG does not apply to shares —, 47 Art. 178(2), 247
FOB — concluded, 33 law of— applied, 168; 241
obligations of parties under —, 74; 174
— concluded, 129; 168
shares —, 40 Tacit
shares — and shareholders agreement, 65 — assignment of contract, 65
substitute purchase in —, 145; 198
Tax
Seat of arbitration contractual warranty as to — position, 119
See Place of arbitration

280 Yearbook Comm. Arb’n XXXV (2010)

 INDEX OF ARBITRAL AWARDS

Termination of contract Warranty/ Warranties

See also Breach of Contract and Contract breach of contractual —, 83
application of CISG to —, 151 effect of disclosure on contractual —, 51
post— obligations, 150 —as to shares being free of liens, 74
~ for failure to open letter of credit, 176
Writing (in —)
Third party/parties arbitration agreement —, 247
deduction from damages of sums recovered from
—, 116

Time limit
See also Limitation period
— to bring legal action, 35

Trade usages
meaning of —, 234
— do not include general principles of
international law, 234
— do not prevail over applicable law, 234

Transfer
— of shares and pre-emption right, 53

Unfair competition
See Competition

UNIDROIT (International Institute for

the Unification of Private Law)
Principles of International Commercial Contracts
Clause 9.3.4, 67

Validity of arbitration agreement/ clause

applicable law to —, 246
no separate signature required for —, 259
“in writing”, 247

Value
loss of —, 113

Venue of arbitration
See Place of arbitration

Waiver
See also Estoppel
— of pre-emption right, 53
— by not repeating claim in second-phase
proceeding, 153

281
Yearbook Comm. Arb’n XXXV (2010)
 Part Ve A

Court Decisions on the

New York Convention 1958

283
Yearbook Comm. Arb’n XXXV (2010)
 NEW YORK CONVENTION OF 1958

INTRODUCTION

The principal multilateral arbitration Conventions are reported on in Part V —

A through V — D of the Yearbook. Part V — A contains the reporting on the 1958
New York Convention. Part V — B reports on the 1961 European (Geneva)
Convention, Part V — C reports on the 1965 Washington (ICSID) Convention
and Part V — D reports on the Inter-American (Panama) Convention of 1975.
Court decisions in which more than one of these Conventions have been applied
are included in the reporting on the Convention which has played the principal
role in the decision. Thus, court decisions reported in Part V — A on the 1958
New York Convention may also contain references to the 1961 European
(Geneva) Convention or the 1975 Inter-American (Panama) Convention.
Likewise, court decisions in Part V — B, Part V — C or Part V — D may also
contain a reference to the 1958 New York Convention. The list of subject
matters will include the relevant Convention.
This Volume reports on 86 New York Convention decisions rendered in 25
countries, bringing the total to 1,666 decisions from 62 countries and 2
jurisdictions. According to the Treaty Section of the United Nations, there are,
as of 1 November 2009, 145 Contracting States (and 28 extensions) to the New
York Convention.
As of this Volume, the Summary of each decision, prefaced by a short recap, is
published in print; a detailed Excerpt of the decision is available online at
<www.kluwerarbitration.com>. A code provided with the Yearbook allows
readers to access the relevant Volume online, as well as the preceding Volume.
Readers who have purchased Volume XXXV (2010) can therefore access
materials from both this Volume and Volume XXXIV (2009).
Information on how to access the online materials is provided in a Note to
the Reader at the beginning of this Volume (p. xv).
In addition to publishing court decisions and up-to-date lists of Contracting
States to these Conventions, the Yearbook also includes Commentaries. An
updated version of the “Commentary on the European Convention on
International Commercial Arbitration” by Mr. Dominique Hascher was published
in Volume XX (1995). Volume XVIII (1993) contains in Part V — C the
contribution by Dr. Aron Broches, “Convention on the Settlement of Investment
Disputes Between States and Nationals of Other States of 1965, Explanatory
Notes and Survey of its Application”.

Yearbook Comm. Arb’n XXXV (2010) 285

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958
Commentary on the 1958 New York Convention
A Consolidated
(Volume XXII (1997) — Volume XXVII (2002)) by Prof. Albert Jan van den Berg
This Commentary may
was published in Volume XXVIII (2003) ofthe Yearbook.
on the 1958 New
be read in conjunction with the Consolidated Commentary
York Convention Volume XX (1995) — Volume XXI (1996) published in
Volume XXI (1996).
New York
An extensive commentary of court decisions applying the 1958
Berg’s
Convention will appear in 2012 as the second edition of Prof. van den
1981 treatise The New York Arbitration Convention of 1958: Towards a Uniform
Judicial Interpretation.
The present Volume contains as usual an Index of Cases, which facilitates
research by both article and subject matter. A Consolidated Index of Cases
reported in Volumes XXII (1997) — XXVIII (2003) was published in Volume
XXVIII (2003). An Index of Cases was also provided in Volume XXIX (2004),
Volume XXX (2005), Volume XXXI (2006), Volume XXXII (2007), Volume
XXXII (2008) and Volume XXXIV (2009).
A Consolidated Index of Cases reported in the Yearbook since 1976 is
available online on the ICCA website at <www.arbitration-icca.org>. The ICCA
website also contains lists of all court decisions and arbitral awards published in
the Yearbook since Volume I in 1976.
In order to present the widely varied material contained in the Yearbook in a
consistent manner, all decisions have been translated into English. The headings
in the excerpts in some cases have been slightly modified or headings may have
been added or deleted. The paragraphs of the excerpts are numbered to facilitate
consultation and reference to the Commentary. Also, minor editorial changes
have been made in the texts which in no way affect the substance of the decision.
As mentioned, over 1,660 court decisions on the New York Convention have
been reported in the Yearbook since its inception. It is important to emphasize
the essential role played by the readers of the Yearbook in reaching this
extraordinary number, by drawing our attention to, or sending copies of, new
court decisions on the New York Convention. Our thanks go to all of them for
their invaluable assistance.
The names of the contributors to this Volume are listed below according to the
country on which they have informed us.

Argentina: Federico Godoy (Buenos Aires)

Austria: Martin Platte (Vienna)
Brazil: Dr. Joao Bosco Lee (Curitiba)
British Virgin Islands: Dr. Dirk Otto (Frankfurt am Main)

286 Yearbook Comm. Arb’n XXXV (2010)

 INTRODUCTION

Canada: Michael Marks Cohen (New York)

Cayman Islands: Dr. Dirk Otto (Frankfurt am Main)
PR China: Xing Xiusong (Beijing)
Germany: Dr. Stefan Kroll (Cologne)
Hong Kong: Michael Marks Cohen (New York)
India: Dr. Dirk Otto (Frankfurt am Main)
Israel: Dr. Daphna Kapeliuk (Tel Aviv)
Alessandro Ethan Naschitz (Tel Aviv)
Italy: Chamber of National and International Arbitration of
Milan
Benedetta Coppo (Milan)
Malaysia: Cecil Abraham (Seremban)
Netherlands: Dr. Gerard Meijer (Rotterdam)
Russian Federation: Roman Zykov (Moscow)
Singapore: Michael Marks Cohen (New York)
Spain: Jose Alejandro Carballo Leyda (Madrid)
Maribel Rodriguez (Madrid)
Sweden: Jeanette Bjork (Stockholm)
Dr. Gisela Knuts (Stockholm)
U ganda: Dr. Dirk Otto (Frankfurt am Main)
United States: Freshfields Bruckhaus Deringer (New York)
Judith A. Freedberg (Miami)
Michael Marks Cohen (New York)
Chris Paparella (New York)

The General Editor would like to call upon readers to assist him by
sending copies of relevant court decisions, published or
unpublished, for reporting in the forthcoming volumes of the
Yearbook. Copies can be sent to either of the following addresses.

ICCA Publications Prof. Dr. Albert Jan van den Berg

c/o International Bureau of the c/o Hanotiau & van den Berg
Permanent Court of Arbitration IT Tower, 9th Floor
Carnegieplein 2 480 Avenue Louise, B.9
2517 KJ The Hague, The Netherlands —_1050 Brussels, Belgium
E-mail: [email protected] E-mail: [email protected]

Yearbook Comm. Arb’n XXXV (2010) 287

 NEW YORK CONVENTION OF 1958

LIST OF CONTRACTING STATES

(as of 1 November 2010)!

eate Ratification, Reservation”

Accession (a),
Succession (s)

Afghanistan 30 Nov. 2004a 12

Albania 27 June 2001a —
Algeria 7 Feb. 1989a l<2
American Samoa’ 3 Nov. 1970 Ee 2
Antigua and Barbuda 2 Feb. 1989a 1.22
Argentina* 14 Mar. 1989 1-2
Armenia 29 Dec. 1997a 1-2
Australia 26 Mar. 1975a _
Australian Antartic Territory” 26 Mar. 1975a =

1. This list is compiled by the Editorial Staff of the Yearbook Commercial Arbitration, in consultation
with the United Nations Treaty Section. Countries that have acceded to the Convention in the
course of the reporting year are indicated in boldface type. Extensions are indicated in italics.
2. Two reservations are contained in Art. I(3). The 1st reservation is the so-called “reciprocity
reservation” (at present made by 99 States including extensions). On 25 February 1988, the
Government of Austria withdrew its reciprocity reservation; on 23 April 1993, the Government
of Switzerland withdrew its reciprocity reservation; and on 31 August 1998, the Government of
Germany withdrew its reciprocity reservation.
The 2nd is the so-called “commercial reservation” (at present made by 56 States including
extensions). On 27 November 1989, the Government of France withdrew its commercial
reservation.
3. Extension made by the United States of America upon acceding to the Convention.
. Argentina declared that the present Convention should be construed in accordance with the
principles and rules of the National Constitution in force or with those resulting from reforms
mandated by the Constitution. In addition, upon signature, Argentina declared that “If another
Contracting Party extends the application of the Convention to territories which fall within the
sovereignty of the Argentine Republic, the rights of the Argentine Republic shall in no way be
affected by that extension.”
5. Extension made by Australia upon acceding to the Convention,

28 8 Yearbook Comm. Arb’n XXXV (2010)

 LIST OF CONTRACTING STATES

Austria 2 May 196la -

Azerbaijan 29 Feb. 2000a —
Bahamas 20 Dec. 2006a —
Bahrain 6 Apr. 1988a hice?
Bangladesh 6 May 1992a --
Barbados 16 Mar. 1993a ficcv2
Belarus® 15 Nov. 1960 1
Belgium 18 Aug. 1975 1
Belize’ 24 Feb. 1981 I
Benin 16 May 1974a —
Bermuda’ 12 Feb. 1980 I
Bolivia 28 Apr. 1995a —
Bosnia and Herzegovina® 1 Sep. 1993s ee
Botswana 20 Dec. 1971la 1-2
Brazil 7 June 2002a —
Brunei Darussalam 25 July 1996a 1
Bulgaria® 10 Get. 1961 1
Burkina Faso 23 Mar. 1987a =
Cambodia 5 Jane £9602 -
Cameroon 19 Feb. 1988a =
Canada’ 12 May 1986a 2
Canton Island’ 3 Nov. 1970 (ee
Cayman Islands’ 24 Feb. 1981
Central African Republic 1S' Oct. 19624 nei
Chile 4 Sep. 1975a =
China, PR'° 22 Jan. 1987a 1-2
Christmas Island’ 26 Mar. 1975a ~

6. With regard to awards made in the territory of non-Contracting States, State will apply the
Convention only to the extent to which these States grant reciprocal treatment.
Extension made by the United Kingdom on the date indicated in the List.
State will apply the Convention only to those arbitral awards which were adopted after the
coming of the Convention into effect.
The commercial reservation does not apply to the province of Quebec.
. Upon resuming the exercise of sovereignty over Hong Kong, China gave notice that the
Convention with the reservations made by China (“reciprocity” and “commercial” will also apply
to the Hong Kong Special Administrative Region.
On 19 July 2005, the Secretary-General received China’s declaration that the Convention shall
apply to Macao, with the reservations made by China.

Yearbook Comm. Arb’n XXXV (2010) 289

 1958
NEW YORK CONVENTION

26 Mar. 1975a —
Cocos (Keeling) Island’ ~
25 Sep. 1979a
Colombia'!
26 June 1959 ]
Comoro Islands'”
12 Jan. 2009a =
Cook Islands -
26 Oct. 1987
Costa Rica
1 Feb. 1991a -
Céte d’ Ivoire
26 July 1993s ee
Croatia®
30 Dec. 1974a ee:
Cuba’®
29 Dec. 1980a ey
Cyprus
30 Sep. 1993s 1
Czech Republic'’
22 Dec. 1972a 1-2
Denmark
14 June 1983s =
Djibouti
28 Oct. 1988a i
Dominica
11 Apr. 2002a =
Dominican Republic
Ecuador 3fan.. 1962 1-2
Egypt 9 Mar. 1959a =
Enderberry Island’ 3 Nov. 1970 I -2
El Salvador 26 Feb. 1998 o
Estonia 30 Aug. 1993a -
Faeroe Islands'* 10 Feb. 1976 le2
Fiji 27 Sep. 2010
Finland 19 Jan. 1962 -
France 26 June 1959 1
French Polynesia’ 26 June 1959 I
Gabon 15 Dec. 2006a
oes 2 June 1994a a1

11. On 20 November 1990, Law no. 39 of 1990 was promulgated implementing the Convention in
Colombia. This law filled a lacunae created by the decision of 6 October 1988, by which the
Supreme Court declared the unconstitutionality of the Law no. 37 of 1979, implementing the
New York Convention in Colombia.
12. Extension made by France on the date indicated in the List.
13. The Convention was signed by the former Czechoslovakia on 3 October 1958 and an instrument
of ratification was deposited on 10 July 1959. Czechoslovakia made the Ist reservation and
declared that with regard to awards made in the territory of non-contracting States, it will apply
the Convention only to the extent to which these States grant reciprocal treatment. On 28 May
1993, Slovakia and, on 30 September 1993, the Czech Republic deposited instruments of
succession.
14. Extension made by Denmark on the date indicated in the List.

290 Yearbook Comm. Arb’n XXXV (2010)

 LIST OF CONTRACTING STATES

Germany” 30 June 1961

(GDR: 20 Feb. 1975a)
Ghana 9 Apr. 1968a
Gibraltar’ 24 Sep. 1975
Greece 16 July 1962a
Greenland'* 10 Feb. 1976 -2
Guam? 3 Nov. 1970 -2
Guatemala 21 Mar. 1984a
Guernsey’ 19 Apr. 1985 =~
RS
|ee

Guinea 23 Jan. 1991a

Haiti 5 Dec. 1983a
Holy See 14 May 1975a
Honduras Oct. 2000a
6
Hong Kong' 21 Apr. 1977
Hungary 5 Mar. 1962a
Iceland 24 Jan. 2002a
India 13 July 1960
Indonesia T Oe. 198la
Iran IS Oet. 2001a
Ireland 12 May 1981a
Isle ofMan’ 23 May 1979
Israel 5 Jan. 1959
Italy 31 Jan. 1969a
Jamaica 10 July 2002a
Japan 20 June 196la
Jersey’ 28 May 2002
Jordan 15 Nov. 1979
Kazakhstan 20 Nov. lip
Se
Kenya 10 Feb. 1989a
Korea, Republic of 8 Feb. lyise
Kuwait 28 Apr. 1978a
Kyrgyzstan 18 Dec. 1996a
Lao People’s Democratic Republic 17 June 1998a
Latvia 14 Apr. 1992a

15. Extension made by FR Germany to West Berlin, 30 June 1961.

16. Extension made by PR China with effect from 1 July 1997. See fn. 10.

Yearbook Comm. Arb’n XXXV (2010) 291

 1958
NEW YORK CONVENTION

11 Aug. 1998a 1
Lebanon
13 June 1989a ~
Lesotho
16 Sep. 2005a -
Liberia
14 Mar. 1995a 1
Lithuania®
9Sep. 1983 1
Luxembourg
12 Nov. 1999 | -\2
Macao"’
16 July 1962a oe
Madagascar
5 Nov. 1985a 1-2
Malaysia
8 Sep. 1994a <
Mali
22 Jun. 2000a 1
Malta’®
21 Dec. 2006a -
Marshall Islands
30 Jan. 1997a =
Mauritania
19 June 1996a 1
Mauritius
14 Apr. 1971a =
Mexico
Moldova, Republic of? 18 Sep. 1998a 1
Monaco 2 June 1982 Laie
Mongolia 24 Oct. 1994a 1.2
Montenegro” 23 Oct. 2006s 1-2
Morocco 12 Feb. 1959a 1
Mozambique” 11 June 1998a ~
Nepal 4 Mar. 1998a 1 'a2
Netherlands 24 Apr. 1964 1
Netherlands Antilles”! 24 Apr. 1964 1
New Caledonia’ 26 June 1959 1
6 Jan. 1983a 1
New Zealand
Nicaragua 24 Sep. 2003a =

Niger 14 Oct. 1964a zs

Nigeria 17 Mar. 1970a In?

17. Extension made by PR China with effect from 19 July 2005. See fn. 10.
18. The Convention applies in Malta with respect to arbitration agreements concluded after the date
of Malta’s accession to the Convention.
19. On 3 June 2006, Montenegro became independent. In a letter to the Secretary-General dated 10
October 2006, the Government of the Republic of Montenegro notified its succession to, inter
alia, the 1958 New York Convention.
20. The Republic of Mozambique reserves the right to enforce the Convention on the basis of
reciprocity, where the arbitral awards have been pronounced in the territory of another
Contracting State.
21. Extension made by The Netherlands on the date indicated in the List.

£92 Yearbook Comm. Arb’n XXXV (2010)

 LIST OF CONTRACTING STATES

Norfolk Island” 26 Mar. 1975 —

Norway” 14 Mar. 196la 1
Oman 25 Feb. 1999a =
Pakistan 14 Jul. 2005 1
Panama 10 Oct. 1984a _
Paraguay 8 Oct. 1997a _
Peru 7 July 1988a —
Philippines 6 July 1967 1-2
Poland”? 3 Oct. 1961 dnerd
Portugal 18 Oct. 1994a 1
Qatar 30 Dec. 2002a
Puerto Rico* 3 Nov. 1970 Lay
Romania® 13 Sep. 1961a bh
Russian Federation®~* 24 Aug. 1960 1
Rwanda 31 Oct. 2008a
San Marino 17 May 1979a +
Saudi Arabia 19 Apr. 1994a 1
Senegal 17 Oct. 1994a =
Serbia®> 12 Mar. 2001 er?
Singapore at Aug. 1986a 1
Slovakia'? 28 May 1993s 1
Slovenia® 6 July 1992s 1-2
South Africa 3 May 1976a =:
Spain £2 May 1977a =
Sri Lanka 9 Apr. 1962 =

22. State will not apply the Convention to differences where the subject matter of the proceedings
is immovable property situated in the State, or a right in or to such property.
23. Poland made both reservations when signing the Convention. However, the Document of
Ratification does not repeat the reservation and the Polish Government officially recognizes that
Poland is bound by the Convention in its entirety.
24. The Russian Federation continues, as from 24 December 1991, the membership of the former
Union of Soviet Socialist Republics (USSR) in the United Nations and maintains, as from that
date, full responsibility for all the rights and obligations of the USSR under the Charter of the
United Nations and multilateral treaties deposited with the Secretary-General.
25. The former Yugoslavia had acceded to the Convention on 26 February 1982. On 12 March 2001,
the Secretary-General received from the Government of Yugoslavia a notification of succession,
confirming the declaration dated 28 June 1982 by the Socialist Federal Republic of Yugoslavia.
On 3 February 2003, Yugoslavia changed its name to Serbia and Montenegro. As of 3 June 2006,
upon the declaration of independence of Montenegro, the name was changed to Serbia.

Yearbook Comm. Arb’n XXXV (2010) 293

 1958
NEW YORK CONVENTION

26 June 1959 /
St. Pierre et Miquelon'* 1-2
12 Sep. 2000a
St. Vincent and the Grenadines —
28 Jan. 1972
Sweden 1
24 Apr. 1964
Surinam”®
1 June 1965
Switzerland’ Ss
9 Mar. 1959a
Syrian Arab Republic
13 Oct. 1964a 1
Tanzania, United Republic of
21 Dec. 1959a i:
Thailand
The Former Yugoslav Republic
10 Mar. 1994s 1-2
of Macedonia®
14 Feb. 1966a 1-2
Trinidad and Tobago
17 July 1967a 12
Tunisia
2 July 1992a i “2
Turkey
12 Feb. 1992a 1
Uganda
10 Oct. 1960 1
Ukraine®
United Arab Emirates 21 Aug. 2006a
United Kingdom
of Great Britain and Northern Ireland 24Sep. 1975a 1
United States of America 30 Sep. 1970a i-Z
Uruguay 30 Mar. 1983a —
Uzbekistan 7 Feb. 1996a —
Venezuela 8 Feb. 1995a 2%
Viet Nam’ 12 Sep. 1995a 1-2
Virgin Islands* 3 Nov. 1970 i-2
Wake Island’ 3 Nov. 1970 i wz
Wallis and Futuna Islands'’ 26 June 1959 1
Zambia 14 Mar. 2002a -
Zimbabwe 29 Sep. 1994a _

26. On 25 November 1975, Surinam became independent. By letter of 29 November 1975, of the
then Prime Minister, to the Secretary-General of the UN, Surinam has declared that it will remain
bound to the Treaties and Conventions which The Netherlands has made applicable.
27. Viet Nam declared that interpretation of the Convention before the Vietnamese Courts or
competent Authorities should be made in accordance with the Constitution and law of Viet Nam.

294 Yearbook Comm. Arb’n XXXV (2010)

 NEW YORK CONVENTION OF 1958
INDEX OF CASES REPORTED IN
VOLUME XXXV (2010)

Prof. Albert Jan van den Berg

All 1958 New York Convention cases reported in the Yearbook since Volume
I (1976) are indexed according to a list of topics ({[ 001 to 4 914, attached
below) that facilitates information retrieval.' Topics also link the court decisions
to numbered sections of the (Consolidated) Commentary on the New York
Convention, published in the Yearbook in the following years:

- Yearbook Key, accompanying Yearbook XV (1990):

Cumulative Indexes of Commentaries and Cases Volumes I (1976) — XV
(1990);
— Yearbook XVI (1991):
Consolidated Commentary Cases Reported in Volumes XV (1990) — XVI
(1991);
— Yearbook XIX (1994):
Consolidated Commentary Cases Reported in Volumes XVII (1992) — XIX
(1994);
— Yearbook XXI (1996):
Consolidated Commentary Cases Reported in Volumes XX (1995) — XXI
(1996);
— Yearbook XXVIII (2003):
Consolidated Commentary Cases Reported in Volumes XXII (1997) —
XXVII (2002).

An extensive commentary of court decisions applying the 1958 New York

Convention — using the same list of topics — will appear in 2012 as the second
edition of Prof. Albert Jan van den Berg’s 1981 treatise The New York Arbitration
Convention of 1958: Towards a Uniform Judicial Interpretation.

1. These topics can also be used as a search tool for New York Convention materials in the
KluwerArbitration database <www.kluwerarbitration.com>, where all Yearbook materials are
posted :

Yearbook Comm. Arb’n XXXV (2010) 295

 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

LIST OF TOPICS

{001 INTERPRETATION OF THE CONVENTION

ARTICLE I — FIELD OF APPLICATION (ARBITRAL AWARDS)

q 101 AWARD MADE IN THE TERRITORY OF ANOTHER (CONTRACTING) STATE

(PARAGRAPHS 1 AND 3 — FIRST RESERVATION OR “RECIPROCITY
RESERVATION”)
4102 ARBITRAL AWARD NOT CONSIDERED AS DOMESTIC (PARAGRAPH 1)
4103 NATIONALITY OF THE PARTIES NO CRITERION
4104. CONVENTION’S APPLICABILITY IN OTHER CASES ,
{105 “PERSONS, WHETHER PHYSICAL OR LEGAL” (PARAGRAPH 1) (including
sovereign immunity)
4] 106 PROBLEMS CONCERNING THE IDENTITY OF A PARTY
4107 SECOND RESERVATION (“COMMERCIAL RESERVATION”) (PARAGRAPH 3)
4,108 ARBITRAL AWARD: Arbitrato irrituale (Italy) and other procedures akin to arbitration
4109 ARBITRAL AWARD: “A-national” award
4110 ARBITRAL AWARD: Types
4,111 PERMANENT ARBITRAL BODIES (PARAGRAPH 2)
9112 RETROACTIVITY
9113 IMPLEMENTING LEGISLATION
9/114. IRAN-US CLAIMS TRIBUNAL

ARTICLE II(1) AND (2) — ARBITRATION AGREEMENT

PARAGRAPH 1: AGREEMENT IN GENERAL

§ 201 Scope ofarbitration agreement
4202 Contents ofarbitration agreement

PARAGRAPHS 1 AND 2: AGREEMENT IN WRITING

{1 203 Uniform rule
9204 = Formal validity and municipal law
205 Signatures
| 206 Exchange ofletters or telegrams
4207 Means of communication for achieving the exchange in writing
4 208 = Sales or purchase confirmation
{| 209 Incorporation by reference and standard conditions
9.210 =Articles 1341 and 1342 Italian Civil Code
9211 ~~ Bill of lading and charter party
4 212 Agent / Broker, etc.
{213 = Amendment or Renewal

296
Yearbook Comm. Arb’n XXXV (2010)
 INDEX OF CASES VOLUME XXXV

ARTICLE II(3) —- REFERRAL BY COURT TO ARBITRATION

FIELD OF APPLICATION
4 214 Field of application: agreement providing for arbitration in another State
4 215 Field of application: agreement providing for arbitration within forum ’s State
q| 216 Field of application: no place of arbitration designated
4] 216A Analogous applicability ofArt. VII(1)

REFERRAL TO ARBITRATION
4 217 In general
4 218 Referral is mandatory
q 219 There must be a dispute
q 220 “Null and void”, etc.
q 221 Law applicable to “null and void”, etc.
q 222 Arbitrator’s competence and separability of the arbitration clause
q 223 Arbitrability
q 224 DECLARATORY JUDGMENT ON VALIDITY ARBITRATION AGREEMENT

MULTI-PARTY DISPUTES
q 225 Related arbitrations (consolidation, etc.)
§ 226 Third parties
§ 227 Concurrent court proceedings (“indivisibility”)
q 228 PRE-AWARD ATTACHMENT AND OTHER PROVISIONAL MEASURES
§ 229 MEASURES IN AID OF ARBITRATION

ARTICLE III - PROCEDURE FOR ENFORCEMENT

4 301 IN GENERAL
§ 302 DISCOVERY OF EVIDENCE
q 303 ESTOPPEL/ WAIVER
§ 304 SET-OFF/ COUNTERCLAIM
4 305 ENTRY OF JUDGMENT CLAUSE
4 306 PERIOD OF LIMITATION FOR ENFORCEMENT
§ 307 INTEREST ON AWARD

ARTICLE IV — CONDITIONS TO BE FULFILLED BY THE PETITIONER

§ 401 IN GENERAL
§ 402 ORIGINAL OR COPY ARBITRAL AWARD
§ 403 ORIGINAL OR COPY ARBITRATION AGREEMENT
§ 404 AUTHENTICATION AND CERTIFICATION
§ 405 “AT THE TIME OF APPLICATION”
| 406 TRANSLATION (PARAGRAPH 2)

Yearbook Comm. Arb’n XXXV (2010) 297

 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

ERAL
USAL OF ENFORCEMENT IN GEN
ARTICLE V - GROUNDS FOR REF

4500 GENERAL
HSTANDING THE EXISTENCE OF
RESIDUAL POWER TO ENFORCE NOTWITEN
500A T
A GROUND FOR REFUSAL OF ENFORCEM
4501 GROUNDS ARE EXHAUSTIVE
ARBITRAL AWARD
q502 NO RE-EXAMINATION OF THE MERITS OF THE
{503 BURDEN OF PROOF ON RESPONDENT

BY THE
ARTICLE V(1) -GROUNDS FOR REFUSAL OF ENFORCEMENT TO BE PROVEN
RESPONDENT

GROUND a: INVALIDITY OF THE ARBITRATION AGREEMENT

4504 Agreement referred to in Article II
4505 = Incapacity ofparty
4506 Law applicable to the arbitration agreement
{507 Miscellaneous cases regarding the arbitration agreement

GROUND b: VIOLATION OF DUE PROCESS

4508 = In general
4] 509 =“Proper notice”
4510 Time limits and notice periods
41511 “Otherwise unable to present his case”

GROUND c: EXCESS BY ARBITRATOR OF HIS AUTHORITY

9512 Excess of authority
4] 512A Partial enforcement (ultra petita)
9513 GROUND d: IRREGULARITY IN THE COMPOSITION OF THE ARBITRAL
TRIBUNAL OR ARBITRAL PROCEDURE

GROUND e: AWARD NOT BINDING, SUSPENDED OR SET ASIDE

514 “Binding”
q 515 Merger of award into judgment
9516 “Set aside”
4] 517 “Suspended”

ae V(2) — PUBLIC POLICY AS GROUND FOR REFUSAL OF ENFORCEMENT EX

FFICIO

518 DISTINCTION DOMESTIC/INTERNATIONAL PUBLIC POLICY

{519 GROUND a: ARBITRABILITY

GROUND b: PUBLIC POLICY

1520 Default of a party
9521 = Lack of impartiality of arbitrator
9522 Lack of reasons in award

298 Yearbook Comm. Arb’n XXXV (2010)

 INDEX OF CASES VOLUME XXXV

4523 Irregularities in the arbitral procedure

9524 Other cases

ARTICLE VI

{601 ADJOURNMENT OF DECISION ON ENFORCEMENT

ARTICLE VII(1) - MORE-FAVORABLE-RIGHT PROVISION

4/701 MORE-FAVORABLE-RIGHT PROVISION IN GENERAL
4702 DOMESTIC LAW ON ENFORCEMENT OF FOREIGN AWARD
4/703 BILATERAL AND MULTILATERAL TREATIES IN GENERAL
4 703(A) MULTILATERAL TREATIES
4704. EUROPEAN CONVENTION OF 1961
4] 704(A) PANAMA CONVENTION OF 1975
4 704(B) BILATERAL TREATIES
{ 704(C) EUROPEAN COMMUNITY

ARTICLE VII(2)
9705 RELATIONSHIP WITH GENEVA TREATIES OF 1923 AND 1927

ARTICLE XI

9911 FEDERAL STATE CLAUSE

ARTICLE XIV

9.914. GENERAL RECIPROCITY CLAUSE

299
Yearbook Comm. Arb’n XXXV (2010)
 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

INDEX OF CASES

{ 001 INTERPRETATION OF THE CONVENTION

Index Volume XXXV (2010): Spain 65 (sub 6-10)

ARTICLE |

FIELD OF APPLICATION (ARBITRAL AWARDS)

1. This Convention shall apply to the recognition and enforcement

of arbitral awards made in the territory ofa State other than the State
where the recognition and enforcement of such awards are sought,
and arising out of differences between persons, whether physical or
legal. It shall also apply to arbitral awards not considered as domestic
awards in the State where their recognition and enforcement are
sought.

2. The term “arbitral awards” shall include not only awards made by
arbitrators appointed for each case but also those made by
permanent arbitral bodies to which the parties have submitted.

3. When signing, ratifying or acceding to this Convention, or

notifying extension under article X hereof, any State may on the basis
of reciprocity declare that it will apply the Convention to the
recognition and enforcement of awards made only in the territory of
another Contracting State. It may also declare that it will apply the
Convention only to differences arising out of legal relationships,
whether contractual or not, which are considered as commercial
under the national law of the State making such declaration.

{101 AWARD MADE IN THE TERRITORY OF ANOTHER

(CONTRACTING) STATE (PARAGRAPHS 1 AND 3 — FIRST
RESERVATION OR “RECIPROCITY RESERVATION”)
Index Volume XXXV (2010): Germany 125 (sub 6-7); Germany 127 (sub
7); Germany 131; India 44; Malaysia 4; Spain 66 (sub 10); US 704
(sub 12-20)

300 Yearbook Comm. Arb’n XXXV (2010)

 INDEX OF CASES VOLUME XXXV

q 102 ARBITRAL AWARD NOT CONSIDERED AS DOMESTIC

(PARAGRAPH 1)
Index Volume XXXV (2010): US 692; US 696 (sub 1-4); US 704 (sub 12-
16 and 21-22)
{] 103 NATIONALITY OF THE PARTIES NO CRITERION
Index Volume XXXV (2010): US 696 (sub 2-4)

q 104 CONVENTION’S APPLICABILITY IN OTHER CASES

Index Volume XXXV (2010): US 696 (sub 1-4); US 711; US 712 (sub 20-
52)

{105 “PERSONS, WHETHER PHYSICAL OR LEGAL” (PARAGRAPH 1)

(including sovereign immunity)
Index Volume XXXV (2010): Hong Kong 24; US 696 (sub 5)

q 106 PROBLEMS CONCERNING THE IDENTITY OF A PARTY

Index Volume XXXV (2010): US 709

§ 107 SECOND RESERVATION (“COMMERCIAL RESERVATION”)

(PARAGRAPH 3)
Index Volume XXXV (2010): Spain 66 (sub 11)

q 108 ARBITRAL AWARD: Arbitrato irrituale (Italy) and other procedures akin
to arbitration
Index Volume XXXV (2010): No new decisions are reported.

§ 109 ARBITRAL AWARD): “A-national” award

Index Volume XXXV (2010): No new decisions are reported.

§ 110 ARBITRAL AWARD: Types

Index Volume XXXV (2010): Germany 135 (sub 8-9)

9 111 PERMANENT ARBITRAL BODIES (PARAGRAPH 2)

Index Volume XXXV (2010): No new decisions are reported.

q 112 RETROACTIVITY
Index Volume XXXV (2010): No new decisions are reported.

Yearbook Comm. Arb’n XXXV (2010)

301
 K CONVENTION 1958
COURT DECISIONS ON THE NEW YOR

|
] 113 IMPLEMENTING LEGISLATION
4
Index Volume XXXV (2010): India 44; Malaysia

4114. IRAN-US CLAIMS TRIBUNAL

Index Volume XXXV (2010): No new decisions are reported.

ARTICLE II(1) AND (2)

ARBITRATION AGREEMENT

1. Each Contracting State shall recognize an agreement in writing

under which the parties undertake to submit to arbitration all or any
differences which have arisen or which may arise between them in
respect of a defined legal relationship, whether contractual or not,
concerning a subject matter capable of settlement by arbitration.

2. The term “agreement in writing” shall include an arbitral clause in

a contract or an arbitration agreement, signed by the parties or
contained in an exchange of letters or telegrams.

PARAGRAPH 1: AGREEMENT IN GENERAL

{| 201 = Scope of arbitration agreement

Index Volume XXXV (2010): Australia 34 (sub 18-46); Austria 19 (sub
3-4); Canada 29 (sub 6-12); Israel 5 (sub 29-30); Spain 68 (sub 7-9);
US 683 (sub 107-108)

4202 Contents of arbitration agreement

Index Volume XXXV (2010): No new decisions are reported.

PARAGRAPHS 1 AND 2: AGREEMENT IN WRITING

{203 Uniform rule

Index Volume XXXV (2010): No new decisions are reported.

4204 = Formal validity and municipal law

Index Volume XXXV (2010): No new decisions are reported.

302
Yearbook Comm. Arb’n XXXV (2010)
 INDEX OF CASES VOLUME XXXV

q 205 Signatures
Index Volume XXXV (2010): Austria 19 (sub 5-8 and 11)

4 206 Exchange of letters or telegrams

Index Volume XXXV (2010): UK 90 (sub 1-15)

| 207 Telexes and other means of communication for achieving the exchange in
writing
Index Volume XXXV (2010): No new decisions are reported.

§ 208 Sales or purchase confirmation

Index Volume XXXV (2010): No new decisions are reported.

q 209 Incorporation by reference and standard conditions

(Exclusive of Arts. 1341 and 1342 Italian Civil Code; see §]210 below)
Index Volume XXXV (2010): US 683 (sub 19-20, 45 and 106)

4] 210 Articles 1341 and 1342 Italian Civil Code

Index Volume XXXV (2010): No new decisions are reported.

q 211 Bill of lading and charterparty

Index Volume XXXV (2010): No new decisions are reported.

q 212 Agent / Broker, etc.

Index Volume XXXV (2010): No new decisions are reported.

q 213 Amendment or renewal

Index Volume XXXV (2010): US 702 (sub 30-39)

ARTICLE II(3)
REFERRAL BY COURT TO ARBITRATION

The court ofa Contracting State, when seized ofan action in a matter
in respect of which the parties have made an agreement within the
meaning of this article, shall, at the request of one of the parties,
refer the parties to arbitration, unless it finds that the said agreement
is null and void, inoperative or incapable of being performed.

Yearbook Comm. Arb’n XXXV (2010) 303

 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

FIELD OF APPLICATION

q 214 Field of application: agreement providing for arbitration in another

State
;
Index Volume XXXV (2010): US 680 (sub 1 and 3); US 681 (sub 24-25)
US 684; US 705 (sub 3); US 710 (sub 3-19)

q 215 Field of application: agreement providing for arbitration within forum ’s State
Index Volume XXXV (2010): No new decisions are reported.

q 216 Field of application: no place of arbitration designated

Index Volume XXXV (2010): No new decisions are reported.

q 216A Analogous applicability ofArt. VII(1)

This new topic is introduced in this Volume XXXV (2010). It deals
with the application by analogy to the enforcement of the arbitration
agreement of the more-favorable-right provision in Art. VII(1)
Convention, which applies according to its text to the enforcement of
the arbitral award (see {[{] 701-702 below).
Index Volume XXXV (2010): No new decisions are reported.

REFERRAL TO ARBITRATION

9 217 In general
Index Volume XXXV (2010): Australia 34 (sub 67-69); Austria 19 (sub
8-10 and 13); Canada 29 (sub 6-12); Cayman Islands 4; Israel 4; Israel
5; UK 88; US 681 (sub 26-31); US 683 (sub 12-18 and 21-44); US
691; US 698; US 700 (sub 1-3 and 11); US 702 (sub 7-29); US 707;
US 710 (sub 45-47)

§ 218 Referral is mandatory

Index Volume XXXV (2010): Israel 4

q 219 There must be a dispute

Index Volume XXXV (2010): Singapore 9

§ 220 “Null and void”, etc.

Index Volume XXXV (2010): Australia 34 (sub 70); Canada 29 (sub 4);
India 44; Spain 68 (sub 3, 10 and 18); Uganda 1; UK 88; US 680 (sub
2-7); US 681 (sub 15-23); US 683 (sub 12-18 and 21-44); US 685; US

304
Yearbook Comm. Arb’n XXXV (2010)
 INDEX OF CASES VOLUME XXXV

691; US 694; US 700 (sub 4-10); US 701; US 705; US 710 (sub 21-31
and 36-44)

q 221 Law applicable to “null and void”, etc.

(For formal validity and applicable law, see {| 203-204 above)
Index Volume XXXV (2010): Australia 34 (sub 6-17); Austria 19 (sub 2);
Spain 68 (sub 3, 5-6 and 11-13)

q 222 Arbitrator’s competence and separability of the arbitration clause

Index Volume XXXV (2010): Australia 34 (sub 66); Austria 19 (sub 12);
Canada 30; India 45 (sub 1-3); Israel 5 (sub 12-28 and 34-36); UK 88;
UK 90 (sub 1-2)

q 223 Arbitrability
(See also Article V(2), sub Ground a. “Arbitrability”, {] 519 below)
Index Volume XXXV (2010): Australia 34 (sub 47-51); Spain 68 (sub 14-
16); US 680 (sub 8-20); US 681 (sub 1-14); US 684; US 686; US 699,
US 710 (sub 32-35)

q 224 DECLARATORY JUDGMENT ON VALIDITY ARBITRATION

AGREEMENT
Index Volume XXXV (2010): No new decisions are reported.

MULTI-PARTY DISPUTES

q 225 Related arbitrations (consolidation, etc.)

Index Volume XXXV (2010): No new decisions are reported.

q 226 Third parties

(See also Article I, sub F. “Problems Concerning the Identity of the
Respondent”, §/ 106 above)
Index Volume XXXV (2010): No new decisions are reported.

§ 227 Concurrent court proceedings (“indivisibility’)

Index Volume XXXV (2010): No new decisions are reported.

q 228 PRE-AWARD ATTACHMENT AND OTHER PROVISIONAL

MEASURES
Index Volume XXXV (2010): No new decisions are reported.

Yearbook Comm. Arb’n XXXV (2010)

305
 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

q 229 MEASURES IN AID OF ARBITRATION

27; UK 89; UK 90 (sub
Index Volume XXXV (2010): Russian Federation
16-35)

ARTICLE III

PROCEDURE FOR ENFORCEMENT

Each Contracting State shall recognize arbitral awards as binding and

enforce them in accordance with the rules of procedure of the
territory where the award is relied upon, under the conditions laid
down in the following articles. There shall not be imposed
substantially more onerous conditions or higher fees or charges on
the recognition or enforcement of arbitral awards to which this
Convention applies than are imposed on the recognition or
enforcement of domestic arbitral awards.

q 301 IN GENERAL
Index Volume XXXV (2010): Argentina 3 (sub 10-15); Austria 20 (sub
1-3); Brazil 12; Canada 29 (sub 21-30); France 49 (sub 1-2); Germany
125 (sub 1 and 11); Germany 126 (sub 2 and 16); Germany 127 (sub
1 and 10); Germany 128 (sub 1 and 7-10); Germany 129 (sub 1 and
4); Germany 130 (sub 2 and 25); Germany 132 (sub 1 and 24);
Germany 133 (sub 2 and 6); Germany 134 (sub 1 and 26); Germany
135 (sub 2 and 18); Malaysia 4; Netherlands 34; Russian Federation 28
(sub 28); Spain 65 (sub 44-47 and 52); Spain 66; US 682 (sub 4); US
689; US 695 (sub 3-9 and 17-18); US 696 (sub 6-14); US 697 (sub 4);
US 706 (sub 1-7); US 712 (sub 8-19)

4 302 DISCOVERY OF EVIDENCE

Index Volume XXXV (2010): No new decisions are reported.

4 303 ESTOPPEL/ WAIVER

Index Volume XXXV (2010): France 48; Germany 126 (sub 13);
Germany 135 (sub 17); US 690 (sub 6-15); US 708

4 304 SET-OFF/ COUNTERCLAIM

Index Volume XXXV (2010): No new decisions are reported.

306 Yearbook Comm. Arb’n XXXV (2010)

 INDEX OF CASES VOLUME XXXV

4] 305 ENTRY OF JUDGMENT CLAUSE

Index Volume XXXV (2010): No new decisions are reported.

{|306 PERIOD OF LIMITATION FOR ENFORCEMENT

Index Volume XXXV (2010): Canada 31; Russian Federation 26 (sub 19-
21); Russian Federation 28 (sub 27)

4307. INTEREST ON AWARD

Index Volume XXXV (2010): Germany 130 (sub 23-24); India 45 (sub
23); Spain 69; Russian Federation 26 (sub 23-24); US 695 (sub 19-21)

ARTICLE IV

CONDITIONS TO BE FULFILLED BY THE PETITIONER

1. To obtain the recognition and enforcement mentioned in the

preceding article, the party applying for recognition and
enforcement shall, at the time of the application, supply:

(a) The duly authenticated original award ora duly certified

copy thereof;

(b) The original agreement referred to in article II or a duly

certified copy thereof.

2. If the said award or agreement is not made in an official language

of the country in which the award is relied upon, the party applying
for recognition and enforcement of the award shall produce a
translation of these documents into such language. The translation
shall be certified by an official or sworn translator or by a diplomatic
or consular agent.

41401 IN GENERAL
Index Volume XXXV (2010): Germany 134 (sub 6)

Yearbook Comm. Arb’n XXXV (2010) 307

 1958
NEW YORK CONVENTION
COURT DECISIONS ON THE

AWARD
q 402 ORIGINAL OR COPY ARBITRAL
(sub 3); Germany 127 (sub
Index Volume XXXV (2010): Germany 125
3-5); Germany | 33
3-4); Germany 128 (sub 2-3); Germany 130 (sub
(sub 4)
(sub 3); Germany 134 (sub 2); Germany 135

EEMENT
q 403 ORIGINAL OR COPY ARBITRATION AGR
127 (sub
Index Volume XXXV (2010): Germany 125 (sub 4); Germany
33);
5); Germany 133 (sub 3); Germany 135 (sub 4); Malaysia 4 (sub
Spain 65 (sub 26-27); Spain 67 (sub 4-9)

q 404 AUTHENTICATION AND CERTIFICATION

Index Volume XXXV (2010): Argentina 3 (sub 16-23); Germany 125
(sub 3); Germany 127 (sub 3-4); Germany 134 (sub 2); Italy 182

q 405 “AT THE TIME OF APPLICATION”

Index Volume XXXV (2010): Italy 182; Spain 66 (sub 13)

q] 406 TRANSLATION (PARAGRAPH 2)

Index Volume XXXV (2010): Argentina 3 (sub 16-23); Germany 125
(sub 5); Germany 127 (sub 6); Germany 128 (sub 2-3); Germany 130
(sub 3-5); Germany 134 (sub 2); Spain 66 (sub 12)

ARTICLE V

GROUNDS FOR REFUSAL OF

ENFORCEMENT IN GENERAL

4 500 GENERAL
Index Volume XXXV (2010): US 695 (sub 10); US 696 (sub 15)

q 500A RESIDUAL POWER TO ENFORCE NOTWITHSTANDING THE

EXISTENCE OF AGROUND FOR REFUSAL OF ENFORCEMENT
This new topic is introduced in this Volume XXXV (2010). It was
previously part of 4 500.
Index Volume XXXV (2010): No new decisions are reported.

308 Yearbook Comm. Arb’n XXXV (2010)

 INDEX OF CASES VOLUME XXXV

4 501 GROUNDS ARE EXHAUSTIVE

Index Volume XXXV (2010): Canada 31 (sub 8-27); Germany 128 (sub
6); Italy 180 (sub 12 and 15-17); Italy 181 (sub 8); Russian Federation
25 (sub 9); US 682 (sub 5-6)

q 502 NO RE-EXAMINATION OF THE MERITS OF THE ARBITRAL

AWARD
Index Volume XXXV (2010): Brazil 12 (sub 7-9); France 49 (sub 5);
Germany 130 (sub 22); Germany 135 (sub 14); India 45 (sub 9-14 and
21-22); Italy 181 (sub 2-6); Russian Federation 25 (sub 9-10); Spain
65 (sub 38-43)

q 503 BURDEN OF PROOF ON RESPONDENT

Index Volume XXXV (2010): Germany 125 (sub 8); Germany 127 (sub
8); Germany 134 (sub 6); Italy 181 (sub 10); Spain 65 (sub 34); US
682 (sub 7); US 697 (sub 1)

ARTICLE V(1)
GROUNDS FOR REFUSAL OF ENFORCEMENT TO BE
PROVEN BY THE RESPONDENT

Recognition and enforcement of the award may be refused, at the

request of the party against whom it is invoked, only if that party
furnishes to the competent authority where the recognition and
enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were,

under the law applicable to them, under some incapacity, or
the said agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon,
under the law of the country where the award was made; or

i) The party against whom the award is invoked was not given
proper notice of the appointment of the arbitrator or of the
arbitration proceedings or was otherwise unable to present
his case; or

Yearbook Comm. Arb’n XXXV (2010) 309

 K CONVENTION 1958
COURT DECISIONS ON THE NEW YOR

ated by or not
The award deals with a difference not contempl
ion, or it
falling within the terms of the submission to arbitrat
e of the
contains decisions on matters beyond the scop
sions on
submission to arbitration, provided that, if the deci
e
matters submitted to arbitration can be separated from thos
not so submitted, that part of the award which contains
decisions on matters submitted to arbitration may be
recognized and enforced; or

(4) The composition of the arbitral authority or the arbitral

procedure was not in accordance with the agreement of the
parties, or, failing such agreement, was not in accordance
with the law of the country where the arbitration took place;
or

(<) The award has not yet become binding on the parties, or has
been set aside or suspended by a competent authority of the
country in which, or under the law of which, that award was
made.

GROUND a: INVALIDITY OF THE ARBITRATION AGREEMENT

q 504 Agreement referred to in Article I]

Index Volume XXXV (2010): Germany 126 (sub 3-12); Germany 132
(sub 3-11); Ireland 3 (sub 11-28); Italy 180 (sub 1-6); Russian
Federation 26 (sub 6, 11-18, 26-32 and 35)

4 505 Incapacity ofparty

Index Volume XXXV (2010): France 49 (sub 3-4); Italy 180 (sub 13-14);
Russian Federation 28 (sub 24); US 682 (sub 8-10); US 690 (sub 17-
18); US 708

4 506 Law applicable to the arbitration agreement

Index Volume XXXV (2010): Germany 132 (sub 3-11)

310
Yearbook Comm. Arb’n XXXV (2010)
 INDEX OF CASES VOLUME XXXV

q 507 Miscellaneous cases regarding the arbitration agreement

Index Volume XXXV (2010): Germany 132 [sub 18 (short-form
arbitration clause)]; Germany 134 [sub 5-25 (no arbitration
agreement)]; Malaysia 4 [sub 29-32 (non-signatory)]

GROUND b: VIOLATION OF DUE PROCESS

4 508 In general
Index Volume XXXV (2010): No new decisions are reported.

q 509 “Proper notice”

Index Volume XXXV (2010): France 48; Sweden 7

q 510 Time limits and notice periods

Index Volume XXXV (2010): British Virgin Islands 2

q 511 “Otherwise unable to present his case”

Index Volume XXXV (2010): PR China 6 [sub 24-26 (failure to clarify
issue of standing)]; France 48 (failure to hold hearing); Germany 130
[sub 12-16 (language of the arbitration)]; Germany 130 [sub 12-16
(failure to hear witness through interpreter)]; Germany 132 [sub 20-22
(failure to consider arguments)]; Germany 132 [sub 20-22 (failure to
hold oral hearing)]; Germany 135 [sub 12 (failure to attend hearing)];
Ireland 3 [sub 29-34 (language of arbitration)]; Russian Federation 28
[sub 7-12 (no proof of communication of arbitration documents)];
Spain 65 [sub 28-31 (means of notification)]; Spain 67 [sub 10-11
(letter not received)]; US 690 [sub 19-27 (incapacity to attend
hearing)]

GROUND c: EXCESS BY ARBITRATOR OF HIS AUTHORITY

q 512 Excess of authority

Index Volume XXXV (2010): PR China 6 (sub 18-23); Russian
Federation 25 (sub 8)

9 512A Partial enforcement (ultra petita)

Index Volume XXXV (2010): No new decisions are reported.

Yearbook Comm. Arb’n XXXV (2010) 311

 W YORK CONVENTION 1958
COURT DECISIONS ON THE NE

IN THE COMPOSITION OF THE

4513 GROUND d: IRREGULARITY
ARBITRAL PROCEDURE
ARBITRAL TRIBUNAL OR
gin Islands 2; PR China 6 (sub 2-
Index Volume XXXV (2010): British Vir
12-16); Germany 132 (sub 19);
17, 27-29 and 34); Germany 130 (sub
Germany 135 (sub 5-7 and 13); Italy 180 (sub 10-11); Russian
Russian Federation 28
Federation 26 (sub 6, 11-18, 26-32 and 35);
b 28-29); US 697 (sub
(sub 25-26); Spain 65 (sub 32-34); US 690 (su
5-6)
NOT BINDING, SUSPENDED OR SET
GROUND e: AWARD
ASIDE

4514 “Binding”
48);
Index Volume XXXV (2010): Argentina 3 (sub 1-9); Canada 31 (sub
Germany 133 (sub 4); Spain 65 (sub 14-25); US 693; US 697 (sub 3)

4515 Merger ofaward into judgment

Index Volume XXXV (2010): Germany 131

9516 “Set aside”

Index Volume XXXV (2010): UK 91 (sub 7-9); US 688 (sub 4-12); US
aptatt
AP

696 (sub 17)

91517 “Suspended”
Index Volume XXXV (2010): UK 91 (sub 7-9); US 696 (sub 17)

ARTICLE V(2)

PUBLIC POLICY AS GROUND FOR REFUSAL

OF ENFORCEMENT EX OFFICIO

Recognition and enforcement of an arbitral award may also be

refused if the competent authority in the country where recognition
and enforcement is sought finds that:

(a) The subject matter of the difference is not capable of

settlement by arbitration under the law of that country; or

312 Yearbook Comm. Arb’n XXXV (2010)

 INDEX OF CASES VOLUME XXXV

(5) The recognition or enforcement of the award would be

contrary to the public policy of that country.

4518 DISTINCTION DOMESTIC - INTERNATIONAL PUBLIC POLICY

Index Volume XXXV (2010): India 45 (sub 15-17); Italy 181 (sub 9-13);
Singapore 10 (sub 12-17); Spain 65 (sub 38); US 682 (sub 26); US 688
(sub 13-17)

q 519 GROUND a: ARBITRABILITY

(See also Article II(3) “Arbitrability”, {[ 223 above)
Index Volume XXXV (2010): Germany 125 (sub 9)

GROUND b: PUBLIC POLICY

q 520 Default ofparty

Index Volume XXXV (2010): No new decisions are reported.

q 521 Lack of impartiality of arbitrator

Index Volume XXXV (2010): Italy 181; Russian Federation 25 (sub 5-7);
US 706 (sub 19-26)

q 522 Lack of reasons in award

Index Volume XXXV (2010): Germany 135 (sub 14-17); Italy 181 (sub
6-8); Spain 65 (sub 38-43)

q 523 Irregularities in the arbitral procedure

(See also Article V(1)(b))
Index Volume XXXV (2010): Germany 125 (sub 10); Germany 132 (sub
20-22); Germany 133 (sub 5); Germany 135 (sub 12); Italy 181 (sub
14); Spain 65 (sub 35-36 and 41-42); US 683 (sub 110-122)

q 524 Other cases

Index Volume XXXV (2010): Austria 20 [sub 4-6 (consumer protection)];
Canada 29 [sub 13-20 (death threats)]; France 48 [sub 9-11 (violation
of bankruptcy law)]; France 49 (fraud); Germany 125 [sub 9
(assignment of contract)]; Germany 129 [sub 2-3 (sovereign
immunity)]; Germany 130 [sub 6-10 (no third arbitrator’s signature)];
Germany 1 30 [sub 17-21 (failure to hear witness)]; Germany 1 30 [sub
22 (contents of award)]; Germany 133 [sub 5 (counsel fees)]; India 45

Yearbook Comm. Arb’n XXXV (2010) 313

 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

of evidence);
[sub 18-21 (erroneous decision)]; Italy 181 (evaluation
65 [sub 40
Russian Federation 28 [sub 13-23 (sham arbitration]; Spain
(illogical reasons)]; US 682 [sub 11-12 , 14-22 and 27-32 (manifest
disregard of the law) and 23-26 (enforcement would violate foreign
judgment)]; US 690 [sub 30-31 (incapacity to attend hearing)]; US 703
(disclosure by arbitrator); US 706 (sub 12-18 (manifest disregard of
the law), 27-31 (refusal to hear evidence) and 32-34 (award procured
through undue means)]; US 711 (manifest disregard of the law)

ARTICLE VI

q601 ADJOURNMENT OF DECISION ON ENFORCEMENT

If an application for the setting aside or suspension of the award has

been made toa competent authority referred to in article V(1)(e), the
authority before which the award is sought to be relied upon may,
if it considers it proper, adjourn the decision on the enforcement of
the award and may also, on the application of the party claiming
enforcement of the award, order the other party to give suitable
security.

Index Volume XXXV (2010): Gibraltar 1; Singapore 10 (sub 1-11 and 19-31); Spain
65 (sub 19-22 and 48-51); UK 91 (sub 13-40); US 687; US 695 (sub 11-16); US
696 (sub 18-28)

ARTICLE VII(1)

MORE-FAVORABLE-RIGHT PROVISION

The provisions of the present Convention shall not affect the validity
of multilateral or bilateral agreements concerning the recognition
and enforcement of arbitral awards entered into by the Contracting
States nor deprive any interested party of any right he may have to
avail himself of an arbitral award in the manner and to the extent
allowed by the law or the treaties of the country where
such award
is sought to be relied upon.

314
Yearbook Comm. Arb’n XXXV (2010)
 INDEX OF CASES VOLUME XXXV

{701 MORE-FAVORABLE-RIGHT PROVISION IN GENERAL

Index Volume XXXV (2010): Germany 126 (sub 15); Germany 131 (sub
24); Germany 132 (sub 3-11)

4 702 DOMESTIC LAW ON ENFORCEMENT OF FOREIGN AWARD

Index Volume XXXV (2010): Germany 125 (sub 4); Germany 127 (sub
2 and 5); Germany 128 (sub 2-3); Germany 130 (sub 3-5); Germany
132 (sub 12-16); Germany 133 (sub 3); Germany 134 (sub 2 and 8);
Germany 135 (sub 4)

§ 703 BILATERAL AND MULTILATERAL TREATIES IN GENERAL

[All decisions concerning bilateral and multilateral treaties were listed
under §] 703 in Volumes I (1976) - XXIII (1998). Individual entries,
see below, were introduced in 1999. Decisions reported in Volumes
I (1976) - XXIII (1998) have been re-listed under the new entries. ]
Index Volume XXXV (2010): No new decisions are reported.

| 703(A) MULTILATERAL TREATIES

Index Volume XXXV (2010): No new decisions are reported.

See also Part V — C of the Yearbook for decisions applying the

Washington (ICSID) Convention 1965.

§ 704 EUROPEAN CONVENTION OF 1961

Index Volume XXXV (2010): Austria 20 (sub 1-3); Germany 126 (sub
15); Germany 127 (sub 2); Germany 128 (sub 2-3); Germany 130
(sub 3-5); Spain 65 (sub 4-5, 17-18 and 49); Spain 66 (sub 4); Spain
68

See also Part V — B of this Yearbook.

{| 704(A) PANAMA CONVENTION OF 1975

Index Volume XX XV (2010): US 706

See also Part V — D of this Yearbook.

{| 704(B) BILATERAL TREATIES

Index Volume XXXV (2010): No new decisions are reported.

315
Yearbook Comm. Arb’n XXXV (2010)
 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

Y
4 704(C) EUROPEAN COMMUNIT
b 6-13)
Index Volume XXXV (2010): Spain 65 (su

ARTICLE VII(2)

4.705 |RELATIONSHIP WITH GENEVA TREATIES OF 1923 AND 1927

and the Geneva
The Geneva Protocol on Arbitration Clauses of 1923
of 1927 shall
Convention on the Execution of Foreign Arbitral Awards
ming
cease to have effect between Contracting States on their beco
bound and to the extent that they become bound, by this
Convention.

Index Volume XXXV (2010): No new decisions are reported.

ARTICLE XI :
4/911 |FEDERAL STATE CLAUSE
In case of a federal or non-unitary State, the following provisions
shall apply:

(a) With respect to those articles of this Convention that come

within the legislative jurisdiction of the federal authority, the
obligations of the federal Government shall to this extent be
the same as those of Contracting States which are not federal
States;

(b) With respect to those articles of this Convention that come

within the legislative jurisdiction of constituent states or
provinces which are not, under the constitutional system of
the federation, bound to take legislative action, the federal
Government shall bring such articles with a favourable
recommendation to the notice of the appropriate authorities
of constituent states or provinces at the earliest possible :
moment;

31 6 Yearbook Comm. Arb’n XXXV (2010)

 INDEX OF CASES VOLUME XXXV

(c) A federal State Party to this Convention shall, at the request

of any other Contracting State transmitted through the
Secretary-General of the United Nations, supply a statement
of the law and practice of the federation and its constituent
units in regard to any particular provision of this Convention,
showing the extent to which effect has been given to that
provision by legislative or other action.

Index Volume XXXV (2010): No new decisions are reported.

ARTICLE XIV

q] 914 GENERAL RECIPROCITY CLAUSE

A Contracting State shall not be entitled to avail itself of the present

Convention against other Contracting States except to the extent
that it is itself bound to apply the Convention.

Index Volume XXXV (2010): No new decisions are reported.

S17
Yearbook Comm. Arb’n XXXV (2010)
 ARGENTINA

Ratification: 14 March 1989

lst and 2nd Reservation

City of
3. Camara Federal de Apelaciones [Federal Court of Appeals],
Mar del Plata, 4 December 2009

Parties: Petitioner/ Appellee: Far Eastern Shipping Company

(nationality not indicated)
Respondent/ Appellant: Arhenpez S.A. (nationality not
indicated)

Published in: Available online at <www.elDial.com> (subscription

required)

Articles: Ill; 1V(2); V(1)(e)

Subject matters: —no requirement of double exequatur

— procedural aspects of enforcement under domestic
law
— certified translation
— certified signature of arbitrator

Topics ; [1]-[9] = J 514; [10]-[15] = § 301; [16]-[23] = 9404 +

q 406

S ummary

No prior exequatur is required to seek enforcement ofa foreign award under the New York Convention.
The appellate court then found that the lower court erred in granting enforcement ex parte and without
giving reasons, in application of incorrect provisions of the Argentinean Code of Civil Procedure; by
so doing, it violated the respondent’s right to due process. Also, the lower court should have considered
that the petitioner ‘failed to submit a duly certified translation of the award and a certification of
the
signature of the arbitrator who rendered the award.

318
Yearbook Comm. Arb’n XXXV (2010)
 ARGENTINA NO, 3

On 6 July 2000, Far Eastern Shipping Company (Far Eastern), the owners, and
Arhenpez S.A. (Arhenpez), the charterers, entered into a contract for the vessel
KRASKINO. The charterparty contained an arbitration clause.
A dispute arose between the parties. On 1 October 2003, a sole arbitrator in
London rendered an award in favor of Far Eastern, which then sought
enforcement of the award in Argentina. The Federal Court of First Instance No.
4 of the City of Mar del Plata granted enforcement ex parte and without giving
reasons for its decision; it also issued an order of attachment and sale of certain
assets of Arhenpez.
The Federal Court of Appeals of Mar del Plata, per Jorge Ferro, with whom
Alejandro Osvaldo Tazza concurred, affirmed the lower court’s decision in part
but remanded the case for a new decision on enforcement.
Arhenpez first argued that the federal court erred in granting enforcement
without requiring that Far Eastern obtain exequatur first, as is required under
Argentinean procedural law. The Court of Appeals disagreed. It reasoned at the
outset that the enforcement of arbitral awards — which was not contemplated
originally in the Argentinean National Code of Civil Procedure (CPCCN) — must
be equated to the enforcement of foreign decisions, a conclusion that finds
support in the judicial nature of awards, the CPCCN itself, jurisprudence and
doctrine. Just as is the case with foreign court decisions, the rules applicable to
the enforcement of foreign awards differ depending on whether an international
treaty applies. Here, enforcement was governed by the 1958 New York
Convention, which displaces the provisions on recognition and enforcement
contained in the Argentinean national and provincial codes of civil procedure. As
a consequence, the federal court correctly held that there was no need for far
Eastern to obtain exequatur prior to requesting enforcement of the London
award.
Arhenpez also argued that the federal court erred in granting enforcement of
the award ex parte and without giving reasons for its decision, by applying the
provisions in the CPCCN that govern the enforcement of “other executable
titles”. The Court of Appeals agreed with Arhenpez’s argument. It reasoned that
the provisions on which the lower court relied bore no relation to the case at
hand, which concerned the enforcement of a foreign arbitral award; the court
was therefore wrong in applying them. By so doing, the lower court violated the
principle that courts must give reasons for their decisions and, as a consequence,
Arhenpez’s right to due process.
Having found that the decision and orders of the federal court were invalid,
the Court of Appeals proceeded to consider whether enforcement of the London
award should be granted. It concluded that it should not. The Court held that Far

Yearbook Comm. Arb’n XXXV (2010) 319

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

Eastern did not comply with the requirements for requesting enforcement
established by Art. IV(2) of the New York Convention, as it failed to supply a
duly certified translation of the award. The Court noted that the translation
supplied by Far Eastern was made by a private — rather than official or sworn —
translator who was also not licensed to act in the Province of Mar del Plata where
the present proceeding was held. Also, the signature of the sole arbitrator was
neither certified nor legalized by a diplomatic authority.
The Court of Appeals therefore affirmed the decision of the federal court to
the extent that it denied Arhenpez’s claim that Far Eastern should have obtained
exequatur before seeking enforcement of the London award, and referred the
case back to the lower court for a decision on enforcement under the 1958 New
York Convention, applying the Convention’s provisions in respect of the
submission of the necessary documents for requesting enforcement.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052001-n>.

320
Yearbook Comm. Arb’n XXXV (2010)
 AUSTRALIA

Accession: 26 March 1977

No Reservations

34, Federal Court of Australia, New South Wales District Registry,

General Division, 16 October 2009, NSD 1738 of 2008

Parties: Applicants: (1) George Nicola (nationality not

indicated);
(2) Miriam Nicola (nationality not indicated);
(3) George & Miriam Nicola Pty Limited (nationality
not indicated)
Respondents: (1) Ideal Image Development
Corporation Incorporated (US);
(2) John Pace (nationality not indicated)

Published in: Available online at <www.austlii.edu.au>

Articles: (1); 11(3)

Subject matters: — scope of arbitration clause
= arbitrability of Australian Trade Practices Act 1974
claims

Topics: [6]-[17] = § 221; [18]-[46] = § 201; [47]-[51] = J 223:

[66] = § 222; [67]-[69] = J 217; [70] = J 220

S ummary

The court granted a stay of proceedings, finding that most of the applicants’ claims fell within the
scope of the arbitration clause in a |franchise agreement. It also stayed proceedings in respect ofclaims
that itfound not to be covered by the arbitration clause, since a clause in the agreement provided that
the Florida courts had exclusive jurisdiction on non-arbitrable claims.

On 1 September 2004, Dr. George Nicola and his wife Dr. Miriam Nicola
(collectively, the Nicolas) entered into a Franchise Agreement with Ideal Image

Yearbook Comm. Arb’n XXXV (2010) 321

 VENTION 1958
COURT DECISIONS ON THE NEW YORK CON

Development Corporation Inco

rporated (Ideal), a franchisor of technologically
x application and injection
advanced lasers for hair and skin removal and Boto
were granted theee
therapy. Under the Franchise Agreement, the Nicolas
ey, Australia under the
right to conduct the Ideal franchise in certain parts of Sydn
rred any claim,
name “Ideal Image”. Clause 31 of the Franchise Agreement refe
ation of the
controversy or dispute arising out of or relating to Franchisee 's oper
settled
Franchised Business under this Agreement ... which cannot be amicably
ion
to arbitration in Florida in accordance with the Rules of the American Arbitrat
Association (AAA). Clause 31 further set out procedural details for the
d
arbitration, established that the provisions in the Franchise Agreement prevaile
over any conflicting AAA Rules and provided that the arbitrator had no authority
to “extend, modify or suspend any terms” of the Agreement. Clause 40 provided
that the Franchise Agreement was governed by and construed in accordance with
the laws of the State of Florida and that all claims which, as a matter of law or
public policy, could not be submitted to arbitration would be brought exclusively
before the Florida courts.
A dispute arose between the parties in respect of the franchise. The Nicolas
and their company, George & Miriam Nicola Pty Limited, commenced an action
in the Australian courts, complaining that they were provided with inadequate
assistance, that Ideal did not own the relevant intellectual property in Australia
and that prior to entering into the Franchise Agreement they were told that an
Ideal franchise would have certain qualities which, as it transpired, it did not.
They sought restitution of franchise fees paid to Ideal and damages, both for
breach of contract and unconscionable conduct under the Trade Practices Act
1974 (Cth) (TPA) and for violation of the Franchisors Code of Conduct contrary
to the requirements of the TPA. They also sought to be relieved from certain
restraints on their ability to compete imposed by the Franchise Agreement and
applied to vary the Agreement pursuant to the Independent Contractors Act
2006 (Cth) (ICA). Ideal applied to stay court proceedings because of the
arbitration clause in the Franchise Agreement.
The Federal Court of Australia, New South Wales District Registry, General
Division, per Perram J, granted a stay of the proceedings in favor of arbitration
(for arbitrable claims) and proceedings in the Florida courts (for claims that could
not be referred to arbitration).
The court first noted that the Franchise Agreement was governed by Florida
law, in respect of which Ideal had submitted an expert opinion that the court
found unhelpful as to the issue of the proper construction of clause 31. Ideal had
submitted that, if it failed to prove the contents of the law of Florida, then the

322 Yearbook Comm. Arb’n XXXV (2010)

 AUSTRALIA NO, 34

law of Australia applied. The court accepted this submission and accordingly
examined clause 31 under Australian law.
The court then considered whether the Nicolas’ claims fell within the scope
of clause 31, which provided for arbitration of disputes “arising out of or relating
to the Franchisee’s operation of the Franchised Business under this Agreement”.
It concluded that most of the claims — for breach of various terms of the
Franchise Agreement, repayment of certain franchise fees, misleading
representations prior to the conclusion of the Agreement, fees paid under a
collateral franchise agreement and unconscionable conduct by Ideal — either arose
under or were related to the Franchise Agreement and were therefore covered
by the arbitration clause therein. Differently, the claim that the Franchise
Agreement contained unlawful post-termination restraints concerned issues
arising after the Agreement had come to an end and could not be said to “arise”
from the operation of the franchised business. Nor could it be said to “relate to”
the Agreement, since the only nexus between the post-termination restraints and
the operation of the franchised business was that the parties were the same and
that they had concluded the prior contract. The court concluded, “[nJot without
some hesitation” that this nexus was not sufficient to be caught by clause 31.
Hence, all of the Nicolas’ claims were amenable in principle to arbitration, save
for the claims concerning the post-termination restraints, which were to be
referred to the Florida courts as provided for in clause 40 of the Franchise
Agreement.
The court further found that to the extent that the Nicolas’ claims sought to
set aside or vary the terms of the Franchise Agreement, they could not be
referred to arbitration under clause 31, which prohibited the arbitrator from
extending, modifying or suspending the operation of the Agreement. The court
held that in this context “suspend” had to mean “set aside” or “invalidate”, and
that the parties had intended to prevent the arbitrator from varying the terms of
the Agreement, be it by way of extension, amendment or repeal.
The Nicolas argued that their claims concerning unconscionable or misleading
conduct in trade and commerce and the violation of industry standards were not
arbitrable as they involved competition issues under the TPA and as a
consequence issues of public policy. The court disagreed, finding that the claims
missed “the element of broad public interest in the outcome to warrant the
conclusion that only the local national courts should be involved in their
resolution”.
The court therefore stayed proceedings awaiting the outcome of arbitration
on all claims but for the claims to set aside and vary the Franchise Agreement and

Yearbook Comm. Arb’n XXXV (2010) 323

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

the claims involving the post-termination restraints, which it found were to be

brought in the courts of Florida.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/document.aspx?id=KLI-KA-1052002-n>.

324
Yearbook Comm. Arb’n XXXV (2010)
 AUSTRIA

Accession: 2 May 1996

No Reservations

19. Oberster Gerichtshof [Supreme Court], 30 March 2009,

70b266/08f

Parties: Claimant: C GmbH (nationality not indicated)

Defendant: S Aktiengesellschaft (nationality not
indicated)

Published in: Available online at <wwwa.ris.bka. gv.at>

Articles: (1); 11(2); 11(3)

Subject matters: — applicable law to existence, validity of arbitration
agreement
— nonsignatory to arbitration clause and cession of
contract
— nonsignatory benefitted third under contract is
bound by arbitration clause
— separability of arbitration clause

Topics: [2h 224i; ers] — 120m Pile tl — 4 205,

(8]-[10] + [13] = 217; [12] = § 222

S ummary

A dispute concerning pre-contractual liability arising under a Confidentiality Agreement covering the
pre-contractual relationship ofthe parties should be referred to arbitration. The arbitration clause was
binding on non-signatory companies because they had benefitted under the Agreement and, in one case,
had replaced the original signatory party in its relationship with the other party.

On 10 January 2005, S Aktiengesellschaft (Defendant) informed the European

competition authorities that it was seeking to obtain a 97% participation in V AG

Yearbook Comm. Arb’n XXXV (2010) 325

 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

was later authorized on the condition that

(Company V). The purchase
ess. |
Defendant sell Company V’s power generation busin
der, had incorporated
On 15 May 2004, Company C AG, as sole sharehol
ing in the future
Company C GmbH (Claimant) with the purpose of participat
ess of Company V. Inview of
invitation to tender for the power generation busin
(the Transaction), the
the future bidding procedure for Company V’s business
ity Agreement with
directors of Company C AG entered into a Confidential
that Company
Company V. The Confidentiality Agreement provided, inter alia,
any V or
C AG and its related enterprises could receive information from Comp
e
related enterprises (such as Defendant) in respect of the Transaction, whil
pledging themselves to confidentiality in return, and that Company C AG took
cognizance of and was in agreement with the fact that neither Company V,
Defendant or their related enterprises were guaranteeing the correctness and
completeness of that information. The Confidentiality Agreement further stated
that Company V, Defendant and their related enterprises and representatives
were free to carry out the Transaction at their discretion and that they were not
obliged under the Confidentiality Agreement to conclude any other agreement
with potential buyers. The Confidentiality Agreement was governed by German
law. It contained a clause providing that disputes be referred to ICC arbitration
in Munich under German procedural law.
On 21 October 2005, the bidders consortium A Group (of which Company
C AG was amember) made a provisional bid for Company V’s power generation
business. The consortium stated that Claimant would henceforth act in the
bidding procedure and would ultimately make the purchase. On 19 December
2005, Claimant made a final bid.
Company V’s business was ultimately sold to another company. Claimant filed
suit in the Vienna Commercial Court, seeking compensation from Defendant of
the costs it had occurred for its participation to the invitation to tender. It argued
that Defendant violated its pre-contractual obligations, in particular by failing to
inform Claimant that it was possible to make a partial purchase of the business;
had it been aware of that possibility, Claimant would not have participated in the
bidding procedure. Defendant objected that the court lacked jurisdiction because
of the arbitration clause in the Confidentiality Agreement.
On 29 December 2007, the commercial court granted Defendant’s objection
of lack of jurisdiction. On 29 September 2008, the Vienna Court of Appeal
reversed the lower court’s decision.
By the present decision, the Austrian Supreme Court annulled the appellate
decision and reinstated the decision of the first instance court. The Court noted
at the outset that although the Confidentiality Agreement expressly provided that

326 Yearbook Comm. Arb’n XXXV (2010)

 AUSTRIA NO, 19

the arbitration agreement was governed by German law, German law would
have applied at any event because the validity of an arbitration agreement (the
personal capacity of the parties excluded) is governed by the law of the country
where the arbitral award is to be rendered — here, Germany — unless the parties
otherwise provide. It made no difference, however, whether the validity of the
arbitration agreement was determined under German or Austrian law, as in both
legal systems an arbitration agreement pertains to procedural law and its scope
is to be ascertained through contractual interpretation. This examination is
independent of the law applicable to the underlying contract.
The Supreme Court held that the appellate court erred in failing to find that
the present claim, which sought damages for breach of pre-contractual
obligations, fell under the Confidentiality Agreement, which regulated the
parties’ relationship in view of the future invitation to tender. The
Confidentiality Agreement provided for arbitration of disputes and therefore the
claim could not be heard by the state courts.
The Court added that the Confidentiality Agreement containing the arbitration
clause had undoubtedly been signed by Company V and Company C AG and was
valid between them. The question was then whether the arbitration agreement
was also binding on Claimant and Defendant, the parties to the present
proceedings, which were not parties to the Confidentiality Agreement. The
Court concluded that it was, because both under Austrian and German law (1)
a party taking over a contract takes over the arbitration clause therein and (2) the
arbitration clause in a contract benefitting a third is binding on that third. Here,
Claimant and Defendant were both benefitted parties under the Confidentiality
Agreement (which established rights for the signatories and their related
companies, such as Claimant and Defendant), and Claimant actually replaced
Company C AG in the latter’s relationship with Company V.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id= KLI-KA-1052003-n>.

Yearbook Comm. Arb’n XXXV (2010) 527

 1958
NEW YORK CONVENTION
COURT DECISIONS ON THE

Court], 22 July 2009, 30b144/09m

20. Oberster Gerichtshof [Supreme

Parties: Claimant: L AS (Denmark)

Defendants: (1) Jurgen H (nationality not indicated);
(2) Judith Elisabeth H (nationality not indicated);
(3) L GmbH (Austria)

Published in: Available online at <www.ris.bka.gv.at>

Articles: II, V(1)(a); V(1)(c); V(2)(b)

Subject matters: — European Convention of 1961
—incorrectness of arbitrators’ decision as to late filing
of jurisdiction objection no ground for appeal on a
point of law (Revisionsrekurs)
— arbitration clause in consumer contract
—consumer protection as ground for violation of public
policy

Topics: [1]-[3] = J 301 + § 704; [4]-[6] = §] 524 (consumer

protection)

Summary

The arbitral tribunal deemed that the objection oflack ofjurisdiction had not been timely ‘filed. The
possible incorrectness of this decision is no ground for an appeal on a point of law (Revisionsrekurs)
to the Supreme Court. Arbitration clauses in consumer contracts do not violate public policy, provided
there have been concrete negotiations.

On 19 October 2004, L AS (Claimant) concluded a franchise contract with L

GmbH (Third Defendant). Jiirgen H (First Defendant) and Judith Elisabeth H
(Second Defendant) entered into the contract as guarantors. The contract
contained a clause referring disputes to arbitration at the Danish Institute of
Arbitration (DIA).
A dispute arose between the parties. Claimant commenced DIA arbitration
proceedings as provided for in the franchise contract. Defendants participated in
the proceedings by filing a statement in defense and taking part in an oral hearing
on the issue of the applicable law. At the final hearing, which was postponed

328 Yearbook Comm. Arb’n XXXV (2010)

 AUSTRIA NO. 20

twice at Defendants’ request, counsel for Defendants again sought a

postponement on the ground that she had received new instructions from her
clients only the day before. The arbitral tribunal denied the request by a
procedural order. Counsel for Defendants then raised the objection that the
arbitration clause did not apply to First and Second Defendants. The arbitrators
stated that there had been no previous mention of this objection to the arbitral
tribunal’s jurisdiction in Defendants’ statements in the arbitration, while such
objection should have been raised in the first statement submitted by Defendants.
The arbitrators added that there was no reason to allow a late filing of the
jurisdiction objection. After this decision was announced, counsel for Defendants
left the hearing. On 12 June 2008, the arbitrators rendered an award in favor of
Claimant, which then sought enforcement in Austria. The district court
(Bezirksgerichts) in Wels granted enforcement of the Danish award. On appeal, the
Wels court of first instance (Landesgerichts) modified this decision only in respect
of the rate of interest applicable to First Defendant.
The Austrian Supreme Court affirmed the appellate court’s decision. It noted
that the lack of an arbitration agreement must be invoked before the arbitral
tribunal; it added that under the 1961 European Convention participation in the
arbitration without raising any objection cures the defect of lack of an arbitration
agreement. The Danish arbitral tribunal deemed that the objection of lack of
jurisdiction was filed too late. Although this conclusion can be subject to review
in the enforcement proceedings pursuant to the European Convention, the
possible incorrectness of the tribunal's decision raises no essential question of law
to be heard in an appeal on a point of law (Revisionsrekurs).
The Court then held that while an infringement of consumer law provisions
can violate substantive public policy, arbitration clauses in consumer contracts
do not in principle constitute such infringement, provided there have been
concrete negotiations. Here, Defendants did not argue that the clause was not
fully negotiated, thus failing to prove that there was a violation of public policy.

A detailed report of this decision is online available at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052004-n>.

Yearbook Comm. Arb’n XXXV (2010) 329

 BRAZIL

Accession: 7 June 2002

No reservations

12. Superior Tribunal de Justica [Superior Court of Justice], 19

August 2009, SEC no. 3.035 - EX (2008 /0044435-0)

Parties: Claimant: Atecs Mannesmann GmbH (nationality not

indicated)
Defendant: Rodrimar S/A Transportes Equipamentos
Industriais e Armazéns Gerais (nationality not
indicated)

Published in: Diario da Justi¢a (DJ) 31 August 2009

Articles: III; V; V(1); V(2)

Subject matters: — formal v. substantive res judicata
—new request for enforcement filed after dismissal for
lack of compliance with formal prerequisites (lack of
standing)
— any interested party may request enforcement
— review of merits of award (no)
— grounds for refusal of enforcement (in general) (no)

Topics : { 301; [7]-[9] = J 502

S ummary

An earlier attempt by a different claimant to enforce the award, which had been terminated because
of a formal defect, did not prevent a new request for enforcement by the present claimant. Also,
although the present claimant was not mentioned in the award, it was affected by the award and could
request its enforcement. The court then granted enforcement, refusing to review the merits ofthe award.

On 5 May 2003, Atecs Mannesmann GmbH (Atecs) obtained an award in its

favor against Rodrimar S/ A Transportes Equipamentos Industriais e Armazéns

330 Yearbook Comm. Arb’n XXXV (2010)

 BRAZIL NO, 12

Gerais (Rodrimar) in a dispute concerning the breach of a contract for the sale
of a mobile harbor crane. Rodrimar was ordered to pay Atecs € 510,078.90 in
damages and interest thereon. Atecs sought enforcement of the award in Brazil.
The Superior Court of Justice granted enforcement. It first denied Rodrimar’s
objection of res judicata, based on an earlier attempt by another party, Gottwald
Port Technology GmbH (Gottwald) to enforce the award. That proceeding was
terminated without a decision on the merits because it was found that Gottwald
lacked standing. The Court reasoned that a decision terminating proceedings
because of a formal defect has force of formal rather than substantive res judicata
and does not prevent a claimant from resubmitting its action after curing the
defect.
The Superior Court also dismissed Rodrimar’s argument that Atecs had no
standing because it was not mentioned in the award, holding that any party who
can be affected by the award may request its enforcement and recognition.
Equally unsuccessful was Rodrimar’s argument that recognition would violate
Brazilian public policy because the foreign arbitrators applied “Swiss law rules”
rather than Swiss substantive law as provided for in the contract, and because
Atecs’s damage was not proven, which meant that the award’s recognition would
result in Atecs’s unjust enrichment. The Court reasoned that these issues “pertain
to the merits of the arbitral award” and that the enforcement court may not
review an award’s merits.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052005-n>.

Yearbook Comm. Arb’n XXXV (2010) 331

 BRITISH VIRGIN ISLANDS'

High Court of Justice,

>. Eastern Caribbean Supreme Court,
im No: BVIHCV 2009/ 389
Commercial Division, 11 January 2010, Cla

Parties: Applicant: Grand Pacific Holdings Limited (Hong

Kong)
Respondent: Pacific China Holdings Limited (British
Virgin Islands)

Published in: Available online at <www.eccourts.org>

Articles: V(1)(b); V(1)(d) (both by implication)

Subject matters: — time limit to reply to statements not in accordance

with parties’ agreement
— due process and time limit to reply to statements
— debt under challengeable award and appointment of
liquidator(s)

‘Topics: 510 + [Sis

Summary

A creditor under a Hong Kong award sought appointment ofliquidators over a British Virgin Islands
company. The debtor opposed this request, relying on New York Convention grounds to argue that the
award was challengeable and thus the debt was disputed. The court examined the contentions that the
arbitrators did not act in accordance with the agreement of the parties and violated due process and
concluded that there were no substantial grounds to hold that enforcement of the award, ifrequested,
would be denied on those grounds.

On 23 May 2001, Grand Pacific Holdings Limited (the Applicant) entered into
a Loan Agreement with Pacific China Holdings Limited (the Company), under
which the Company would pay to the Applicant the sum of US$ 40 million by 31

iP The British Virgin Islands, which are not included in the list of territories to which the United
Kingdom extended the application of the 1958 New York Convention upon its accession thereto
in 1975, incorporated the Convention into its Arbitration Ordinance of 6 September 1976.

332 Yearbook Comm. Arb’n XXXV (2010)

 BRITISH VIRGIN ISLANDS NO. 2

May 2006, together with interest. The Loan Agreement contained a choice-of-
law clause providing for the application of the laws of the State of New York. It
further referred disputes to arbitration in Hong Kong according to the rules of
the International Chamber of Commerce.
The Company made some payments under the Loan Agreement up to 31 May
2002, when payments stopped. By 31 May 2006, about US$ 34 million of
principal and US$ 14 million of interest remained unpaid. The Applicant
commenced ICC arbitration in Hong Kong as provided for under the Loan
Agreement. On 24 August 2009, an arbitral tribunal found in favor of the
Applicant. On 15 September 2009, the Applicant requested the Company to
honor the award. When the Company failed to do so, on 11 November 2009 the
Applicant issued an application in the courts of the British Virgin Islands to
appoint liquidators over the Company, claiming that the Company failed to pay
its debt under the award as it fell due and was therefore insolvent.
The High Court of Justice, Commercial Division granted the appointment of
liquidators. It noted first that courts may not appoint liquidators on the
application of a creditor unless the creditor’s debt is free from substantial
challenge or the creditor’s status is undisputed. The Company argued that
shortcomings in the way in which the Hong Kong arbitral tribunal conducted the
arbitration meant that the award was open to challenge, either directly, in the
courts of Hong Kong, or indirectly through defenses raised in enforcement
proceedings. Hence, the debt was disputed.
The court disagreed, reasoning that awards that have not been set aside
continue to exist even if enforcement is refused on any of the grounds of the
1958 New York Convention. So does, as a consequence, the debt under the
award. However, if it is shown that there are substantial grounds why the award
should not be enforced, that would in the court’s opinion be similar to a dispute
about the status of the successful party as a creditor.
The court therefore proceeded to examine whether the Hong Kong award was
open to challenge, within the limited confines of an action where it was not asked
to enforce the award but rather to appoint liquidators. It concluded that the
matters relied on by the Company were not sufficiently substantial to raise a real
question whether the award was one that should be enforced.
The Company argued that the arbitral tribunal did not act in accordance with
the agreement of the parties, as set out in their procedural protocol for the
arbitration, in respect of certain expert evidence. In particular, the arbitrators
allegedly did not give the Company adequate time to prepare. This manner of
proceeding also violated the Company’s right to due process.

533
Yearbook Comm. Arb’n XXXV (2010)
 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

d ofthe case that

The court dismissed this argument, concluding on the recor
acted unfairly, made it
even if it were established that the arbitral tribunal
in breach of the
impossible for the Company to present its best case or was
the outcome of
parties’ procedural protocol, that could have had no impact on
the arbitration.
The court also denied the Company’s contention that the arbitrators violated
due process by failing to require the Applicant to prove that the person who
signed the Loan Agreement on the Applicant’s behalf was authorized to do so
under Hong Kong law. The arbitrators decided that the question was governed
by New York law, as the law of choice, and that on the available materials the
Loan Agreement must be deemed to have been duly executed in accordance with
the law of New York. The arbitral tribunal added that there was also ample
evidence that the Applicant had ratified the agreement.
The court again held that if even if the arbitrators had erred in this respect, this
issue was immaterial to the outcome of the proceeding, as it appeared that the
Company had conceded in the arbitration that any want of authority on the part
of the signatory for the Applicant could have been cured by subsequent
ratification on the part of the Applicant and there was “overwhelming evidence”
that the Applicant had indeed ratified the Loan Agreement.
The court therefore concluded that the Company had raised no issue of
substance that would be capable of bringing into play any of the grounds for
refusal of enforcement under the Arbitration Ordinance of the British Virgin
Islands, which reflect Art. V of the New York Convention.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052006-n>.

34
Yearbook Comm. Arb’n XXXV (2010)
 CANADA

Accession: 12 May 1986

2nd Reservation (not applicable to Québec)

29. Court of Appeal for Ontario, 23 December 2008, no. C48194

Superior Court of Justice, Ontario, 29 September 2009, no.
CV-09-376953
Court of Appeal for Ontario, 22 February 2010, C51225/M38409

Parties: Appellant/Defendant: Donaldson International

Livestock Ltd. (Canada)
Respondents/ Claimants: (1) Znamensky Selekcionno-
Gibridny Center LLC (Russian Federation);
(2) Nikolay Demin (nationality not indicated)

Published in: All decisions available online at <www. canlii.org>

Articles: II(3); I; V(2)(b)

Subject matters: — arbitration clause “inoperative” because of death

threats
— stay of court proceedings
— scope of arbitration clause and tort claim
— public policy and impossibility to participate in
arbitration because of death threats
— estoppel (issue)
— security for costs of enforcement proceedings

Topics : [4] = 220; [6]-[12] = § 201 + § 217; [13]-[20] =

4 524 (death threats); [21]-[30] = {] 301

Summary

The first decision affirmed the motion judge’s stay ofcourt proceedings pending arbitration in Moscow.
It denied the argument that the stay should be lifted because the relief sought in court (a declaration
that the award could not be enforced, and tort-based damages) went beyond the scope of the arbitration

Yearbook Comm. Arb’n XXXV (2010) 335

 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

should
relief fell outside the arbitration agreement, it
agreement. The court held that although thefirst
the arbitration clause here was sO eat # ’
be discussed in enforcement proceedings, and that of al ege | eat
also dismissed a request to have the issue
encompass all advanced claims. The court .
st should have been made before the motion judge
threats heard in a hearing, holding that this reque
n awards, dismissing the only object ion that
The second decision granted enforcement oftwo Russia
w arbitration because ofalleged death
the Canadian parties involved could not participate in the Mosco
estopped by the findings in the decision above
threats. The court found that this issue was both issue-
modation for witness testimony
and virtually eliminated by the Russian party’s offer of special accom
for the arbitration.
that did not require traveling to Moscow or an alternate site
ent for security ‘for the
The third decision dismissed the application of the party's seeking enforcem
ment decision.
costs of the appellate proceedings commenced against the enforce

In August 2006, Donaldson International Livestock Ltd. (Donaldson) entered

into a contract to sell 8,505 pure-bred pigs to Znamensky Selekcionno-Gibridny
Center LLC (Znamensky) for US$7,338,496. The contract provided that the pigs
should be tested and quarantined prior to export to Russia. The contract was
governed by the law of the Russian Federation. It also provided for arbitration
of disputes in Moscow at the International Commercial Arbitration Court at the
Chamber of Commerce and Industry of the Russian Federation (ICAC).
The pigs were placed into pre-export quarantine in three lots. Canadian Food
Inspection Agency (CFIA) veterinarians and veterinarians retained by Donaldson
were satisfied that the pigs in Quarantine No. 1 were fit for export; however,
veterinarians retained by Znamensky found that those pigs were not healthy. A
CFIA swine specialist concluded that the pigs were suitable for export.
On 17 November 2006, Mr. James Donaldson, the major shareholder and
chief operating officer of Donaldson, received a telephone call from Mr. Nikolay
Demin, the chief executive officer of Znamensky. Demin demanded that
Donaldson provide new pigs to satisfy the terms of the contract. Mr. Donaldson
refused. The conversation became hostile and, according to Mr. Donaldson, Mr.
Demin shouted “what happens to people that cross me”, followed twice by “I will
kill you”. In the next few months, efforts were made to resolve the dispute.
Znamensky continued to refuse to accept the delivery of the pigs from
Quarantine No. 1 and demanded that Donaldson return its advanced payment of
US$1,666,113. Ata meeting in Ottawa on 17 March 2007, Mr. Demin made
certain comments that Mr. Donaldson took as a further threat. He subsequently
reported the alleged threats to the police.
On 20 July 2007, Donaldson was served with a request for arbitration of the
dispute before the ICAC pursuant to the arbitration clause in the contract.
On 15 August 2007, Donaldson commenced an action in the Superior Court
for Ontario. It argued that the individuals involved with the inspection of the pigs
in Canada were aware of the death threats made against Mr. Donaldson and

336 Yearbook Comm. Arb’n XXXV (2010)

 CANADA NO, 29

refused to appear as witnesses in Moscow for the arbitration. It sought (1) a

declaration that the arbitration clause in the contract was null and void; (2) a
declaration that the recognition of any award would be contrary to public policy;
and (3) injunctions prohibiting Znamensky from seeking any remedy against
Donaldson in an arbitration or other proceeding conducted in Russia. Prior to
the injunction motion proceeding to court, Znamensky informed Donaldson that
it was prepared to consent to Mr. Donaldson and his witnesses testifying by
telephone, video conference or other means to avoid their having to travel to
Moscow or, alternatively, that it was prepared to agree to a mutually acceptable
location outside of Russia for the holding of the arbitration, provided that
Donaldson pay for any increased costs. Donaldson declined either proposal.
Znamensky then brought a cross-motion for a stay of the Canadian court action.
On 27 November 2007, the Superior Court of Justice, per Justice A.M. Gans
(the motion judge), denied Donaldson’s requests and granted Znamensky’s
application for a stay of the action.
In the meantime, ICAC arbitration took place in Moscow; Donaldson did not
participate. The ICAC arbitral tribunal eventually rendered two awards in favor
of Znamensky: the first, of 6 March 2008, awarded Znamensky
US$ 1,234,416.65 in damages and US$ 26,205.28 as compensation for the
arbitration fee; the second awarded Znamensky US$ 424,732.94 in damages and
US$ 9,006.21 as compensation for the arbitration fee.
By the first decision reported, rendered on 23 December 2008, the Court of
Appeal for Ontario, before Laskin, Armstrong and MacFarland, JJA, in an
opinion by Armstrong, JA, dismissed Donaldson’s appeal on three grounds
against the 27 November 2007 decision of the motion judge.
Donaldson sought (1) to have the issue of the alleged impact of the death
threats heard in a hearing. The court of appeal held that this request should have
been, but was not, made before the motion judge. Donaldson also again applied
(2) for an interim injunction prohibiting any steps to enforce the ICAC awards.
The court of appeal held that since the motion judge had made no order in
respect of this request, this issue should be dealt with at first instance and not in
the appellate court. The court added that should Znamensky take steps to enforce
the awards against Donaldson in the Ontario courts, then Donaldson should be
free to resist the enforcement of those awards on whatever basis it chose. Finally,
Donaldson sought (3) to have the order staying the court proceedings it had
commenced against Znamensky set aside. Donaldson argued that the motion
judge erred in granting a stay of the action because Donaldson’s statement of
claim in the Canadian court proceedings sought relief that went beyond the scope
of the arbitration clause in the sale and purchase contract, namely, (i) a

Yearbook Comm. Arb’n XXXV (2010) 337

 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

that any award should not be enforced in Ontario due to

declaration
including claims against
Znamensky’s misconduct and (ii) damages based on tort,
contract. |
Demin, who was not a party to the sale and purchase
scope of
The court of appeal agreed that the request under (i) fell outside the
rly be
the arbitration clause, but concluded that this issue should more prope
held
discussed in enforcement proceedings. As to the second argument, the court
that the arbitration clause here was extremely broad, broad enough to include
virtually all of the claims advanced in the statement of claim. The fact that one
of the claims was against a non-party to the agreement was not sufficient to oust
the ICAC’s jurisdiction over these matters, when the entire focus of the action
relates to issues arising out of the contractual relations of the principal parties.
This is the first decision reported.
The second decision reported, rendered on 29 September 2009, dealt with
Znamensky’s application to enforce the two ICAC awards in Canada. The
Superior Court of Justice for Ontario, per Justice Romain Pitt, granted
enforcement. The court noted that Donaldson opposed enforcement on the sole
ground that the alleged death threats had vitiated the ICAC arbitration
proceedings. However, this issue was both issue-estopped by the court of
appeal’s findings in its 23 December 2008 decision and virtually eliminated — as
found by the motion judge and endorsed inferentially by the court of appeal — by
Znamensky’s offer for special accommodation for witness testimony or an
alternate site for the arbitration. This is the second decision reported.
By the third decision reported, rendered on 22 February 2010, the Court of
Appeal for Ontario, per R.A. Blair JA, dismissed Znamensky’s motion for
security for the costs of the appellate proceedings commenced by Donaldson
against the 29 September 2009 order enforcing the two ICAC awards. This is the
third decision reported.

a=
Ot

A detailed report of these decisions is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052007-n>.

338
Yearbook Comm, Arb’n XXXV (2010)
 CANADA NO, 30

30. Supreme Court of British Columbia, Vancouver Registry, 9

October 2009, Docket no. $088532

Parties: Plaintiff: H & H Marine Engine Service Ltd. (Canada)

Defendants: (1) Volvo Penta of the Americas, Inc.
(US);
(2) Volvo Group Canada Inc./Groupe Volvo Canada
Inc. d/b/a Volvo Penta Canada (Canada)

Published in: Available online at <www.canlii.org>

Articles: II(3)

Subject matters: — stay of court proceedings

— competence-competence regarding existence,
validity of arbitration clause

Topics: q] 222

S ummary

The prima facie analysis test developed by the Supreme Court of Canada in Dell — arbitrators may
resolve a challenge to their jurisdiction first unless the challenge is based on a question of law or a
question ofmixed fact and law where the factual questions require only superficial consideration ofthe
evidence — applies in all cases in which the competence-competence principle forms part of the
governing legal framework (including British Columbia in respect of arbitrations outside of British
Columbia). Where, however, there is no evidentiary or statutory basis for application of the
competence-competence principle, the court must determine whether an arbitration agreement exists
before granting a stay. This was the case here, as there was no evidence in the file that the SCC
arbitration rules incorporate the competence-competence principle. The court held that there was no
valid arbitration agreement between the parties and refused to stay the proceedings.

In early 2006, H & H Marine Engine Service Ltd. (H & H Marine) negotiated
with Volvo Penta of the Americas, Inc. (Volvo Penta) a contract for the supply
of marine engine parts (the Iron Manifold Project). H & H Marine and Volvo
Penta did not execute a formal contract and conducted business instead by way
of invoices issued by H & H Marine and purchase orders issued by Volvo Penta.
In April 2006, H & H Marine and Volvo Penta also agreed on the supply of
aluminum engine parts (the Aluminum Project). In the spring and fall of 2006,

Yearbook Comm. Arb’n XXXV (2010) 339

 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

H & H Marine regarding aie

Volvo Penta issued purchase orders, per fax, to
nd
and tooling costs under the Iron Manifold Project (the Purchase stepte y
: ia, :iat
the front page of the Purchase Orders was faxed. It indicated, inter
con itions
accepting an order the seller (H & H Marine) agreed to the terms and
represents a portion of
set forth therein; further, “if applicable, this document
terms and
the Volvo Penta Purchasing Agreement see page two attached for
d.
conditions”. No page two (the reverse side) was faxe
to
In October 2007, a dispute arose between the parties. Volvo Penta wrote
H & H Marine stating that it reserved its right to commence American
Arbitration Association (AAA) arbitration as provided for in the Purchase Orders
and attaching a copy of the Purchase Order Terms and Conditions. Para. 11 of
the Purchase Order Terms and Conditions provided for non-binding mediation
followed if necessary by arbitration in Washington, DC, under the AAA
commercial arbitration rules.
At the relevant time, however, Volvo Penta generally followed a standard
procedure for contracting with its marine parts suppliers; that procedure was
governed by General Purchasing Conditions that were not the same as the
Purchase Order Terms and Conditions. The General Purchasing Conditions
provided for the application of Swedish substantive law; they also contained a
clause for arbitration of disputes in Sweden in accordance with the rules of the
Arbitration Institute of the Stockholm Chamber of Commerce (SCC).
In December 2008, H & H Marine commenced proceedings against Volvo
Penta and Volvo Group Canada Inc. (collectively, the defendants) in the
Canadian courts. The defendants applied for an order staying court proceedings
on the basis of the arbitration clause for SCC arbitration in the General
Purchasing Conditions, arguing that the issue of whether an arbitration
agreement existed should be determined in arbitration.
The Supreme Court of British Columbia, Vancouver Registry, per Madam
Justice Dickson, denied the defendants’ application for a stay. The court noted
at the outset that Sect. 8 of the International Commercial Arbitration Act
(ICAA), which incorporates the principle of Art. II(3) of the 1958 New York
Convention, provides that a party against whom court proceedings are
commenced in respect of a matter agreed to be submitted to arbitration may
apply to the court to stay the proceedings (Sub-sect. (1)) and that the court must
grant a stay unless it determines that the arbitration agreement is null and void,
inoperative or incapable of being performed (Sub-sect. (2)).
The court also noted that Sect. 16 ICAA embodies the competence-
competence principle, which provides that arbitrators should generally be
allowed to exercise their authority to rule first on their own jurisdiction.

340 Yearbook Comm. Arb’n XXXV (2010)

 CANADA NO, 30

However, pursuant to Sect. 1(2) ICAA, Sect. 16, and thus the principle of
competence-competence, does not apply if the place of arbitration is outside of
British Columbia.
The court then examined the “prima facie analysis” test developed by the
British Columbia Court of Appeal in 1992 in Gulf Canada Resources Ltd. In that
case, the court of appeal held that a court must be satisfied that the requirements
of Sect. 8(1) ICAA are met before granting a stay under Sect. 8(2) ICAA, and
retains residual discretion to refuse a stay if it is clear that the challenge to the
arbitrator’s jurisdiction should succeed.
In 2007, the Supreme Court of Canada refined this test in Dell.' The Dell
Court held that, as a general rule, courts should allow the arbitrators to resolve
a challenge to their jurisdiction first, unless the jurisdictional challenge is based
on a question of law or a question of mixed fact and law where the factual
questions require only superficial consideration of the evidence. In its 2009
decision in MacKinnon’ the British Columbia Court of Appeal held that the Dell
test applies to arbitrations in British Columbia.
The court reasoned that the Supreme Court’s analysis in Dell, however, was
rooted in the Quebec Civil Code, which incorporates the competence-
competence principle, and that the Del] rule may not apply in other legal
contexts. Here, there was no evidence as to whether the governing legal
framework — the SCC rules — incorporates the competence-competence
principle. Though this was “likely”, it could not be assumed; as held by the Dell
Court, consensus on the universal application of the competence-competence
principle, though emerging, is not universal.
The court concluded that the refined prima facie analysis test in Dell applies in
all cases in which the competence-competence principle forms part of the
governing legal framework. This is also the case in British Columbia in respect
of arbitrations outside of British Columbia, notwithstanding the limitation in
Sect. 1(2) ICAA. The court noted that “this deferential approach to arbitral
jurisdiction is consistent with the purpose of the ICAA” and “with the trend
toward restricting judicial intervention in commercial arbitrations reflected in
both domestic and international law”.
However, if there is no evidentiary or statutory basis for application of the
competence-competence principle, a court should determine whether an
arbitration agreement exists before a stay can be sought and granted under Sect.
8 of the ICAA.

1. Reported in Yearbook XXXIII (2008) pp. 446-463 (Canada no. 24).

2. MacKinnon v. National Money Mart Co. 2009 BCCA 103 (CanLII) 2009 BCCA 103.

Arb’n XXXV (2010) 341

Yearbook Comm.
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

The court concluded that in the case at hand it had not been established that
a valid arbitration agreement existed between the parties in accordance with
Sect. 7 ICAA, which reflects Art. II(1)-(2) of the Convention. Hence, the
defendants’ application for a stay should be denied.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI -KA-1052008-n>.

342
Yearbook Comm. Arb’n XXXV (2010)
 CANADA NO, 31

31. Supreme Court of Canada, 20 May 2010, Docket no. 32738

Parties: Appellant: Yugraneft Corporation (Russian Federation)

Respondent: Rexx Management Corporation (Canada)
Interveners: (1) ADR Chambers Inc. (nationality not
indicated);
(2) Canadian Arbitration Congress (nationality not
indicated);
(3) Institut de mediation et d’arbitrage du Québec
(nationality not indicated);
(4) London Court of International Arbitration
(nationality not indicated)

Published in: Available online at <http: //scc.lexum.umontreal.ca>

and <www. canlii.org>

Articles: III; V; V(1)(e)

Subject matter: es period of limitation to request enforcement of

foreign award

Topics: 4 306; [8]-[27] = J 501; [48] = 9514

S ummary

The request for enforcement was denied because it was time-barred. The Court held that enforcement
of a 1958 New York Convention award may be denied ifit is time-barred under a limitation period
set by the Contracting State, even ifthe Convention establishes an exhaustive list ofgrounds on which
enforcement may be refused. In Alberta, enforcement ofa|foreign arbitral award must be sought within
two years after the-
failure to comply with the award crystalizes, that is, upon expiry ofthe time-limit
to seek annulment of the award in the country of rendition.

The facts of this case are also reported in Yearbook XXXIII (2008) at pp. 433-
435 (Canada no. 23).
On 1 October 1998, Rexx Management Corporation (Rexx), as the supplier,
entered into an Equipment and Materials Supply Contract with Yugraneft
Corporation (Yugraneft). The contract contained a clause referring disputes to

Yearbook Comm. Arb’n XXXV (2010) 343

 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

of
l Arbitration Court at the Chamber
arbitration at the International Commercia
on (ICAC). |
Commerce and Industry of the Russian Federati
claimed that it had pre-
A dispute arose between the parties when Yugraneft
that Rexx had delivered
paid invoices in the total amount of US$ 940, 382.00 but
arbitration as
equipment for US$ 4,652.57 only. Yugraneft commenced ICAC
ember 2002, an ICAC
provided for in the Agreement. By an award of 6 Sept
ary 2006, Yugraneft
arbitral tribunal found in favor of Yugraneft. On 27 Janu
sought enforcement of the ICAC award in Canada.
that
On 27 June 2007, the Court of Queen’s Bench of Alberta held
Yugraneft’s enforcement action was time-barred under the Alberta Limitations
Act of 1999, which provides for a limitation period of ten years for an action
upon a judgment and of two years for an action upon a simple contract debt. The
court reasoned that an action to enforce a foreign judgment is an action upon a
simple contract debt, with a limitation period of two years, and that the same
regime applies to foreign awards. The court rejected Rexx’s argument that
enforcement should be denied on public policy grounds because Yugraneft had
been illegally taken over, through an ordered bankruptcy and by armed seizure
of its offices, by Tyumen Oil Company, a Russian company. This decision is
reported in Yearbook XXXIII (2008) pp. 433-445 (Canada no. 23).
The Supreme Court of Canada, before McLachlin C.J. and Binnie, LeBel,
Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ, in an opinion by
Rothstein, dismissed Yugraneft’s appeal from this decision. The Court first held
that Art. III of the 1958 New York Convention allows — though it does not
require — Contracting States to impose local time limitations on the recognition
and enforcement of foreign arbitral awards; hence, notwithstanding the
exhaustive list of grounds for refusal in Art. V Convention, recognition and
enforcement may be refused on the basis that the application is time-barred.
The Supreme Court then examined to what limitation period, if any, Alberta
law subjects the recognition and enforcement of foreign arbitral awards, and
concluded that a two-year limitation period applies, subject to a discoverability
rule. Only if the conditions for discoverability are met will the limitation period
begin to run. Thus, a claim must be brought within two years after the claimant
first became aware of the “injury”.
In the present case, the injury was Rexx’s failure to comply with the arbitral
award, which “crystalize[d]” three months after rendition of the award, that is,
when the time limit to commence an annulment action against the award
expired. The Supreme Court reasoned that under the UNCITRAL Model Law
a party has three months to apply to the local courts to have an award set aside,
beginning on the day it receives the award. Until that deadline has passed, “the

344 Yearbook Comm. Arb’n XXXV (2010)

 CANADA NO, 31

arbitral award may not have the requisite degree of finality to form the basis of
an application for recognition and enforcement” under the New York
Convention and may be considered “not binding” under its Art. V(1)(e). Thus,
if an award is rendered in a Model Law jurisdiction or a jurisdiction having
analogous provisions in respect of the setting aside of an award, such as the
Russian Federation, the party who has prevailed in the arbitration would not
expect recognition and enforcement of the award to be warranted on the date of
rendition. As a consequence, the limitation period under the Limitations Act is
triggered only when the time limit to seek annulment of the award has expired.
In the present case, the award was rendered on 6 September 2002, the three-
month period to commence an annulment action expired on 6 December 2002
and the action commenced by Yugraneft in January 2006 was time-barred.
In light of this decision, the Supreme Court did not deal with the public policy
argument raised by Rexx.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052009-n>.

345
Yearbook Comm. Arb’n XXXV (2010)
 CAYMAN ISLANDS

Accession: 21 February 1981

(Extension by the United Kingdom)
lst Reservation

4. Grand Court, 19 February 2008

Parties: Plaintiff: Unilever Plc (UK) et al.

Defendant: ABC International (Cayman Islands)
and
Plaintiff: Molson Coors Brewing Company (US) et al.
Defendant: ABC International (Cayman Islands)

Published in: 2008 Cayman Islands Law Reports (CILR) pp. 87-102

Articles: II(3) (by implication)

Subject matter: —nonsignatory parties not bound to arbitration clause

Topics : 9 217

S ummary

The court denied ABC International’s application to arbitrate the claims brought against it by the
Plaintiffs, finding that none ofthe Plaintiffs had been parties or privy to the contract containing the
arbitration clause: some did not even exist at the time of the contract, nor had they become a party
through transfer, assignment, execution or performance ofthe contract. Further, ACC International's
contradicted itself in relying on the arbitration clause, since it asserted in related ICC arbitration
proceedings that another party, which was not a party to the present proceedings, had replaced the
original party to the contract by adopting the whole of the original party’s contractual obligations.
Also, ABC International actively submitted to the court’s jurisdiction by discussing the merits of the
case.

In 1983, Diversey Ltd. (an English company, part of the Diversey division of the
Molson Group), seeking to sell its sanitary products in Saudi Arabia, entered into
an agency agreement (the 1983 Agreement) with a Prince Bandar, doing business

346 Yearbook Comm. Arb’n XXXV (2010)

 CAYMAN ISLANDS NO. 4

under the name of Arab Business & Commerce Saudi (ABCS); ABC International
(ABCI) was also a party to the 1983 Agreement, under which it undertook to
assist and oversee ABCS. In 1988, Diversey Ltd., ABCS and ABCI entered into
anew agency agreement (the 1988 Agreement). ABCI again undertook to assist
and oversee ABCS in its sponsorship of Diversey Ltd. By that time, ABCS was
headed by a Dr. Bouden, to whom Prince Bandar had delegated responsibility.
The 1988 Agreement contained an arbitration clause.
By 1991, ABCS, and in particular Dr. Bouden, had been failing to perform its
obligations for some time, culminating in the dismissal of Dr. Bouden by Prince
Bandar. By this time, Diversey Ltd. considered the 1988 Agreement to have been
terminated and the Diversey division of the Molson Group confirmed this
position in a letter dated 19 July 1992. The Molson Group subsequently sold
Diversey Ltd. to the Unilever Group, resulting in the creation of DiverseyLever,
which was subsequently bought by the Johnson Group. ABCI sought to
commence arbitration against these companies (collectively, the Plaintiffs) in
respect of their failure to perform under the 1988 Agreement, which it believed
was never terminated. An ICC arbitration, commenced in March 1998 against
DiverseyLever Ltd., a company registered in England and Wales that was not a
party to the present proceedings, was pending at the time of the present decision.
In the Cayman Islands, the Plaintiffs applied for a declaratory order that none
of them was bound by the arbitration clause in the 1988 Agreement and for
injunctive relief restraining ABCI from further attempts to compel them to
arbitrate. Their actions were consolidated by order of 6 June 2007.
The Grand Court, per Smellie, CJ, granted the applications. It examined at the
outset the position of the Plaintiffs, finding that some of them did not even exist
at the time of the 1988 Agreement or even if they were in existence could not
be or were not privy to the Agreement. Nor were they party to any transfer,
assignment, execution or performance of the 1988 Agreement.
The court further noted that in the ICC arbitration pending against
DiverseyLever Ltd., ABCI asserted that DiverseyLever Ltd. had replaced the
original party to the 1988 Agreement by virtue of it having “substituted itself”
into that Agreement and adopted the “whole of the contractual obligations”.
Hence, in the court’s opinion, ABCI hopelessly contradicted the basis upon
which it asserted that the Plaintiffs became parties to the 1988 Agreement.
The court finally dealt with ABCI’s contention that the court lacked
jurisdiction to adjudicate in the dispute between the parties because of the
arbitration clause in the 1988 Agreement. The court noted that ABCI failed to
seek a stay of the court actions against it on the ground of the arbitration clause,
as it could do under the Foreign Arbitral Awards Enforcement Law (1999

347
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

Revision), and actively submitted to the court’s jurisdiction by discussing the

merits of the case. For these reasons, ABCI’s reliance on the arbitration clause
was “misconceived”.
“ ° : »

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052010-n>.

348
Yearbook Comm. Arb’n XXXV (2010)
 CHINA PR

Accession: 22 January 1987

Ist and 2nd Reservation

6. Higher People’s Court, Fujian Province, 12 October 2007

Supreme People’s Court, 27 February 2008’

Parties: Applicant: First Investment Corp (Marshall Island)

Respondent: Not indicated

Published in: Foreign Related Commercial and Maritime Trial

Guidance (2009) Vol.1 (both Report and Reply)

Articles: V(1)(b); VL)(2)s V1)¢d)

Subject matters: — truncated tribunal not in accordance with agreement
of parties
— use of “without-prejudice documents” not in
accordance with agreement of parties
— excess of authority of arbitrators
— due process and failure to clarify issue of standing

Topics: [2]-[17] + [27]-[29] + [34] = § 513; [18]-[23] = 512;

[24]-[26] = 4 511 (failure to clarify issue of standing)

S ummary

A LMAA London award was refused enforcement because it was rendered by a truncated tribunal, so
that its composition was not in accordance with the parties’ agreement. In its Report to the Supreme
Court, the Higher People’s Court for the Fujian Province stated that it was inclined to deny
enforcement under the 1958 New York Convention because (1) the arbitrators had exceeded their
authority by awarding damages to parties which they found had no standing as claimants in the
arbitration; (2) the arbitrators violated due process by failing to decide on the issue of standing in the

1. The General Editor wishes to thank Mr. Xing Xiusong, Global Law Office, Beijing, for his
invaluable assistance in providing this decision and translating it from the Chinese original.

Yearbook Comm. Arb’n XXXV (2010) 349

 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

ding the respondent into presenting its case only

early stages of the arbitration and consequently mislea
in respect of other aspects of the case
and (3) the use of “without-prejudice documents” in the
arbitration rendered the awar d invalid.
In its Reply, the Supreme People’s Court agreed with this
conclusion.

into an Option
On 15 September 2003, First Investment Corp (FIC) entered
n ships. The
Agreement with the respondent in respect of the building of certai
ad hoc
Option Agreement provided, inter alia, for arbitration of disputes by an
three-member arbitral tribunal in London.
Under the Option Agreement, FIC appointed eight single-vehicle companies
incorporated in Marshall Island (the Eight Appointed Companies) which were to
sign the shipbuilding agreement with the respondent.
A dispute arose between the parties in respect of an alleged breach of contract
by the respondent. An arbitral panel was appointed under the rules of the
London Maritime Arbitrators Association (LMAA), consisting of Prof. Martin
Hunter (chairman), Mr. Bruce Harris and Dr. Wang Shengchang. On 21 January
2006, the chairman distributed a first draft award to his co-arbitrators. On 16
February 2006, Wang presented a draft dissenting opinion; in early March,
Harris presented his comments on the draft award. On 20 March 2006, Wang
was imprisoned in China on criminal charges. On 25 March 2006, the chairman
distributed a second draft of the award. On 31 March 2006, having incorporated
some clerical comments from Harris, the chairman finalized the award and sent
it to Wang and Harris to be signed. By a letter of 3 May 2006, the chairman
informed the parties that the tribunal had substantially completed the
deliberation and he and Harris had already signed the award. The two remaining
arbitrators subsequently issued Procedural Order no. 8, containing the final
version of the arbitral award and the dissenting opinion filed by Wang to the first
award. The Order stated that Wang’s participation in the deliberation was
limited to the first draft of the award. In a letter of 28 July 2006 to the parties,
the chairman explained that he and Harris could not make a decision on costs
without the parties’ consent because there had been no contact with Wang after
February 2006.
FIC sought enforcement of the London award in China. The Xiamen Maritime
Court was inclined to refuse enforcement and referred the case to the Higher
People’s Court for the Fujian Province. As required by an internal reporting
procedure applicable in relation to the recognition and enforcement of foreign
arbitral awards, the Higher People’s Court reported the case to the Supreme
People’s Court of China.
In its Report to the Supreme People’s Court, dated 12 October 2007, the
Higher People’s Court for the Fujian Province stated that it too was inclined to

350 .
Yearbook Comm. Arb’n XXXV (2010)
 PEOPLE’S REPUBLIC OF CHINA NO. 6

refuse enforcement under the 1958 New York Convention, first, because the
composition of the arbitral tribunal was not in accordance with the agreement of
the parties. The court noted that Wang did not participate in the final
deliberation of the award; it reasoned that the English Arbitration Act 1996,
which applied to the arbitration, provides for the situation where an arbitrator
refuses or is unable to hold office, so that the parties here had a statutory right
under the English Act to remove Wang and appoint a new arbitrator. As a
consequence, the two remaining arbitrators could not validly continue the
proceedings and render an award.
The Fujian court added that the fact that arbitrators are allowed to render a
majority award under the LMAA rules cannot cure a defect in the composition
of the arbitral tribunal, since the concept of majority opinion is “meaningless”
where only some of the arbitrators have participated in the arbitral proceedings.
The Fujian court then reasoned that recognition should also be denied under
the Convention because the award decided issues outside the arbitration
agreement. The final award found that the Eight Appointed Companies had no
standing as claimants in the arbitration; nevertheless, it also found that the
damages claimed by them fell within the scope of the arbitration clause in the
Option Agreement, reasoning that FIC, having made the appointment, would
have been free to withdraw it and claim for damages in its own name. The court
disagreed, finding that the arbitration clause in the Option Agreement only
covered disputes between FIC and the respondent. FIC never withdrew its
appointment of the Eight Appointed Companies and it was the Eight Appointed
Companies that suffered damages, if any, for the respondent’s alleged breach of
contract. Since there was no valid arbitration clause in the Optional Shipbuilding
Contract, which had never been signed by the parties, the arbitrators decided
issues that were not submitted to arbitration.
The Fujian court then reasoned that at the initial stage of the arbitration the
respondent raised an objection to the standing of the Eight Appointed Companies
as claimants in the arbitration and that the arbitral tribunal failed to clarify this
issue. By so doing, it led the respondent to concentrate its defense on the
grounds (such as agency, assignment, etc.) raised by FIC in support of its
argument that the Eight Appointed Companies had standing as claimants in the
arbitration. By deciding only at the final stage of the arbitration that the Eight
Appointed Companies lacked standing to be named as claimants in the
arbitration, and awarding damages to FIC, the arbitral tribunal prevented the
parties from discussing the issue whether the losses of the Eight Appointed
Companies could be deemed as FIC’s losses and whether FIC could and in fact

35 1
Yearbook Comm. Arb’n; XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

did withdraw its appointment of the Eight Appointed Companies. This deprived
the respondent of its opportunity and right to present its case on this issue.
Finally, the Fujian court reasoned that the use by FIC in the arbitration of
“without-prejudice documents” presented by the parties in the context of their
out-of-court negotiations to reach a settlement was a serious violation of
procedural justice that rendered the award invalid. It did not suffice that the
arbitrators admitted the flaw and declared that those documents were irrelevant
and to be disregarded. The opinion of the Fujian court, as expressed in its Report
to the Supreme People’s Court, is the first document below.
By the Reply below, issued on 27 February 2008, the Supreme People’s Court
agreed with the lower court’s Report, finding that the composition of the arbitral
tribunal was not in accordance with the provisions of the agreement between the
parties because the award had been rendered by only two rather than three
arbitrators. The Reply of the Supreme People’s Court is the second document
below.

A detailed report of these decisions is available online at <www.

kluwerarbitration.com/ document.aspx?id= KLI-KA-1052011-n>.

352
Yearbook Comm. Arb’n XXXV (2010)
 FRANCE

Accession: 26 June 1959

Ist Reservation

48. Cour de Cassation [Supreme Court], First Civil Chamber, 6 May

2009, no. 509

Parties: Claimant: Mandataires Judiciaires Associés, in the

person of Mrs. X, as liquidators of Jean Lion et
Compagnie SA (France)
Defendant: International Company for Commercial
Exchanges — INCOME (Egypt)

Published in: Available online at <www.courdecassation.fr>

Articles: III; V(1)(b); V(2)(b) (all by implication)

Subject matters: — estoppel from raising due process defense not raised
in the arbitration
— due process (adversary proceedings)
— proper notice of arbitration (through process server)
— due process as ground for violation of public policy
— scope of proceedings against bankrupt defendant

Topics: {| 303 + 4 509 + ¥ 511 (failure to hold hearing); [9]-

[11] = J 524 (violation of bankruptcy law)

S ummary

Enforcement of the award was denied on grounds ofpublic policy, because it violated the principle of
French law that individual actions against a creditor are suspended when a receivership procedure is
opened and may be resumed only in order to establish the credit and determine its amount. Here, the
award directed the losing party to pay a certain amount to the winning party.

Jean Lion et Compagnie (Lion) and International Company for Commercial

Exchanges (INCOME) concluded three contracts for the sale of crystallized

Yearbook Comm. Arb’n XXXV (2010) 353

 K CONVENTION 1958
COURT DECISIONS ON THE NEW YOR

arbitration of disputes at the Refined

sugar The contracts contained clauses for
Sugar Association in London.
2001, INCOME filed a
A dispute arose between the parties. On 5 October
By a court judgment of
request for arbitration at the Refined Sugar Association.
was declared in
20 May 2003, while the arbitration was pending, Lion
istrator,
receivership (redressement judiciaire); Mr. Y was appointed admin
sented
Mandataires Judiciaires Associes (MJA), in the person of Mrs. X, repre
tered
Lion’s creditors. Arbitration was temporarily suspended. INCOME regis
its credit with the receivership and arbitration proceedings resumed. By a court
judgment of 1 July 2003, Lion was declared in liquidation (liquidation judiciaire);
Mrs. X of MJA was appointed liquidator.
On 9 February 2004, the arbitral tribunal of the Refined Sugar Association
rendered an award directing Lion to pay a certain sum to INCOME. INCOME
obtained enforcement of the award in France; the enforcement order was
confirmed on 8 November 2007 by the Paris Court of Appeal. Lion appealed.
The Supreme Court annulled the lower court’s decision and denied
enforcement. It first dismissed Lion’s argument that the court of appeal violated
the principle of adversary proceedings (principe de la contradiction) because it
relied on estoppel, a ground that had not been invoked by INCOME, to hold that
Mrs. X could not object to the procedural regularity of the arbitration as she had
not raised any objection on this point before the arbitrators. The Court noted
that INCOME did argue before the court of appeal that Mrs. X waived her right
to invoke any procedural irregularity by failing to invoke it in the arbitration, and
that the scope of estoppel and waiver “can be identical in certain cases”.
Mrs. X argued before the court of appeal that there had been violation of due
process in the arbitration because (1) she was not properly notified through a
process server (huissier) when arbitration resumed following the registration of
INCOME’s credit in Lion’s receivership and (2) the arbitrators did not hold an
oral hearing attended by both parties. The Supreme Court disagreed, reasoning
that Mrs. X was informed of the arbitration’s developments — first as a member
of MJA, the creditors’ representatives, and then as liquidator — and that she was
also informed of the arbitrators’ decision not to hold an oral hearing to limit the
costs of the arbitration; also, an award on written statements and documents only
is expressly allowed under the rules of the Refined Sugar Association.
The Supreme Court accepted, however, Lion’s argument that enforcement of
the award would violate public policy and could not be granted. It held that the
court of appeal did not comply with the principle of French law — that also
pertains to international public policy — that individual actions against a creditor
are suspended when a receivership procedure is opened and may be resumed

354
Yearbook Comm. Arb’n XXXV (2010)
 FRANCE NO. 48

only in order to establish the credit and determine its amount. Here, the award
directed Lion to pay certain sums to INCOME in violation of this international
public policy rule and could not be enforced.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-105201 2-n>.

355
Yearbook Comm. Arb’n XXXV (2010)
 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

r de Cas sat ion [Su pre me Cou rt] , First Civil Chamber, 8 July
49. Cou
2009, no. 956

navales
Parties: Claimant: Société d’études et representations
et industrielles — Soerni (France) et al.
Defendant: Air Sea Broker Limited — ASB
(Switzerland)

Published in: Available online at <www.courdecassation.fr>

Articles: Ill; V; V(1)(a); V(2)(b)

Subject matters: — stay of decision in enforcement proceedings pending
criminal investigation (no)
— applicable law to (in)capacity of party to arbitration
agreement
— fraud as ground for violation of public policy
— review of merits of award (no)

Topics: [1]-[2] = J 301; [3]-[4] = J 505; [5] =] 502 + 9 524

(fraud)

Summary

The issue ofthe capacity ofa signatory is not to be examined by reference to a national law but rather
under a material rule based on the common intention of the parties, good |faith and on the legitimate
belief in the power of the signatory.

Societe d’etudes et représentations navales et industrielles (Soerni) entered into

a contract with Air Sea Broker Limited (ASB) for the transport of a boat between
two ports in Gabon. The parties signed a Hold Harmless Letter which, inter alia,
referred all disputes to arbitration as provided for in the CLS bill of lading. ASB
subsequently sent a transport contract to Soerni’s broker; the contract referred
to the CONLINEBILL Liner Bill of Lading.
A dispute arose between the parties when the boat sank; arbitration
proceedings commenced in London. On 27 February 2006, an arbitral tribunal
found that it had jurisdiction under the arbitration clause in the CLS bill of

356 Yearbook Comm. Arb’n XXXV (2010)

 FRANCE NO. 49

lading, which it deemed to apply; on the merits, it directed Soerni to indemnify

ASB.
ASB sought and obtained an enforcement order for the London award from
the President of the Paris Court of Appeal. Soerni, in turn, commenced criminal
law proceedings, alleging forgery and use of a forged document and claiming civil
law damages (plainte avec constitution de partie civile pour faux et usage de faux); it
then appealed the enforcement order before the Paris court of appeal and asked
the court to suspend its decision awaiting the outcome of the criminal law action.
On 15 May 2008, the court of appeal denied Soerni’s request. Soerni appealed
to the Supreme Court on points of law (pourvoi en cassation).
The Supreme Court denied the appeal. It first dismissed Soerni’s argument
that the court of appeal applied an article of the French Code of Criminal
Procedure — providing that the commencement of a criminal law action does not
suspend a decision in pending civil law proceedings — that came into force by
Law of 5 March 2007, after the present action was filed, and had not been relied
on by the parties, and that the court did so without inviting the parties’
comments thereon. Asa consequence, it violated due process.
The Supreme Court noted however that this procedural provision was
immediately applicable to pending actions and that the parties did not explicitly
refer to the earlier norm in their final statements on the stay of decision, which
were filed after the new Law had come into force.
The Court also dismissed Soerni’s allegation that the court of appeal erred in
finding that Y, the junior employee who signed the Hold Harmless Letter, had
the power to bind Soerni because he had been the only person with whom ASB
had been in contact throughout the contract’s negotiations. Soerni argued that
the court of appeal should have examined — and denied — Y’s capacity under
French law, which applied because Soerni was a French company.
The Supreme Court disagreed, reasoning that the issue of capacity is not to be
examined by reference to a national law. Rather, a material rule applies that is
derived “from the principle of the validity of the arbitration agreement based on
the common intention of the parties, on good faith and on the legitimate belief
in the power of the clause’s signatory to carry out an act of ordinary
administration binding the company”. The court of appeal correctly found that
ASB was not warned that Y, the only Soerni employee they had contact with,
lacked the capacity to bind Soerni to the arbitration clause. The Supreme Court
added that Soerni tacitly ratified Y’s acts by asking ASB for an estimate for a
supplementary insurance. Soerni ’s intention to arbitrate clearly resulted from the
reference to arbitration in the Hold Harmless Letter.

Arb’n XXXV (2010) 357

Yearbook Comm.
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

The Court finally dismissed Soerni’s contention that the fact that ASB sent
Soerni’s broker a contract referring to a different bill of lading was per se a
violation of public policy, reasoning that Soerni did not prove how enforcement
would violate international public policy and merely sought to challenge the final
decision of the court of appeal that ASB did not commit fraud.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-105201 3-n>.

358
Yearbook Comm. Arb’n XXXV (2010)
 GERMANY

Ratification: 30 June 1961

No Reservations

125. Oberlandesgericht [Court of Appeal], Munich, 17 December 2008

Parties: Claimant: Seller (nationality not indicated)

Defendant: Assignee (Germany)

Published in: Available online at <www.dis-arb.de>

Articles: I(1); HI; IV(1)(a); IV(1)(6); IV(2); V1); V(2)(a);

V(2)(6); VII)
Subject matters: — copy of non-authenticated arbitral award
— more-favorable-right provision
— original arbitration agreement or certified copy
required (no) (German law)
— nonsignatory to arbitration clause and cession of
contract
— due process as ground for violation of public policy

Topics: [1] + [11] = § 301; [3] = § 402 + § 404; [4] =

{ 403 + § 702; [5] = § 406; [6]-[7] = § 101; [8] =
{| 503; [9] = 519 + § 524 (assignment of contract);
[10] = 9523

S ummary

The court declared the award enforceable, holding preliminarily that it sufficed under German law,
which applied under the more-favorable-right principle, that claimant supplied a certified copy of the
non-authenticated award. There were no grounds
for refusing enforcement under Art. V(1) of the 1958
New York Convention because defendant failed to raise them, and no grounds in the court’s opinion
under Art. V(2): though the award was rendered against an assignee and jurisprudence is divided as
to whether assignment of a contract includes the rights and obligations under the arbitration agreement

Yearbook Comm. Arb’n XXXV (2010) 359

 NEW YORK CONVENTION 1958
COURT DECISIONS ON THE

nment included the arbitration clause. The court

therein, here the arbitrators explicitly held that assig
abided by this decision.

a contract,
On 2 December 2005, Seller and German Company X concluded
The contract was
under which Seller was to supply chanterelles to Company X.
ation of
concluded through a telefax exchange. It provided for the applic
at the
Lithuanian law and contained a clause referring disputes to arbitration
Vilnius Court of Commercial Arbitration (VCCA), in Lithuania.
A dispute arose between the parties when Company X did not pay for certain
deliveries. On 31 December 2006, Company X, Seller and the present defendant
(Assignee) entered into a contract under which Company X assigned its existing
obligations under the contract to Assignee, with Seller’s permission. On 11 May
2007, Assignee made a partial payment to Seller. When no further payments
followed, Seller commenced VCCA arbitration. On 13 May 2008, a VCCA
arbitral tribunal found mostly in favor of Seller. Assignee did not participate in
the arbitration.
The Munich Court of Appeal granted Seller’s request for a declaration of
enforceability of the Lithuanian award in Germany. The court held first that the
request was admissible, though the Seller supplied only a certified copy of the
non-authenticated award, while authentication is required under the 1958 New
York Convention. The court of appeal noted, incidentally, that this Convention
requirement is not a condition for admissibility but rather a provision concerning
evidence. It then shared the prevailing opinion and practice that submission of the
certified copy of a non-authenticated award by the party seeking enforcement
suffices.
Seller also provided only a copy of the telefax containing the contract and the
arbitration clause, signed by both the original parties to the contract. The court
held that this sufficed under both German law and, according to “the widely
prevailing opinion”, also under Art. II(2) Convention. The court added that
German law, which applied on the basis of the more-favorable-right provision in
the Convention, does not require the party requesting enforcement to supply the
arbitration agreement.
Seller’s request for a declaration of enforceability was also founded. The court
had no doubts that the award at issue was authentic, on the basis of its long
experience with the enforcement of awards from neighboring European
countries. Further, Assignee failed to raise any grounds under Art. V(1)
Convention, nor should enforcement be denied under Art. V(2). In particular,
though jurisprudence is divided as to whether the assignment of a contract means
that also the arbitration clause therein is assigned, in the present case the

360
Yearbook Comm. Arb’n XXXV (2010)
 GERMANY NO. 125

arbitrators held that the object of the assignment was Company X’s debt inclusive
of the arbitration clause: their finding should be respected.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052014-n>.

361
Yearbook Comm. Arb’n XXXV (2010)
 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

rla nde sge ric ht [Co urt of App eal], Munich, 19 January 2009,
126. Obe
34 Sch 04/08

Parties: Claimant: Clothing manufacturer (Ukraine)

Defendant: Textiles manufacturer (Germany)

Published in: Available online at “www. dis-arb.de>

Articles: Ill; V(1)(a); VIC)

Subject matters: — European Convention of 1961

— valid arbitration agreement referred to in Art. Il
1958 New York Convention (no)
— burden of proof establishing existence, validity of
arbitration agreement
— enforcement court may review arbitrators’ findings
as to existence of arbitration agreement
— estoppel from raising 1958 New York Convention
defense not (timely) raised in annulment action in
country of origin

Topics: [2] + [16] = J 301; [3]-[12] = J 504; [13] = J 303;

[15] = 701 + § 704

Summary

The court denied a declaration of enforceability, holding that claimant did not meet its burden to
prove the existence of an arbitration agreement, as it failed to provide any evidence to disprove
defendant's contention that it did not validly agree to an addition to the original contract containing
the arbitration clause. Defendant was not precluded |from raising this defense, since the issue here was
whether an arbitration agreement existed at all. No different conclusion would be reached under the
1961 European Convention.

On 4 November 2003, the Ukrainian clothing manufacturer (claimant) and the

German textiles manufacturer (defendant) entered into a contract under which
claimant would manufacture clothing out of materials provided by defendant.
According to Clause no. 10.2 of the contract, modifications of or additions to the
contract were valid only if set out in writing and signed by both parties. Clause

362 Yearbook Comm. Arb’n XXXV (2010)

 GERMANY NO. 126

no. 10.7 provided that the contract would be in force until 31 December 2004.
The contract further provided for the application of Ukrainian law; clause no. 9
provided for arbitration of disputes at the International Commercial Arbitration
Court at the Ukrainian Chamber of Commerce and Industry (ICAC).
A dispute arose between the parties when defendant allegedly did not pay an
invoice of 23 March 2007. On 12 June 2007, claimant commenced ICAC
arbitration. It supplied the contract of 4 November 2003 as well as copies of
“contractual additions” dated 28 December 2004, 10 January 2006 and 29
December 2006. The addition of 10 January 2006 provided that the original
contract would be in force until 31 December 2007. Defendant objected to the
jurisdiction of the Ukrainian ICAC — arguing that Mr. P, the employee who
signed the original contract, was not authorized to enter into agreements on
defendant’s behalf, and that his signatures on the contractual additions were
forgeries — and refused to participate in the proceedings. On 28 November 2007,
a sole ICAC arbitrator rendered an award in favor of claimant.
The Munich Court of Appeal refused to declare the ICAC award enforceable,
finding that it was not based on an arbitration agreement in the sense of Art. II(2)
of the 1958 New York Convention.
The court of appeal reasoned that the party seeking recognition and
enforcement of a foreign arbitral award has the burden to prove the existence of
a valid arbitration agreement. It then held that in the present case claimant failed
to prove that such agreement existed, since it provided no evidence against
defendant’s argument that it had not validly entered into the contractual
additions. The court noted that it was not bound to the factual and legal
determinations of the sole arbitrator in respect of the existence of a (valid)
arbitration agreement. In any event, the arbitrator did not hold that defendant
had accepted the contractual additions; rather, he divided the burden of proof
differently (though deeming that defendant’s behavior disproved its own
argument).
The court of appeal added that defendant was not precluded [prakludiert] from
raising its objection. It noted the jurisprudence holding that the principle of
preclusion continues to apply under the 1998 German arbitration law to preclude
parties from opposing enforcement on grounds that could have been raised,
within a given time limit, in annulment proceedings in the state of rendition of
the award. However, the issue here was whether an arbitration agreement was
concluded to begin with, “so that there is no question of the grounds for refusal
in Art. V Convention”.
The court of appeal finally noted that it would reach no different result if it
applied the 1961 European Convention under the more-favorable-right provision

363
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

of the New York Convention, as defendant raised its objection of lack of

jurisdiction timely and it was not claimed that the sole arbitrator had the power
to decide a priori on the validity of the arbitration agreement and thus on his own
jurisdiction.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052015-n>.

364
Yearbook Comm. Arb’n XXXV (2010)
 GERMANY NO, 127

127. Oberlandesgericht [Court of Appeal], Munich, 27 Febr

uary 2009,
34 Sch 19/08

Parties: Claimant: Carrier (nationality not indicated)

Defendant: Customer (Germany)

Published in: Available online at <www.dis-arb.de>

Articles: I(1); Ill; 1V(1)(a); 1V(1)(b); IV(2); V(1); V(2); VII)

Subject matters: — European Convention of 1961

— copy of non-authenticated arbitral award
= more-favorable-right provision
— original arbitration agreement or certified copy
required (no) (German law)

Topics: [1]+[10] = § 301; [2] = § 704; [2]+[5] = J 702; [3]-

[4] = ] 402 + § 404; [5] = 403; [6] = § 406; [7] =
q 101; [8] = 503

S ummary

The court declared the award enforceable, finding that claimant’s submission ofa certified copy ofthe
non-authenticated award complied with the formal requirements of German law, which applies under
the more-favorable-right principle in the 1958 New York Convention. The authenticity of the award
was undisputed. There were no grounds for refusing recognition under Art. V(1) Convention because
defendant failed to raise them, and no grounds in the court’s opinion under Art. V(2).

Defendant made use of the transportation services of claimant but failed to pay
for them. On 5 May 2008, defendant issued an acknowledgment of debt in favor
of claimant. The acknowledgment provided for the application of Czech law; it
also contained a clause referring disputes to arbitration in Brno, Czech Republic.
Defendant did not pay under the acknowledgment of debt and claimant
commenced arbitration. Defendant did not participate in the proceedings. On
19 August 2008, a sole arbitrator rendered an award in favor of claimant.
Claimant sought a declaration of enforceability of the Czech award in Germany.
The Munich Court of Appeal granted claimant's request. It noted at the outset
that the 1961 European Convention, which it found to apply primarily to the

Arb’n XXXV (2010) 365

Yearbook Comm.
 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

recognition; the
recognition of the Czech award, sets no formal requirement for
extent
1958 New York Convention does set such requirements. However, to the
the
that the New York Convention provisions are more onerous than
requirements of German law, German law prevails in accordance with the more-
favorable-right principle provided for in the Convention.
The court first held that claimant’s request was admissible. Claimant supplied
a copy of the arbitral award certified by a Czech city district council but not
authenticated as required by the New York Convention. The court reasoned that
this Convention requirement is not a condition for admissibility but rather a
provision concerning evidence; it then shared the prevailing opinion that
submission of the certified copy of a non-authenticated award suffices. The court
then noted that German law does not require the party requesting enforcement
to supply the arbitration agreement; hence, the form in which that agreement
had been supplied by claimant (a simple copy) was irrelevant.
The court of appeal then held that the request was also founded. It noted that
the authenticity of the award supplied by claimant was undisputed, nor was it
doubtful in the opinion of the court, which was familiar with awards from and
arbitration procedures in neighboring European countries. Further, no grounds
under Art. V(1) Convention need be examined because defendant failed to raise
them. Nor were there any grounds under Art. V(2), which must be examined on
the court’s initiative.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id= KLI-KA-1052016-n>.

366
Yearbook Comm. Arb’n XXXV (2010)
 GERMANY NO. 128

128. Oberlandesgericht [Court of Appeal], Munich, 11

May 2009, 34
Sch 23/08

Parties: Claimant: Creditor (nationality not indicated)

Defendant: Debtor (Germany)

Published in: Available online at <www.dis-arb.de>

Articles: III; IV(1)(a); 1V(2); V (in general); VII(1)

Subject matters: — European Convention of 1961

= more-favorable-right provision
— original arbitration agreement or certified copy
required (no) (German law)
— translation of award may be required (German law)
— grounds for refusal of enforcement are exhaustive
— currency of award

Topics: [1] + [7]-[10] = § 301; [2]-[3] = ] 402 + ] 406 +

4 702 + 4 704; [6] = 501

S ummary

The court declared the award enforceable, finding that by supplying the original award and a
translation thereof claimant complied with the less strict formal requirements of German law, which
applies under the more-favorable-right principle in the 1958 New York Convention. No grounds for
refusing enforcement were raised or appeared to exist. An alleged agreement for payment by
installments did not deprive claimant of the right to seek enforcement.

On 11 October 2005, the present defendant (the debtor) made out a bill of
exchange for US$ 174,244 in favor of the present claimant (the creditor), due on
15 December 2005. On 17 October 2005, the parties concluded an arbitration
agreement referring disputes relating to the bill to arbitration at the Arbitration
Court with the Czech Chamber of Commerce and the Czech Agrarian Chamber
(the Czech Arbitration Court). The agreement was governed by Czech
substantive law.
The debtor paid only US$ 50,000 of its debt, whereupon the creditor
commenced arbitration for payment of the remaining US$ 124,244. It also

Yearbook Comm. Arb’n XXXV (2010) 367

 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

the Czech Republic; it

sought to obtain execution under the bill of exchange in
— that in the course of
was alleged by the debtor — but contested by the creditor
t for payment by
those proceedings, the parties concluded an agreemen
amount of
instalments, according to which the debtor agreed to pay a monthly
CZK 10,000 (approximately US$ 500) to the creditor.
On 4 April 2007, a sole arbitrator of the Czech Arbitration Court rendered
an award in the creditor’s favor. The creditor sought a declaration of
enforceability of the Czech award in Germany.
The Munich Court of Appeal granted the creditor’s request. The court noted
at the outset that the 1961 European Convention, which was primarily applicable
here, does not provide for formal conditions for recognition; the 1958 New York
Convention, which does, is superseded by German law, which has less stringent
formal requirements, on the basis of the more-favorable-right principle in
Art. VII New York Convention. In the present case, the creditor supplied the
original arbitral award together with a German translation thereof, thereby
complying with German law provisions.
The court also held that the agreement for payment by installments alleged by
the debtor did not deprive the creditor, and his request, of the necessary
legitimate interest in the proceeding [Rechtsschutzinteresse], that is, of his right to
obtain a declaration of enforceability of the Czech arbitral award.
The creditor’s request was founded, as no grounds for refusing recognition
appeared to exist or were raised. The court of appeal held in particular that the
fact that the agreement for payment by installments alleged by defendant, if
indeed it existed, postponed the date on which payment became due did not
prevent recognition, “because the date on which the claims awarded in the
arbitral award become due is not a condition for the declaration of
enforceability”.
The court last held that a declaration of enforceability aims at recognizing the
dictum of the award as it was rendered by the foreign arbitrators: hence, it would
not convert the foreign currency of the award into Euros.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052017-n>.

3 68 Yearbook Comm. Arb’n XXXV (2010)

 GERMANY NO. 129

ceraKammergericht [Court of Appeal], Berlin, 11 June 2009, 20

Sch

Parties: Claimant: Construction Company Z (nationality not

indicated)
Defendant: State X

Published in: Available online at <www.dis-arb.de >

Articles: III; V(2)(b)

Subject matters: — sovereign immunity

= recognition V. enforcement of award

Topics: [1] + [4] = § 301; [2]-[3] = § 524 (sovereign

immunity)

A ummary

The court declared the award enforceable, holding that the:

fact that defendant was a foreign State was
no obstacle as the claim against it was a private claim and a declaration of enforceability is not a
concrete means of enforcement.

On 27 May 1981, Construction Company Z and State X entered into an

agreement for the construction of an astronomical observatory in State X. The
parties also concluded an arbitration agreement referring disputes to a panel of
three arbitrators.
A war broke out in State X and the observatory, which was nearing
completion, was destroyed. At the end of the war, Construction Company Z
decided not to resume work on the observatory. On 12 December 1988, the
parties signed an Acknowledgment of Debt setting out the works carried out by
Construction Company Z and the sums still owed by State X. State X did not
meet its obligations under the Acknowledgment of Debt. On 27 November
2003, Construction Company Z commenced arbitration as provided for in the
1981 agreement. On 26 February 2007, an arbitral tribunal rendered an award
in claimant’s favor. Construction Company Z sought a declaration of
enforceability of the award in Germany; State X did not participate in the
proceedings.

Yearbook Comm. Arb’n XXXV (2010) 369

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

The Berlin Court of Appeal granted the request, holding that there were no
arbitrability or public policy grounds to deny it, which grounds must be
examined at the court’s initiative. In particular, the fact that defendant was a
foreign State was no obstacle to recognition, since Construction Company Z’s
claim was a private law claim that did not affect that State’s sovereignty, and a
proceeding for a declaration of enforceability is not a means of execution.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052018-n>.
SN
a
SE
see
a

370
Yearbook Comm. Arb’n XXXV (2010)
 GERMANY NO. 130

130. Oberlandesgericht [Court of Appeal], Munich, 22

June 2009, 34
Sch 26/08

Parties: Claimant: Exclusive distributor (Spain)

Defendant: Manufacturer (Germany)

Published in: Available online at <www.dis-arb.de>

Articles: Ul; 1V(1)(a); 1V(2); V(1)(b); V(1)(d); V(2)(b); VIC)

Subject matters: — original arbitration agreement or certified copy
required (no) (German law)
— more-favorable-right provision
— award not signed by one arbitrator
= foreign court decision on validity of award
~ irregularities in arbitration (language of arbitration)
— irregularities in arbitration (failure to hear witness
(through interpreter))
— due process and language of arbitration
— due process as ground for violation of public policy
— calculation of interest

Topics: [2] + [25] = § 301; [3]-[5] = ]402 + 406 + 9 702 +

4 704; [6]-[10] = § 524 (no third arbitrator’s
signature); [12]-[16] = | 511 (language of the
arbitration; failure to hear witness through interpreter)
+ 4 513; [17]-[21] = 4 524 (failure to hear witness);
[22] = | 502 + § 524 (contents of award); [23]-[24] =
§ 307

S ummary

The court granted a declaration ofenforceability of a Madrid Chamber of Commerce award. Claimant
complied with the formal conditions for seeking enforcement under German law, which are less strict
than those in the 1958 New York Convention and apply pursuant to the Convention's more-favorable-
right provision. Enforcement should also not be denied on grounds of public policy because the award
was signed only by two arbitrators and no reasons were given for the missing signature of the third,
as this is allowed under the applicable arbitration rules and the award wasfound valid by a Spanish
court in unsuccessful annulment proceedings. There was no procedural defect or violation of due

Yearbook Comm. Arb’n XXXV (2010) 371

 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

process, either, becaus e Spanish was used in the

arbitration rather than English (as agreed) — as the
it was not proved that Defendant was
Madrid Rules provide for Spanish in the arbitration and
gh an interpreter) at thefinalhearing,
negatively affected — or because a witness was not heard (throu
ined the starting date and rate
as that witness had been heard at an earlier hearing. The court determ
of interes t of the sums due under the award, which
had not been defined in a sufficiently concrete
manner.

On 19 February 2001, Claimant and Defendant entered into an exclusive

distributorship contract, under which Defendant agreed to purchase medical
products manufactured by Claimant and market them in Germany. The contract
expired on 31 December 2010 and was governed by Spanish law. It contained a
clause referring disputes to arbitration in Madrid before the Arbitration Court
of the Madrid Chamber of Commerce (MCC) under the Spanish Law on
Arbitration. The language of the arbitration was agreed to be English.
A dispute arose between the parties when Defendant did not purchase the
contractually agreed quantity of the product in the years 2001-2004. In June
2005, Claimant terminated the exclusive distributorship contract for non-
performance. It also commenced arbitration proceedings as provided for in the
contract, seeking payment under certain invoices for a total of € 496,064.98. In
the arbitration, the parties discussed further mutual compensation and damage
claims for alleged breaches of contract and unjustified termination of contract.
Defendant sought damages for loss of its regular clientele and sought a set-off.
By an award of 1 February 2007, an MCC arbitral tribunal found in favor of
Claimant and directed Defendant to pay € 496,064.98 under the unpaid invoices,
“as well as interest at the legal interest rate for each individual invoice issued ...
that is due after expiry of the 30-day time limit for payment granted for each
[invoice]”. The award was signed by only two arbitrators; no reason was given
for the missing signature of the third arbitrator.
On 4 April 2001, Defendant filed an action in the Madrid Court of Appeal
(Audiencia Provincial de Madrid) to have the award set aside on the grounds that the
arbitration was held in Spanish rather than English as agreed in the arbitration
clause; that the arbitral tribunal refused to hear Defendant’s former general
manager Mrs. R through an interpreter, and that the award was signed by only
two of the three arbitrators. On 17 June 2008, the Madrid court denied
Defendant’s application. On 17 December 2008, Claimant sought to have the
Spanish award declared enforceable in Germany.
The Munich Court of Appeal granted the declaration of enforceability of the
Spanish award. It held at the outset that Claimant complied with the formal
conditions for seeking recognition under German law, which applies on the basis

372 Yearbook Comm. Arb’n XXXV (2010)

 GERMANY NO. 130

of the more-favorable-right principle in the 1958 New York Convention,

as it
supplied a copy of the arbitral award, certified by counsel.
The court then examined Defendant’s argument that recognition should be
denied because the award was signed by only two of the three arbitrators and no
reasons were given for the missing signature. It reasoned that it need not decide
on this objection as the Madrid court of appeal, when denying Defendant’s
request for annulment, held that the award was valid. This decision was binding
on the German enforcement court.
The Munich court of appeal further held that there were no grounds to deny
recognition. In particular, there was no ground under Art. V(1)(d) and Art.
V(1)(b) of the 1958 New York Convention. The fact that Spanish was used in the
arbitration — rather than English as agreed in the arbitration clause — did not
contravene the agreement of the parties, who agreed to Spanish as the language
of the arbitration by referring to the MCC Rules, which so provide. Nor did the
use of the Spanish language violate Defendant’s right to due process, as
Defendant failed to prove that it had not been able to present its case or had been
otherwise negatively affected.
The court also dismissed Defendant’s argument that the arbitral tribunal’s
failure to grant Defendant’s request to hear its general manager at the final
hearing of the arbitration with the assistance of an interpreter constituted a
procedural defect under Art. V(1)(d) Convention. The court found that the
arbitrators acted in accordance with the MCC Rules; the final hearing was
scheduled to hear counsel final presentations, while witnesses, including Mrs. R,
were heard at an earlier hearing. This manner of proceeding did not stand in such
contrast with the basic principles of German procedural law that the award could
not be deemed to have been rendered in legally correct proceedings.
The court of appeal reached the same conclusion in respect of Defendant’s
public policy arguments, holding that the award’s findings were not unacceptable
from the point of view of the basic principles of German law.
The court last found that the award could not be declared enforceable in its
current form as it failed to determine the dates on which interest on each
individual sum due under several invoices started running, and the relevant
interest rate. It therefore determined those dates and rate.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-105201 9-n>.

Yearbook Comm. Arb’n XXXV (2010) 373

 K CONVENTION 1958
COURT DECISIONS ON THE NEW YOR

Court], 2 July 2009, IX ZR

131. Bundesgerichtshof [Federal Supreme
152/06

Parties: Claimant: Not indicated

Defendant: Not indicated

Published in: Available online at <www.dis-arb.de>

Articles: 1(1); VII(1)

Subject matters: — enforcement of court decision confirming award (no)
— doctrine of merger of award into confirmation
decision
= more-favorable-right provision

Topics: q 101 + 9515 §701

[24] =;

Summary

The Supreme Court reversed earlier jurisprudence and held that a foreign court decision recognizing
an arbitral award cannot be declared enforceable, even under the doctrine ofmerger. Rather, the party
must seek a declaration ofenforceability of the award itself.

On 26 November 2002, an arbitral tribunal rendered an award in the present

claimant’s favor. On 4 April 2003, the award was confirmed by the Superior
Court of California. Claimant then sought a declaration of enforceability of the
er

confirmation decision in Germany.

On 16 February 2005, the Berlin Court of First Instance granted claimant’s
application. On 13 June 2006, this decision was affirmed by the Berlin Court of
Appeal, which reasoned that the confirmation decision adopted the factual
findings and legal conclusions of the award and made them its own; hence, it was
not a declaration of enforceability of the award but rather an independent order
and could be declared enforceable in its own right.
The Federal Supreme Court disagreed with this reasoning and reversed the
lower court’s decision. The Court noted at the outset that the Berlin court of
appeal referred to a 1984 decision in which the Supreme Court held that a New
York decision confirming an arbitral award could be declared enforceable in
Germany under the provisions for the recognition of foreign judgments. The

374 Yearbook Comm. Arb’n XXXV (2010)

 GERMANY NO. 131

Court reasoned in 1984 that the court decision at issue did not merely confirm
the arbitral award or declare it enforceable but was an independent order as it
separately directed the defendant to pay the sum awarded by the arbitrators; the
Court referred to the doctrine of merger in United States law, according to
which the arbitral award merges completely with the confirmation decision and
as a consequence can no longer be enforced in its own right. The Court,
however, did not take this further step in its 1984 decision and held that both the
confirmation decision and the award were enforceable under the respectively
applicable set of rules.
By the present decision, the Federal Supreme Court held that its 1984 decision
should be reversed on several grounds. First, the prevailing opinion holds that
effects attached to a foreign decision by the legal system of a third State are not
taken into account for recognition in Germany. This is also the approach taken
in European law, according to which a decision recognizing a court judgment
cannot be declared enforceable, on the ground that otherwise the court where
recognition of that decision is sought would not be in the position to ascertain the
existence of the conditions for a declaration of enforceability.
Further, the provisions of European law on the recognition and enforcement
of decisions except arbitration from their scope of application. This exception
rule is to be interpreted broadly, so that proceedings and decisions on requests
for annulment, modification, recognition and enforcement of arbitral awards are
also excepted. The Court held that the exception also applies to court decisions
incorporating arbitral awards. It was irrelevant that the confirmation decision in
the present case was rendered in a non-EU State, as in the Court’s opinion there
is no reason to apply less strict conditions for the recognition of decisions from
non-EU States.
Second, the Supreme Court reasoned that the debtor under the award is
protected by the law. This protection demands that the debtor should not have
to defend himself in more than one recognition proceeding in the same country.
If the creditor could seek a declaration of enforceability for both the confirmation
decision and the award, he could commence parallel or successive proceedings
until he obtained a favorable decision; as the subject matter of the dispute would
be different, res judicata would not be an obstacle.
Further, the protection of the debtor under the award also demands that the
exequatur decision be reviewed under the same standards as the award; the
review that must be carried out when recognizing a foreign award cannot be
dispensed with and should be carried out also when recognizing a confirmation
decision. That proceedings for the recognition of foreign arbitral awards are filed
before the courts of appeal in Germany has the purpose of concentrating the

375
Yearbook Comm. Arb’n XXXV (2010)
 1958
COURT DECISIONS ON THE NEW YORK CONVENTION

recognition
recognition of awards in a limited number of specialized courts. The
instance.
of foreign court judgments is the task of local courts and courts of first
If recognition of the award “could take place by the detour of the declaration of
enforceability of the foreign exequatur decision”, these lower courts would have
to carry out amore extensive review of the confirmation decision than the courts
of appeal would of the award.
Third, the Federal Supreme Court reasoned that even under the doctrine of
merger a confirmation decision only aims at making enforcement of the arbitral
award possible in its own territory. Whether the award can be recognized in
Germany is only to be decided by the German courts. The Court added that the
conclusion could be different if the foreign decision were based on a completely
independent review of the facts and legal grounds. This, however, was not the
case here.
Fourth, the Court remarked that accepting such double exequatur of arbitral
awards would dispense with the standard of review of the 1958 New York
Convention, which applies in principle to the recognition and enforcement of
foreign awards (although it may be superseded by a more favorable national law)
and would thus “hollow out” the Convention.
The Supreme Court concluded that the doctrine of merger, where it exists,
is relevant only at a domestic level; outside that level, it is the arbitral award as
such that must be declared enforceable.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052020-n>.

376
Yearbook Comm. Arb’n XXXV (2010)
 GERMANY NO. 132

132. Oberlandesgericht {Court of Appeal], Frankfurt, 27

August 2009,
26 SchH 03/09

Parties: Claimant: Buyer (nationality not indicated)

Defendant: Seller (nationality not indicated)

Published in: Available online at <www.dis-arb.de>

Articles: Il; V(1)(a); V(1)(b); V(1)(d); V(2)(b)

Subject matters: ~— arbitration agreement “in writing”
— more-favorable-right provision
— applicable law to existence, validity of arbitration
agreement
— letter of confirmation
— short-form arbitration clause
— due process as ground for violation of public policy
— due process and appointment of arbitrator from list
— due process and refusal to hold oral hearing

Topics: [1] + [24] = J 301; [3}-[11] = 504 + 9506 + § 701;

[12]-[16] = {|702; [18] = 4 507 (short-form arbitration
clause); [19] = § 513; [20]-[22] = § 511 (failure to
consider arguments; failure to hold oral hearing) +
q 523

S ummary

The court declared an appellate award of the International Cotton Association enforceable, holding
that while the arbitration agreement was not “in writing” under the 1958 New York Convention, it
was valid under German law, which applied pursuant to the more-favorable-right rule in the
Convention. This rule applies notwithstanding the provision in Art. V(1)(a) that the law of the country
of rendition of the award is the law applicable to the arbitration agreement (lacking a specific
agreement thereon by the parties), as the Federal Supreme Court explicitly holds that there is no
referral from national law back to the Convention. There was no procedural defect (Art. V(1)(d)) or
violation of due process (Art. V(1)(d)) because Defendant had to choose its arbitrator from an ICA list:
while parties have the fundamental right to appoint their own arbitrator, the ICA appointment system
does not violate this right, and Defendant agreed thereto when accepting ICA arbitration.

Yearbook Comm. Arb’n XXXV (2010) 377

 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

d into
In October 2006, the buyer (Claimant) and the seller (Defendant) entere
April
a contract for the sale and purchase of a large quantity of cotton. On 16
2007, an employee of Company A, agents for Claimant, had a telephone
conversation with an employee of Defendant, in which a further delivery of
cotton was discussed. It was later disputed between the parties whether an
agreement for the sale and purchase of a certain quantity of cotton at a certain
price was reached during this conversation; at any event, on the same day
Company A sent first a purchase confirmation and then a signed purchase
contract to Defendant. The purchase contract remained unsigned by Defendant.
The purchase confirmation contained the following clause [English original]:
“Rules/ Arbitration: International Cotton Association Rules and Arbitration.”
According to the Frankfurt Court of Appeal in the decision reported here, the
arbitration clause was “explained in more detail” in the purchase contract. The
purchase contract further indicated that the contract would be deemed valid if
not returned within fifteen days.
On 4 July 2007, Defendant informed Claimant that it would not deliver any
cotton as no contract had been concluded between the parties. Claimant
commenced arbitration at the International Cotton Association (ICA), seeking
damages. On 8 February 2008, an ICA arbitral tribunal found in favor of
Claimant. By an award of 31 October 2008, the ICA Technical Appeal
Committee dismissed Defendant’s appeal. Claimant sought a declaration of
enforceability of the appellate award in Germany.
The Frankfurt Court of Appeal declared the award enforceable. The court
reasoned at the outset that while there was no “agreement in writing” here as
requested by the 1958 New York Convention, this was irrelevant as the less strict
requirements of German law (Sect. 1031 ZPO) applied based on the more-
favorable-right provision in the New York Convention. The court noted that
while German authors disagree as to whether Sect. 1031 ZPO applies to
arbitration proceedings with a foreign seat (in respect of which German law
refers to the New York Convention) the Federal Supreme Court has indicated
that the more-favorable-right principle should be given a broad, recognition-
friendly reading. The court of appeal shared this broad interpretation, stressing
that a different approach would be at odds with the purpose of the New York and
other multinational arbitration Conventions, which is to make the recognition of
arbitral awards and arbitration agreements easier, and concluding that
recognition of an award or arbitration agreement should not be denied under
these Conventions if it is allowed under domestic law.
Defendant argued that German law, and thus Sect. 1031 ZPO, cannot apply
because Art. V(1)(a) of the New York Convention — which provides that, lacking

378 Yearbook Comm. Arb’n XXXV (2010)

 GERMANY NO, 132

an agreement by the parties as to the law applicable to the arbitration agreem

ent,
e law of the country where the award is rendered applies — prevails over
the
private international law provisions of German law. The court of appeal
dismissed this argument, again noting that the Federal Supreme Court made
it
clear that the more-favorable-right principle allows for the application of formal
requirements of national law that are less strict than the Convention’s provision,
“without the national law referring back to the Convention”.
The court then held that the parties had entered into an arbitration agreement
meeting the requirements of German law. Under Sect. 1031 ZPO, an arbitration
agreement can come into existence through a letter of confirmation between
merchants, if the recipient remains silent and provided that the parties have
negotiated the contract. As these negotiations need not necessarily have led to an
oral agreement, Defendant’s objection that its employee who dealt with
Claimant’s agent during the telephone call of 16 April 2007 lacked power of
attorney was irrelevant.
A further requirement under Sect. 1031 ZPO is that the party sending the
letter of confirmation must believe in good faith that the letter documents an
existing agreement. This was the case here. Although Claimant stated in its
purchase confirmation that a stamped and signed contract would follow shortly,
as indeed it did on the same day, it appeared from the circumstances of this case
(inter alia, from Claimant’s statement in the purchase confirmation that “... we
confirm having this day bought from you ...”) that Claimant believed that a
contract had already come into existence.
The court of appeal then held that there were no grounds to refuse
enforcement of the ICA award under the New York Convention. The court first
dismissed Defendant’s argument that the arbitration clause in the purchase
confirmation was unclear, noting that the clause’s formulation unambiguously
allowed to conclude that disputes would be decided by an ICA arbitral tribunal
according to the ICA’s arbitration rules. Also, the clause was further specified in
the purchase contract.
Nor was the arbitral procedure not in accordance with the agreement of the
parties because Defendant had to choose its arbitrator from a list provided by the
ICA. The court reasoned that while parties have the fundamental right to appoint
their own arbitrator, the ICA appointment system does not violate this right.
Further, Defendant agreed with this system when agreeing to ICA arbitration.
Finally, there had been no violation of due process in the arbitration (which
could be relevant under both Art. V(1)(b) and Art. V(2)(b) Convention (public
policy)). Due process, reasoned the court, is guaranteed when each party may
express its opinion as to the factual and legal aspects of the case and the arbitral

37 9
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

tribunal discusses and considers all relevant arguments of the parties. This latter
condition does not mean, however, that the arbitrators must deal with all details
of the arguments of the parties in the written reasons for their award, or that
silence in respect of one argument necessarily means that it has been ignored,
unless that argument is essential for rendering the award. In the present case, it
could not be deemed from both these points of view that there had been a
violation of due process. It appeared from the first and second instance award
that the tribunals took note of Defendant’s arguments as to the conclusion of the
contract and the validity of the arbitration agreement, but concluded that they
were not founded, and that no essential argument was overlooked. The court
also found that the fact that Defendant’s request for an oral hearing had been
denied did not lead to a violation of due process. First, Defendant had the
opportunity to fully present its arguments in writing and, second, Defendant
failed to argue or prove how it could have presented arguments at the oral
hearing that could have led the arbitral tribunal to issuing a different decision.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052021-n>.

380
Yearbook Comm. Arb’n XXXV (2010)
 GERMANY NO. 133

133. Oberlandesgericht [Court of Appeal], Munich, 1 Sept

ember 2009,
34 Sch 14/09

Parties: Claimant: Buyer (nationality not indicated)

Defendant: Seller (Germany)

Published in: Available online at <www.dis-arb.de>

Articles: Ill; IV(1); V(1)(e); V(2); VII(1)

Subject matters: — original arbitration agreement or certified copy
required (no) (German law)
_ more-favorable-right provision
— public policy and counsel fees

Topics: [2] + [6] = 301; [3] = ] 402 + ]403 + 702; [4] =

4] 514; [5] = § 523 + J 524 (counsel fees)

S ummary

The court declared the award enforceable, holding that by supplying a copy of the arbitral award,
certified by counsel, claimant complied with the less strict formal requirements ofGerman law, which
applies under the more-favorable-right principle in the 1958 New York Convention. There were no
grounds to refuse enforcement; in particular, the award ofcompensation for legal costs did not violate
German public policy.

On 6 October 2006, the parties concluded a sale contract under which the
German Seller and a Canadian company undertook to deliver certain solar energy
products to Buyer for one year. Clause no. 16 provided that the United Nations
Convention on Contracts for the International Sale of Goods (CISG) and the ICC
Incoterms 2000 applied to the contract. All issues not regulated by the CISG and
the Incoterms would be governed by Canadian law. Clause 17.2 of the contract
referred disputes to arbitration at the Arbitration Institute of the Stockholm
Chamber of Commerce (SCC).
A dispute arose between the parties over the contractually agreed composition
of the products. Buyer commenced arbitration in Stockholm as provided for in
the contract, seeking restitution ofthe sale price and costs. On 14 August 2008,
a sole arbitrator found in favor of Buyer. Buyer then sought enforcement in

Yearbook Comm. Arb’n XXXV (2010) 381

 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

Seller to
Germany of the part of the award (letter (d) of the dictum) directing
tion
pay a certain sum to Buyer as compensation for Buyer’s legal fees in connec
with the arbitration. The Bamberg Court of Appeal forwarded the case to the
Munich Court of Appeal, which has jurisdiction over applications for the
declaration of enforceability of foreign awards filed in Bamberg’s district.
The Munich Court of Appeal granted a declaration of enforceability of the
Swedish award. It noted at the outset that claimant supplied a copy of the arbitral
award, certified by counsel as is allowed under German law, together with a
German translation. This suffices under German law, which applies under the
more-favorable-right principle in the 1958 New York Convention as having less
strict requirements for enforcement than the Convention. In particular, German
law does not require that the party seeking enforcement supply the original
arbitration agreement or a copy thereof.
The court then held that there were no grounds for refusing enforcement
under Art. V(2) Convention. The award of financial compensation for claimant’s
reasonable costs in the arbitration (counsel fees and expenses) in letter (d) of the
award’s dictum did not violate German public policy.
The court of appeal further stated that it was irrelevant whether Canadian law
allows for a declaration of enforceability. German procedural law applies to
proceedings before the German courts, independent of the application of foreign
substantive law and any other foreign connection.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052022-n>.

382
Yearbook Comm. Arb’n XXXV (2010)
 GERMANY NO. 134

134. Oberlandesgericht [Court of Appeal], Munich, 12 Octo

ber 2009,
34 Sch 20/08

Parties: Claimant: Seller (Sweden)

Defendant: Buyer (Germany)

Published in: Available online at <www.dis-arb.de>

Articles: IIT; 1V(1)(a); IV(2); V(1)(a); VII(1)

Subject matters: — existence of arbitration agreement (no)

— confirmation of order differing from order is new
offer
— burden of proof establishing existence of arbitration
agreement
— judicial review of arbitrators’ findings as to existence
of arbitration agreement
= more-favorable-right provision

Topics: [1] + [26] = J 301; [2] = ] 402 + 9 404 + 9 406; [2]

+ [8] = § 702; [5]-[25] = § 507 (mo arbitration
agreement); [6] = § 401 + J 503

S ummary

The court refused to declare an SCC award enforceable, finding that claimant failed to prove the
existence of an arbitration agreement between the parties. The court re-examined the evidence and
concluded that no agreement had been concluded, either orally or through the sending of a
confirmation of order (which substantially differed from the original order).

On 24 January 2006, the German buyer ordered valve systems with LET-LOK
tube fittings from the Swedish seller; the order indicated the price of the systems
but not the price of the fittings. It further referred to buyer’s General Conditions
of Contract, which provided that disputes be referred to a named court. On 13
February 2006, Mr. G, the general manager of the Swedish seller, and witness
A, an employee of the German buyer, had two telephone conversations
concerning the order, whose scope and outcome was disputed by the parties. On
the same day, Swedish seller sent German buyer a confirmation of order

Yearbook Comm. Arb’n XXXV (2010) 383

 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

printed on the reverse in

referring to seller’s General Conditions of Contract,
referral of disputes to the
English and Swedish — the English version provided for
(SCC), while the
Arbitration Institute at the Stockholm Chamber of Commerce
ral tribunal.
Swedish version only provided for the jurisdiction of a Swedish arbit
the systems
By an e-mail of 21 February 2006, the German buyer asked that
h
be delivered without LET-LOK tube fittings. On 22 February 2006, the Swedis
n buyer
seller replied that this was not advisable. On 15 March 2006, the Germa
stated that it would not purchase the tube fittings; this position was reaffirmed
in a telefax of 25 April 2006. The Swedish seller replied that production had
already begun and that it was impossible to deliver the systems without the tube
fittings.
The German buyer accepted two partial deliveries from the Swedish seller and
paid for them in part. On 1 3 September 2006, it informed the Swedish seller that
it would not accept further deliveries and that it would not pay for the two most
recent deliveries.
On 28 May 2007, the Swedish seller commenced SCC arbitration, seeking
damages for breach of contract. The German buyer objected to the jurisdiction
of the arbitral tribunal. By an award of 19 June 2008, an SCC arbitral tribunal
found in favor of the Swedish seller. The arbitrators held that the parties
concluded a valid contract including the arbitration clause in the course of the
two telephone conversations of 13 February 2006. The Swedish seller sought
enforcement of the Swedish award in Germany.
The Munich Court of Appeal denied a declaration of enforceability of the SCC
award. It first noted that the Swedish seller (claimant) complied with the formal
requirements for seeking recognition by supplying the original arbitral award,
certified by counsel, and a translation thereof by a certified translator. This
suffices to meet the requirements under German law, which applies pursuant to
the more-favorable-right provision in the 1958 New York Convention.
The court of appeal found, however, that recognition should be denied. It first
noted that recognition can be granted only if the award is based on an arbitration
agreement in writing within the meaning of Art. II(2) Convention. Here,
claimant had the burden to prove the existence of such agreement, since this was
not a case of defendant (German buyer) arguing that the agreement was invalid
and having to prove its argument under Art. V(1) Convention.
The court then reasoned that a valid agreement under Art. II(2) Convention
can be contained in the General Conditions of Contract of one party, to which
the main contract or an exchange of letters refers, as long as there is a common
intention of the parties. This is also the case under Swedish law, which could be
taken into account as a law setting possibly less strict conditions and thus

384 Yearbook Comm. Arb’n XXXV (2010)

 GERMANY NO. 134

applicable under the more-favorable-right provision in the New York

Convention. In fact, Swedish law allows for oral arbitration agreements but
requires proof of the parties’ common intention to refer their contractual
disputes to arbitration. This was not the case here.
The court remarked that it was not bound to the findings of the arbitral
tribunal in respect of the existence and validity of the arbitration agreement. It
carried out its own examination of the evidence and concluded that it was not
proved that the parties had reached an oral agreement in their telephone
conversations of 13 February 2006.
Nor did the confirmation of order result in the parties concluding a contract
including the General Conditions of Contract containing an arbitration clause,
because the confirmation differed substantially from the original offer (inter alia,
because it referred to seller’s rather than buyer’s General Condition of
Contract). It was irrelevant that German buyer failed to contest it expressly, as
under Swedish law, reactions that are not conform to the original offer are
deemed to reject the old offer and to make a new one. Nor was the confirmation
of order accepted tacitly, because tacit acceptance requires that the parties have
already reached an agreement on the essential points.
The same conclusion would be reached under German law, if applicable under
the more-favorable-right principle.
The court of appeal finally held that defendant’s objection was not precluded
[prakludiert] because defendant failed to impugn the award in Sweden, reasoning
that a party that did not submit to arbitration cannot be expected to commence
setting aside proceeding in the country of rendition of the award.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052023-n>.

385
Yearbook Comm. Arb’n XXXV (2010)
 K CONVENTION 1958
COURT DECISIONS ON THE NEW YOR

Diisseldorf, 15 December
135. Oberlandesgericht [Court of Appeal],
2009, 1-4 Sch 10/09

Parties: Claimant: Seller (nationality not indicated)

Defendant: Buyer (Germany)

Published in: Available online at <www.dis-arb.de>

Articles: III; 1V(1)(a); 1V(1)(b); V(1)(b); VA )(d); V(2)(b); VIIA)

Subject matters: — original arbitration agreement or certified copy
required (no) (German law)
— formal validity of award
— enforcement of parts of award that cannot be forcibly
executed
— due process as ground for violation of public policy
— lack of reasons for award

Topics: [2] + [18] = J 301; [4] = ] 402 + § 403 + | 702; [5]-

[7] + [13] = J 513; [8]-[9] = § 110; [12] = q 511
(failure to attend hearing) + §]523; [14] = § 502; [14]-
[17] = § 522; [17] = J 303

Summary

The court declared an AAA award enforceable. Claimant supplied documents that complied with the
less strict formal conditions of German law for seeking recognition (which applied pursuant to the
more-favorable-right provision of the Convention); also, Claimant could seek recognition of parts of
the award that could not be enforced by means offorced execution. There was no violation of due
process or public policy either because Defendant did not attend the oral hearing (since it had expressly
informed the sole arbitrator that it would not attend and was fully informed of the proceedings) or
because the award lacked reasons, which is allowed under the applicable AAA Rules and does not
violate basic principles of German law.

On 1 November 2003, the US parent company of the present Claimant and the
present Defendant concluded a contract for the sale of language-teaching
software (Claimant was assigned all rights and obligations under the contract on
I June 2006). The contract contained a clause providing for arbitration of

386 Yearbook Comm. Arb’n XXXV (2010)

 GERMANY NO, 135

disputes in the United States under the Commercial Arbitration Rules of

the
American Arbitration Association (AAA),
A dispute arose between the parties on 10 June 2008, when Claimant
terminated the contract alleging breach of contract by Defendant and claiming
damages for UK£ 190,000. On 13 November 2008, Claimant commenced AAA
arbitration as provided for in the contract; it now sought US$ 450,000 in
damages. Defendant participated in the arbitration, but informed the sole
arbitrator that it would not attend the oral hearing because of financial
difficulties. On 14 May 2009, the AAA sole arbitrator rendered an award in favor
of Claimant, finding that the contract was regularly terminated on 10 June 2008
and that Defendant could no longer exercise the rights it had been granted under
the contract and had to return all concerned products (Numbers A.1-3 of the
award). He also directed Defendant to pay Claimant damages in the amount of
US$ 419,542.69 and interest thereon. Claimant sought a declaration of
enforceability of the US award in Germany.
The Dusseldorf Court of Appeal granted the declaration of enforceability. It
first noted that Claimant complied with the formal conditions for a declaration
of enforceability by supplying a copy of the arbitral award, certified by counsel,
and a simple copy of the arbitration agreement together with translations thereof.
Although the 1958 New York Convention requires that the party seeking
enforcement supply the original arbitration agreement or a certified copy
thereof, rather than a simple copy, this is unnecessary under the less strict
requirements of German law, which applies pursuant to the more-favorable-right
provision in the Convention.
The court of appeal then held that the award at hand was valid and final under
the applicable AAA Commercial Arbitration Rules, also in respect of the fact that
it did not contain reasons, as this is allowed under the Rules.
The court noted that Claimant had a legal interest to a declaration of
enforceability of the arbitral award, also to the extent that the award contained
determinations (in Numbers A.1-3) that could not be enforced by means of
forced execution (vollstreckungsfahig Inhalt). A declaration of enforceability does
indeed make forced execution possible; however, it also protects the award from
attacks by means of an annulment action. This is the case in respect of domestic
awards, that can no longer be impugned by an annulment action after they have
been declared enforceable. Although this rule does not apply to foreign awards,
where an action for annulment can be filed abroad, a declaration of enforceability
still protects the award from an action for a declaration that it cannot be
recognized in Germany.

Yearbook Comm. Arb’n XXXV (2010) 387

 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

enforcement.
The court of appeal held that there were no grounds for denying
policy
Defendant alleged various grounds under the due process and public
not
provisions in the New York Convention, arguing in particular that it did
attend the oral hearing, where evidence was taken, and that the award lacked
reasons and did not deal with Defendant’s counterclaim.
The court rejected all of Defendant’s arguments, noting that Defendant itself
chose not to attend the arbitration hearing and that it was fully informed of the
proceedings. Also, the applicable AAA Rules provide that reasons need not be
rendered unless the parties so request or the arbitrator deems it appropriate; this
was not the case here. A lack of reasons in itself does not violate fundamental
principles of German law, in particular since the German legal system provides
that the parties may agree that no reasons be given for the arbitral award.
The court also dismissed Defendant’s argument that the arbitrator failed to
give reasons in respect of his denial of Defendant’s counterclaim. Since a lack of
reasons is not in itself a violation of public policy, it could be relevant here only
if there were a violation of due process. This was not the case here, as it appeared
from the award that the arbitrator acknowledged and dealt with the arguments
of the parties, including the (unspecified) counterclaim by Defendant. The court
added that since the sum of US$ 86.746.30 mentioned by Defendant in the
present proceedings did not appear from any document supplied by Defendant,
Defendant would in any case be estopped (prdakludiert) from relying on a
counterclaim that it had not specified before the arbitrator.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id= KLI-KA-1052024-n>.

388
Yearbook Comm. Arb’n XXXV (2010)
 GIBRALTAR

Accession: 24 September 1975

(Extension by the United Kingdom)
Ist Reservation

1. Supreme Court, 17 November 2003

Parties: Claimant: Chernogorneft Joint Stock Company

(Russian Federation)
Defendant: Wardour Trading Limited (Gibraltar)

Published in: The Gibraltar Law Reports 2003 no. 4, pp. 294-306

Articles: VI

Subject matters: — stay of enforcement proceedings only when the

foreign petition is for setting aside the award
— discretion to stay enforcement proceedings

Topics: ] 601

S ummary

A stay of enforcement of an ICAC award was refused because the petition pending before the Russian
courts — as the courts ofthe country where the award was rendered — was not a petition |
for annulment
of the award but rather an appeal against the decision of the lower courts not to allow a cassation
appeal out of time. Only a petition for setting aside triggers the application of the provision in the
Gibraltar Arbitration Ordinance that mirrors Art. VI of the 1958 New York Convention.

On 20 April 1993, Chernogorneft Joint Stock Company (Chernogorneft) and

Wardour Trading Limited (Wardour) entered into an agreement for the delivery
of crude oil. The agreement was governed by Russian law. It also contained a
clause providing for arbitration of disputes.
A dispute arose between the parties and was referred to arbitration at the
International Commercial Arbitration Court (ICAC) at the Chamber of
Commerce and Industry of the Russian Federation in Moscow. By an award of

Yearbook Comm. Arb’n XXXV (2010) 389

 ENTION 1958
COURT DECISIONS ON THE NEW YORK CONV

of Chernogorneft.
21 February 1997, the arbitral tribunal found in favour
eft sought
Wardour sought annulment of the award in Russia, while Chernogorn
the award’s enforcement in Gibraltar.
City
On 21 July 1997, Wardour commenced proceedings in the Moscow
Court to set aside the award on grounds of bias. On 27 November 1997, the
Moscow City Court dismissed the application, adding that the order was not
subject to “cassation appeal”. On 14 October 2002, Wardour discovered that the
judge’s statement was in fact incorrect and applied to the Moscow City Court to
extend time in which to file a cassation appeal. On 16 January 2003, the court
rejected the application. On 21 March 2003, the Civil Cases Collegium of the
Supreme Court of the Russian Federation dismissed Wardour’s appeal from that
decision. On 20 October 2003, Wardour lodged an appeal with the full court of
the Supreme Court of the Russian Federation. That appeal was pending at the
time of the present decision.
In the meantime, on 7 July 1998 Chernogorneft obtained ex parte
enforcement of the ICAC award in Gibraltar. By summons of 24 July 1998,
Wardour commenced opposition proceedings, arguing that the award had not yet
become binding because an appeal was pending in the Russian courts.
Proceedings were adjourned on 14 August 1998 on Wardour giving a Mareva-
type undertaking. Wardour then filed and withdrew several applications; the
only application standing at the time of the present decision was an application
filed on 30 October 2003, in which Wardour sought a stay of enforcement
pending resolution of its outstanding applications to the courts of the Russian
Federation.
The Supreme Court of Gibraltar, per Schofield, CJ, dismissed Wardour’s
application for a stay of enforcement. It held that it had no power to order an
adjournment under Sect. 52(5) of the Gibraltar Arbitration Ordinance, which
mirrors the provisions in Art. VI of the 1958 New York Convention, as that
Section would only apply if there were an application before the Supreme Court
of the Russian Federation to set aside or suspend the ICAC award. The
application pending in Russia was instead for a review of the decisions of the
Moscow City Court and the Civil Cases Collegium of the Supreme Court
refusing leave to appeal out of time, and an order that the case be sent for a new
trial. The Court dismissed Wardour’s contention, based on the statement of an
expert on Russian law, that the Supreme Court of the Russian Federation could
of its own volition set aside the award, holding that at any event the application
before the Russian court fell outside the scope of Sect. 52(5) of the Ordinance
and did not trigger its application.

390 Yearbook Comm. Arb’n XXXV (2010)

 GIBRALTAR NO. 1

The Supreme Court added that even if Sect. 52(5) Ordinance applied, it
would not exercise its discretion to order a stay. It reasoned that the possibility
that Wardour would succeed in having the award set aside by the Russian courts
was “remote”, in particular in light of the fact that Wardour argued that the
Moscow City Court did not pay sufficient regard to Wardour’s allegations that
it did not receive a fair hearing, while it appeared from the Russian court’s 27
November 1997 decision that the court did in fact consider the complaints by
Wardour and rejected them.
The Gibraltar Supreme Court added that it would refuse a stay even if it was
tempting to adjourn enforcement to enable the Supreme Court of the Russian
Federation to complete its consideration of the appeal, given the short time limits
within which it appeared from the evidence on Russian law that the court has to
work. The Court held, however, that to allow any further delay in execution
would be unjust to Chernogorneft. The fact that Wardour did not discover the
mistake of the Moscow City Court in respect of the possibility for a cassation
appeal until after five years from that court’s decision “should not be laid at the
door” of Chernogorneft.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052025-n>.

391
Yearbook Comm. Arb’n XXXV (2010)
 HONG KONG

Accession: 24 September 1975°

Ist Reservation

24. High Court of the Hong Kong Special Administrative Region,

Court of Appeal, 10 February 2010 and 5 May 2010, Civil Appeal No.
373 of 2008 & Amp; No. 43 of 2009

Parties: Appellant/Plaintiff: FG Hemisphere Associates LLC

(US)
Defendants/Respondents: (1) Democratic Republic of
the Congo;
(2) China Railway Group (Hong Kong) Limited
(nationality not indicated);
(3) China Railway Resources Development Limited
(nationality not indicated)
(4) China Railway Sino-Congo Mining Limited
(nationality not indicated);
(5) China Railway Group Limited (nationality not
indicated)
Intervener: Secretary for Justice (Hong Kong SAR)

Published in: Both decisions available online at <www. hklii.org>

Articles: I

Subject matters: — sovereign immunity from jurisdiction

— sovereign immunity from execution
— implied waiver of sovereign immunity from
execution by agreeing to ICC arbitration (no)

* Accession by PR China on 22 January 1987 and extended to Hong Kong with the
Ist Reservation,
to replace the previous extension by the United Kingdom.

392
Yearbook Comm. Arb’n XXXV (2010)
 HONG KONG NO. 24

— reference to 1958 New York Convention does not

imply Waiver of sovereign immunity from execution

Topics: 4] 105

S ummary

The court held that (i) Hong Kong courts havejurisdiction to determine issues ofstate immunity; (ii)
the doctrine of restrictive state immunity continues to apply in Hong Kong after PR China’s resumption
ofsovereignty; (iii) no waiver ofstate immunity is implied in a State’s submission to (ICC) arbitration;
(iv) no waiver of state immunity is implied under the 1958 New York Convention ifanon-Convention
State arbitrates in a Convention State. This decision was a final decision that could be appealed.

The facts of this case are also reported in Yearbook XXXIV (2009) at pp. 596-
598 (Hong Kong no. 23). In the 1980s, Energoinvest, a Yugoslav company,
provided financing to the Democratic Republic of the Congo (DRC). The
agreement between the parties contained an ICC arbitration clause. Following
a dispute in respect of this relationship, on 30 April 2003 two ICC arbitral
tribunals with seat in France and Switzerland, respectively, rendered two awards
in favor of Energoinvest. By an assignment of 16 November 2004, Energoinvest’s
interest in the awards was transferred to FG Hemisphere (FG).
FG sought enforcement of the awards in the Hong Kong Special
Administrative Region against China Railway Group (Hong Kong) Limited,
China Railway Resources Development Limited and China Railway Sino-Congo
Mining Limited (the 2nd to 4th Defendants), companies of the China Railway
Group Limited (the 5th Defendant), which allegedly owed monies to the DRC
under certain joint venture agreements.
As far as relevant to the present case, the DRC and the People’s Republic of
China entered into two Cooperation Agreements in 2001; in implementation of
those agreements, on 17 September 2007 the DRC and a consortium of Chinese
enterprises, including China Railway and Sinohydro, concluded a Memorandum
of Agreement (MOA) setting out the terms for the creation of a Chinese-
Congolese Joint Venture Company (JVC) that was to develop the DRC’s
infrastructure in consideration of the right to exploit certain mineral resources
of the DRC. Pursuant to further agreements, a second Chinese consortium
(comprising the 2nd to 4th Defendants and two Sinohydro subsidiaries) and
Congolese investors comprising Gecamines (the DRC state mining company, also
known as Congo Mining) and Mr. Gilbert Kalamba Banika, a representative of
Gecamines, entered into a Joint Venture Agreement to establish the JVC; Mr.

Yearbook Comm. Arb’n XXXV (2010) 393

 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

DRC state company). The

Banika’s place was later taken by Congo Simco (a
payment to the
MOA provided that the 2nd to 4th Defendants make an up-front
DRC’s mineral
DRC (the Entry Fees) for the grant of a licence to exploit the
Kong was targeted
rights. FG’s application to enforce the ICC awards in Hong
at these Entry Fees.
ex
On 15 May 2008, the Hong Kong High Court, per Saw J, granted FG’s
ning the
parte application to enforce the two awards, as well as an order restrai
2nd to 4th Defendants from paying the Entry Fees to the DRC.
The DRC resisted enforcement of the awards alleging sovereign immunity.
The Hong Kong Secretary of State submitted evidence in the proceeding in the
form of a letter dated 20 November 2008 from the Office of the Commissioner
of the Ministry of Foreign Affairs of the People’s Republic of China in Hong
Kong to the Constitutional and Mainland Affairs Bureau of the Hong Kong
Government. The Letter stated that PR China takes the stance that sovereign
states enjoy absolute (as opposed to restrictive) immunity before foreign courts.
On 12 December 2008, the High Court, Court of First Instance, per A.T.
Reyes J held that the DRC enjoyed sovereign immunity because the transaction
underlying the awards was not of a commercial nature. FG appealed.
By the first decision reported, rendered on 10 February 2010, the Hong Kong
Court of Appeal, before Frank Stock VP, Wally Yeung JA and Maria Yuen JA,
in an opinion by Stock, dismissed FG’s appeal by a majority decision (Yuen JA
dissenting). The separate opinions of the Judges are reproduced.
Jurisdiction to determine issues of state immunity. The court first dismissed the
argument that the Basic Law of the Hong Kong Special Administrative Region of
the People’s Republic of China (the Basic Law) — which provides that the courts
of the Hong Kong SAR have no jurisdiction over acts of state such as defence and
foreign affairs — deprives the Hong Kong courts of jurisdiction to determine
issues of state immunity. The court reasoned that the act of state doctrine applies
(i) to preclude the courts of a State from questioning the validity of executive and
legislative acts of foreign States and (ii) to preclude the courts from investigating
the legitimacy of sovereign acts of the forum State. This was not the case here,
where the court of appeal was asked to determine whether the DRC was
immune. Hence, the court had jurisdiction to determine the issue of the DRC’s
alleged state immunity from jurisdiction and execution.
Restrictive v. absolute immunity. The court of appeal then considered the issue
whether absolute or relative state immunity presently applies in Hong Kong,
relative immunity meaning that a State is not immune from the jurisdiction of
foreign courts, inter alia, in respect of proceedings to which it has submitted or
proceedings relating to a commercial transaction.

394 Yearbook Comm. Arb’n XXXV (2010)

 HONG KONG NO. 24

The court noted that before the UK State Immunity Act 1978 (SIA) was
extended to Hong Kong, state immunity in Hong Kong was regulated by
common law. The SIA — which recognized the principle of restrictive state
immunity — remained in force in Hong Kong between 1978 and 30 June 1997;
on | July 1997, PR China resumed sovereignty and the SIA ceased to have effect.
No legislation having been enacted to replace the SIA, the issue of state immunity
is now again regulated by common law.
The court then examined what that common law is. In 1977, shortly before
the SIA came into force in Hong Kong, the Privy Council rendered a decision in
the Philippine Admiral case,‘ in which it held that while absolute immunity applied
to actions in personam, the commercial activity exception applied in actions in
rem. The DRC argued that this common law was reinstated after the SIA ceased
to have effect; as the present proceeding was undisputedly in personam, the DRC
was entitled to sovereign immunity. Conversely, the FG argued that the common
law of Hong Kong immediately before the entry into force of the SIA reflected
the common law prevailing in England at that date, which was defined by the
1977 decision of the UK Court of Appeal in the Trendtex case,” holding that the
commercial activity exception also applied to actions in personam; this law was
confirmed by the House of Lords in / CONGRESO?’ in 1983.
The court of appeal reasoned that the common law of England shifted from the
absolute to the restrictive doctrine of state immunity in the second half of the
twentieth century on the premise of a change in customary international law. The
court noted that in common law jurisdictions, customary international law
becomes part of the common law by incorporation, that is, the courts
acknowledge the existence of a body of rules which nations generally accept, save
to the extent that the new customary international law conflicts with domestic
law. While convinced that most States subscribe to the doctrine of restrictive
immunity, the court could not find that this doctrine has accrued such
widespread acceptance as to constitute a rule of customary international law.
However, in Hong Kong’s case it was “idle” to suppose that the doctrine of
restrictive immunity was not part of the common law in Hong Kong just before
the SIA came into force and “unrealistic” to conclude that the courts of Hong
Kong (or the Privy Council on an appeal from Hong Kong) would have taken,
post-1978, a course different from that embraced by the Court of Appeal in
Trendtex and by the House of Lords in JCONGRESO.

1. Philippine Admiral v. Wallem Shipping (Hong Kong) Ltd ({1977] AC 373).

2. Trendtex Trading Corporation Ltd v. Central Bank of Nigeria ({1977] 1 QB 529).
3. Playa Larga v. |CONGRESO DEL PARTIDO ({1983] 1 AC 244).

395
Yearbook Comm. Arb’n XXXV (2010 )
 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

law of Hong Kong

The court, therefore, concluded that the common
gnized the doctrine of
immediately before the entry into force of the SIA reco
of sovereignty by PR
restrictive immunity. After the resumption of the exercise
nue in force save
China, the common law was constitutionally prescribed to conti
legislation
to the extent that it was inconsistent with the Basic Law and with local
nce,
enacted on and after 1 July 1997. This was not the case here. As a conseque
restrictive immunity still applies in Hong Kong.
The court noted the contrast between Hong Kong’s position and the rejection
of the doctrine of restrictive immunity by PR China (the Secretary of Justice
submitted a second letter to this purpose, stating that PR China applies absolute
sovereign immunity and taking the stance that the common law of Hong Kong
should now reflect the position taken by the Chinese Central Government). The
court deemed, however, that the success of the present application did not
constitute or threaten an infringement of the sovereignty of the PRC.
Implied waiver. FG submitted that the DRC’s submission to the arbitration
process constituted waiver of any claim for immunity from that process,
including its final stage, leave for enforcement. Also, by agreeing to the
application of the ICC Rules, which provide that parties undertake to carry out
any award without delay, the DRC waived its immunity from execution.
The court of appeal first noted that it is generally accepted that an agreement
to arbitrate constitutes a waiver of immunity from the arbitration proceedings
themselves, that a State may waive its immunity from jurisdiction and from
execution, and that at common law, a waiver of immunity from jurisdiction does
not imply waiver in respect of execution; rather, a separate waiver is required.
FG argued that the increased participation of States in commercial activities,
and the consequent increase of arbitration clauses between States and private
entities, has brought about a recognition that unless commitment to arbitration
is firm and enforceable, arbitration agreements with States are pointless; hence,
States ought to be prevented from raising pleas of jurisdictional immunity in
foreign enforcement proceedings. FG argued that Hong Kong law reflects that
demand for, and the desirability of, equal treatment, and that implied waiver in
the context of arbitrations between States and private persons is a policy now so
generally applied that it can be deemed to be a rule of international law.
The court disagreed, finding that there is no consensus in this respect among
the authors, and that jurisdictions which have followed this approach have done
so against the backdrop of specific legislation which finds no echo in Hong Kong.
Nor could implied waiver be found under the 1958 New York Convention.
Here, as in the decision of the United States Court of Appeals, District of

396 Yearbook Comm. Arb’n XXXV (2010)

 HONG KONG NO. 24

Columbia, in Creighton,* the ICC awards were rendered in an arbitration held in

a Convention State (France and Switzerland) against a non-Convention State (the
DRC), and the enforcement State was a Convention State (Hong Kong). The
court of appeal agreed with the reasoning in Creighton that while when a country
becomes a signatory to the Convention it must have contemplated enforcement
actions in other signatory states, by agreeing to ICC arbitration in a Convention
State a non-Convention State cannot be said to be “making a representation to
each Convention State that it consents to the enforcement against it in the
Convention State of such arbitral award as may be made”.
Enforcement as part ofthe arbitration process. FG complained that Reyes J took the
execution, rather than the enforcement, stage into account. As, it argued, an
application for leave to enforce a foreign award against a foreign State is a purely
ministerial act, the tail end of the arbitration itself, the DRC should have been
deemed to have waived its immunity from jurisdiction in respect of enforcement
as it did in respect of the arbitration process. The court disagreed, finding that
the grant of leave is not a ministerial act; rather, it requires the court to embark
upon an adjudicative function, so that the question of immunity from that
jurisdiction must be raised and addressed at that stage. The submission of a
foreign State to arbitration operates solely to remove state immunity from the
first stage of arbitration; it does not constitute waiver to the enforcement
jurisdiction or a waiver of state immunity in respect of execution.
Immunity from execution. The court finally held that Reyes J failed to consider
the use to which the Entry Fees were to be put, which determined whether they
were immune from execution. This was an issue of fact which had not been
determined in the proceedings below. Thus, the Court of Appeal referred the
case back to the court of first instance for a determination on this point. This is
the first decision reported.
By the second decision reported, rendered on 10 May 2010, the Hong Kong
Court of Appeal, again in an opinion by Stock, granted the parties leave to appeal
on listed questions, finding that the court’s decision on the issue of the DRC’s
immunity from suit was a final judgement from which appeal was allowed.

A detailed report of these decisions is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052026-n>.

pp.
4. US Court of Appeals, District of Columbia, 2 July 1999, reported in Yearbook XXV (2000)
1001-1013 (US no. 320).

3 97
Yearbook Comm. Arb’n XXXV (2010 )
 INDIA

Ratification: 13 July 1960

lst and 2nd Reservation

44, High Court, Gujarat, 7 February 2005

Parties: Claimant: Swiss Singapore Overseas Enterprises Pvt.

Ltd. (nationality not indicated)
Defendant: M/V AFRICAN TRADER (nationality not
indicated)

Published in: Available on line at <http:// www. indiankanoon.org/

doc/502385/>

Articles: (3); 11(3)

Subject matters: — status of State party to 1958 New York Convention
(“Durban, South Africa”)
— reciprocity reservation
—arbitration agreement “incapable of being performed”
because contradictory

Topics: 9 101+ 9113+ 4 220

Summary

The court refused an application to refer the dispute relating to a charterparty to arbitration in
Durban, South Africa, because the Indian Central Government has not issued a notification that
Durban, South Africa is a Contracting State to the 1958 New York Convention. Hence,-an award
rendered there cannot be enforced in India, which has made the reciprocity reservation in Art. I(3)
Convention. As a consequence there was “no justification in driving the parties to such an arbitration”.
Further, there was no clear and unambiguous arbitration agreement in this case, since the Fixture Note
for the charterparty referred to arbitration in Durban while under the GENCON Charter Party to
which the Note referred arbitration should have been held in London.

398 Yearbook Comm. Arb’n XXXV (2010)

 INDIA NO, 44

By a Fixture Note dated 26 March 2004, Swiss Singapore Overseas Enterprises

Pte Ltd. (Swiss Singapore) chartered the M/VAFRICAN TRADER (the Defendant)
for carrying Gabonese hard wood from Gabon to India. The Fixture Note
enumerated certain terms of the charter and then stated: “Others as per
GENCON Charter Party Revised 1994.” Clause 19 of the GENCON Charter
Party deals with the governing law and arbitration: clause 19(a) provides that the
charterparty shall be governed by and construed in accordance with English law
and refers disputes to arbitration in London; clause 19(c) states that if a place is
indicated in Box 25, arbitration shall be held in that place and the substantive and
procedural law of that place shall apply; clause 19(d) states that if Box 25 is not
filled in, then clause 19(a) applies. The Fixture Note itself provided for “Durban
Arbitration and English Law to apply”.
On 23 November 2004, Swiss Singapore commenced an action in India,
seeking certain payments and the arrest of the M/V AFRICAN TRADER. Arrest was
granted and subsequently lifted upon the posting of security.
The High Court of Gujarat, per K. Puj, J, rejected the Defendant’s application
to refer the dispute to arbitration in Durban. It first dismissed Swiss Singapore’
claim that the Defendant accepted the jurisdiction of the court by furnishing
security to have the arrest lifted, holding that the mere furnishing of security does
not amount to submission to court jurisdiction.
The court then held that any award rendered in Durban between the parties
could not be recognized in India under Sect. 44 of the Indian Arbitration Act
1996, which mirrors Art. I of the 1958 New York Convention. Although all
other conditions were satisfied (the award concerned a commercial legal
relationship, it was made on or after 11 October 1960 and in pursuance of an
arbitration agreement in writing), “Durban, South Africa” was not a reciprocating
Contracting State to the New York Convention because the Indian Central
Government did not issue any notification in this regard. As an award made in
Durban could not be recognized in India, “there is no justification in driving the
parties to such an arbitration”.
The Gujarat court also held that referral to arbitration should be denied in any
event, deeming the arbitration agreement to be “absolutely vague, uncertain,
ambiguous and self contradictory”. The court noted that the Fixture Note
referred to arbitration in Durban. However, clause 19(d) of the GENCON
Charter Party — which provides for arbitration at the place indicated in Box 25
of the standard form — also provides that if Box 25 is not filled in, then clause
19(a) applies, which provides for arbitration in London. In the present case, Box
25 of the standard form was not filled in. This contradiction showed that there

399
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

was no agreement of the parties as to the place of arbitration, “which is one of the
most essential pre-requisites of a valid arbitration agreement”.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052027-n>.

400
Yearbook Comm. Arb’n XXXV (2010)
 INDIA NO, 45

45. High Court, Delhi, 11 May 2010, CS(OS) 2447/2000 & I.A.
12332/2008

Parties: Plaintiff: Fittydent International GmbH (nationality not

indicated)
Defendant: Brawn Laboratories Ltd (nationality not
indicated)

Published in: Available online at <http: Kf indiankanoon.org/

doc/447845>

Articles: II(3); Il; V; V(2)(b)

Subject matters: — separability of arbitration clause

— review of merits of award (no)
— narrow concept of public policy
— public policy and erroneous assessment of facts by
arbitrator
— interest rate modified

Topics: [1]-[3] = J 222; [9]-[14] + [21]-[22] = 502; [15]-

[17] = 518; [18]-[21] = § 524 (erroneous decision);
[23] = 9 307

S ummary

The court granted enforcement of an ICC award, refusing to review its merits. It also dismissed
defendant's public policy objections, holding that public policy only includes the fundamental
principles of Indian law and cannot serve as a vehicle for individual beliefs about the “justice of the
case”. The court accepted the argument that a yearly interest rate of 8.5 percent was excessive and
reduced it to 2 percent. (The court also quoted an earlier decision where an injunction to stay
arbitration on the ground that the main contract was invalid was denied, under reference to the
principle of separability of the arbitration clause.)

On 20 May 1994, Fittydent International GmbH (Fittydent) and Brawn

Laboratories Ltd (Brawn) entered into a License Agreement to manufacture and
market Fittydent’s denture cleansing tablets and adhesive powder in India. The
License Agreement was governed by Austrian law. It also contained an ICC
arbitration clause.

Yearbook Comm. Arb’n XXXV (2010) 401

 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

ment, arguing that

On 25 April 1996, Fittydent terminated the License Agree
increase the sale of the
Brawn had failed to start commercial production and to
e fee
products in India. It then commenced ICC proceedings, claiming the licens
costs.
under the License Agreement, US$ 175,000, together with interest and
7
On 18 February 1998, the ICC appointed a sole arbitrator.
On 27 July 1998, Brawn filed a suit in the Delhi High Court, seeking an
injunction to stay arbitration on the ground that no valid arbitration agreement
existed between Brawn and Fittydent because the main contract that contained
it was null and void. On 23 July 1999, the court dismissed the application,
holding that an arbitral tribunal has the power to rule on its own jurisdiction and
that for that purpose an arbitration clause in a contract is to be treated as an
independent agreement. On 3 November 1999, the Division Bench affirmed the
Single Judge’s decision. On 24 March 2000, the sole arbitrator rendered an
award in favor of Fittydent.
By the present decision, the Delhi High Court, per Mr. Justice Manmohan,
granted enforcement of the ICC award. Brawn first alleged, as it had done in its
injunction application, that the License Agreement was null and void as it
provided that it was subject to the “approval of the Government of India and/or
Reserve Bank of India, as the case may be” and that approval had never been
granted. The court noted that the License Agreement also required Brawn to
“secure all necessary governmental permits, licenses and registrations required
in connection with the manufacture and marketing of the Product in the
Territory”. The court agreed with the sole arbitrator’s conclusion from the
evidence before her — in particular from a letter sent by Brawn to the Secretariat
for Industrial Assistance (SIA), requesting the SIA to suspend rendering a
decision on the approval — that Brawn did not pursue the application. Asa result,
in the court’s words, Brawn could not “claim benefit of its own wrong”.
Brawn further argued that the sole arbitrator violated “justice and morality” by
directing payment of the entire license fee under the License Agreement while
acknowledging that Fittydent did not transfer technical know-how in respect of
the adhesive powder. The court reasoned that the concept of public policy only
includes the fundamental principles of Indian law and cannot serve as a vehicle
for a party’s (or the court’s) individual beliefs about the “justice of the case”: such
broad construction would be at odds with the 1958 New York Convention’s
“basic intent of removing obstacles to enforcement”. Here, the arbitrator did
consider the argument that the technical know-how at issue was not transferred;
her conclusion was not, in the court’s opinion, in violation of public policy.
The court added that no review of the factual findings of the arbitration is
possible in enforcement proceedings. This was also true in respect of Brawn’s

402
Yearbook Comm. Arb’n XXXV (2010)
 INDIA NO. 45

allegation that the arbitrator erred in directing payment of the license fee because
the fee was payable under the License Agreement after two weeks from the date
of commercial production and Brawn never started commercial production. The
court held that this ground was “clearly outside the scope of the limited grounds
available in enforcement proceedings” as it concerned the merits of the case.
The court did accept Brawn’s argument that the interest rate of 8.5 percent
awarded by the sole arbitrator was excessive. The court referred to certain cases
where the Supreme Court reduced the rate of interest and, taking in view the
rate of interest prevalent internationally at the relevant time, reduced the rate in
the present case to 2 percent per annum.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id= KLI-KA-1052028-n>.

403
Yearbook Comm. Arb’n XXXV (2010)
 IRELAND

Accession: 12 May 1981

First Reservation

169 MCA
3. High Court of Ireland, 13 November 2009, 2009

Parties: Applicant: Kastrup Trae-Aluvinduet A/S (Denmark)

Respondent: Aluwood Concepts Ltd. (Ireland)

Published in: Available online at <www. bailii.org>

Articles: V(1)(a); V1)

Subject matters: — incorporation of arbitration clause by general
reference to standard conditions
— enforcement court may review arbitrators’ findings
as to existence of arbitration agreement
— due process and language of arbitration

Topics : [11]-[28] = J 504; [29]-[34] = § 511 (language of

arbitration)

Summary

Enforcement of a Danish award was granted. The court was not bound by the arbitrators’ finding as
to the existence of a valid arbitration agreement but reached the same conclusion that an arbitration
agreement had been validly incorporated into the contract between the parties by reference to standard
conditions. Also, there had been no violation ofdue process because Danish was used in the arbitration:
all documents had been duly communicated, Danish was the language ofthe arbitration and the Irish
defendant could have had the documents translated.

By a letter of 18 August 2006 (the initial quotation letter), Kastrup

Trae-Aluvinduet A/S (Kastrup) entered into an ongoing business relationship
with Aluwood Concepts Ltd. (Aluwood) for the supply from Kastrup to
Aluwood of Scandinavian doors and windows to be used in Aluwood’s
developments in Ireland. The relationship between the parties operated on the

404 Yearbook Comm. Arb’n XXXV (2010)

 IRELAND NO. 3

basis of individual contracts for individual jobs being undertaken by

Aluwood.
The relationship was governed by Kastrup’s Common Terms and Conditions
of
Sale (the Terms), as evidenced by a reference thereto both in the initial quotation
letter and in a confirmation of order of 24 August 2006. The initial quotation
letter further indicated that the relationship would be in accordance with the
“common sales and delivery conditions of VI’, VI (VinduesIndustrien) being the
organization of Danish window producers. Clause 11 of the Terms provided for
arbitration of disputes at the Danish Building and Construction Arbitration Court
(DCA, operating jointly with the Danish Institute of Arbitration).
In 2008, Kastrup sought payment of certain invoices from Aluwood. On 9 July
2008, Aluwood objected that the account of unpaid invoices furnished by
Kastrup did not take into account a number of “contra-charges” based on alleged
defects of the product. Kastrup replied that it would inquire into the matter but
reiterated its request for payment. On 15 August 2008, Kastrup’s Danish
solicitors wrote to Aluwood outlining the level of unpaid invoices which were
owing at that time and requesting payment. These invoices totalled
DKK 945,372.06. Aluwood did not reply, whereupon Kastrup initiated DCA
arbitration proceedings in Denmark on 3 September 2008.
Aluwood objected on various occasions, both to Kastrup and to the DCA, to
the fact that the documents of the arbitration, including Kastrup’s statement of
claim, were provided in Danish. Alleging financial reasons, Aluwood did not hire
an interpreter, nor did it retain a Danish solicitor, as suggested by the DCA.
The DCA extended the time for Aluwood to submit a statement of response
several times. The day before the hearing, which was fixed for 7 April 2009,
counsel for Aluwood raised, inter alia, the point of the lack of a valid arbitration
agreement between the parties in an e-mail to the DCA. The DCA did not accept
this and the other late submissions. On 20 April 2009, the arbitral tribunal
rendered an award in favor of Kastrup. Kastrup sought enforcement of the
Danish award in Ireland.
The High Court of Ireland, per Mr. Justice John Mac Menamin J., granted
enforcement. It first dismissed Aluwood’s argument that there was no valid
arbitration agreement between the parties because Kastrup failed to draw
Aluwood’s attention specifically to the arbitration clause in the Terms. The court
noted that it was not bound by the arbitrators’ decision as to the existence of a
valid arbitration agreement and that it had to reach its own conclusion on this
point. In the present case, it found that the evidence showed that the Terms were
validly incorporated into the contract. The court referred in support of its

405
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

conclusion to the Credit Suisse case,' where the English Court of Appeal held that
it was irrelevant that the other party did not have a copy of the conditions to
which the contract expressly referred. The court added that in the case at hand
Aluwood had performed for eighteen months in accordance with the Terms prior
to raising the objection that there was no valid agreement.
The court also dismissed Aluwood’s objections that there had been violations
of due process in the arbitration, holding that it appeared undisputedly that all
necessary documents were communicated to Aluwood in time, and that
Aluwood could have had the documents, which were not voluminous, translated
if it had wished.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052029-n>.

1. Credit Suisse Financial Products v. Societe Genera

le d’ Enterprises [1997] I.L.P.T. 165 CA.

406
Yearbook Comm. Arb’n XXXV (2010)
 ISRAEL

Ratification: 5 January 1959

No Reservations

4. Beit ha-Mishpat ha-Elyon [Supreme Court], 24 January 2010,

FH
8511/09!

Parties: Petitioner: Teva Pharmaceutical Industries Ltd (Israel)

Respondents: (1) Proneuron Biotechnologies, Inc.
(nationality not indicated);
(2) Proneuron Biotechnologies (Israel) Ltd (nationality
not indicated);
(3) Yeda Research and Development Company Ltd
(nationality not indicated)

Published in: No information available at time of publication

Articles: II(3)

Subject matters: — discretion to refuse stay of proceedings outside New

York Convention’s exceptions
cad public policy and discretion not to stay court
proceedings

Topics: {217+
4218

S ummary

Israeli courts have discretion not to stay court proceedings when there is a valid arbitration agreement,
even when that agreement is not “null and void, inoperative or incapable of being performed”, on
grounds of public policy.

1. The General Editor wishes to thank Dr. Daphna Kapeliuk, Radzyner School of Law,
Interdisciplinary Center, Herzliya, for her invaluable assistance in translating this decision from the
Hebrew original and summarizing its content.

Yearbook Comm. Arb’n XXXV (2010) 407

 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

) and Proneuron
In 2005, Teva Pharmaceutical Industries Ltd (Teva
ement for the
Biotechnologies (Israel) Ltd (Proneuron) entered into an agre
molecule. The
development and commercialization of the Glatiramer acetate
arbitration
agreement provided for arbitration in London pursuant to the rules of
of the London Court of International Arbitration (LCIA).
A dispute arose between the parties. Proneuron filed a suit in the District
Court of Tel Aviv for breach of contract, claiming that while Teva undertook in
the agreement to carry out clinical tests to examine the effectiveness of the
Glatiramer molecule, it did so negligently with low medical standards which
threatened the participants in the tests. Teva petitioned for a stay of proceedings.
On 27 January 2008, the Tel Aviv court denied Teva’s motion for a stay,
holding that while generally it would be inclined to stay proceedings pursuant to
Art. II(3) of the 1958 New York Convention, there are exceptional cases that
may justify denial of a stay, even if these cases do not fall within the exception set
out in Art. II(3) that “the agreement is null and void, inoperative or incapable of
being performed”. The district court held that there was a public interest in this
case that the matter be tried in court and denied the motion for a stay.
On 11 October 2009, the Israeli Supreme Court affirmed the lower court’s
decision by a majority vote of two (Justice Rubinstein, with Justice Procaccia
concurring) to one (Justice Danziger). The Court found that although none of the
exceptions in Art. II(3) applied, a stay can be denied on grounds of public policy.
While the parties’ agreement to have their disputes settled by arbitration must
be honored, public policy is an interest which may (or may not) coincide with the
interest to respect the parties’ agreement. The weight to be given to public
policy must be examined in each case. Justice Danziger argued in his dissent that
courts cannot add exceptions to those specified in Art. II(3) of the Convention.
By the present decision, the Supreme Court, per Chief Justice Beinish,
dismissed Teva’s petition for a further hearing, holding that by its earlier decision
the Court found that it had discretion not to order a stay on grounds of public
policy: the exercise of discretion by the Court is not a ground for a further
hearing. Also, the disagreement between the majority and the minority Justices
focused mainly on the question whether the case at hand fell among those “rare
and exceptional cases” in which a court will deny a stay.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052030-n>.

408
Yearbook Comm. Arb’n XXXV (2010)
 ISRAEL NO. 5

5. Beit ha-Mishpat ha-Eliyon [Supreme Court], 12 April

2010, Civil
Motion for Leave to Appeal 4986/08'

Parties: Plaintiff: Tyco Building Services (Singapore)

Respondents: (1) Elbex Video, Ltd. (Israel);
(2) Megason Electronics & Control Ltd. (Israel)

Published in: Available online at <www.court. gov.il> (Hebrew part

of the website)

Articles: Il(3) (by implication)

Subject matters: — stay of court proceedings

— separability of arbitration clause in conditional
contract

Topics: 217; [12]-[28] + [34]-[36] = § 222; [29]-[30] =

q 201

S ummary

The arbitration clause in a conditional contract remains valid even ifthe contract does not come into
existence because the condition is not met, by virtue of the separability principle and the parties’
freedom to agree to have arbitrators decide on the validity ofthe contract. Here, the parties agreed to
refer to arbitration any dispute under the contract “including any question regarding its existence,
validity or termination”.

In 2001, the Public Works Department and the Prisons Authority of Singapore
published an international tender for the provision and installation of closed
circuit television systems for use in the prisons in Singapore. Among the terms
of the tender, the proposers were required to establish a joint initiative with a
local company. Elbex Video, Ltd. (Elbex) agreed to establish a connection
between Tyco Building Services (Tyco), a Singaporean company, and Megason
Electronics & Control Ltd. (Megason), an Israeli company, in order for the two

1. The General Editor wishes to thank Mr. Alessandro Ethan Naschitz, Naschitz Brandes & Co., Tel
Aviv, for his invaluable assistance in providing this decision and translating it from the Hebrew
original.

Yearbook Comm. Arb’n XXXV (2010) 409

 CONVENTION 1958
COURT DECISIONS ON THE NEW YORK

Tyco would propose only

to cooperate in the tender processes. In exchange,
y if it was awarded
Elbex’s systems in the tender and use those systems exclusivel
and Megason, the
the tender. After Elbex made the connection between Tyco
r.
two established a joint initiative and were eventually awarded the tende
On
On 18 January 2001, Elbex sent Megason a price proposal for the systems.
13 August 2002, Megason sent Elbex a Purchase Order. The Purchase Order
stated that it was “subject to (A) complete client approval of [Elbex’s] CDR
submission and (B) in accordance with the enclosed sub-contract agreement”. It
further provided for the application of the law of Singapore. The Sub-Contract
Agreement that was attached to the Purchase Order equally provided for the
application of the law of Singapore; it also contained a clause referring “[a}ny
dispute arising out of or in connection with this Sub-Contract, including any
question regarding its existence, validity or termination” to arbitration in Ee
=A
A

Singapore at the Singapore International Arbitration Centre (SIAC).

On 10 August 2003, Elbex commenced an action in Israel against Tyco and
Megason, seeking 10,000,000 New Israeli Shekels for various breaches of
contract. Elbex alleged, inter alia, that Tyco and Megason charged excessive
prices for certain Elbex products, did not promptly reply to the requests of the
Singaporean authorities and used non-Elbex products. Tyco and Megason sought
a stay of proceedings and referral of the dispute to SIAC arbitration. On 27 April
2008, the District Court in Tel Aviv-Jaffa denied the application, holding that
there was no arbitration agreement between the parties since the Purchase Order
had not entered into effect because the condition precedent under (A) — approval
of Elbex’s final planning by the Singaporean authorities — had not been met.
The Supreme Court, before E. Hayut, Y. Danziger and Y. Amit, JJ in an
opinion by Danziger, held that the court action should be stayed. The Court
decided the case under Sect. 5 of the Israeli Arbitration Law, according to which
a court has discretion to stay proceedings in favor of arbitration where (1) there
is an arbitration agreement between the parties and (2) that agreement covers the
dispute before the court, if a party to the arbitration agreement so requests
before arguing the merits of the case.
The Court noted that Sect. 6 of the Arbitration Law was also relevant in this
respect. Sect. 6 provides for a stay of proceedings in favor of arbitration where
an international treaty applies and contains provisions on a stay of proceedings.
It was argued in the present case that the 1958 New York Convention applied.
However, the district court did not consider the Convention’s provisions and the
parties did not rely thereon before the Supreme Court. The Court, therefore,
did not apply Sect. 6 of the Arbitration Law.

410 Yearbook Comm. Arb’n XXXV (2010)

 ISRAEL NO, 5

The Supreme Court saw no reason to interfere with the district court’s finding
of fact that an arbitration agreement existed because the Purchase Order and the
Sub-Contract Agreement in which the arbitration clause was contained, though
unsigned by Elbex, were in writing and Elbex’s behavior — specifically its
continued reliance on the Sub-Contract Agreement and the Purchase Order, on
which its claims in the Israeli court were actually based — testified to its intention
to enter into those agreements.
The Supreme Court disagreed, however, with the lower court’s conclusion
that the arbitration agreement was void because the Purchase Order was
conditional on the approval of Elbex’s final plan by the Singaporean authorities,
which had never been given (condition A). The Court examined the cases in
which an arbitration agreement can be deemed separable from the main contract
so that the main contract’s termination or invalidity does not affect it and
concluded that the case of an arbitration clause in a conditional contract is the
same as the case of an arbitration clause in a contract that is alleged to be illegal
or contrary to the public interest. In either case, the arbitration clause survives
the nullity of the main contract “by virtue of the combination of two principles:
firstly, the ability of separation between the clauses of the agreement; secondly,
the consent of the parties — whether at the outset or retroactively — that the
arbitrator indeed has jurisdiction to consider the question of the validity of the
contract”. In the present case, the parties authorized the arbitrators to decide on
disputes “arising out of or in connection with this Sub-Contract, including any
question regarding its existence, validity or termination”.
The Supreme Court further held that the second condition for staying
proceedings was met, namely, that the dispute before the court fell within the
scope of the arbitration agreement, noting that that dispute concerned the
parties’ agreements and Elbex’s claim that Tyco and Megason breached those
agreements.
Justice Y. Amit filed a concurring opinion that is also reproduced below.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052031-n>.

4 11
Yearbook Comm. Arb’n XXXV (2010)
 ITALY

Accession: 31 January 1969

No Reservations

180. Corte di Appello [Court of Appeal], Florence, 11 March 2004

Corte di Cassazione [Supreme Court], First Chamber, 23 July 2009, no.
17312

Parties: Appellant: Nigi Agricoltura srl (Italy)

Respondent: Inter Eltra Kommerz und Produktion
GmbH (Germany)

Published in: Both decisions available online at <www.jurisdata.it>

(subscription required)

Articles: IN; V(1)(a); V(1)(¢)

Subject matters: — incorporation of arbitration clause by reference to
standard conditions
— appointment of arbitrator by arbitral institution
— award rendered by even number of arbitrators
— grounds for refusal of enforcement are exhaustive

‘Topics: [1]-[6] = J 504; [10}-[11] = § 513; [12] + [15]-[17] =

4 501; [13]-[14] = J 505

S ummary

The specific reference in a confirmation of order to FOSFA standard contract no. 11 validly
incorporated the arbitration clause therein into the contract. Enforcement could not be denied on the
ground that the award had been rendered by an even number ofarbitrators, because this is not one of
the grounds exhaustively listed in the New York Convention. It is irrelevant that the Italian law
requires an uneven number of arbitrators in the context of domestic arbitration.

Inter Eltra Kommerz und Produktion GmbH (Inter Eltra), the seller, and Nigi
Agricoltura srl (Nigi), the buyer, entered into a contract for the sale and purchase

412 Yearbook Comm. Arb’n XXXV (2010)

 ITALY NO. 180

of oil seeds through a confirmation of order signed by Nigi’s

broker and sent to
Inter Eltra’s broker. The confirmation of order referred to standa
rd contract no.
11 of FOSFA (Federation of Oils, Seeds and Fats Associations), which
contains
an arbitration clause.
A dispute arose between the parties. Inter Eltra commenced
FOSFA
arbitration in London as provided for in the sale and purchase contract, and
appointed an arbitrator. Nigi did not react to FOSFA’s letter requesting it
to
appoint an arbitrator, whereupon FOSFA appointed the second arbitrator. The
two arbitrators eventually rendered an award in favor of Inter Eltra. Inter Eltra
then obtained an ex parte order of enforcement of the FOSFA award from the
President of the Florence Court of Appeal. On 29 April 2002, Nigi commenced
opposition proceedings.
By the first decision reported, rendered on 11 March 2004, the Florence court
of appeal dismissed Nigi’s opposition. The court reasoned that the sale and
purchase contract was concluded through the confirmation of order signed by
Nigi’s broker and sent to Inter Eltra’s broker, which contained a specific
reference to the arbitration clause in the FOSFA standard contract no. 11. This
constituted a relatio perfecta, though — the court added — “the distinction between
relatio perfecta and relatio imperfecta is less relevant” in light of Art. II(2) of the
1958 New York Convention, which gives so broad a definition of arbitration
agreement to encompass incorporation by generic reference.
The court then dismissed Nigi’s argument that the composition of the arbitral
tribunal was not in accordance with the parties’ agreement. This was an
administered arbitration, and the arbitral institution had simply carried out one
of its tasks by appointing an arbitrator when Nigi failed to appoint one.
Nigi further argued that the award could not be enforced because under Art.
809 of the Italian Code of Civil Procedure the number of arbitrators must be
uneven. The court noted that this provision concerns domestic arbitration and
is irrelevant in the context of the enforcement of a foreign award. This is the first
decision reported.
By the second decision reported, rendered on 23 July 2009, the Italian
Supreme Court affirmed the lower court’s decision. It dismissed as being
inadmissible Nigi’s contention that no contract was concluded between the
parties because the alleged contract was signed by a broker rather than Nigi itself,
holding that this argument was based on the interpretation of a document whose
relevance could not be examined in the context of aproceeding on issues of law
such as the present proceeding before the Supreme Court. As to the applicability
of Art. 809 CCP, the Supreme Court agreed with the finding of the lower court

Yearbook Comm. Arb’n XXXV (2010)

413
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

that this was not a ground for refusal of enforcement under the 1958 New York
Convention.

A detailed report of these decisions is available online at <www.

kluwerarbitration.com/document.aspx?id=KLI-KA-1052032-n>.

414 Yearbook Comm. Arb’n XXXV (2010)

 ITALY NO. 181

181. Corte di Appello [Court of Appeal], Milan, 29

April 2009

Parties: Claimant/ Appellant: C.G. Impianti SpA (Italy)

Defendant/Appellee: B.M.A.A.B. and Sons
International Contracting Company WLL (Kuwait)

Published in: Available online — at <http: //dejure.giuffre.it>

(subscription required)

Articles: V; V(2)(b)

Subject matters: — public policy and lack of impartiality by arbitrator

— public policy and evaluation of evidence by arbitrator
— review of merits of award (no)
— review of evaluation of evidence (no)
— grounds for refusal of enforcement are exhaustive
and strict
— international public policy
— due process as ground for violation of public policy

Topics: 4 521 + § 524 (evaluation of evidence); [2]-[6] =

$502; [6]-{8] = 9 522; [8] = J 501; [9}-[13] = § 518;
[10] = ] 503; [14] = 9 523

S ummary

The Milan Court ofAppeal denied claimant’s opposition. It held that the allegation that the award
violated public policy because of the “evident” partiality of the arbitrators was both inadmissible — as
it amounted in fact to an attempt ofhaving the court review the arbitrators’ evaluation ofthe evidence
and thus the merits of the award — andfactually unfounded, as claimant failed to prove that the
arbitrators were biased. Nor should enforcement be denied because the reasons for the award allegedly
contradicted the evidence. Contradiction within the dictum can be a reason for annulling a domestic
award but is not a ground for refusing enforcement of a foreign award. Nor was there such
contradiction here. The court further held that claimant failed to prove that enforcement would violate
international public policy, that is, the fundamental principles and values of the Italian legal system,
or that there had been a violation ofprocedural public policy.

On 7 September 2000, B.M.A.A.B. & Sons International Contracting Company

WLL (BMAAB) subcontracted the installation of electrical wiring on oil drilling

415
Yearbook Comm. Arb’n XXXV (2010)
 YORK CONVENTION 1958
COURT DECISIONS ON THE NEW

anti SpA (Impianti). The contract

platforms in the Persian Gulf to C.G. Impi e
the parties to arbitration by thre
contained a clause referring disputes between
|
arbitrators in Kuwait.
anti’s undisputed delays in
A dispute arose between the parties when Impi
KJO, a Kuwaiti-Saudi entity, to
performance allegedly caused main contractor
AB commenced arbitration in
terminate the main construction contract. BMA
for breach of contract by
Kuwait, seeking termination of the subcontract
tribunal found that the
Impianti, and damages. On 20 March 2005, an arbitral
r the subcontract,
delays were due mostly to Impianti’s failure to perform unde
ges. They awarded
while BMAAB was responsible for 17 percent of the dama
BMAAB Saudi Ryals 4,341,813.09 in compensation.
of first
Impianti sought annulment of the award before a Kuwaiti court
2006, the
instance; its request was denied on 25 March 2006. On 24 September
sought
Kuwaiti court of appeal affirmed the denial decision. BMAAB in turn
l
enforcement of the award in Italy. On 2 May 2006, the Milan Court of Appea
granted enforcement by decree. Impianti commenced opposition proceedings.
The Milan Court of Appeal denied the opposition. Impianti first argued that
the arbitrators evaluated the evidence of the case “in an abnormal manner”
because they were biased in favor of BMAAB. In particular, Impianti maintained
that the arbitrators wrongly found that Impianti was liable for the delays, as the
delays were rather imputable to BMAAB’s failure to supply transport vessels and
to bad weather at sea.
The court of appeal reasoned that Impianti’s opposition to enforcement was,
first of all, inadmissible as it would require a review of the merits of the award
that is precluded to the enforcement court. Impianti actually recognized this in
its statement in opposition, but then proceeded nevertheless to base its argument
on all the issues discussed in the arbitration and settled in the award: the contents
of the contract; its claim that the delays were due to seasonal bad weather;
BMAAB’s failure to provide for sufficient transport vessels, etc.
The court of appeal also dismissed Impianti’s argument that enforcement
should be denied because the reasons for the award were illogical in respect of
the evidence. Italian law provides that domestic awards may be annulled if they
contain contradictory provisions; however, the contradiction must be among the
various elements of the dictum of the decision, while it is irrelevant that there is
contradiction among different parts of the arbitral tribunal’s reasons or between
the reasons and the dictum. An internal contradiction of the reasons is to be
taken into account, for the annulment of domestic awards, only “when it is
totally impossible to track the logical and juridical development of the decision”
because no reason at all is given. This was not the case here, and in any event

416 Yearbook Comm. Arb’n XXXV (2010)

 ITALY NO. 181

defects in the arbitral tribunal’s reasoning are not listed among the grounds for
refusing enforcement of a foreign award,
The court added that grounds relating to the reasons given by the arbitrators
for their decision fall outside the scope of international public policy, which only
concerns the fundamental principles and values of the forum’s legal system.
Impianti failed to prove that it was discriminated against and even derided in the
arbitration, as it claimed, and that the arbitrators decided against the evidence.
The sole fact that the arbitrators decided against Impianti was by itself neither a
violation of public policy nor a defect in the reasons that could amount to a
violation of public policy.
Nor did Impianti prove that there was a violation of procedural public policy,
such as a violation of due process. It appeared on the contrary that Impianti had
been represented by counsel in the arbitration and that it even appointed one of
the three arbitrators on the panel. The court further noted that the arbitrators,
including the arbitrator appointed by Impianti, had rendered a unanimous
decision.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052033-n>.

417
Yearbook Comm. Arb’n XXXV (2010)
 K CONVENTION 1958
COURT DECISIONS ON THE NEW YOR

Civil Chamber, 23
182. Corte di Cassazione [Supreme Court], First
July 2009, no. 17291

Parties: Appellant: Microware s.r.l. in liquidation (Italy)

Appellee: Indicia Diagnostics S.A. (nationality not
indicated)

Published in: Giustizia Civile Massimario (2009) pp. 7-8; available

online at <www.dejure.it> (subscription required)

Articles: IV(1)(b)

Subject matters: = original arbitration agreement not submitted “at the

time of application”
— certified copy of arbitration agreement invalid
because signature illegible

Topics: 4]404 + § 405

Summary

The Supreme Court confirmed its jurisprudence that the original arbitration agreement or a certified
copy thereof must be supplied at the time offiling the request for enforcement ofan award; ifnot, the
request is not admissible. A finding that this prerequisite is lacking does not preclude a new application
for enforcement.

On 12 January 1999, an arbitral tribunal of the International Chamber of

Commerce (ICC) rendered an award in favor of Indicia Diagnostics S.A. in a
dispute with Microware s.r.]. (Microware). On 11 April/4 June 2003, Indicia
Biotechnology S.A. (Indicia), Indicia Diagnostics $.A.’s successor, obtained
enforcement of the ICC award in Italy by an ex parte order of the President of
the Venice Court of Appeal.
On 4 July 2003, Microware filed opposition proceedings against the
enforcement order, arguing, inter alia, that enforcement should be denied
because Indicia failed to supply the original arbitration agreement or a certified
copy thereof when filing its application for enforcement. The Venice court noted
that Indicia supplied a certified copy of the contract containing the arbitration
clause; however, the signature of the person issuing the certification of

418 Yearbook Comm. Arb’n XXXV (2010)

 ITALY NO. 182

authenticity was illegible and his or her capacity not indicated. The court
therefore granted Indicia a time limit in which to provide the original arbitration
agreement or a duly certified copy thereof. Indicia complied with the court’s
request. On 17 August 2005, the Venice court of appeal partially confirmed the
enforcement order, granting Microware’s counterclaims in part.
The Supreme Court annulled the lower court’s decision and denied
enforcement, confirming its consistent jurisprudence that the requirement in
Art. IV of the 1958 New York Convention (mirrored in Art. 839(2) of the Italian
Code of Civil Procedure) that the original arbitration agreement or a certified
copy thereof be supplied at the time of filing the request for enforcement
concerns the admissibility of the enforcement proceedings rather than the
evidence-collecting phase. As a consequence, it is “not a mere condition for the
action whose lack can be cured in the course of the proceeding”.
The Court also confirmed its earlier jurisprudence that a finding that this
essential prerequisite is lacking does not preclude a new application to enforce
the same award.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052034-n>.

419
Yearbook Comm. Arb’n XXXV (2010)
 MALAYSIA

Accession: 5 November 1985

lst and 2nd Reservation

4. Federal Court of Malaysia, 3 November 2009, Civil Appeal no:

02(f)-37-2008(W)

Parties: Appellant: Lombard Commodities Limited (nationality

not indicated)
Respondent: Alami Vegetable Oil Products SDN BHD
(Malaysia)
Published in: 2 The Malayan Law Journal (2010) p. 23

Articles: 1(1); IM; IV(1)(6); V(1)(a)

Subject matters: — status of State party to 1958 New York Convention
(United Kingdom)
= applicability of 1958 New York Convention to
enforcement of non-contracting State award

Topics: q 101 + § 113 + § 301; [29]-[32] = §] 507 (non-

signatory); [33] = 4]403

Summary

The provision in the 1985 Act implementing the 1958 New York Convention that notification in the
Gazette is conclusive evidence that a State is a party to the Convention does not mean that enforcement
must be denied if the State of rendition of the award has not been gazetted. That provision is
evidentiary in nature and does not impose a further condition for the enforcement of Convention
awards. Evidence of the status of a Contracting State may be obtained by other means.

The facts of this case are also reported in Yearbook XXXIV (2009) at pp. 688-
690 (Malaysia no. 3). On 22 September 2000, Alami Group Sdn Bhd, as the
charterer, entered into a Tanker Voyage Charterparty for the M/T LISBOA with
Lombard Commodities Limited (Lombard), as agents of the owners of the vessel.

420 Yearbook Comm. Arb’n XXXV (2010)

 MALAYSIA NO, 4

The charterparty was on a VEGOILVOY standard form,

which provides for the
application of English law and contains a clause for
arbitration of disputes in
London.
A dispute arose between the parties and Lombard
commenced arbitration
against Alami Group Sdn Bhd, seeking demurrage in
the amount of
US$135,623.96 together with interest and costs. On 10 July 2002, a sole
arbitrator in London rendered an award in Lombard’s favor. Lombard
sought
enforcement of the London award against Alami Vegetable Oil Products Sdn
Bhd
(Alami) in Malaysia.
The High Court granted enforcement, denying Alami’s argument that it was
not a party to the charter and the arbitration clause therein. Alami appealed. In
the appellate proceedings, Alami raised a new objection, namely, that the award
was unenforceable because the King (Yang di-Pertuan Agong) had not declared,
by way of an order in the Malaysian Gazette, that the United Kingdom is a party
to the 1958 New York Convention, as required under the 1985 Act
implementing the 1958 New York Convention in Malaysia (the Implementing
Act). On 26 February 2009, the Court of Appeal in Putrajaya granted Alami’s
objection and reversed the lower court’s decision. The court also held that it did
not appear from the evidence of the case that Alami was a party to the arbitration
agreement between Lombard and Alami Group Sdn Bhd, and faulted the lower
court for failing to consider that Lombard did not supply the original arbitration
agreement or a duly certified copy thereof.
The Federal Supreme Court, before Arifin Bin Zakaria, CJ (Malaya), Hashim
Bin Dato’ Hj Yusoff, FCJ, Gopal Sri Ram, FCJ, in an opinion by Arifin Zakaria,
reversed the appellate decision, holding that a declaration in the Gazette by the
Yang di-Pertuan Agong is not a condition precedent before an award made in a
State Party to the New York Convention can be deemed a Convention Award.
The relevant provision in the Implementing Act merely provides that if the King
has issued a Gazette Notification declaring a particular state as a Contracting
State, the Gazette Notification can be relied upon by the parties as forming
conclusive evidence of the fact that the State is a Contracting State under the
New York Convention. This provision is thus evidentiary in nature, and the fact
that a State is a party to the New York Convention can be proved by other means
(such as a request for information to the United Nations Treaty Collection). In
the present case, it was never in dispute that the United Kingdom is a
Contracting State to the New York Convention. The Supreme Court added that
a different conclusion — such as the one reached by the Putrajaya court both in

421
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

this case and the 2006 Sri Lanka Cricket case' — would have the effect of imposing
an additional condition before a Convention Award could be enforced in
Malaysia; such condition would be “wholly repugnant to Art. Ill of the New York
Convention”.
The Court finally held that Alami’s contention that it was never a party to the
arbitration agreement should be raised in an annulment action before the English
courts rather than in the enforcement proceedings. As to the argument that
Lombard failed to supply the arbitration agreement, the court of appeal should
not have dealt with it as it was never discussed before the High Court; further,
it was contradicted by the file of the case, which showed that Lombard did in fact
supply a certified true copy of the charterparty containing the arbitration clause.

A detailed report of this decision is available online at <www. ee

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052035-n>.

1. Sri Lanka Cricket v. World Sport Nimbus Pte Ltd [[2006] 3 ML]
117], , reported in Y earbook XXXIII
(2008) pp. 607-612 (Malaysia no. 2). , a

4 22
Yearbook Comm. Arb’n XXXV (2010)
 NETHERLANDS

Ratification: 24 April 1964

Ist Reservation

34. Hoge Raad [Supreme Court ], First Chamber, 25 June

2010, no.
09/02565 EE!

Parties: Appellant: OAO Rosneft (Russian Federation)

Respondent: Yukos Capital s.a.r.]. (Luxembourg)

Published in: Available online at <http:// zoeken.rechtspraak.nl.>

and <http://jure.nl>

Articles: Ill

Subject matters: — decision granting enforcement appealable (no)

— enforcement of 1958 New York Convention awards
no more onerous than enforcement of domestic awards
— Art. 6 European Convention on Human Rights

Topics : q 301

S ummary

Since no appeal is available against a decision granting enforcement of a Dutch domestic award, no
such appeal is available also in respect of a Convention award pursuant to the prohibition of more
onerous procedures forforeign awards in Art. III Convention. This “asymmetry” does not violate the
European Convention on Human Rights in respect ofboth types ofaward.

The facts of this case are also reported in Yearbook XXXIV (2009) at pp. 703-
705 (Netherlands no. 31). In July and August 2004, Yukos Capital s.a.r.1. (Yukos
Capital) and the Russian company OJSC Yuganskneftegaz (Yuganskneftegaz),

1. The General Editor wishes to thank Dr. Gerard Meijer, NautaDutilh, Rotterdam, for his invaluable
assistance in translating this decision from the Dutch original.

Yearbook Comm. Arb’n XXXV (2010) 423

 ENTION 1958
COURT DECISIONS ON THE NEW YORK CONV

loan agreements
both companies of the Russian Yukos Group, entered into four
Yuganskneftegaz.
under which Yukos Capital lent certain amounts to
also a Russian
Yuganskneftegaz was wholly owned by Yukos Oil Company,
providing
company of the Yukos Group. The loan agreements contained a clause
for arbitration of disputes at the International Commercial Arbitration Court
(ICAC) at the Chamber of Trade and Industry of the Russian Federation.
On 19 December 2004, all ordinary shares in Yuganskneftegaz — 76.79
percent of the issued share capital — were sold for about € 7 billion at an enforced
auction following the tax assessments imposed on Yukos Oil Company by the
Russian State. The buyer was a Russian company that had been incorporated only
a few weeks before, Baikal Finance Group (Baikal). On 23 December 2004,
Rosneft, an oil and gas company largely owned by the Russian State, bought the
Yuganskneftegaz shares from Baikal.
On 27 December 2005, Yukos Capital commenced four arbitration
proceedings against Yuganskneftegaz at the ICAC in Moscow. On 19 September
2006, the ICAC arbitrators issued four arbitral awards directing Yuganskneftegaz
to pay Yukos Capital about 13 billion ruble. On 1 October 2006,
Yuganskneftegaz merged with Rosneft and ceased to exist.
Rosneft sought annulment of the ICAC awards in Russia. On 18 and 23 May
2007, the Arbitrazh (Commercial) Court of the City of Moscow granted Rosneft’s
request to set aside the awards. This decision was affirmed by the Federal
Arbitrazh Court for the Moscow District on 13 August 2007; on 10 December
2007, the Supreme Arbitrazh Court of the Russian Federation affirmed the
appellate decision.
In turn, Yukos Capital sought enforcement of the awards in the Netherlands.
On 20 December 2006, it obtained attachment of Rosneft’s assets held by a third
party in the Netherlands. On 28 February 2008, the President of the Amsterdam
Court of First Instance (Voorzieningenrechter)” denied enforcement of the ICAC
awards under the 1958 New York Convention because the awards had been set
aside in Russia.
On 28 April 2009, the Amsterdam Court of Appeal reversed the lower court’s
decision and granted enforcement, holding that the 1958 New York Convention
does not require enforcement courts to recognize decisions setting aside the
award in the country of rendition automatically. Rather, the enforcement court

2. Note General Editor. The President ofthe District Court is now called the “ Voorzieningenrechter” which
may be translated literally as “interim measures judge” or “provisional measures judge”. Since it is
still customary in the context of international arbitration in the Netherlands to use the term
“President of the District Court”, this terminology has been retained.

424 Yearbook Comm. Arb’n XXXV (2010)

 NETHERLANDS NO, 34

must ascertain that the setting-aside decision meets the private international law
requirements of the enforcement country. On the basis of press articles and
reports of international organizations, as well as court decisions in England,
Lithuania, Switzerland and the Netherlands, that reported on the lack of
impartiality and independence of the Russian courts in cases concerning interests
of the Russian State, the Amsterdam Court of Appeal held that the Russian
decisions setting aside the ICAC awards did not meet those requirements. The
and
court noted that Rosneft and the Russian State were closely interconnected
to be its
the awards affected interests that the Russian State expressly considered
own. Rosneft appealed.
s, before Vice-
By the present decision, the Supreme Court of the Netherland
W.A.M. van
President D.H. Beukenhorst, chairman, and Justices E.J. Numann,
Yukos Capital’s argument
Schendel, F.B. Bakels and C.A. Streefkerk, granted
that Rosneft’s appeal was inadmissible.
appeal in cassation is available
Yukos argued that under Dutch law no appeal or
stic award (while decisions
from court decisions granting enforcement of a dome
wing such appeal — with the
denying enforcement can be appealed). Allo ct of
decisions rendered in respe
accompanying extra costs and delay — from
York Convention would result in a
foreign awards falling under the 1958 New
within the meaning of Art. Ill of the
more onerous condition for enforcement
Convention. ined
outset that no guidance can be obta
The Supreme Court noted at the aux
er fro m the wor din g of Art. Ill itself or from the Convention’s trav
eith itions
g of “substantially more onerous cond
préparatoires as to the precise meanin of the
Court assumed that the intention
or higher fees or charges”. The can be
to ensure that Convention awards
Convention’s drafters was simply rous
thr oug h a sim ple and exp edi ted procedure that cannot be more one
enforced
nt pro ced ure for dom est ic awards. The Court stressed the
than the enforc eme
substantive
ural rules for enforcement, as the
point that Art. II] concerns proced tion itself.
ns for enf orc eme nt are excl usively governed by the Conven
conditio eal were
e Cou rt agr eed wit h Yuk os’s contention that if an app
The Suprem
lan ds aga ins t a dec isi on granting leave to enforce a
allowed in the Net her
in comparison
tio n awa rd, this wou ld res ult in a more onerous condition
Conven means of
awa rds . The Cou rt add ed that this exclusion of the legal
to domestic in the case
in cas sat ion can be ove rri dden “on grounds accepted
appeal and appeal Rosneft did not assert such
Court”. However,
law of the Dutch Supreme
rounds. rd can be
mis sed Ros nef t’s ar gu ment that a domestic awa
The Court dis ement
t for an nu lm en t or rev ocation even after enforc
attacked through a reques

425
XXXV (2010)
Yearbook Comm. Arb’n
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

set
is granted, and that if that request is successful the leave for enforcement is
aside as a consequence, whereas no such means are available against a foreign
award. The Court agreed that foreign arbitral awards falling under the New York
Convention may not be set aside or revoked in the Netherlands; however, it
found that there is no reason to compensate for this lack by making appeal and
appeal in cassation available against a decision granting enforcement even though
such means are not available in respect of domestic awards.
Rosneft also argued that the application of the “asymmetric” system of Dutch
law — under which appeals are possible against decisions denying enforcement
but not against decisions granting it — to foreign awards is a breach of due process
of law and in particular of the principle of “equality of arms” enshrined in the
European Convention on Human Rights.
The Supreme Court disagreed. It referred to the reasoning in the Advisory
Opinion of the Advocate-General of the European Court of Justice to hold that
the asymmetric system in respect of Dutch domestic awards is not per se a
violation of the European Convention on Human Rights, as it does not put one
party at a substantial disadvantage with respect to the other party: if enforcement
is granted, the means of revocation and annulment are still available. Extending
this system to awards falling under the New York Convention — which is
required under Art. III Convention and favors enforcement — is not a violation
of due process of law or the principle of “equality of arms”.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052036-n>.

476
Yearbook Comm. Arb’n XXXV (2010)
 RUSSIAN FEDERATION

Ratification: 24 August 1960

Ist Reservation

25. Federal Arbitrazh Court, Moscow District,

27 August 2009, No.
KG-A40/8155-09, Case No. A40-51596/09-68-437!

Parties: Petitioner: Capital Group LLC (Russian Federation)

Respondent: Eric van Egeraat Associated Architects BV
(Netherlands)

Published in: English translation available online at <www.

arbitrations.ru>

Articles: II; V(1)(c); V(2)(b)

Subject matters: — lack of impartiality by arbitrator (no)
— scope of arbitration clause
— review of evaluation of evidence (no)
— review of merits of award (no)

Topics: [5]-[7] = §] 521; [8] = J 512; [9] = ¥ 501; [9]-[10] =

q 502

S ummary

The court granted enforcement ofan SCC award, denying the objection that one ofthe arbitrators was
biased because she participated in a
conference where claimant’s counsel was one of the speakers and
that was allegedly organized by his law firm. Also, the claim for payment for additional work fell
under the broad arbitration clause in the contract because this work was performed under the
Agreement and had an “obvious and close link” with it. The court could not review a copyright claim
and a claim that the compensation awarded was not proportionate because they concerned the merits.

1. The General Editor wishes to thank Mr. Roman Zykov, Hannes Snellman Attorneys,
Moscow /Helsinki, for his invaluable assistance in providing this decision and translating it from the
Russian original.

Yearbook Comm. Arb’n XXXV (2010) 427

 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

van Egeraat
On 5 September 2003, Capital Group LLC (Capital) and Eric
certain
Associated Architects BV (Van Egeraat) entered into an agreement for
es at the
works. The agreement contained a clause for arbitration of disput
Arbitration Institute of the Stockholm Chamber of Commerce (SCC).
A dispute arose between the parties. On 17 March 2008, an SCC arbitral
tribunal rendered an award in favor of Van Egeraat, directing Capital to pay
certain sums for the first stage of the works, additional work, loss of profit and
violation of Van Egeraat’s copyright, as well as the costs of the arbitration. Van
Egeraat sought enforcement of the Swedish award before the Moscow Arbitrazh
(Commercial) Court. On 30 June 2009, the court granted enforcement. Capital
appealed.
The Federal Arbitrazh Court for the Moscow District affirmed the lower
court’s decision that there was no ground to deny enforcement. It denied in
particular Capital’s allegation that one of the arbitrators had been biased because
she participated in a conference where claimant’s counsel was one of the speakers
and that was allegedly organized by his law firm. The court noted that the law
firm at issue was merely a media sponsor of the conference and concluded that
participation in the conference led to “no legal relation, interrelation or
commercial interest” between the law firm, its partner who then became Van
Egeraat’s counsel, and the arbitrator in the SCC arbitration.
Nor was Capital’s argument that the arbitrators decided on matters beyond the
scope of the arbitration clause successful. The court reasoned that the arbitration
clause in the contract was a broad clause that encompassed Van Egeraat’s claim
for payment for additional work because this work was performed under the
Agreement and had an “obvious and close link” with it.
Last, the court rejected Capital’s argument that the amount of the
compensation was not proportionate to the extent of Capital’s liability and a
further argument in respect of Van Egeraat’s copyright claim, holding that they
both concerned the merits of the case, which could not be reviewed by the
enforcement court.
ei
—

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052037-n>.

428 Yearbook Comm. Arb’n XXXV (2010)

 RUSSIAN FEDERATION NO. 26

26. Federal Arbitrazh Court, Central Dist

rict, 7 September 2009, No.
F10-915/09(2), Case No. A54-3028/2008-S
10
Supreme Arbitrazh Court, 12 November
2009, No. VAS-13211/09
Presidium of the Supreme Arbitrazh Court, 2
February 2010!

Parties: Petitioner: Lugana Handelsgesellschaft mbH

(Germany)
Respondent: OAO Ryazan Metal-Ceramic Instrument
Factory (Russian Federation)

Published in: English translations of all decisions available online at

<www.arbitrations.ru>

Articles: I; V(1)(a); V(1)(c)

Subject matters: — waiver of defense by participation in arbitration
— arbitration agreement “in writing”
~ intention to arbitrate may (not) be evidenced by
party’s behavior
— period of limitation to request enforcement of
foreign award
— availability of post-award interest

Topics: [6] + [11]-[18] + [26]-[32] + [35] = J 504 + 9 513;

[19]-[21] = 306; [23]-[24] = J 307

S ummary

The first decision denied enforcement of three DIS awards because DIS arbitration was not in
accordance with the agreement of the parties, which had not amended the original SCC arbitration
clause in their contracts in writing. The second decision reversed, holding that it appeared from the
evidence that the Russian party agreed with the proposed amendment to the arbitration clause (from
SCC to DIS) and fully participated in the DIS arbitration. By the third decision, the Presidium
affirmed the decision of the Supreme Arbitrazh Court.

1. The General Editor wishes to thank Mr. Roman Zykov, Hannes Snellman Attorneys,
Moscow/ Helsinki, for his invaluable assistance in providing these decisions and translating them
from the Russian original.

Yearbook Comm. Arb’n XXXV (2010) 429

 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

and OAO
On 14 December 2000, Lugana Handelsgesellschaft mbH (Lugana)
uded
Ryazan Metal-Ceramic Instrument Factory (Ryazan Ceramic) concl
n
Contract No. 061200 (the Contract). On 10 January 2001, Lugana and Ryaza
Ceramic also concluded an Exclusive Distributor Agreement (the Agreement) for
the supply of magnetically operated sealed switches. Both the Contract and the
Agreement contained a provision for arbitration of disputes at the Arbitration
Institute of the Stockholm Chamber of Commerce (SCC).
A dispute arose between the parties. On 27 July 2004, Lugana sent a letter to
Ryazan Ceramic outlining its claim and suggesting that arbitration be held at the
German Institution of Arbitration (Deutsche Institution fur Schiedsgerichtsbarkeit —
DIS) rather than the SCC. By letter of 30 July 2004, Ryazan Ceramic’s
representative allegedly agreed with this proposal and appointed an arbitrator;
it then participated in the ensuing DIS arbitration.
On 11 August 2005, a DIS arbitral tribunal rendered an award in favor of
Lugana, directing Ryazan Ceramic to pay Lugana US$ 463,31 7.63 and interest
thereon, to provide information to Lugana on certain contracts it had concluded
after entering into the Agreement and to supply 500,000 switches to Lugana at
the price of US$ 0.072 per switch. The DIS arbitrators subsequently issued two
further awards: one on 14 October 2005, directing Ryazan Ceramic to
compensate Lugana for the arbitration fees it had advanced and for counsel fees,
and one on 27 December 2005 on other costs of the arbitration and counsel fees.
Lugana sought enforcement of the three DIS awards in the Russian Federation.
On 2 February 2009, the Arbitrazh (Commercial) Court for the Ryazan District
granted enforcement. This decision was reversed on 9 April 2009 by the Federal
Arbitrazh Court for the Central District. On 24 June 2009, on remand, the
Arbitrazh Court of the Ryazan District denied enforcement. Lugana appealed.
By the first decision reported, rendered on 7 September 2009, the Federal
Arbitrazh Court for the Central District affirmed the lower court’s decision
denying enforcement of the three DIS awards. It reasoned that the lower court
correctly held that the DIS awards were not in accordance with the agreement
of the parties, as provided for in Art. V(1)(c) of the 1958 New York Convention
and in the law of the Russian Federation, because the parties did not amend the
SCC arbitration clause in their contracts in a valid manner — that is, in writing.
Lugana argued that the parties did reach a valid agreement to amend the SCC
arbitration clause because Ryazan Ceramic did not raise the objection of the lack
of jurisdiction of the DIS arbitrators during the arbitration. The court agreed
with the lower court that the failure to raise such objection was not per se
evidence of a valid arbitration agreement. Hence, the three DIS awards were

430 Yearbook Comm. Arb’n XXXV (2010)

 RUSSIAN FEDERATION NO. 26

rendered by an arbitral institution that was not in accordance with the parties’
agreement, and enforcement should be denied.
The appellate court disagreed with the lower court’s conclusion that the time
limit to seek recognition and enforcement — three years — had expired, noting
that Lugana filed its application on 7 August 2008, that is, before expiry of the
three-year limit. However, this was irrelevant in light of the appellate court’s
conclusion that the decision of the Ryazan court should be confirmed. This is the
first decision reported.
By the second decision reported, rendered on 12 November 2009, the
Supreme Arbitrazh Court of the Russian Federation reached the opposite
conclusion: that the parties validly concluded an agreement for DIS arbitration
within the meaning of Art. V(1)(a) of the New York Convention. The Court
noted that it appeared from the file of the case that Ryazan Ceramic agreed with
the proposed amendment to the arbitration clause (from SCC to DIS) and
appointed an arbitrator in its reply of 30 July 2004 to Lugana’s letter of 27 July
2004. It added that it appeared from the award that Ryazan Ceramic fully
participated in the DIS arbitration, thereby agreeing thereto by its conclusive
behavior.
The Court therefore referred the case to its Presidium for a decision on the
disagreement between its own decision and the decision of the Ryazan Arbitrazh
court. This is the second decision reported.
By the third decision reported, rendered on 2 February 2010, the Presidium
of the Supreme Arbitrazh Court settled the difference in favor of the Supreme
Arbitrazh Court and annulled the decision of the Arbitrazh Court for the Ryazan
District, directing that court to issue an order for the enforcement of the three
DIS awards. This is the third decision reported.

A detailed report of these decisions is available online at <www.

kluwerarbitration.com/ document.aspx?id= KLI-KA-1052038-n>.

431
Yearbook Comm. Arb’n XXXV (2010)
 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

h 2010,
27. Supreme Arbitrazh Court of the Russian Federation, 1 Marc
No. VAS-17095/09 (BAC-17095/ 09)!

Parties: Petitioner: Edimax Limited (Cyprus)

Respondent: S.P. Chigirinskiy (Russian Federation)

Published in: English translation available online at <www.

arbitrations.ru>

Articles: II(3)

Subject matters: = availability of pre-arbitration injunctive relief

— commercial transaction and jurisdiction of Arbitrazh
(commercial) courts

Topics: {209
=

Summary

The Supreme Arbitrazh Court referred this case to the Presidium of the Court, as it found that the
Federal Arbitrazh Court’s decision holding that Arbitrazh courts could not hear the present application
for an interim injunction because the dispute was not commercial contrasted with the accepted
interpretation of the law — that is, that Arbitrazh courts may grant injunctions in aid of arbitration
and have jurisdiction over commercial disputes — because the dispute at issue was in fact commercial.

By agreements signed on 2 July 2008, Russian Land (Cyprus) Holding 1 Limited

(Russian Land) bought certain shares from Edimax Limited (Edimax). Mr. Shalve
Pavlovich Chigirinskiy signed letters of guarantee as security for payment by
Russian Land. The agreements also provided that Divieto Limited (Divieto), a
company owned by Chigirinskiy, issue a promissory note.
On 7 April 2009, Edimax commenced arbitration against Chigirinskiy at the
London Court of International Arbitration (LCIA), claiming payment of
US$ 32,029,982.40 for the unpaid purchase price of the shares, loans and
interest on delay in the performance of the agreement, and seeking an order that

1. The General Editor wishes to thank Mr. Roman Zykov, Hannes Snellman Attorneys,
Moscow/ Helsinki, for his invaluable assistance in providing and translating this decision from the
Russian original.

432 Yearbook Comm. Arb’n XXXV (2010)

 RUSSIAN FEDERATION NO, 27

Divieto issue a promissory note (Divieto later performed voluntarily under this
obligation). This proceeding was pending at the time of the present decision.
On 8 May 2009, Edimax sought an interim injunction in aid of the LCIA
arbitration from the Arbitrazh (Commercial) Court of the City of Moscow,
seeking to attach an apartment owned by Chigirinskiy in Moscow. On 12 May
2009, the court denied Edimax’s application, holding that Edimax failed to prove
the existence of any of the grounds set out in the Arbitrazh Court Procedure Code
of the Russian Federation (the Arbitrazh Procedure Code) for granting an interim
injunction. On 9 July 2009, the Ninth Arbitrazh Court of Appeals reversed and
granted an injunction attaching Chigirinskiy’s apartment. Mrs. Tat’yana
Romanovyna Panchenkova, Chigirinskiy’s former wife, appealed to the Federal
Arbitrazh Court for the Moscow District, seeking annulment of this latter decision
on the ground that the apartment had become her exclusive property following
her divorce from Chigirinskiy. On 26 November 2009, the Federal Arbitrazh
Court reversed both earlier decisions and terminated the proceedings, finding
that Edimax’s application did not fall within the jurisdiction of the Arbitrazh
courts because one of the conditions for such jurisdiction — that the subjects
involved are either legal entities or private owners — was not met, as the claim
at issue was against Chigirinskiy, an individual who was not a private owner.
Edimax appealed.
The Supreme Arbitrazh Court of the Russian Federation referred the case to the
Court’s Presidium, finding that the Federal Arbitrazh Court’s decision was at odds
with accepted interpretation and application of the law in respect of the
jurisdiction of Arbitrazh courts.
The Supreme Arbitrazh Court noted at the outset that Russian legislation
provides that Arbitrazh courts may grant interim injunctions in aid of
(international) commercial arbitration, upon the application of a party to the
arbitration. Further, Russian legislation provides that Arbitrazh courts have
jurisdiction over commercial and other economic activities. The Court stressed
that there is a unified practice of Arbitrazh courts and courts of general
jurisdiction of the Russian Federation that is based on the jurisdiction of Arbitrazh
courts over cases concerning disputes involving citizens participating in economic
or business relations. It then reasoned that whether a dispute is commercial
depends on the nature of the activities involved, in particular if they concern
property and aim at making profit. Here, the letters of guarantee secured
payment under agreements for the sale and purchase of shares: the agreements,
the letters and the dispute were all of a commercial nature.

433
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

The Supreme Arbitrazh Court found that, as a consequence, the decision of the
Federal Arbitrazh Court — that the dispute did not fall under the jurisdiction of the
Arbitrazh courts — did not follow the accepted interpretation and application of
the law by the Arbitrazh courts. It therefore referred the case to the Presidium of
the Supreme Arbitrazh Court.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052039-n>.

434 Yearbook Comm. Arb’n XXXV (2010)

 RUSSIAN FEDERATION NO. 28

28. Federal Arbitrazh Court, District of Toms

k, 7 July 2010, Case No.
A67-1438/2010!

Parties: Petitioner: Yukos Capital $.A.R.L. (Luxembourg)

Respondent: OAO Tomskneft VNK (Russian
Federation)

Published in: English translation available online at <www.

arbitrations.ru>

Articles: II; V(1)(a); V(1)(b); V(1)(d); V(2)(6)

Subject matters: — due process and address of communications
_ public policy and sham arbitration

Topics: [7]-[12] = §| 511 (mo proof of communication of

arbitration documents); [13]-[23] = § 524 (sham
arbitration); [24] = § 505; [25]-[26] = 9 513; [27] =
§ 306; [28] = § 301

S ummary

Enforcement of an ICC award was denied because (i) the Russian defendant did not receive part ofthe
correspondence relating to the arbitration, in particular, the notification of the arbitration hearing
and (ii) because the parties to the ICC arbitration were both companies of the Yukos Group and
ultimately fully controlled by the same company; hence, they did not have an economic interest in the
arbitration when a simple transfer offunds would have sufficed to repay the loans at issue. The
arbitration was found to be a sham and part of an illegal scheme set up by the Yukos Group to avoid
tax liabilities and expropriation by the Russian government.

On 20 April 2004, 27 July 2004 and 4 August 2004, Yukos Capital S.A.R.L.
(Yukos Capital) entered into three loan agreements with OAO Tomskneft VKN
(Tomskneft), under which Yukos Capital lent certain amounts to Tomskneft.
Both companies belonged to the Yukos Group. On 2 November 2005, the
parties concluded supplementary agreements to the original loan agreements,

1. The General Editor wishes to thank Mr. Roman Zykov, Hannes Snellman Attorneys,
Moscow/Helsinki, for his invaluable assistance in providing and translating this decision from the
Russian original.

Yearbook Comm. Arb’n XXXV (2010)

435
 ENTION 1958
COURT DECISIONS ON THE NEW YORK CONV

provided for
which modified the original choice-of-jurisdiction clause and
at the International Court of Arbitration of the
arbitration of disputes
International Chamber of Commerce (ICC).
Yukos Capital commenced ICC arbitration in Paris against Tomskneft and
ZAO Yukos EP (Yukos EP), Tomskneft’s controlling company, as provided for
in the loan agreements and the supplementary agreements. Yukos EP participated
in the arbitration, Tomskneft did not. On 12 February 2007, an ICC sole
arbitrator found in favor of Yukos Capital and directed Tomskneft to pay Yukos
Capital a total of RUB 7,254,218,987, US$ 275,225.84, UK£ 52,964.84 and
interest on part of this sum. Yukos Capital sought enforcement of the ICC award
in the Russian Federation.
The Federal Arbitrazh (Commercial) Court for the District of Tomsk denied
enforcement on violation of due process and public policy grounds. It noted at
the outset that the Arbitrazh Court Procedure Code of the Russian Federation (the
Arbitrazh Procedure Code) allows arbitrazh courts to deny enforcement of foreign
arbitral awards on certain grounds; enforcement can also be denied on the
grounds provided for in an international treaty to which the Russian Federation
is a party (such as the 1958 New York Convention) and in the Federal Law on
International Commercial Arbitration of the Russian Federation.
The court first granted Tomskneft’s argument that enforcement should be
denied under Art. V(1)(b) of the Convention and its corresponding provision in
the Russian Law on Arbitration, because Tomskneft was not properly notified of
the arbitration. The court noted that correspondence relating to the arbitration
was sent to Tomskneft both at its registered address in the District of Tomsk and
care of Yukos EP in Moscow. On 20 June 2006, Yukos EP ceased to act as
Tomskneft’s executive organ when Tomskneft’s executive powers were
transferred to another company of the Yukos Group, ZAO Yukos RM. As a
consequence, held the court, unless it was proved that correspondence had been
sent to Tomskneft directly, the sending of correspondence to Yukos EP was no
proof, after 20 June 2006, that correspondence was also received by Tomskneft.
The court concluded on the evidence that there was no proof that Tomskneft had
received notice of, inter alia, the timetable of the arbitration, the date for the
hearing and the closing of the proceeding. Hence, enforcement should be denied
for lack of proper notification.
The court also granted Tomskneft’s contention that recognition and
enforcement of the ICC award would violate the public policy of the Russian
Federation. It reasoned that Yukos Capital was fully owned by Yukos
International UK B.V., which in turn was fully owned by Yukos Finance B.V.,
a company fully owned by OAO NK Yukos. Also, at the relevant time, OAO NK
Yukos was the sole shareholder of Tomskneft. Thus, when the loan agreements

436 Yearbook Comm. Arb’n XXXV (2010)

 RUSSIAN FEDERATION NO. 28

and the supplementary agreements were concluded, and during the arbitration
proceedings, both Yukos Capital and Tomskneft were fully controlled by OAO
NK Yukos (this was also the case in respect of Yukos EP),
In May 2004, the Moscow Arbitrazh Court — which directed OAO NK Yukos
to pay taxes and fines totaling a sum in excess of RUB 99 billion — found that
OAO NK Yukos had set up an illegal financial structure involving the companies
of the Yukos Group. Under this structure, concluded the Tomsk court, the loans
given by Yukos Capital to Tomskneft in fact concerned money previously
withdrawn from Tomskneft in the context of a transfer-pricing scheme. Hence,
the loan agreements in respect of which the ICC award was rendered were an
illegal arrangement entered into by two parties — Yukos Capital and Tomskneft
— which were both wholly controlled by OAO NK Yukos and had no economic
reason to settle their dispute by ICC arbitration when a simple transfer of funds
would have sufficed. Hence, the dispute between the parties was simulated and
enforcement of the award would violate public policy.
The court then denied the other claims raised by Tomeskneft: (i) that the
supplementary agreements containing the ICC arbitration clause were invalid;
(ii) that the arbitral procedure was not in accordance with the agreement of the
parties because the case was heard by a sole arbitrator and the sole arbitrator
allegedly did not apply the substantive law agreed by the parties; (iii) that Yukos
Capital did not abide by the three-year time limit to seek enforcement of the
award and (iv) that the request for enforcement was signed by an unauthorized
person. The court concluded that the evidence of the case proved otherwise in
respect of all the above claims.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052040-n>.

437
Yearbook Comm. Arb’n XXXV (2010)
 SINGAPORE

Accession: 21 August 1986

Ist Reservation

9. High Court, 29 December 2009, Suit 963/ 2008, RA 106/2009

Parties: Appellant/Plaintiff: Jiangsu Hantong Ship Heavy

Industry Co Ltd (PR China)
Respondent/Defendant: Sevan Holding I Pte Ltd
(nationality not indicated)

Published in: [2010] 2 Singapore Law Reports 293

Articles: II(3)

Subject matter: — referral to arbitration requires existence of dispute

Topics: | 219

Summary

The court affirmed a stay ofcourt proceedings — denying plaintiff's argument that there was no dispute
to be referred to arbitration because defendant had admitted liability — because itfound that a stay
may be denied only when the party has unequivocally admitted that the amount at issue is due and
payable. This was not the case here.

Jiangsu Hantong Ship Heavy Industry Co Ltd (Hantong), a Chinese shipyard,

entered into a contract with Sevan Holding I Pte Ltd (Sevan) for the construction
of a vessel called HULL 29. The contract provided that Sevan was to make
progress payments within five banking days following its receipt of Hantong’s
invoices. It also contained a clause referring “[a]ny dispute arising out of or in
connection with” the contract to arbitration in London under the Rules of the
London Maritime Arbitrators Association (LMAA).
A dispute arose between the parties when Hantong claimed that Sevan owed
it US$ 3,646,208 as of 12 December 2008 and demanded payment within three
days. When this amount was not paid, Hantong commenced court proceedings

438 Yearbook Comm. Arb’n XXXV (2010)

 SINGAPORE NO, 9

in the High Court in Singapore. On 1 April 2009, the action

was stayed by
Assistant Registrar Lim Jian Yi at the request of Sevan, so that
the dispute
between the parties could be resolved through arbitration
in London in
accordance with the terms of the contract. Hantong appealed, arguing that
there
was no “dispute” between the parties that required arbitration pursuant to
clause
35 of the contract, because Sevan had admitted liability for the amount owed.
The High Court, per Tan Lee Meng J, affirmed the stay. It referred to a 2009
decision of the Singapore Court of Appeal in Tjong,' where it was held that as the
International Arbitration Act aims at minimizing court involvement in matters
that the parties have agreed to submit to arbitration and at avoiding concurrent
arbitration and court proceedings, unless it is for the purpose of lending curial
assistance to the arbitral process, courts will interpret the word “dispute”
broadly. As a consequence, they will find that there is a dispute unless the
defendant has unequivocally admitted that the claim is due and payable.
In the present case, Sevan argued that it did not have to pay the amount at
issue because it had substantial counterclaims against Hantong; it also raised
issues in respect of the quality of Hantong’s work and claimed that Hantong’s
delayed performance of its contractual obligations entitled Sevan to claim
liquidated damages.
The court noted Hantong’s argument that it appeared from minutes of a 2
December 2008 meeting that Sevan had not challenged the invoices at issue and
had in fact asked for more time to settle them, and Sevan’s response that the
minutes recorded Hantong’s view and not any admission of liability on Sevan’s
part; also, Sevan had not been assisted by counsel at that time.
The court again referred to the Tjong case, in which it was held that a court
should find that a claim is to be referred to arbitration in all but the “clearest of
cases”. As the present case was not such a case, and Sevan did not unequivocally
accept liability for the amount claimed, a stay was justified. It was not the court's
task to decide whether Sevan’s case was strong or weak, as this was a matter for
the arbitrator to decide.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052041 -n>.

1. Tjong Very Sumito v. Antig Investments Pte Ltd [2009] SGCA 41.

43 9
Yearbook Comm. Arb’n XXXV (2010)
 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

10. High Court, 14 May 2010 and 10 June 2010

Parties: Applicant: Strandore Invest A/S (Denmark) et al.

Respondent: Soh Kim Wat (nationality not indicated)

Published in: Both decisions available online at <www.singapore

lawwatch.sg>

Articles: V(2)(b); VI

Subject matters: — stay of enforcement proceedings pending annulment

action (no)
— stay of execution pending appeal against decision
denying stay of enforcement (no)
— narrow concept of public policy

Topics: [1]-[11] + [19]-[31]= § 601; [12]-[17] = 9518

Summary

By the first decision, the court refused to stay the enforcement proceedings pending a second action to
set aside the award in Singapore (following afirst unsuccessful attempt in the country of rendition,
Denmark). Doubting the principle that the enforcement ofa foreign award is a mere mechanic process,
the court considered the objections to enforcement raised here and concluded that they did not prove
a violation ofpublic policy in its narrow international concept.
By the second decision, the court denied an application to stay enforcement pending appeal against
the first decision, holding that while in principle courts should not deprive successful litigants of the
fruits of their litigation, in the case at hand there was no indication that enforcement of the award
would result in such deprivation.

On 22 March 2003, Soh Kim Wat entered into Share Sale Agreements with
Strandore Invest A/S (Strandore) and MS Invest Odense A/S (Odense) to
purchase their shares in LKE Electric (M) Sdn Bhd (the Company), a Malaysian
company of which Soh was director and shareholder. On 10 December 2004,
Soh also entered into a Share Sale Agreement with LKE Electric Europe A/S
(LKE Europe) to purchase their shares in the Company. All the Share Sale
Agreements (collectively, the Agreements) provided that Danish Law was the
governing law; they also contained a clause referring disputes to “arbitration
before Copenhagen Arbitration according to the Rules of Procedure of

440 Yearbook Comm. Arb’n XXXV (2010)

 SINGAPORE NO, 10

Copenhagen Arbitration”. “Copenhagen Arbitration” refers to arbitr

ation at the
Danish Institute of Arbitration (DIA),
A dispute arose when Soh failed to pay most of the amounts owed under
the
Agreements for the sale and purchase of shares in the Company. Strandore,
Odense and LKE Europe (collectively, the Applicants) filed Suit No. 55 of 2006
in the Singapore High Court for the purchase price under the Agreements and
served it on Soh on 21 February 2006. On 10 May 2006, the action was stayed
at Soh’s request on the basis of the arbitration clause in the Agreements.
On 23 June 2006, the Applicants commenced DIA arbitration against Soh. On
30 June 2006, the DIA sent notice of the Request for Arbitration to Soh at his
Singapore address. The registered letter was returned unclaimed and, on 4
November 2006, the DIA again sent the original letter to Soh at his Malaysian
office address, together with the DIA Rules. Soh received the letter “without
prejudice” and, on 8 November 2006, sent a letter to the DIA challenging, inter
alia, the validity of the Request for Arbitration and arguing that the Agreements
were not real sale and purchase agreements and had been entered into to help
Kaare Vagner Jensen, chairman and executive director of the Company,
apparently divest his interest in the Company as he was facing legal action by
another company for trademark infringement. Soh did not appoint an arbitrator.
On 29 December 2006, the DIA sent a letter notifying Soh of its proposal to
appoint a three-member arbitral tribunal and requesting Soh for his comments
on or before 16 January 2007, failing which the DIA would proceed with the
formal appointment of the three arbitrators. On 31 January 2007, the DIA
informed the parties of the appointment of the arbitral tribunal. On 15 May
2007, the arbitrators issued a ruling stating that they lacked jurisdiction on the
grounds, inter alia, that Soh did not receive the DIA’s letter dated 29 December
2006 on the appointment of the arbitral tribunal.
On 24 May 2007, the DIA informed the parties of this ruling and proposed the
appointment of the same three arbitrators, adding that unless either party
proposed other candidates or gave different instructions no later than 24 July
2007, it would proceed to regard the three arbitrators as approved by the parties.
On 16 July 2007, Soh replied by a letter in which it objected to the
arbitration, complained that there was no valid Request for Arbitration issued to
him, the Agreements were invalid and the DIA was not impartial. On 9 August
2007, the DIA informed Soh that it “could not follow” his objections and urged
him to propose an arbitrator no later than 10 September 2007, otherwise the
DIA would consider the tribunal as approved by the parties and therefore duly
constituted. Soh responded on 6 September 2007, repeating his objections and
again objecting to the arbitration and the appointment of the proposed tribunal.

Yearbook Comm. Arb’n XXXV (2010)

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 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

September 2007,
He did not, however, propose or appoint an arbitrator. On 10
in the
the DIA appointed the same three arbitrators. Soh did not participate
arbitration other than by repeating his arguments against the arbitration. On 30
April 2008, the arbitral tribunal rendered a Final Award in the Applicants’ favor.
On 29 July 2008, the Applicants commenced enforcement proceedings in
Singapore. On 31 July 2008, the High Court granted leave to enforce the DIA
Final Award. However, leave to enforce was set aside on 20 February 2009
because Soh had commenced an annulment action against the award before the
City Court of Helsingore, Denmark, on 30 July 2008. The request for
annulment was denied on 25 June 2009; this decision was affirmed by the High
Court of Denmark on 19 November 2009.
On 7 January 2010, the Applicants against sought leave to enforce the DIA
Final Award by filing Originating Summons (OS) 19/2010 in the Singapore High
Court. On 8 January 2010, they also applied for and obtained a worldwide
Mareva injunction against Soh, which restrained him from removing from
Singapore the proceeds of the sale of certain Singapore property.
In the meantime, on 10 November 2009, Soh also commenced annulment
proceedings in Singapore — Suit (S) 968 of 2009 — against the DIA Final Award.
The present decisions are concerned with Soh’s application to stay the
enforcement proceedings ((OS) 19/2010) pending the resolution of the
Singapore annulment action (S 968/2009). (In the alternative, it applied to have
OS 19/2010 continue as if it had been commenced by way of Writ of Summons
and be heard together and consolidated with S 968/2009.)
By the first decision reported, rendered on 14 May 2010, the High Court, per
Quentin Loh J, denied Soh’s application to stay the enforcement proceedings.
The court reasoned that although it was held by the High Court in Aloe Vera’ that
the enforcement of a foreign award is “a mechanistic process”, this approach may
not be consistent with other cases, including the 2009 decision of the English
Court of Appeal in Dallah Estate,” where the court ruled that proceedings for the
enforcement of a foreign award should take the form of a full re-hearing.
The court then proceeded to examine Soh’s contention that enforcement of
the DIA Final Award should be refused on grounds of public policy. It referred
to case law of the Singapore Court of Appeal holding that the concept of public
policy has a narrow scope in the context of proceedings for the enforcement of

1. Aloe Vera ofAmerica, Inc v. Asianic Food (S) Pte Ltd and another [2006] 3 SLR(R) 174, reported in
Yearbook XXXII (2007) pp. 489-506 (Singapore no. 5).
2. Dallah Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan
[2009] EWCA Civ 755, reported in Yearbook XXXIV (2009) pp. 887-925 (UK no. 87).

44? Yearbook Comm. Arb’n XXXV (2010)

 SINGAPORE NO. 10

foreign awards, and only operates where enforcement would violate the forum’s
most basic notion of morality and justice. This was not the case here, where Soh
merely argued, inter alia, that the Agreements were unusually brief, contained
a clerical mistake (one agreement indicated that the shares were to be transferred
from LKE Europe, while the appendix stated that the shares were transferred to
LKE Europe) and were made only for a collateral purpose. The court concluded
that all these matters should have been brought up in the Danish arbitration
proceedings. This is the first decision reported.
By the second decision reported, rendered on 10 June 2010, the High Court,
again per Quentin Loh J, denied Soh’s application for a stay of execution pending
appeal from the first decision, dismissing Soh’s argument that if Soh had to pay
the money to the Applicants, then he would have to go to Denmark and pursue
them in the event he succeeded in his appeal. The court reasoned that in the case
at hand there was no indication that the Applicants were impecunious, so that any
money paid over to them would be irrecoverable. Also, Soh did not appear to
have had difficulty instructing Danish lawyers to pursue remedies before the
Danish Courts. Its complaint that it was expensive to do so was irrelevant. Nor
were there special circumstances to grant a stay. The court noted that Soh could
only resist enforcement on the grounds set out in the International Arbitration
Act (which reflect those in the 1958 New York Convention); he sought to do so
by arguing that the subject matter of the award was not capable of settlement by
arbitration under the laws of Singapore and that the enforcement of the award
was contrary to the public policy of Singapore. The court referred to its 14 May
2010 decision rejecting these arguments. This is the second decision reported.

A detailed report of these decisions is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052042-n>.

443
Yearbook Comm. Arb’n XXXV (2010)
 SPAIN

Accession: 12 May 1977

No Reservations

65. Juzgado de Primera Instancia e Instruccion [Court of First

Instance] no. 3, Rubi, 11 June 2007, Exequatur no. 584/06

Parties: Claimant: Pavan s.r.]. (Italy)

Defendant: Leng d’Or, SA (Spain)

Published in: Available online at <www.laley.es> (JUR

356433\2007) (subscription required)

Articles: II; 1V(1)(b); V(1)(b); V(1)(d); VC1)(e)s V(2)(b); VI

Subject matters: — European Convention of 1961
— 1958 New York Convention does not regulate
litispendence
— litispendence regime in 1968 Brussels Convention
(EEX) and EU Council Regulation (EC) no. 44/2001
— award “not binding”
— due process as ground for violation of public policy
— review of evaluation of evidence (no)
— review of merits of award (no)
— request of both recognition (homologacién) and
enforcement of award

Topics: [4]-[5] + [17]-[18] + [49] = 704; [6]-[10] = § 001:

[6]-[13] = J] 704(C); [14]-[25] = J 514; [19]-[22] +
[48]-[51] = 601; [26]-[27] = § 403; [28]-[31] =
{| 511 (means of notification); [32]-[34] = § 513;
[34] = $ 503; [35]-[36] + [41]-[42] = § 523: [38] =
§ 518; [38]-[43] = ] 502 + § 522; [40] = § 524
(illogical reasons); [44]-[47] + [52] = § 301

444 Yearbook Comm. Arb’n XXXV (2010)

 SPAIN NO. 65

S ummary

The defense ofinternational litispendence (enforcement proceedings on the same award pending in
Italy) does not apply under the 1958 New York Convention because the Convention provides gh
decisions ofenforcement courts only have effect in their respective territories, and accepts the existence
of decisions reaching opposite results as to enforcement in different States. The automatic suspension
of the award in France pending an annulment action in that country was no ground for refusing
enforcement, nor did it justify a suspension of enforcement: assuming that defendant sought annulment
ofthe award on the same grounds raised in the present proceeding, the court concluded that there was
for suspension in its discretion.
no likelihood of success of the annulment action and denied the request

On 3 December 1993, Pavan s.r.]. (Pavan) and Leng d’Or, SA (Leng d’Or)
entered into a contract under which Pavan agreed to sell and Leng d’Or to
purchase four production lines for manufacturing snack pellets. The contract
contained an ICC arbitration clause.
A dispute arose between the parties in respect of the lines’ performance and
Leng d’Or’s purchase of lines from another manufacturer. On 19 December
2005, an ICC arbitral tribunal in Paris found in favor of Pavan in the amount of
€ 2,404,868.74 and interest thereon. On 22 May 2006, the tribunal issued an
addendum clarifying some aspects of the award. Leng d Or sought to have the
award set aside in France. In turn, Pavan sought enforcement in Spain.
The Court of First Instance of Rubi, per Maria Pinto Andrés, Magistrate-
Judge, granted recognition and a declaration of enforceability (homologacion),
applying both the 1958 New York Convention and the 1961 European
Convention.
The court first dismissed Leng d’ Or’s contention that enforcement should be
denied on grounds of international litispendence because enforcement
proceedings on the same award were pending in Italy and had been suspended
because of an annulment action pending in France. Leng d’Or argued that
international litispendence, though not provided for in the New York
decisions
Convention, should be applied either to avoid the risk of contradictory
litispendence
or by application by analogy of the regime of international
on
established by the Brussels Enforcement Convention (EEX) and EC Regulati
Convention,
no. 44/2001. The court reasoned that under the New York
in their respective
enforcement courts only render decisions having effect
cannot conflict with
territories: hence, an Italian decision denying enforcement
reaching opposite
a Spanish decision granting it. Also, the existence of decisions
on, which permits an
results in different States is accepted under the Conventi
recognition in another
award being recognized in a member State and refused
ion of this principle by analogy was
member State. The court added that applicat
on no. 44/2001 expressly exclude
impossible, since both the EEX and Regulati

445
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

of
arbitration from their scope of application; further, there can be no identity
purpose between arbitration and court proceedings, whose nature is intrinsically
different.
The court of first instance then dealt with the objection that the award’s
enforceability had been suspended as a consequence of the setting aside action in
France and that, therefore, the award was not binding and could not be enforced.
The court noted that the New York Convention only provides for the possibility
to suspend the enforcement proceeding — rather than for refusal of recognition
— when an annulment action is pending against the award. Also, as the award at
issue was undoubtedly “binding”, that is, a final award concluding the arbitration
proceedings, it could be enforced.
Leng d’Or’s contention that Pavan failed to supply the documents required
under Art. IV Convention also failed. The court held that the document that
Pavan did not submit — an Annex that merely referred to the means of dispute
settlement provided for in the main contract, which contained the arbitration
clause — was irrelevant to the purpose of Art. IV, which is to allow the
enforcement court to review “the validity of the arbitration agreement, the
correspondence between the award and the arbitration clause and the non-
arbitrability of the dispute”.
Nor was the due process objection successful. Leng d’Or argued that the
award was not duly notified because it was notified by a messenger (mensajero),
a form of notification not provided for in the Terms of Reference. The court
reasoned that the Terms of Reference explicitly mentioned delivery by “courier”,
a term that is equivalent to “messenger”, and that in any case the means of
notification chosen allowed for proof of the sending, as required in the Terms.
The court of first instance then dismissed defendant’s allegation that the
arbitration proceeding was not in accordance with the parties’ agreement because
the arbitrators quantified Pavan’s indemnification for Jucrum cessans on the basis
of the accounts of one earlier fiscal year, without seeking other evidence from the
parties, while the Terms of Reference provided that indemnification be
determined “in the course of the proceeding”. The court noted that, on the
contrary, it appeared from the award that there had been an evidence-collecting
phase in the proceeding during which the parties could submit evidence.
The court also denied Leng d’ Or’s argument that the award lacked reasons and
therefore violated public policy, reasoning that it could not review the arbitral
tribunal’s evaluation of the evidence and its conclusions within the limited review
available to the enforcement court.
The court did find that Pavan’s application was ambiguous in that it could be
interpreted to seek both homologation of the award (recognition and a

446 Yearbook Comm. Arb’n XXXV (2010)

 SPAIN NO. 65

declaration of enforceability) and enforcement, which cannot be cumulated in

one application as enforcement presupposes a homologation decision. In fact,
however, Pavan did not seek any measure of enforcement and its request was
solely a request for homologation of the ICC award.
Finally, the court of first instance dealt with Leng d’Or’s request to stay
enforcement pending setting aside proceedings in France. The court assumed that
defendant sought annulment of the award on the same grounds raised in the
present proceeding, and concluded that these grounds did not justify a likelihood
of success of the annulment action. The court therefore in its discretion denied
Leng d’Or’s request.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052043-n>.

447
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

66. Audiencia Provincial [Court of Appeal], Madrid, 1 April 2009, no.

163/2009 (Section 10)

Parties: Plaintiff: Cadena de Tiendas Venezolanas SA — Cativen

(Venezuela)
Defendants: (1) GMR Asesores SL (Spain)
(2) Inmomercado, CA (Venezuela)

Published in: Available online at <www.aranzadi.es> (JUR

2009\ 247192) (subscription required)

Articles: I) gi@G) alll d¥v.

Subject matters: — procedural aspects of enforcement regulated by

domestic law
— competent enforcement court under national law

Topics: q 301; [4] = J 704; [10] = J 101; [11] = § 107; [12] =

4 406; [13] = § 405

Summary

The procedural aspects ofenforcement under the 1958 New York Convention are governed by domestic
law. Spanish law provides that enforcement ofa foreign award must be sought before the court offirst
instance of the domicile or residence of the defendant. Here, the request for recognition was correctly
filed in the court ofthe district where the defendant had its seat according to the Commercial Register,
it being irrelevant that the defendant had moved without modifying its details in the Register.

On 23 August 2005, the Centro de Arbitraje de la Camara de Comercio de Caracas

(Arbitration Centre of the Caracas Chamber of Commerce) rendered an award
in favor of Cadena de Tiendas Venezolanas, SA (Cativen) and against GMR
Asesores, SL (GMR) and Inmomercado, CA. On 18 February 2008, Cativen
sought enforcement of the Venezuelan award before the Court of First Instance
no. 2 of Pozuelo de Alarcon. On 14 November 2008, following a statement that
GMR could not be found as it had moved to Madrid (diligencia negativa de
emplazamiento), the Pozuelo court issued a decision holding that territorial
competence lay with the Court of First Instance of Madrid. On 4 December
2008, the Madrid court disagreed, holding that it lacked territorial competence.

448 Yearbook Comm. Arb’n XXXV (2010)

 SPAIN NO. 66

On appeal from the latter decision, the Madrid Court of Appeal affirmed the
lower court’s decision, finding that the Pozuelo court had territorial
competence. The court first set out the salient characteristics of the 1958 New
York Convention and noted that in the Convention’s system the procedural
aspects of enforcement are governed by domestic law. According to the relevant
Spanish law provisions, enforcement of a foreign award must be sought before
the court of first instance of the domicile or residence of the defendant. Here, the
request for recognition was correctly filed in the Pozuelo court, where GMR had
its seat according to the Commercial Register. It was irrelevant that GMR had
physically moved without modifying its details in the Register.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052044-n>.

449
Yearbook Comm. Arb’n XXXV (2010)
 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

April 2009, no.

67. Audiencia Provincial [Court of Appeal], Burgos, 27
180/2009 (Section 3)

Parties: Appellant/ defendant: Abonos y Cereales, S.L.

(nationality not indicated)
Appellee/claimant: Granit Negoce, S.A. (nationality
not indicated)

Published in: Available online at <www.aranzadi.es> (JUR

2009\272093) (subscription required)

Articles: IV(1)(b); V(1)(b)

Subject matters: — prima facie validity of arbitration agreement

— arbitration agreement concluded through agent
— due process and notification of hearing

Topics: (4]-[9] = 9403; [10]-[11] = 9] 511 (letter not received)

Summary

Enforcement was denied because the documents supplied by the party seeking enforcement did not prove
that the defendant agreed to submit to arbitration: both contracts were signed only by a broker and
there was no evidence of the broker’s authority to enter into an arbitration agreement. Nor had the
Spanish defendant been duly informed of the arbitration: a registered letter with acknowledgment of
receipt was returned undelivered to the arbitral institution.

On 9 June 2005, Abonos y Cereales, S.L. (Abonos) and Granit Negoce, S.A.
(Granit) entered into two sale contracts. The contracts, which were signed only
by broker Inter Courtage Bayonne SA, referred to INCOGRAIN Form no. 19,
which contains an arbitration clause.
A dispute arose between the parties and Granit commenced arbitration at the
Arbitration Chamber of Paris (Chambre Arbitrale de Paris); Abonos did not appear
in the proceedings. On 16 May 2006, an arbitral tribunal found in favor of
Granit, which then sought enforcement of the award in Spain. On 10 October
2008, the Court of First Instance no. 1 of Aranda de Duero granted enforcement
of the French award.

450 Yearbook Comm. Arb’n XXXV (2010)

 SPAIN NO. 67

The Burgos Court of Appeal reversed the lower court’s decision and denied
enforcement. It first examined ex officio whether Granit supplied the necessary
documents under Art. IV of the 1958 New York Convention and concluded that
the contracts in the file did not prove that Abonos intended to submit to
arbitration: both contracts were signed only by the broker and it did not appear
that Abonos empowered the broker to enter into an arbitration agreement.
Although the above conclusion made it unnecessary, the court also examined
the second ground for opposition raised by Abonos under Art. V(1)(b)
Convention, that it was not duly informed of the arbitration. The court noted
that a registered letter with acknowledgment of receipt was sent to Abonos and
was returned undelivered to the Paris Chamber of Arbitration. Granit did not
prove that the notification was made at Abonos’s correct seat or that other
delivery attempts were made; therefore, there was no proof that Abonos was
effectively informed of the arbitration.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052045-n>.

451
Yearbook Comm. Arb’n XXXV (2010)
 1958
COURT DECISIONS ON THE NEW YORK CONVENTION

2009,
68. Audiencia Provincial [Court of Appeal], Barcelona, 29 April
no. 86/2009 (Section 15)

Parties: Appellant/claimant: Licensing Projects SL (Spain)

Appellee/Defendant: Pirelli & C. SpA (Italy)

Published in: Available online at <www.aranzadi.es> (JUR

2009\472969) (subscription required)

Articles: II(1); (3)

Subject matters: — European Convention of 1961

— applicable law to existence, validity of arbitration
agreement
— arbitration agreement “null and void” because of
bankruptcy of party (no)
— arbitration agreement “null and void” because of lack
of means for arbitration (no)
—arbitrability only concerns subject matter of dispute

Topics: 4 704; [3] + [5]-[6] + [11]-[13] = § 221; [3] + [10] +

[18] = J 220; [7]-[9] = J 201; [14]-[16] = § 223

Summary

The action commenced by the Spanish party in Spain was stayed in favor of ICC arbitration as
provided for in the contract between the parties. The arbitration agreement was valid under the law
of the country in which the award was to be made (France), as is provided, absent a choice by the
parties, by the 1961 European Convention; Art. II(3) of the 1958 New York Convention is silent as
to the law under which it must be ascertained whether an agreement is null and void. Further, the
arbitration agreement was not affected by LP’s bankruptcy, and the dispute fell within the scope of the
arbitration clause.

On 18 December 2001, Pirelli & C. SpA (Pirelli) licensed the marketing of shoes
of the brands Pzero and Pirelli to Licensing Projects SL (LP), a company created
for this sole purpose. Clause 33 of the license agreement provided for the
application of Italian law. Clause 34 of provided that disputes “concerning the
validity, interpretation, performance and termination” of the agreement be

452 Yearbook Comm. Arb’n XXXV (2010)

 SPAIN NO. 68

referred to ICC arbitration in Paris, “with the exception

of the jurisdiction of
state courts in respect of interim measures at the request
of one of the parties”.
A dispute arose between the parties when Pirelli unilaterally
terminated the
agreement in April 2007, alleging breach of contract by LP. On 11 July
2007, LP
was declared in voluntary bankruptcy. In November 2007, Pirell
i commenced
ICC arbitration, seeking termination of the license agreement and
damages. On
19 September 2008, the ICC arbitral tribunal rendered a partial award
finding
that it had jurisdiction.
In the meantime, in January 2008, LP commenced an action against Pirelli in
the Commercial Court (Juzgado Mercantil) no. 5 of Barcelona, alleging unfair
competition and breach of contract and seeking damages. On 22 July 2008, the
court granted Pirelli’s objection that the Spanish courts lacked jurisdiction and
the matter should be referred to arbitration.
The Barcelona Court of Appeal affirmed the lower court’s decision. It agreed
with both the partial arbitral award and the commercial court that the validity of
the arbitration agreement was to be examined under French law, being the law
of the seat of the arbitration, because the parties had not made a choice with
respect of the law applicable to the arbitration agreement. Since an arbitration
agreement is autonomous and independent from the main contract, there was no
reason to apply Italian law, the law applicable to the substance of the agreement.
Though Art. II(3) of the 1958 New York Convention is silent as to the law under
which it must be ascertained whether an agreement is null and void, the 1961
European Convention provides that, absent a choice by the parties, the law of the
country in which the award is to be made applies; here, France. There was no
evidence that the arbitration agreement was invalid under French law.
Further, the validity of the arbitration agreement was not affected by LP’s
bankruptcy, because the mandatory rules of the Spanish Bankruptcy Law are not
part of the French concept of international public policy, and neither the New
York Convention nor the European Convention provide for a limitation of the
efficacy of arbitration agreements in case of bankruptcy.
The court also agreed with the court below that the subject matter of the
action squarely fell within the scope of the arbitration clause, notwithstanding
LP’s attempts to argue that several acts subsequent to the termination of the
contract concerned the Law on Unfair Competition.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052046-n>.

453
Yearbook Comm. Arb’n XXXV (2010)
 1958
COURT DECISIONS ON THE NEW YORK CONVENTION

27 November
69. Audiencia Provincial [Court of Appeal], Zamora,
2009, no. 89/2009 (Section 1)

Parties: Appellants/defendants: (1) Mr. Genaro (Spain);

(2) Mr. Carmelo (Spain);
(3) Agraria del Tormes SA (Spain)
Appellee/claimant: Majeriforeningen Danish Dairy
Board (Denmark)

Published in: Available online at <www.aranzadi.es> (AC 2010\69)

(subscription required)

Articles: Ill

Subject matter: — availability of post-award interest

Topics: { 307

Summary

Post-judgment interest can be awarded when enforcing a foreign award that does not provide for such
interest. Under Spanish law, which applies to the procedural aspect of enforcement under the 1958
New York Convention, when a court decision orders the payment of a sum, that sum bears annual
interest from the moment ofthe decision in first instance. This principle extends to)
foreign awards. The
starting date for calculating post-award interest is the date of the award.

Agraria del Tormes SA, Mr. Genaro and Mr. Carmelo (collectively, the sellers)
sold Company X to Majeriforeningen Danish Dairy Board (the Dairy Board).
A dispute arose between the parties in respect of taxes owed by Company X
to the Spanish tax authorities for 1984 and January-September 1985. The Dairy
Board paid Company X’s tax debt and then sought indemnification from the
sellers. The dispute was referred to ICC arbitration in Paris. On 31 July 1995,
an ICC arbitral tribunal rendered an award declaring the sellers jointly liable for
the tax debt of 155,548,249 Spanish pesetas. The Dairy Board sought recognition
and enforcement of the ICC award in Spain.
Recognition was first denied by the Supreme Court on 20 June 2000, on the
ground that proceedings were pending in the Zamora Court of First Instance no.
4 on a related matter, namely, the alleged nullity of the contract for the sale of

454 Yearbook Comm. Arb’n XXXV (2010)

 SPAIN NO, 69

Company X's shares. This latter proceeding ended on 15 September 2004 with
a decision of the Zamora Court of Appeal, that held that the matter should be
referred to arbitration.
The Dairy Board filed a new application to have the ICC award recognized in
Spain. On 5 March 2007, the Zamora Court of First Instance no. 5 granted
recognition. In the meantime, the sellers (the present defendants) had paid
almost the entire sum under the award. Therefore, the Dairy Board sought
enforcement of the remaining part of the award, as well as € 843,650.67 in post-
award interest calculated from the date of rendition of the award. The Zamora
court granted enforcement. The defendants appealed.
The Court of Appeal of Zamora, per Pedro Jests Garcia Garzon, affirmed the
lower court decision. The court first dealt with the objection that post-judgment
interest [intereses procesales] cannot be granted in respect of foreign awards where,
as here, it is not provided for in the award. The court reasoned that, pursuant to
Art. Ill of the 1958 New York Convention, Spanish law applies to the procedural
aspects of enforcement. Spanish law, as in force at the relevant time, provided
that when a court decision ordered the payment of a sum, that sum would bear
annual interest from the moment of the decision in first instance. In the court’s
opinion, this principle extended to foreign awards, because the Spanish
Arbitration Law of 1988, then in force, referred in respect of enforcement to the
rules of civil procedure on the enforcement of foreign court decisions in the
version of the Code of Civil Procedure (Ley de Enjuiciamiento Civil — LEC) then
in force, which contained the provision on post-judgment interest. The court
added that the same conclusion can be reached, on the same grounds, under the
enforcement regime presently in force, based on the Arbitration Law of 2003
and a more recent version of the LEC.
The court of appeal also denied defendants’ argument that the starting date for
calculating post-award interest should be the date on which recognition of the
award was granted, rather than the date of the award. The court gave as an
example the case of a court decision that has been appealed: when that decision
becomes final, the debt established therein bears post-judgment interest from the
date of the decision in first instance.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052047-n>.

455
Yearbook Comm. Arb’n XXXV (2010)
 SWEDEN

Accession: 28 January 1972

No Reservations

7. Hégsta Domstolen [Supreme Court], 16 April 2010, Case No. O 13-

09!

Parties: Appellant: Lenmorniiproekt OAO (Russian

Federation)
Appellee: Arne Larsson & Partner Leasing Aktiebolag
(Sweden)

Published in: Available online at <www.hogstadomstolen.se>

Articles: V(1)(b)

Subject matter: — proper notice

Topics: {509

Summary

The Swedish Supreme Court denied enforcement of a Russian ICAC award, finding that the Swedish
defendant had not been informed of the arbitration, as the request of arbitration had been sent to its
former address, which defendant had left prior to the commencement ofthe arbitration. The arbitrators
ignored the fact that a notification sent to that address had been returned.

On 27 April 2004, an arbitral tribunal of the International Commercial

Arbitration Court at the Russian Federation Chamber of Commerce and Industry
(ICAC) rendered an award in favor of Lenmorniiproekt OAO (Lenmornii)
against Arne Larsson & Partner Leasing AB (ALPL). Lenmornii sought
enforcement of the ICAC award in Sweden.

1. The General Editor wishes to thank Dr. Gisela Knuts and Ms. Jeanette Bjérk, Roschier, Sweden,
for their invaluable assistance in providing and translating this decision from the Swedish original.

456 Yearbook Comm. Arb’n XXXV (2010)

 SWEDEN NO. 7

On 4 December 2008, the Svea Court of Appeal

in Stockholm refused
enforcement, holding that ALPL had not been duly infor
med of the Russian
arbitration.
The Swedish Supreme Court affirmed the lower court decision.
The Court
reasoned at the outset that foreign arbitral awards based on an
arbitration
agreement are recognized in principle in Sweden. Recognition and enfor
cement
can be denied, however, in the cases listed in the Swedish Arbitration Act, that
reflect those in the 1958 New York Convention. There is a ground for refusal
when the party against whom the award is relied upon proves that it was not
given proper notice of the arbitration or was otherwise unable to present its case.
The Court noted that neither the Swedish Act nor the New York Convention
specifies what proper notice is. Also, the provisions therein regarding recognition
and enforcement of arbitral awards are to be interpreted “in light of the general
goal of facilitating enforcement that the Convention expresses”.
However, “great demands” must be made in respect of the notification of the
request for arbitration, as it would be unacceptable that an arbitral award be
recognized and enforced against a party that was completely unaware of the
arbitration.
In the present case, Lenmornii’s request for arbitration was sent to ALPL’s
address as indicated in the contract between the parties. The arbitrators deemed
this sufficient, ignoring the fact that a notification sent to the same address had
been returned with a note that the addressee could not be found. In fact, ALPL
had moved to another address before the commencement of the arbitration. The
Court dismissed as irrelevant Lenmornii’s argument that ALPL should have
communicated its change of address to the arbitral tribunal, noting that ALPL
was not at all aware that arbitration proceedings were pending.
The Supreme Court concluded that where it does not appear clearly, from the
arbitral award or otherwise, that the request for arbitration has reached the
defendant, or the defendant supplies evidence giving rise to reasonable doubt that
it did, a ground for refusing enforcement “should generally be deemed to exist”.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052048-n>.

457
Yearbook Comm. Arb’n XXXV (2010)
 UGANDA

Accession: 1 2 February 1992

lst Reservation

1. Supreme Court of Uganda, 16 January 2004, Civil Appeal No. 18 of

2002

Parties: Appellant: Fulgensius Mungereza (nationality not

indicated)
Respondent: PricewaterhouseCoopers Africa Central
(nationality not indicated)

Published in: Available online at <www.ulii.org>

Articles: 11(3)
Subject matters: —arbitration agreement “incapable of being performed”
and poverty of defendant (no)
—arbitration agreement “incapable of being performed”
and failure to attempt mediation
— failure to attempt mediation before arbitration is
issue for arbitrators

Topics : q 220

Summary

The alleged poverty ofa party does not make an arbitration clause incapable of|
being performed ifthat
poverty is not caused by the party commencing arbitration. The issue whether the party commencing
arbitration violated the contract between the parties by‘failing to resort to mediation first as provided
therein is a question for the arbitrators, not the court.

In January 1986, Fulgensius Mungereza, a certified Public Accountant, became

a partner in the accounting firm of Coopers and Lybrand. In September 1997,
Coopers and Lybrand merged with PricewaterhouseCoopers. On 1 July 1998,
the members of PricewaterhouseCoopers in several Central African countries

458 Yearbook Comm. Arbn XXXV (2010)

 UGANDA NO. 1

signed a Framework Agreement for the conduct

of the business and for
establishing PricewaterhouseCoopers Africa Central.
Clause 29.1 provided that
disputes be submitted by the executive committee to the
Board of Governance
Entity for mediation; if the Board failed to come up with a
mutually agreeable
settlement, then the matter would be resolved by arbitration (Clause
29.2).
On 28 April 2000, PricewaterhouseCoopers Africa Centra
l informed
Mungereza that it was no longer interested in working with him.
After
protracted negotiations for an amicable withdrawal, Mungereza left. He then
filed a civil suit against PricewaterhouseCoopers Africa Central (Respondent) in
High Court, claiming damages for breach of contract and special damages of
US$ 6,200 as leave passages for 1998 and US $ 106,000 as refund on his tax
account held by Respondent. On 8 September 2000, Respondent applied to stay
court proceedings and refer the case to arbitration based on the arbitration clause
in the Framework Agreement. Mungereza argued in return that Respondent, in
fundamental breach of the Framework Agreement, dismissed him from the
partnership and denied him monies, so that he could not afford going to London
for arbitration and/or pay for legal representation.
The High Court allowed the application for a stay, holding that Mungereza’s
poverty did not render the arbitration clause in the Framework Agreement
incapable of being performed. The Court of Appeal at Kampala, per Mpagi-
Bahigeine, JA, affirmed the lower court’s decision.
The Supreme Court, before Oder, Tsekooko, Mulenga and Kanyeihamba, JJ
SC, in an opinion by Odoki, CJ, dismissed Mungereza’s appeal, holding that the
alleged poverty of Mungereza was not a sufficient reason for exercising discretion
to refuse to stay proceedings on the ground that the agreement has been rendered
incapable of being performed. The Court reasoned that in order to justify the
exercise of such discretion it had to be established that Mungereza’s poverty had
been caused by Respondent. This was not proven. Mungereza did not argue that
he had not been paid his emoluments while he was still working nor did he
indicate how much it would cost to undertake the arbitration.
The Supreme Court also agreed with the appellate court’s finding that the
question whether Respondent was in breach of the Framework Agreement
because it failed to refer the dispute to mediation before commencing arbitration
should be referred to arbitration.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052049-n>.

45 9
Yearbook Comm. Arbn XXXV (2010)
 UNITED KINGDOM

Accession: 24 September 1975

lst Reservation

2009,
88. High Court of Justice, Queen’s Bench Division, 30 October
Case No. CC/2009/APP/0385

Parties: Appellant: Accentuate Limited (UK)

Respondent: Asigra Inc (Canada)

Published in: Available online at <www.bailii.org>

Articles: II(3)

Subject matters: — arbitration agreement “null and void” because of

violation of mandatory EU law provisions
— Commercial Agents (EU Council Directive)
Regulations 1993

Commentary Cases: {217 + 220 + J 222 + 4] 704(C)

Summary

An arbitration clause providing for the application of Ontario Law is null and void ifit results in the
failure to apply mandatory EU provisions protecting commercial agents. The Canadian arbitrators’
finding that the choice of law and the arbitration clause were valid was not conclusive and had to be
reviewed by the English court.

On 19 January 2004, Accentuate Limited (Accentuate) and Asigra Inc (Asigra)

concluded a Master Reseller Agreement (MRA) for the distribution by
Accentuate of software products of Asigra. The MRA contained a choice of law
clause, providing that it was governed by Ontario law. It also contained an
arbitration clause referring disputes to arbitration in Toronto, Canada.
A dispute arose between the parties. Accentuate commenced an action against
Asigra before the Chichester District Registry, seeking compensation under the

460 Yearbook Comm. Arb’n XXXV (2010)

 UNITED KINGDOM NO. 88

European Union’s Commercial Agents (Council Directive) Regula

tions 1993
(the Regulations),
In the meantime, on 13 November 2006, Asigra terminated the MRA.
On 21
June 2007, it commenced arbitration in Toronto. The arbitral tribun
al rendered
three awards: on 20 December 2007, it denied Accentuate’s reques
t for a
declaration that the Regulations were outside the scope of the arbitration
clause
(the First Award); on 3 March 2008, it determined that Ontario law, rather than
the Regulations, applied in determining the rights and liabilities of the parties
(the Second Award) and, on 10 February 2009, it found in favor of Accentuate
on the merits (the Third Award).
In England, Asigra sought a stay of court proceedings. On 28 May 2009, DJ
Levinson granted the stay. Accentuate appealed.
The High Court of Justice, per Mr Justice Tugendhat, lifted the stay.
Accentuate argued that the arbitration agreement between the parties was null
and void because it purported to apply a foreign law (the law of Ontario) which
does not give effect to mandatory provisions of the law of the European Union,
namely, an agent’s entitlement to compensation under the Regulations.
Accentuate referred to jurisprudence of the European Court of Justice (Ingmar)!
where it was held that it is essential to the purposes of the Regulations that a
principal established in a country not belonging to the European Union, whose
commercial agent carries on his activity within the European Union, cannot
evade the Regulations’ provisions by the simple expedient of a choice-of-law
clause. The arbitration clause here was therefore at odds with the mandatory
nature of the Regulations and was null and void. Accentuate also argued that the
Second Award, which failed to apply the Regulations, was not recognizable in a
EU State on public policy grounds.
The court agreed that the decision in Ingmar required it to give effect to the
mandatory provisions of EU law, notwithstanding any expression to the contrary
on the part of the contracting parties. Accordingly, the arbitration clause was
“null and void” in so far as it purported to require the submission to arbitration
of questions pertaining to mandatory provisions of EU law.
The Canadian arbitrators reached the opposite decision in the Second Award,
where they held that the protection of commercial agents in the Regulations did
not justify restricting the parties’ freedom to choose Ontario law as the
governing law of their contract. The court reasoned that arbitrators are allowed
under English law to decide on their own jurisdiction first, but their decision is
not conclusive and may be reviewed by the court. Here, the court had yet to

1. Ingmar GB Ltd. v. Eaton Leonard Inc.

461
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

determine independently whether there was a binding arbitration clause

applicable to Accentuate’s claim under the Regulations or an award which could
be recognized in England. Hence, the stay should be lifted at this stage.
Only the relevant parts of the decision are reported.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052050-n>.

462 Yearbook Comm. Arb’n XXXV (2010)

 UNITED KINGDOM NO. 89

89. Court of Appeal (Civil Division), 17 Dece

mber 2009

Parties: Appellant: Endesa Generacion SA (Spain)

Respondent: National Navigation Co (Egypt)

Published in: Available online at <www.bailiii.org>

Articles: II(3)

Subject matters: — declaration on existence, validity of arbitration

agreement
— foreign court decision on validity of arbitration
agreement
— EU Council Regulation (EC) No. 44/2001
—anti-suit injunction (injunction enjoining foreign law-
suit)

Topics: {229 + | 704(C)

S ummary

Following the ECJ decision in West Tankers v. The FRONT COMOR, English courts can no
longer issue anti-suit injunctions on the basis of an arbitration agreement. Also as a consequence of
West Tankers v. The FRONT COMOR, an EU-State court decision finding that an arbitration
clause in a charterparty is not incorporated into the bill of lading is a decision within the scope of
Regulation No. 44/2001 and applies in proceedings on the same subject matter in England, even if
those proceedings concern arbitration. The United Kingdom’s obligation under the 1958 New York
Convention to give effect to arbitration agreements does not prevent the English courts from being
bound by a decision of a court of an EU State, also a Convention member, that holds that there is no
arbitration clause.

The facts of this case are also reported in Yearbook XXXIV (2009) at pp. 830-
834 (UK no. 84). Endesa Generacion SA, an electrical generating company, and
its co-subsidiary Carboex SA (Carboex) entered into an exclusive supply
agreement (the Carboex Supply Agreement) under which Carboex agreed to
supply and Endesa agreed to purchase coal for use by Endesa in its power plants.
On 14 December 2007, Endesa entered into an individual contract under the
Carboex Supply Agreement to purchase from Carboex a certain quantity of
sub-bituminous steam coal in bulk, to be delivered at the port of Ferrol in

463
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

northwest Spain. The coal had been shipped on 6 December 2007 in Indonesia
aboard the vessel WADI SUDR, as evidenced bya Bill of Lading issued on that
date. The vessel was owned by National Navigation Co (NNC).
The Bill of Lading stated on the reverse that “all terms, liberties and exceptions
of the Charterparty dated as overleaf, including the Law and Arbitration clause
are herewith incorporated”. No charterparty however was indicated on the front
page of the Bill of Lading. At the relevant time, the WADI SUDR was subject to
three different (sub-)charters: (1) a time-charter dated 1 October 2007 between
NNC and China National Chartering Corporation (Sinochart) (the Head
Charter), providing for the application of English law and arbitration of disputes
under the Rules of the London Maritime Arbitrators Association (LMAA); (2)
a sub-timecharter between Sinochart and Morgan Stanley Capital Group Inc
(Morgan Stanley); (3) a voyage charter dated 25 September 2007 between
Morgan Stanley and Carboex (the Voyage Charter), providing for arbitration of
disputes in London by three LMAA members.
On 1 January 2008, the WADI SUDR sustained damage to her rudder; general
average was declared and the cargo of coal was discharged on 30 January 2008
at Carboneras, in southeast Spain, rather than Ferrol. Claiming that it had been
forced to purchase a second shipment of coal for its plant because of the
difficulties in transporting the coal from southeast to northwest Spain, Endesa
sought reimbursement of this additional cost from NNC. Proceedings in Spain
and England followed; only the relevant procedural steps are mentioned below.
On 23 January 2008, Endesa made an application to the Mercantile (First
Instance) Court in Almeria, Spain, for the arrest of the WADI SUDR (the Spanish
Action). The vessel was arrested by an ex parte order on 25 January 2008. On
22 February 2008, Endesa served its substantive claim for compensation in the
Spanish Action under Art. 5 of Council Regulation (EC) No. 44/2001 (the
Regulation), which lists the cases in which a person domiciled in an EU Member
State may be sued in another Member State. NNC replied by challenging the
Almeria court’s jurisdiction, claiming that the dispute should be referred to
arbitration in London; however, it was not in possession of a copy of the Voyage
Charterparty containing the arbitration clause.
Also on 23 January 2008, a few hours after Endesa filed the Spanish Action,
NNC in turn commenced an action in the High Court of Justice, Queen’s Bench
Division (Commercial Court) against Endesa, seeking a declaration that it was
under no liability to Endesa (the Declaratory Action, Folio 64). On 8 July 2008,
NNC also issued an arbitration claim form (the Arbitration Action, Folio 667).
In the Spanish Action, NNC then sought a stay of proceedings under Art. 27
of the Regulation, which provides that where proceedings involving the same

464 Yearbook Comm. Arb’n XXXV (2010)

 UNITED KINGDOM NO, 89

cause of action and between the same parties are brought in the courts of
different Member States, any court other than the court first seized shall
stay its
proceedings until the jurisdiction of the court first seized is established. NNC
argued that the Commercial Court had jurisdiction as it was first seized of the
matter because the action there had been filed on 23 January 2008, prior to the
filing of Endesa’s substantive claim in the Spanish Action on 22 February 2008.
On 31 July 2008, the Almeria court issued a first decision, holding that (i) it had
jurisdiction because no arbitration clause was validly incorporated from any
charterparty into the Bill of Lading under Spanish law and (ii) in any event, by
commencing the Commercial Court Action in England NNC had waived its right
to arbitrate the dispute; the court recognized, however, that the proceedings in
the English Arbitration Action (Folio 667) concerned the same subject matter as
those before it and therefore (iii) stayed its own proceedings pending a decision
by the English court on its own jurisdiction.
On reconsideration, on 31 December 2008, the Almeria court reaffirmed its
original reasoning. It reasoned that there might be differences between the
approaches of the English and Spanish courts in respect of the impact of the
commencement of substantive proceedings on a party’s ability to pursue a claim
by arbitration, but held that it was for the English court in the first instance to
decide whether to exercise jurisdiction itself or allow NNC to pursue a claim in
arbitration. In this context, the Almeria court noted that its decision was
“without prejudice to the fact that these points do not bind the London court
which may well decide the opposite”.
On 1 April 2009, the Commercial Court, per Gloster, J, rendered a decision
in respect of several applications in the Declaratory Action (Folio 64) and the
Arbitration Action (Folio 667). In particular, it decided on (1) NNC’s application
for a declaration that the arbitration clause in the Voyage Charter was validly
incorporated into the Bill of Lading and the disputes between the parties were
therefore referable to London arbitration (the Declaration Application) and (2)
NNC’ s application for an anti-suit injunction restraining Endesa from prosecuting
proceedings in Spain (the Anti-Suit Application).
The Commercial Court granted NNC’s Declaration Application — holding that
as a matter of English law, its putative applicable law, the bill of lading did
contain an arbitration clause — but dismissed the Anti-Suit Application, holding
that the decision of the European Court ofJustice in The FRONT COMOR,' which
was issued on 10 February 2009, prevented the granting of an anti-suit injunction

pp. 485-493 (European Union

1. [2009] 1 Lloyd’s Rep. 413, reported in Yearbook XXXIV (2009)
no. 2).

465
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

on the basis of an arbitration agreement. The court then examined whether it

should stay the Arbitration Action because of the finding in the Spanish decisions
that there was no valid arbitration agreement between the parties. It first
reasoned that, following the decision in The FRONT COMOR, the Spanish court
decisions were decisions under the Regulation and were thus enforceable in the
English proceedings. However, they were not so enforceable in the Arbitration
Action because arbitration-related proceedings are not covered by the
Regulation, which expressly excludes arbitration from its scope of application
(Art. 1(2)(d)). She also added that, if she were wrong in her conclusion, she
would still not recognize the Spanish decisions on the grounds they “were
manifestly contrary to public policy”. This decision is reported in Yearbook
XXXIV (2009) at pp. 830-861 (UK no. 84).
The Court of Appeal, before Lord Justice Waller, Lord Justice Carnwath and
Lord Justice Moore-Bick, in an opinion by Waller, reversed the lower court’s
finding that the Spanish court decisions did not apply in the English proceedings,
holding that they did and consequently dismissing the Arbitration Action.
The Court of Appeal first dismissed NNC’s argument that the 3 December
2008 decision of the Spanish court (the second decision) did not make a final
ruling on the question whether the arbitration clause was incorporated in the bill
of lading. The Court reasoned that, seen together, the first and second decisions
of the Spanish court clearly decided in an unconditional manner that as matter of
Spanish law there was no arbitration clause. It was irrelevant that the Spanish
court thought that an English court might still feel free to decide this issue, as
both Spanish decisions were rendered before The FRONT COMOR and the Spanish
court could then believe that a decision on the incorporation of an arbitration
clause was outside the Regulation.
The Court of Appeal then agreed with the Commercial Court that the Spanish
court decisions fell within the scope of the Regulation, reasoning that the EC]
held in The FRONT COMOR that where a judgment is a Regulation judgment, the
preliminary ruling therein as to the jurisdiction of the court on the basis of the
(lack of) existence of an arbitration clause is also a Regulation judgment. This was
the case of the Spanish court’s rulings on the existence of a valid arbitration
clause, which were given in an action, the Spanish action, in which Endesa sought
compensation.
The Court of Appeal, however, reversed the Commercial Court’s ruling in
respect of the issue whether the Spanish decisions were binding in the English
Arbitration Action. Gloster, J, held that because the Arbitration Action fell
outside the Regulation, the Spanish Regulation judgments were not binding in
those proceedings. The Court concluded that Gloster, J’s, conclusion was

466 Yearbook Comm. Arb’n XXXV (2010)

 UNITED KINGDOM NO. 89

contrary to the judgment of the EC] in The FRONT COMOR, and a Regulation
judgment can give rise to an issue estoppel as much in arbitration proceedings
excluded from the Regulation as in any other proceedings in an English court.
The Commercial Court also held in its 1 April 2009 decision that the Spanish
decisions ought not to be recognized in this case on grounds of public policy. The
Court of Appeal disagreed, reasoning that there simply was no room for a public
policy argument, since Endesa was entitled to challenge the incorporation of the
arbitration clause into the bill of lading in the Almeria Mercantile Court, and the
English court was bound to recognize the decision of the Almeria court.
The Court of Appeal finally considered NNC’s argument that the United
Kingdom was obliged under the 1958 New York Convention to give effect to
arbitration agreements. The Court reasoned that it did not believe that this
obligation requires an English court not to be bound by a decision of a court of
a fellow Member State and co-signatory of the New York Convention that holds
that there is no arbitration clause.
Lord Justice Moore-Bick filed a concurring opinion.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052051-n>.

467
Yearbook Comm. Arb’n XXXV (2010)
 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

Case Nos.:
90. Court of Appeal (Civil Division), 10 February 2010,
009/ 1664(C)
A3/2009/ 1664, A3/2009/ 1664(A), A3/2009/ 1664(B), A3/2

Parties: Appellant: Midgulf International Limited (Cyprus)

Respondent: Groupe Chimique Tunisien (Tunisia)

Published in: Available online at <www.bailii.org>

Articles: II(3)

Subject matters: — exchange of communications

— separability of arbitration clause
—anti-suit injunction (injunction enjoining foreign law-
suit)

Topics: [1]-[2] = J 222; [1]-[15] = J] 206; [16]-[35] = J 229

Summary

The court was “unimpressed” by the argument that since the decision of the European Court ofJustice
in West Tankers v. The FRONT COMOR English courts should refrain from granting anti-suit
injunctions if the foreign country concerned (here, Tunisia) is a party to the 1958 New York
Convention. West Tankers v. The FRONT COMOR is no reason to change the settled view in
the English courts that the grant ofan anti-suit injunction is not incompatible with the Convention.

On 25 June 2008, Midgulf International Limited (Midgulf) sent to Groupe

Chimique Tunisien (GCT) a written offer for the sale of a certain quantity of
sulphur for delivery at Gabes, Tunisia. The offer required that GCT guarantee
“the draft at Gabes Tunisia to be 32 feet”. The offer also contained a clause
providing “Arbitration. English law to govern. Venue in London” and further
stated “All other terms and conditions as per Midgulf Saudi Arabia standard sales
contract.” On 26 June 2008, GCT replied to Midgulf asking that the reference
to the Midgulf Saudi standard sales contract be canceled and noting that the “max
guaranteed draft at both discharging ports Gabes and Sfax is 31 feet high tide”.
On 27 June 2008, Midgulf sent two faxes to GCT. The longer of the two began
“Thanks for your purchase confirmation which we have accepted.” The shorter
thanked GCT for its confirmation dated 26 June 2008 and attached a signed and
stamped contract (the draft June contract) that included the following terms:

468 Yearbook Comm. Arb’n XXXV (2010)

 UNITED KINGDOM NO. 90

PBuyer to guarantee the draft at Port Gabes or Sfax, Tunisia, is

31.00 feet salt
water and “Buyer guarantees that vessel will be safely accommodated
and
discharged at discharge port if vessel arrive at a maximum draught of 31 feet.”
The draft June contract further provided that English law applied, and that
disputes were to be referred to arbitration in London under English law. GCT
did not sign or return the draft June contract.
On 2 July 2008, Midgulf sent to GTC a new offer for a larger shipment of
sulphur (the July contract). The offer included quantity specifications and
provided for a July-September 2008 period of shipment. It further stated that all
other terms and conditions pertaining, among other things, to jurisdiction and
arbitration were to be “as per our contract ... dated 27 June 2008”. On 4 July
2008, Midgulf’s Dr. Dajani and GCT’s Mr. Hamrouni had a telephone
conversation whose content was later disputed. On 8 July 2008, GTC sent a fax
dated 7 July 2008 to Midgulf, confirming the purchase of the sulphur as per the
quality specifications indicatedinMidgulf’s 2 July offer and noting that “Draft at
Gabes and Sfax ports” should be “31 feet maximum at high tide”. On 9 July 2008,
Midgulf responded by an e-mail thanking GCT for its confirmation of acceptance
of Midgulf’s 2 July offer. On 14 July 2008, GCT sent a fax to Midgulf proposing
to amend the jurisdiction and arbitration clause in the draft June contract to read
as follows: “Jurisdiction. This contract is to be construed and governed in all
respects in accordance with Tunisian law” and “Arbitration. We suggest that the
settlement of disputes to be submitted either to the Tunisian jurisdiction or to
the arbitration of the International Chamber of Commerce with the application
of a neutral law by both parties.” This fax did not come to the attention to Dr.
Dajani.
A dispute arose between the parties when, on 21 July 2008, GCT raised a
complaint about the quality of the sulphur delivered under the June contract. On
22 July 2008, GCT raised a similar complaint about the first shipment under the
July contract and unilaterally terminated the contract. On 26 August 2008,
Midgulf commenced arbitration in relation to the July contract. GCT disputed
that the contract was governed by English law or by an English arbitration
agreement and did not appoint an arbitrator. On 13 October 2008, Midgulf
applied to the High Court for the appointment of an arbitrator.
In turn, on 24 October 2008, GCT commenced proceedings in Tunisia
seeking a declaration that the July contract was not governed by an English
arbitration agreement (the declaratory action). On 13 November 2008, GCT
commenced a second action in the Tunisian courts, seeking damages for
non-compliance of the sulphur with agreed quality specifications. The declaratory

469
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

action was dismissed on 28 March 2008; appeal was pending at the time of the
present decision.
In England, on 13 February 2009, Midgulf applied to the High Court for an
anti-suit injunction. On 19 February, Burton J granted a temporary injunction
pending the hearing of Midgulf’s 13 October 2008 application for the
appointment of an arbitrator. On 11 May 2009, Tere J, having heard both
applications, concluded that he should only grant an anti-suit injunction if
satisfied that there was a high degree of probability that Midgulf’s case about the
existence of an English arbitration agreement was right. This could not be
determined without oral evidence from Dr. Dajani and Mr. Hamrouni about
their telephone conversation on 4 July 2008. He therefore ordered an expedited
trial of the issue whether the July contract contained a London arbitration clause
and ordered that the anti-suit injunction should continue in the meantime. On
13 July 2009, Teare J delivered a second judgment. He found that the likely
outcome of the 4 July 2008 telephone conversation was that Mr. Hamrouni had
only confirmed the quantity and price of the proposed shipment and had not
confirmed acceptance of all details of the draft contract of 27 June 2008 to which
reference was made in the offer of 2 July. He further found that GCT’s fax dated
7 July was a counter offer that had been accepted by Midgulf’s fax dated 9 July.
A contract was then formed on the conditions set out in GCT’s fax dated 7 July
and no other terms. The contract therefore did not include a London arbitration
clause.
The Court of Appeal, before Lord Justice Mummery, Lord Justice Toulson
and Lord Justice Patten, in an opinion by Lord Justice Toulson, reversed Teare
J’s decision, finding that there was a valid English arbitration clause between the
parties. It therefore made an order for the appointment of an arbitrator and
granted an anti-suit injunction to restrain GCT from continuing with the
Tunisian proceedings.
On the facts of the case, the Court of Appeal concluded that GCT accepted
Midgulf’s offer dated 2 July 2008, whether by the telephone conversation of 4
July as confirmed by the subsequent exchange of faxes or simply by the
subsequent exchange of faxes. Hence, the July contract included an English law
clause and an English arbitration clause.
The Court of Appeal then held that in the presence of an English arbitration
agreement continuation of the declaratory action in Tunisia would be a violation
of that agreement. It rejected GCT’s argument that it would not because the
declaratory action did not involve directly asking the Tunisian court to determine
the parties’ rights and liabilities under the July contract.

470 Yearbook Comm. Arb’n XXXV (2010)

 UNITED KINGDOM NO. 90

GcT further argued that the anti-suit injunction sought by Midgulf should be
refused on two grounds. By the first ground it argued that it would not be
just
to grant such injunction when the English court’s assumption of jurisdiction was
based on a default rule. It reasoned that when an English court is considering an
issue of jurisdiction in relation to a contractual dispute which may be governed
either by English law or by a foreign court, it cannot resort to the putative
applicable law of the contract to resolve it; by default, it must apply its own law.
The court disagreed, noting that this contention was based on a decision
(Dornoch)' that had been rendered in a case where the court found that neither
party had demonstrated with reasonable certainty what the proper law of the
contract was. Here, Midgulf’s offer explicitly referred to English law. As a
consequence, only English law could determine whether GCT’s conduct
amounted to an acceptance so as to create an English law contract.
The court also dismissed as inconclusive, because not founded on the facts of
the case, the evidence given for GCT by an expert in Tunisian law that a Tunisian
court would consider that the July contract was governed by Tunisian law and
did not include an English arbitration clause.
GCT’s second argument for opposing an anti-suit injunction was that since the
decision of the European Court of Justice in The FRONT COMOR’ English courts
should refrain from granting anti-suit injunctions if the foreign country
concerned is a party (as Tunisia is) to the 1958 New York Convention, on the
strength of the Convention’s Art. II(3).
The court of appeal was “unimpressed”. It noted that English courts “have long
taken the view that the grant of an anti-suit injunction is not incompatible with
the New York Convention”. The court did not see that The FRONT COMOR —
which was based on the effect of Council Regulation (EC) no. 44/2001 —
provided “a good reason for taking a different view”.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052052-n>.

2 Lloyd’s Rep
1. Dornoch Limited v. Mauritius Union Assurance Co Limited [2006] EWCA Civ 389, [2006]
475.
(European Union
2. [2009] 1 Lloyd’s Rep 413, reported in Yearbook XXXIV (2009) pp. 485-493
no, 2).

471
Yearbook Comm. Arb’n XXXV (2010)
 ON 1958
COURT DECISIONS ON THE NEW YORK CONVENTI

91. High Court of Justice, Queen’s Bench Division, Commercial

Court, 30 March 2010, Case No. 2008 Folio 1280

Parties: Claimant: Continental Transfert Technique Limited

(nationality not indicated)
Defendants: (1) the Federal Government of Nigeria;
(2) Attorney General of the Federation (of Nigeria);
(3) Ministry of the Interior (of Nigeria);
(4) Federal Republic of Nigeria;
(5) Nigerian National Petroleum Corporation

Published in: Available online at <www.bailii.org>

Articles: V(1)(e); VI

Subject matters: — enforcement of award pending setting aside in

country of origin
— discretion to stay enforcement proceedings pending
annulment proceedings
— stay of enforcement proceedings and posting of
security

Topics: [7]-[9] = ] 516 + 4 517; [13]-[40] = § 601

Summary

An application to set aside the award in the country of rendition does not mean that the award has
been set aside or automatically suspended. The court has discretion to order a stay pending annulment
proceedings. Here, the balance of discretionary factors weighed against the party seeking a stay. The
court granted a stay on the condition that security be posted in the amount of UK£ 100 million.

On 25 May 1999, Continental Transfert Technique Limited (Continental)

entered into a supply agreement with the Ministry of the Interior of Nigeria to
produce and supply electronic residence cards for use by the Nigeria Immigration
Service. The agreement provided that the governing law was the law of Nigeria;
it also contained a clause referring disputes to arbitration in Nigeria under
Nigerian procedural law.

472 Yearbook Comm. Arb’n XXXV (2010)

 UNITED KINGDOM NO. 9]

A dispute arose between the parties and arbitratio

n proceedings took place
between Continental on the one hand and the Federal
Government of Nigeria,
the Attorney General of the Federation of Nigeria and the
Nigerian Ministry of
the Interior (the First to Third Defendants) on the other.'! On 14
August 2008,
an arbitral tribunal rendered an award in favour of Continenta
l in the amount of
NGN 29,660,166,207.48 plus interest and costs.’
The time limit to seek annulment of the award in Nigeria expired on 15
November 2008. On 20 April 2009, the Nigerian parties applied
for an
injunction to prevent enforcement of the award by Continental and for an
extension of time to apply to challenge the award. These proceedings were
pending at the time of the present decision.
In turn, Continental sought enforcement of the Nigerian award in the United
States and England. In the United States, on 23 March 2010, the United States
District Court for the District of Columbia dismissed Nigeria’s defenses to
enforcement and denied its request to adjourn enforcement pending the Nigerian
annulment action. This decision is reported in this Yearbook XXXV (2010) (US
no. 696, see fn. 1).
In England, on 10 December 2008, the High Court, per WalkerJgranted an
interim order to enforce the award against the First to Fourth Defendants,
providing for a period until 4 June 2009 to apply to set the order aside. No
application was made to set aside and, on 24 June 2009, Andrew SmithJgranted
an order to enforce the award and enter the judgment to be incorporated in a
single final order from the court. Continental then proceeded to enforce the
judgment of the court against, inter alia, property owned by Nigerian National
Petroleum Corporation (NNPC), which was joined as Fifth Defendant by order
of 28 September 2009. On 23 November 2009, the First to Fifth Defendants
(collectively, the Defendants) applied to the court to have all orders in this case
set aside or stayed.
The High Court, per Mr Justice Hamblen, granted a stay on the condition that
the Defendants provide security in the amount of UK£ 100million. The court
first denied the Defendants’ argument that the award should be refused
enforcement because it had been set aside or suspended in Nigeria, holding that
an application to set aside an award does not mean that the award has been set

1. The High Court stated that the arbitration proceedings took place in Nigeria (see, however, the
decision of the United States District Court for the District of Columbia in the same case, reported
in this Yearbook XXXV (2010) p. 522 (US no. 696), where the court stated that the arbitration
took place in London). tes
2. The High Court noted that this amount corresponded to approximately UKE 140million.

473
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

aside. It also referred to the decision in JPCO,’ where it was held that an
application to the court in the country of origin does not automatically result in
the award being suspended.
The court then examined whether it should grant a stay of proceedings
pending the application to set aside the award in Nigeria and concluded that on
the facts of the case, the various discretionary factors indicated by case law
weighed heavily in favor of Continental: (a) the Defendants did not show that
their application to challenge the validity of the award — which appeared to be
based on the sole contention that the arbitral tribunal lacked jurisdiction to award
damages for loss of profit — had a real prospect of success, since there was
Nigerian law evidence before the court to rebut it; (b) the annulment application
appeared to involve delaying tactics; and (c) the potentially substantial delay
caused by a stay (it was unclear when the Nigerian annulment action would be
heard) would result in significant prejudice. The court could therefore either
deny to stay the action or grant a stay provided that the Defendants post security.
As Continental did not oppose the latter solution, the court granted a stay on the
condition that the Defendants provide security in the amount of UK£ 100million.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052053-n>.

3. IPCO v. NNPC [2005] 2 Lloyd’s Rep 326, reported in Yearbook XXXI (2006) pp. 853-866 (UK
no.
70). '

474
Yearbook Comm. Arb’n XXXV (2010)
 UNITED STATES

Accession: 30 September 1970

Ist and 2nd Reservation

680. United States District Court, Southern

District of Florida, 22
June 2009 and 26 February 2010, Case No. 09-20023-CIV-
SEITZ/O’SULLIVAN

Parties: Plaintiff: Olena Bulgakova (Ukraine)

Defendant: Carnival Corporation (Panama)

Published in: Decision of 22 June 2009: 2009 U.S. Dist. LEXIS

126771;
Decision of 26 February 2010: 2010 U.S. Dist. LEXIS
39231

Articles: 11(3)
Subject matters: — arbitration clause “incapable of being performed”
because of prohibitive costliness (no)
— arbitration agreement “null and void” on public
policy grounds (no)
m arbitrability of seamen’s wage litigation

Topics: [1] + [3] = 214; [2}-7] = J 220; [8]-[20] = J 223

S ummary

In the first decision, the court held that prohibitive costliness does not fall under the “null and void”
exception in the New York Convention and referred the dispute to arbitration. In the second decision,
it denied a motion |for reconsideration based on the Eleventh Circuit’s decision in Thomas, where it was
held that a similar arbitration clause was null and void on grounds of public policy because it was
unlikely that the arbitrators, applying Panamanian law, would make an award on the plaintiff's US
statutory claim; hence, the plaintiff could not raise the public policy defense at the award enforcement
stage. Here, both the plaintiff s US statutory claims and general maritime claims would be referred
to arbitration and there was no indication that arbitrators in Monaco, applying Panamanian law,

Yearbook Comm. Arb’n XXXV (2010) 475

 1958
COURT DECISIONS ON THE NEW YORK CONVENTION

on clause was void on

would not hear the general maritime claims. The argument that the arbitrati
enforcement stage.
grounds ofpublic policy was therefore premature and could be raised at the

On 6 November 2005, Olena Bulgakova entered into a Seafarer’s Agreement

with Carnival Corporation (Carnival) to work as a waitress aboard one of
Carnival’s vessels. In a section that Bulgakova initialed, the Agreement provided
that substantive Panamanian law applied to the Agreement and that any disputes
arising from the Agreement be referred to arbitration in London, Monaco,
Panama City or Manila, whichever was closer to the employee’s home country.
In January 2006, while working aboard the CARNIVAL PRIDE, Bulgakova
slipped and injured her knee. She was later discharged from Carnival’s employ.
Bulgakova filed suit in state court in the United States, seeking back wages and
damages for: (1) Carnival’s failure to adequately secure, clean and inspect the
deck surface; (2) maintaining an unseaworthy vessel and overworking its crew
and (3) Carnival’s failure to provide adequate medical treatment or worker's
compensation, forcing her to retain and pay an attorney. Carnival removed the
suit to federal court and moved to compel arbitration of the dispute in Monaco.
By the first decision reported, rendered on 22 June 2009, the United States
District Court for the Southern District of Florida, per Patricia A. Seitz, US DJ,
granted Carnival’s motion to compel arbitration.
Relying on the Eleventh Circuit 2005 decision in Bautista,’ the district court
reasoned that courts are bound to a very limited inquiry when deciding motions
to compel arbitration under the 1958 New York Convention and _ its
implementing legislation, the Federal Arbitration Act. They must grant such
motions unless they find that one of the Convention’s jurisdictional prerequisites
are not met or one of its affirmative defenses applies. The jurisdictional
prerequisites were met here, as there was an agreement in writing, for
arbitration in a Convention country (Monaco), the agreement arose out of a legal
and commercial relationship and Bulgakova was not an American citizen.
The court then reasoned that the affirmative defense under the Convention
that the arbitration provision is “null and void, inoperative or incapable of being
performed” must be read narrowly because of the general policy of enforceability
of agreements to arbitrate declared by the Convention signatories. Accordingly,
the null and void clause must be interpreted to encompass only those situations
— such as fraud, mistake, duress, and waiver — that can be neutrally applied on
an international scale.

1. Bautista v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005), reported in Yearbook XXX (2005) pp:
1070-1085 (US no. 513).

476 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 680

Bulgakova argued that the arbitration clause in the Seafa

rer’s Agreement was
incapable of being performed because of her indigence.
The court reasoned that
there is no universally consistent definition of the prohi
bitive costs defense that
can yield consistent results in all Convention countries. Even
assuming that the
prohibitive costs defense were uniformly applicable, it would
not relieve
Bulgakova from the arbitration clause here, as Carnival offered
to bear the
arbitrator’s costs and fees, and Bulgakova did not show why litigating
in the
Southern District of Florida would be substantially less expensive than arbitratin
g
in Monaco, which is closer to Ukraine. This is the first decision reported.
By the second decision reported, dated 26 February 2010, the district court,
again per Seitz, denied Bulgakova’s motion for reconsideration, which was based
on a case (Thomas) decided by the Eleventh Circuit shortly after the first decision
above.’ In Thomas, the Eleventh Circuit held that a similar arbitration provision
to the one at issue here was void on grounds of public policy because the
plaintiff's Seaman’s Wage Act claims could not be vindicated under Panamanian
substantive law, which applied pursuant to the arbitration provision.
The district court noted that Thomas expressly recognized the continued
validity of the Bautista decision. Also, in Thomas only the plaintiff’s claim under
the Seaman’s Wage Act met the Convention’s jurisdictional requirements and
could be referred to arbitration. The Eleventh Circuit therefore held that the
plaintiff would likely receive no award on his US statutory claim, on the basis of
which he could maintain an action for enforcement of the award in which his
affirmative defense could be heard. Differently, in Bautista the plaintiffs’ Jones
Act negligence and unseaworthiness claims survived the Convention’s threshold
jurisdictional inquiry. As there was no indication that the arbitration law of the
Philippines (where the arbitration was to be held) would bar arbitration of the
general maritime claim of unseaworthiness, the Court of Appeals held that
arbitration continued to afford meaningful relief for the plaintiffs’ grievances.
In the present case, the nature of Bulgakova’s claims — both US statutory
claims and general maritime claims — did not suggest that she would not receive
an award and be deprived of the opportunity of raising the public policy defense
at the enforcement stage. Hence, her public policy claim was premature.

A detailed report of these decisions is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052054-n>.

pp.
2. Thomas v. Carnival Corp., 573 F.3d 1113 (11th Cir. 2009), reported in Yearbook XXXIV (2009)
1136-1150 (US no. 674).

477
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

681. United States Court of Appeals, Ninth Circuit, 2 October 2009,

No. 07-36011

Parties: Appellant/ Plaintiff: Romeo Balen (Philippines)

Appellee/Defendant: Holland America Line Inc.
(nationality not indicated)

Published in: 2009 U.S. App. LEXIS 21632; 187 L.R.R.M. 2145

Articles: II(3)

Subject matters: —arbitrability of seamen’s wage litigation

— arbitration agreement “null and void” on public
policy grounds (no)
— nonsignatory defendant may rely on arbitration
clause

Topics: [1]-[14] = J 223; [15]-[23] =] 220; [24]-[25] =] 214;

(26]-[31] = § 217

Summary

The Court affirmed its earlier jurisprudence that the provision in the Federal Arbitration Act (FAA)
exempting “contracts ofemployment ofseamen” from domestic arbitration does not apply to arbitration
agreements that would otherwise fall within the scope of the New York Convention, so that seamen’s
wage claims are arbitrable. Claimant failed to prove that the arbitration agreement was null and void
on grounds ofpublic policy, as he failed to show that the public policy regarding the proper treatment
ofseafarers is stronger than the strong federal public policy favoring (international) arbitration. It was
irrelevant that the applicable collective bargaining agreement had been signed for defendant by a
licensed Philippine employment agency, because Philippine law requires corporations to use such
employment agencies.

In September 2005, Romeo Balen entered into an employment contract with

Holland America Line Inc. (HAL) to work as beverage attendant aboard one of
HAL’s vessels. The Collective Bargaining Agreement (CBA) then in force
included the Gratuity and Beverage Service Charge Plan (the Gratuity Plan)
introduced by HAL in 2004. Under the Gratuity Plan, HAL would bill
passengers for a daily gratuity charge to be shared among the participating
employees and guarantee aminimum gratuity amount for each person, regardless

478 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 681

of actual payment by passengers; with the increased gratu

ity compensation, HAL
seta lower base pay rate. The Gratuity Plan provided
that employees reimburse
HAL in monthly installments for, inter alia, the travel expen
ses incurred by HAL
for their deployment overseas. When entering into his empl
oyment contract,
Balen signed a document acknowledging the terms of the Gratu
ity Plan.
The CBA including the Gratuity Plan had been concluded between
HAL —
acting through its agent, United Philippine Lines, Inc. (UPL) — and the Filipin
o
seamen’s union (Associated Marine Officers’ and Seamen’s Union of the
Philippines - AMOSUP). The CBA had been sent to the Philippine Overseas
Employment Administration (POEA) — a division of the Department of Labor
and Employment of the Republic of the Philippines that regulates the
employment of Filipino seamen by foreign corporations — which marked it with
a “received” stamp and the attached payscale with an “approved” stamp. The CBA
incorporated the POEA Standard Terms and Conditions, which provide at Sect.
29 for arbitration of disputes in the Philippines.
In March 2006, Romeo Balen was discharged because he could not repay to
HAL US$ 2,119 in travel expenses. On 27 April 2007, he commenced an action
in the United States District Court for the Western District of Washington,
claiming, inter alia, that HAL violated the Seamen’s Wage Act. On 20 November
2007, the district court granted HAL’s motion to compel arbitration.
The United States Court of Appeals for the Ninth Circuit, before Kim McLane
Wardlaw, Richard A. Paez, and N. Randy Smith, CJJ, in an opinion by N. Randy
Smith, affirmed the lower court’s decision.
The Court first reiterated its earlier jurisprudence (see Rogers, below) that the
provision in the Federal Arbitration Act (FAA) exempting “contracts of
employment of seamen” from arbitration applies only to domestic arbitration and
does not apply to arbitration agreements that would otherwise fall within the
scope of the 1958 New York Convention.
Balen argued that the arbitration agreement in the Standard Terms was void
because it inadmissibly required him to abandon his Seamen’s Wage Act rights.
The Court noted that the provision of the US Code relied on by Balen (Sect.
10317) does not apply to foreign vessels, and that Balen could bring his Wage
Act claims in the arbitration proceedings. Nor was the arbitration agreement null
and void on grounds of public policy, as Balen failed to show that the public
policy regarding the proper treatment of seafarers is stronger than the strong
federal public policy favoring arbitration, including international arbitration.
The Court of Appeals finally dismissed Balen’s contention that there was no
valid arbitration agreement between the parties because HAL was not a party to
the CBA and the CBA had not been approved by the POEA. The Court noted

47 9
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

that the CBA was expressly between AMOSUP and HAL, represented by UPL;
it was irrelevant that the CBA was signed by UPL, as corporations are obliged
under the law of the Philippines to use employment agencies licensed by the
POEA to employ Filipino seamen. Also, Sect. 29 of the Standard Terms provides
for arbitration without limiting its application to only those agreements approved
by the POEA,

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052055-n>.

480 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 68?

682. United States Court of Appeals,

Second Circuit, 8 October 2009,
Docket Nos . 07-4974-cv(L); 08-6184-cv(CON)
; 08-6188-cv(CON)

Parties: Petitioner /Appellee: Telenor Mobile Commun

ications
AS (Norway)
Respondent/ Appellant: Storm LLC (Ukraine)
Appellants: (1) Altimo Holdings & Investme
nts
Limited (nationality not indicated);
(2) Alpren Limited (nationality not indicated);
(3) Hardlake Limited (nationality not indicated)

Published in: 584 Federal Reporter, Third Series (2nd Circuit) p.

396 et seq.; 2009 U.S. App. LEXIS 22156

Articles: III; V(1)(a); V(2)(b)

Subject matters: — manifest disregard of the law
= foreign court decision on validity of arbitration
agreement is collusive and non-bindin
— public policy and violation of foreign judgment
— narrow concept of public policy

Topics: [4] = J 301; [5]-[6] = J 501; [7] = J 503; [8]-[10] =

§ 505; [11]-[12] + [14]-[22] + [27]-132] = J 524
(manifest disregard of the law); [23]-26] = 4 524
(enforcement would violate foreign judgment); [26] =
1518

S ummary

The Court affirmed the district court’s decision enforcing the award. It held that the arbitrators did
not manifestly disregard the law byfailing to give preclusive effect to Ukrainian court decisions that
the parties’ dispute was not arbitrable because the respondent's representative lacked authority to sign
the underlying contract. The arbitral tribunal had “colorable reasons” for treating the Ukrainian
decisions as not binding, as it found those decisions to be collusive. Nor did the arbitrators ey,
disregard the law because they failed to require a jury trial to determine the arbitration agreement's
existence and validity — and consequently, the underlying contract ’s arbitrability — pursuant to the
Second Circuit's 2001 decision in Sphere Drake. The party concerned failed to bring sufficient
evidence that there was a dispute as to the validity of the arbitration agreement, as the person who

Yearbook Comm. Arb’n XXXV (2010) 481

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

e New York
signed the contract on its behalf had the apparent authority to do so under the applicabl
law.

The facts of this case are also reported in Yearbook XXXII (2007) at pp. 943-946
(US no. 608) and Yearbook XXXIII (2008) at pp. 1041-1044 (US no. 630). On
30 January 2004, Telenor Mobile Communications AS (Telenor) and Storm LLC
(Storm) concluded a Shareholders Agreement under which Telenor was the
majority shareholder and Storm the minority shareholder of Kyivstar G.S.M.
(Kyivstar), a Ukrainian telecommunications venture. Storm held the shares of
Kyivstar for its ultimate corporate parent, Altimo Holdings & Investment
Limited (Altimo). Altimo owned Storm through, inter alia, Alpren Limited
(Alpren). The Shareholders Agreement was signed on Storm’s behalf by its then
general director, Mr. Nilov. It contained a clause providing for arbitration of
disputes by three arbitrators in New York.
A dispute arose between the parties when Storm allegedly violated the
Shareholders Agreement by failing to participate in the management of Kyivstar.
On 7 February 2006, Telenor commenced arbitration in New York pursuant to
the arbitration clause in the Shareholders Agreement. Storm participated in the
arbitration by appointing an arbitrator.
Alpren commenced proceedings against Storm in the Ukrainian courts,
seeking a declaration that the Shareholders Agreement was invalid (the Alpren
litigation). Telenor was not named as a defendant in the suit nor was it advised
of its pendency. Storm appeared in the proceedings through its new general
director, Vadim Klymenko. The Ukrainian court granted a declaration that the
Shareholders Agreement was invalid. An appellate court affirmed the lower
court’s decision and specified that not only the Agreement but also the
arbitration clause therein was invalid.
In the US arbitration, the panel issued a Partial Final Award denying Storm’s
defense that Nilov lacked the authorization to sign the Shareholders Agreement
in 2004. In reply, Storm filed a petition in New York state court to enjoin the
arbitration from continuing. Telenor removed the action to the United States
District Court for the Southern District of New York under the 1958 New York
Convention. The district court denied Storm’s petition, holding that it could not
review an interlocutory award.
Alpren then obtained a ruling in Ukraine barring Klymenko from participating
in the arbitration. The Ukrainian court also enjoined Storm and Telenor from
proceeding with the arbitration under threat of criminal sanctions.
Telenor sought relief from the US district court, counterpetitioning to compel
arbitration and seeking an anti-suit injunction against Storm, Alpren and Altimo
to prevent further court litigation in Ukraine. On 18 December 2006, the

482 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 682

district court granted Telenor’s motion and enjoined

Storm, Altimo and Alpren
from bringing or continuing any legal action in Ukraine “that woul
d disrupt,
delay or hinder in any way the arbitration proceedings betw
een Telenor and
Storm in New York”. This decision is reported in Yearbook XXXI
I (2007) at pp.
943-958 (US no. 608).
On | August 2007, the arbitral tribunal issued a unanimous
Final Award
granting various relief to Telenor. Telenor petitioned the distric
t court to
confirm the Final Award; Storm cross-moved to vacate it, arguing that
enforcement would violate public policy, that the arbitrators exceeded their
authority and that there was an incapacity and a violation of due process as a
consequence of the Ukrainian ruling enjoining Klymenko from participating in
the New York arbitration. Storm also argued that the award was in manifest
disregard of the law. On 2 November 2007, the district court granted Telenor’s
motion and dismissed Storm’s. This decision is reported in Yearbook XXXIII
(2008) at pp. 1041-1077 (US no. 630).
The United States Court of Appeals for the Second Circuit, before Sack and
Parker, CJJ, and Timothy C. Stanceu, Judge of the United States Court of
International Trade, sitting by designation, in an opinion by Sack, affirmed the
enforcement decision.
The Court denied Storm’s argument that the arbitral tribunal manifestly
disregarded the law by failing to give preclusive effect to the Ukrainian court
judgments holding that the Shareholders Agreement was not arbitrable because
Nilov, who signed it on behalf of Storm, was not authorized to do so. The Court
held that the arbitrators had “colorable reasons” for rejecting this argument: first,
though not using this term for understandable reasons, the arbitral tribunal found
that the judgments in the Alpren litigation were collusive and therefore not
binding on the tribunal; second, Nilov had apparent authority under the
applicable New York law.
Storm also argued that its compliance with the award would entail actions that
would place it in contempt of the Ukrainian courts, contrary to New York public
policy. The Court disagreed, reasoning that Art. V(2)(b) of the New York
Convention must be construed very narrowly to encompass only violations of the
most basic notions of morality and justice. This was not the case here. Also,
noted the Court, Storm brought the Ukrainian judgments upon itself through use
of “highly questionable litigation tactics”.

483
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

Nor did the arbitrators and the district court manifestly disregard the Second
Circuit’s 2001 decision in Sphere Drake,' where it was held that the issue whether
the dispute between the parties could have been heard in arbitration should be
decided in court rather than arbitration. The Court of Appeals concluded that
Storm failed to present sufficient evidence of a dispute as to the existence and
validity of the arbitration agreement to warrant a jury trial under Sphere Drake.
In particular, Storm did not provide sufficient evidence to support its allegation
that Nilov lacked apparent authority to execute the agreement Storm’s behalf.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052056-n>.

1. Sphere Drake Ins. Ltd. v. Clarendon Nat’l Ins. Co., 263 F.3d 26 (2d Cir. 2001),
reported in Yearbook
XXVII (2002) pp. 700-709 (US no. 375).

484
Yearbook Comm. Arb’n XXXV (2010)
 UNITED STATES NO, 683

683. United States Court of Appeal

s, Third Circuit, 15 October 200
No. 08-2924 9,

Parties: Appellant: Century Indemnity Compan

y (nationality
not indicated)
Appellee: Certain Underwriters at Lloy
d’s, London,
Subscribing to Retrocessional Agreem
ent NOS.
950548, 950549, and 950646 (nationality
not
indicated)

Published in: 584 Federal Reporter, Third Series (3rd Circuit 2009)
p- 913 et seq.; 2009 ULS. App. LEXIS 22619

Articles: II(1); 11(3); V(2)(b) (by implication)

Subject matters: — incorporation of arbitration clause by reference

— interpretation of arbitration agreement according to
ordinary principles of contract formation
— scope of arbitration clause
— presumption in favor of dispute falling within scope
of arbitration clause
— arbitrator’s “misconduct” and violation of due
process (fair hearing)

Topics: [12]-[18] + [21]-[44] = § 217 + § 220; [19}-[20] +

[45] + [106] = § 209; [107]-[108] = § 201; [110}-
[122] = 9 523

S ummary

The district court’s rulings first compelling arbitration and then denying a petition to vacate the
ensuing award were affirmed. The Third Circuit held preliminarily that the presumption of
arbitrability applicable to the determination whether a dispute falls within the scope ofthe arbitration
agreement “probably” does not apply to the determination whether the parties agreed to arbitrate.
However, this point need not be decided here because the Court held that there was a valid agreement
to arbitrate even without applying this presumption. Also, arbitration agreements need not be “express”
and “unequivocal” to be valid and enforceable; even ifthis requirement was not rejected, as it likely
was, by the Supreme Court in First Options in 1995, the language of the Federal Arbitration Act,
which provides that written arbitration agreements are valid “save upon such grounds as exist at law

Yearbook Comm. Arb’n XXXV (2010) 485

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

or in equity for the revocation of any contract” excludes additional threshold limitations placed on
arbitration: only ordinary state-law principles on the formation ofcontracts govern the issue of whether
the parties have agreed to arbitrate. In the case at issue, the retrocessional agreements between the
parties referred to and validly incorporated by reference reinsurance treaties containing an arbitration
fell within the scope ofthat clause. Further, the district court correctly
clause, and the dispute at hand |
dismissed the petition to vacate the award: the arbitrators were not guilty of misconduct affecting a
party’s right to a fair hearing because they refused to hear extrinsic evidence that they deemed
irrelevant and inadmissible, in particular because the retrocessional agreements expressly relieved them
from any obligation to follow the strict rules of law. i
LD
OO
AT

Argonaut Insurance Company (Argonaut) issued insurance policies to Western

Asbestos Company and Western MacArthur Company (collectively, Western),
to cover losses from Western’s distribution of asbestos products. Argonaut then
entered into three reinsurance treaties with Insurance Company of North
America (INA), the predecessor of Century Indemnity Company (Century). The
reinsurance treaties contained a clause referring disputes to arbitration.
Century in turn entered into retrocessional agreements Nos. 950548, 950549
and 950646 with Certain Underwriters at Lloyd’s, London (Lloyd’s), pursuant
to which Lloyd’s agreed to pay 90 percent of the losses in return for 90 percent
of the premiums that accrued to Century under the corresponding reinsurance
treaties. The retrocessional agreements between Century and Lloyd’s referred
to and incorporated “all” of the reinsurance treaties between Argonaut and
Century. They also contained a service-of-suit clause providing that all matters
arising from disputes brought pursuant to the service-of-suit clause “shall be
determined in accordance with the law and practice of the Court” where the
action was brought.
Starting in the late 1970s, persons allegedly exposed to asbestos filed injury
claims against Western. Western sought coverage from Argonaut for coverage
on the insurance policies; Argonaut refused payment. Declaratory judgment
litigation between Western and Argonaut followed over the scope of the policies’
coverage. In 2001, Century reimbursed Argonaut approximately US$ 2.2 million
for its litigation expenses; it then turned to Lloyd’s for Lloyd’s 90 percent share
of these costs. Lloyd’s refused to pay, contending that Century should not have
paid Argonaut for the declaratory judgment litigation expenses.
Century commenced an action in the Court of Common Pleas in Philadelphia
County, claiming the amount allegedly owed under the retrocessional
agreements. Lloyd’s removed the case to federal court under the 1958 New York
Convention and its implementing legislation — Chapter 2 of the Federal
Arbitration Act (FAA) — and sought to compel arbitration, asserting that the
retrocessional agreements incorporated the reinsurance treaties’ arbitration
clauses. On 18 May 2006, the United States District Court for the Eastern

486 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 683

arbitration. On 12
District of Pennsylvania granted Lloyd’s motion to compel
December 2007, an arbitral tribunal issued an award in favor of Lloyd’s. Century
then moved in the Eastern District of Pennsylvania to vacate the award. On 30
May 2008, the district court denied the motion to vacate. Century appealed.
McKee
The United States Court of Appeals for the Third Circuit, before
held that the district
Hardiman and Greenberg, CJJ, in an opinion by Greenberg,
compelled arbitration on 18 May 2006 because the
court (1) properly
ation clause in the reinsurance
retrocessional agreements incorporated the arbitr
arbitration clause and (2)
treaties and the dispute fell within the scope of the
award on 30 May 2008 because
properly denied Century’s motion to vacate the
ved Century of a fair hearing by
the contention that the arbitrators depri
sed to introduce was unfounded.
excluding certain evidence that Century propo
that a court must compel arbitration
The Court of Appeals noted at the outset
luded a valid agreement to arbitrate and
if it ascertains that the parties have conc two
r disp ute falls with in the scop e of that agreement. The Court added that
thei
respect.
preliminary issues arise in this ies
sumption in favor of arbitration appl
First, while it is accepted that a pre pe of the
ther a dispute falls within the sco
when it must be determined whe applies to
agr eem ent , it is unc ert ain whether this presumption also
arbitrat ion s
the r the part ies hav e agr eed to arbitrate. The Court of Appeal
the issue whe
pre sum pti on “pr oba bly ” doe s not apply, as held by other
reasoned that the this point as even
uits . How eve r, it did not reach a definite conclusion on
Circ d into a valid
app lyi ng the pre sum pti on it deemed that the parties entere
without
present case.
agreement to arbitrate in the itrate
Cir cui t hel d in ear lie r cas e law that agreements to arb
Second, the Third be valid and enforceable. The
equ ivo cal ” in ord er to
must be “express” and “un dif fer ent ways: either to explain
d thi s lan gua ge in two
Court noted that it had use of fact as to
itr ati on is pre clu ded wh en there is a genuine issue
that referral to arb or as a substantive standard app
lying
re em en t to arb itr ate ,
whether there is an ag eem ent 's enforceability as a genera
an arb itr ati on agr
to the determination of fac t con cer nin g the formation of the
no genuin e iss ue of
matter. Here, there was Lloyd's disputed the legal
effect of
rat her , Cen tur y and
arbitration agreement, the y dis agreed on the issue of con
tract
lan gua ge, tha t is,
uncontested contractual cla use in the reinsurance treati
es was
the arb itr ati on
interpretation whether agr eem ent s. As to the “express” and
retrocession al
incorporated into the ch was based on the Third
lan gua ge as a sub stantive standard, whi
“unequivocal”

487
XXXV (2010)
Yearbook Comm. Arb’n
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

Circuit’s 1994 decision in First Options,' the Court of Appeals reasoned that this
standard was probably rejected outright by the Supreme Court on certiorari in
that case in 1995. However, even if it was not, the Court of Appeals held that it
i

is at any event precluded by the language of the FAA — which provides that
written arbitration agreements “shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation of any contract”.
Hence, only ordinary state-law principles on the formation of contracts govern
the issue of whether the parties have agreed to arbitrate.
The Court of Appeals then applied Pennsylvania law — which it found to be
applicable pursuant to the choice of law in the service-of-suit clause in the
retrocessional agreements — to examine whether Century and Lloyd’s had
concluded a valid arbitration agreement in the present case. It concluded that
“the most reasonable, probable, and natural construction of the incorporation-
by-reference clause of the retrocessional agreements”, which provided that the
clauses incorporated “all” of the reinsurance treaties’ terms and provisions, “is to
apply the clause to include the arbitration provision of the reinsurance treaties”.
Further, the dispute between the parties fell within the scope of the arbitration
agreement. The Court of Appeals took into account the presumption of
arbitrability, which applied here because the arbitration clause was broad, but
added that it would reach the same result — that the dispute between Century and
Lloyd’s over Lloyd’s obligation with respect to the declaratory judgment
expenses fell within the scope of their arbitration agreement — “with or without
the presumption of arbitrability”.
The Court of Appeals held that as a consequence the district court properly
compelled Century to submit the dispute to arbitration.
The Court finally dismissed Century’s motion to vacate the award. Century
argued that the panel erred in refusing to hear extrinsic evidence that Century
sought to submit regarding reinsurance industry custom and practice, the parties’
course of dealing and Lloyd’s own historical corporate practice of paying as well
as seeking reimbursement for declaratory judgment expenses under reinsurance
contracts covering expenses. Century claimed that this exclusion deprived it of
a fair hearing and therefore required vacating the award.
The Court of Appeals disagreed. It reasoned that the FAA allows district
courts to vacate awards only under narrow circumstances, one of such
circumstances being where arbitrators are guilty of misconduct in refusing to
hear evidence pertinent and material to the controversy and their refusal affects

1. First Options of Chicago, Inc. y. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995),
reported in Yearbook XXII (1997) pp. 278-286.

488 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 683

the rights of a party in such manner as to deprive that party of a fair hearing. In
the present case, the arbitrators refused to admit Century’s extrinsic evidence
because they deemed it to be irrelevant and inadmissible. The Court also noted
that the reinsurance treaties incorporated into the retrocessional agreements
expressly relieved the arbitrators of “all judicial formalities” and any obligation
to follow “the strict rules of law”. Considering the arbitrators’ wide latitude in
making evidentiary determinations, the Court of Appeals could not find that
there was a statutory basis to vacate the award. The district court therefore did
not err in refusing Century’s vacatur petition.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052057-n>.

489
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

684. United States Court of Appeals, Third Circuit, 28 October 2009,

Nos. 08-3442, 08-3631

Parties: Plaintiff/ Appellant: Alexander Razo (Philippines) et al.

Defendants/ Appellees: (1) Nordic Empress Shipping
Ltd. (nationality not indicated);
(2) Royal Caribbean Cruises Ltd. a/k/a Royal
Caribbean Cruises, Ltd., d/b/a Royal Caribbean
Cruise Line, d/b/a Royal Caribbean International Inc.
(Liberia);
(3) Royal Caribbean Cruises Inc. (nationality not
indicated) et al.

Published in: 2009 U.S. App. LEXIS 23713

Articles: II(3)

Subject matters: — requirements for referral to arbitration (in general)

— seamen’s employment contracts are commercial
contracts subject to the 1958 New York Convention
— Jones Act claims

Topics: {214 + § 223

Summary

The Court affirmed the district court’s decision compelling arbitration, holding that the jurisdictional
requirements for referral under the New York Convention were met. In particular, the arbitration
clause in the POEA Standard Terms was validly incorporated into the seafarer’s contract and did not
conflict with a provision therein that only dictated the venue of the arbitration; also, seamen’s
employment contracts are “commercial” contracts.

The facts of this case are also reported in Yearbook XXXiIII (2008) at pp. 1187-
1189 (US no. 647). On 27 January 2004, Alexander Razo signed a contract of
employment with Royal Caribbean Cruises Ltd (Royal Caribbean) to work on
board the cruise ship M/V EMPRESS OF THE SEAS. Royal Caribbean was the
operator and bareboat charterer of the vessel; Nordic Empress Shipping Ltd
(Nordic) was its owner, Razo was employed under a collective bargaining

490 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 684

— nance Royal Caribbean and theNorwegian Seamen’s Union.

Rey aces neon was a Philippine Overseas Employment
ik standard contract incorporating the Standard Terms and
Conditions Governing the Employment of Filipino Seafarers On Board
Ocean-Going Vessels (POEA Standard Terms), which provide for arbitration of
disputes in the Philippines and for the application of the laws of the Philippines.
Sect. 5 of the POEA Standard Terms provides that claims and disputes arising
from the employment contract “shall be brought ... exclusively before the proper
courts in Metro Manila”.
On 7 September 2004, Razo was injured on board the vessel. On 6 September
2007, Razo commenced an action in a state court in New Jersey asserting claims
under the Jones Act against Royal Caribbean and Nordic (collectively, the
defendants). On 28 November 2007, the defendants petitioned for removal to
federal court and sought to compel arbitration of the dispute. On 24 July 2008,
the United States District Court for the District of New Jersey granted the
motion as to Royal Caribbean, finding that all jurisdictional requirements for
referral to arbitration under the 1958 New York Convention were met, but
remanded Razo’s claims against Nordic to state court, holding that there was
undisputedly no arbitration agreement in writing between Razo and Nordic. The
district court also held that although Jones Act claims in respect of personal
injury of a seaman are generally not removable, the statute implementing the
New York Convention in the United States, Chapter II of the Federal Arbitration
Act (the Convention Act), does not recognize an exception for foreign seamen’s
employment contracts. This decision is reported in Yearbook XXXII (2008) pp.
1187-1198 (US no. 647).
The United States Court of Appeals for the Third Circuit, before McKee,
district
Chagares, and Nygaard, CJJ, in an opinion by Nygaard, affirmed the
removable
court’s decision, dismissing Razo’s argument that the claims were not
the anti-
pursuant to the Savings to Suitors clause of 28 U.S.C. Sect. 1333 and
Liability Act
removal statute applicable to Jones Act and Federal Employer’s
and that no arbitration agreement existed between Razo and Royal
cases,
Caribbean at the time of Razo’s injury.
’s finding that the
The Court of Appeals first agreed with the district court
validly incorporated into
arbitration clause in the POEA Standard Terms was
conflict with Sect. 5 of the
Razo’ contract and that the arbitration clause did not
ls merely dictated the venue
contract, which in the opinion of the Court of Appea
of the arbitration.
that the four requirements for
Razo also contested the district court's holding
on were met. The Court of Appeals
referral to arbitration under the Conventi

49]
;
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

disagreed, holding, as the district court did, (1) that an arbitration agreement had
been validly incorporated into Razo’s contract, and (2) that it was beyond
question that the Philippines, the place in which arbitration was to be ordered,
is a New York Convention signatory and (3) that Razo was not a US citizen.
Also, the district court was correct in finding (4) that seamen’s employment
contracts are “commercial” contracts.
The Court of Appeals found that the district court correctly ruled that Razo’s
reliance on the Jones Act and the Federal Employer’s Liability Act was
misplaced, reasoning that the Jones Act does not apply because the Convention
Act provides a separate basis for jurisdiction and encompasses seamen’s
employment contracts; because the Jones Act does not apply, the provisions of
the Federal Employer’s Liability Act are not implicated.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052058-n>.

492 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO, 685

685. United States District Court,

District of Utah, Central Division
9 November 2009, Case No. 2:08-C
V-902-TC

Parties: Plaintiff: William Belcourt (nationality not indi

cated)
Defendants: (1) Grivel, srl (Italy);
(2) Gioachino Gobbi (nationality not indicated)

Published in: 2009 U.S. Dist. LEXIS 105133

Articles: II(3)

Subject matters: — waiver of arbitration by substantial participation in

court proceedings
— waiver of right to arbitration falls under “null and
void” exception

Topics: | 220

S ummary

A motion to compel arbitration based on an arbitration clause in the contracts between the parties was
denied because the defendants, which sought to rely on the arbitration clause, actively engaged in the
litigation before the court in a manner that was inconsistent with the right to arbitrate. The court
found, therefore, that they had waived their right to compel arbitration, holding that such waiver falls
under the “null and void” exception in Art. II(3) of the 1958 New York Convention.

William Belcourt and a partner, Mark Twight, were the owners of GNA
Corporation (GNA), a company created by Belcourt and Twight to be the North
American distributor for Grivel, srl (Grivel), a mountaineering equipment firm
owned by Gioachino Gobbi (collectively, the Defendants). The parties entered
into a series of contracts, which contained, inter alia, an agreement to arbitrate
disputes arising out of the subject matter covered by the contracts.
On 20 November 2008 Belcourt commenced the present action in the Utah
district court, alleging breach of contract, breach of the implied covenant of good
faith and fair dealing, negligent or intentional misrepresentation, breach of
fiduciary duty and interference with prospective economic advantage. On 4
March 2009, a default certificate was filed; on 6 March 2009, the Defendants
filed a motion to set aside the default and, on 21 April 2008, the court granted

Yearbook Comm. Arb’n XXXV (2010)

493
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

the Defendants’ motion. On 4 May 2009, the Defendants filed (1) an answer, in
which they specifically consented to jurisdiction and venue in the District of
Utah; (2) a third-party complaint, which brought in GNA and Twight as third-
party defendants (the Third-Party Defendants) and (3) a counterclaim. Several
other procedural steps followed. On 10 August 2009, the Defendants filed a
motion to compel arbitration based on the arbitration clause in the contracts.
The United States District Court for the District of Utah, Central Division,
per Tena Campbell, Chief Judge, denied the Defendants’ motion. The court
noted the strong federal policy favoring arbitration agreements and the very
narrow scope of the inquiry that the court performs when dealing with a request
to refer an international dispute to arbitration, which is limited to ascertaining
whether the arbitration agreement is “null and void, inoperative or incapable of
being performed”. The Tenth Circuit has held that this exception must be
narrowly construed; it has not addressed the question whether waiver falls under
the “null and void” exception. However, the court noted that other district
courts have dealt with this specific matter and have concluded that because the
right to arbitration is a contract right, it, just like any other contract right, can
be waived. The court agreed with this conclusion.
Applying the “well-established” test under domestic US law for determining
whether the right to arbitration has been waived, the district court then held that
the Defendants waived their right in the present case for the following reasons:
(1) their actions were inconsistent with the right to arbitrate, as they consented
to jurisdiction and venue in their answer, appeared before the court at the
hearing to set aside the default certificate and made numerous filings; (2) some
important litigation steps had been taken before the court in the four months
following the setting aside of the default certificate; (3) the Defendants filed both
a counterclaim and a third-party complaint and (4) the delay in invoking the
arbitration clause prejudiced the opposing parties as it led them to believe that
the Defendants planned to litigate this matter in the Utah court, causing them to
spend significant time and resources for their defense. Further, even after the
motion to compel arbitration the Defendants indicated a willingness to proceed
in the district court provided Italian law was applied to the claims.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id= KLI-KA-1052059-n>.

494 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 686

686. United States Court of App

eals, Fifth Circuit, 9 November 2009,
No. 06-30262

Parties: Plaintiff/ Appellee: Safety National Casualty

Corporation (nationality not indicated
)
Intervenor Plaintiff/ Appellee: Louisiana Safety
Association of Timbermen — Self Insurers
Fund (US)
Defendant/Appellant: Certain Underwriters at
Lloyd’s, London (nationality not indicated) et
al.
Plaintiff/ Appellant: Certain Underwriters at
Lloyd’s,
London (nationality not indicated)
Detendants/ Appellees: (1) Safety National Casualty
Corporation (nationality not indicated);
(2) Louisiana Safety Association of Timbermen (US)

Published in: 587 Federal Reporter, Third Series (5th Circuit)

p. 714 et seq.

Articles: 11(3)
Subject matters: — invalidity of arbitration clause because of violation of
state law on insurance
— 1958 New York Convention not reverse preempted
by state law on insurance

Topics: q 223

S ummary

This case held that the 1958 New York Convention is not reverse preempted by a Louisiana statute
prohibiting arbitration of insurance disputes. The Court found that the is wh Act —
which does not permit an Act of Congress to be construed to invalidate state law on insurance unless
the Act of Congress specifically relates to the insurance business — does not apply to — nif8 New
York Convention. Even if the Convention is not self-executing and requires enabling asnasinsi the
term “Act of Congress” in the McCarran-Ferguson Act does not encompass a ey eee treaty
that has been implemented by congressional legislation, because implementing pea ne a
replace the treaty, which remains an international agreement negotiated ane a Branc <3
does not become an Act of Congress. Also, when examining whether the ag etches er is
superseded, the court must construe the Convention (a treaty) rather than its implementing legislation

Yearbook Comm. Arb’n XXXV (2010) 495

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

(Chapter 2 ofthe Federal Arbitration Act — the Convention Act) because the Convention Act operates
aren

with reference to the contents of the Convention. Concerns that a state’s regulatory policies regarding
insurance contracts may not be recognized in an international arbitration may be addressed at the
1
award-enforcement stage.

The facts of this case are also reported in Yearbook XXXIV (2009) at pp. 986-
987 (US no. 657). Louisiana Safety Association of Timbermen-Self Insurers Fund
(LSAT), a self-insurance fund, provided workers’ compensation insurance for its
members. Certain Underwriters at Lloyd’s, London (the Underwriters) provided
excess insurance to LSAT by reinsuring certain claims. Each reinsurance
agreement between the Underwriters and LSAT contained an arbitration clause.
LSAT assigned its rights under the reinsurance agreements to Safety National
Casualty Corporation (Safety National). The Underwriters refused to recognize
the assignment, contending that LSAT’s obligations were non-assignable. Safety
National sued the Underwriters in the United States District Court for the
Middle District of Louisiana. The Underwriters filed a motion to stay
proceedings and compel arbitration. The district court granted the motion.
The Underwriters then initiated arbitration against Safety National and LSAT.
When the parties could not agree upon the manner of selection of the arbitrators,
the Underwriters filed a motion in the district court to lift the stay in order to
join LSAT as a party and to compel arbitration to resolve the dispute about how
to compose the arbitral tribunal. In response, LSAT moved to intervene, lift the
stay and quash arbitration, arguing that the arbitration agreements in the
reinsurance agreements were unenforceable under Louisiana law.
The district court granted LSAT’s motion to quash arbitration, holding that
although the 1958 New York Convention would otherwise require arbitration,
a Louisiana statute that has been interpreted to prohibit arbitration agreements
in insurance contracts was controlling.
On 29 September 2008, the United States Court of Appeals for the Fifth
Circuit, before King, DeMoss and Owen, CJJ, in an opinion by Priscilla R.
Owen, reversed the lower court’s decision. Under the McCarran-Ferguson Act,
a 1945 federal act regulating insurance, no “Act of Congress” shall be construed
to supersede state law regulating the business of insurance. The Court held,
however, that the New York Convention is not an Act of Congress within the
meaning of the McCarran-Ferguson Act, even if it is not self-executing and
requires enabling legislation passed by Congress. Hence, the McCarran-Ferguson
Act does not cause the Louisiana statute at issue to reverse-preempt the

1. Note General Editor. The Supreme Court of the United States denied certiorari in this case on 4
October 2010.

496 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 686

Convention. This decision is re ported

i Yearbook XXXIV
in
999 (US no. 657). 2009
ee
-
The 29 September 2008 decision was vaca
ted when rehearing en banc was
granted.
By the present en banc decision, the Fifth Circu
it affirmed its earlier decision
by a majority (Priscilla R. Owen, CJ, with whom
Jones, Chief Judge, King,
Jolly, Davis, Wiener, Barksdale, DeMoss, Benavide
s, Stewart, Dennis, Prado,
Southwick and Haynes, CJ], concurred) and remanded
the case to the district
court.
The Court again noted that the McCarran-Ferguson Act
allows state law to
reverse-preempt an otherwise applicable federal statute becau
se it does not
permit an “Act of Congress” to be “construed to invalidate, impair, or super
sede”
state law unless the Act of Congress “specifically relates to the business of
insurance”. It was undisputed that the New York Convention and its
implementing legislation, Chapter 2 of the Federal Arbitration Act (the
Convention Act), do not relate to insurance. Nonetheless, the Court of Appeals
held that the relevant Louisiana statute — La. Rev. Stat. Ann. Sect. 22:629 — does
not reverse-preempt the Convention under the McCarran-Ferguson Act because
(1) a treaty such as the Convention is not an “Act of Congress” within the
meaning of that term in the McCarran-Ferguson Act, and (2) the Court had to
“construe” the treaty — that is, the Convention rather than the Convention Act —
to determine the parties’ respective rights and obligations.
The Court of Appeals first dealt with LSAT’s argument that the New York
Convention is not self-executing and can only have effect in the US courts
because of the enabling legislation passed by Congress (the Convention Act),
which is an Act of Congress. Hence, the McCarran-Ferguson Act applies and the
Convention is reverse preempted by the Louisiana insurance statute. The Court
disagreed, holding that even if the Convention is a non-self-executing treaty
requiring legislation to implement its provisions in US courts, “that does not
mean that Congress intended an Act of Congress, as that phrase is used in the
McCarran-Ferguson Act, to encompass a non-self-executing treaty that has been
implemented by congressional legislation”. Implementing legislation does not
replace a treaty, which remains an international agreement negotiated by the
Executive Branch and ratified by the Senate, not by Congress: the treaty does not
become an Act of Congress.
The Court added that its conclusion is supported by the Convention Act,
which provides that Convention proceedings shall be deemed to arise “under the
laws and treaties of the United States”. Hence, even in the act of Congress that
was arguably necessary to implement the Convention in domestic courts,

497
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

Congress recognized that jurisdiction over actions to enforce rights under the
Convention did not arise solely under an “Act of Congress”.
The Court of Appeals then noted that the Convention Act operates with
reference to the contents of the Convention and “directs us to the treaty it
implemented”. Hence, when examining whether the Louisiana statute is
superseded the Court must construe a treaty (the New York Convention) rather
than an Act of Congress (the Convention Act).
This conclusion was in the Court’s opinion “bolstered by the ... national policy
favoring arbitration of international commercial agreements”. Though the
McCarran-Ferguson Act embodies a strong policy that the states have an interest
in the regulation of the business of insurance, concerns that a state’s regulatory
policies regarding such contracts may not be recognized in an international
arbitration are not a basis for refusing to require that an arbitration go forward.
The “national courts of the United States will have the opportunity at the
award-enforcement stage to ensure that the legitimate interest in the
enforcement” of public-interest law has been addressed.
Edith Brown Clement, CJ, filed a concurring opinion, in which she suggested
that Art. II of the Convention is self-executing by its plain meaning and preempts
the Louisiana statute.
Jennifer Walker Elrod, CJ — joined by Jerry E. Smith and Emilio M. Garza,
C]J — filed a dissenting opinion, in which she argued that the New York
Convention is not self-executing, so that only its implementing legislation is
capable of preempting state law in US courts. As the Convention Act
implementing the Convention is an Act of Congress that does not specifically
relate to the business of insurance, the Convention Act is reverse-preempted by
the Louisiana statute by operation of the McCarran-Ferguson Act.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052060-n>.

498 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO, 687

687. United States District Court Southern Distr;

November 2009, 06 Civ. 13107 (LAK)
’
rict ofof N New York, 13
n District

Parties: Plaintiff: China National Chartering

Corp. n/k/a
China National Chartering Co., Ltd. (nationa
lity not
indicated)
Defendant: Pactrans Air & Sea, Inc. (nationali
ty not
indicated)

Published in: 2009 U.S. Dist. LEXIS 106074

Articles: VI

Subject matters: — discretion to stay enforcement proceedings pending

annulment proceedings
— counsel fees

Topics: {] 601

S ummary

The court refused to stay enforcement pending an annulment action against the award in the country
ofrendition, China, finding that the balance ofcompeting interests elaborated by the Second Circuit
in Europcar weighed in favor of enforcement. In particular, the dispute had already been fully
arbitrated and the annulment action was in its early stages.

By a charterparty of 24 April 2006, China National Chartering Corp. (China

National) chartered a vessel to Pactrans Air & Sea, Inc. (Pactrans) for the
transport of certain goods. The charterparty contained a clause for arbitration of
disputes at the China Maritime Arbitration Commission (CMAC).
A dispute arose between the parties when China National claimed that it was
damaged by Pactrans and commenced CMAC arbitration as provided for in the
charterparty. On 31 March 2009, a CMAC arbitral tribunal issued a final award
in China National’s favor in the amount of US$ 543,814.74 plus interest and fees
to be paid within thirty days. On 17 July 2009, China National sought
enforcement of the CMAC award in the United States. Pactrans opposed
enforcement arguing, inter alia, that it had commenced an action to set aside the
award before the Tianjin Maritime Court in August 2009.

Yearbook Comm. Arb’n XXXV (2010)

499
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

The United States District Court for the Southern District of New York, per
Lewis A. Kaplan, US DJ, granted enforcement, dismissing Pactrans’s defense
based on the pending annulment action in China. The district court reasoned that
the discretion to stay enforcement under Art. VI of the 1958 New York
Convention should not be exercised lightly. In the present case, the balance of
the “competing concerns” elaborated by the Second Circuit in Europcar' to guide
the exercise of a district court’s discretion weighed in favor of granting
enforcement. In particular, enforcement would advance the goals of the
Convention — expeditious resolution of disputes and avoidance of litigation — as
the parties’ dispute had already been fully dealt with in arbitration, and Pactrans’s
Chinese appeal was in its early stages.”

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052061-n>.

1. Europcar Italia, S.p.A. v. Maiellano Tours, Inc., 156 F.3d 310 (2d Cir. 1998), reported in Yearbook
XXIV (1999) pp. 860-870 (US no. 280).
2. On 23 November 2009, a CMAC arbitral tribunal rendered an award in favor of Pactrans in
another dispute between the same parties. The 29 March 2010 decision by the United States
District Court for the Northern District of Florida, Pensacola Division, granting enforcement of
that award, is reported in this Yearbook XXXV (2010) p- 526 (US no. 697).

500 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO, 688

688. United States Court of Appeals, Thir

d Circuit. 19
Nos. 08-1853 and 08-2568 ? »19N ovembeberr 2 2009,

Parties: Claimant / Appellee: Steel Corporation of the

Philippines (Philippines)
Defendant/ Appellant: International Stee
l Services, Inc.
(US)
Published in: 2009 U.S. App. LEXIS 25404
Articles:
V(1)(e); V(2)(6)
Subject matters: — primary v. secondary jurisdiction under 1958 New
York Convention
— setting aside of award only in country of rendition
— setting aside of award by court of country under the
law of which the award was made (no)
— “ander law of which” refers to procedural, not
substantive law
— choice of seat of arbitration is presumption of choice
of procedural law
— public policy and pending action for setting aside
— discretion to enforce award pending setting aside
proceedings

Topics: [4]-[12] = § 516; [13]-[17] = 518

S ummary

The district court decision enforcing a Singapore award was affirmed. It was irrelevant that the award
had allegedly been annulled in the Philippines, as the Philippine courts were not courts ofprimary
jurisdiction that could validly set aside the award, which had been rendered in Singapore. Nor had
the award been rendered “under the law of” the Philippines, as the “under the law of which” language
in Art. V(1)(e) of the 1958 New York Convention refers to the procedural law of the arbitration. Here,
the award expressly stated that the sole arbitrator applied Singapore procedural law. The argument
that the court should look at the procedural law agreed by the parties (allegedly, Philippine law),
rather than the procedural law applied by the arbitrator, was also without merit: the choice for a ay
of the arbitration creates a presumption that the procedural law of the seat applies. Defendant —
to overcome this presumption. Its argument that the contract provided that Philippine law applied to

Yearbook Comm. Arb’n XXXV (2010) 501

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

the “validity, performance and enforcement” of the contract did not suffice to create the
“once-in-a-blue-moon set ofcircumstances” that the parties agreed ona procedural law other than the
law of the seat of the arbitration. Further, defendant’s contention that enforcing a foreign award while
annulment proceedings are pending violates public policy was unfounded and actually contravened the
very purpose of the New York Convention, that is, to promote the enforcement of commercial
arbitration agreements in international contracts. Under the New York Convention, parties may seek
enforcement notwithstanding the existence of pending annulment proceedings, and the enforcement
court has discretion to grant enforcement even when such proceedings are pending.

The facts of this case are also reported in Yearbook XXXII (2007) at pp. 789-791
(US no. 590) and Yearbook XXXIII (2008) pp. 1125-1127 (US no. 637). On 1
April 1996, Steel Corporation of the Philippines (SCP) and International Steel
Services, Inc. (ISSI) entered into an Acid Regeneration Plant Supply and
Installation Agreement (the ARP Agreement), under which ISSI was to build an
acid regeneration plant for SCP. On 15 April 1997, the parties also entered into
an Iron Oxide Sales Agreement (the IOSA Agreement), under which ISSI was to
buy iron oxide produced by the plant that was the subject of the ARP
Agreement. Both Agreements provided for the application of Philippine law to
the “validity, performance and enforcement” of the agreement and contained a
clause referring disputes to ICC arbitration in Singapore.
Disputes arose between the parties in respect of both Agreements. On 18
September 2002, ISSI commenced arbitration of a construction dispute under the
ARP Agreement before the Construction Industry Arbitration Commission
(CIAC) of the Philippines, rather than by ICC arbitration in Singapore as
provided for in the Agreement. SCP consented to CIAC arbitration. On 20
August 2003, the arbitral tribunal rendered an award in favor of ISSI in the
amount of US$ 150,000 (the Philippine ISSI Award).
On 5 May 2003, SCP filed a request for ICC arbitration in Singapore of a
dispute arising under the IOSA Agreement. The sole arbitrator issued two
awards: an award on liability in SCP’s favor on 24 June 2004 and a final award
on 3 November 2004, awarding SCP US$ 647,965.50 (collectively, the
Singapore SCP Award). The award stated that the arbitrator applied Singapore
law to the proceedings and Philippines law to the merits of the dispute.
In the Philippines, ISSI commenced two distinct actions. First, it sought to
annul the Singapore SCP Award (the annulment petition). SCP moved to dismiss
the annulment petition. On 14 December 2004, a Regional Trial Court
dismissed SCP’s motion; on 4 January 2006, it declared SCP in default of the
annulment petition and allowed ISSI to present its evidence ex parte. SCP filed
a motion for reconsideration and, on 18 April 2007, the Regional Trial Court
referred the dispute to mediation and stayed proceedings.

502 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 688

ee EE he A TE under the Philippine ISSI Award. On 4 October

* ¢ —— coer ol execution from a Philippine Regional Trial Court. On
SCP’s
y , the Philippine Court of Appeals set aside the writ, granting
extinguished
one that the monetary award in the Philippine ISSI Award was
y e greater award in SCP’s favor in the Singapore SCP Award. The court
not payable because
rejected ISSI’s argument that the Singapore SCP Award was
that only Singapore, as the
of ISSI’s annulment petition, reasoning, inter alia,
award.
country with primary jurisdiction, could annul the
, SCP sought to enforce
In the United States, by a petition of 19 January 2006
Common Pleas of York County,
the Singapore SCP Award in the Court of
al court. It then filed a motion for
Pennsylvania. ISSI removed the action to feder
the award had been nullified by the
Judgment on the Pleadings, arguing that
lt judg ment ente red again st SCP by the Philippine Regional Trial Court and
defau
the composition of the arbitral authority
was in violation of public policy; also, 2006, the
of the parties. On 31 July
was not in accordance with the agreement d
Western District of Pennsylvania denie
United States District Court for the
moti on. This decis ion is repo rted in Yearbook XXXII (2007) pp. 789-796
ISSI’s
(US no. 590). second
lvania district court rendered a
On 6 February 2008, the Pennsy on to confirm
isi on in this case , den yin g ISSI ’s motion to dismiss SCP’s petiti
dec before
SCP Awa rd and gra nti ng SCP’s petition. ISSI again argued
the Singap ore was
the awa rd vio lat ed US pub lic policy against forum shopping,
the court that d
ord anc e wit h the arb itr ati on agreement and had been nullifie
not rendered in acc the very least was
Phi lip pin e Reg ion al Tria l Court’s default decision or at
by the decision is
and the ref ore has not bec ome final and binding. This
under review 637):
(2008) pp. ! 195-1132 (US ne:
reported in Yearbook XXXIII rd Circuit, before Smith, Fis
her
ur t of App eal s for the Thi
The United States Co er court’s
d, CJJ , in an opi nio n by Fisher, CJ, affirmed the low
and Nygaar
decision. defense to
tha t the dis tri ct cou rt erred in dismissing ISSI’s
ISSI first argued w York Convention. The Court
V(1 )(¢ ) of the 195 8 Ne
enforcement under Art. ve tha t the Philippine Regional Trial
I fai led to pro
disagreed, holding that ISS which could validly set
aside the
of pr im ar y jur isd ict ion
Court was a court suc h jurisdiction, contrary to
ISSI’s
Th er e was no
Singapore SCP Award. bee n ren der ed “under the law of”
the
SCP Aw ar d had
contention, because the ge “un der the law of which” refers
V(1)(e) lan gua
Philippines. The Art. the arbitration. Here, the
SCP Award
oc ed ur al law of
exclusively to the pr app lie d Sin gapore procedural law and
the sol e arb itr ato r
expressly ‘ndicated that imary jurisdiction.
not the Phi lip pin es, was the country of pr
Singap ore ,

503
Arb’n XXXV (2010)
Yearbook Comm.
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

The Court of Appeals also rejected ISSI’s argument that the court should look
at the procedural law the parties agreed should be applied, rather than the
procedural law that the arbitrator applied. The Court first reasoned that ISSI bore
the burden to prove that a law other than the law of the Singaporean seat of the
arbitration applied, in light of the presumption under the New York Convention
that an agreement specifying the place of the arbitration creates a presumption
that the procedural law of that place applies. ISSI argued that the parties
necessarily agreed to an application of Philippine procedural law by stating in the
IOSA Contract that Philippine law applied to the Contract’s “enforcement”. The
Third Circuit referred to the decision of the Fifth Circuit in Karaha Bodas,' where
it was held that agreements providing for a procedural law that is not the law of
the seat of the arbitration are a “once-in-a-blue-moon set of circumstances” and
concluded that the use of the term “ enforcement” — rather than “procedure” —
in the IOSA Contract did not suffice to create such set of circumstances.
The Court of Appeals also rejected ISSI’s argument that enforcement of the
Singapore SCP Award while annulment proceedings were pending in the
Philippines would violate the fundamental principles of res judicata and judicial
comity and would run contrary to the US public policy against forum shopping.
The Court held that, on the contrary, this contention was at odds with the very
purpose of the New York Convention, which is to promote the enforcement of
commercial arbitration agreements in international contracts. Under the New
York Convention, parties may seek enforcement notwithstanding the existence
of pending annulment proceedings, and the enforcement court has discretion to
grant enforcement even when such proceedings are pending.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id= KLI-KA-1052062-n>.

1. Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F.3d 274 (Sth
Cir. 2004), reported in Yearbook XXIX (2004) pp. 1262-1302 (US no. 482).

504 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 689

689. United States District Court,

Northern District of Illinois, Eas
Division, 25 November 2009 and tern
2 December 2009, No. 09 C 7333

Parties: Plaintiff: Virginia Surety Company, Inc. (nat

ionality
not indicated)
Defendant: Certain Underwriters at Lloy
d’s, London
(nationality not indicated)

Published in: Decision of: 25 November 2009: 2009 U.S. Dist. LEXIS
110320;
Decision of 2 December 2009: 2009 U.S. Dist. LEXIS
111870

Articles: ll

Subject matters: — removal from state court to federal court

— removal provision of Sect. 205 Federal Arbitration
Act (FAA) does not apply in actions for setting aside
(vacatur)

Topics: { 301

S ummary

The provision in Sect. 205 ofthe Federal Arbitration Act that provides for removal to federal court of
actions falling under the New York Convention applies only in the context of actions to enforce an
award. It does not apply in actions to vacate an award.

Virginia Surety Company, Inc. (Virginia Surety) commenced an action in state

court — the Circuit Court of Cook County — seeking to vacate an award rendered
in the United States in a dispute between Virginia Surety and Certain
Underwriters at Lloyd’s, London (Lloyd’s). Lloyd’s sought to remove the action
to federal court under the 1958 New York Convention, invoking the removal
provision of Sect. 205 in Chapter 2 of the Federal Arbitration Act, which
implements the Convention in the United States.
By the first decision reported, rendered on 25 November 2009, the United
States District Court for the Northern District of Illinois, Eastern Division, per
Milton I. Shadur, Senior US DJ, ordered counsel for the parties to file

Yearbook Comm. Arb’n XXXV (2010) 505

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

submissions addressing the “surprising jurisdictional question” of whether the

New York Convention grants district courts subject matter jurisdiction in actions
to vacate — as opposed to actions to confirm — an award. The court noted that the
New York Convention speaks only of “Recognition and Enforcement of Foreign
Arbitral Awards”, making no reference to vacatur proceedings. This is the first
decision reported.
By the second decision reported, rendered on 2 December 2009, the district
court, again per Judge Shadur, held that the removal provision of Sect. 205 FAA
only applies to actions to confirm rather than actions to vacate an award. This is
the second decision reported.

A detailed report of these decisions is available online at <www.

kluwerarbitration.com/ document.aspx?id= KLI-KA-1052063-n>.

506 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO, 690

690. United States District Court, Wes

tern District of Texas, Austin
Division, 4 December 2009, Case No.
A-09-CA-488-SS

Parties: Plaintiff: China National Building Material Investment

Co., Ltd. (PR China)
Defendant: BNK International LLC (US)

Published in: 2009 U.S. Dist. LEXIS 113194

Articles: III; V(1)(a); V(1)(b); V(1)(d); V(2)(b)

Subject matters: — estoppel from raising defense not raised prior to

arbitration
— incapacity to attend hearing is not incapacity under
Art. V(1)(a)
— due process and incapacity to attend hearing

Topics: [6]-[15] = §] 303; [17]-[18] = 505; [19]-[27] =]511

(incapacity to attend hearing); [28]-[29] = 513; [30]-
[31] = §] 524 (incapacity to attend hearing)

S ummary

The objection that the party that commenced arbitration lacked standing is untimely ifraised at the
enforcement stage; the party relying on the lack ofstanding should have raised this objection prior to
the arbitration, by refusing to participate therein. Further, the incapacity of a party to attend the
arbitration hearing is not an incapacity under Art. V(1)(a) Convention, which refers to the time of
conclusion of the arbitration agreement. Nor did it result in a violation of due process under Art.
V(1)(b) in the case at issue, because it appeared from the record that the arbitrators had offered
alternatives to the party concerned. Objections under Art. V(1)(d) and Art. V(2)(b) Convention based
on the same argument were also denied.

In 2004, BNK International LLC (BNK) entered into an Agency Agreement with
BND Co., Ltd. (BND), under which BNK agreed to secure customers for BND
in the United States to purchase hardwood floor products. The Agency
Agreement provided for arbitration of disputes in Hong Kong at the Hong Kong
International Arbitration Centre (HKIAC).
BND underwent a name change to China National Building Material
Investment Co., Ltd. (China National) sometime after concluding the Agency

507
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

Agreement. A dispute arose between the parties. In January 2008, China

National commenced HKIAC arbitration against BNK as provided for in the
Agency Agreement. A three-member arbitral tribunal was established on 28 May
2008. In January 2009, the arbitral tribunal rendered a First Final Award in favor
of China National. In March 2009, it rendered a Second Final Award on costs.
China National sought enforcement of the HKIAC awards in the United States.
BNK filed a motion for summary judgment in which it raised several affirmative
defenses to enforcement.
The United States District Court for the Western District of Texas, Austin
Division, per Sam Sparks, US DJ, granted enforcement. BNK first argued that e

the Agency Agreement was between BNK and BND and that China National
lacked standing to seek enforcement of the HKIAC awards. The court held that
this objection was untimely. It reasoned that when China National served a notice
of arbitration on BND, BND was entitled to refuse to participate in the
arbitration and if it believed that China National and BND were not the same
entity, it could have forced China National to bring a district court action to
compel its participation in the arbitration. On the contrary, BNK participated in
the arbitration without raising the issue of whether China National “could stand
in the shoes of BND and enforce the Agency Agreement” and it assumed on
several occasions during the arbitration that the Agency Agreement was an
agreement between BND and China National.
The district court then denied several objections to enforcement raised by
BNK under the 1958 New York Convention. These objections were all based on
the argument that BNK’s president, largest shareholder and principal witness,
Mr. Jeffrey Chang, was unable to participate in the arbitration hearing due to a
medical condition. BNK argued first that enforcement should as a consequence
be denied under Art. V(1)(a) Convention. The court disagreed, noting that while
the Convention does not indicate expressly which is the relevant moment to
judge whether a party was under an incapacity for purposes of Art. V(1)(a), Art.
V(1)(a) as a whole appears to refer to the validity of the underlying agreement
to arbitrate, so that the incapacity must refer to the time of conclusion of that
agreement, not the arbitration proceedings.
BND also relied on Chang’s incapacity to travel and attend the hearing to
argue that the arbitral tribunal violated due process (Art. V(1)(b) Convention)
by allowing the arbitration hearing to take place in Chang’s absence. However,
it appeared from the record that the tribunal offered video-conferencing and
scheduled a further hearing on a date requested by Chang (who eventually did
not attend). Also, Chang was represented by Hong Kong attorneys but did not
instruct them to appear at the hearing on his behalf. The court concluded that

508 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 690

though Chang may well have been inconvenienced by the fact that the hearings
took place in Hong Kong, he and BND freely entered into an agreement to
arbitrate in Hong Kong, and his inconvenience in attending hearings there did not
amount to a violation of due process.
The district court also denied BNK’s objections to enforcement under Art.
V(1)(d) and Art. V(2)(b) Convention, which were based on the same argument
that Chang did not attend the arbitration hearing.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052064-n>.

509
(2010)
Yearbook Comm. Arb’n XXXV
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

691. United States District Court, Northern District of California, San

Jose Division, 9 February 2010, No. C-09-3355 RMW

Parties: Plaintiff: Key Asic, Ltd. (nationality not indicated) et

al.
Defendants: Innovative Semiconductors, Inc.
(nationality not indicated)

Published in: 2010 U.S. Dist. LEXIS 10980

Articles: II(3)

Subject matters: — waiver of arbitration by substantial participation in

court proceedings
— third-party beneficiary
— removal from state court to federal court

Topics: q 217 + { 220

S ummary

Removal to federal court was denied. Plaintiff did not rely on the contract containing an arbitration
clause to assert third party beneficiary rights and, even ifit did, defendants waived their right to
arbitration byfailing to raise arbitration as an affirmative defense in their answer and engaging in
discovery before the court.

Key ASIC, Ltd. and Key ASIC, Inc. (collectively, Key ASIC), entered into a
contract (the Key ASIC contract) with Innovative Semiconductors Inc.
(Innovative), pursuant to which Innovative agreed to provide certain chip design
and testing services. Innovative transferred its obligations under the Key ASIC
contract to Phylinks, Ltd. (Phylinks) by a set of contracts, including one
concluded orally or by conduct.
A dispute arose when Key ASIC claimed that the contract was not performed
to its satisfaction. On 29 September 2008, it filed suit in Santa Clara County
Superior Court alleging, inter alia, (i) breach of contract against Innovative for
breaching the Key ASIC/Innovative contract and (ii) breach of contract against
Innovative and Phylinks, asserting rights as a third-party beneficiary to the
Innovative/Phylinks agreement. On 22 July 2009, Innovative and Phylinks

510 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 691

_ pe apiece Es . com of the case to federal court,

eo motrin a basis for removal under the 1958 New
y allegedly revealed, in response to discovery
requests, that the contract pursuant to which it asserted third-party beneficiary
rights was a Semiconductor Technology License Agreement dated 14 November
2006 | between Innovative and Phylinks (the Licensing Agreement), which
contained an arbitration clause.
The United States District Court for the Northern District of California, San
Jose Division, per Ronald M. Whyte, US DJ, dismissed the notice of removal and
remanded the case to state court. It first noted that there were at least three
written agreements between Innovative and Phylinks that presumably related to
the work to be performed for Key ASIC; only one, the Licensing Agreement,
contained an arbitration clause. It then held that Key ASIC did not clearly admit
in its discovery responses that it based its third party beneficiary rights on the
Licensing Agreement; rather, it appeared from Key ASIC’s complaint that it
relied on an oral contract between Innovative and Phylinks, or a contract created
by conduct, rather than on a written agreement. Hence, Key ASIC did not rely
on the contract containing the arbitration clause and was not bound by it.
Key ASIC conceded at the hearing before the court that it may in fact seek
third-party beneficiary rights under the Licensing Agreement but argued that
defendants waived their right to arbitrate. The court agreed, holding that
Phylinks’s conduct was inconsistent with a right to arbitrate as Phylinks filed an
answer to Key ASIC’s complaint without raising arbitration as an affirmative
defense and benefitted from discovery before the court, though largely through
Innovative, as both parties were represented by the same counsel.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id= KLI-KA-1052065-n>.

Yearbook Comm. Arb’n XXXV (2010)

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

692. United States District Court, Southern District of Texas, Houston

Division, 10 March 2010 and 4 August 2010, Civil Action No. H-09-
1274

Parties: Plaintiffs: (1) Astra Oil Trading NV (Netherlands);

(2) Astra GP, Inc. (US);
(3) Astra Tradeco LP LLC (US)
Defendants: (1) Petrobras America Inc. (US);
(2) PAI PRSI Trading General LLC (US);
(3) PAI PRSI Trading Limited LLC (US)

Published in: Decision of 10 March 2010: 2010 U.S. Dist. LEXIS

2VOD4:
Decision of 4 August 2010: 2010 U.S. Dist. LEXIS 78573

Articles: I(1)

Subject matters: — nondomestic award

— Sect. 202 Federal Arbitration Act (FAA) defines
nondomestic award
— “nerve center” test

Topics: {102

Summary

An award rendered in the United States is non-domestic and falls under the 1958 New York
Convention ifit is not entirely between US citizens. To this purpose, a corporation is a US citizen if
it is incorporated or has its principal place of business there. Here, the corporation at issue was
incorporated in The Netherlands. The court examined whether its principal place of business was in
the United States by applying the “nerve center” test developed by the US Supreme Court, that is, by
locating the center of the corporation’s overall direction, control and coordination. Itfound that the
nerve center was in Belgium, where the corporation's 100 percent owner was located.
By the second decision, the court vacated its first order, finding on a review of the evidence and
newly discovered correspondence that the corporation’s sole officer in the United States held and
exercised all authority necessary to direct, control and coordinate the corporation's activities.

Astra Oil Trading NV (AOT), Astra GP, Inc. (Astra GP) and Astra Tradeco LP
LLC (Astra LP) (collectively, Petitioners), on the one hand, and Petrobras

512Z Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 692

PRS!
Sie ae to rt sete General LLC (PAI General) and PAI
. te “4 ( mae ) (collectively, Respondents), on the other
nies:
; D percent co-owners of a joint venture consisting of two compa
a refinery in Texas, and
Pasadena Refining System, Inc. (PRSI), which owned
an entity supplying
PRSI Trading Company LP (the Trading Company),
olders Agreement
feedstocks to the refinery. PRSI was governed by a Shareh
governed by a Partnership
between AOT and PAI; the Trading Company was
and PAI Limited. Both the
Agreement between Astra GP, Astra LP, PAI General
ment gave to Petitioners,
Shareholders Agreement and the Partnership Agree
put for sale to Respondents their
under certain circumstances, the right to
Company.
ownership interests in PRSI and the Trading
tioners claimed that circumstances
A dispute arose among the parties when Peti
t to put their interests for sale to
had arisen which gave them the righ
to arbitration in the United States. On
Respondents. The dispute was referred to
issued an award directing Petitioners
10 April 2009, an arbitral tribunal ling
sfer their owne rshi p righ ts to Respondents against payments tota
tran
sought confirmation of the award.
US$ 639,166,258.90. Petitioners es
ed on 10 March 2010, the United Stat
By the first decision reported, render Ewing
rict of Texas, Houston Division, per
District Court for the Southern Dist over
n, Jr., US DJ, gra nte d con fir mat ion, holding that it had jurisdiction
Werlei ugh
er the 195 8 New Yor k Con vention because the award, tho
the case und
Uni ted Stat es, was not a dom estic award. Chapter 2 of the
rendered in the in the United
l Arb itr ati on Act (FA A), whi ch implements the Convention
Federa vention
juri sdic tion to hea r acti ons involving awards under the Con
States, vest s ship
dist rict cour ts. How eve r, an award arising from a relation
in the federal States is considered a domestic
wee n citi zens of the Uni ted
which is entirely bet ship involves
and doe s not fall und er the Convention (unless that relation
award abroad or has
d abr oad , env isa ges per formance or enforcement
property locate was not
e rela tion wit h one or more foreign states — which
some other reasonabl is deemed a US citizen if
it is
resp ect, a cor por ati on
argued here). In this ted States.
or has its pri nci pal place of business in the Uni
incorporated uage in the US
d tha t thi s la ng ua ge in the FAA reflects the lang
The court note referred to a 2010 decisi
on of the
sta tut e. It the ref ore
diversity-of-citizenship ur t in terpreted the meaning
of a
wh er e the Co
Supreme Court (Hertz)' ss” in a div ers ity case, reasoning that
this
place of bus ine
corporation's “principal the identical language in the
FAA. In
it in int erp ret ing
decision should guide “n er ve center” test, that is, a tes
t that
urt ad op te d the
Hertz, the Supreme Co

605601 (2010).
end , §.C t., 175 L. Ed.2d 1029, 2010 WL
1. Hertz Corp. ¥. Fri
513
XXXV (2010)
Yearbook Comm. Arb’n
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

points the court in a single direction, towards the center of the corporation’s
overall direction, control and coordination.
Here, AOT was a corporation organized under the laws of the Netherlands;
its chairman and CEO, however, resided in and worked from California. The
court found from a preponderance of the evidence that AOT did not receive its
“overall direction, control, and coordination” from its sole officer in California
but rather from AOT’s 100 percent owner, a Belgian corporation. Thus, it could
be deemed that the “nerve center” for AOT’s business was lodged in Belgium.
The district court then confirmed the award under the domestic provisions of
Chapter 1 of the FAA. Only the relevant part of the decision is reported. This is
the first decision reported.
By the second decision reported, rendered on 4 August 2010, the district
court, again per Judge Werlein, vacated its earlier decision and dismissed the
action, finding that it lacked jurisdiction under the New York Convention. The
court again reviewed the evidence of the case and new correspondence that had
been obtained in related court proceedings and concluded that AOT’s officer
held and exercised “all of the authority necessary to direct, control, and
coordinate” AOT’s activities from his office in California. Hence, AOT’s nerve
center was in the United States, all parties were US citizens and the award at
issue was a domestic award which did not fall under the New York Convention.
This is the second decision reported.

A detailed report of these decisions is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052066-n>.

514 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 693

693. United States District Court, Eastern

Virginia, District of
Alexandria Division, 11 March 2010
, Civil Action No.: 1:10-mc-8

Parties: Petitioner: Trax Construction, Ltd. (nationality

not
indicated)
Respondent: Dyncorp International, LLC (nationali
ty
not indicated)

Published in: 2010 ULS. Dist. LEXIS 23251

Articles: V(1)(e)

Subject matter: — award “not (yet) binding”

Topics: 4514

Summary

Enforcement of the award was denied pending an appeal to a Kenyan court, because the arbitration
agreement between the parties provided that payment under the award would only take place “after the
final decision of the arbitrator’s award or appeal, whichever is applicable”.

Trax Construction, Ltd. (Trax) and Dyncorp International, LLC (Dyncorp)

entered into an arbitration agreement providing that payment under the award
be made only after either the award or an appeal against its had become final.
When an award was rendered in Kenya, Dyncorp appealed before the Kenya
High Court, while Trax sought enforcement in the United States.
The United States District Court for the Eastern District of Virginia,
Alexandria Division, per Liam O’Grady, US DJ, denied enforcement, finding
that Trax could not enforce the award until the appeal process had been
exhausted.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052067-n>.

515
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

694. United States District Court, Southern District of Florida, 16

March 2010, Case no. 09-23442-CIV-GOLD/ MCALILEY

Parties: Plaintiff: Agnelo Cardoso (India)

Defendant: Carnival Corporation (nationality not
indicated)

Published in: 2010 U.S. Dist. LEXIS 24602

Articles: II(3)

Subject matters: — Jones Act claims

— arbitration agreement “null and void” on public
policy grounds (no)
— unenforceable choice of law clause severed from
Seafarer’s Agreement

Topics: {| 220

Summary

The court enforced the arbitration clause in a Seafarer’s Agreement and referred plaintiff's Jones Act
and common law claims to arbitration in the Philippines. However, it severed as being unenforceable
(severance was allowed under the Agreement) the Panamanian choice-of-law clause, finding that by
operating in tandem with the arbitration clause it would deprive the seaman ofhis US statutory rights
and, as it was likely that arbitrators in the Philippines deciding under Panamanian law would not
render an award on the plaintiff’ s statutory claims, of a “meaningful” public policy review at the
award-enforcement stage.

On 19 June 2008, Agnelo Cardoso entered into a Seafarer’s Agreement with

Carnival Corporation (Carnival) to work aboard Carnival’s vessel M/S ELATION.
Para. 7 of the Seafarer’s Agreement provided that, with the exception of wage
disputes governed by Carnival’s grievance policy, all disputes be referred to
arbitration in England, Monaco, Panama or Manila, whichever was closer to the
Seafarer’s home country. Para. 8 provided that the Agreement was governed by
the law of the flag of the vessel, here, Panamanian law. Para. 9 provided that
invalid or unenforceable provisions be severed from the Agreement, the
remaining provisions of which remained valid.

516 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 694

i °
Cardoso was injured while
2
2009 , diic e
heial- nittl e
Ghuee
ne
gain s _ al in ee
arnivre the Circuit Court
aleirverd
S embe
Sept lbha ee

e awor
eeunse aueeing
ithiness and
nance es negla
:sei ,ctaa igence,
_ d for mainte
ie
2009
t. On 10 November
failure to provide prompt and adequate treatmen
|
Carnival removed the action to federal court.
ict of Florida, per Alan
The United States District Court for the Southern Distr
but struck the choice-of-law
S. Gold, US D], referred the dispute to arbitration,
ng that it was null and void.
provision from the Seafarer’s Agreement, findi
New York Convention requires
The court stated at the outset that the 1958
ts that meet four jurisdictional
courts to enforce arbitration agreemen
in writing within the meaning of the
prerequisites — that there is an agreement atory
in the territory of a Convention sign
Convention, providing for arbitration y to the
relationship, and that a part
and arising out of a commercial legal some
or the commercial relationship has
agreement is not an American citizen not disputed that
more foreign states. It was
reasonable relation with one or courts can
e requ irem ents were met here. Under the New York Convention,
thes
refer the disp ute to arbi trat ion if the arbitration agreement is “null
then refuse to
of being performed”.
and void, inoperative or incapable l
tha t the arb itr ati on cla use in the Sefarer’s Agreement was nul
Cardoso argued forum, theal
d bec aus e it for ced him to arbitrate his claims in an arbitr
and voi law of
and und er a for eig n (Pa nam anian) law that do not apply the
Philippines, lation
, the reb y cre ati ng a wai ver of his US statutory rights in vio
the United States
of public policy. 200 9 Eleventh Circuit decision in
. It ref err ed to the
The district court agreed ense falling
it was hel d tha t pub lic policy is an affirmative def
Thomas,’ wher e on clause
voi d cla use ” if the cho ice -of-law clause and arbitrati
under the “null and em ” as a prospective waiver
of a
t “op era te in ta nd
in a seafarer’s agreemen Act cla im without the assurance
of
a Sea man ’s Wa ge
seafarer’s rights to pursue where the
uni ty for rev iew . Thi s was also the case here,
a subsequent opport cla use in the Seafarer’s Agreemen
t, if
the arb itr ati on
choice-of-law clause and pro spe cti ve waiver of Cardoso’s
US
woul d lea d to a
enforced “in tandem”
ory rem edi es in vio lation of public policy. the Seaman’s
sta tut
tha t al th ou gh Th om as concerned claims under
The court reasoned Eleventh
reading” of the deci sion indicated that the
Wage Act, a “holistic ms br ou gh t pu rsuant to the Jones Act
and
applie s to cl ai
Circuit’s reasoning also

pp:
book XXXIV (2009)
111 3 1 1th Cir . 200 9), reported in Year
Corp. , 573 F.3d
1. Thomas v. Carnival
).
1136-1150 (US no. 674
517

Yearbook Comm. Arb’n XXXV (2010)

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

thus to the present case. Further, as in Thomas, there was here a distinct
possibility that arbitrators deciding under Panamanian law could render a
decision that would result in Cardoso receiving “no award” and his being as a
consequence deprived of the opportunity for “meaningful review” at the award-
enforcement stage. It did not matter that Cardoso brought common law claims,
which were cognizable under non-US law, in addition to his Jones Act claims,
while in Thomas the only arbitrable claims were US statutory claims.
The district court then turned to the question of how to remedy this public
policy violation that rendered the choice-of-law clause and the arbitration clause
in the Seafarer’s Agreement unenforceable. It concluded that severing the
Panamanian choice-of-law provision, as allowed under para. 9 of the Seafarer’s
Agreement, was the appropriate remedy. This solution maintained the
enforceability of the arbitration clause and promoted both public-interest policies
involved — the strong international policy favoring commercial arbitration and
the protection of a party’s right to pursue statutory remedies at the heart of the
Thomas decision — without unnecessarily elevating one over the other.
The court further rejected Cardoso’s contention that his Jones Act claims were
not arbitrable and that the arbitration clause was defective due to the parties’
unequal bargaining power. The court referred to the 2005 Eleventh Circuit
decision in Bautista,” which was binding on district courts in the Circuit, where
it was expressly held that the inequality of bargaining power is not an affirmative
defense to arbitration under the Convention and that Jones Act claims are
arbitrable.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052068-n>.

2. Bautista v. Star Cruises, reported in Yearbook XXX (2005) pp. 1070-1085 (US no. 513).

518 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 695

695. United States District

Court, District of Columbia
2010, Civil Action No.: 08- , 16 March
2042 (RMU), Re Document
No.: 11

Parties: Petitioners: G.E. Transport S.p

.A. (nationality not
indicated);
(2) Athena S.A. (nationality not ind
icated)
Respondent: Republic of Albania, Min
istry of Public
Works, Transport and Telecommunic
ations

Published in: 693 Federal Supplement, Second Series

(District of
Columbia 2010) p. 132 et seq.; 2010 U.S. Dist
. LEXIS
24180

Articles: Ill; V; VI
Subject matters: — subject matter jurisdiction
— (1958 New York Convention) arbitration exception
to sovereign immunity under Foreign Sovereign
Immunities Act (FSIA)
— service of process under Foreign Sovereign
Immunities Act (FSIA)
— personal jurisdiction over foreign defendant
— stay of enforcement proceedings pending annulment
action (no)
— currency of award
— rate of post-award, pre-judgment interest

Topics: [3]-[9] + [17]-[18] = J 301; [10] = § 500; [11]-[16] =

601; [19]-[21] = J 307

S ummary

An Italian ICC award was granted enforcement. Albania, which remained in default, was not immune
from jurisdiction under the Foreign Sovereign Immunities Act, which provides for an exception to
immunity in respect of actions under treaties such as the 1958 New York wenrennion ~ aee was
subject matter jurisdiction and service had been proper, the court also had personal jurisdiction ome
Albania. No grounds for refusing enforcement appeared to exist. No adjournment vies) Wate oon
an annulment action in Italy, because (i)further delay would undermine the expeditious resolution of
the dispute and (ii) the Italian annulment action was not expected to be resolved within a short time.

Yearbook Comm. Arb’n XXXV (2010) 519

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

The Euro portion of the award was converted into US dollars at the exchange rate of the day of the
award on quantum. Prejudgment interest was justified but the application was denied without
prejudice because the petitioners failed to justify the application of a higher rate than the prime rate.

On 15 September 2003, G.E. Transport S.p.A. and Athena S.A. (collectively,

the petitioners) entered into a contract with the Ministry of Public Works,
Transport and Telecommunications of the Republic of Albania (Albania) to
modernize part of Albania’s railway network. The contract provided that it was
governed by Italian law. It also contained a clause for ICC arbitration in Rome.
A dispute arose between the parties. On 1 June 2006, the petitioners filed a
request for ICC arbitration as provided for in the contract. Arbitration
proceedings followed in Rome. On 1 October 2007, an ICC arbitral tribunal
issued a Partial Award finding that Albania was in breach of contract. On 28 July
2008, the arbitral tribunal issued a Final Award directing Albania to pay
€ 10,619,016.79 and US$ 145,601.32 in lost profits suffered by petitioner G.E.
Transportation S.p.A., € 1,995,548.91 in lost profits suffered by petitioner
Athena S.A., US$ 328,500 in arbitration costs and € 207,452.45 as reasonable
defense costs. Albania filed an application for the correction and interpretation
of the awards, which the arbitral tribunal denied.
Albania sought annulment of the Partial Award and the Final Award
(collectively, the Award) in the Court of Appeal in Rome. This action was
pending at the time of the present decision. The petitioners in turn sought
enforcement of the Award in the United States. Albania did not appear in the US
proceeding.
The United States District Court for the District of Columbia, per Ricardo M.
Urbina, US DJ, granted enforcement of the Italian award. The court first held
that it had subject matter jurisdiction over the case. Foreign states are
presumptively immune from the jurisdiction of US courts unless one of the
exceptions specified in the Foreign Sovereign Immunities Acts (FSIA) applies;
one such exception concerns actions to confirm awards governed by an
international treaty, such as the 1958 New York Convention. As this case arose
under the New York Convention, to which Italy (the country of rendition), the
United States (the country of enforcement) and Albania are all parties, the FSIA’s
arbitration exception applied. Further, since there was subject matter jurisdiction
and Albania had been properly served, the court also had personal jurisdiction
over the foreign defendant.
The district court then held that it appeared from its review of the record that
none of the grounds for refusal of recognition specified in Art. V of the
Convention were present in this case.

520 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 695

The court then examined whether enforcem

ent shou ld be adjourned under
Art. VI Convention because of the pending annu
lment action in Rome. In the
absence of case law in its Circuit, the court refe
rred to a 1998 decision of the
Second Circuit in Europcar,' which articulated a list
of factors that a district court
should consider when deciding whether to adjourn enforcem
ent proceedings
pursuant to Art. VI Convention. Of these, the followin
g were relevant in the
present case: (i) the general objectives of arbitration, that
is, the expeditious
resolution of disputes and (ii) the estimated time for the foreign proc
eedings to
be resolved.
The district court concluded that both these factors weighed in favor
of
enforcement rather than adjournment in the present case. First, Albania agreed
to arbitration, fully participated in the proceedings that led to the Award,
pursued an unsuccessful appeal with the arbitral tribunal and failed to satisfy the
Award nearly four years after arbitration was commenced. A further delay would
therefore undermine the expeditious resolution of this dispute. Second,
according to the undisputed assertion of the petitioners, the Italian annulment
proceedings were likely to last until 2014. Hence, adjournment of the present
enforcement proceeding was unwarranted.
The court noted that the currency of part of the Award, the Euro, had
depreciated since the Final Award was issued. Accordingly, it converted the
portion of the Award awarded in Euros into US dollars by applying the exchange
rate at the date of the Final Award.
The court finally denied without prejudice the petitioners’ request for
prejudgment interest. While prejudgment interest was fully consistent in this
case with the accepted purposes of such interest, the petitioners failed to explain
why the court should apply a compound interest rate of 2.33 percent rather than
the prime rate which the District of Columbia Circuit had expressly approved.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052069-n>.

Cir. 1998), reported in Yearbook

1. Europcar Italia, S.p.A. v. Maiellano Tours, Inc., 156 F.3d 310, (2d
XXIV (1999) pp. 860-870 (US no. 280).

521
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

696. United States District Court, District of Columbia, 23 March

2010, Civil Action No. 08-2026 (PLF)

Parties: Plaintiff: Continental Transfert Technique Limited

(Nigeria)
Defendant: Federal Government of Nigeria

Published in: 697 Federal Supplement, Second Series (D.C. Circuit

2010) p. 46 et seq.; 2010 U.S. Dist. LEXIS 27336

Articles: I(1); Hl; V(1)(c); V(1)(e); VI

Subject matters: — domestic v. international award

— sovereign immunity from jurisdiction under Foreign
Sovereign Immunities Act (FSIA)
— personal jurisdiction over foreign State
— service of process under Foreign Sovereign
Immunities Act (FSIA)
— forum non conveniens
— discretion to enforce (no)
— discretion to stay enforcement proceedings pending
annulment proceedings

Topics : [1]-[4] = J 102 + | 104; [2]-[4] = J 103; [5] = 105;

[6]-[14] = J 301; [15] = 500; [17] = 516 + 9 517;
[18]-[28] = § 601

Summary

The argument that an award rendered in England between Nigerian parties and under Nigerian
substantive and procedural law was “domestic” and thus did not fall under the New York Convention
was dismissed as “implausible”, because the critical element under the Convention is where the award
is rendered: ifthat place is in a contracting country, all other Convention states are required to enforce
the award, regardless of the citizenship or domicile of the parties. Also, enforcement should not be
denied under Art. V(1)(e), because defendant Nigeria, which had commenced annulment proceedings
in Nigeria, did not prove that a Nigeria court had ruled on the award’s substantive validity. Nor was
enforcement to be adjourned under Art. VI Convention pending the annulment proceedings in Nigeria.
The court concluded that on the balance of the “competing concerns” to be taken into account in
exercising a court’s discretion to adjourn, adjournment should be denied.

522 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 696

oe “e ad missinSeer Transfert Technique Limited (Continental)

3 e Federal Government of Nigeria to produce
computer-compatible identification cards. The contract was governed by
Nigerian law. It also contained a clause referring disputes to arbitration under the
procedural law of Nigeria.
In 2007, Continental commenced arbitration, claiming that Nigeria had failed
to perform its obligations under the contract. On 14 August 2008, an arbitral
claims
tribunal in London! rendered an award in favor of Continental as to some
damages
and in favor of Nigeria as to others. The arbitrators found that once
Nigeria was liable
owed to Nigeria were set against those owed to Continental,
29.7 million.” The
to Continental in the amount of approximately NGN
Proceedings followed
arbitrators awarded, inter alia, damages for loss of profits.
in the United States, the United Kingdom and Nigeria.
rcement of the award in the
On 25 November 2008, Continental sought enfo
and only filed an appearance later
United States. Nigeria initially did not respond
in the proceedings.
ht enforcement of the award in
On 9 December 2008, Continental also soug
Continental leave to enforce the
the United Kingdom. The High Court gave
y to set aside the order. Nigeria did
award, granting Nigeria a time limit to appl
t issued an updated version of its
not react. On 26 June 2009, the High Cour
ente ring judg ment for Cont inen tal in the terms of the award and stating
orde r,
30 March 2010, the High Court granted
that the order was now absolute. (On r defendants in
n that Nigeria and the othe
a stay of enforcement on the conditio sion
amount of UK£ 100 million. This deci
the UK action provide security in the 91).)
(2010) p. 472 (UK no.
is reported in this Yearbook XXXV
200 9, Nig eri a in tur n com menced proceedings before the
On 20 Apr il
extending the
os Division, seeking (1) an order
Nigerian Federal High Court, Lag rd was
to app ly to set asi de the awa rd; (2) a declaration that the awa
time ation
and not fall ing und er the 195 8 New York Convention; (3) a declar
domestic
bun al “mi sco ndu cte d itse lf” when awarding damages for loss
that the arbitral tri (4) an order setting aside the
the agr eem ent of the par tie s;
of profits contrary to g enforcement
(5) an inj unc tio n res tra ini ng Continental from seekin
award and
of the award.

reported in this
Hig h Cou rt in Lon don in the same case,
1. See, however, the dec
ision of the arbitration took place
p. 551 (U K no. 91) , whe re the court stated that the
Yearbook XXXV (2010) , nd
in Nigeria. tely US$ 252 mil lion.
tha t thi s amo unt cor responded to approxima
noted
2. The district court
523
XXXV (2010)
Yearbook Comm. Arb’n
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

On 23 April 2009, the Nigerian court issued an ex parte order granting the time
extension and barring Continental from seeking enforcement of the award
pending “the hearing and determination” of Nigeria’s motion for an
“interlocutory injunction” (at (5) above), which was scheduled on 27 April 2009.
By the decision reported, the United States District Court for the District of
Columbia, per Paul L. Friedman, US DJ, dismissed all of Nigeria’s defenses
against enforcement as not “persuasive” and some even “border[ing] on the
frivolous”. It also refused to adjourn enforcement pending the annulment action
in Nigeria.
Nigeria first argued that the New York Convention did not apply because the
award was not “international” as it was rendered on a contract concluded
between Nigerian citizens and governed by Nigerian law. The court defined this
argument “implausible”, reasoning that the critical element under the Convention
is the place of the award: if that place is in a signatory State, all other Convention
states are required to enforce the award, regardless of the citizenship or domicile
of the parties. Here, the award was rendered in England, a Convention country.
The district court briefly dismissed Nigeria’s contention that it did not waive
its sovereign immunity to jurisdiction, holding that under the Foreign Sovereign
Immunities Act (FSIA) a foreign state is not immune from US court jurisdiction
in award-enforcement proceedings governed “by a treaty or other international
agreement in force for the United States calling for the recognition and
enforcement of arbitral awards”. The New York Convention “is exactly the sort
of treaty Congress intended to include in the arbitration exception” to the FSIA.
Also the argument that the court lacked personal jurisdiction over Nigeria was
without merit, because service to Nigeria had been made properly, thus creating
personal jurisdiction.
The district court further refused to dismiss the case on forum non conveniens
grounds. It noted that only US courts may attach Nigeria’s properties located in
the United States, so that Nigeria could not establish the existence of an adequate
alternative forum. The court added that in any event it would exercise its
discretion not to dismiss the case on this ground, because the balance of “private
and public interest factors” did not strongly favor dismissal.
The court finally dealt with Nigeria’s argument that the court should deny
enforcement “of the suspended award” because Nigeria had “applied to a court
of competent jurisdiction in Nigeria to set aside” the award. The court noted that
two provisions of the New York Convention could relate to this defense —
though neither was mentioned by Nigeria: Art. V(1)(e), if the award had already
been suspended in Nigeria, or Art. VI, if Nigeria was seeking suspension there.
The former provision was inapplicable, because Nigeria presented no evidence

524 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 696

that a Nigerian court had ruled on the award’s substantive validity. The 23 April
2009 ex parte order of the Federal High Court in Lagos merely barred
Continental — temporarily — from seeking enforcement; it did not set aside or
suspend the award. As to the latter provision, Art. VI Convention, in the absence
of case law of the District of Columbia Circuit, the district court referred to the
list of factors elaborated by the Second Circuit in Europcar’ to guide courts in
exercising their discretion to stay enforcement pending annulment proceedings
against an award. On the balance of these “competing concerns”, the court held
that adjournment should be denied. The court noted in particular that the
procedural history of the case strongly indicated that Nigeria commenced the
annulment action in Nigeria only in order to manufacture a defense to
Continental’s claims in the US. Also, the status of the Nigerian proceedings was
uncertain, in light of the fact that the judge assigned to the case had retired and
no new judge had yet been appointed.
Under Europcar, the court should also consider “whether the award sought to
be enforced will receive greater scrutiny in the foreign proceedings under a less
deferential standard of review”. The court held that Nigeria failed to prove that
this was the case, considering that the relevant Nigerian law provisions closely
resemble the language of the New York Convention, to which Nigeria is also a
party. Only the relevant part of the decision is reported.

at <www.
A detailed report of this decision is available online
0-n>.
kluwerarbitration.com/ document.aspx?id=KLI-KA-105207

reported in Yearbook
pcar Itali a, S.p.A . v. Maie llan o Tours , Inc., 156 F.3d 310 (2d Cir. 1998),
3. Euro
XXIV (1999) pp. 860-870 (US no. 280).
525
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

697. United States District Court, Northern District of Florida,

Pensacola Division, 29 March 2010, Case no. 3:06-cv-369/RS-EMT

Parties: Plaintiff: Pactrans Air & Sea, Inc. (nationality not

indicated)
Defendant: China National Chartering Corp.
(nationality not indicated) et al.

Published in: 2010 U.S. Dist. LEXIS 42773

Articles: III; V(1)(d); V(1)(e)

Subject matters: — award “not (yet) binding”
— counterclaim v. (consolidated) separate claim

Topics: [1] = J 503; [3] = J 514; [4] = § 301; [5]-[6] = 9 513

S ummary

Enforcement of a CMAC award was granted. The objection that the award was not final and binding
on the parties failed because the court found that under Chinese law the legal effects ofan award begin
on the day ofrendition. Defendant also argued, but failed to prove, that the CMAC’s decision to reject
the other party’s counterclaim because it was not timely filed while allowing that party to file a
separate claim that was later consolidated with defendant’s claim was improper under Chinese law or
had been prejudicial to defendant.

Pactrans Air & Sea, Inc. (Pactrans), China National Chartering Corp. (China
National), Devon International Trading Inc. (Devon) and Northern Pacific Corp.
(NPC) entered into an agreement for the carriage of gypsum board from China
to Florida. The agreement contained a clause for arbitration of disputes at the
China Maritime Arbitration Commission (CMAC).
On 29 August 2006, Pactrans filed an action for declaratory judgment against
China National, Devon and NPC in the Northern District of Florida in respect
of the shipment. China National did not appear. On 10 November 2006, Devon
sought referral of the dispute to arbitration. On 26 January 2007, the court
ordered the parties to arbitrate in Beijing.
On 9 July 2008, Devon commenced CMAC arbitration. On 20 April 2009,
Pactrans attempted to file a counterclaim with CMAC; the counterclaim was

526 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 697

dismissed pursuant to CMAC rules which require counterclaims to be filed

within thirty days of the original Notice to Arbitrate, On 7 May 2009, Pactran
s
filed a separate claim with the CMAC; this claim was consolidated with Devon’s
claim. By an award of 23 November 2009, a CMAC arbitral tribunal found in
favor of Pactrans. On 22 January 2010, Pactrans sought enforcement of the
CMAC award in the United States.
The United States District Court for the Northern District of Florida,
Pensacola Division, per Richard Smoak, US DJ, granted enforcement. It
dismissed Devon’s argument that the award was not yet binding on the parties,
reasoning that under the Chinese Arbitration Law the legal effects of an award
begin on the day it is rendered.
Nor was enforcement to be denied on the ground that the arbitral procedure
was not in accordance with Chinese law, as the law of the seat of the arbitration.
Devon contested the CMAC’s decision to reject Pactrans’s counterclaim because
it was not filed within the established time limit, while permitting it to file a
separate action which was later consolidated with Devon’s claim. The court held
that Devon failed to show that this decision was improper under Chinese law or
that Devon was prejudiced by it."

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052071-n>.

China National in
1. On 31 March 2009, a CMAC arbitral tribunal rendered an award in favor of
d States
The 13 November 2009 decision by the Unite
another dispute between the same parties. of that award is
ct of New York granting enforcement
District Court for the Southern Distri
(US no. 687).
reported in this Yearbook XXXV (2010) p. 499
527
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

698. United States District Court, District of Colorado, 2 April 2010,

Civil Action No. 10-cv-00673-CMA

Parties: Plaintiff: Colorado Mills LLC (US)

Defendants: (1) Sunrich, LLC (US);
(2) Colorado Sun Oil Processing LLC (US)

Published in: 2010 U.S. Dist. LEXIS 43206

Articles: II(3) (by implication)

Subject matter: — removal from state court to federal court

Topics: q 217

Summary

Defendant argued that this case — which asserted a state-law claim and was between US entities —
should nevertheless be removed to federal court because ofdefendant’s Canadian parent company. The
court remanded the case to state court, holding that defendant gave neither relevant legal authority
nor substantive reasons for its request. Any attempt to inject a federal question into a state action
violates the principle that the plaintiff gets its choice offorum.

Colorado Mills LLC (Colorado Mills) and Sunrich, LLC (Sunrich) entered into
a Joint Venture Agreement to establish Colorado Sun Oil Processing LLC (Sun
Oil). The Agreement contained an arbitration clause.
A dispute arose between the parties. On 16 March 2010, Colorado Mills sued
Sunrich and Sun Oil (collectively, Defendants) in Prowers County District
Court, Colorado. On 22 March 2010, Sunrich removed the case to the federal
court, arguing that there was federal question jurisdiction because Sunrich was
a wholly-owned subsidiary of a Canadian corporation, SunOpta, Inc. (SunOpta)
and thus the action fell under the 1958 New York Convention.
The United States District Court for the District of Colorado, per Christine
M. Arguello, US DJ, dismissed this argument and remanded the case to the state
court. It noted that Sunrich simply stated that its Canadian parent company could
“step into its shoes for purposes of jurisdiction” and did not substantively address
the issue whether its Canadian parent was a party to, or otherwise bound by, the
contract signed by its subsidiary.

528 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 698

The court was “not persuaded by Sunrich’s maneuvering” and by the relevance
of the legal authority on which it relied, as all the cases cited by Sunrich were
distinguishable from the facts of the present case. The court also noted that
Sunrich’s attempt to inject a federal question into a state action would violate the
principle that the plaintiff gets its choice of forum.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/document.aspx?id= KLI-KA-1052072-n>.

529
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

699. United States District Court, Middle District of Florida, Orlando

Division, 8 April 2010 and 14 June 2010, Case No. 6:09-cv-2099-Orl-
31DAB

Parties: Plaintiff: Nurettin Mayakan (Turkey)

Defendant: Carnival Corporation (Panama)

Published in: Decision of 8 April 2010: 2010 ULS. Dist. LEXIS 45234
Decision of 14 June 2010: 2010 U.S. Dist. LEXIS 58570

Articles: II(3)

Subject matters: — Jones Act claims

— requirements for referral to arbitration (in general)

Topics: 4.223

Summary

Under the 2009 Eleventh Circuit decision in Thomas, requiring arbitration ofJones Act claims where
it is certain that only foreign (here, Panamanian) law will be applied in the arbitration amounts to
a prospective waiver of a seaman’s statutory rights under US law. Hence, arbitration should not be
compelled.

On 30 July 2006 and 16 June 2007, Nurettin Mayakan signed two seaman’s
contracts to work as headwaiter on cruise ships of Carnival Corporation
(Carnival). Both contracts were governed by the substantive law of Panama and
provided for arbitration of disputes in one of four locations, whichever was
closest to the seaman’s home country — in the present case, Monaco.
On 26 October 2006, Mayakan was injured after carrying heavy boxes
onboard the CARNIVAL CONQUEST, a Panamanian-flagged vessel sailing out of
Galveston, Texas. Mayakan alleged that, notwithstanding its knowledge of his
initial injury, Carnival compelled him to perform additional heavy work onboard
the CARNIVAL GLORY, a Panamanian-flagged vessel sailing out of Port Canaveral,
Florida, some time after 16 June 2007. This additional heavy work aggravated
his initial injury; Mayakan suffered severe spinal injuries as a consequence.
Mayakan commenced an action against Carnival in the Eighteenth Judicial
Circuit Court in and for Brevard County, Florida, asserting Jones Act negligence

530 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 699

claims and general US maritime law claims. Carni

val removed the action to
federal court under the 1958 New York Conventi
on and sought referral of the
dispute to arbitration.
By its first decision, rendered on 8 April 2010, the
United States District
Court for the Middle District of Florida, Orlando Division,
per Gregory A.
Presnell, US Dj, directed the parties to provide supplemental briefs
in respect
of the substantive law governing the dispute, the scope of the arbit
ration clauses
in the contracts and the arbitrability of Mayakan’s claims. This is the
first decision
reported.
By its second decision, rendered on 14 June 2010, the district court, again per
Gregory A. Presnell, US DJ, denied Carnival’s motion to refer the dispute to
arbitration. The court first noted that seaman’s contracts that contains an
agreement to arbitrate generally fall under the New York Convention because
the Convention and its implementing legislation do not recognize an exception
for seaman’s employment contracts as the one provided for domestic arbitration
and hold that such contracts are “commercial” for purposes of the Convention.
The court then considered that the inquiry carried out by the court in deciding
a motion to compel arbitration under the Convention, is “very limited”. The
court must compel arbitration where (1) there is an agreement in writing within
the meaning of the Convention; (2) the agreement provides for arbitration in the
territory of a party to the Convention; (3) the agreement arises out of a legal
relationship, whether contractual or not, which is considered commercial; and
(4) a party to the agreement is not an American citizen, or the commercial
relationship has some reasonable relation with one or more foreign states. In the
present case, all four jurisdictional prerequisites were met. However, there is no
referral to arbitration where the arbitration agreement is null and void in the
sense of Art. II(3) Convention or there is a prospective waiver of a party’s right
to pursue US statutory remedies.
Mayakan contended that requiring arbitration of his Jones Act claims would
amount to a prospective waiver of his statutory rights under US law. The district
court recognized that authorities are split on this issue, but agreed with the
authorities holding that Jones Act claims are not subject to arbitration. It referred
to the 2009 decision of the Eleventh Circuit in Thomas, where it was held that an
arbitration clause that required a seaman to arbitrate his statutory right claim
(under the Seaman’s Wage Act) in the Philippines under Panamanian law was
unenforceable because the choice-of-law and arbitration provisions worked in
tandem to operate as a prospective waiver of the seaman’s right to pursue his
statutory remedies under US law. The Eleventh Circuit stated that arbitration
be
clauses should be enforced only if (1) US substantive law would definitely

a0
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

applied or (2) there is a possibility that US law will be applied and there will be
a subsequent opportunity for review.
The district court agreed with the reasoning and the conclusion of the district
court for the Southern District of Florida in Sivanandi,' which held that where it
is certain that only foreign law will be applied arbitration should not be
compelled, irrespective of whether there would be a subsequent opportunity for
review of the arbitrator’s decision. This was the case here. The court therefore
concluded that absent additional guidance from the Eleventh Circuit, “Thomas
generally precludes arbitration of Jones Act claims”. This is the second decision
reported.

A detailed report of these decisions is available online at <www.

kluwerarbitration.com/ document.aspx?id= KLI-KA-1052073-n>.

1. Sivanandi v. NCL (Bahamas) Ltd., Case No. 10-CV-20296, 2010 U.S. Dist. LEXIS 54859, 2010 WL
1875685 (S.D. Fla. 15 Apr. 2010), reported in this Yearbook XXXV (2010) p- 533 (US no. 700).

532 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES
NO. 700

700. United States Distri

ct Co
April 2010, Case No. 10-20296-CIV-UNG ae District of Florida, 15
. urt, So th 1 “| .

Parties: Plaintiff: Sivkumar Sivanandi

(India)
Defendant: NCL (Baham
as) Ltd., d/b/a NCL
(nationality not indicated)

Published in: 2010 ULS. Dist. LEXIS 54859

Articles: II(3)

Subject matters: — Jones Act claims

~ removal from state court to federal
court of Jones
Act claims
— arbitration agreement “null and void” on public
policy grounds

Topics: [1]-[3] + [11] = § 217; [4]-[10] = § 220

Summary

An arbitration clause in a seaman’s employment agreement was null and void on grounds
of public
policy because, read together with the clause providing that a non-US (here, Bahamian) law applied
to the merits of the dispute, it operated as a prospective waiver of the seaman’s right to pursue his US
statutory remedies under the Jones Act.

In December 2006 and January 2009, Sivkumar Sivanandi sustained two injuries
when he slipped and fell down stairs while working as an assistant line cook on
NCL (Bahamas) Ltd.’s (NCL’s) vessels. Both incidents resulted in knee pain and,
after the second incident, Sivanandi underwent left knee surgery.
On 29 November 2008, prior to the second incident, Sivanandi entered into
an Employment Agreement with NCL. The Employment Agreement
incorporated the Collective Bargaining Agreement (CBA), negotiated by NCL
with the Norwegian Seafarer’s Union, which provides that:

“The parties to the Agreement recognize that Bahamian law will apply a
all disputes notwithstanding and without regard to any provision 0

533
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

Bahamian law that might be construed to preclude the application of

Bahamian law to non-Bahamian Seafarers.”

The Employment Agreement also contained a clause referring disputes +

including Jones Act claims — to arbitration pursuant to the 1958 New York
Convention. The arbitration clause further provided that the place of arbitration

“shall be the Seaman’s country of citizenship, unless arbitration is

unavailable under The Convention in that country in which case, and only
in that case, said arbitration shall take place in Nassau, Bahamas”.

On 3 December 2009, Sivanandi commenced an action against NCL in the

Eleventh Judicial Circuit in and for Miami-Dade County, Florida, asserting Jones
Act claims. On 29 January 2010, NCL removed the case to federal court under
the New York Convention; immediately thereafter, it moved to compel
arbitration pursuant to the arbitration clause in the Employment Agreement.
The United States District Court for the Southern District of Florida, per
Ursula Ungaro, US DJ, held that the arbitration clause at issue was unenforceable
on grounds of public policy and denied NCL’s motion to compel arbitration.
The district court affirmed at the outset its finding in earlier cases that removal
of Jones Act claims to federal court under the Convention is proper.
The court then examined Sivanandi’s contention that the arbitration clause at
issue was null and void as against public policy because it required the application
of Bahamian law, thereby precluding Sivanandi from pursuing his US statutory
remedy under the Jones Act. Sivanandi relied on the 2009 decision of the
Eleventh Circuit in Thomas,' where it was held that an arbitration clause that
required a seaman to arbitrate his Seaman’s Wage Act claim in the Philippines
under Panamanian law was void on grounds of public policy because the choice-
of-law and arbitration clauses, if applied “in tandem”, would operate as a
prospective waiver of the seaman’s right to pursue his statutory remedies under
US law. The Eleventh Circuit stated that arbitration clauses should be upheld
only if it is evident that (1) US law will definitely be applied or (2) there is a
possibility that US law will be applied and there will be a subsequent opportunity
for review.
The district court concluded that the present dispute should not be referred
to arbitration based on the principles set out in Thomas. Here too, as in Thomas,

1. Thomas v. Carnival, 573 F.3d 1113 (11th Cir. 2009), reported in Yearbook XXXIV (2009) pp.
1136-1150 (US no. 674).

534 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 700

the choice-of-law and arbitration clause in the Employment Agreement, if

applied together, would deprive Sivanandi of his US statutory protection under
the Jones Act. Also, it was certain that US law would not be applied to the merits
of the dispute in the arbitration proceedings, because the parties expressly chose
for Bahamian law as the governing law of the Employment Agreement. In light
of this certainty that US law would not be applied it was irrelevant whether there
would be a subsequent opportunity for review of the arbitrator’s decision at the
award-enforcement stage.
The court dismissed the argument that Thomas was inapplicable because Thomas
concerned Seaman Wage Act claims rather than Jones Act claims. The court
referred to its 16 March 2010 holding in Cardoso’ that a “holistic reading” of
to
Thomas indicates that the Eleventh Circuit’s reasoning applies with equal force
claims brought pursuant to the Jones Act.

able online at <www.

A detailed report of this decision is avail
=KLI-KA-1052074-n>.
kluwerarbitration.com/ document.aspx?id

9-23442-
20 10 WL 99 65 28, #3, Case No. 0
S 24602,
10 US. Dist. LEXI J in this Yearbook XXXV
(2010) p. 516 (US no.
2. Cardoso v. Carnival Corp., 20 reporte
16 Mar. 2010),
CV-GOLD (S.D. Fla.
694). 535

0)
Yearbook Comm. Arb’n XXXV (201
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

701. United States District Court, Southern District of Florida, Miami

Division, 11 May 2010, Case No. 10-20799-CIV-ALTONAGA/ Brown

Parties: Plaintiff: Anna Dockeray (UK)

Defendant: Carnival Corporation (nationality not
indicated)

Published in: 2010 U.S. Dist. LEXIS 78984

Articles: II(3)

Subject matters: — Jones Act claims

— arbitration agreement “null and void” on public
policy grounds (no)
— unenforceable choice of law clause severed from
Seafarer’s Agreement
— waiver of arbitration by (substantial) participation in
court proceedings

‘Topics: | 220

S ummary

The court enforced the arbitration agreement in a seafarer’s employment agreement but severed —
pursuant to an express severability clause — the choice-of-law clause that referred to Panamanian law,
holding in light of the Eleventh Circuit’s decision in Thomas that the two “operated in tandem” to
deprive the seafarer ofher US statutory (Jones Act) claims. The court also found that the party seeking
referral to arbitration had not waived its right thereto by substantially participating in litigation, and
that the arbitration clause was not procedurally unfair in respect of disclosure.

Anna Dockeray signed an employment agreement with Carnival Corporation

(Carnival) to work as a dancer on Carnival’s Panamanian-flagged vessel MIRACLE.
The employment agreement stated that “Seafarer agrees to appear for medical
examinations by doctors designated by Carnival in specialties relevant to any
claims Seafarer asserts, and otherwise the parties agree to waive any and all rights
to compel information from each other”. It also contained a severability clause
providing that any invalid or unenforceable provision “shall be deemed severed
from this Agreement”. The employment agreement was governed by the law of

536 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO.
701

the flag of the vessel; it fur

ther provided for arbitration
arbitrator under the Internati of dis putes by a sole
onal Rules of the American
Association/ International Cen Arbitration
tre for Dispu te Resolution.
arbitration was to be chosen amo The place of
ng London Monaco, Panama Cit
whichever was closer to the seafarer
»| y or Manila,
’s home country.
In September 2009, Dockeray broke
her wrist when a chair she was
performing on as part of a show collapsed.
In January 2010, she commenced an
i eee —— Act negligence; breach of the warranty
of
; provide maintenance and cure; failure to
provide
prompt, proper and adequate maintenance and cure;
and failure to pay unearned
wages and penalties. On 3 February 2010, Carnival
filed an answer and
affirmative defenses, none of which raised arbitration. On
26 February 2010
Dockeray filed a Notice of Trial, indicating the cause was at issue and
ready to Ee
tried. On $ March 2010, Carnival moved for an extension of time to resp
ond to
Dockeray’s discovery requests. On 10 March 2010, Dockeray noticed Carnival’s
motion for a hearing; on 16 March 2010, she also filed a notice of taking the
deposition of Carnival’s corporate representative. On 17 March 2010, Carnival
removed the case to federal court under the 1958 New York Convention and its
implementing legislation, Chapter 2 of the Federal Arbitration Act.
The United States District Court for the Southern District of Florida, Miami
Division, per Cecilia M. Altonaga, US DJ, referred the parties to arbitration but
severed as against public policy the choice-of-law clause in the employment
agreement.
Dockeray raised three arguments against Carnival’s motion to compel
arbitration: (1) Carnival waived its right to arbitrate by litigating in state court
before removing the case to federal court; (2) the arbitration clause in the
employment agreement was procedurally unfair and (3) the arbitration
agreement is contrary to public policy in light of the Eleventh Circuit decision in
Thomas.'
The court considered at the outset that the parties did not dispute that the four
jurisdictional requirements for compelling arbitration under the New York
g
Convention were met: there was an arbitration agreement in writing, providin
al
for arbitration in a signatory State (England) and arising out of a commerci
Rather,
relationship, and at least one of the parties was not a US citizen.
to arbitration,
Dockeray argued that an affirmative defense prevented referral
as against public policy. She
namely, the arbitration agreement was null and void

09 pp
ed in14 Yearbo
Vo
ok XXXIV (2007)
1. Thomas v. Carnival Corp., 573 F.3d 1113 (11th Cir. 2009), report
1136-1150 (US no. 674).

537
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

relied on Thomas, where the Eleventh Circuit held that in addition to Art. II(3),
Art. V Convention — in particular, the public policy ground in Art. V(2)(b) —
provides affirmative defenses to a suit that seeks a court to compel arbitration.
The district court first dismissed Dockeray’s contention that Carnival had
waived its right to compel arbitration by participating in the court litigation
without raising the arbitration objection. The court concluded that although
Carnival’s delay in raising its right to arbitrate as an affirmative defense caused
Dockeray expenses and thus prejudice, Carnival had not substantially participated
in litigation “to a point inconsistent with an intent to arbitrate and this
participation results in prejudice to the opposing party” as required by Eleventh
Circuit case law.
The district court disagreed with Dockeray’s argument that the arbitration
clause at issue was procedurally unfair because it provided that the parties waived
all rights to compel information from each other, while at the same time
providing that the seafarer agreed to undergo medical examinations by doctors
designated by Carnival in specialties relevant to claims the seafarer asserted. The
court noted that by agreeing to arbitrate, parties trade “the procedures and
opportunity for review of the courtroom for the simplicity, informality, and
expedition of arbitration”. Discovery limitations are consistent with these goals
of simplicity, informality and expedition.
The district court then dealt with Dockeray’s argument that the arbitration
agreement was null and void because the choice-of-law clause and arbitration
clause in the employment agreement “operated in tandem” as a prospective
waiver of her US statutory rights under the Jones Act. The Eleventh Circuit held
in Thomas that a similar combination of arbitration clause and choice-of-law
clause — providing for arbitration in the Philippines and application of substantive
Panamanian law — was null and void because it resulted in a prospective waiver
of the seafarer’s Seaman’s Wage Act claim. Referring to Supreme Court case
law, the Court of Appeals held that arbitration clauses “should be upheld if it is
evident that either US law definitely will be applied or if, there is a possibility
that it might apply and there will be later review’. In Thomas, there was a choice
for Panamanian law and a distinct possibility that the seafarer would receive no
award under that law, given the US-based nature of his claim. Hence, there
would be no award to enforce in US courts and no opportunity to review it at the
enforcement stage for a violation of public policy.
Carnival argued that the case was different here, because the only claim
governed by the New York Convention in Thomas was a Seaman’s Wage Act
claim, while Dockeray asserted both statutory (Jones Act) and non-statutory
claims; thus, there was no “distinct possibility” of not obtaining an award that

538 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 701

could be later reviewed for public policy by a US court. Carnival further noted
that district courts in the Eleventh Circuit are split on this issue.
The court listed the diverging conclusions reached by its sister courts and
concluded that, as most of their orders had been appealed, the Eleventh Circuit
will eventually decide “the question of what a district court must do where a
seafarer’s complaint raises statutory and nonstatutory claims” and the agreement
requires the seafarer to arbitrate and apply law that does not recognize Seaman’ s
Wage Act or Jones Act claims. However, in the meantime “the judges of the
Southern District, to which the bulk of these actions are removed, will continue
to try to arrive at the correct solution (if there is just one)”, trying to comply
with Thomas while balancing the parties’ express agreements to arbitrate and US
federal policy favoring arbitration. |
In the present case, because Dockeray’s employment agreement contained a
and
severability clause, the court decided to severe the choice-of-law clause
uphold the arbitration clause.

able online at <www.

A detailed report of this decision is avail
=KLI-KA-1052075-n~.
kluwerarbitration.com/ document.aspx?id

539

Yearbook Comm. Arb’n XXXV (2010)

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

702. United States District Court, Southern District of Texas, Houston

Division, 14 May 2010, Civil Action NO. H-09-879 and Civil Action
NO. H-08-3627

Parties: Plaintiff: Eres, N.V. (Belgium)

Defendant: Citgo Asphalt Refining (nationality not
indicated) et al.

Plaintiff: Citgo Petroleum Corp. (nationality not

indicated) et al.
Defendant: NuStar Asphalt Refining, LLC (nationality
not indicated) et al.

Published in: 2010 U.S. Dist. LEXIS 47691

Articles: II(3)

Subject matters: - —assignee bound by arbitration clause

— renewal of contract (novatio)

Topics: [7]-[29] = J 217; [30]-[39] = 4 213

S ummary

The court stayed proceedings and ordered the parties to arbitration in New York, holding that the
assignees had been assigned and had assumed all obligations under the contract, including the
arbitration clause. There had been no novation ofthe contract as one ofthe original signatories could
not be deemed to have released the others because it had not received the written guaranty it had
requested as a condition.

In November 2004, Citgo Asphalt Refining Co. (CARCO) entered into a

Contract of Affreightment (COA) with Eres, N.V. (Eres) to utilize Eres’s vessels
for a period of seven years, beginning 1 January 2005, for shipment from
Venezuela of at least three million barrels of asphalt annually. CARCO’s parent
company, Citgo Petroleum Corporation (Citgo) guaranteed CARCO’s
performance under the COA. The COA contained a clause providing for
arbitration of disputes in New York.

540 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO.
702

By a Sale and Purchase Agre

ement
CARCO sold all of its assets, inc
ludin
LLC (NuStar Asphalt). While the SPA
i
March 2008), CARCO on ?]

ar Asphalt’s parent compan

NuStar Energy LP (NuStar Energy, nota party to these cac
aincs mioresiies
NuStar Asphalt’s performance under the COA.
On 27 December 2007, NuStar
Energy sent a draft guaranty to Eres. Shortly thereafter, howe
ver, it was
determined that NuStar Marketing, LLC (NuStar Market
ing) was actually the
entity intended to take over the COA. CARCO sent ane
w consent letter to Eres
and NuStar Energy adjusted the draft guaranty to guarantee NuS
tar Marketing’s
performance. The parties exchanged emails altering the guaranty
’s language
through early February 2008, but never signed a guaranty or a cons
ent.
On 20 March 2008, NuStar Asphalt and CARCO finalized the SPA. The same
day, NuStar Asphalt and NuStar Marketing (collectively, the NuStar Parties) and
CARCO entered into an Assignment and Assumption Agreement (the
Assignment Agreement). Under the Assignment Agreement — which was made
subject to the terms and conditions of the SPA — CARCO agreed to assign to
NuStar Marketing all rights under the contracts attached as Exhibit A. The list of
contracts contained only the COA. Also on 20 March 2008, NuStar Asphalt
guaranteed NuStar Marketing’s performance of the contracts it assumed under
the Assignment Agreement.
Neither CARCO and Citgo (collectively, the Citgo Parties) nor the NuStar
Parties performed under the COA, whereupon Eres considered the COA
repudiated as of August 2008. It then filed a motion to compel arbitration of its
dispute with the Citgo and NuStar Parties in the district court.
The United States District Court for the Southern District of Texas, Houston
Division, per Ewing Werlein, Jr., US DJ stayed proceedings and ordered the
parties to arbitration in New York as provided for under the COA. vali
The court noted at the outset that all conditions for referral to arbitration
under the 1958 New York Convention were fulfilled, the only issue being
whether the NuStar Parties, the Citgo Parties, or both, were bound by the
ion
arbitration clause in the COA. The NuStar Parties were bound by the arbitrat
ree
clause if they assumed the COA, while the Citgo Parties, as the original
which the
to the COA, were bound to arbitrate unless there was a novation by

541
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

NuStar Parties were substituted for CARCO. The court concluded that all parties
were bound by the arbitration clause in the COA.
The court first held that on the face of the SPA and the Assignment Contract
the NuStar Parties assumed performance of CARCO’s obligations under the
COA. The NuStar Parties argued, however, that while the COA did not require
Eres’s consent to assignment, the SPA required that consent as a precondition to
CARCO’s assignment and/or the NuStar Parties’ assumption of the COA. The
court disagreed, finding no language to that purpose in the SPA. Accordingly, the
NuStar Parties effectively assumed CARCO’s obligations under the COA and
were bound by its arbitration clause.
The district court then considered whether Eres consented to a novation of the
COA. It concluded that it did not. While a novation agreement may be inferred
from the acts and conduct of the parties and other facts and circumstances, all
drafts of the guaranty exchanged between Eres and NuStar Energy included a
signature block for the signature of NuStar Energy’s Senior Vice President, Chief
Financial Officer and Treasurer. Hence, the intention was clearly to have a
guaranty in writing as a condition to releasing the Citgo Parties. Since no such
guaranty was delivered to Eres, the Citgo Parties remained bound to the COA
and to its arbitration clause.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052076-n>.

542 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO
. 703

1784-cv ircuit, 18 May 2010, 09-

Parties:
Petitioner / Appellee: Betzal
el Sch wartzman (national
not indicated) ity
Respondent/ Appellant: Yaakoy
Harlap, a/k/a Jacob
Charlap (nationality not indica
ted)
Published in: 2010 US. App. LEXIS 10057

Articles: V(2)(b)

Subject matter: — public policy and disclosure by arbitrat

or

Topics: {| 524 (disclosure by arbitrator)

S ummary

The district court’s decision enforcing an Israeli award rendered by a religious

tribunal was affirmed.
Defendant’s public policy argument that the arbitrator, a Rabbi, had been
employed by petitioner to
certify petitioner's orchards as kosher was dismissed, because a non-disclosed relation
ship is not an
obstacle to enforcement when it could have been discovered by the party concerned before or during the
arbitration. Here, the Rabbi’s involvement in the kosher certification was mentioned in the contract.

The facts of this case are also reported in Yearbook XXXIV (2009) at pp. 1072-
1074 (US no. 666). The Schwartzman family — growers of esrog, an ancient fruit
that plays a role in the Jewish holiday of Sukkot — sold esrogim to Yaakov Harlap
for over thirty years. On 8 September 2005, Betzalel Schwartzman and Harlap
concluded a contract setting forth the terms governing their relationship for =
year. The contract provided, inter alia, that Harlap would be Schwartzman’s
exclusive distributor in the United States and that Schwartzman would maintain
the kosher certification on all esrog orchards “from Belz or [Rabbi Eliezer] Stern”.
Schwartzman’s orchards had long been certified as kosher by the Belz
organization, but the certification responsibility was switched to Rabbi Stern
shortly after the signing of the contract at issue. At the bottom ofthe contract
there was a hand-written arbitration clause providing that Rabbi Stern would
arbitrate any disputes under the contract.

543
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

A dispute arose between the parties when Harlap complained that

Schwartzman had violated his exclusive distributorship and refused to pay the
balance owed on his account. By a submission agreement of September 2006, the
parties agreed to submit the dispute to Rabbi Stern in Israel. Rabbi Stern
eventually rendered an award in favor of Schwartzman.
Schwartzman sought enforcement of the Israeli award in the United States
District Court for the Eastern District of New York. Harlap opposed
enforcement and sought to vacate the award, challenging its merits and asserting
that Rabbi Stern failed to disclose that Schwartzman had hired him to supply the
kosher certification for the esrog orchards. On 13 April 2009, the United States
District Court for the Eastern District of New York granted enforcement. This
decision is reported in Yearbook XXXIV (2009) at pp. 1072-1076 (US no. 666).
The United States Court of Appeals for the Second Circuit, before Ralph K.
Winter, Joseph M. McLaughlin and Debra Ann Livingston, CJJ, affirmed the
enforcement decision. The Court noted at the outset that disclosure by
arbitrators of material relationships with the parties that could impact their
impartiality is a fundamental aspect of US public policy and as such can be a
ground for refusing enforcement of the ensuing award under the 1958 New York
Convention. Arbitrators have an obligation to disclose dealings of which the
parties cannot reasonably be expected to be aware. However, a party cannot
oppose enforcement based on its discovery of a non-disclosed relationship where
it could have discovered it “just as easily before or during the arbitration rather
than after it lost its case”. Here, Harlap should have known that Rabbi Stern
could be employed by Schwartzman to certify the orchards at the time he entered
the sales contract in 2005, since this was specified in the contract itself.
The Court of Appeals vacated the decision of the district court insofar as it
directed that payment be made directly to Schwartzman, finding that the district
court did not deal with Harlap’s contention that the award directed that payment
should be made “only into the hands of the court secretary”.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052077-n>.

544 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 70
4

704. United States District

er Cour t, Distri :
Civil Action No. 08-485 (RBW) istrict of Columbia, 7 June 2010,

Parties: Plaintiff: Republic of Argentina

Defendant: BG Group Ple (UK)

Published in: 2010 U.S. Dist. LEXIS 56055

Articles: (1); 1(3); V(2)(b)

Subject matters: —nondomestic award
— Sect. 202 Federal Arbitration Act (FAA) defines
nondomestic award
— reciprocity reservation bar to enforcement of
nondomestic award (no)

Topics: [12]-[20] = 101, [12]-[16] + [21]}-[22] = § 102

S ummary

The court denied Argentina's request to vacate an award rendered in Washington, DC. It held that it
had jurisdiction under the 1958 New York Convention because the reciprocity reservation made by the
United States when acceding to the Convention does not compel district courts to recognize and enforce
only awards rendered in a foreign state. Here, the award was “nondomestic” in the sense ofArt. I(1)
Convention and Sect. 202 of the Federal Arbitration Act (FAA). The court rejected all ofArgentina’s
grounds for seeking vacatur of the award and granted its request for a supplemental memorandum on
whether the award violated public policy and should be refused enforcement under Art. V(2)(b)
Convention.

BG Group Plc (BG Group) acquired a majority interest in Gas Argentino, S.A.,
a consortium of investors that owned a majority interest in MetroGAS, one of
eight distribution companies into which the Republic of Argentina had divided
its gas distribution industry in the late 1980s and early 1990s. |
In 2001, Argentina began to experience an economic crisis. In 2002, it enacted
pact on BGj
an emergency law implementing measures that had a negative im
Group commence
Group’s investment in MetroGAS. On 25 April 2003, BG
tion and Protection
arbitration as provided for in the Agreement for the Promo
Argentina and the
of Investments (the Investment Treaty) concluded between
United Kingdom on 11 December 1990. Art. 8(2) of the Investment Treaty

545
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

provides for arbitration of disputes when the parties so agree or, at the request
of one of the parties, (i) after eighteen months from the moment the dispute was
submitted to a competent court of the investment country or (ii) where the
parties are still in dispute after a final decision of that court. Art. 8(3) provides
that disputes can be submitted either to the International Centre for Settlement
of Investment Disputes (ICSID) or to ad hoc arbitration under the Arbitration
Rules of the United Nations Commission on International Trade Law
(UNCITRAL). BG Group elected to commence ad hoc arbitration under the
UNCITRAL Rules. The International Chamber of Commerce (ICC) was
indicated as the appointing authority.
By an award issued in Washington, DC, on 24 December 2007, an arbitral
tribunal unanimously ruled in favor of BG Group in the amount of
US$ 185,285,485.85 and costs, attorneys’ fees and interest. The arbitrators
rejected numerous arguments raised by Argentina, one of which was its reliance
on the “state of necessity” doctrine to exonerate it from liability; concluded that
Argentina breached the Investment Treaty; and awarded damages to BG Group
based on the fair market value of its investment in MetroGAS. On 21 March
2008, Argentina filed a petition in federal court to vacate or modify the award.
BG Group cross-moved to have the award confirmed.
The United States District Court for the District of Columbia, per Reggie B.
Walton, US DJ, denied Argentina’s petition to vacate and requested the parties
to file supplemental memoranda on confirmation.
The district court first examined whether it had subject-matter jurisdiction
under Sect. 203 of the Federal Arbitration Act (FAA), which confers jurisdiction
on federal courts to entertain actions falling under the 1958 New York
Convention. The first question was whether the award at issue, though rendered
in the District of Columbia, did fall under the Convention pursuant to the
provision in its Art. I(1) covering awards “not considered as domestic awards” in
the State where enforcement is sought. The parties disagreed as to whether the
United States recognizes the “non-domestic” provision at all and, even if it does,
whether the award was “non-domestic”.
As to the first issue, the court dismissed Argentina’s contention that the
reciprocity reservation made by the United States under Art. I(3) Convention
compels district courts to recognize and enforce only awards rendered in a
foreign state. The court held that the reciprocity reservation is not concerned
with the applicability of the “non-domestic” provision, but rather states the
inapplicability of the New York Convention to awards rendered in States that are
not a party to the Convention.

546 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 704

As to the second issue, the court held

that the award was a “non-domestic”
award und er the Convention. It noted that Sect
. 202 FAA defines non-d va :
awards by extending the coverage of the Conven
tion to arbitral cae ari
citizens of the United States that have
some “reasonable relation” with ee
more foreign states. The court reasoned that sinc
e this provision plainly inte ded
for the Convention to cover certain awards
PE: 2 é issued in nite enolving aretwo
domesticparties, it would be “nonsensical” to conclude that
the present award —
which was issued in a dispute involving two foreign parties — fell outside the
Convention, which was ratified for the purpose of enforcing foreign awards.
The district court then rejected all of Argentina’s groun
ds for seeking vacatur
of the award. The court dealt with Argentina’s contentions based
on an alleged
excess of authority first. (1) Argentina claimed that the ICC, acting as appoi
nting
authority, exceeded its authority by denying Argentina’s request to disqualify
one
of the arbitrators. The court held that the ICC’s authority to entertain
Argentina’s objection to the arbitrators was undisputed and that Argentina failed
to provide any evidence establishing the arbitrator’spartiality. (2) Argentina also
claimed that the arbitrators exceeded their authority by failing to recognize that
the Investment Treaty contained an impediment to arbitration unless recourse
was first taken to the courts. The court disagreed, noting that Argentina had
promulgated emergency legislation barring recourse to the courts, so that its
interpretation of the Investment Treaty would lead to an absurd and
unreasonable result, which is proscribed by the Vienna Convention on the Law
of Treaties. (3) The claim that the arbitrators exceeded their authority by
allowing BG Group to file a derivative claim on behalf of MetroGAS also failed:
the arbitrators reviewed several arbitration decisions on this issue and ultimately
concluded that those cases supported the proposition that derivative claims are
allowed under international law. (4) Nor did the arbitrators exceed their
authority in calculating damages. In the silence of the Investment Treaty, they
properly turned to sources of international law to identify the rule of law
governing the standard for calculating damages and determined that under
customary international law BG Group was entitled to the difference in value of
its investment before and after the enactment of Argentina’s emergency laws.
l tribunal’s
The court added that it could not review whether the arbitra
arguably be
conclusions were correct: it sufficed that those conclusions could
y and international
justified by a colorable construction of the Investment Treat
met here.
law concepts. The court was satisfied that that threshold was
the arbitrators decided in
The court then dismissed Argentina 's ar gument that
trators construed rather
manifest disregard of the law, holding (1) that the arbi
Treaty an d (2) that Argentina's
than ignored the plain language of the Investment

547
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

argument that the arbitral panel failed to correctly apply the “state of necessity”
doctrine was nothing more than a mere assertion of error.
Nor was the award to be vacated because one of the arbitrators allegedly
rendered inconsistent decisions in other cases arising under the same Investment
Treaty and was therefore partial. The court held that there could be a number of
innocuous reasons to explain why the arbitrator reached different conclusions
and that there was no basis for the court to conclude that he was biased.
The district court also dismissed Argentina’s contention that the award was
procured by corrupt, fraudulent or undue means because certain witness
statements contained passages that were (substantially) identical to a witness
statement presented in another unrelated case. In the court’s opinion, this meant
at best that counsel drafted the declarations in both cases. This did not rise to the
level of wrongdoing as Argentina could not prove that the witnesses signed the
statement without subscribing to the facts stated therein.
The court rejected Argentina’s request to modify the award because the
arbitral tribunal’s rejection of the discounted cash flow basis standard led to a
disproportionate, unfair and irrational award, holding that this was not one of the
cases in which the FAA allows a court to modify an award.
The court finally examined BG Group’s cross-motion to enforce the award.
Argentina argued in its Petitioner’s Reply that it should be given a full
opportunity to respond to BG Group’s cross-motion, “considering the serious
violations of public policy” allegedly committed by the arbitrators. The court was
“highly skeptical” that the award violated the “most basic notions of morality and
justice” of the US. Nonetheless, in light of Argentina’s express reservation for
further briefing on the issue of whether enforcement should be denied under Art.
V(2)(b) of the New York Convention, it concluded that Argentina should be
given the opportunity to submit a supplemental memorandum.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052078-n>.

548 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES
NO. 705
ve tintiad States
District Court, So
Ivision, 15 June 2010 uthern District of
, Case Nu Florida, Miami
mber: 10-20293-C
IV-MOR ENO

Parties: Plaintiff: John D, Watt (Ja

maica)
Defendant: NCL (Baham
as) LTD d/b/a NCL
(nationality not indicated)

Published in: 2010 ULS. Dist. LEXIS 67745

Articles: II(3)

Subject matters: — Jones Act claims

~ removal from state court to fede
ral court of Jones
Act claims
— arbitration agreement “null and void
” on public
policy grounds

Topics: q 220; [3] = q 214

Summary

An arbitration clause in a seaman’s employment agreement was null

and void on grounds of public
policy because, read together with the clause providing that a non-US (here, Bahamia
n) law applied
to the merits ofthe dispute, it operated ds a prospective waiver ofthe
seaman’s right to pursue his US
statutory remedies under the Jones Act.

John D. Watt was injured while working aboard a Bahamas-flagged cruise ship
operated by NCL (Bahamas) LTD d/b/a NCL (NCL). His employment
agreement with NCL provided that:

“Seaman agrees ... that any and all claims ... including, but not limited to
claims such as personal injuries, Jones Act claims, actions for maintenance
and cure, unseaworthiness ... shall be referred to and resolved exclusively
by binding arbitration pursuant to [the Convention Act].... The place of the
arbitration shall be the Seaman’s country of citizenship.... The substantive
law to be applied to the arbitration shall be the law of the flag state of the
vessel.”

549
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

Watt brought claims in a Florida state court against NCL for Jones Act
negligence, unseaworthiness and failure to provide maintenance and cure. NCL
removed the action to federal court under the 1958 New York Convention and
moved to compel arbitration in Jamaica under substantive Bahamian law, as
provided for in the employment agreement.
The United States District Court for the Southern District of Florida, Miami
Division, per Federico A. Moreno, US DJ denied NCL’s motion to compel
arbitration and remanded the action to state court. The court noted at the outset
that Jones Act claims — though not generally removable — may be removed to
federal court where a there is a valid arbitration agreement falling under the New
York Convention. The court further found that the jurisdictional requirements
for removal to be proper were all met here: there was a written agreement to
arbitrate, providing for arbitration in a Convention signatory and arising out of
a commercial relationship, and at least one of the parties to the agreement was
not a US citizen.
However, the district court granted Watt’s argument that the arbitration
agreement was null and void as against public policy because its enforcement
would constitute a waiver of Watt’s rights to pursue his US statutory claims, that
is, his Jones Act claims. The court shared the reasoning and conclusion of a judge
of the same district court, who found in Sivanandi' that the choice-of-law clause
and the arbitration clause in the contract “operated in tandem” to deprive the
seaman of his US statutory rights.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052079-n>.

1. Sivkumar Sivanandi v. NCL (Bahamas) Ltd., d/b/a NCL, Case No. 10-20296-CIV-UNGARO, 2010
U.S. Dist. LEXIS 54859, reported in this Yearbook XXV (2010) p. 533 (US no. 700).

550 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO
. 706

Cv-2322)

Parties: Petitioner: Trevino Hernan

dez, S. de RL. de C.V.
(Mexico)
Respondent: Smart & Final,
Inc. (US)
Published in: 2010 ULS. Dist. LEXIS 60755

Articles: III; V(2)(b) (by implication)

Subject matters: — 1975 Panama Convention incorporates

jurisdiction
and venue provisions of 1958 New York
Convention
— relationship Chapters 1, 2 (1958 New
York
Convention) and 3 (1975 Panama Conventi
on) of
Federal Arbitration Act (FAA)
~ nonsignatory party may rely on arbitration clause
— lack of impartiality by arbitrator (no)

Topics: 704(A); [1]-[7] = §] 301; [12]-[18] = J 524 (manifest

disregard of the law); [19]-[26] = 521; [27]-[31] =
{| 524 (refusal to hear evidence); [32]-[34] = 4] 524
(award procured through undue means)

Summary

The petition to vacate an ICC award rendered in California was denied; the award was fc ave
court found that it had jurisdiction under the 1975 Inter-America (ae) ee me
incorporates provisions of the New York Convention — inter alia, those on ed oa ee s
the award arose out of a commercial relationship and concerned a non-US corporation, “hs = “
the New York Convention, which gives district courts original jurisdiction. The a pant3 :
petitions to vacate and confirm the award under the Federal Arbitration Act (FAA), since _ - =
terms on confirmation and vacatur of an award do not conflict es the acl pristine ol.
ofthe FAA’s grounds was present here. In particular, the od ety did not eat t a sultans
the dispute in the arbitration was between a signatory and a sic ip to the contra ua
the arbitration clause, since the contract expressly allowed the other signatory to operate throug
nonsignatory.

551
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

On 15 December 1992, Trevino Hernandez, S. de R.L. de C.V. (Tre-Her) and

Smart & Final, Inc. (SFI) entered into a Joint Venture Agreement (JVA) to form
a Mexico corporation to establish and operate a chain of stores in Northwest
Mexico, called Smart & Final de Nordeste $.A. de C.V. (SFDN). SFI formed a
wholly owned subsidiary, Smart & Final de Mexico, S.A. de C.V. (Smart-Mex)
which, together with Tre-Her, incorporated SFDN in Mexico. The JVA provided
for ICC arbitration of disputes in California.
In 2006, a dispute arose between the parties from an alleged failure to
distribute profits. On 7 November 2007, SFI commenced ICC arbitration as
provided for in the JVA asserting, inter alia, breach of contract, fraud and deceit
claims. The arbitration took place in San Diego, California. At the arbitration
hearing, SFI presented fact and expert witnesses. Tre-Her had scheduled an
expert witness to appear on day four of the arbitration, but was unsuccessful in
rescheduling the expert when the arbitration was completed on day three. Tre-
Her did submit written statements by the expert witness. On 9 July 2009, the
arbitral tribunal issued an award in favor of SFI. On 13 October 2009, Tre-Her
sought annulment of the award; SFI sought the award’s enforcement. The two
actions were consolidated.
The United States District Court for the Southern District of California, per
Roger T. Benitez, US DJ, denied the vacatur petition and confirmed the award,
finding that it had jurisdiction under the 1958 New York Convention and that the
grounds for vacatur of the award invoked by Tre-Her under the Federal
Arbitration Act (FAA) were unfounded.
The district court found at the outset that it had jurisdiction under the 1975
Inter-American (Panama) Convention, which requires courts of Contracting
States to give effect to private arbitration agreements and to recognize and
enforce awards made in other signatories — the United States and Mexico are
both Panama Convention countries. The court further noted that the Panama
Convention incorporates provisions of the New York Convention, including the
provisions governing jurisdiction and venue. Those provisions — which are
contained in the New York Convention’s implementing legislation, Chapter 2 of
the FAA — provide that district courts have original jurisdiction over any action
falling under the New York Convention. Awards fall under the New York
Convention when they arise out of a commercial legal relationship that is not
entirely domestic in scope. Here, the award arose out of a commercial
relationship and concerned a non-US corporation, Tre-Her. Hence, it fell under
the New York Convention.
The court then examined Tre-Her’s petition to vacate the ICC award. It noted
first that the Panama Convention incorporates the FAA’s terms unless they are

552 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 706

«Aer
ee cea rome
ae ‘ofcommreimnbernpmenenin
an award do not conflict sai,
with the
. plying the Panama Convention may confirm or
vacate an award on the grounds set forth in the FAA.
one — ie a for vacatur invoked by Tre-Her. It first held
| not exceed their power by deciding the dispute,
which was between SFDN and Smart-Mex, while the signatories to the JVA and
the arbitration clause therein were SFI and Tre-Her. The court reasoned that the
issue whether a claim involving a non-signatory may be referred to arbitration
must be decided by reference to the agreement containing the arbitration clause
that is executed by the signatories, which must be interpreted according to
ordinary principles of law and equity, with due regard given to the federal policy
favoring arbitration. In the present case, the JVA expressly permitted SFI to
establish and operate SFDN through Smart-Mex, so that SFI had the right to
arbitrate disputes involving Smart-Mex and SFDN.
Nor was one of the arbitrators partial because he was the US Chair of the US-
Mexico Bar Association, while a partner at one of the law firms representing SFI
was the Association’s US Vice-Chair. Also, the failed rescheduling of Tre-Her’s
expert testimony did not amount to a refusal to hear evidence, and the award was
its expert
not procured through undue means because SFI failed to disclose that
for SFI.
on Mexico law was or had been a partner of one of the attorneys

available online at <www.

A detailed report of this decision is
x?id=KLI-KA-1052080-n~.
kluwerarbitration.com/ document.asp

553
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

707. United States District Court, District of New Jersey, 21 June 2010,
Civil Action No. 09-CV-4354 (DMC) - (CCC)

Parties: Plaintiff: CCP Systems AG (Germany)

Defendants: (1) Samsung Electronics Corp. Ltd. (South
Korea);
(2) Samsung Electronics America, Inc. (US);
(3) Samsung Networks, Inc. (South Korea);
(4) IBM Corporation (US)

Published in: 2010 U.S. Dist. LEXIS 61398

Articles: 11(3)

Subject matters: — personal jurisdiction over foreign defendant

— applicable law to whether nonsignatory defendant
may rely on arbitration agreement
— nonsignatory defendant may rely on arbitration
agreement/clause

Topics: 9217

S ummary

The law chosen by the parties to apply to the contract — Swiss law — applied to the issue whether a
nonsignatory defendant was allowed to invoke the arbitration clause against a signatory. Swiss
jurisprudence holds that in principle an arbitration clause is binding only on signatories. Here,
however, the contract expressly incorporated subsidiaries (such as the present defendant). Also, Swiss
law advocates a broad interpretation in the application ofarbitration clauses and recognizes exceptions
to the general prohibition above. Consequently, the court found that Swiss law does not rule out an
invocation of the arbitration clause by a nonsignatory against a signatory, and granted the
nonsignatory defendant’s motion to compel arbitration. The court also ordered discovery on the issue
ofpersonal jurisdiction.

In June 2004, CCP Systems AG (CCP) licensed certain software products to IBM
Deutschland GmbH (IBM Germany). The license agreement (the IBM
Agreement) granted IBM Germany the authority to sub-license. IBM Germany
subsequently granted a sub-license to Samsung Electronics Co., Ltd. (Samsung
Electronics). On 11 December 2007, CCP and Samsung Electronics accordingly

554 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 707

entered into a Software Remarketing Agreement (the Software

Aor
g eement).
Sect. 3.5 of the Software Agreement provided that S
Samsung Electronics to grant snare li neungteetionichgloned
including subsidiaries, subcontractors ee other Samsung entities,
eg ; , atfiliates or business partners, by
ie ae tae g may per orm this Agreement and any of its rights,
| obligations under this Agreement through/to the Samsun
Electronics Corporation, its subsidiaries, subcontractors, and other Wheeidiic
affiliated with Samsung such as Samsung Business Partners”. Samsung Electronics
granted one such secondary license to its wholly owned US subsidiary Samsung
Electronics America, Inc. (Samsung America). Sect. 15.5 of the Software
Agreement provided that the Agreement was governed by the laws of
Switzerland; it also referred disputes to ICC arbitration in Paris.
On 25 May 2009, CCP gave written notice to IBM Germany terminating the
IBM Agreement. On 15 July 2009, a Samsung Electronics Vice-President sent
an e-mail to Samsung Electronics personnel and Samsung affiliates acknowledging
termination of the IBM Agreement.
A dispute arose when CCP discovered infringing software available for
download on the Samsung website <www.samsung.com> and other infringing
spreadsheets containing hyperlinks for download. On 25 August 2009, CCP
commenced an action in the United States for copyright and patent infringement
against Samsung Electronics, Samsung America and Samsung Networks, Inc.
(Samsung Networks), a Korean corporation which provided network and
telecommunication services in several US states through a data center in New
Jersey and owned and operated the Samsung domain name and website. Samsung
Networks moved to dismiss for lack of personal jurisdiction; Samsung America
moved to dismiss for lack of subject matter jurisdiction or, in the alternative, to
compel arbitration and stay pending arbitration.
The United States District Court for the District of New Jersey, per Dennis
for lack of
M. Cavanaugh, US DJ, denied Samsung Network's motion to dismiss
ctional discovery and
personal jurisdiction without prejudice pending jurisdi
court proceedings pending
granted Samsung America’s motion in part, staying
arbitration. :
on to dismiss for lack of
The court first considered Samsung Networks’s moti
on requires the defendant to
personal jurisdiction. It noted that specific jurisdicti n,
ant to the actio
have minimum contacts with the forum state that are relev
ndant to have “continuous i
while general jurisdiction requires the defe
state. Here, the court had ee
systematic” contacts with the forum
jurisdiction over Samsung Networks because Samsung Netw orks purpose /
ation services to the United States an
directed its network and telecommunic

555
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

provided the medium through which the alleged infringing activity occurred,
namely downloading the copyrighted material and patented software. However,
Samsung Networks argued that it neither posted the links for downloading nor
controlled the content of the website. The court therefore held that it was not
clear that the exercise of specific personal jurisdiction was justified, and ordered
discovery concerning this issue.
The district court then dealt with Samsung America’s motion to compel
arbitration. It first reasoned that if Samsung America wished to invoke the
arbitration clause in the Software Agreement, it should also accept the Swiss
choice-of-law clause in that Agreement. Thus, Swiss law governed the issue
whether a nonsignatory to the Software Agreement, Samsung America, was
permitted to invoke the arbitration clause.
The court referred to the 2004 decision in Motorola,' where the Second Circuit
concluded from an extensive examination of relevant Swiss jurisprudence that
Swiss law holds that in principle an arbitration clause is binding only on those
parties which have entered into a contractual agreement to submit to arbitration.
Though acknowledging this general preclusion, the district court held that the
present case was “unique and distinguishable” because Sect. 3.5 of the Software
Agreement explicitly conferred upon Samsung Electronics the right to perform
the Agreement through subsidiaries, subcontractors and other affiliated
companies. This provision therefore incorporated these nonsignatories, such as
Samsung America, by reference, and evidenced CCP’s acquiescence to that
incorporation.
The district court noted that the jurisprudence quoted in Motorola concerned
attempts by signatories to invoke arbitration clauses against nonsignatories, while
“the invocation of an arbitration clause by a nonsignatory against a signatory
appears to be an unprecedented issue in Swiss case law”. The court concluded,
however, that even if it does not address such invocation, Swiss law does not
foreclose it. It appeared from the jurisprudence quoted in Motorola that Swiss law
advocates a broad interpretation in the application of an arbitration clause and
recognizes exceptions to the general prohibition concerning the invocation of an
arbitration clause against a nonsignatory (inter alia, legal succession, corporate
veil piercing and assignment).
Hence, in light of the explicit incorporation by reference of nonsignatory
subsidiaries in the Software Agreement, the broad interpretation afforded to
arbitration clauses and the exceptional circumstances articulated by Swiss law

1. Motorola Credit Corp. v. Uzan, 388 F.3d 39 (2d Cir. 2004), reported in Yearbook XXX (2005) pp.
951-962 (US no. 504).

556 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 707

permitting a signatory to invoke an arbitration clause against a nonsignatory, the

court could not find that the invocation of an arbitration clause by a nonsignatory
against a signatory is absolutely excluded under Swiss law.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/document.aspx?id=KLI-KA-1052081-n>.

557
XXXV (2010)
Yearbook Comm. Arb’n
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

708. United States District Court, District of New Jersey, 29 June 2010,
Civil Action No. 2:09-cv-03785

Parties: Plaintiff: Quanqing (Changshu) Cloth-Making Co. Ltd.

(nationality not indicated)
Defendant: Pilgrim Worldwide Trading, Inc. (US)

Published in: 2010 U.S. Dist. LEXIS 64515

Articles: III; V(1)(a)

Subject matters: — nonsignatory defendant not bound to arbitration

clause
— estoppel (equitable)

Topics: 4 303 + 9505

Summary

A CIETAC award was denied enforcement because the US defendant did not sign the Sales
Confirmation containing the arbitration clause and there was no evidence that the person who signed
it “for the account” of the US defendant was its representative or agent. Nor was the US defendant
equitably estopped |from denying its obligation to arbitrate, as it did not rely on the Sales Confirmation
but simply benefitted from the contractual relationship between the parties to it.

In September 2005, Pilgrim Worldwide Trading, Inc. (Pilgrim) issued three

purchase orders for men’s suits to M.A. Trading International (M.A. Trading),
a South Korean business operated by Han Joo Kim, with whom Pilgrim and its
President Sei Ho Go had an established business relationship.
Kim notified Pilgrim and Go that delivery under the Purchase Orders would
be delayed. New contractual terms were agreed to and Kim sent a Sales
Confirmation to Go in November 2005. The Sales Confirmation, which was
signed by Kim on behalf of the “buyer” for the “account of” Pilgrim, referred to
Quanging (Changshu) Cloth Making Co., Ltd. (Quanging); Go subsequently
claimed that it understood this reference to refer to Kim’s subcontractor. Pilgrim
did not sign the Sales Confirmation. In December 2005, it issued revised
Purchase Orders to M.A. Trading. The Sales Confirmation contained a clause

558 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 708

providing for arbitration of di

Sonsooerreraarenpalac fete yeni

Trade License adda aepaieaerhin Sipe S
itiiem

also made some payments to ve samara ce Shae gle rege bie

On 5 March 2008, C
arc ee eee
7 IETAC sent Pilgrim notice of arbitration proceedings
rea ea ae or ee It was disputed whether the notice, in
> y an English translation. At any event, Pilgrim
ignored it and CIETAC arbitration was held in Pilgrim’s absence. A CIETAC
arbitral tribunal eventually issued an award in Quangqing’s favor. Quanqing
sought enforcement of the Chinese award in the United States.
The United States District Court for the District of New Jersey, per William
J. Martini, US DJ, denied enforcement, holding that there was no written
agreement to arbitrate between Quangqing and Pilgrim. The only agreement put
forward by Quanqing that contained an arbitration clause was the Sales
Confirmation, which was not signed by Pilgrim. Though it was signed by Kim on
that
behalf of the “buyer” for the “account of” Pilgrim, there was no evidence
Kim, who died in 2007, was a representative or agent of Pilgrim.
though a non-
The court dismissed Quanging’s contention that Pilgrim,
tion to arbitrate. The
signatory, was equitably estopped from denying its obliga
party “knowingly exploits”
court noted that there is equitable estoppel when one
despite not having signed it.
the agreement containing the arbitration clause
one of such knowing exploitation.
Here, Pilgrim’s conduct did not appear to be
ted delivery and paid the purchase
Pilgrim agreed to pay for the men’s suits, accep
on in any way and benefitted from
price. It did not rely on the Sales Confirmati
parties to the Sales Confirmation, Kim
the contractual relationship between the ase
of the goods as provided in its Purch
and Quanging, by accepting delivery
rmation.
Orders, rather than from the Sales Confi

ine at <www.
det ail ed rep ort of thi s decision is available onl
A 2-n=-
bi tr at io n. co m/ do cu me nt.aspx?id=KLI-KA-105208
kluwerar

559

Yearbook Comm. Arb’n XXXV (2010)

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

709. United States District Court, Southern District of California, 15

July 2010, Case No. 09-CV-1301 - IEG (POR)

Parties: Plaintiffs: (1) Leatt Corporation (US);

(2) Exceed Holdings (Pty) Ltd. (South Africa)
Defendants: (1) Innovative Safety Technology, LLC
(US);
(2) Kevin Heath Enterprises, Inc. (US);
(3) Kevin Heath (nationality not indicated);
(4) E.V. Technology (PR China)

Published in: 2010 U.S. Dist. LEXIS 71362

Articles: I(1)

Subject matters: — agent

— enforcement against principal

Topics: {106 + § 212

Summary

The court granted enforcement of a South African award against non-parties to the arbitration,
finding that they were bound under the agency theory in accordance with California law.

In 2006, Leatt Corporation (Leatt) and Exceed Holdings (Pty) Ltd. (collectively,
Plaintiffs) developed an innovative neck safety brace for use in car motor sports
(the Moto-R). A first version of the Moto-R was prototyped in the late summer
or early fall of 2006 (Prototype 1); a second prototype was developed in the
summer of 2007 (Prototype 2). In January 2008, two of Plaintiffs’ employees, L
A
Se
eaI
pe

Grant Nelson and Karl Ebel, resigned from Leatt and, together with Doug
Williams, an investor, developed and began production of a neck brace with a
raised stabilizer bar similar to Prototype 2 (the DefNder). They allegedly did so
by using Plaintiffs’ confidential information concerning Prototype 2. In June
2008, Nelson, Ebel and Williams formed Innovative Safety Technology, LLC
(IST). Shortly thereafter, IST entered into a distribution agreement with Kevin
Heath, who arranged for the DefNder to be manufactured in China and to be
imported and sold in the United States through two of his companies, E.V.

560 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 709

Technology (EVT) and Kevin Heath Enterprises, Inc. (KHE)

. Heath allegedly
met with Nelson and Ebel on several occasions between January 2005 and
January 2008 and took active part in the plans that eventually led to the
development of the DefNder and the creation of IST.
Plaintiffs commenced an action against Nelson, Ebel and Williams in the
courts of South Africa for misappropriating trade secrets and for copyright
infringement. The South African action was referred to arbitration. A sole
arbitrator found that Nelson used his knowledge of Plaintiffs’ confidential
information in designing the DefNder and enjoined Nelson, Ebel and Williams
until 31 July 2010 from using or disclosing that confidential information.
On 16 June 2009, Plaintiffs also commenced an action in the United States
against IST, as well as against Kevin Heath, EVT and KHE (collectively, the
Heath Defendants). Plaintiffs (i) sought enforcement of the South African award
and (ii) alleged causes of action for misappropriation of trade secrets, unfair
competition and tortious interference. The Heath Defendants opposed
enforcement on the ground that they were not parties in the South African action
and sought dismissal of Plaintiffs’ tort claims, which they argued were preempted
by the Uniform Trade Secrets Act (UTSA).
The United States District Court for the Southern District of California, per
Irma E. Gonzalez, US DCJ, granted enforcement of the South African award; it
also granted the Heath Defendants’ motion to dismiss in part.
The court first held that the Heath Defendants had indeed not been parties to
the South African arbitration, but were bound by the award rendered against IST
law, the
under the agency theory. To satisfy the agency test under California
agent, the
agent must be engaged in activities that, but for the existence of the
Heath at the
principal would have to undertake itself. Here, IST represented
important to Heath
relevant time by performing services that were sufficiently
have had to undertake to
that if he did not have IST to perform them, he would
out in particular that
perform substantially similar services. The court pointed
promote thee DefNder
De product
without IST Heath would have had to design and
all a
by himself.Plaintiffs adequately argued that Heath was “one of the eae

with Nelson and E e -

architects behind the wrongdoings alleged”, meeting
and January 2008 and coment ne
several occasions between January 2005
they resigned he ea F
them their impending business ventures just before directec,
“indivi a nd throughg his Becompanies,
ei eeteatad ty
January 2008. Heath “individually
wrongiu acts” col ca
authorized, and participated in all of the allegedly con
IST and the other defenc lants. Also, ; at he exercised
eesiwteney Heath
the relevant time ecdepNder con >
personally registering
over IST, being one ofits investors,

561

Yearbook Comm. Arb’n XXxXV (2010)

 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

domain name and owning and operating the website located at <defender.com>,
through which the DefNder was sold online.
The district court held that, as a consequence, the Heath Defendants were
bound by the actions of IST under the agency theory in accordance with
California law. They were also bound by the South African award.
The district court then found that Plaintiffs’ causes of action based upon
misappropriation of trade secrets were preempted by the UTSA and granted the
Heath Defendants’ motion to dismiss those claims. However, to the extent that
these causes of action were based on more than just the misappropriation of
Plaintiffs’ trade secrets, they were not preempted and the Heath Defendants’
motion was denied in this respect.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052083-n>.

562 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO
. 710
710. United States Di
st ct Court, Southe
July 2010, 09 Civ. 4792 ri
(NRB),10. Civ
rn District of New Yo
rk, 29
. 1790 (NRB)

Parties: Plaintiff: Bogdan Dumitru

(Romania)
Defendant: Princess Cruise
Lines, Ltd. (nationality not
indicated)

Published in: 2010 U.S. Dist. LEXIS 78424

Articles: 11(3)
Subject matters: ~ requirements for referral to arbi
tration
— relationship Chapters 1 and 2 (19
58 New York
Convention) of Federal Arbitration Act
(FAA)
— seamen’s employment contracts are commercial
contracts subject to the 1958 New York Conven
tion
— arbitration agreement “null and void” on public
policy grounds
—arbitrability of Jones Act claims
— unenforceable choice of law clause severed from
Seafarer’s Agreement
— unenforceable choice of arbitration venue clause
severed from Seafarer’s Agreement
—remand from federal court to state court

Topics: [3]-[19] = J 214; [21]-[31] + [36]-[44] = § 220; [32]-

[35] = J 223; [45]-[47] = § 217

S ummary

The court referred a dispute concerning a seafarer’s injury to arbitration, but severed _ Bermuda
choice-of-law and the Bermuda choice-of- venue provisions, holding = they operated in ae 4
deprive the seafarer of his US statutory rights under the Jones Act. In light of the ee -7
of the Bermuda choice-of-law provision and thefact that Bermuda had a errs “ the a oo
the seafarer’s injury, the Bermuda choice-of-venue provision was also seg eea re! me
regulating recovery for personal injury or death ofa railway employee (the ievin mp hsrege d
Act (FELA)), which applies to seafarers. However, this ee se solved by ; e emp tte sity
arbitrate in fora that would be available under the FELA. Taking into account the strong P

Yearbook Comm. Arb’n XXXV (2010)

563
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

enforced the core agreement to arbitrate, severing the Bermuda choice-of-law and the Bermuda choice-
of venue provisions. The court also affirmed that international seafarer agreements are not exempted
from arbitration as are domestic seafarer agreements, and that Jones Act claims may be arbitrated.

On 30 November 2006, Bogdan Dumitru signed an Acceptance of Employment

Terms and Conditions (the Acceptance Agreement) with Princess Cruise Lines,
Ltd. (PCL). The Acceptance Agreement stated that the parties acknowledged
that PCL’s Principal Terms and Conditions of Employment (the Terms) were
incorporated into the contract by reference and agreed that any dispute would
be resolved by arbitration as provided for in the Terms. Art. 14 of the Terms
stated that the Terms and any dispute arising thereunder were governed by the
law of Bermuda; it also provided for arbitration in Bermuda.’ Art. 15 of the
Terms provided that void or unenforceable provisions were severable.
It was disputed whether Dumitru also signed PCL’s Crew Agreement, whose
Art. 1 provided that employees are considered members of the crew “in the
service of the assigned ship and covered by these Terms” with effect from the
date of signing. PCL did not produce a Crew Agreement in the present
proceeding, but provided a “List of Crew and Signatures of Seamen Who Are
Parties to the Crew Agreement”, on which Bogdan Dumitru’s name appeared,
accompanied by a signature under “Signature of Seaman on engagement”.
Dumitru argued that the signature was not his.
On 2 December 2006, Dumitru began work as a buffet steward on the M/V
STAR PRINCESS, a Bermuda-flagged vessel operated by PCL. On 19 February
2007, he allegedly slipped on a wet surface and fell down a set of stairs on the
ship, resulting in a broken ankle. PCL claimed that Dumitru broke his ankle
playing soccer on the deck of the ship. Dumitru disembarked in the Cayman

1. Art. 14 of the Terms provided in relevant part:

“Governing Law, Arbitration, Venue and Examinations

Gon)
[A]ny and all disputes, claims or controversies whatsoever ... shall be referred to and resolved
exclusively by binding arbitration pursuant to the United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards (New York, 1958) (the ‘Convention’) in Hamilton,
Bermuda, to the exclusion of any other fora, in accordance with the Bermuda International
Conciliation and Arbitration Act 1993 and the UNCITRAL Arbitration Rules as at present in
force, all of which are deemed to be incorporated herein by reference into this provision. If, and
only if, the Bermuda venue provision is found legally unenforceable, then and only then, all
disputes shall be resolved by binding arbitration pursuant to the Convention exclusively in Los
Angeles, California, and will be administered by the American Arbitration Association under its
international dispute resolution procedures.”

564 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 710

Islands where he underwent surger

y, which PCL paid for. On 30
Dumitru filed suit against PCL in the April 2009,
Supreme Court of the State of New
New
| York County,’ claiming that his ank York,
le
required new sur gery and prevented
him from working. On 21 May
2009, PCL removed the action to
On 17 February 2010, Dumitru file aria court.
d a second suit in the Supreme Court
State of New York, New York County. of the
On 5 March 2010, PCL removed also
this case to federal court. Dumitru al lege
d four causes of action in the two suits
he brought against PCL:

“(1) Negligence under the Jones Act, 46 U.S.C.

Sect. 30104;
(2) Unseaworthiness under General Maritime Law (GML
);
(3) Maintenance and cure under GML; and
(+) Unpaid and penalty wages under the Merchant Seaman’s Protection
and
Relief Act (Seaman’s Wage Act), 46 U.S.C. Sect. 10313”.

PCL moved to compel arbitration; Dumitru moved to remand.

The United States District Court for the Southern District of New York, per
Naomi Reice Buchwald, US DJ, denied Dumitru’s motion to remand and granted
PCL’s motion to compel arbitration, but severed the Bermuda choice-of-law and
choice-of-venue part of the arbitration clause.
The district court first held that the agreement to arbitrate between the parties
fell under the 1958 New York Convention, as all four jurisdictional requirements
were met: (1) the agreement was in writing and (2) provided for arbitration in
the territory of a Convention signatory; (3) the subject matter was commercial
and (4) not entirely domestic in scope. The court dismissed Dumitru’s argument
that there was no written arbitration agreement because PCL failed to produce
the Crew Agreement, reasoning that Dumitru both signed the Acceptance
Agreement which provided that disputes would be resolved by arbitration as
provided by the Terms and acknowledged reviewing the Terms; also, Dumitru’s
name appeared on the “List of Crew and Signatures of Seamen Who Are Parties
to the Crew Agreement”. The court added that Dumitru could not bring suit
based on his status as a PCL employee while simultaneously claiming that the
agreed-upon conditions of his employment were never met.

n corporation doing business in

2. “PCL is registered with the New York Secretary of State asa foreig
York, New York. Accordingly, the
New York State, with a registered agent residing in New
ion over :PCL and venue was proper
Supreme Court of the State of New York had personal jur isdict
45 U.S.C. Sect. 56.
in New York County. See 46 U.S.C. Sect. 30104;

565
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

Dumitru also claimed that seamen’s employment contracts are expressly

exempted from arbitration by Sect. 1 of the Federal Arbitration Act (FAA). The
FAA was enacted in 1925 and codified in 1947 as Chapter 1 of Title 9 of the
United States Code. Chapter 1 governs domestic arbitration. The 1958 New
York Convention was codified in 1970 as Chapter 2 of Title 9 of the United
States Code. Dumitru argued that Sect. 1 FAA appears under the heading
“exceptions to operation of title” and thus apparently extends to the entire Title
9, including Chapter 2, which implements the Convention and regulates
international arbitration. The court disagreed, holding that while it is unclear
whether the heading should be read to apply Sect. 1 to the entire “title” as it
exists today, or whether it applies only to Chapter 1 (the “title” as it existed in
1947), the text of Chapter 2 supports the latter approach: when the drafters of
Chapter 2 wished to incorporate a provision of Chapter 1, they included a cross-
reference, and no cross-reference was made to Sect. 1. Hence, the exemption
in Sect. 1 FAA does not apply to international arbitration.
The district court then considered whether Dumitru’s affirmative defense that
the arbitration agreement was null and void made any part of the parties’
agreement unenforceable. Dumitru argued that the Bermuda choice-of-law and
choice-of-venue provision in Art. 14 of the Terms should not be enforced
because it resulted in a prospective waiver of his US statutory rights under the
Jones Act in violation of public policy. He relied on Thomas,’ where the Eleventh
Circuit stated that arbitration clauses must be upheld “if it is evident that either
US law definitely will be applied or if there is a possibility that it might apply and
there will be later review”. Applying this approach, the Eleventh Circuit held that
an agreement to arbitrate in the Philippines under Panamanian law (i.e., where
it was certain that US law would not be applied) was invalid as it barred the
seafarer from relying on his US statutory rights under the Seaman’s Wage Act
and the court would have “no opportunity for review” at the enforcement stage
because of the “distinct possibility” that the plaintiff would receive no award of
his Sea Wage Act claim under Panamanian law. The court agreed with Dumitru
that the Bermuda choice-of-law provision in Art. 14 of the Terms, in
combination with the Bermuda choice-of-venue provision, was unenforceable
under Thomas, as Dumitru would have no remedy for his statutory claims in
Bermuda and the US courts would have no opportunity for review.
The court further noted that while the core agreement to arbitrate was per se
valid, as Jones Act claims are arbitrable, the Bermuda venue for arbitration was

3. Thomas vy. Carnival Corp., 573 F.3d 1113, (11th Cir. 2009), reported in Yearbook XXXIV (2009)
pp- 1136-1150 (US no. 674).

566 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 710

possibly not enforceable. Since that forum had no connection to the place
of
Dumitru’s injury and, moreover, the Bermuda choice-of-law provision was
unenforceable, a Bermuda forum might violate the law regulating recovery for
personal injury or death of a railway employee, i.e., the Federal Employers
Liability Act (FELA), which applies to seafarers. This problem was solved,
however, by PCL’s offer to arbitrate in New York, Miami or Los Angeles, giving
Dumitru a choice of several locations that would be available under the FELA.
The district court therefore concluded that the arbitration provision in the
Terms, as amended by PCL’s offer, could be enforced.
The court finally examined whether the Bermuda choice-of-law and choice-of-
venue clauses, which were found to be unenforceable, should be severed and the
core agreement to arbitrate enforced. In light of the strong federal policy
favoring arbitration, the presence of the severability clause and the fact that the
choice-of-law provision stood separate and independent in the contract between
the parties, the court held that severance was the proper remedy.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1 052084-n>.

567
(2010)
Yearbook Comm. Arb’n XXXV
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

711. United States District Court, Southern District of New York, 10

August 2010, 10 Civ. 3163 (DLC)

Parties: Petitioner: The Burton Corporation (US)

Respondent: Shanghai ViQuest Precision Industries
Co., Ltd. (PR China)

Published in: Available online at <www.nylj.com>

Articles: I; V(1)(e)

Subject matters: — domestic law applies to setting aside (vacatur) of

1958 New York Convention award
— manifest disregard of the law

Topics: 4 102 + 4 104 + § 524 (manifest disregard of the law)

Summary

The court denied a petition to vacate and granted a cross-petition to confirm an award rendered in the
United States and governed by the New York Convention, applying domestic grounds for vacatur under
the Federal Arbitration Act (FAA). The interested party failed to prove that the arbitrators exceeded
their authority or the award was in manifest disregard of the law. Manifest disregard survives in the
Second Circuit where it has been “reconceptualized” as “a judicial gloss” on the FAA’s specific grounds
for vacatur.

On 16 January 2005, with retroactive effect as of 1 August 2004, The Burton

Corporation (Burton) and Shanghai ViQuest Precision Industries Co., Ltd.
(ViQuest) entered into a Manufacturing Agreement under which ViQuest would
manufacture snowboard bindings for Burton using Burton’s molds. The
Agreement was entered into initially for one year and was automatically renewed
for successive one-year periods unless Burton provided written notice of
cancellation sixty days prior to expiration of the relevant period. Sect. 4.05 of
the Agreement provided that Burton could terminate the Agreement if it
determined that ViQuest’s financial position posed a risk to Burton’s business.
Sect. 2.04(d) provided that Burton could request that ViQuest return its molds
at any time. The Manufacturing Agreement stated that it was governed by the
law of Vermont; it further contained an arbitration clause.

568 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 711

ee aa nr Agreement was automatically renewed

WiQuest vrtsdsioed Sena ‘s sp e = fiscal year). At Burton’s request,

is — 3P" practiced during the 2006

eeyear and nen a ated rom aBurton
fiscal for the preparation of such samples.
: al purchase order for the production of bindings. On
6 Oktober 2005 , Burton notified ViQuest that it was terminating the Agreement
due to ‘financial concerns”. At the time of termination, Burton undisputedly
owed ViQuest approximately US$ 1.8 million in unpaid purchase orders. When
ViQuest refused to return Burton’s molds, Burton arranged with a third party to
manufacture replacement molds.
On 19 May 2006, Burton commenced arbitration at the American Arbitration
Association (AAA) seeking, inter alia, the return of its molds and reimbursement
of US$ 355,244.00 in costs incurred to replace the molds. ViQuest
counterclaimed, seeking, inter alia, lost profits of US$ 726,135.34, which it
claimed it would have earned in the 2006 fiscal year had Burton not terminated
the Agreement. On 15 January 2010, an AAA arbitral tribunal rendered a
majority award finding, inter alia, that (1) under Sect. 4.05 of the Agreement
Burton could validly terminate the Agreement “only after reasonably proving that
[ViQuest’s] financial position posed a financial risk to Burton’s business”; (2)
Burton did not prove the existence of valid grounds to terminate the Agreement
and (3) though Burton was entitled to the return of all molds, it was not so
entitled since it was not itself fulfilling its own obligations under the Agreement.
The arbitrators further awarded ViQuest US$ 360,780.70 in lost profits for the
2006 fiscal year. On 14 April 2010, Burton filed a petition to vacate the award
in part. On 28 May 2010, ViQuest filed its opposition and cross-petitioned for
confirmation of the award.
The United States District Court for the Southern District of New York, per
Denise Cote, US DJ, denied Burton’s petition to vacate and granted ViQuest’s
action
cross-petition to confirm the award. The court noted at the outset that this
since the
was governed by the 1958 New York Convention. However,
the same time
arbitration took place in the United States, the award was at
governing
subject to the provisions of the Federal Arbitration Act (FAA)
Hence, it could
domestic awards “pursuant to Art. V(1)(¢) of the Convention”.
here being that “the
be vacated on certain grounds, the only relevant one
tly executed them that a
arbitrators exceeded their powers, or so imperfec
ect matter was not made” (Sect.
mutual, final, and definite award upon the subj
Circuit consistently accords the
10(a)(4) FAA). The court added that the Second
reading it to cover only cases where
narrowest of readings to Sect. 10(a)(4),
and application of the agreement.
arbitrators stray from interpretation

569
Yearbook Comm. Arb’n xXXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

Also, courts in the Second Circuit have vacated awards that were in manifest
disregard of the law, that is, awards for whose outcome there was not even “a
barely colorable justification”. The district court noted that while the future of
the manifest-disregard standard “is unsettled” in light of the recent decision of the
Supreme Court in Stolt-Nielsen,' this ground for vacatur survives in the Second
Circuit, where it “has been reconceptualized” as “a judicial gloss” on the FAA’s
specific grounds for vacatur.
In the present case, the district court found that Burton failed to prove that the
arbitrators exceeded their authority or acted in manifest disregard of the law.
The reasonableness requirement in respect of the termination of the
Manufacturing Agreement was derived from the covenant of good faith and fair
dealing, which Vermont law recognizes is implicit in every contract; the finding
that Burton could not count on the return of the molds when it was not itself
fulfilling its own obligations under the Agreement could be based on the
fundamental principle of contract law that a party’s performance is excused
where the other party has substantially failed to perform its side of the bargain.
Further, the arbitrators based their calculation of lost profits on ViQuest’s 2005
net profits, reducing this amount in view of different factors potentially
compromising ViQuest’s business throughout the 2006 fiscal year irrespective
of Burton’s termination and further reducing it because there was no evidence
that ViQuest undertook to find a replacement for Burton. While acknowledging
that these reductions could not be calculated with mathematical certainty, the
arbitrators clearly believed they had a reasonable basis for their calculation of
ViQuest’s lost profits. Hence, the amount of lost profits awarded to ViQuest was
based on more than a “barely colorable justification”.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052085-n>.

1. Stolt-Nielsen S.A. v. AnimalFeeds Int’] Corp., 130 S.Ct. 1758 (2010), reported in this Yearbook XXXV
(2010) p. 617.

570 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO.
712

712. United States Cour

t of Appeals, Third Ci
No. 09-1921, 09-2989 & rcu it, 18 August 2010,
09-2991, No. 09-1922, 09
-2990 & 09-2992

Parties: Appellants: (1) Joel S. Ario,

Insurance Commissioner
of the Commonwealth of Pen
nsylvania, in his official
Capacity as the statutory liquid
ator of Legion Insurance
Company (in liquidation) (US);
(2) Pepper Hamilton, LLP (US)
Cross-Appellants: The Underwrit
ing Members of
Syndicate 53 at Lloyd’s for the 199
8 Year of Account
(nationality not indicated)

Published in: 2010 US. App. LEXIS 17195

Articles: I; Ill

Subject matters: — removal from state court to federal court

— opting-out of Chapter 2 Federal Arbitration Act
(FAA) (no)
— domestic law applies to setting aside (vacatur) of
1958 New York Convention award
—nondomestic award

Topics: [8]-[9] = J 301; [20]-[52] =] 102 + 9 104

S ummary

The district court decision enforcing a New York Convention award rendered in the United States was
confirmed. Removal of the enforcement action to federal court under Chapter 2 of the Federal
Arbitration Act (FAA) was proper: the provision in the arbitration clause that the arbitration vt be
in accordance with the Pennsylvania Uniform Arbitration Act (i) could not operate to “opt ao ahthe
FAA in its entirety, as opting out of the FAA in its entirety is not allowed, (ii) nor was it a sufficiently
clear and unequivocal expression of an intent to waive the specific ety 4 remove to federal court
under Chapter 2. The Third Circuit then adopted the Second Circuit's finding in Loe that the FAA
domestic vacatur standards apply to awards rendered in the United States but falling under the
Convention because they are nondomestic. There were no grounds for vacatur here.

Two Pennsylvania insurers, Legion Insurance Company and Villanova coisa

; ; é
Company (collectively, the Primary Insurers), entered into four reinsuranc

571
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

treaties with the Underwriting Members of Syndicate 53 at Lloyd’s for the 1998
Year of Account (the Reinsurers). The treaties provided that disputes be
submitted to arbitration in the United States and that arbitration be in accordance
“with the rules and procedures established by the Uniform Arbitration Act as
enacted in Pennsylvania” (PUAA).' The treaties further contained a service-of-
suit clause providing that Reinsurers agreed to “submit to the jurisdiction of a
Court of competent jurisdiction within the United States” if they failed to pay
under the treaties; it was further stated that nothing in this clause constituted a
waiver of, inter alia, the Reinsurers’ right to remove an action to a US federal
court.”

1. “ARBITRATION
As a condition precedent to any right of action hereunder, any dispute or difference between the
[primary insurers] and the Reinsurers relating to the interpretation or performance of this
Agreement, including its formation or validity, or any transaction under this Agreement, whether
arising before or after termination, shall be submitted to binding arbitration, with the exception
of matters requiring resolution by way of injunctive relief.
Upon written request of any party, each party shall choose an arbitrator and the two chosen shall
select a third arbitrator. If either party refuses or neglects to appoint an arbitrator within thirty (30)
days after receipt of the written request for arbitration, the requesting party may appoint a second
arbitrator. If the two arbitrators fail to agree on the selection of a third arbitrator within thirty (30)
days of their appointment, each of them shall name three individuals, of whom the other shall
decline two, and the selection of the third arbitrator from those remaining named individuals shall
be named by the Federal District Court for the Eastern District of Pennsylvania. All arbitrators shall
be disinterested in the outcome of the arbitration. Each party shall submit its case to the arbitrators
within thirty (30) days of the appointment of the third arbitrator.
The parties hereby waive all objections to the method of selection of the third arbitrator, it being
the intention of both sides that the third arbitrator be chosen from those submitted by the parties.
The arbitrators shall have the power to determine all procedural rules for the holding of the
arbitration[,] including but not limited to inspection of documents, examination of witnesses[,] and
any other matter relating to the conduct of the arbitration. The arbitrators shall interpret this
Agreement as an honorable engagement and not as merely a legal obligation, they are relieved of
all judicial formalities and may abstain from following the strict rules of law. The arbitrators may
award interest and costs, but in no event shall punitive or exemplary damages be awarded. Each
party shall bear the expense of its own arbitrator and shall share equally with the other party the
expense of the third arbitrator and of the arbitration.
Arbitration hereunder shall take place in Philadelphia, Pennsylvania unless both parties otherwise
agree. Except as hereinabove provided, the arbitration shall be in accordance with the rules and
procedures established by the Uniform Arbitration Act as enacted in Pennsylvania.”

2. “SERVICE OF SUIT CLAUSE (USA) — NMA 1998

It is agreed that in the event of the failure of Reinsurers hereon to pay any amount claimed to be
due hereunder, the Reinsurer hereon, at the request of the Reinsured, will submit to the
jurisdiction of a Court of competent jurisdiction within the United States. Nothing in this Clause
constitutes or should be understood to constitute a waiver of Reinsurers’ rights to commence an
action in any Court of competent jurisdiction in the United States, to remove an action to a United

572 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES NO. 712

Rear eltieriser renting bes

* A dispute arose between the Primary Insurers and the Reinsurers when the

placement material, causing the Reinsurers to suffer

substantial losses, and refused to pay the claims of the Primary Insurers. On 18
September 2006, the Primary Insurers responded by commencing arbitration.
The arbitral tribunal eventually issued an award rescinding three of the four
treaties. On the rescinded treaties, the Reinsurers were relieved of any obligation
to pay losses owing; on the remaining treaty, the Reinsurers were ordered to pay
losses owing.
On 6 August 2008, Joel S. Ario, Insurance Commissioner of the
Commonwealth of Pennsylvania, in his official capacity as the liquidator of the
Primary Insurers, who had been in liquidation since mid-2003 (collectively,
Ario), filed a motion in state court to enforce the part of the award in the
Primary Insurers’ favor and vacate the part in the Reinsurers’ favor. The
Reinsurers removed the case to federal court and moved to enforce the award.
The United States District Court for the Middle District of Pennsylvania denied
the motion to vacate and granted the Reinsurers’ motion to enforce the award.
The United States Court of Appeals for the Third Circuit, before Ambro,
Smith, and Aldisert, CJJ, in an opinion by Ambro, affirmed the district court’s
decision enforcing the award.
Ario first argued that, although the 1958 New York Convention governed the
award, by their reference to the PUAA in the insurance treaties the parties
“opted out” of Chapter 2 of the FAA, which implements the Convention in the
United States, in its entirety, so that removal to federal court under the relevant
clause
provision of Chapter 2 FAA was precluded. Alternatively, the arbitration
the removal
included a clear and unequivocal expression of intent to opt out of
provision in Chapter 2 specifically.
is not allowed and
The Court disagreed, reasoning that opting-out of the FAA
did not contain any clear
that the arbitration clause in the reinsurance treaties
noted that removal was
language opting out of the removal provision. The Court
contrary, the service-of-suit
not mentioned in the arbitration clause. On the
waive the right to remove an
clause explicitly stated that the parties did not
action to a district court. er
vacatur standards of the FAA, rath
The Court of Appeals then held that the
d that the grounds for vacatur of an
than those of the PUAA, applied. It note
are limited to the seven grounds in the
award under the New York Convention

i d by the laws rs o of
} t as permitte
Cour
Dist rict Cour t, or to seek a transfer of a case to another
Stat es
e in the United States.
~ + »”
Py

the United States or of any Stat

*

573
(2010)
Yearbook Comm. Arb’n XXXV
 COURT DECISIONS ON THE NEW YORK CONVENTION 1958

Convention’s Art. V. However, awards rendered in the US but still falling under
the Convention because nondomestic may be vacated under the “slightly broader”
vacatur standards of the FAA. The Court adopted on this issue the holding of the
Second Circuit in Yusuf” that the domestic grounds for vacatur apply to
Convention awards rendered in the United States.
It then concluded that the parties had expressed no clear intent to apply PUAA
vacatur standards and that there were no grounds to vacate the award under the
applicable FAA standards. It therefore confirmed the district court’s decision to
enforce the award.
Aldisert, CJ, filed an opinion dissenting in part. Only the relevant part of the
decision is reported.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1 052086-n>.

3. Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15 (2d Cir. 1997), reported
in Yearbook
XXIII (1998) pp. 1058-1067 (US no. 261).

574 Yearbook Comm. Arb’n XXXV (2010)

 Party ws

Court Decisions on the

European Convention 1961

Note General Editor. Part V — B reports on the European Convention of 1961.

Volume XX (1995) of the Yearbook contains a Commentary on the
European Convention on International Commercial Arbitration by
Mr. Dominique Hascher (pp. 1006-1041) along with a List ofEuropean Convention
Court Decisions and Arbitral Awards (pp. 1042-1050). Subsequent to the
compilation of this List, anumber of decisions on the European Convention 1961
have been published in the Yearbook both in this Part V — B or in Part V— A
when the decision referred predominantly to the 1958 New York Convention,
in which case the number under which they can be found in that Part is also given
(e.g., NYC Austria no. 13). They are as follows:

— Austria no. E3, Oberster Gerichtshof, 20 October 1993 and 23 February

1998, Yearbook XXIV (1999) pp. 919-927
— Austria no. E4 (NYC Austria no. 13), Oberster Gerichtshof, 26 January 2005,
Yearbook XXX (2005) pp. 421-436
— Austria no. ES (NYC Austria no. 20), Oberster Gerichtshof, 22 July 2009,
Yearbook XXXV (2010) p. 328

XXVI (2001) pp.

France no. E5, Cour d’appel, Paris, 31 May 2001, Yearbook
1136-1140
XXX (2005) pp.
France no. E6, Cour de Cassation, 30 March 2004, Yearbook
1200-1203

richt, Hamburg, 15 September

Germany no. E11, Hanseatisches Oberlandesge
1995, Yearbook XXI (1996) pp. 845-849
44), Oberlandesgericht, Cologne, 16
Germany no. E12 (NYC Germany no.
575
Arb’n XXXV (2010)
Yearbook Comm.
 COURT DECISIONS ON THE EUROPEAN CONVENTION 1961

December 1992, Yearbook XXI (1996) pp. 535-541

Germany no. E13 (NYC Germany no. 49), Landesgericht, Hamburg, 18
September 1997, Yearbook XXVI (2001) pp. 710-713
Germany no. E14, Bundesgerichtshof, 23 April 1998, Yearbook XXIV (1999)
pp. 928-933
Germany no. E15 (NYC Germany no. 69), Bayerisches Oberstes
Landesgericht, 12 December 2002, Yearbook XXIX (2004) pp. 761-766
Germany no. E16 (NYC Germany no. 82), Bayerisches Oberstes
Landesgericht, 23 September 2004, Yearbook XXX (2005) pp. 568-573
Germany no. E17 (NYC Germany no. 85), Oberlandesgericht, Schleswig, 30
March 2000, Yearbook XXXI (2006) pp. 652-662
Germany no. E18 (NYC Germany no. 110), Oberlandesgericht, Dresden, 31
January 2007, Yearbook XXXIII (2008) pp. 510-516
Germany no. E19 (NYC Germany no. 117), Oberlandesgericht, Munich, 15
March 2006, Yearbook XXXIV (2009) pp. 499-503
Germany no. E20 (NYC Germany no. 118), Bundesgerichtshof, 21 May 2007,
Yearbook XXXIV (2009) pp. 504-509
Germany no. E21 (NYC Germany no. 126), Oberlandesgericht, Munich, 19
January 2009, Yearbook XXXV (2010) p. 362
Germany no. E22 (NYC Germany no. 127), Oberlandesgericht, Munich, 27
February 2009, Yearbook XXXV (2010) p. 365
Germany no. E23 (NYC Germany no. 128), Oberlandesgericht, Munich, 11
May 2009, Yearbook XXXV (2010) p. 367
Germany no. E24 (NYC Germany no. 130), Oberlandesgericht, Munich, 22
June 2009, Yearbook XXXV (2010) p. 371

Italy no. E17, Corte di Cassazione, 13 October 2000, Yearbook XXVI (2001)
pp. 1141-1148
Italy no. E18 (NYC Italy no. 157), Corte di Cassazione, 10 March 2000,
Yearbook XXVI (2001) pp. 816-822

Monaco no. El (NYC Monaco no. 1), Tribunal de Premiere Instance, 27

November 1986; Cour d’Appel, 30 May 1989, Yearbook XXVI (2001) pp:
823-826

Russian Federation no. E1, Presidium of the Supreme Arbitrazh Court of the
Russian Federation, Moscow, 30 March 2004, Yearbook XXX (2005) pp.
1204-1207
Russian Federation no. E2 (NYC Russian Federation no. 23), Federal Arbitrazh

576 Yearbook Comm. Arb’n XXXV (2010)

 COURT DECISIONS ON THE EUROPEAN CONVENTION 1961

rn Lhe District, 2 September 2003; Presidium of the Supreme

rbitrazh
eee Court of the Russian Federation, ‘ 30 March 200 4,Y
, Yearbook XXXIV

— Russian Federation no. E3 (NYC Russian Federation no. 24), Federal Arbitrazh
cpg
Court, Northwestern District, » 25
25 July
July 2 2007, Yearbook XXXIV (2009) pp.

— Spain no. E12 (NYC Spain no. 30), Tribunal Supremo, 18 February 1993
Yearbook XXII (1997) pp. 785-788
— Spain no. E13 (NYC Spain no. 30b), Tribunal Supremo, 14 July 1998,
Yearbook XXVI (2001) pp. 851-853
— Spain no. E14 (NYC Spain no. 31), Tribunal Supremo, 6 October 1998,
Yearbook XXVI (2001) pp. 854-857
— Spain no. E15 (NYC Spain no. 32), Tribunal Supremo, 20 February 2001,
Yearbook XXVI (2001) pp. 858-862
— Spain no. E16 (NYC Spain no. 33), Tribunal Supremo, 16 April 1996,
Yearbook XXVII (2002) pp. 528-532
— Spain no. E17 (NYC Spain no. 34), Tribunal Supremo, 17 February 1998,
Yearbook XXVII (2002) pp. 533-539
— Spain no. E18 (NYC Spain no. 35), Tribunal Supremo, 5 May 1998, Yearbook
XXVII (2002) pp. 540-542
Spain no. E19 (NYC Spain no. 36), Tribunal Supremo, 26 May 1998,
—
Yearbook XXVII (2002) pp. 543-545
E20 (NYC Spain no. 44), Tribunal Supremo, 23 July 2001,
— Spain no.
Yearbook XXXI (2006) pp. 825-833
Supremo, 8 October 2002,
— Spain no. E21 (NYC Spain no. 54), Tribunal
Yearbook XXXII (2007) pp. 555-566
Spain no. 63), Tribunal Supremo, 17 May 2007,
— Spain no. E22 (NYC
Yearbook XXXIII (2008) pp. 698-702
de Primera Instancia e Instruccion
— Spain no. E23 (NYC Spain no. 65), Juzgado
V (2010) p. 444
no. 3, Rubi, 11 June 2007, Yearbook XXX l
Audiencia Provincial, Madrid, 1 Apri
Spain no. E24 (NYC Spain no. 66),
2009, Yearbook XXXV (2010) p. 448 April
Spa in no. E25 (NY C Spa in no. 68) , Audiencia Provincial, Barcelona, 29
—
2009, Yearbook XXXV (2010) p. 452
2003, Yearbook
Ule rai ne no. E1, Com mer cia l Court, City of Kiev, 30 January
—
XXXII (2007) pp. 1010-1012.

577
(2010)
Yearbook Comm. Arb’n XXXV
 EUROPEAN CONVENTION 1961

Bulgaria 21 Apr. 1961 13 May 1964

Burkina Faso 26 Jan. 1965a
Croatia 26 July 1993s
Cuba 1 Sep. 1965a
Czech Republic’ 30 Sep. 1993s
Denmark* 21 Apr. 1961 22 Dec. 1972
Finland 21 Dec. 1961
France 21 Apr. 1961 16 Dec. 1966
Germany, Federal Republic of 21 Apr. 1961 27 Oct. 1964
(German Democratic Republic 20 Feb. 1975a)
Hungary 21 Apr. 1961 9Oct. 1963
Italy 21 Apr. 1961 3 Aug. 1970
Kazakhstan 20 Nov. 1995a
Latvia’ 20 Mar. 2003a
Luxembourg® 26 Mar. 1982a
Moldova, Republic of 5 Mar. 1998a
Montenegro’ 23 Oct. 2006s
Poland 21 Apr. 1961 15Sep. 1964

3. Czechoslovakia had signed and ratified the Convention on 21 April 1961 and 13 November 1963,
respectively.
4. The instrument of ratification contained a declaration to the effect that the Convention for the time
being would not extend to the Farée Islands and Greenland. In a communication received on 12
November 1975, the Government of Denmark declared that it had withdrawn the above-
mentioned reservation, the decision to take effect on 1 January 1976.
5. Upon accession to the Convention, Latvia made the following declaration:

“In accordance with article II, paragraph 2, of the European Convention on International
Commercial Arbitration, the Republic of Latvia declares that article II, paragraph 1, does not apply
for state authorities and local government authorities.”

6. Upon accession to the Convention, on 26 March 1982, Luxembourg made the following
declaration:

“Except where otherwise expressly provided for in the arbitration agreement, the presiding judges
of the local courts shall assume the functions entrusted to the presidents of the chambers of
commerce under article IV of the Convention. The presiding judges shall hear the disputes in
chambers.”

7. On 3 June 2006, Montenegro became independent. In a letter to the Secretary-General dated 10

October 2006, the Government of the Republic of Montenegro notified its succession to, inter alia,
the 1961 European Convention.

580 Yearbook Comm, Arb’n XXXV (2010)

 LIST OF CONTRACT
ING STATES
Romania
21 Apr. 1961 16 Aug.
Russian Federation 1963
21 Apr. 1961
Serbia’ 27 Jun. 1962
Slovakia’ 12 Mar. 2001s
Slovenia’ 28 May 1993s
Spain 6 July 1992s
14 Dec. 1961 12 May
The Former Yugoslav Republic 1975
of Macedonia’
Turkey 10 Mar. 1994s
21 Apr. 1961 24 Jan. 1992
Ukraine
21 Apr. 1961 18 Mar. 1963

8. The succession is effective from 17 September 1991. The Former Yugoslav rRe
Republicic of of Macedo
donia
has made the same declaration upon succession
i as that made byf Yugoslavia
slavi up on accession.

Yearbook Comm. Arb’n XXXV (2010) 581

 GERMANY

Ratification: 27 October 1964

E19. Oberlandesgericht [Court of Appeal], Dresden, 18 February 2009,

11 Sch 07/08

Parties: Claimant: Principal (Czech Republic)

Defendant: Sales agent (Germany)

Published in: Available online at <www.dis-arb.de>

Articles: V; IX(1)(a)

Subject matters: — applicable law to existence, validity of arbitration

agreement
— separability of arbitration clause
— due process and “surprise” decision
— public policy and implicit decision on claim not
before the arbitral tribunal

Summary

A Czech award was granted enforcement. The court held that the arbitration agreement was valid
under Czech law, which applied both as the law applicable to the main contract and the law of the
seat of arbitration. Defendant did not argue that the arbitration agreement was invalid under Czech
law nor did it contest the arbitrators’ finding that arbitration agreements are separable from the main
contract and their validity is not affected by the main contract’s invalidity. The court also held that
a party claiming that the award came as a surprise can prove a violation ofdue process only ifit shows
that the outcome ofthe arbitration could have been different had the party been given the opportunity
to state its position in respect of the arbitral tribunal’s opinion. This was not the case here. Finally,
there was no violation ofpublic policy because byfinding in| favor ofclaimant the arbitrators impliedly
decided on defendant’s claims, which were not before them: defendant was free under Czech law to file
its claim against claimant.

In 2003, the Czech Claimant and the German Defendant entered into a contract
under which Defendant became the sales agent for Claimant’s radiators in
Germany, Denmark and Belgium. Claimant sent a signed Czech-language

582 Yearbook Comm. Arb’n XXXV (2010)

 GERMANY NO. £19

| P sible! Under reservation of correctness!”. The

tai | d i Pa
provided that it was governed by Czech law. It also
arbitration of disputes at the Arbitration Canis debbntedso pits ; nom
the Eco sete -
ic and
mbe r of th _
Asr icu
gri al Cha Chamber o the Czech Republic in Prague.
turral
culltu
A dispute arose between the parties when Claimant terminated the contract
and claimed that Defendant had been paid commissions for € 406,303.34 while
being entitled only to € 329,752.30. Claimant commenced arbitration in Prague,
alleging unjust enrichment by Defendant and seeking restitution of € 76,551.04.
Defendant contested that it had been paid commissions in excess and announced
that it would also file a claim for unjust enrichment and seek payment of
commissions that Claimant had unjustly set off. Defendant neither quantified this
claim nor filed a counterclaim.
At the oral hearing, the arbitral tribunal first announced that it would seek
ed to
evidence from the parties in respect of the issue of set-off. It then proceed
of 16 April
decide the dispute without seeking further evidence. By an award
2004, the arbitrators found in favor of Claimant.
enforceable. It first
The Dresden Court of Appeal declared the Czech award
was governed by Czech law:
held that the validity of the arbitration agreement
the choice for Czech law as the
even if the main contract, and consequently
d, the validity of the arbitration
substantive law applicable thereto, was invali
law, because the arbitral tribunal
agreement would still be governed by Czech
not argue that the arbitration agreement
had its seat in Prague. Defendant did any
also, the agreement would be valid at
was in itself invalid under Czech law; agree
the parties were merchants and could
event under German law, because
to arbitration in an implied manner. ding that
ant arg ued tha t the arb itr al tribunal contradicted itself by hol
Defend valid.
ct was inv ali d whi le the arb itration agreement therein was
the main contra
, hol din g tha t the arb itr ato rs were correct in finding that
The court disagreed val id contract, they showed a
con clu de a for mal ly
while the parties did not performing
ent ion to be bou nd by a contract of that content by
common int ance. The arbitrators then rea
soned
amo unt ed to imp lie d acc ept
accordingly. This ent is an independent contract
that
an arb itr ati on agr eem
that under Czech law it is a
by the inv ali dit y of the main contract in which
is not affected
dit y of the mai n contract also affects the
the inv ali
unless the ground for contest this interpretation
of Czech
Def end ant did not
arbitration agreement. re :
em ent was in itself inv
alid.
bi tr at io n ag
law, nor did it argue that
the ar ard came as
s argument that the aw
of ap pe al also denied Defendant’ fendant’ s
Th e cou rt
ib un al as a co ns eq uence vio lated De
the arbiitral tr i
a surprise and that

583
XXXV (2010)
Yearbook Comm. Arb’n
 COURT DECISIONS ON THE EUROPEAN CONVENTION 1961

right to due process. The court noted that a violation of due process prevents
recognition of an award only if the award could have been different if the party
had been given the opportunity to state its position in respect of the arbitral
tribunal’s opinion. Here, Defendant failed to state how it would have convinced
the arbitrators to reach a different conclusion, had it known the tribunal's
opinion as to the validity of the main contract before the arbitral award was
rendered.
Nor was there a violation of German public policy, as argued by Defendant,
because by finding in Claimant’s favor the arbitral tribunal in fact decided on
Defendant’s claim for unjust enrichment, which was not before the arbitrators.
The court noted that Defendant was still free under Czech law to file its claim
against Claimant, and that being compelled to file such claim in separate
proceedings does not violate German public policy.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052087-n>.

584 Yearbook Comm. Arb’n XXXV (2010)

 Part Mae

Court Decisions on the

Washington Convention 1965

Note General Editor. Part V — C reports on court decisions applying and

interpreting the Washington Convention of 1965.
Volume XVIII (1993) of the Yearbook contains a contribution by Dr. Aron
Broches entitled “Convention on the Settlement of Investment Disputes between
States and Nationals of Other States of 1965. Explanatory Notes and Survey of
its Application”. No new decisions applying the Washington Convention 1965
are reported in this Volume.
A complete list of all court decisions applying the Washington Convention
reported in the Yearbook is available online at <www.arbitration-icca.org>.
The Yearbook also reports on the New York Convention 1958 in Part V—A,
the European Convention 1961 in Part V — B and the Panama Convention 1975
in Part V — D.

to assist him
The General Editor would like to call upon the readers
published or
by sending copies of relevant court decisions,
volumes of the
unpublished, for reporting in the forthcoming
following addresses.
Yearbook. Copies can be sent to either of the

ICCA Publications Prof, Dr. Albert Jan van den Berg

c/o International Bureau of the
c/o Hanotiau & van den Berg
| r
IT Tower, 9th Floo
Permanent Court of Arbitration
480 Avenue Louise, B.9
Carnegieplein 2
1050 Brussels
2517 KJ The Hague
Belgium
The Netherlands
E-mail: [email protected]
E-mail: [email protected]
585
Yearbook Comm. Arb’n XXXV (2010)
 WASHINGTON
CONVENTION
OF 1965
LIST OF CONTR
ACTING STATE
S
AND SIGNATORI
ES

(as of 1November 2010

)!

State
Signature Deposit of Entry into
Ratification Force

Afghanistan 30 Sep. 1966 25 June 1968 25 July

Albania 1968
[5 Oct. 1991 15 Oct. 1991
Algeria 14Noy. 199]
17 mpm, 1995 94 Feb. 1996 22 Mar. 1996
Argentina 21 May 1991 19 Oct. 1994 18Noy.
Armenia 1994
16 Sep. 1992 16 Sep. 1992 16 Oct. 1992
Australia 24 Mar. 1975 2 May 1991 1 June 1991
Austria 17 May 1966 25 May 1971 24 June 1971
Azerbaijan RS Sep. 1992 18 Sep. 1992 18 Oct. 1992
Bahamas I? Oct: 1995 19 Get: 1995 18.Nev. 1995
Bahrain 22 Sep. 1995 14 Feb. 1996 15 Mar. 1996
Bangladesh 20 Nov. 1979 27Mar. 1980 26 Apr. 1980
Barbados 13 May 1981 1Nov. 1983 1 Dec. 1983
Belarus 10 July 1992 10July 1992 9 Aug. 1992
Belgium 15 Dee. 1965 27 Aug. 1970 26 Sep. 1970
Belize 19 Dec. 1986
Benin, People’s
Republic of 10 Sep. 1965 6Sep. 1966 14 Oct. 1966
Bosnia and
Herzegovina 25 Apr. 1997 14May 1997 13 June 1997
Botswana 15 Jan. 1970 15 Jan. 1970 14Feb. 1970

1. This information reported by the Editorial Staff of the Yearbook ae ae ge :

provided by the International Centre for Settlement of Investment Disputes. T pura : ts
regularly updated on the ICSID website: <www. worldbank. org/icsid>. aapears j ‘ gn
or ratified the Convention in the course of the reporting year are indicated in bo yp

Yearbook Comm. Arb’n XXXV (2010) 587

 WASHINGTON CONVENTION 1965

Brunei Darussalam 16 Sep. 2002 16 Sep. 2002 16 Oct. 2002

Bulgaria 21 Mar. 2000 13Apr. 2001 13May 2001
Burkina Faso 16 Sep. 1965 29 Aug. 1966 14 Oct. 1966
Burundi 17 Feb. 1967 5Nov. 1969 5 Dec. 1969
Cambodia 5 Nov. 1993 20Dec. 2004 19 Jan. 2005
Cameroon 23Sep. 1965 3Jan. 1967 2 Feb. 1967
Canada 15 Dec. 2006
Central African
Republic 26 Aug. 1965 23 Feb. 1966 14 Oct. 1966
Chad 12 May 1966 29 Aug 1966 14 Oct. 1966
Chile 25 Jan. 1991 24Sep. 1991 24 Oct. 1991
China 9 Feb. 1990? 7Jan. 1993 6Feb. 1993
Colombia 18 May 1993 15July 1997 14 Aug, 1997
Comoros 26 Sep. 1978 J Nov. 1778 7 Dec. 1978
Congo, Democratic
Republic of 29 Oct. 1968 29 Apr. 1970 29May 1970
Congo, Republic of 27 Dec. 1965 23 June 1966 14 Oct. 1966
Costa Rica 29'Sep. 1981.27 Apr 1993 27 May 1993
Cote d’Ivoire 30 June 1965 16Feb. 1966 14 Oct. 1966
Croatia 16 June. 1997 27 Sep. 1998 22 Oct. 1995
Cyprus 9 Mar. 1966 25 Nov. 1966 25 Dec. 1966
Czech Republic 23 Mar... 1993 23 Mar. 1993 23 Apr. 1993
Denmark 11 Oct. 1965 24Apr. 1968 24 May 1968’
Dominican Republic 20 Mar. 2000

2. The Convention was signed on behalf of the Republic of China on 13 January 1966 and ratified on
10 December 1968. At its fourteenth Annual Meeting on 2 October 1980, the Administrative
Council considered a communication received from the People’s Republic of China, decided that
the Republic of China be removed from the list of Contracting States and noted that, pending study
by the Government of the People’s Republic of the possibility of becoming a party to the
Convention, China was not a Contracting State. The People’s Republic of China signed the
Convention on 9 February 1990.
On ratifying the Convention, China notified ICSID “that, pursuant to Article 25(4) of the
Convention, the Chinese Government would only consider submitting to the jurisdiction of the
International Centre for Settlement of Investment Disputes disputes [about] compensation resulting
from expropriation and nationalization”.
. Denmark excluded, by a notification received on 15 May 1968, the Farée Islands; by a notification
received on 30 October 1968, Denmark extended the application of the Convention to the Farée
Islands as of 1 January 1969.

588 Yearbook Comm. Arb’n XXXV (2010)

 LIST OF CONT
RACTIN G STATES

Bie Ey 2h
Egypt, Arab

Estonia 23 June
ear 1992 f ha,
June ae
Ethiopia 21 Sep. 1965 1992 23 vee
July. ta
199e9
hia 7‘July 1977 11 Aug 1977 109 Sep. 1977
July 1967 9 Jan. 1969 8 Feb.
France
22 Dec.
1969
1965 21 Aug. 1967
Gabon 21Sep.
20 Sep. 1967
Gambia, The
1965 4 Apr. 1966 14 Oct. 1966
1 Oct. 1974 27 Dec. 1974
Georgia 26 Jan. 1975
7 Aug. 1992 7 Aug. 1992
Germany 6 Sep. 1992
27 Jan. 1966 18 Apr. 1969
Ghana 18 May 1969*
26 Nov. 1965 13 July 1966
Greece 14 Oct. 1966
16 Mar. 1966 2] Apr. 1969
Grenada 21 May 1969
24May 1991 24 May 1991
Guatemala 23 June 1991
2 Nov. 1995 21 Jan. 2003 20Feb. 2003
Guinea 27 Aug. 1968 4Nov. 1968 4 Dec. 1968
Guinea-Bissau 4 Sep’, £991
Guyana 3 July 1969 11 July 1969 10 Aug. 1969
Haiti 30 Jan. 1985 27 Oct. 2009 26 Nov. 2009
Honduras 28 May 1986 14Feb. 1989 16 Mar. 1989
Hungary 1 Oct. 1986 4Feb. 1987 6Mar. 1987
Iceland 25 July 1966 25 July 1966 14 Oct. 1966
Indonesia 16 Feb. 1968 28 Sep. 1968 28 Oct. 1968
Ireland 30 Aug. 1966 7Apr. 1981 7 May 1981
Israel 16 June 1980 22 June 1983 22 July 1983
Italy 18 Nov. 1965 29Mar. 1971 28 Apr. 1971
Jamaica 23 June 1965 9Sep. 1966 14 Oct. 1966
Japan 23 Sep. 1965 17Aug. 1967 16 Sep. 1967
Jordan 14 July 1972 30Oct. 1972 29Nov. 1972

4. On 3 October 1990, Germany notified the Centre “that, through the accession a ior ae
Democratic Republic to the Federal Republic of Germany with effect from 3 pai vt
two German States have unified to form one sovereign State, which as a single mem er ore
International Centre for Settlement of Investment Disputes remains bound by the Pe eer cas
Convention on the Settlement of Investment can akin eee wl ia ae
the date of unification, the Federal Republic o | . oa
‘danedbiaicinise for Settlement of Investment Disputes under the designation of ‘Germany’.

Yearbook Comm. Arb’n XXXV (2010) 589

 WASHINGTON CONVENTION 1965

Kazakhstan 23 July 1992 21Sep. 2000 21 Oct. 2000

Kenya 24 May 1966 3Jan. 1967 2 Feb. 1967
Korea,
Republic of 18 Apr. 1966 21 Feb. 1967 23 Mar. 1967
Kosovo,
Republic of 29 June 2009 29 June 2009 29 July 2009
Kuwait 9 Feb. 1978 2Feb. 1979 4Mar. 1979
Kyrgyz Republic 9 June 1995
Latvia 8 Aug. 1997 8Aug. 1997 7 Sep. 1997
Lebanon 26 Mar. 2003 26 Mar. 2003 25 Apr. 2003
Lesotho 19Sep. 1968 8July 1969 7Aug. 1969
Liberia 3Sep. 1965 16June 1970 16 July 1970
Lithuania 6 July 1992 6July 1992 5 Aug. 1992
Luxembourg 28 Sep. 1965 30July 1970 29 Aug. 1970
Macedonia, Former
Yugoslav Republic of 16 Sep. 1998 27 Oct. 1998 26Nov. 1998
Madagascar 1 June 1966 6 Sep. 1966 14 Oct. 1966
Malawi 9 June 1966 23 Aug. 1966 14 Oct. 1966
Malaysia 22 Oct. 1965 8 Aug 1966 14 Oct. 1966
Mali 9 Apr. 1976 3Jan. 1978 2Feb. 1978
Malta 24 Apr. 2002 3 Nov. 2003 3 Dec. 2003
Mauritania 30 July 1965 11 Jan. 1966 14 Oct. 1966
Mauritius 2 June 1969 2June 1969 2July 1969
Micronesia,
Federated States of 24 June 1993 24June 1993 24 July 1993
Moldova 12 Aug. 1992
Mongolia 14 June 1991 14June 1991 14 July 1991
Morocco 11 Oct. 1965 11 May 1967 10June 1967
Mozambique 4Apry 1995 “7 June 1995 ‘7 July 1995
Namibia 26 Oct. 1998
Nepal 28 Sep. 1965 7Jan. 1969 6Feb. 1969
Netherlands 25 May 1966 14Sep. 1966 14 Oct. 1966°

5. Until Mauritius attained its independence on 12 March 1968, it was covered by ratification of the
United Kingdom.
6. On depositing its instrument of ratification, The Netherlands restricted the application of the
Convention to the Kingdom in Europe; by a notification received on 22 May 1970, The
Netherlands withdrew that restriction and thus extended the application of the Convention to

590 Yearbook Comm. Arb’n XXXV (2010)

 LIST OF CONT
RACTING STATES
New Zealand
2 Sep. 1970
Nicaragua 2 Apr. 1980 2 May
4 Feb. 1994 1980’
Niger 20 Mar. 1995 19 Apr.
23 Aug. 1965 1995
N igeria 14 Noy. 1966 14 Dec. 1966
13 July 1965 23 Aug.
Norway 1965 14 Oct. 1966
24 June 1966 16 Aug.
Oman 1967 15 Sep. 1967
5 May 1995 24 July
Pakistan 1995 23 Aug. 1995
6 July 1965 15 Sep.
Panama 1966 15 Oct. 1966
22 Nov. 1995 8 Apr.
Papua New 1996 6 May 1996
Guinea 20 Oct. 1978 20 Oct. 1978
Paraguay 19 Nov. 1978
27 July 1981 7 Jan.
Peru 1983 6 Feb. 1983
4 Sep. 199] 9 Aug. 1993
Philippines 8 Sep. 1993
26 Sep. 1978 17 Nov. 1978
Portugal 17 Dec. 1978
+ Aug. 1983 2 July 1984
Qatar 1 Aug. 1984
30 Sep. 2010
Romania 6 Sep. 1974 12 Sep. 1975 12 Oct:
Russian Federation [975
16 June F992
Rwanda 21 Apr. 1978 5 Oct: £979 14 Nov. 1979
Samoa 3 Feb. 1978 25 Apr. 1978 25 May 1978
Sao Tomé and
Principe 1 Oct. 1999
Saudi Arabia 28 Sep. 1979 8 May 1980 7 June 1980
Senegal 26 Sep. 1966 21 Apr. 1967 21 May 1967
Serbia , May 2007 9 May 2007 8 June 2007
Seychelles 16 Feb. 1978 20 Mar. 1978 19 Apr. 1978
Sierra Leone 27 Sep. 1965 2 Aug. 1966 14 Oct. 1966
Singapore 2 Feb. 1968 14 Oct. 1968 13 Nov. 1968
Slovak Republic 27 Sep. 1993 27 May 1994 26 June 1994
Slovenia 7 Mar. 1994 7 Mar. 1994 6 Apr. 1994
Solomon Islands 12 Nov. 1979 8 Sep. 1981 8 Oct. 1981
Somalia 27 Sep. 1965 29 Feb. 1968 30 Mar. 1968
Spain 21 Mar. 1994 18 Aug. 1994 17 Sep. 1994
Sri Lanka 30 Aug. 1967 12 Oct. 1967 11 Nov. 1967

Surinam and the Netherlands Antilles; Surinam having attained independence on 25 November
1975, the Convention ceased to be applicable to Surinam as of that date.
7. On depositing its instrument ofratification,
i New Zealand, pursuant to Art. 70 of the Convention,
excluded from its coverage the Cook Islands, Niue and Tokelau.

Yearbook Comm. Arb’n XXXV (2010)

 WASHINGTON CONVENTION 1965

St. Kitts & Nevis 14 Oct. 1994 4 Aug. 1995 3 Sep. 1995
St. Lucia 4 June 1984 4 June 1984 4 July 1984°
St. Vincent and the
Grenadines 7 Aug. 2001 16 Dec. 2002 15 Jan. 2003
Sudan 15 Mar. 1967 9 Apr. 1973 9 May 1973
Swaziland 3 Nov. 1970 14 June 1971 14 July 1971”
Sweden 25 Sep. 1965 29 Dec: 1966 28 Jan. 1967
Switzerland 22 Sep;? 1967 15 May 1968 14 June 1968
Syria 25 May 2005 25 Jan. 2006 24 Feb. 2006
Tanzania TO Jana) 1892 18 May 1992 17 June 1992
Thailand 6 Dec. 1985
Timor-Leste 23 July 2002 23 July 2002 23 Aug. 2002
Togo 24 Jan. 1966 | Aug. 1967 10 Sep. 1967
Tonga 1 May 1989 21 Mar. 1990 20 Apr. 1990
Trinidad and
Tobago 5 Oct: 1966 3 Jan. 1967 2 Feb. 1967
Tunisia 5 May 1965 22 June 1966 14 Oct. 1966
Turkey 24 June 1987 3 Mar. 1989 2 Apr. 1989"°
Turkmenistan 26 Sep. 1992 26 Sep. 1992 26 Oct. 1992
Uganda 7 Jane 1966 7 June 1966 14 Oct. 1966
Ukraine 3 Apr. 1998 7 June 2000 7 July 2000
United Arab
Emirates 23 Desh 1981 23 Dec. 1981 22 Jan. 1982

8. Until St. Lucia attained its independence on 22 February 1979, it was covered by the ratification
of the United Kingdom.
9. Until Swaziland attained its independence on 6 September 1968, it was covered by the ratification
of the United Kingdom. ;
10. On ratifying the Convention, Turkey declared that:

“With respect to Article 64 of the Convention, the Government of Turkey is of the opinion that
the disputes which may arise from the interpretation and application of the Convention can be
solved through meaningful negotiations between the parties to the dispute, without the need of
having recourse to third party settlement.”

592 Yearbook Comm. Arb’n XXXV (2010)

 LIST OF CONTRACTING
STATES

United Kingdom

of Great Britain
and Northern
Ireland
ae 2 6 May 1965 19Dec. 1966 18 fan, 1967"

of America 27 Aug. 1965 10 June 1966 14 Oct. 1966

Uruguay 28 May 1992 3 Aug. 2000 8 Sep. 2000
Uzbekistan 17 Mar. 1994 26 July 1995 25 Aug. 1995
Venezuela 18 Aug. 1993 2May 1995 1 June 1995
Yemen, Republic of 28 Oct. 1997 21 Oct. 2004 20Nov. 2004
Zambia 17 June 1970 17 June 1970 17July 1970
Zimbabwe 25 Mar. 1991 20May 1994 19 June 1994

Note: The Government of the Republic of Bolivia signed the Convention on 3 May 1991 and
deposited its instrument of ratification on 23 June 1995. The Convention entered into force for
Bolivia on 23 July 1995. On 2 May 2007, the depositary received a written notice of Bolivia’s
denunciation of the Convention. In accordance with Article 71 of the Convention, the
denunciation took effect six months after the receipt of Bolivia’s notice, on 3 November 2007.
The Government of the Republic of Ecuador signed the Convention on 15 January 1986 and
deposited its instrument of ratification on the same date. The Convention entered into force in
Ecuador on 14 February 1986. On 6 July 2009, the depositary received a written notice of
Ecuador’s denunciation of the Convention. In accordance with Article 71 of the convention, the
denunciation took effect six months after the receipt of Ecuador’s notice, on 7 January 2010.

Or
70 of the Convention, excluded ee eit
11. The United Kingdom, pursuant to Art. *
nal relations it is responsible: Jersey, Ise = gn
following territories for whose internatio xe ti ps
Ocean Territory, Islands, British Antarctic Territory,
Pitcairn
Indian | ms , ae ie a
on 27 June 1979, and af November
Cyprus. By notifications received as 0 July :
cation of the Convention to Jersey
United Kingdom extended the appli
the Isle of Man as of | November 1983.
593
Yearbook Comm. Arb’n XXXV (2010)
 WASHINGTON CONVENTION 1965

St. Kitts & Nevis 14 Oct! 1994004 Aug 1995 3 Sep/l925

St. Lucia 4June 1984 4June 1984 4 July 1984°
St. Vincent and the
Grenadines 7 Aug. 2001 16Dec. 2002 15 Jan. 2003
Sudan 15 Mar. 1967. Q9Apr. 1973 Y9May 1973
Swaziland 3Nov. 1970 14June 1971 14 July 1971”
Sweden 25 Sep. 1965 29Dec. 1966 28 Jan. 1967
Switzerland 22 Sep. 1967 15 May 1968 14 June 1968
Syria 25 May 2005 25 Jan. 2006 24Feb. 2006
Tanzania 10 Jan. 1992 18May 1992 17June 1992
Thailand 6 Dec. 1985
Timor-Leste 23 July 2002 23 July 2002 23 Aug. 2002
Togo 24 Jan. 1966 11 Aug. 1967 10Sep. 1967
Tonga 1 May 1989 21 Mar. 1990 20Apr. 1990
Trinidad and
Tobago 5 Oct? 1966?°%S Jano? 1967 2Feb. 1967
Tunisia 5 May 1965 22 June 1966 14 Oct. 1966
Turkey 24 June 1987 3 Mar. 1989 2Apr. 1989"°
Turkmenistan 26 Sep:/, 1992 8.26 Seps i1992 26 Oct. 1992
Uganda 7 June 1966 7June 1966 14 Oct. 1966
Ukraine 3 Apr. 1998 7June 2000 7 July 2000
United Arab
Emirates 23 Dect 19814623 Dee? 1981 22 jan. 1982

8. Until St. Lucia attained its independence on 22 February 1979, it was covered by the ratification
of the United Kingdom.
9. Until Swaziland attained its independence on 6 September 1968, it was covered by the ratification
of the United Kingdom.
10. On ratifying the Convention, Turkey declared that:

“With respect to Article 64 of the Convention, the Government of Turkey is of the opinion that
the disputes which may arise from the interpretation and application of the Convention can be
solved through meaningful negotiations between the parties to the dispute, without the need of
having recourse to third party settlement.”

592 Yearbook Comm. Arb’n XXXV (2010)

 LIST OF CONTRACTING STATES

United Kingdom
of Great Britain
and Northern
Ireland 26 May 1965 19Dec. 1966 18 Jan. 1967"!
United States
of America 27 Aug. 1965 10June 1966 14 Oct. 1966
Uruguay 28 May 1992 3 Aug. 2000 8Sep. 2000
Uzbekistan 17 Mar. 1994 26 July 1995 25 Aug. 1995
Venezuela 18 Aug. 1993 2May 1995 1 June 1995
Yemen, Republic of 28 Oct. 1997 21 Oct. 2004 20Nov. 2004
Zambia 17 June 1970 17June 1970 17July 1970
Zimbabwe 25 Mar. 1991 20May 1994 19June 1994

Note: The Government of the Republic of Bolivia signed the Convention on 3 May 1991 and
deposited its instrument of ratification on 23 June 1995. The Convention entered into force for
Bolivia on 23 July 1995. On 2 May 2007, the depositary received a written notice of Bolivia’s
denunciation of the Convention. In accordance with Article 71 of the Convention, the
denunciation took effect six months after the receipt of Bolivia’s notice, on 3 November 2007.
The Government of the Republic of Ecuador signed the Convention on 15 January 1986 and
in
deposited its instrument of ratification on the same date. The Convention entered into force
notice of
Ecuador on 14 February 1986. On 6 July 2009, the depositary received a written
, the
Ecuador’s denunciation of the Convention. In accordance with Article 71 of the convention
2010.
denunciation took effect six months after the receipt of Ecuador’s notice, on 7 January

tion, excluded from its coverage the

11. The United Kingdom, pursuant to Art. 70 of the Conven
ible: Jersey, Isle of Man, British
following territories for whose international relations it is respons
ic Territory, Sovereign Base Areas of
Indian Ocean Territory, Pitcairn Islands, British Antarct
and 17 November 1983, respectively, the
Cyprus. By notifications received on 27 June 1979,
to Jersey as of 1 July 1979, and to
United Kingdom extended the application of the Convention
the Isle of Man as of 1 November 1983.

593
Yearbook Comm. Arb’n XXXV (2010)
 Fart ¥ iP)

Court Decisions on the

Panama Convention 1975

Note General Editor. Part V — D reports on court decisions applying and

interpreting the Inter-American Convention on International Commercial
Arbitration of 1975, adopted at Panama City, Panama on 30 January 1975 (the
Panama Convention 1975).
No new decisions exclusively applying the Panama Convention 1975 are
reported in this Volume. One decision applied the Convention together with the
1958 New York Convention: US no. 706 (NYC US no. P26), p. 551.
The Yearbook also reports on the New York Convention 1958 in Part V— A,
the European Convention 1961 in Part V—B and the Washington Convention
1965 in Part V —C.

The General Editor would like to call upon the readers to assist him
or
by sending copies of relevant court decisions, published
of the
unpublished, for reporting in the forthcoming volumes
addresses.
Yearbook. Copies can be sent to either of the following

ICCA Publications Prof. Dr. Albert Jan van den Berg

c/o International Bureau of the c/o Hanotiau & van den Berg
Permanent Court of Arbitration IT Tower, 9th Floor
480 Avenue Louise, B.9
Carnegieplein 2
1050 Brussels
2517 KJ The Hague
Belgium
The Netherlands
E-mail: [email protected]
E-mail: [email protected]

595
(2010)
Yearbook Comm. Arb’n XXXV
 +

Kz.
 PANAMA CONVEN
TION OF 1975
LIST OF CONTRACT
ING STATES

(as of 1November 2010)!

State Signature Ratification Deposit

Argentina 1S Mar. 1991 3Noy, 1994 5 Jan. 1995

Bolivia 8 Feb. 1983 8 Oct. 1998 29 Apr. 1999
Brazil 30 Jan. 1975 31 Aug. 1995 27Nov.
1995
Chile 40 Jan: 1975- 8 Apr. (1976-17 May 1976
Colombia 30 Jan. 1975 18Nov. 1986 29 Dec. 1986
Costa Rica 30 Jan. 1975-2 "Tan. 1978 90 Jan. 1978
Dominican Republic 18 Apr. 1977 11 Feb. 2008 7 July 2008
Ecuador 30 Jan. 1975 6 Aug. 1991 23 Oct. 1991
El Salvador 30 Jan. 1975 27]June 1980 11 Aug. 1980
Guatemala JU lat. LOVS July 1986 20 Aug. 1986
Honduras 30 Jan. 1975 8 Jan. 1979 22 Mar. 1979
Mexico 27 Oct. 1977? 15 Feb. 1978 27Mar. 1978
Nicaragua 30 Jan. 1975 15 July 2003 2 Oct. 2003
Panama 30 Jan. 1975 11 Nov. 1975 17Dec. 1975
Paraguay 26 Aug. 1975° 2Dec. 1976 15 Dec. 1976
Peru 21 Apr. 1988 2May 1989 22 May 1989
United States 9 June 1978 10 Nov. 1986’ 27Sep. 1990

1. This information has been compiled by the Editorial Staff of the Yearbook Commercial Arbitration
on the basis of information provided by the Organization of American States (OAS). plyoa sfthat
have signed or ratified the Convention in the course of the reporting year are indicated in boldface
type. No new signatures, ratifications or deposits are reported in this Volume.
2. Signed ad referendum. é
3. At the time of ratification the United States made the following reservation:

“1. Unless there is an express agreement among the heath i reFsoe itration fo
Si agreement AP se
to the

contrary, where the requireme

i nts for the app lication of3 both the Inter-Am\n abeaeact
ialidiocn) Commerci al Arbitratio n and the Conventio n on the Recogniti on and Enf

ave
Yearbook Comm. Arb’n XXXV (2010)
 PANAMA CONVENTION 1975

Uruguay 30 Jan. 1975 29 Mar. 1977 25 Apr. 1977

Venezuela 30 Jan. 1975 22 Mar. 1985 16May 1985

Foreign Arbitral Awards are met, if a majority of such parties are citizens of a state or states that
have ratified or acceded to the Inter-American Convention and are member states of the
Organization of American States, the Inter-American Convention shall apply. In all other cases, the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards shall apply.
2. The United States of America will apply the rules of procedure of the Inter-American
Commercial Arbitration Commission which are in effect on the date that the United States of
America deposits its instrument of ratification, unless the United States of America makes a later
official determination to adopt and apply subsequent amendments to such rules.
3. The United States of America will apply the Convention, on the basis of reciprocity, to the
recognition and enforcement of only those awards made in the territory of another Contracting
State.”

598 Yearbook Comm. Arb’n XXXV (2010)

 Fare V —

Other Court Decisions on Arbitrat

ion

Note General Editor. Part V — E reports on selected leading cases in the field of
international commercial arbitration.'! Court decisions applying the major
multilateral arbitration conventions are reported in the other divisi
ons of Part V.
These Parts are as follows:

— Part V—A. Court Decisions on the New York Convention 1958

— Part V —B. Court Decisions on the European Convention 1961
— Part V—C. Court Decisions on the Washington Convention 1965
— Part V — D. Court Decisions on the Panama Convention 1975.

As of this Volume, the Summary of each decision, prefaced by a short recap, is

published in print; a detailed Excerpt of the decision is available online at
<www.kluwerarbitration.com>. A code provided with the Yearbook allows
readers to access the relevant Volume online, as well as the preceding Volume.
Readers who have purchased Volume XXXV (2010) can therefore access
materials from both this Volume and Volume XXXIV (2009).
Information on how to access the online materials is provided in a Note at the
beginning of this Volume, p. xv.

The General Editor would like to call upon the readers to assist him
by sending copies of relevant court decisions, published or
unpublished, for reporting in the forthcoming volumes of the
Yearbook. Copies can be sent to either of the following addresses.

ZS

Volumes VII (1982) — XXXIV (2009).

1. This Part was numbered Part II — B in

599
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON THE WASHINGTON CONVENTION 1965

ICCA Publications Prof. Dr. Albert Jan van den Berg

c/o International Bureau of the c/o Hanotiau & van den Berg
Permanent Court of Arbitration IT Tower, 9th Floor
Carnegieplein 2 480 Avenue Louise, B.9
2517 KJ The Hague 1050 Brussels
The Netherlands Belgium
E-mail: [email protected] E-mail: [email protected]

600 Yearbook Comm. Arb’n XXXV (2010)

 EUROPEAN COURT OF HUMAN RI
GHTS

European Court of Human

Application no. 773/03 Rights, Fi
ghts, Fifth Section, 3 April 2008,

Parties: Applicant: Regent Engineeri

ng International Limited
(Seychelles)
Respondent: Ukraine

Published in: Available online at <www.echr. coe.int>

Subject matters: ~ arbitral tribunal is “tribunal” under Art. 6(1)

European Convention on Human Rights
— claim under award is “civil right” under Art. 6(1)
European Convention on Human Rights
— claim under award falls under Art. 1 of Protocol No.
1 to the European Convention on Human Rights
— Ukrainian Law no. 864-III of 29 November 2001 on
the introduction of a moratorium on the forced sale of
assets

S ummary

An arbitral tribunal of the International Commercial Arbitration Court at the Chamber of Commerce
and Industry of Ukraine is a “tribunal” within the meaning of Art. 6(1) of the European Court of
Human Rights. The right to demand payment of a debt under an award is a “civil” right within the
meaning ofthe same Article. The bankruptcy ofa State-owned debtor is no excuse forfailure to comply
with the obligations under Art. 6(1) of the Convention. A claim under an award is a “possession” in
the sense of Art. 1 of Protocol No. | to the Convention if its enforceability is sufficiently established.

On 23 December 1998, an arbitral tribunal of the International Commercial

Arbitration Court at the Chamber of Commerce and Industry of Ukraine (ICAC)
rendered an award in favour of COM s.r.o. (COM), a Czech company, in its
dispute with Oriana, an Ukrainian company 99.9 percent owned by the
Ukrainian State.
and
COM sought enforcement of the ICAC award in Ukraine. Between 1999
Bailiffs’ Service
2003, it obtained orders ofattachment in its favor from the State
suspended several
of the Ministry of Justice, but execution proceedings were

601
Yearbook Comm. Arb’n XXXV (2010)
 OTHER COURT DECISIONS ON ARBITRATION

times because of Oriana’s opposition and because Oriana’s creditors filed

applications in court seeking an insolvency order. On 18 September 2002, the
Ivano-Frankivsk Regional Commercial Court eventually instituted bankruptcy
proceedings against Oriana.
On 10 February 2003, Regent Engineering International Limited (Regent)
entered into a contract with COM under which COM transferred its right to
claim the sum under the ICAC award to Regent. Regent then sought to replace
COM as the creditor under the ICAC award. On 10 September 2004, the Ivano-
Frankivsk Regional Court of Appeal declared Regent to be legally entitled to the
debt awarded to COM by the ICAC arbitral tribunal.
On 29 December 2005, the Ivano-Frankivsk Regional Commercial Court
directed the Bailiffs’ Service to discontinue the execution proceedings against
Oriana on the basis of two Ukrainian statutes: (1) Law of 14 May 1992, which
allows a commercial court to order a moratorium on debt recovery from a
company which is the subject of insolvency proceedings and (2) Law no. 864-III
of 29 November 2001, which provides for a moratorium on the enforcement of
judgment debts against undertakings in which the Ukrainian State holds at least
25 percent of the share capital. On 30 December 2005, the Bailiffs’ Service
discontinued the execution proceedings accordingly.
Regent commenced an action before the European Court of Human Rights
based on the non-enforcement of the ICAC award. In particular, it alleged that
the award remained unenforced on account of an omission by the State Bailiffs’
Service and the enactment of Law no. 2864-III on the introduction of a
moratorium on the forced sale of property of State-owned undertakings.
The European Court of Human Rights held at the outset that Art. 6(1) of the
European Convention on Human Rights — which provides that everyone is
entitled to a fair hearing by an independent and impartial tribunal established by
law in the determination of his civil rights and obligations — applied to the case
at issue. First, the ICAC was a “tribunal established by law” within the meaning
of Art. 6 Convention, as “tribunal” does not necessarily mean a court of law and
ICAC acts in accordance with the 1994 Ukrainian International Commercial
Arbitration Act and its internal procedural rules. The Court added that ICAC is
the only arbitration body in Ukraine that may, in accordance with the 1994
Arbitration Act, decide on “commercial disputes with a foreign element” and its
awards are treated as equivalent to enforceable court judgments. Second, the
right to demand payment of a debt under an award is a “civil” right and, following
the transfer of the debt to Regent, the Ukrainian enforcement proceedings
involved Regent’s civil rights in succession of those of the initial creditor, COM.

602 Yearbook Comm. Arb’n XXXV (2010)

 EUROPEAN COURT OF HUMAN RIGHTS

The Court then held that Ukraine violated both Art. 6(1) of the Convention
and Art. 1 of Protocol No. 1 to the Convention. It reasoned in respect of the
former that one of the main reasons for the failure of the Ukrainian authorities
to enforce the award was the insolvency of Oriana, a State-owned and managed
company. While this situation may cause some delay in the enforcement of
judgments from the Government's budget, it cannot be considered an excuse for
failure to comply with the obligations under Art. 6(1) of the Convention. The
Court added that it did not appear that steps had been taken recently by the
Ukrainian States authorities to remedy this situation.
As to the violation of Art. 1 of Protocol No. 1, which provides that “every
natural or legal person is entitled to the peaceful enjoyment of his possessions’,
the Court noted that it consistently held that a claim, if its enforceability is
sufficiently established, constitutes a “possession” and that an assignment of adebt
is capable in principle of amounting to such a “possession”.
“ust
The Court then applied Art. 41 of the Convention to grant Regent
satisfaction” for these violations.

is available online at <www.

A detailed report of this decision
x?id=KLI-KA-1052088-n> :
kluwerarbitration.com/ document.asp

603
XXXV (2010)
Yearbook Comm. Arb’n
 OTHER COURT DECISIONS ON ARBITRATION

European Court of Human Rights, Second Section, 20 April 2010,

Application no. 12312/ 05

Parties: Applicants: (1) Kin-Stib LLC (Democratic Republic of

Congo);
(2) Milorad Majki¢ (Serbia)
Respondent: Republic of Serbia

Published in: Available online at <www.echr.coe.int>

Subject matters: — European Convention on Human Rights (Art. 1 of

Protocol No. 1)
— admissibility of claim under the European
Convention on Human Rights
— status as “victim” under the European Convention on
Human Rights

Summary

An individual who had not been a party to the arbitration but had later bought a stake in the original
creditor under the ensuing award could file a claim for violation of the European Convention on
Human Rights based on only the partial enforcement of the award, because his and the original
creditor’s interests under the award were undistinguishable. The partial enforcement of the award did
not deprive the original creditor ofits status as “victim” under the Convention for the failure to enforce
the remainder of the award, because Serbia had not acknowledged the breach of the Convention and
afforded redress therefor.

On 12 October 1989, Kin-Stib LLC (Kin-Stib), a company fully owned at the

relevant time by a company named G.]J., concluded a Joint Venture Agreement
(JVA) with Hotel Intercontinental Belgrade (the Hotel) concerning the setting-up
and joint operation of a casino on the Hotel’s premises. The Hotel was at the
time owned by Generalexport (Genex), a Serbian “socially-owned company”.
The casino opened in October 1990 and closed by 1993 due to financial
difficulties. On 8 November 1994, Mr. Milorad Majki¢ bought a part of Kin-Stib
from G.J., consisting of all of Kin-Stib’s rights and pecuniary interests under the
JVA. In 1995, Kin-Stib and Majki¢ (collectively, the applicants) commenced
arbitration against Genex before the Foreign Trade Arbitration Court of the
Yugoslav Chamber of Commerce (the FTAC), seeking compensation for breach
of contract and repossession of the casino. By an award of 10 April 1996, the

604 Yearbook Comm. Arb’n XXXV (2010)

 EUROPEAN COURT OF HUMAN RIGHTS

FTAC found in favor of the applicants, directing the successors to the origi
shi ¥ original
Genex, another company named General export and International CG
(collectively, the debtors) to pay compensation in the am ount of US$ 1,999,992
The FTAC arbitrators also allowed the applicants to retake rae’ of a
casino and effectively manage its operation for five years after reopening it
The debtors unsuccessfully sought annulment of the FTAC Ot in the
Serbian courts. In turn, the applicants sought enforcement under the award. On
7 June 1996, the Commercial Court in Belgrade ordered enforcement of the
award in its entirety. Genex fully paid the sum owed under the award; however
it did not allow Kin-Stib to retake possession of the casino. Litigation ensued. On
24 October 2006, the Belgrade court imposed the maximum amount of fines
legally possible on the debtors for their delay in complying with the award. On
10 March 2008, the enforcement proceedings were stayed until the conclusion
of the debtors’ restructuring process, which had been ordered on 9 August 2007.
In the meantime, on 6 April 2005, Kin-Stib filed an application with the
European Court of Human Rights against the Republic of Serbia,’ alleging
Rights,
violation of Art. 6(1) and Art. 13 of the European Convention on Human
because of the
as well as a breach of Art. 1 of Protocol No. 1 to the Convention,
partial non-enforcement of the award in its favor.
n Rights found that the
By a unanimous decision, the European Court of Huma
cants, held that there was a
complaint was admissible in respect of both appli
ted Serbia to pay the applicants a
violation of Art. 1 of Protocol No. 1 and direc
sum in “just satisfaction”.
that Majki¢’s complaint was
The Court first denied Serbia’s argument Court noted
y to the FTAC award. The
inadmissible because he was not a part e in Kin-
purs uant to the 8 Nov emb er 1994 contract, Majkié bought a stak
that
of all of Kin- Stib ’s righ ts and pecu niary interests derived from the
Stib consisting with each
Kin-Stib were “so closely identified
JVA. Asa consequence, Majki¢ and of issues
that it wou ld be “arti ficia l to distinguish between them” in respect
other” on
the JVA, incl udin g the part ial non -enforcement of the award issued
related to Serbia’s contention
The Court also disagreed with
a dispute arising thereunder. on
long er a “\ic tim” in the sense of the European Conventi
that Kin-Stib was no the award. The
Righ ts beca use it had received full payment under
on Human do not suffice in
that deci sion s favo rable to the applicant
Court reasoned ention
an appl ican t of the stat us of victim under the Conv
principle to deprive

June 200
ro; as ofle3 res 6,
Un io n of Serbia and Monteneg na pondent
against the State —_ '
1. The action was initially filed nce by Mo ntenegro, Serbia re
mained the
on of ind epe nde
following the declarati
in these proceedings.
605

Arb’n XXXV (2010)

Yearbook Comm.
 OTHER COURT DECISIONS ON ARBITRATION

unless the national authorities have acknowledged, either expressly or in

substance, the alleged breach of the Convention or one of its Protocols, and have
afforded redress therefor. This was not the case here, as Serbia never
acknowledged the violation alleged by Kin-Stib.
The Court then held on the facts of the case that Serbia violated Art. 1 of
Protocol No. 1 because the Serbian authorities failed to do everything in their
power to fully enforce the award. It also applied Art. 41 of the Convention to
afford “just satisfaction” to the applicants.
A request for referral to the Grand Chamber was pending at the time of
publication.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052089-n>.

606 Yearbook Comm. Arb’n XXXV (2010)

 EUROPEAN COURT OF
JUSTICE

European Court of Justice,

First Chamber, 6 October
40/08 2009 :| Case C

Parties: Claimant or Plaintiff: Asturcom

Telecomunicaciones
SL (nationality not indicated)
Defendant or Respondent: Cristina Rodriguez
Nogueira (nationality not indicated)

Published in: Available online at <http:// eur-lex.europa.eu>

Subject matters: — res judicata

— annulment court to review whether arbitration
agreement is “unfair term”
— Council Directive 93/13/EEC of 5 April 1993 on
Unfair Terms in Consumer Contracts
— time limits for setting aside award

Summary

Council Directive 93/1 3/EEC on unfair terms in consumer contracts requires that a court hearing a
request for enforcement of a final award rendered in a dispute between a seller or supplier and a
consumer who did not participate in the arbitration assess of its own motion whether the arbitration
clause in the contract between the parties is unfair, in so far as national rules ofprocedure require the
court to assess at the enforcement stage whether the arbitration clause violates public policy.

On 24 May 2004, Mrs. Cristina Rodriguez Nogueira concluded a subscription

contract for a mobile telephone with Asturcom Telecomunicaciones SL
(Asturcom). The contract contained a clause referring disputes to arbitration at
the Asociacién Europea de Arbitraje de Derecho y Equidad (European Association of
Arbitration in Law and Equity - AEADE). The seat of AEADE — Bilbao, Spain —
was not indicated in the contract. |
and
A dispute arose when Mrs. Rodriguez Nogueira failed to pay certain bills
ption
terminated the contract before the end of the agreed minimum subscri
Mrs. Rodriguez
period. Asturcom commenced an arbitration in Bilbao in which
arbitral tribunal
Nogueira did not participate. On 14 April 2005, an AEADE
669.60 to Asturcom. Mrs.
directed Mrs. Rodriguez Nogueira to pay EUR

607
Yearbook Comm. Arb’n XXXV (2010)
 COURT DECISIONS ON ARBITRATION

Rodriguez Nogueira did not seek the annulment of the award within the two-
month time limit established by the Spanish Law no. 60 of 2003 on Arbitration.
Asturcom sought enforcement of the award before the Juzgado de Primera Instancia
(Court of First Instance) No. 4 of Bilbao.
The Bilbao court found that the arbitration clause in the subscription contract
was unfair, in particular because (1) the costs for traveling to Bilbao were greater
than the amount at issue; (2) the seat of the arbitration was located at a
considerable distance from the consumer’s place of residence and was not
indicated in the contract and (3) the standard contract used by Asturcom in its
contract with the consumer was the standard contract for the
telecommunications industry provided by AEADE. The court also found, that the
Spanish Arbitration Law no. 60 of 2003 does not allow arbitral tribunals to
examine of their own motion whether unfair arbitration clauses are void and that
the Spanish Code of Civil Procedure does not contain provisions in respect of
whether a court may assess whether arbitration clauses are unfair in the context
of proceedings for the enforcement of a final award. By a decision dated 29
January 2008, the Bilbao court therefore stayed the proceedings and referred to
the European Court of Justice the following question for a preliminary ruling:

“In order that the protection given to consumers by [Directive 93/13]

should be guaranteed, is it necessary for the court hearing an action for
enforcement of a final arbitration award, made in the absence of the
consumer, to determine of its own motion whether the arbitration
agreement is void and, accordingly, to annul the award if it finds that the
arbitration agreement contains an unfair arbitration clause that is to the
detriment of the consumer?”

The European Court of Justice answered this question in the affirmative. It first
noted that Council Directive 93/13/EEC of 5 April 1993 on unfair terms in
consumer contracts (Directive 93/13) aims at protecting consumers by providing
that unfair terms are not binding on the consumer. Contractual terms which have
not been individually negotiated are regarded as unfair if they cause a significant
imbalance in the parties’ rights and obligations under the contract, contrary to
the requirement of good faith; a term is always regarded as unfair where it has
been drafted in advance (e.g., as here, in a pre-formulated standard contract).

608 Yearbook Comm. Arb’n XXXV (2010)

 EUROPEAN COURT OF JUSTICE

ae Sore
ee
kel
hhSe
t istron Gr teste om
ee ein
ale Leet
we hie
xf
or ai ‘3an arbitration clause is an unfair
ar | ased on the clause. Here, however,

AEADE une, , which Rabe a Poet ABRres judicata.

quence become ‘9 Dob SARS, RS
| The Court reasoned that Community law does not require a national court to
disapply its rules on res judicata, even in order to remedy an infringement of a
provision of Community law, because res judicata is essential to ensure stability
and the sound administration of justice. However, national rules on res judicata
must not be less favorable in respect of cases involving Community law than
those governing similar domestic actions (principle of equivalence); nor may they
make it in practice impossible or excessively difficult to exercise the rights
conferred by Community law (principle of effectiveness).
The Court first examined the principle of effectiveness and concluded that the
rule in the Spanish Arbitration Law that an annulment action against an award
must be filed within two months is reasonable and does not make it impossible
or excessively difficult to exercise the rights conferred on consumers by
Directive 93/13.
As regards equivalence, the Court reasoned that Directive 93/13 contains
d
mandatory provisions protecting a public interest; as such, it must be regarde
as the
as having equal standing to national rules of public policy. Hence, inasmuch
required to assess
national court hearing an application to enforce a final award is
domestic rules of public
of its own motion whether an arbitration clause violates
that clause is unfair
policy, it is also obliged to assess of its own motion whether
in the light of Directive 93/13.

on is available online at <www.

A detailed report of this decisi
aspx?id=KLI-KA-1052090-n>.
kluwerarbitration.com/ document.

ok XXXII (2007) pp-

taz a Cla ro [20 06] ECR | 10421, reported in Yearbo
1. Case C 168/05 Mos
127-135.

609
XXxXV (2010)
Yearbook Comm. Arb'n
 SWITZERLAND

Tribunal Fédéral [Federal Supreme Court], First Civil Chamber, 6

October 2009, 4A_596/2008'

Parties: Petitioner: X (formerly A) (nationality not indicated)

Respondents: (1) Company Y, in _ liquidation
(nationality not indicated);
(2) Company Z Limitada (nationality not indicated)

Published in: Available online at <www.bger.ch>; English

translation available online at <www.praetor. ch>

Subject matters: — fraud to obtain a judgment

— corruption/bribery
— revision of award under Art. 123(1) Swiss Law on
the Federal Supreme Court (LTF)

Summary

An ICC award was annulled in Switzerland under Art. 123(1) Swiss Law on the Federal Supreme
Court because a criminal investigation in another country determined that false witness statements had
been made to the arbitrators. This fraud misled the arbitrators into upholding an agreement that was
in|fact null and void because it was part ofan influence peddling scheme, and consequently rendering
an award to the petitioner’s detriment.

In September 1989, State B negotiated the purchase of frigates for its navy with
Company X (then called Company A), a company of State D. Mr. E, the Minister
of Foreign Affairs of State D, first authorized the sale. Under pressure from State
C he subsequently withdrew permission for the sale.
Company X then decided to retain the services of Mr. F, a director of Group
G. On 12 July 1990, Mr. F entered into a fiduciary agreement with Company Y,
granting Company Y the right to act in his name. Company Y was represented
by Mr. H. By a letter dated 19 July 1990 (the 19 July 1990 Agreement),
Company X promised Company Y compensation — 1 percent of the total amount

1. The General Editor wishes to thank Dr. Charles Poncet, ZPG Ziegler Poncet Grumbach Carrard,
Neuchatel, for his assistance in providing and translating this decision from the French original.

610 Yearbook Comm. Arb’n XXXV (2010)

 SWITZERLAND

aes
of the sales —

eoeu Byvat Furth ;

en cnc ith heade tie pe
top application of the law of
ate D; it further referred disputes to ICC arbitration in Switzerland
On 20 June 1991, Company Y assigned its claims and obligations aia the 19
July 1990 Agreement to Company Z Limitada (Company Z).
In 1991, Minister E gave its final approval to the export of frigates to State B
On 31 August 1991, Company X and State B entered into a contract for the sabe
and purchase of six observation and surveillance frigates (the RR Contract) for
a gross price of US$ 2,512,585,152. The RR Contract forbade the use of any
intermediary and the payment of any commission.
A dispute arose between the parties when Company Z, Company X’s assignee,
asked Company X to pay part of the compensation owed under the 19 July 1990
Agreement. On 4 December 1991, Company X refused to pay, arguing that
Company Y had not performed the services provided under the 19 July 1990
(collectively,
Agreement. On 2 September 1992, Company Y and Company Z
X with the ICC,
the Claimants) filed a request for arbitration against Company
for services given. They
seeking payment of FF 160,000,000 as compensation
nt was to solicit the
claimed that the purpose of the 19 July 1990 Agreeme
C, so that he would use his
services of Mr. L, a consultant of Group G in State
on to the conclusion of the
network of relationships to cause State C’s oppositi
B to cease. Company X argued in
contract for the sale of the frigates to State policy
null and void as against public
reply that the 19 July 1990 Agreement was pay a third
because its real aim was to provide Mr. L with funds with which to
E
to obtain the authorization of Minister
party — a Mrs. T — who had been able
to the sale of the frigates. in Switzerland
arbitral tribunal with seat
By an award of 21 July 1996, an ICC alid
(1) the ass ign men t of rig hts by Company Y to Company Z was inv
held that was
Z had no sta ndi ng to cla im; (2) the 19 July 1990 Agreement
and Company e Mr. L for services that he
ed to be mea nt to com pen sat
valid because it appear X had to pay
fact pro vid ed; as a con sequence, (3) Company
had in itrators noted
1.5 2 and FF 12, 691 ,04 0 to Company Y. The arb
US$ 25,125,85 ned influence peddling, it
would
y 199 0 Agr eem ent con cer
that, had the 19 Jul Stat e D, which applied to the sub
stance
und er the law of
have been null and void ,
Pro cee din gs ens ued in Switzerland and State D.
of the dispute. by a ‘a
Co mp an y X so ug ht an nulment of the ICC award
In Switzerland, e Court. On 28 Januar
y 1997, the
Federal Suprem
law appeal to the Swiss
the appeal. of the
Supreme Court denied mp an y Y obtained enforcemen
t
ber 19 96 , Co
In State D, on 4 Septem ai n st th e en forcement decision
. On 26
filed an appeal ag
ICC award. Company X
611
XXXV (2010)
Yearbook Comm. Arb’n
 OTHER COURT DECISIONS ON ARBITRATION

February 1997, Company X also filed a criminal complaint against an unknown

party for attempted fraud and complicity before an examining magistrate [juge
d’instruction], alleging that the arbitrators’ opinion had been distorted by several
false written and oral testimonies. On 7 March 1997, the Public Prosecutor of
State D requested an investigation for attempted fraud. On 7 September 1999,
the Court of Appeal stayed proceedings in Company X’s appeal against the 4
September 1996 decision enforcing the award.
After an investigation that lasted more than 11 years, on 1 October 2008 the
examining magistrate in State D issued a decision finding that Mr. F had
committed fraud in order to secure the award; however, he dropped all charges
by issuing an “ordonnance de non lieu”’ because Mr. F had died in the meantime.
Based on the 1 October 2008 decision, Company X then filed a request for
revision (révision) of the 31 July 1996 arbitral award with the Swiss Federal
Supreme Court. This is the subject matter of the present proceedings.
The Federal Supreme Court granted the request and annulled the ICC award
in respect of Company Y, while holding that, conversely, no revision was
admissible against Company Z. The Court referred the case back to the arbitral
tribunal that issued the decision or to a new arbitral tribunal to be constituted
under the ICC Rules.
Company X relied on the ground for annulment in Art. 123(1) of the Swiss
Law on the Federal Supreme Court (Loi du 17 juin 2005 sur le Tribunal federal —
LTF), which provides that revision of a decision may be sought when criminal
proceedings determine — not necessarily by a sentence — that that decision was
influenced to the petitioner’s detriment by a crime or offense. Company X
claimed that the requirements for revision under Art. 123(1) LTF were met
here, as the criminal investigation conducted in State D, and the decision of 1
October 2008 that concluded it, confirmed that the arbitrators were misled by
the statements of several witnesses, and in particular by Mr. F, in the arbitration;
this fraud amounted to a crime and had a negative impact on the ensuing award,
even if no sentence could be issued at the end of the investigation against Mr. F,
who died while the investigation was pending. The Supreme Court agreed.
It reasoned first that Company X complied with the formal requirements for
requesting revision. Inter alia, it filed its claim in a timely manner and had
standing to seek revision because it had been the defendant in the arbitration.
As to the merits of Company X’s claim, the Supreme Court noted that the
decision of 1 October 2008 concluded that Mr. F lied to the arbitrators in order

2. A decision by which the examining magistrate or the court finds that the results of a criminal
investigation do not justify sending the defendant to trial.

612 Yearbook Comm. Arb’n XXXV (2010)

 SWITZERLAND

nor wr of ev eyipemenantat overture

pea
ee
pa wee = ane was unenforceable as itwas part of an
oy corey X, with the assistance of Mr. F
ee o Ay Minister to aut orize the sale of the frigates to State
- Mr. erefore committed fraud, a crime under Swiss law, in order to obtain
a judgment (escroquerie au jugement). Mr. F’s fraud had direct influence on the
award: the Supreme Court pointed out that the arbitrators expressly stated that
a contract for the payment of influence peddling would be void according to the
law of State D, which governed the 19 July 1990 Agreement. Finally, Company
X suffered damages as a consequence of the fraud, having been directed by the
arbitrators to pay a substantial sum to Company Y; hence, the award was
influenced by the fraud to Company X’s detriment.
According to Art. 123(1) LTF, the fact that the criminal investigation in State
D was not concluded by a sentence against the person who committed fraud, Mr.
F, did not affect the above conclusion.
did
The Federal Supreme Court also held that, on the contrary, Company X
n of the ICC
not have “an interest worthy of legal protection” to seek revisio
grant Company Ts
award in respect of Company Z, since the arbitrators did not
sible.
claims against Company X, deeming those claims inadmis

is available online at <www.

A detailed report of this decision
aspx?id=KLI-KA-1052092-n>.
kluwerarbitration.com/ document.

613

Yearbook Comm. Arb’n XXXV (2010)

 OTHER COURT DECISIONS ON ARBITRATION

Bundesgerichtshof [Federal Supreme Court], First Civil Chamber, 13

April 2010, 4A_490/ 2009'

Parties: Appellant: Club Atlético de Madrid SAD (Spain)

Respondent: Sport Lisboa e Benfica — Futebol SAD
(Portugal)
Party to the proceeding: Fédération Internationale de
Football Association — FIFA (Switzerland)

Published in: Available online at <www.bger.ch>; English

translation available online at <www.praetor.ch>

Subject matters: — setting aside of award on grounds of procedural

public policy
—narrow concept of public policy
— res judicata
— Court of Arbitration for Sports (CAS) award

Summary

A CAS award granting compensation to afootball club for the training of a football player under the
1997 FIFA Transfer Regulation was set aside on grounds of public policy because the CAS failed to
take into account the res judicata effect ofa decision ofthe Zurich Commercial Court holding that an
earlier request for compensation in respect of the same player could not be granted because the 1997
FIFA Transfer Regulation was null and void for violation of European and Swiss competition law.

By an employment contract of 13 September 2000, Sport Lisboa e Benfica —

Futebol SAD (Benfica) hired the Portuguese player X for a period of four years.
A dispute between the parties arose shortly thereafter and, on 6 December 2000,
player X terminated the contract. On 19 December 2000, he signed an
employment contract with Club Atletico de Madrid SAD (Atlético Madrid).
On 1 June 2001, Benfica claimed compensation from Atlético Madrid for the
training and development of player X pursuant to the Federation Internationale
de Football Association (FIFA) Regulations Governing the Status and Transfer of
Football Players, October 1997 edition, which was then in force (the 1997 FIFA

1. The General Editor wishes to thank Dr. Charles Poncet, ZPG Ziegler Poncet Grumbach Carrard,
Neuchatel, for his assistance in providing and translating this decision from the German original.

614 Yearbook Comm. Arb’n XXXV (2010)

 SWITZERLAND

Transfer Regulation). On 26 April

200 i i
compensation to Benfica in the se
ra ot ioeaes oe
In June 2002, Atlético Madrid aeons
commenc ed an action | against FIFA in
Switzerland to challenge the 26 April
2002 d ecision. On 21 June 2004, the
Commercial Court of the Canton Zurich hel
dt hat the FIFA decision was null and
void because the 1997 FIFA Transfer Re gula
tion violated, inter alia, European
and Swiss competition law.
On 25 August 2004, Atlético Madrid and FIFA
entered into an agreement by
which FIFA undertook to take into consideration the judgment
of the Zurich
court should Benfica make any new claims with FIFA against Atlét
ico Madrid in
respect of the same dispute.
On 21 October 2004, Benfica again filed a claim with FIFA,
seeking
compensation in the amount of € 3,165,928 for the training and/or development
of player X. On 14 February 2008, the FIFA Special Committee rejected
Benfica’s claim. By that time, the FIFA rules provided for appeal of FIFA
decisions by arbitration at the Court of Arbitration for Sport (CAS). Accordingly,
on 13 January 2009 Benfica commenced challenge proceedings against the 14
February 2008 FIFA decision before the CAS in Lausanne. By an award of 31
August 2009, the CAS upheld Benfica’s appeal in part and directed Atlético
Madrid to pay € 400,000 under the 1997 FIFA Transfer Regulation. Atlético
Madrid appealed.
The Swiss Federal Supreme Court granted the appeal against the CAS award
and set the award aside. It noted at the outset that awards can be set aside by the
Swiss courts only on the grounds exhaustively listed in the Swiss Private
International Law Act, one of these grounds being the violation of (substantive
or procedural) public policy. There is a violation of procedural public policy
when there is such an intolerable breach of fundamental and generally recognized
procedural principles that the ensuing decision is absolutely at odds with “the
legal order and the values of a state founded on the rule of law”. Failing to take
into account the res judicata effect of an earlier judgment is such a violation.
by granting
In the present case, the CAS violated procedural public policy
holding ei
compensation to Benfica in disregard of the Zurich court judgment
matter was invali
the 2002 FIFA decision granting compensation in the same
violated European and vile
because the 1997 FIFA Transfer Regulation
opinion,
contrary to the CAS’s eke
competition law. The Supreme Court he ld that,
decision did not concern arbitra ion,
it was irrelevant that the Zurich court
an arbitration proceeding, i ocies
whereas the proceeding before the CAS was
appeal to the CAS to ip on in
first FIFA decision was issued in 2002,
decision by means of arbitration was not yet possible, though this possibility

615
Yearbook Comm. Arb’n XXXV (2010)
 OTHER COURT DECISIONS ON ARBITRATION

existed by the time the second FIFA decision was rendered in 2008. In 2002,
Atlético Madrid had no choice but to challenge the FIFA decision in the Swiss
courts. However, the CAS proceeding concerned the same subject matter, that
is, a decision by the FIFA on Benfica’s claim for compensation in respect of
player X.
The Supreme Court rejected Benfica’s due-process argument that it was not
a party to the Zurich court proceedings, reasoning that under Swiss law only the
association, not the individual member, may be sued in an action to challenge a
decision taken by the association. Also, a decision granting a challenge against an
association’s decision has effect erga omnes.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA-1052091-n>.

616 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES

Supreme Court of the Unit

ed States, 27 April 2010, No.
08-1198

Parties: Petitioner: Stolt-Nielsen S.A. (nationality not

indicated) et al.
Respondent: Animalfeeds International Corp.
(nationality not indicated)

Published in: 2010 U.S. LEXIS 3672; 2010-1 Trade Cas. (CCH
)
P76,982; 22 Florida Law Weekly Federal $ 269

Subject matters: — manifest disregard of the law

— excess of authority of arbitral tribunal

S ummary

An AAA award allowing class arbitration in a dispute concerning a charterparty was vacated because
the arbitrators exceeded their authority. As the parties’s agreement was silent in respect of class
arbitration, the arbitrators should have identified and applied a rule of decision derived from the
applicable body of law; instead, they based their decision on a perceived arbitral consensus that
arbitration is beneficial “in a wide variety ofsettings” and on the finding that the petitioner ‘failed to
establish that this consensus should be disregarded. By so doing the arbitrators imposed their own
conception of sound policy and exceeded their authority. The Court then decided on the merits that
class arbitration was not allowed here: arbitration is a matter ofconsent and imposing class arbitration
on parties who have not agreed to it is inconsistent with the Federal Arbitration Act. The Court noted
that this question was left open in its 2003 decision in Bazzle.

The facts of this case are also reported in Yearbook XXXIV (2009) at pp. 319-
321. Stolt-Nielsen S.A. (Stolt-Nielsen) leased space on board “parcel tankers”,
ships fitted to transport liquid products in segregated compartments.
Charterparties were concluded either on the VEGOILVOY or the
ASBATANKVOY standard contract form, which both contain an arbitration
raw
clause. AnimalFeeds International Corp. (AnimalFeeds), a supplier of
as fish oil to animal-feed producers, concluded such
ingredients such
|
charterparties with Stolt-Nielsen using the VEGOILVOY form.
dissatisfied with the fees
Some charterers, among which AnimalFeeds, grew
district courts in Cone
charged by Stolt-Nielsen and filed suit in federal
sen, which allegedly controlle
Pennsylvania and Texas, claiming that Stolt-Niel
617
Yearbook Comm. Arb’n XXXV (2010)
 OTHER COURT DECISIONS ON ARBITRATION

two-thirds of the international parcel tanker service industry, engaged in a global

conspiracy to restrain competition in the world market for parcel tanker shipping
services.
AnimalFeeds filed its action against Stolt-Nielsen in the United States District
Court for the Eastern District of Pennsylvania on 4 September 2003. The action
was transferred to the United States District Court for the District of
Connecticut and consolidated with a similar action pending before that court,
JLM Industries, Inc. v. Stolt-Nielsen SA. Prior to the consolidation order, the
Connecticut district court denied Stolt-Nielsen’s motion in JLM Industries and
refused to compel arbitration of the dispute under the arbitration clause in the
charterparty. On 26 October 2004, the United States Court of Appeals for the
Second Circuit reversed that decision. This decision is reported in Yearbook
XXX (2005) pp. 963-985 (US no. 505). Though AnimalFeeds was not a party in
JLM Industries, it was undisputed among the parties that the Second Circuit's
decision had the effect of requiring arbitration of AnimalFeeds’s antitrust claims.
Following that decision, Animalfeeds commenced arbitration against Stolt-
Nielsen in New York, on behalf of a class of purchasers of parcel tanker services.
The parties agreed to submit the question whether the arbitration agreement
allowed for class arbitration to an arbitral tribunal in New York. The arbitrators
were to be bound by Rules 3 through 7 of the American Arbitration Association’s
Supplementary Rules for Class Arbitrations. Relevantly, Rule 3 provides that the
arbitrators shall determine as a threshold matter, by a partial final award (the
Clause Construction Award), whether the applicable arbitration clause permits
class arbitration. On 20 December 2005, an arbitral tribunal issued a Clause
Construction Award holding that class arbitration was allowed in the present
case. The arbitrators based their decision on earlier arbitral holdings that allowed
class arbitration in different contexts.
Stolt-Nielsen petitioned the United States District Court for the Southern
District of New York to vacate the Clause Construction Award. By a decision
rendered in 2006, the district court annulled the award, holding that it was made
in manifest disregard of the law. The court reasoned that the arbitrators should
have conducted a choice-of-law analysis which would have led them to apply the
rule of federal maritime law requiring contracts to be interpreted in light of
custom and usage. Custom and usage do not allow for class arbitration in respect
of maritime contracts.
On 4 November 2008, the United States Court of Appeals for the Second
Circuit reversed the lower court’s decision. The Court of Appeal held that
because Stolt-Nielsen had cited no authority applying a maritime rule of custom
and usage against class arbitration, the arbitrators’ decision was not in manifest

618 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES

disre
a,Norlhe aber mandy deed Ne
ter ofmarin ; iti

is reported in Yearbook cee A ae — ebitraticui:Thjedecision

: By the present decision, the Supreme Court of the United States, in an opinion
y Alito, J—in which Roberts, CJ, and Scalia, Kennedy and Thomas, JJ, joined —
reversed the appellate decision. dai

oe eee ee ayers exceeded their authority and that

(FAA). The ‘high"3 iN - ect. (a)(4) of the Federal Arbitration Act
cess-of-authority ground for vacatur is cleared
only when the arbitrators, whose task is to interpret and enforce the parties’
cdintract; stray from the contract’s interpretation and application and effectively
“dispense their own brand of industrial justice”. This was the case here. It was
undisputed that the arbitration agreement in the VEGOILVOY contract was
silent on class arbitration; in the silence of the parties’ agreement, the arbitrators
should have identified and applied a rule of law derived from the body of law
they found to be applicable — either the FAA itself or one of the two bodies of
or
law that the parties claimed were governing, i.e., either federal maritime law
New York law. Instead, the arbitrators based their decision on arbitral decisions
as allowing
that “construed a wide variety of clauses in a wide variety of settings
that class
for class arbitration”, perceiving a consensus among arbitrators
This consensus was said to
arbitration is beneficial in “a wide variety of settings”.
The arbitrators found no
have arisen after the 2003 decision in Bazzle.!
consensus either in court cases
convincing ground for departing from this arbitral
the undisputed evidence that the
denying consolidation of arbitrations, or in
the basis of a class action, or in
VEGOILVOY charter party had never been
parties as the ones that were sought
expert opinion that sophisticated commercial
intend that the arbitration clauses would
to be included in the class would never
permit a class arbitration. of law
, the arb itr ato rs fail ed to inq uire whether an applicable body
In sum s
def aul t rul e” per mit tin g an arbitration clause to allow clas
contained “a
exp res s con sen t. Ins tea d, the y proceeded as if they had a
arbitration absent a situation. This
-la w cou rt’ s aut hor ity to develop the best rule for such
common ed
to the “in esc apa ble ” con clu sio n that the arbitral tribunal “impos
led the Court ore exceeded its authority.
of sou nd p oli cy” and the ref
its own conception
awa rd sh oul d be vac ate d, the Supreme Court could under
Having hel d that the ide the question
her dir ect a reh ear ing by the arbitrators or dec
the FAA eit

003),
S.Ct.
. 2402, 156 L.Ed.2d 414 (2003)
anc ial Cor p. V. Baz zle , 539 U.S.. 444, 123
1. Green Tree Fin pp. 231-242.
III (2003)
reported in Yearbook XXV
619
XXXV (2010)
Yearbook Comm. Arb’n
 OTHER COURT DECISIONS ON ARBITRATION

originally referred to the arbitral tribunal. The Court held that as there could be
only one possible outcome in the present case, there was no need to direct a
rehearing by the arbitrators. It therefore proceeded to decide whether class
arbitration was allowed in the present case.
Contrary to the opinion of the arbitrators and the parties, this question was
not governed by Bazzle, where a majority of the Court merely found that the
arbitrator, not the court, should decide whether a contract allows for class
arbitration. Bazzle did not establish the standard to be applied by the arbitrator
in determining whether a contract may be interpreted to allow class arbitration.
The Supreme Court then decided this open question by noting, first, that
arbitration is a matter of consent. Courts and arbitrators must give effect to the
intent of the parties, and parties may not be compelled under the FAA to submit
to arbitration unless there is a contractual basis for concluding that they agreed
to do so. In the present case, the arbitral tribunal imposed class arbitration even
though the parties concurred that they had reached no agreement on that issue.
The arbitrators held that there is an arbitral consensus for the applicability of class
arbitration and that Stolt-Nielsen failed to establish that the parties intended to
preclude class arbitration. In the Supreme Court’s opinion, this conclusion was
“fundamentally at war with the foundational FAA principle that arbitration is a
matter of consent”.
Ginsburg, J, filed a dissenting opinion, in which Stevens and Breyer, JJ,
joined. Sotomayor, J, took no part in the consideration or decision of the case.
The dissenting opinion is also reported.

A detailed report of this decision is available online at <www.

kluwerarbitration.com/ document.aspx?id=KLI-KA- 1052093-n>.

620 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES

Supreme Court of the Un

ited States, 21 June 2010,
No. 09-497

Parties: : , CF itioner:: Rent-a

Petiti ss-Center, West,
Inc. (natio
: nality
not
indicated)
Respondent: Antonio —Jackson (nationality not
indicated)

Published in: Available online at <www. supremeco

urt.goy>

Subject matters: = separability of arbitration clause

— agreement delegating to arbitrator disp
utes as to
validity of arbitration agreement

Summary

A provision within an agreement to arbitrate delegating to the arbitrator authority

to decide on all
disputes relating to the validity of the agreement to arbitrate is separable from the agreement to
arbitrate itself and, unless challenged specifically, must be enforced.

On 24 February 2003, Antonio Jackson signed a Mutual Agreement to Arbitrate

Claims (the Agreement to Arbitrate) as a condition of his employment with
Rent-a-Center, West, Inc. (Rent-a-Center). The Agreement to Arbitrate
provided for arbitration of all disputes arising out of Jackson’s employment with
Rent-A-Center, including claims for discrimination and violation of any federal
law. It also delegated to the arbitrator all disputes arising in respect of the
Agreement to Arbitrate (the delegation provision). The delegation provision
within the Agreement to Arbitrate read:

“(t]he Arbitrator, and not any federal, state, or local court or agency, shall
have exclusive authority to resolve any dispute relating to the
interpretation, applicability, enforceability or formation of this Agreement
[to Arbitrate] including, but not limited to any claim that all or any part of
this Agreement is void or voidable”.

ated. On |
Jackson’s employment relationship with Rent-a-Center was termin
against Rent-a-
February 2007, Jackson filed an employment-discrimination suit
ct of Nevada. Rent-A-
Center in the United States District Court for the Distri
Act (FAA) to dismiss or stay
Center filed a motion under the Federal Arbitration

621
Yearbook Comm. Arb’n XXXV (2010)
 OTHER COURT DECISIONS ON ARBITRATION

the proceedings and to compel arbitration under the Agreement to Arbitrate.

Jackson argued in reply that the Agreement to Arbitrate was unconscionable
under Nevada law and thus unenforceable. Rent-A-Center responded that
Jackson’s unconscionability claim was not properly before the court because
Jackson had expressly agreed, by agreeing to the delegation provision, that the
arbitrator would have exclusive authority to resolve any dispute about the
validity of the Agreement to Arbitrate.
The Nevada district court granted Rent-A-Center’s motion to dismiss the
proceedings and to compel arbitration, holding that the arbitrator clearly had the
exclusive authority under the Agreement to Arbitrate and the delegation
provision to decide whether the Agreement to Arbitrate was enforceable; as
Jackson challenged the validity of the Agreement to Arbitrate “as a whole”, rather
than the delegation provision specifically, the issue was for the arbitrator to
decide. On appeal, the United States Court of Appeals for the Ninth Circuit, in
a majority opinion, relevantly reversed this part of the district court’s decision.
The Supreme Court of the United States, in an opinion by Scalia, J— in which
Roberts, CJ and Kennedy, Thomas and Alito, JJ joined — reversed the appellate
decision and agreed with the holding of the district court.
The Supreme Court noted at the outset that the Agreement to Arbitrate (i)
provided for arbitration of all disputes arising out of Jackson’s employment,
including discrimination claims (that is, the claims raised by Jackson in the
Nevada district court) and (ii) gave the arbitrator exclusive authority to resolve
disputes relating to the Agreement to Arbitrate’s enforceability, including any
claim that all or part of the Agreement was void or voidable (here, because
unconscionable). Rent-A-Center relied on this latter provision (the delegation
provision) to seek an order compelling arbitration.
The Supreme Court reasoned that pursuant to Sect. 2 FAA, courts must
enforce arbitration agreements “save upon such grounds as exist at law or in
equity for the revocation of any contract”. Hence, unless the delegation provision
was found to be invalid, arbitration should be compelled.
The Court then noted that only a claim that the agreement to arbitrate — as
opposed to the contract in which it is contained — is invalid is relevant for the
court's determination whether the arbitration agreement should be enforced,
because arbitration provisions are severable from the remainder of the contract.
This provision also applied to the present situation, as it is irrelevant whether the
agreement to arbitrate at issue is itself part of a larger arbitration agreement —
here, the delegation provision being part of the Agreement to Arbitrate.

622 Yearbook Comm. Arb’n XXXV (2010)

 UNITED STATES

The Supreme Court therefore concluded that because Jackson challenged the
Agreement to Arbitrate, rather than the delegation provision specifically, the
delegation provision must be treated as valid under Sect. 2 FAA and enforced.
Jackson did raise a challenge to the delegation provision for the first time in his
brief to the Supreme Court. However, this challenge was brought too late and
the Court did not consider it.
Stevens, J, filed a dissenting opinion, in which Ginsburg, Breyer and
Sotomayor, JJ, joined. The dissenting opinion is also reported.

A detailed report of this decision is available online at <www.

4-n>.
kluwerarbitration.com/ document.aspx?id=KLI-KA- 105209

623

Arb’n XXXV (2010)

Yearbook Comm.
 Part:¥|

Biblio or aphy

625
0)
Arb’n XXXV (201
Yearboc »%k Comm.
 BIBLIOGRAPHY

I. GENERAL

1. Register of Texts

Guy Keutgen, general editor

COLLECTION OF CEPANI ARBITRAL AWARDS / RECUEIL DES

SENTENCES ARBITRALES DU CEPANI / VERZAMELING VAN
ARBITRALE UITSPRAKEN VAN CEPINA 1996-2001 (2008) ISBN 978-2-
8027-2669-2, 558 p., € 95

Etablissements Emile Bruylant, S.A., Rue de la Regence 67, 1000 Brussels,

Belgium

— Twenty arbitral awards issued in disputes in fields ranging from company law
and construction law to the law of contracts are reproduced in this second
volume of awards made under the auspices of Cepani (Centre Belge
d’arbitrage et de médiation) during the period 1996-2001.
The awards are published in their original language (English, Dutch or
French) with summaries in the other two languages. Each award is
accompanied by a Commentary from an expert in the relevant field. Keyword
indices in English, Dutch and French complete the volume.
first
See Yearbook XXXI (2006) p. 1561 for an announcement of the
Collection of Cepani Awards covering the period 1985-1995.

Belinda Macmahon and Fedelma Claire Smith, editors

SUMMARIES OF AWARDS
PERMANENT COURT OF ARBITRATION
x + 327 p., UK£ 55
1999-2009 (2010) ISBN 978-90-6704-319-9,

2500 BD The Hague, The Netherlands

TM.C. Asser Press, P.O. Box 16163,
decisions
This collection comprises summar
ies of thirty-one public awards and
— the Permanent
and commissions for which
rendered by arbitral tribunals
on ser ved as regi stra r. The se include, inter alia, the cothiber
Court of Arbitrati the Euro Tunne
iop a Bou nda ry Com mis sio n and Claims Commission;
Eth

627
(2010)
Yearbook Comm. Arb’n XXXV
 BIBLIOGRAPHY

arbitration; the MOX plant case between Ireland and the United Kingdom and
the arbitration between the Government of Sudan and the Sudan People’s
Liberation Movement/ Army.
The volume opens with a critical analysis of the PCA’s contribution to
international law and dispute resolution by Professor J.G. Merrills. A Table
of Authorities and Instruments, a chronology of awards and decisions and an
Index of Subject Matters complete the volume.

2. Congresses

Albert Jan van den Berg, general editor

SO YEARS OF THE NEW YORK CONVENTION, INTERNATIONAL

COUNCIL FOR COMMERCIAL ARBITRATION CONGRESS SERIES NO.
14 (2009) ISBN 978-90-411-3212-3, xi + 767 p., € 152

Kluwer Law International, P.O. Box 316, 2400 AH Alphen aan den Rijn, The
Netherlands

— On 8-10 June 2008 ICCA celebrated the fiftieth anniversary of the 1958 New
York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards with a conference in Dublin. ICCA Congress Series no. 14 comprises
the papers presented at this conference. These address two main themes.
“Arbitration Treaties/Treaty Arbitration: Identifying Expectations, Testing
Assumptions” covers the impact of investment treaty arbitration, the
differences between investment treaty arbitration and commercial arbitration,
remedies in investment treaty arbitration and the enforcement of investment
treaty awards. “Rules-Based Solutions to Procedural Rules” includes
contributions on multi-party disputes, consolidation of claims, summary
disposition, provisional measures, an assessment of the revision of the
UNCITRAL Rules on International Commercial Arbitration and recent
developments in international arbitration.
The volume concludes with a proposed revision of the New York
Convention and leading international arbitration experts’ assessment of the
need for these revisions.

628 Yearbook Comm. Arb’n XXXV (2010)

 GENERAL

Fabio Bortolotti, Michael Buhler, Geor

ges-Albert Dal, Stephanie Davidson, Filip
De Ly, Pascal Hollander, Pierre Karre
r, Guy Keutgen, Didier Matray, Gautier
Matray, Jean-Francois Tossens, Erik Valgaere
n and Vera Van Houtte

22 ae mepiepsa DE LA PREUVE EN MATIERE

D’ ARBITRAGE / DE
IJSREGELING IN ARBITRAGE [Rules of Evidence
in Arbitration]
(2009) ISBN 978-2-8027-2871-9, 310 p., € 45

Etablissements Emile Bruylant, S.A., Rue de la Regence 67, 1000 Brussel

s
Belgium |

— This volume collects the acts of the colloquium organized on 12 November

2009 by the Belgian Centre for Mediation and Arbitration (CEPANI-
CEPINA). Contributions deal, inter alia, with witness evidence in
international arbitration and related ethical aspects for counsel; documentary
evidence and the (implied) duty of confidentiality; proof of damage and
experts. One contribution discusses specifically the role played by information
and communication technologies in the submission of evidence in arbitral
proceedings.
In French and Dutch.

Teresa Giovannini and Alexis Mourre, editors

ICC INSTITUTE DOSSIER VI— WRITTEN EVIDENCE AND DISCOVERY

IN INTERNATIONAL ARBITRATION: NEWISSUES AND TENDENCIES (2009)
ISBN 978-92-842-0062-7, 509 p., € 125

ICC Services, Publications, 38 Cours Albert ler, 75008 Paris, France

den Rijn, The
Kluwer Law International, P.O. Box 316, 2400 AH Alphen aan
Netherlands

VI on written evidence and

The ICC World Business Institute’s Dossier
Meeting of the International
discovery emanates from the 20 08 Annual
ness Law and complem ents the
Chamber of Commerce Institute of World Busi
arbitration (see announcement of
Institute’s Dossier II on oral evidence and
1051 -1052). The topics explored in
Dossier II in Yearbook XXXII (2007) pp. in
inter alia: “Privilege-Related Issues
the thirteen contributions include, sain
ion of Documents and Fraud
International Arbitration”; “Product
Goo d or Evil” and “The Paper Tsunami in Internationa
Discovery:

629
(2010)
Yearbook Comm. Arb’n XXXV
 BIBLIOGRAPHY

Arbitration”. Issues related to electronic evidence and disclosure are also

examined.
Annexes contain relevant cases as well as the IBA Rules on the Taking of
Evidence in International Arbitration and The Chartered Institute of
Arbitrator’s Protocol for E-Disclosure in Arbitration. A Selected Bibliography
and a Key-Words Index complete the volume.

Pascale Gola, Claudia Gotz Staehelin and Karin Graf, editors

INSTITUTIONAL ARBITRATION: TASKS AND POWERS OF DIFFERENT

ARBITRATION INSTITUTIONS (2009) ISBN 978-3-7255-5885-8 (Schulthess
Juristische Medien AG) 978-3-8665 3-126-0 (Sellier European Law Publishers)
viii + 310 p., € 70 (Sellier), CHF 98 (Schulthess)

Schulthess Juristische Medien AG, Zwingliplatz 2, 8022 Zurich, Switzerland

Sellier European Law Publishers, GeibelstraBbe 8, 81679 Munich, Germany

— Fourteen major arbitral institutions are individually analyzed and compared in

this book which is the product of a seminar led by the International Arbitration
Commission of the Association Internationale des Jeunes Avocats at its August
2009, Budapest Congress.
The individual analyses of each institution all follow the same format in
order to facilitate comparison. The first section contains general information
on the background of the institution concerned and its arbitration rules, the
constitution of the institution, possible specializations and typical users. The
second section covers the institution’s tasks and responsibilities, the
establishment of the arbitral tribunal, the institution’s power during the
proceeding, interim measures, as well as costs and timing issues. A final
section discusses the pros and cons of the institution concerned.
A table at the beginning the volume also presents this information in
summary form.

Filip De Ly and Laurent Levy

INTEREST, AUXILIARY AND ALTERNATIVE REMEDIES _ IN

INTERNATIONAL ARBITRATION (2008) ISBN 978-92-842-0033-7, 259
py € 75

ICC Services, 38 Cours Albert ler, 75008 Paris, France

630 Yearbook Comm. Arb’n XXXV (2010)

 GENERAL

Kluwer Law International, P.O

. Box
Netherlancs 316, 2400 AH Alphen aan den Rijn, The

=one:snes a einai of the 2007 Annual Meeting of the

| rial ¢ nstitute of World Business Law. The
nine contributions address contractual rem
edies; judicial penalties and specific
performan ce; compound interest and specific
performance; complementar
and alternative remedies in interim relief
proceedings; issues of applicable at
and uniform law on interest; a study of inte
rest; interest in Middle East laws
and Islamic law; a practitioner’s approach to
interest claims under Sharia law
in international commercial arbitration and a
conceptual framework for
awarding interest in international arbitration. An intr
oduction and concluding
remarks by the co-editors complete the volume.

Christoph Miller and Antonio Rigozzi, editors

NEW DEVELOPMENTS IN INTERNATIONAL COMMERCIAL

ARBITRATION 2009 (2009) ISBN 978-3-7255-5952-7, xxi + 120 p>CHF
54

Schulthess Juristische Medien AG, Zwingliplatz 2, 8022 Zurich, Switzerland

— The five written contributions in this volume cover a range of topics whose
only common denominator, according to the editors, is their novelty. They
emanate from the third annual conference organized by the Research Center
on Alternative and Judicial Dispute Resolution Methods of the University of
Neuchatel Faculty of Law (CEMAJ — Centre de recherche sur les modes
amiables et juridictionels de gestion des confits) on 13 November 2009. The
issues addressed are: national courts’ interference with international
arbitration, focusing on the influence of the 30 June 2009 ICSID award in
Saipem v. Bangladesh; the “sense and nonsense” of written witness statements;
problems and perspectives relating to Brussels I/ Lugano Arbitration; issues of
applicable law in arbitration and insolvency and a review of the Swiss Federal
Tribunal’s recent case law on international arbitration.

631
Yearbook Comm. Arb’n XXXV (2010)
 BIBLIOGRAPHY

Arthur W. Rovine, editor

CONTEMPORARY ISSUES IN INTERNATIONAL ARBITRATION AND

MEDIATION: THE FORDHAM PAPERS 2009 (2010) ISBN 978-90-04-18291-2,
xlix + 452 p., € 130

Martinus Nijhoff Publishers, Koninklijke Brill NV, P.O. Box 9000, 2300 PA,
Leiden, The Netherlands

— The twenty-five papers presented at the 2009 Fordham Law School

Conference on International Arbitration in New York in June 2009 are
collected in this volume. They address six topics: investor-state arbitration,
arbitrator ethics, damages, the theory and philosophy of international
arbitration, investor-state mediation, and mediation in the context of
arbitration.
See Yearbook XXXIII (2008) pp. 1314-1315 for announcement of The
Fordham Papers 2008.

Michael Waibel, Asha Kaushal, Kyo-Hwa Liz Chung and Claire Balchin, editors

THE BACKLASH AGAINST INVESTMENT ARBITRATION: PERCEPTIONS

AND REALITY (2010) ISBN 978-90-411-3202-4, liv + 614 p., € 145

Kluwer Law International, P.O. Box 316, 2400 AH Alphen aan den Rijn, The
Netherlands

— This collection of papers from an April 2008 Harvard Law School conference
includes contributions by thirty-one practitioners and academics attempting
to uncover the concerns underlying the “backlash” against the international
investment regime. The book is divided into five parts (on treaty obligations,
parallel proceedings and conflicting awards, protecting the public interest,
dissatisfaction with investment arbitration and ICSID’s fall from grace and way
forward), examining both issues of procedure in the form of arbitration of
investment disputes, and issues of substance, i.e., the extent of protections
granted to foreign investors by investment treaties.
Biographies of editors and contributors and a subject index complete the
volume.

632 Yearbook Comm. Arb’n XXXV (2010)

 GENERAL

B. Bibliographies

No new entries repo

rted in this volume.

4. Books

Guillermo Aguilar Alvarez

and W Michael Reisman, edi
tors
THE REASONS REQUIREM
ENT IN INTERNATIONAL
ARBITRATION: CRITICAL Cas INVESTMENT
e STUDIES (2008) ISBN 978-90
wire B73 psii€'4.63 -04-16632-5 ,

Koninklijke Brill NV, P.O. Box 900

0, 2300 PA, Leiden, The Netherlan
ds
— This volume compiles Papers
written by scholars during a seminar
investment arbitration law at Yale Law on
School in 2005-2006. It examines the
reasoning in recent investment arbitrat
ion awards. The editors’ introductory
chapter asks how well investment awards
are reasoned and provides an
overview. This is followed by ten chapters anal
yzing ten recent investment law
decisions. A table of legal instruments, table of cases and
subject matter index
are included.

Nadja Alexander

INTERNATIONAL AND COMPARATIVE MEDIATION: LEGAL

PERSPECTIVES (2009) ISBN 978-90-41 1-3224-6).xxvirH:508 pi €435

Kluwer Law International, P.O. Box 316, 2400 AH Alphen aan den Rijn, The
Netherlands

— This comprehensive work is the fourth volume in a series on Global Trends

in Dispute Resolution, and addresses the legal issues relevant to mediation at
the international and comparative level. The author focuses on three cross-
border legal instruments (the 2008 European Directive on Mediation, the
UNCITRAL Model Law on International Commercial Conciliation andthe US
Uniform Mediation Act) and on six primary jurisdictions (Australia, Austria,
England, France, Germany and the United States). It begins we sce
and developments in international and comparative mediation, the role o

633
Yearbook Comm. Arb’n XXXV (2010)
 BIBLIOGRAPHY
-

and pre-mediation issues, then address the conduct of mediators and

participants, confidentiality and post-mediation issues, before concluding with
chapters on the role of UNCITRAL and the 2002 UNCITRAL Model Law on
International Commercial Conciliation.
A table of model clauses and agreements, a comparative table of
international mediation rules and a comparative table of laws based on the
UNCITRAL Model law, as well as a subject index are appended.

Peter Binder

INTERNATIONAL COMMERCIAL ARBITRATION AND CONCILIATION

IN UNCITRAL MODEL LAW JURISDICTIONS (2010) ISBN 978-1-847-
03205-8, lix + 716 p., UK£ 225

Sweet & Maxwell, 100 Avenue Road, London NW3 3PF, UK

— Since its adoption over twenty-five years ago, the UNCITRAL Model Law on
International Commercial Arbitration has not only become broadly accepted
as a leading legal regime in its field, but has been substantively revised in 2006
and has been joined by a Model Law on International Commercial Conciliation
in 2002.
The third edition of this text provides a guide to both the Model Law on
Arbitration and the Model Law on Conciliation. Part A retains the approach
of the first two editions by examining the legislative history and national
adoption practice of each article of the Model Law on Arbitration, including
the 2006 provisions. Part B focuses on the Model Law on Conciliation, Part
C deals with current and future work of UNCITRAL and Part D includes
updated versions of charts comparing how each of the eighty adoptive
jurisdictions has harmonized provisions into national law. Both UNCITRAL
Model Laws, the UNCITRAL Arbitration Rules 1976, the UNCITRAL
Conciliation Rules 1980 and UNCITRAL’S Guide to Enactment and Use of
the UNCITRAL Model Law on International Commercial Conciliation 2002
are appended.
A bibliography, a table of cases, a table of national legislation, a table of
Conventions, Model Laws and Rules, a table of references to the Model Law
(arbitration) and a subject index are included.
See Yearbook XXX (2005) pp. 1243-1244 for announcement of the second
edition of this volume.

634 Yearbook Comm. Arb’n XXXV (2010)

 GENERAL

Nigel Blackaby and Constanti

ne Partasides with Alan Redfern
and Martin Hunter

REDFERN AND HUNTER ON

INTERNATIONAL ARBITRATION,
edition (2009) ISBN 978-0-19-955 fifth
718-9, xlvii + 849 p-, UK£ 145
(hardback); ISBN 978-0-19-955719-6, 776
p. UK£ 52 (paperback)

Oxtord University Press, Great Clarendon

Street, Oxford OX2 6DP, UK

— The fifth edition of this standard work on arbitratio

n law and practice has been
updated with the addition of new cases and newly
relevant topics and more
extensive treatment of old topics. As announced in the fourt
h edition, two
new authors, Nigel Blackaby and Constantine Partasides, have
assumed the
primary authorship of this standard work with this fifth edition.
A re-written introductory chapter describes the key elements
of
international arbitration. Changes to the fifth edition include some reordering
of subsequent chapters, which are devoted to arbitration agreements,
applicable laws, the arbitral tribunal, the conduct of the proceedings, the role
of national courts during the proceedings, investment treaty arbitration, and
the award and its challenge or recognition and enforcement. New or extended
material in the fifth edition aims at dealing with some of complexities of
modern arbitration, and includes material on the modern limits of
arbitrability; issues of privilege and practitioner ethics; the procedural “soft
law” of international arbitration; arbitrator challenges and arbitral interim
measures; electronic document production; the power of US courts to order
discovery in support of foreign arbitration; the award of interest and extended
non-English and European authority on award annulment and enforcement.
In keeping with the direction of the fourth edition, the chapter on investment
arbitration has been updated and extended.
The volume includes tables of cases and arbitration awards and a subject
matter index. The hardback edition provides appendices containing major
arbitration instruments. As the authors continue to aim to provide not only an
informative handbook for practitioners but also a course book for masters-
level students, a paperback version minus the appendices is also available.

Gary B. Born

INTERNATIONAL ARBITRATION AND FORUM | gor, erat

edition (2010) ISB
AGREEMENTS: DRAFTING AND ENFORCING, third
978-90-411-3269-7, xvii +403 p., € 85

635
Yearbook Comm. Arb’n XXXV (2010)
 a

BIBLIOGRAPHY

Kluwer Law International, P.O. Box 316, 2400 AH Alphen aan den Rijn, The
Netherlands

In the third edition of this practical guide to the drafting of international forum
selection clauses and international arbitration agreements, the author has
updated and expanded the information in five initial chapters on how to draft
effective and enforceable clauses and how to enforce them. An additional three
chapters provide advice on the enforcement of foreign judgments and foreign
arbitral awards and on how to draft and enforce choice-of-law clauses. Fifteen
appendices contain the texts of the standard multilateral conventions and rules
of international arbitral institutions, as well as model arbitration and forum
selection clauses for international contracts.
See Yearbook XXV (2000) p. 1267 and Yearbook XXXI (2006) pp. 1566-
1567 for announcement of, respectively, the first and second editions of this
volume.

INTERNATIONAL COMMERCIAL ARBITRATION (two volumes) (2009)

ISBN 978-9041 1-2759-4, 3,400 p., € 345
Kluwer Law International, P.O. Box 316, 2400 AH Alphen aan den Rijn, The
Netherlands

Gary Born’s two-volume International Commercial Arbitration is a substantial and

authoritative treatise on all aspects of the international commercial arbitration
process. It examines the constitutional framework of contemporary
international commercial arbitration, commenting on relevant conventions,
statutes and institutional rules in multiple jurisdictions. The text is divided
into three main parts — international arbitration agreements, international
arbitral procedures and international arbitral awards. Within these three parts,
twenty-six chapters cover topics such as: the legal framework and separability
of the arbitration agreement; choice of law governing the arbitration
agreement; formation, validity and enforcement of the arbitration agreement;
selection of arbitrators and arbitral seats; challenge to arbitrators; procedural
issues such as discovery, provisional measures, consolidation and joinder;
confidentiality; ethical issues and legal representation in arbitration; the form
and content of arbitral awards and correction of awards; annulment,
recognition and enforcement of awards and issues of preclusion and lis
pendens.

636 Yearbook Comm. Arb’n XXXV (2010)

 GENERAL

Appendices include lists of: com

mentaries, treaties and monograph
articles; international conventions s:
and instruments; constitutions OR
national instruments; and docume A
nts of the United Nations: “i well
index of arbitral awards, an index of case as an
s and a subject indies
Emmanuel Gaillard

LEGAL THEORY OF INTERNATIONAL ARBITR

ATION (2010) ISBN 978-
90-04-18641-5, vii +194 p-, € 99 (hardback); ISBN
978-90-04-18714-6. €
45 (paperback)
|
Martinus Nijhoff Publishers, Koninklijke Brill NV, P.O. Box 9000,
2300 PA,
Leiden, The Netherlands

— The English-language edition of lectures delivered by Emmanuel Gaillard

at
the Hague Academy of International Law in the summer of 2007 has now been
issued under the title “Legal Theory of International Arbitration”. The
French-language edition of the book (Aspects Philosophiques du Droit de
l’Arbitrage) was published in 2008 as the first in a new pocketbook series
launched by The Hague Academy.
The book identifies and discusses the principles of autonomy and freedom
in two parts, with Chapter 1 entitled “The Representations of International
Arbitration” and Chapter 2 dealing with the “Consequences” thereof, together
examining the internal coherence and practical consequences of issues such as
the freedom of the parties to choose a private means of dispute settlement
over the jurisdiction of the state courts, to appoint individual arbitrators, to
shape the procedure, to determine the law applicable to the substance of the
dispute by referring to the legal system of a country or even to no legal system
at all, as well as the freedom of the arbitrators to decide on their own
jurisdiction and determine the procedure and the applicable law if the parties
are silent.
The book also includes a bibliography and subject matter index.
See Yearbook XXXIII 2008 p. 1318 for the announcement of the French
edition.

Kaj Hobér, Annette Magnusson and Marie Ohrstrom, editors

ULF FRANKE (2010)

BETWEEN EAST AND WEST: ESSAYS IN HONOUR OF
ISBN 978-1-933833-59-0, xii + 619 p., US$ 150

637
Yearbook Comm. Arb’n XXXV (2010)
 BIBLIOGRAPHY

JurisNet, LLC, 71 New Street, Huntington, New York 11743, USA

— This diverse collection of essays marks the retirement of Ulf Franke as

Secretary General of the Arbitration Institute of the Stockholm Chamber of
Commerce. Forty-three essays by leading practitioners reflect on changes to
the practice of arbitration in recent decades, as well as current pressing issues
in the arbitration community, with topics ranging from aspects of institutional
practice, the enforcement of awards and document production, to legitimate
expectations in investment disputes.

David Joseph

JURISDICTION AND ARBITRATION AGREEMENTS AND THEIR

ENFORCEMENT, second edition (2010) ISBN 978-1-847-03897-5, ciii +
861 p., UKE 195
Sweet & Maxwell, 100 Avenue Road, London NW3 3PF, UK

— The second edition of this work provides a comprehensive overview of

jurisdiction and arbitration agreements and the enforcement of resulting
judgments and awards. Its eighteen chapters include an overview of the
European framework; formal requirements and construction of clauses; choice
of law and procedural aspects such as comments of proceedings, stay,
restraining injunctions and orders; declaratory relief, damages and
enforcement of judgments, awards and orders. New or expanded material in
the second edition includes coverage of topics such as dispute resolution
agreements involving multiple parties, the Hague Convention on Exclusive
Choice of Court Agreements, anti-suit injunctions, the enforcement of civil
judgments obtained in connection with a choice of court agreement and
investment treaty disputes.
Included as appendices are a number of relevant European and key national
legislation and treaties; also included are tables of cases, statutes and statutory
instruments, treaties and protocols and secondary European legislation, as well
as a subject index.

638 Yearbook Comm. Arb’n XXXV (2010)

 GENERAL

Sam Luttrell

esha ere IN INTERNATIONAL COMMERCIAL

: THE NEED FOR A “REAL DANGER” TEST (2009) I
411-3191-1, xix + 296 p., € 140 : spiiescinaronag

Kluwer Law International, P.O. Box 316, 2400 AH Alphen aan den Rijn, The
Netherlands ;

— In this volume, adapted from a PhD thesis presented at Murdoch University,

Australia, the author addresses the problem of tactical bias challenges in
international commercial arbitration on both theoretical and practical levels.
In chapters on the rules on bias in England, Europe, the United States and
the Asia-Pacific Region the author demonstrates that tests for bias are very
different from seat to seat, even in States that have adopted the UNCITRAL
Model Law. He identifies three competing tests for apparent bias in the
leading arbitral seats — the “reasonable apprehension test”, the “real possibility
test” and the “real danger” test — and demonstrates that in arbitral seats with
lower thresholds for the appearance of bias, the number of tactical bias
challenges has been rising. He therefore argues for the use of the more
stringent “eal bias” test to make it more difficult for dilatory parties to
remove arbitrators and resist enforcement of awards.
and bias
Further chapters examine the rules of bias in the lex mercatoria
challenges in investor-State arbitration.

Michael Mcllwrath and John Savage

MEDIATION: A PRACTICAL
INTERNATIONAL ARBITRATION AND
xi:+ 515.p., € 150
GUIDE (2010) ISBN 978-90-41 1-2610-8,

2400 AH Alphen aan den Rijn, The

Kluwer Law International, P.O. Box 316,
Netherlands
itration and
e resolution focuses on both arb
—;Phis practical guide to disput advisers)
iat ion and is aim ed at pra cti tio ners (both in-house and external
med sn
bus ine sse s bef ore , dur ing and after a dispute has a
advising ispu e,
the seq uen ce of an international commercia
chapters follow dispute
1 and 2 on the ele ments of and negotiating Bi
i ith chapte rs
commencing with chap followed by chapters 3 and 4 on pre-arbitration
resolution agreements,

639
XXXV (2010)
Yearbook Comm. Arb’n
 BIBLIOGRAPHY

dispute resolution and concluding with chapters 5-7 on the conduct of

arbitration, enforcement of arbitral awards and investment treaty arbitration.
Sixteen appendices including model clauses, model procedural documents
and timetables, a bibliography and the Netherlands and US Model] Bilateral
Investment Treaties, as well as a subject index, complete the volume.

David Renders, Pierre Delvolvé and Thierry Tanquerel

L’ ARBITRAGE EN DROIT PUBLIC [Arbitration in Public Law] (2010) ISBN

978 -2-8027-2863-4, xvii + 420 p., € 90

Etablissements Emile Bruylant, S.A., Rue de la Regence, 67, 1000

Brussels, Belgium

— This work is a collection of essays by Belgian, French and Swiss authors. It

examines the role and practice of arbitration and other alternative means of
dispute resolution in public law contracts in Belgium, France and Switzerland,
highlighting the need to overcome legislative and cultural barriers to
expanding their application. Aspects of arbitration in other fields of the law —
particularly arbitral procedure and confidentiality — are also discussed.
In French.

Stephan W. Schill

THE MULTILATERALIZATION OF INTERNATIONAL INVESTMENT

LAW (2009) ISBN 978-0-521-76236-6, xxxvii + 451 p., UK£ 65

Cambridge University Press, The Edinburgh Building, Cambridge CB2 8RU,

UK

— This volume publishes Dr. Schill’s doctoral dissertation, in which he advances

the thesis that “international investment law develops, despite its bilateral
form, into a multilateral system that backs up the functioning of a global
market economy based on converging principles of investment protection”.
The book is divided into eight chapters, focusing on globalization and
international investment law, the dynamics of multilateralism and bilateralism
and aspects of multilateralization such as treaty negotiation, most-favored-
nation treatment, corporate structuring, enforcement and interpretation, and e
e

640 Yearbook Comm. Arb’n XXXV (2010)

 GENERAL

5
oncluding with a chapter on ads:
multilateralizat ion, universalization and
constitutionalization.
A table of treaties, table of cases, bibliography and subjec
t index are
included.

Ingeborg Schwenzer, editor

SCHLECHTRIEM & SCHWENZER: COMMENTARY ON THE UN

CONVENTION ON THE INTERNATIONAL SALE OF GOODS (CISG)
third edition (2010) ISBN 978-0-19-956897-0, xcvi +1480 p-, UK£ 235

Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK

— The third edition of this substantial work examines in detail, on an article-by-

article basis, the United Nations Convention for the International Sale of
Goods (CISG) and the United Nations Convention on the Limitation Period
in the International Sale of Goods. The German and Swiss contributors
consider both recent academic research and analysis and court and arbitral
jurisprudence. The CISG’s interaction with the 1958 New York Convention
is also discussed.
Appendixes include the status of both Conventions, a Concordance Table
of the Hague Sales Laws Provisions (ULF/ULIS) and the CISG, the 2000
INCOTERMS and the UNIDROIT Principles of International Commercial
Contracts 2004.
An extensive bibliography and an index of subject matters are also
provided.

Frank-Bernd Weigand, editor

COMMERCIAL
PRACTITIONER’S HANDBOOK ON INTERNATIONAL
-19-953486-9, cv +
ARBITRATION, second edition (2009) ISBN 978-0
1,736 p., UKE£ 215

, Oxford OX2 6DP, UK

Oxford University Press, Great Clarendon Street

book is still geared to preciuewen>

The second edition of this substantial y
to prov ide inte rnat iona l arbi trat ion lawyers with information on ever
aiming com mercial
With its focus on international
step of the arbitral process.
e Introduction
ond edition includes an extensiv
arbitration, the expanded sec
,

641
(2010)
Yearbook Comm. Arb’n XXXV
 BIBLIOGRAPHY

co-written by the editor, commentary by various authors on the ICC,

UNCITRAL, ICDR and LCIA Arbitration Rules, as well as a detailed
examination of the UNCITRAL Model Law with commentary on each article.
Country reports written by local practitioners describe the arbitral process and
have been expanded in the second edition to include Austria, Belgium, China
and Hong Kong, England, France, Germany, Italy, Netherlands, Singapore,
Sweden, Switzerland and the United States. The country reports follow a
uniform question-and-answer structure covering the entire arbitral process.
Comprehensive bibliographical material is included within the framework of
each chapter. The index is keyed to provide one-step reference to main topics
in the body of the text.
See Yearbook XXVII (2002) p. 1018 for announcement of the first edition
of this volume.

Katia Yannaca-Small, editor

ARBITRATION UNDER INTERNATIONAL INVESTMENT

AGREEMENTS: A GUIDE TO THE KEY ISSUES (2010) ISBN 978-0-19-534069-
SyxikE 767 psy US$.225

Oxford University Press USA, Inc., 198 Madison Avenue, New York, New
York 10016, USA

— This text on investment arbitration aims at a broad audience of legal

practitioners, academics, government officials and students. Its approach is
practical and attempts to cover the entire procedure of an investment dispute,
addressing the main procedural, jurisdictional, substantive and post-award
issues that arise in most cases. Contributions by twenty-five experts in the
field (themselves practitioners, academics or government lawyers) are divided
into six parts: the mechanisms for settlement of investment disputes in
D
investment treaties, key procedural issues, key jurisdictional issues, key
substantive issues, remedies and the post-award phase. A final chapter
provides a guide to research tools in international investment law.
A table of cases and subject index are included.

642 Yearbook Comm. Arb’n XXXV (2010)

 Il. COUNTRIES

England

Robert Merkin and Louis Flannery

ARBITRATION ACT 1996, ; fourth edition

editi (2008) ISBN é‘ :
a ( ) 978-184311-778-0,
xxxili + 376 p., UK£ 209

ak em Law, Mortimer House, 37-41 Mortimer Street, London W1T

Ll ’ . . .

— The fourth edition of this book takes a fresh look at the 1996 Act in light of
several important decisions — such as Fiona Trust and West Tankers — issued by
the English courts since the book’s third edition in 2005. The Act is again
examined by article, with extensive notes on each provision. Case law is
incorporated up to the end of October 2008. A table of cases, a table of
legislation and a subject matter index are included.
See Yearbook XXII (1997) p. 1290, Yearbook XXV (2000) pp. 1122-1123
and Yearbook XXXI (2006) p. 1581 for announcement of, respectively, the
first, second and third editions of this volume.

Germany

Frank Spohnheimer

LANERKENNTNIS
GESTALTUNGSFREIHEIT BEI ANTEZIPIERTEM LEGA
Acknowledgement
DES SCHIEDSSPRUCHS [Balancing the Anticipated Legal
(2010) ISBN 978-3-16-
of Awards and Procedural Flexibility in Arbitration]
150482-2, xxxiv + 512 p., € 74

GmbH & Co. KG, WilhelmstraBe 18, 72074 Tubingen,

Mohr Siebeck
Germany

awards
The starting point for this disser tati
on is the consideration that arbitral
— ted
l system on the basis of their anticipa
are integrated into the (German ) lega
by the law (Sec t. 105 5 of the German Code of Civil Procedure).
acceptanc e pe
lor es the poss ibil itie s ope n to parties and arbitrators to sha
The author exp
gs as the y wis h, and the limits within which they must
the arbitral proceedin ducing effects that
if the ens uin g dec isi on is to be deemed an award pro
remain

643
XXXV (2010)
Yearbook Comm. Arb’n
 BIBLIOGRAPHY

can be equated to those of a court decision. The focus in this respect is on

abiding by the agreement of the parties on the one hand and guaranteeing due
process on the other. A chapter deals with the setting aside of awards for
violation of due process.
An index of subject matters and a bibliography are included.
In German.

India

Dharmendra Rautray

CCH MASTER GUIDE TO ARBITRATION IN INDIA (2008) ISBN 978-90-

411-3159-1, 548 p., € 99
CCH India, Wolters Kluwer India Pvt. Ltd., 202 Unit no. 4 (Plot no. 7&8)
Vardhman Trade Centre, DDA Building, Nehru Place, New Delhi, 110019,
India

— This guide to arbitration and its practice in India seeks to cover domestic,
international and commercial arbitration in India, illustrating the applicable
principles with case precedents. Its nineteen chapters begin with a legislative
history and cover topics including the drafting of arbitration clauses,
commencement of arbitral proceedings, court intervention, removal of
arbitrators, procedural issues, and scope of the arbitral tribunal’s jurisdiction.
It concludes with chapters focusing on challenge to the award and the
enforcement of foreign awards.
A table of cases and a subject index complete the volume.

Anirudh Wadhwa and Anirudh Krishnan, editors

JUSTICE R.S. BACHAWAT’S LAW OF _ ARBITRATION AND

CONCILIATION, fifth edition (two volumes) (2010) ISBN 978-81-8038-
615-9, dcxcvi + 4009 p., INR 4500, US$ 225

LexisNexis Butterworths Wadhwa Nagpur, 14th Floor, Building No. 10 »)

Tower-B, DLF Cyber City, Phase - II, Gurgaon - 122 002, Haryana, India

644 Yearbook Comm. Arb’n XXXV (2010)

 COUNTRIES

Ugo poanne this classic work, first issued in 1983, provides an article-
Ken ,einor and commentary of the Indian Arbitration and Conciliation
cvisiele an e relevant jurisprudence rendered after the book’s fourth
edition in 2005. Volume 1 considers Sects. 1 to 34 of the Act; Volume 2
covers Sects. 35 to 86 and contains 154 appendices, includin Pern se
and English statutes, arbitration conventions, UNCITRAL am laws mai
rules, rules issued by the Indian judiciary under the 1996 Act and rules and
model clauses of Indian and other arbitral institutions.
A subject matter index and a table of cases are also provided.

Italy

Andrea Bandini and Nicola Soldati, editors

E CONTROVERSIE
LA NUOVA DISCIPLINA DELLA MEDIAZIONE DELL 28
CIVILI E COMMERCIALI — COMMENTARIO AL D.LGS. 4 MARZO 2010,N.
and Commercial Disputes — A
[The New Discipline of Mediation in Civil
of 4 March 2010] (2010) ISBN 88-
Commentary of Legislative Decree no. 28
14-15465-1, xii + 383 p., € 40
Italy
Via Busto Arsizio 40, 20151 Milan,
Dott. A. Giuffré Editore, S.p.A.,
authors
k off ers an art icl e-b y-a rti cle commentary by various Italian
— This wor ion
t law on med iat ion , who se stated aim is to promote conciliat
of Italy’s firs
l mat ter s and dec rea se the number of actions filed in
in civil and commer cia
— Istituto Scientifico
The boo k app ear s ina series published by ISDACI
court.
e e i] Diritto Commerciale.
per lArbitrato, la Mediazion legislation.
con tai n the ne w me di at ion law and other relevant
Appendixes
In Italian.

Gabriele Guarda
CONCILIAZIONE: STRUMENTI
E ALLA
GUIDA ALL’ARBITRATO RS IE [Guide to Arbitration and
E DE LL E CO NT RO VE
ALTERNATIVIDI RISOLUZION s of Dispute Resolution] (2009) ISBN 88-14-
ternative Mean
Conciliation: Al
€.25
15060-5, xi+ 190p.,
n, Italy
p. A. , Vi a Bu st o Ar sizio 40, 30151 Mila
itore S.
Dott. A. Giuffre Ed
645

Arb’n XXXV (2010)

Yearbook Comm.
 BIBLIOGRAPHY

— This practical guide gives an overview of arbitration and other alternative

means of dispute resolution in Italy. Separate chapters deal with arbitration
and conciliation in specific fields, such as company law, telecommunications,
agriculture and the stock exchange. The arbitration and conciliation institutes
set up by the Italian association of chambers of commerce and by several
national public service providers — such as the Italian mail service and the
national association of insurance companies — are also examined. A chapter
deals with arbitration and conciliation in a European context.
Indexes of legislation, cases and subject matters are provided.
In Italian.

Scotland

Fraser Davidson, Hew R. Dundas and David Bartos

ARBITRATION (SCOTLAND) ACT 2010 (2010) ISBN 978-0-4140-1772-6,

xlii + 364 p., UK£ 70
Thomson Reuters (Legal Limited), 100 Avenue Road, Swiss Cottage, London
NW3 3PF, UK

— In 2010, new arbitration legislation came into effect in Scotland — the

Arbitrtion (Scotland) Act 2010 (the Act) — which drew heavily on both the
UNCITRAL Model Law on International Commercial Arbitration and the
1996 English Arbitration Act. This meticulous book is an annotated version
of the Act commented on by three experts who had also participated in the
legislative drafting process. It includes a full copy of the Act, including the
Schedule 1 to the Act, containing the Scottish Arbitration Rules. Both Act and
Schedule have been provided with a provision-by-provision commentary.
A table of cases, a table of statutes, a table of abbreviations and subject
index complete the volume.

646 Yearbook Comm. Arb’n XXXV (2010)

 COUNTRIES

Singapore

Robert Merkin and Johanna Hjalmarsson

SINGAPORE ARBITRATION LEGISLATION: ANNOTATED (2009) ISBN

978-1-84311-819-0, xliv + 226 p., UK£ 210

Lloyd’s List Law, Mortimer House, 37-41 Mortimer Street, London W1T
3JH, UK

— This annotated examination of the Singapore arbitration legislation is modeled

on Prof. Merkin’s similar work on the 1996 English Arbitration Act. Notes are
provided in respect of all provisions of both the International Arbitration Act
(on international arbitration) and the Arbitration Act (on domestic
arbitration). Where provisions of either law have not (yet) been litigated the
work incorporates relevant annotations to provisions of the English 1996 Act
that use identical or very similar wording, largely based on the UNCITRAL
Model Law. Reference is also made to cases decided in other common law
Model Law jurisdictions, particularly Hong Kong and New Zealand. Case law
is incorporated up to the end of January 2009.
A table of cases, a table of legislation and a subject matter index are
included.

Switzerland

Christoph Miller

ION, second revised

SWISS CASE LAW IN INTERNATIONAL ARBITRAT
s editions romandes) ISBN
edition (2010) ISBN 978-3-725 5-5964-0 (Schulthes
65-3150-5 (Sellier European
978-2-8027-2948-8 (Bruylant) ISBN 978-3-86
(Sellier, Bruylant), CHF 198
Law Publishers) xxxv + 532 p., € 140
(Schulthess)
Zurich,
Schulthess éditions romandes, Zwingliplatz 2,Case postale,8022
Switzerland Brussels,
S.A., Rue de la Regence 67,1000
Etablissements Emile Bruylant,
Belgium Germany
ope an Law Pub lis her s, Gei belstraBe 8, 81679 Munich,
Sellier Eur

647
Yearbook Comm. Arb’n XXXV (2010)
 BIBLIOGRAPHY

— The second edition of this comprehensive compilation of Swiss federal and

cantonal case law on arbitration adds almost 300 new cases applying Chapter
12 on International Arbitration of the Swiss Private International Law Act
(PILA) and the 1958 New York Convention to the 400 published in the first
edition. It is updated through 31 December 2009.
The case law, with summaries of the relevant holdings, is listed by specific
issue under each article of the PILA and the New York Convention. Cases
decided under the Concordat before the PILA came into effect in 1989 that
are still relevant under the PILA are included as well.
As in the first edition, five annexes complete the volume: three are
chronological lists, including names of parties and place of publication, of
Swiss Federal Tribunal decisions, decisions of the Cantonal courts, and
decisions of the European Court of Human Rights. The fourth annex is an
English, French, German and Italian glossary of principle terms and the fifth
is an Index of specific terms used in the text.
See Yearbook XXIX (2004) p. 1391 for announcement of the first edition
of this volume.

United States

James H. Carter and John Fellas, editors

INTERNATIONAL COMMERCIAL ARBITRATION IN NEW YORK (2010)

ISBN 978-0-19-537-562-6, lii + 672 p., US$ 195

Oxford University Press USA, Inc., 198 Madison Avenue, New York, New
York 10016, USA

— This text serves as an overview of the current law and practice of international
arbitration in New York City. Thirteen separate contributions cover themes
such as applicable law, the impact of US litigation, drafting of arbitration |
clauses designating New York as place of arbitration, the application of New i
York Law to contracts, selection of arbitrators, jurisdiction, preliminary relief, F
discovery, damages, class action arbitration, enforcement of arbitration
agreements and awards and enforcement of awards involving foreign
sovereigns. Included as annexes are the main arbitration conventions and
relevant legislation, the arbitration rules of the International Center for
Dispute Resolution, the International Chamber of Commerce, the

648 Yearbook Comm. Arb’n XXXV (2010)

 COUNTRIES

International Institute for Conflict Prevention and Resolution and JAMS

arbitration rules and several sets of guidelines and ethics rules.
Tables of cases, authorities, conventions, legislation, rules and arbitral
awards, as well as a subject index, complete the text.

649
0)
Arb’n XXXV (201
Yearbook Comm.
 Ill. JOURNALS ON ARBITRATION

Asia
ASIAN INTERNATIONAL ARBITRATION JOURNAL, published by Kluwer
Law International. A joint initiative of the Singapore International Arbitration
Centre and the Singapore Institute of Arbitrators, the journal focuses on articles
and notes of regional interest. To subscribe, see www.kluwerlaw.com.

ASIA-PACIFIC ARBITRATION REVIEW, published by Global Arbitration

review. Website: www.globalarbitrationreview.com/ shop/product/140/
the-asia-pacific-arbitration-review-2009/. ISSN 1753-917X. Covers the areas
Australia, Canada, China, Hong Kong, Singapore as well as international topics
on arbitration.

CONTEMPORARY ASIA ARBITRATION JOURNAL, co-published by the

Arbitration Association of the Republic of China and the Asian Center for WTO
& International Health Law and Policy (ACWH), College of Law, National
Taiwan University. Website: www.law.ntu.edu.tw/center/wto/
OSpublications2 asp?FB=P1 &tb_index=408. Publishes academic papers on
international arbitration in the context of Asian economic culture.

Australia
THE ARBITRATOR & MEDIATOR, published by The Institute of Arbitrators
& Mediators Australia. Website: www.iama.org.au. ISSN 1446-0548. Contains
articles of interest, recent developments in arbitration, mediation and related
topics by national and international contributors.

Belgium
CEPANI/CEPINA NEWSLETTER, published by the Belgian Centre for
Arbitration and Mediation. Website: www.cepani.be. Reports on activities of the
Centre and developments in arbitration in Belgium and elsewhere. In French and
Dutch.

Brazil
REVISTA DE ARBITRAGEM E MEDIACAO, published by Editora Revista dos
Tribunais. ISSN 1679-6462. An initiative of the Brazilian Institute of
Comparative Law, the journal publishes national and international doctrine and
jurisprudence on arbitration, awards, legislation and other relevant information.
Website: <www.rt.com.br>.

650 Yearbook Comm. Arb’n XXXV (2010)

 COUNTRIES

Canada
CANADIAN ARBITRATION AND MEDIAT
ION JOURNAL, published by the
ADR, Institute of Canada. , Inc Inc. Websisite:
www.adr da.ca. -
Articles in English or French.
Page RE Aten

Croatia
CROATIAN ARBITRATION YEARBOOK, published by
the Permanent
Arbitration Court, Croatian Chamber of Commerce and the Croatian Arbitra
tion
Association. Website: www.hgk.hr. ISSN 1330-6219. Reports on develo
pments
in arbitration law in Croatia and elsewhere.

Dubai
DIAC JOURNAL: ARBITRATION IN THE MIDDLE EAST, published by the Dubai
International Arbitration Centre. Website: www.dcci. gov.ae. Contains articles
and case notes on arbitration and mediation in the region, as well as throughout
the world.

Europe
THE EUROPEAN & MIDDLE EASTERN ARBITRATION REVIEW, published
by Global Arbitration Review. Website: www.globalarbitrationreview.
com/shop/product/ 138/ the-european-middle-eastern-arbitration-review-20
09/. ISSN 1753-1101. Covers the regions Austria, the Czech Republic,
Denmark, Finland, France, Germany, Greece, Ireland, Lebanon, Netherlands,
Portugal, Romania, Russia, Slovakia, Spain, Sweden, Switzerland, Turkey,
Ukraine and the United Kingdom as well as a range of international topics.

France
EUROPEAN ARBITRATION, published by interarb. Website: www.interarb.
and an
com/ea/sub.htm. An electronic newsletter providing talking points
updated Diary of Events on arbitration.

L ARBITRATION
MODEL LAW MATERIALS — MLM (incorporating MODE
by interarb. Website:
LAW QUARTERLY REPORTS as of 2005), published
6904. Contains law reports,
www.interarb.com/malqr/ subpay.htm. ISSN 1358-
materials from UNCITRAL and
commentaries, learned and analytical articles,
national law commissions and statutes.

651
(2010)
Yearbook Comm. Arb’n XXXV
 BIBLIOGRAPHY

REVUE DE L’ARBITRAGE, Bulletin du Comité frangais de |’arbitrage,

published by Librairies Techniques (Litec), E-mail: [email protected]. ISSN
0556-7440. Articles, court decisions, arbitral awards and texts. In French.

Hong Kong
ASIAN DISPUTE REVIEW, edited by the Hong Kong International Arbitration
Centre, Chartered Institute of Arbitrators East Asia Branch, Hong Kong Institute
of Arbitrators and Hong Kong Mediation Council. Published by The Hong Kong
International Arbitration Centre. Website: www.hkiac.org. ISSN 14696487.

MEDIATION. The Quarterly Publication of the Hong Kong Mediation Centre,

published by The Hong Kong Mediation Centre. Website: www.hkiac.org.

ICC
THE ICC INTERNATIONAL COURT OF ARBITRATION BULLETIN/
BULLETIN DE LA COUR INTERNATIONALE D’ ARBITRAGE DE LA CCI,
published by ICC Publishing. Website: www.iccbooks.com. ISSN 1017-284X
(English); ISSN 1017-2831 (French). See also under I.5 Periodicals: ICC
International Court of Arbitration Bulletin Special Supplement on the
Independence of Arbitrators.

ICSID
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL, published by the
International Centre for Settlement of Investment Disputes. Contains current
material on the law and practice relating to foreign investments. To subscribe
see: www.jhu.edu/journals/icsid_review/index.html.

NEWS FROM ICSID, published by the International Centre for Settlement of

Investment Disputes. Website: www.worldbank.org/ icsid.

India
ICA ARBITRATION QUARTERLY, published by the Indian Council of
Arbitration. Website: www. ficci.com/icanet/ quterli/ quaterly. htm.

Italy
RIVISTA DELL’ARBITRATO, published by the Associazione Italiana per
l’Arbitrato. Subscription administration: Dott. A. Giuffré Editore S.p.A.
Website: www. giuffre.it. ISSN 1122-0147.

652 Yearbook Comm. Arb’n XXXV (2010)

 COUNTRIES

Japan
‘cop.Hain THE BULLETIN OF THE JAPAN SHIPPING EXCHANGE
tt 3 te ished by the Japan Shipping Exchange, Inc. Website: soerinNactiacienes
8-8741. Publishes typical examples of awards rendered by the Japan
Shipping Exchange, as well as contract forms and commentaries on Japanese law
and judgments.

JCA NEWSLETTER (former Japan Commercial Arbitration Quarterly),

published by The Japan Commercial Arbitration Association. Website: www.
jcaa.or.jp. |

Korea
rcial Arbitration
ARBITRATION JOURNAL, published by the Korean Comme
Board (KCAB). Website: www.kcab.or.kr. ISSN 1229-4195.

ished by the Korean Commercial

ARBITRATION NEWS FROM KOREA, publ
.or.kr. ISSN 1229-4195.
Arbitration Board (KCAB). Website: www.kcab

Latin America al
THE AMERICAS, published by Glob
THE ARBITRATION REVIEW OF shop/
Review. Website: www. globalarbitrationreview.com/
Arbitration Covers
t/ 139 / the -ar bit rat ion -re vie w-a mericas-2009/ _ISSN 1759-6416.
produc and
Arg ent ina , Ber mud a, Braz il, Cayman Islands, Ecuador, Uruguay,
the regions ional
well as inte rnat iona l topi cs including US and_ internat
Venezuela as
y in arbi trat ion, inte rnat ional investment treaties,
arbitration, discover
icti onal liti gati on and the 1958 New York Convention.
multi-jurisd

Middle East AR BITRATION REVIEW, see

above
MI DD LE EA ST ER N
THE EUROPEAN &
under Europe.

Netherlands Kluwer Law

AT IO NA L AR BI TR ATION, published by
RN
JOURNAL OF INTE w. co m. ISSN 0255-8106. Co
ntains full-
e: ww w. kl uw er la
Internationa |. Websit ws, notes and co
mments on recent
ll as reports an d ne
length articles, as we n.
and national legislatio
awards, court cases

653
0)
Arb’n XXXV (201
Yearbook Comm.
 BIBLIOGRAPHY

TIJDSCHRIFT VOOR ARBITRAGE, published by Kluwer BV, under the

auspices of Stichting Tijdschrift voor Arbitrage. Website: www.kluwershop.nl.
ISSN 0167-1359.

TDM (TRANSNATIONAL DISPUTE MANAGEMENT), an initiative of Maris,

BV. Website: www. transnational-dispute-management.com/ welcome.html.
ISSN 1875-4120

WORLD TRADE AND ARBITRATION MATERIALS, published by Kluwer

Law International. Website: www.kluwerlaw.com. Contains, inter alia, full
texts of WTO jurisprudence, arbitral awards, court decisions, statutes and
arbitration rules.

New Zealand
NEWSLETTER, published by the Arbitrators’ and Mediators’ Institute of New
Zealand Inc. Website: www. aminz.org.nz.

Nigeria
MAAN Newsletter, published by the Maritime Arbitrators Association of
Nigeria. Website: www.maanigeria.com.

Permanent Court of Arbitration

PERMANENT COURT OF ARBITRATION ANNUAL REPORT, published by
the International Bureau of the Permanent Court of Arbitration. Website:
www.pca-cpa.org. Reports on the activities and the functioning of the Court. In
English and French.

PERMANENT COURT OF ARBITRATION ELECTRONIC NEWSLETTER,

published by the International Bureau of the Permanent Court of Arbitration.
Website: www.pca-cpa.org. Features current news about the PCA along with
developments in PCA cases. Appears four times a year. See the PCA website to
subscribe.

Romania
REVISTA ROMANA DE ARBITRAJ [Romanian Arbitration Journal]. Published
by the Court of International Commercial Arbitration at the Romanian Chamber
of Commerce and Industry. Available by request to Dr. Radu Bogdan Bobei,
Managing Editor, at the following e-mail address: [email protected]. Publishes

654 Yearbook Comm. Arb’n XXXV (2010)

 COUNTRIES

i Romania and other co

articles on arbitration on in A ;
untries, with English summaries,
and awards.

Russian Federation
TRETEYSKIY SUD [ARBITRATION]. Website: www.arbitrage.spb.ru.
Contains articles as well as reports of foreign and domestic court decisions and
information on alternative dispute settlement.

MEZHDUNARODNY COMMERCHESKY ARBITRAZH [INTERNATIONAL

COMMERCIAL ARBITRATION]. Website: www.intarb.ru/english.shtml.
Published by he Russian affiliate of Wolters Kluwer. Contains full-length articles
arbitral awards and court decisions. .

Spain
ANUARIO DE JUSTICIA ALTERNATIVA, published by the Tribunal Arbitral
Website:
de Barcelona and J.M. Bosch Publisher. Libreria Bosch, S.L.
ntaries on awards of
www_libreriabosch.es. Contains articles as well as comme
the tribunal and relevant court decisions.

REVISTA DE LA CORTE ESPANOLA DE ARBITRAJE, published by the

Industria y Navegacion de Espana.
Consejo Superior de CAmaras de Comercio
84.505-2823-2. Distributed by Editorial
Website: www.camaras.org. ISBN relating
articles and reports of court decisions
Civitas, www. civitas.es. Contains .
ion, as well as documents and texts
to national and international arbitrat

Sweden ation
BI TR AT IO N NE WS LE TT ER, published by the Arbitr
STOCKHOLM AR of Commerce. Website:
St oc kh ol m Ch am be r
Institute of the in
use s on int ern ati ona l arbitration and mediation
www.sccinstitute.com. Foc
hlighting a featured topic.
general, with each issue hig
ished by
AT IO NA L AR BI TR ATION REVIEW, publ
RN
STOCKHOLM INTE Ar bi tr at io n Institute of the Stockhol
m
on be ha lf of the
Juris Publishing, Inc., ionl aw.com. ISSN 1404
-1715.
r of Co mm er ce . Website: www.arbitrat
Chambe d court decisions.
ar ti cl es an d su mm aries of awards an
Contains
7 ma
Website:
Switzerland th e Sw is s Ar bi tr ation Association.
publication of ional. To subscrib
e
ASA BULLETIN, Law Internat
n- ch .o rg . Pu bl ished by Kluwer
www.arbitratio
655

Arb’n XXXV (2010)

Yearbook Comm.
 BIBLIOGRAPHY

see www. kluwerlaw.com. Correspondence regarding the Bulletin should be sent

to: The Editors, c/o Lalive & Attorneys-at-Law, PO Box 6569, rue de la Mairie
35, 1211 Geneva 6, Switzerland. Quarterly. ISSN 1010-9153. Articles in
French, German, Italian and English.

THE SWISS INTERNATIONAL ARBITRATION LAW REPORTS, See under

1.5 Periodicals for details of this new publication.

United Kingdom
ARBITRATION, The Journal of the Chartered Institute of Arbitrators. Website:
www.arbitrators.org. ISSN 0003-78-77. Published in association with Sweet &
Maxwell. This is the journal of the Chartered Institute and is sent free to
members. Non-members see website to subscribe.

CHARTERED INSTITUTE OF ARBITRATORS NEWSLETTER, published by

the Chartered Institute of Arbitrators, in association with Sweet & Maxwell.
Website: www.arbitrators.org. Contains information on Chartered Institute
activities, law reports and recent developments in arbitration. Enclosure with
Arbitration, see above.

THE NEWSLETTERS OF THE ARBITRATION AND MEDIATION

COMMITTEES OF THE INTERNATIONAL BAR ASSOCIATION LEGAL
PRACTICE DIVISION, published by the Arbitration and Mediation Committees
of the International Bar Association Legal Practice Division and distributed to
members. For membership details contact: International Bar Association.
Website: www.ibanet.org.

ARBITRATION INTERNATIONAL, published by Kluwer Law International,

on behalf of the London Court of International Arbitration. ISSN $S09570411.
Contains articles on academic and practical topics by authorities in the field of
international arbitration. To subscribe see www.kluwerlaw.com.

LCIA NEWSLETTER, published by LCIA Arbitration International, The

International Dispute Resolution Centre. Website: www.Icia-arbitration.com.
Contains information on changes in arbitration law and practice and on new
developments in the world of ADR. Sponsored by Kluwer Law International.

ARBITRATION LAW MONTHLY, published by Informa Professional. Website:

www.informalaw.com. Contains analysis of the leading global decisions and

656 Yearbook Comm. Arb’n XXXV (2010)

 COUNTRIES

developments in arbitration law in all the most im

jurisdictions portant commercial

GLOBAL ARBITRATION REVIEW, published by Law Business Research

Limited. Website: www. globalarbitrationreview.com. ISSN: 1749-611X.
Contains news on public and private international arbitration update
d online
three times a week..

INTERNATIONAL ARBITRATION LAW REVIEW, published by Sweet &

Maxwell Ltd. Website: www.sweetandmaxwell.co.uk. ISBN 1-367-8272.
Contains opinions, articles, news items, procedure tips, summaries of court
decisions, book reviews and diary of events.

LLOYD’S MARITIME LAW NEWSLETTER, published by Informa Professional.

Website: www.lmIn.com. ISSN 0268-0696. Contains summaries in anonymous
form of maritime arbitration awards, including awards of the London Maritime
Arbitration Association, as well as summaries of court decisions on maritime
issues from the United Kingdom, the United States, Canada, Singapore and South
Africa.

United Nations Commission on International Trade Law

CASE LAW ON UNCITRAL TEXTS (CLOUT), A/CN.9/Ser. C/
ABSTRACTS/1 etc., published by the United Nations Commission on
International Trade Law. Website: www.uncitral.org. Published in all six official
UN languages at irregular intervals when sufficient material has been
accumulated.

United States
American Arbitration
ADRWORLD.COM, published by a subsidiary of the
http: //adrworld.com.
Association by an independent editorial staff. Website:
news; regulatory and
Online daily journal providing coverage of breaking ADR
the federal government, as well
legislative updates from the fifty US states and
related to ADR.
as summaries and full texts of court decisions

published by the American Arbitration

DISPUTE RESOLUTION JOURNAL,
rg. ISSN 1074-8105.
Association. Website: www.adr.o

657
Yearbook Comm. Arb’n XXXV (2010)
 BIBLIOGRAPHY

DISPUTE RESOLUTION TIMES, published by the American Arbitration

Association, 335 Madison Ave., New York, New York 10017-4605, USA;
Website: www.adr.org. International and US national and regional ADR news.

THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION, published

under the auspices of the Center for International Arbitration and Litigation Law,
Columbia University, by Juris Publishing, Inc. Website: www.
arbitrationlaw.com. ISSN 1050-4109.

THE ARBITRATOR, published by the Society of Maritime Arbitrators, Inc.

Website: www. smany.org.

AWARD SERVICE, published by the Society of Maritime Arbitrators, Inc.

Website: www.smany.org. Each issue contains approximately 20-25 individual
full-length arbitration awards. A consolidated index and digest has been
published every 4-5 years.

INTERNATIONAL DISPUTE RESOLUTION, published by White & Case LLP.

Website: www. whitecase.com. Reports on firm news and recent developments
in international arbitration.

INTERNATIONAL FEDERATION OF COMMERCIAL ARBITRATION

INSTITUTIONS NEWSLETTER. For editorial queries, write to Milanka
Kostadinova, Senior Counsel, International Centre for Settlement of Investment
Disputes (ICSID) 1818 H Street NW, Washington, DC 20433, USA.

THE JOURNAL OF AMERICAN ARBITRATION, published under the auspices

of the Center for International Arbitration and Litigation Law, Columbia
University, by Juris Publishing, Inc. Website: www.arbitrationlaw.com. ISSN
1515-4849. This companion publication to the American Review of International
Arbitration (see above) provides information and commentary on developments
in domestic US arbitration law.

MEALEY’S INTERNATIONAL ARBITRATION REPORT, published by

LexisNexis Mealey Publications & Conferences Group. Website:
www.mealeys.com. ISSN 1089-2397. Contains materials on international
commercial arbitration. Also available online via LexisNexis.

658 Yearbook Comm. Arb’n XXXV (2010)

 COUNTRIES

NEWS AND NOTES FROM THE INSTITUTE FOR

TRANSNATIONAL
ARBITRATION, published for the Institute for Transnational
Arbitration by The
Dedman School of Law, Southern Methodist University. Website:
www. cailaw.org/ ita/ publications. html. Contains a scoreboard of
adherence to
transnational arbitration treaties, articles and calendar.

WORLD ARBITRATION AND MEDIATION REPORT, published by Juris

Publishing, Inc. Website: www.arbitrationlaw.com. ISSN 0960-0949.
Newsletter with information on all forms of dispute resolution.

Venezuela
BOLETIN DEL COMITE VENEZOLANO DE ARBITRAJE, published twice a
year by the Comité Venezolano de Arbitraje (Venezuelan Arbitration
Committee). Distributed free by e-mail to subscribers and available online.
Website: <www.cvarbitraje.com>. Contains information on arbitration
developments and events from Venezuela and South America and reports on the
activities of the Committee. Reproduces and comments on all arbitration-related
decisions of the Venezuelan Supreme Court of Justice.

659
V (2010)
Yearbook Comm. Arb’n XXX
re
 INTERNATIONAL CO
UNCIL FOR
COMMERCIAL ARBIT
RATION (ICCA)

Correspondence address:
Mr. Kap-You (Kevin) Kim
Secretary General ICCA
Bae, Kim & Lee LLC
647-15 Yoksam-dong
Kangnam-gu
Seoul 135-723
Korea
Phone:+1-822 3404 0333
Fax:+1-822 3404 7306
E-mail: [email protected]

LIST OF OFFICERS AND MEMBERS

November 2010

OFFICERS

Honorary Presidents

THE HON. GIORGIO BERNINI (Bologna, Italy)

Former Minister of Foreign Trade and Member of Parliament; Former
Member, Italian Antitrust Authority; Professor, University of Bologna, Chair
of Arbitration and International Commercial Law; President, Association for
the Teaching and Study of Arbitration and International Trade Law (AISA);
Member, Executive Committee, Italian Arbitration Association; Senior
Partner, Studio Bernini e Associati

661
Yearbook Comm. Arb’n XXXV (2010)
 LIST OF ICCA

DR. GEROLD HERRMANN (Vienna, Austria)

Former Secretary, United Nations Commission on International Trade Law
(UNCITRAL); Honorary Professor, University of Vienna

MR. FALI S. NARIMAN (New Delhi, India)

President, Bar Association of India; Honorary Member, International
Commission of Jurists; Past President, Law Association for Asia and the Pacific
(LAWASIA); Member, Court of the LCIA; Past Vice Chairman, International
Court of Arbitration of the International Chamber of Commerce (ICC); Past
Co-Chair, Human Rights Institute of the International Bar Association (IBA);
Senior Advocate, Supreme Court of India

PROF. PIETER SANDERS (Schiedam, The Netherlands)

Honorary President, Netherlands Arbitration Institute; Professor Emeritus,
Faculty of Law, Erasmus University, Rotterdam

President

PROF. JAN PAULSSON (Paris, France)

General Editor, ICCA International Handbook on Commercial Arbitration; Michael
Klein Distinguished Scholar Chair, University of Miami School of Law;
Centennial Professor of Law, London School of Economics; Judge and Past
President, World Bank Administrative Tribunal; President, Administrative
Tribunal, European Bank for Reconstruction and Development; Past
President, LCIA

Honorary Vice Presidents

MR. DONALD FRANCIS DONOVAN (New York, USA)

Adjunct Professor, New York University School of Law; former Vice
President, American Society of International Law; former Chair, Institute for
Transnational Arbitration; former Chair, U.S. National Committee, ICC
International Court of Arbitration; Board of Directors, Human Rights First

662 Yearbook Comm. Arb’n XXXV (2010)

 OFFICERS AND MEMBERS

JUDGE HOWARD M. HOLTZMANN (New York, USA)

Honorary Chairman of the Bo
ard, American Arbitration Association
Substitute Judge, Iran-United States Claims Tribunal (AAA);
, The Hague

PROF. SERGEI LEBEDEV (Moscow, Russian Federati

on)
President, Maritime Arbitration Commission;
Member of the Presidi
International Commercial Arbitration Court of the
Russian Sadarciaee
Chamber of Commerce and Industry; Professor, Mosc
ow Institute of
International Relations (University); Former Commissioner, UN
Compensation Commission; Member, UNCITRAL Working Group
on
Arbitration J

DDR. WERNER MELIS (Vienna, Austria)

President, International Arbitral Centre of the Austrian Federal Economic
Chamber, Vienna; Past Vice President, LCIA

MS. TINUADE OYEKUNLE (Lagos, Nigeria)

Barrister and Solicitor of the Supreme Court of Nigeria, Arbitrator and Notary
Public; Member, Association of Arbitrators of Nigeria; Fellow, Chartered
Institute of Arbitrators, London; Member, Arbitration Committee of the
Lagos Chamber of Commerce; Chartered Arbitrator; Member, Panel
Membership Group (PMG), Chartered Institute of Arbitrators, London;
former Chairman, Education & Training Committee of the Chartered Institute
of Arbitrators, London; former Member, Board of Management of the
Chartered Institute of Arbitrators, London; Regional Representative for
Promotion of Arbitration in the West African Region; Past Chairman,
London
Chartered Institute of Arbitrators, Nigeria Branch; former Member,
Court of International Arbitration; Correspondent of UNIDROIT

PROF. DR. IVAN SZASZ (Budapest, Hungary)

Sciences, Budapest; Honorary
Professor of Law, University of Economic
garian Chamber of Commerce; Past
Chairman, Legal Commission at the Hun
an Communities; Past Member, ICC
Ambassador of Hungary to the Europe
or Advisor, Squire Sanders & Dempsey
International Court of Arbitration; Seni

663

Yearbook Comm. Arb’n XXXV (2010)

 LIST OF ICCA

Vice Presidents

MR. GUILLERMO AGUILAR-ALVAREZ (New York, USA)

Past General Counsel, ICC International Court of Arbitration; Principal Legal
Counsel for the Government of Mexico for the Negotiation and
Implementation of NAFTA; Visiting Scholar, Yale Law School; Partner, Weil
Gotshal & Manges

MS. TERESA CHENG, BBS, SC, JP (Hong Kong)

Deputy President for 2007 and President for 2008, Chartered Institute of
Arbitrators; Vice Chairperson, Hong Kong International Arbitration Centre;
Adjunct Professor, School of Law at the City University of Hong Kong;
Chartered Engineer; Barrister e
ee

PROF. ALEXANDER S. KOMAROV (Moscow, Russian Federation)

Chairman, ICC Russia National Committee, Arbitration Commission;
Professor, Russian Academy of Foreign Trade; President, International
Commercial Arbitration Court at the Russian Federation Chamber of
Commerce and Industry

Honorary Secretaries General

MR. ULF FRANKE (Stockholm, Sweden)

Past Secretary General, ICCA; Secretary General, Arbitration Institute of the
Stockholm Chamber of Commerce; Past President, International Federation
of Commercial Arbitration Institutions (IFCAI)

MR. ANTONIO R. PARRA (Washington, DC, USA)

Past Secretary General, ICCA; Past Deputy Secretary-General and Legal
Adviser, International Centre for Settlement of Investment Disputes (ICSID);
Fellow, Chartered Institute of Arbitrators; Consultant, World Bank

664 Yearbook Comm. Arb’n XXXV (2010)

 OFFICERS AND MEMBERS

S ecretary General

MR. KAP-YOU (KEVIN) KIM

sie of Arbitration Group, Bae, Kim & Lee
LLC; Senior Advisor, Korea
ommercial Arbitration Board (KCAB); Vice President,
Korean Gouncil for
nternational Arbitration (KOCIA); Member, ICC Internatio
nal Court of
Arbitration; Member, LCIA; Board Member, AAA;
Vice Chair, IBA
Arbitration Committee; Member, Drafting Sikenmsheites ai for
the th Heariten of
ICC Rules; Member, Subcommittee on revision of the IBA Rules
on the
Taking of Evidence; Panel of Arbitrators, ICSID

MEMBERS

MR. CECIL ABRAHAM (Seremban, Malaysia)

Fellow, Chartered Institute of Arbitrators; Fellow, Malaysian Institute of
Arbitrators; Past Member, LCIA; Past President, Inter-Pacific Bar Association;
Vice President, Asia Pacific Regional Arbitration Group (APRAG); Member,
Malaysia National Committee, International Chamber of Commerce

PROF. DR. ALBERT JAN VAN DEN BERG (Brussels, Belgium)

General Editor, ICCA Yearbook Commercial Arbitration; President, Netherlands
Arbitration Institute; Professor of Arbitration Law, Erasmus University,
Rotterdam

PROF. DR. PIERO BERNARDINI (Rome, Italy)

resident,
Past Professor of Arbitration Law, LUISS University, Rome; Vice-P
tional Court
Italian Arbitration Association; Past Vice-President, ICC Interna
of Arbitration

ch, Germany)
PROF. DR. KARL-HEINZ BOCKSTIEGEL (Bergisch-Gladba
ersity of Cologne;
itus of International Business Law, Univ
Professor Emer
tration (DIS); Patron, Chartered
Chairman, German Institution of Arbi
of Arbi trat ors; Past Pres iden t, International Law Association (ILA);
Institute
iden t, LCIA ; Past Pres iden t, Iran -United States Claims Tribunal, The
Past Pres
Hague
665
Yearbook Comm. Arb’n XXXV (2010)
 LIST OF ICCA

PROF. DR. NAEL G. BUNNI (Dublin, Ireland)

Past President, Chartered Institute of Arbitrators; Member, Board of Trustees
and Chairman, Executive Committee, Dubai International Arbitration Centre;
Past Member, LCIA Board of Directors; Visiting Professor in Construction
Law and Contract Administration, Trinity College, Dublin; Chartered
Engineer and Chartered Registered Arbitrator

PROF. BERNARDO M. CREMADES (Madrid, Spain)

Professor, Faculty of Law, Madrid University; Member of the Madrid Bar

MR. DUSHYANT DAVE (New Delhi, India)

Senior Advocate at the Supreme Court of India; Member of the Board,
American Arbitration Association; former member, LCIA; Vice Chair,
Arbitration Committee, IBA; former member, National Legal Services
Authority of India (NALSA)

M* YVES DERAINS (Paris, France)

Past Secretary General, ICC International Court of Arbitration; Chairman,
Comité Frangais de I’Arbitrage; Member of the Paris Bar

MR. L. YVES FORTIER, CC, QC (Montréal, Canada)

Chairman Emeritus and Senior Partner, Ogilvy Renault Montreal; Former
President and Honorary Vice President, LCIA; Chair, Hong Kong
International Arbitration Court; former Ambassador and Permanent
Representative of Canada to the United Nations; Judge ad hoc, International
Court of Justice

PROF. DR. EMMANUEL GAILLARD (Paris, France)

Professor of Law, University of Paris XII; Chairman, International Arbitration
Institute; Past Member, LCIA Court; Past Chairman, International Arbitration
Committee, ILA

PROF. DR. BERNARD HANOTIAU (Brussels, Belgium)

Member, Brussels and Paris Bars; Professor of International Dispute
Resolution, University of Louvain; Former Vice-President, LCIA; Vice-

666 Yearbook Comm. Arb’n XXXV (2010)

 OFFICERS AND MEMBERS

eas
Cha irman, Institute of of T Transnational Arbitration; Vice-Chairman, CEPANI
(Belgium)

PROF. MARTIN HUNTER (London, United Kingdom)

Barrister; Professor of International Dispute Resolution, Nottin ham Trent
University; Visiting Professor, King’s College London University :Chairman
Dubai International Arbitration Centre; Honorary Dean of Post badidatec
Studies, T.M.C. Asser Instituut, The Hague ;

MR. MICHAEL HWANG, SC (Singapore)

ate and Solicitor,
Former Acting High Court Judge, Singapore, Advoc
n, Chartered Arbitrator;
Singapore; Member, Permanent Court of Arbitratio
pore, Former Vice Chair
Adjunct Professor, National University of Singa
Bar Association; Former Vice Chair, ICC
Committee D, International
er, International Council of
International Court of Arbitration, Memb
LCIA; Deputy Chief Justice, Dubai
Arbitration for Sport (ICAS); Member,
dent, Law Society of Singapore;
International Financial Centre; Presi
to Switzerland
Non-Resident Ambassador of Singapore

estershire, United Kingdom)

MR. NEIL KAPLAN, CBE, QC (Glouc ernational
Jud ge, Hig h Cou rt, Hon g Kong; Chairman, Hong Kong Int
Former Institute of
on Cen tre 199 1-2 004 ; Pas t President, The Chartered
Arbitrati
Hon ora ry Pro fes sor , Cit y University of Hong Kong
Arbitrators;

tzerland)
MANN-KOHLER (Geneva, Swi
PROF.DR. GABRIELLE KAUF w School; Director, Ge
neva Master in
Uni ver sit y La
Professor, Ge ne va Honorary
sp ut e Set tle men t; Par tne r, Levy Kaufmann-Kohler;
International Di
sid ent , Swi ss Arb itr ati on Association (ASA)
Pre

| f
is , Tu ni si a) ,
DR. FATHI KEMICHA (T
un
e Ba rs of Par is and Tunisia, Member
Member of th Bank
Avocat a la Cour, th e Un it ed Na ti on s; Member, World
mmission of Trustees and Exec
utive
International Law Co er , Bo ar d of
Board; Memb First appointed Secr
etary
Group Sanctions bi tr at io n Ce nt re ;
International Ar Bahrain (January 2003
—
Committee, Dubai th e Ki ng do m of
al Court of
General, Constitution t, LCIA
mb er 20 05 ); Fo rmer Vice Presiden
Dece
667

Arb’n XXXV (2010)

Yearbook Comm.
 LIST OF ICCA

MR. ARTHUR MARRIOTT, QC (London, United Kingdom)

Board Member, Hong Kong International Arbitration Centre; Solicitor

PROF. FRANCISCO ORREGO VICUNA (Santiago, Chile)

Professor of Law, University of Chile and first Director of the LL.M. on
Investments, Trade and Arbitration offered jointly with the University of
Heidelberg and the Max Planck Institute; Judge and former President,
Administrative Tribunal of the World Bank; Member, Chairman’s List of
ICSID Arbitrators; former Vice President, LCIA; Member, Latin American
Committee of Arbitrators of the ICC

PROF. WILLIAM W. PARK (Cohasset, USA)

Professor of Law, Boston University; General Editor, Arbitration
International; President, LCIA; Past Chairman, ABA Committee on
International Commercial Dispute Resolution

PROF. DR. MICHAEL PRYLES (Melbourne, Australia)

Chairman, Singapore International Arbitration Centre; Member, Board of
Trustees, Dubai International Arbitration Centre; Former President,
Australian Centre for International Commercial Arbitration; President, Asia
Pacific Regional Arbitration Group; Former Commissioner, United Nations
Compensation Commission; Member, LCIA Court

MR. WILLIAM K. SLATE II (Washington, DC, USA)

President and Chief Executive Officer, AAA; Founder, Global Center for
Dispute Resolution Research; Member, Arbitrator and Mediator, Panels of the
International Court of Arbitration for Sport (Switzerland); Member,
International Commercial Arbitration Court at the Ukraine Chamber of
Commerce and Industry; Member, China International Economic and Trade
Arbitration Commission (CIETAC)

PROF. DR. GUIDO SANTIAGO TAWIL (Buenos Aires, Argentina)

Professor, University of Buenos Aires School of Law; Co-Chair, IBA
Arbitration Committee; Member, LCIA; Attorney at Law, Partner, M. & M.
Bomchil

668 Yearbook Comm. Arb’n XXXV (2010)

 OFFICERS AND MEMBERS

PROF. DR. DR. HC, PIERRE TERCIER (Fribourg, Switzerland)

Honorary Chairman, International Court of Arbitration of the International
Chamber of Commerce; Professor Emeritus, Law Faculty, Universit “of
Fribourg; former Chairman, Swiss Antitrust Commission ; i

MR. V.V. VEEDER, QC (London, United Kingdom)

Vice President, LCIA; Council Member, ICC Institute of World Business Law
and of the Arbitration Institute of the Stockholm Chamber of Commerce;
Visiting Professor on Investment Arbitration, King’s College, University of
London

THE HON. S. AMOS WAKO, F.C.1.ARB, SC (Nairobi, Kenya)

Attorney General, Republic of Kenya; Former Chairman, Arbitration
Tribunal, Kenya Chamber of Commerce and Industry; Arbitrator, Vienna
Convention on Law of Treaties, Centre for Settlement of Investment
Disputes; former Vice President, LCIA-Africa Region; former Chairman, Law
Society of Kenya; former Member, International Advisory Committee of
WIPO Centre for Settlement of Disputes; former Commission Member,
IBA;
International Commission of Jurists, former Deputy Secretary General,
Senior Partner,
former Secretary General, African Bar Association; former
Legal Consultative
Kaplan & Stratton; former President, Asian-African
(2007-2011)
Organisation; Member, International Law Commission

blic of China)
DR. WANG SHENG CHANG (Beijing, People’s Repu
CIETAC; former Vice
Former ViceChairman and former Secretary General,
Commission (CMAC); Member,
Chairman, China Maritime Arbitration
; Prof esso r of Law, Univ ersi ty of International Economics and Business,
LCIA
Beijing

New Zealand) | )
. WIL LIA MS, QC (Au ckl and ,
MR. DAVID A.R
ge of the Hig h Cou rt of Ne w Zealand; Former Chief Justice of
Former Jud Court o
Jus tic e of the Coo k Isl and s Court of Appeal; Judge,
Cook Islands; Past President, Arbitrators
and
ona l Fin anc ial Cen tre ;
Dubai Internati Former Member, ICC
Court of
ute of Ne w Zea lan d;
Mediators Instit
ati ona l Arb itr ati on; Former Member, LCIA
Int ern

669

Arb’n XXXV (2010)

Yearbook Comm.
 LIST OF ICCA

Advisory Members

MR. ROBERT COULSON (Riverside, USA)

Former President, AAA

PROF. DR. RADOMIR DJUROVIC (Belgrade, Serbia)

Former President, Arbitration Court of Yugoslavia; Professor of International
Commercial Law, Belgrade University

DR. MAURO FERRANTE (Rome, Italy)

Secretary General, Italian Arbitration Association; Managing Director, ICC-
Italy

PROF. AHMED S. EL-KOSHERI (Cairo, Egypt)

Former Professor of International Economic Law and Former President,
International University for African Development (Universite Senghor,
Alexandria); Member, I’Institut de Droit International; Former Ad hoc Judge,
International Court of Justice; Partner, Kosheri, Rashed & Riad Law Firm

PROF. DR. DR. HC. PIERRE LALIVE D’EPINAY (Geneva, Switzerland)

Senior Partner and Co-Founder, Lalive Attorneys, Geneva; Founder and
Editor-in-Chief, Bulletin of the Swiss Arbitration Association (ASA); Professor
Emeritus Geneva University; Member (elected) and Former President
(1989-1991), Institut de Droit International; Honorary President of ASA and
of the ICC Institute of World Affairs (Paris)

THE HON. MARC LALONDE (Montréal, Canada)

Former Ad Hoc Judge, International Court of Justice; Former Minister of
Justice and Attorney General; Former Minister of Energy, Mines and
Resources; Former Minister of Finance; Former President, LCIA North
American Users Committee; Member, Institute of International Business Law
and Practice

670 Yearbook Comm. Arb’n XXXV (2010)

 OFFICERS AND MEMBERS

MR, MARK LITTMAN, QC (London, United Kingdom)

Barrister; Former Member, Ro yal Commission on Legal
Services and Master
Treasurer of Middle Temple

M® CARLOS NEHRING NETTO (Sao Paulo, Brazil)

Founder, Nehring & Associados — Advocacia; Former Member, ICC
International Court of Arbitration; Former Chairman, Arbitration Center of
the American Chamber of Commerce in Sao Paulo

MR. ALAIN PLANTEY (Paris, France)

Former Member of the Conseil d’Etat; Member and Former President, Institut
de France; Member and Former President, Academy of Moral and Political
Sciences (Institut de France); Former Ambassador of France in Madagascar;
Former Professor of Law, University of Paris I; Président d’honneur, ICC
International Court of Arbitration

THE HON. ANDREW JOHN ROGERS, QC (Sydney, Australia)

Former Chief Judge, Commercial Division, Supreme Court of New South
Wales; Adjunct Professor, University of Technology, Sydney; Deputy
Chairman, International Legal Services Advisory Council (ILSAC); Foundation
Chancellor of Southern Cross University; President of the Sydney University
Foundation into Securities (now SIRCA Limited); Patron of the Australian
Corporate Lawyers Association (NSW Division)

DR. JOSE LUIS SIQUEIROS (Mexico City, Mexico)

Commercial Arbitration;
Past President, Mexican Academy of International
iation; Past Chairman, Inter-
Past President, Inter-American Bar Assoc
Committee (OAS); Professor, Universidad
American Juridical
NAFTA Advisory Committee on
Iberoamericana, Mexico City; Member,
er, Advisory Board, Institute for
Private Commercial Disputes; Memb
International Law Association
Transnational Arbitration, Member,

si hina) a
(Be iji ng, Peo ple ’s Rep ubl ic of ©
PROF. TANG HOUZHI irman, CCPIT/CCOIC Beijin
g
Cha irm an, CIE TAC ; Vic e Cha
Honorary Vice of the People’s University of
tre ; Pro fes sor , Law Sch ool
Conciliation Cen y School of Law; inep
t
fes sor , Am oy Uni ver sit
China; Visiting Pro Professor, Hong Kong
City
er , LCI A; Hon ora ry
Former Court Memb
671
XXXV (2010)
Yearbook Comm. Arb’n
 LIST OF ICCA

University School of Law; Vice President, IFCAI; Adviser to the China

International Law Society and the China Private International Law Society;
Member, Executive Committee, China Maritime Law Association

PROF. YASUHEI TANIGUCHI (Tokyo, Japan)

Former Member, Appellate Body of the World Trade Organization Dispute
Settlement Body; Professor of Law, Senshu University Law School, Attorney
at Law; Professor Emeritus, Kyoto University; President, Japan Association
of Arbitrators; Former President, Japanese Association of Civil Procedure;
Former Vice-President, International Association of Procedural Law

“Narayan Rao Meigiri

Nationa! brary

672 Yearbook Comm. Arb’n XXXV (2010)

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