"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Tuesday, October 19, 2010

Fortnightly Roundup of SSRN Articles on Arbitration (October 1 - 15)

Arbitration Clause as Unfair Contract Term: Some Observations on the ECJ's Claro Case
Zdenek Novy


This paper addresses the problem of the annulment of an arbitration award by national courts on the grounds that the arbitration proceedings were based on arbitration clause as an unfair contract term under the Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.

The ECJ decided in the case Claro v Móvil that arbitration award may be annulled by national court if it is based on arbitration clause which turns out to be unfair contract term. Moreover, according to the ECJ, consumer has no duty to object unfairness of the arbitration clause in the course of arbitration proceedings. Therefore, the national court may find the term unfair thus void on its own motion. The reasoning behind this was that the arbitration award was at odds with mandatory provisions of the Directive on unfair terms in consumer contracts, which form part, in the view of the ECJ, of the so called European public policy.

Notwithstanding the different opinions on this case, the message from the ECJ is clear. The arbitration is a mean of settlement of disputes which is intended for the B2B disputes. On the contrary, the B2C disputes should be resolved in Alternative Disputes Resolution or before ordinary national courts.

Consequently, I would like to offer some ideas on the potential impact of the Claro decision upon Czech legal order. Thus, particularly the existing legal frame for consumer disputes created by the Czech Arbitration Act and Civil Code is analysed.

Arbitration in the Western Balkans: The Emerging Commercial Landscape
Matthew Parish

The rise of international arbitration was driven by the globalisation of commerce in the nineteenth and twentieth centuries, and the development of international law to regulate relations between the Great Powers. The history of the Western Balkans region in the same period insulated it from these influences, and thus arbitration remained unfamiliar. In the communist period, arbitration represented the antithesis of the political purposes assigned by the communist authorities to the domestic legal system. In the wars following disintegration of the former Yugoslavia, institutional capacity was further weakened by elite capture of judicial institutions. That legacy persists to the present day; but its effect is to exclude a significant proportion of the potential levels of foreign investment in the region. International arbitration remains a valuable tool for escaping partial domestic court systems and its use is likely to increase as the Western Balkans becomes increasingly open to foreign direct investment.

Brief of Arbitration Professors as Amicus Curiae in Support of Respondents
Hiro N. Aragaki

This brief is a natural extension of my research and writing over the past two years, which seeks to develop an antidiscrimination model of FAA section 2 preemption. The arguments in the brief originate, and are explored in greater depth in, my forthcoming piece, Equal Opportunity for Arbitration, 58 U.C.L.A. Law Review, Vol. 58 2011.

Petitioner (and Respondents) in this case have famed the FAA preemption issue in terms of antidiscrimination: That is, a state law is preempted if it "discriminates" against arbitration. Thus, the California Supreme Court's Discover Bank rule is preempted if it can be characterized as reviving the ancient judicial hostility toward arbitration.

This brief argues that the Petitioners' interpretation of this "antidiscrimination principle" is incorrect, and that the Discover Bank rule should not be preempted, for two reasons: 1) Although it has often been said that the FAA's purpose is to place arbitration agreements on the same footing as other agreements, the true purpose of doing so is to place arbtration on the same footing as litigation, so that it could emerge as a bona fide dispute resolution alternative. 2) Although lower courts frequently find statutes and judicial decisions preempted if they fail to apply literally to "all contracts," the all contracts standard is fundamentally incoherent and should be rejected.

A Brief History of Arbitration in the United States
Steven A. Certilman

A brief history of arbitration and ADR in the Unitede States from colonial times to the present.

How the Payday Predator Hides Among Us: The Predatory Nature of the Payday Loan Industry and its Use of Consumer Arbitration to Further Discriminatory Lending Practices
Michael Satz

This Article argues that Payday lending is a predatory lending practice that disproportionately targets minority customers, and that the Payday lending industry utilizes consumer arbitration agreements to further the industry’s discriminatory lending practices. The Article further argues that the protections afforded military members in the FY 2007 Defense Authorization Act should be applied globally in the form of federal legislation.

While there is no bright line definition of what constitutes predatory lending, there are certain badges that tend to be present in a predatory lending transaction, which include high interest rates, limited or confusing disclosures, deceptive acts and practices utilized in drawing in would-be customers, and often the targeting of particularly vulnerable classes of persons. The Payday lending industry makes effective use of these predatory practices to target vulnerable classes of customers, particularly targeting African-American and Latino populations, and engages in lending practices that can lead to loans with interest rates in excess of 500%. Concurrent with the rise of the Payday lending industry in the United States, consumer arbitration agreements became popular. These arbitration agreements require consumers with a legal claim against a business to submit that claim to binding, final arbitration. Although arbitrators in such cases are ostensibly supposed to be neutral, recent evidence indicates that such arbitrators favor lenders in consumer disputes and, in addition, the arbitration of consumer disputes is replete with other problems including issues with fairness, financial costs, other transaction costs, and lack of knowledge on the consumer’s part. Payday lenders take advantage of the benefits that consumer arbitration offers to repeat business players to shield their predatory actions from the public eye, thereby lessening the chance that a state or federal regulatory authority will learn of these actions and consequently take regulatory action or steps in civil court to curb the questionable conduct. Likewise, when dealing with individual consumers, the arbitration agreements tend to dissuade consumers from pressing a claim, prevent consumers with similar claims from learning about previous cases, and prevent consumers from joining forces as members of a class in a class action law suit.

Because one of the predicates of the Payday lending industry is predatory lending that targets minority customers, the use of arbitration agreements to shield the industry from liability and accountability make these arbitration agreements effective tools that allow the Payday lending industry to further propagate its discriminatory lending practices.

This Article concludes with a call for a ban of the use of arbitration agreements in the Payday lending field, and further seeks more equitable and representative drafting and application of legislation to protect all constituencies from predatory lending practices.

Anti-Suit Injunctions in Support of Arbitration Agreements in Europe – The Final Curtain Has Fallen
Martin Illmer

Yet another blow for the English: the final curtain for anti-suit injunctions to enforce arbitration agreements within the European Union has fallen. As the augurs had predicted, the ECJ, following the AG’s opinion, held that anti-suit injunctions enforcing arbitration agreements are incompatible with Regulation 44/2001. Considering the previous judgments in Marc Rich, van Uden and Turner as well as the civil law approach of the Regulation, the West Tankers judgment does not come as a surprise. It accords with the system and structure of the Regulation. De lege lata the decision is correct. Moaning about the admittedly thin reasoning and an alleged lack of convincing arguments does not render the decision less correct. Instead, the focus must shift to the already initiated legislative reform of Regulation 44/2001. Meanwhile, one may look for alternatives within the existing system to hold the parties to the arbitration (or jurisdiction) agreement, foreclosing abusive tactics by parties filing actions in certain Member States notorious for protracted court proceedings.

International Arbitration: Selected Preliminary Topics
Giovanni Distefano

A. International arbitration as opposed to other means of dispute settlement
B. The Concept of International Arbitration: definition, composition and international public / private arbitration
C. The requirement of consent
D. Applicable Law
E. The pathology of arbitral awards

First Contract Arbitration: Effects on Bargaining and Work Stoppages
Susan J.T. Johnson

Newly certified unions often experience difficulty negotiating a first agreement. To remedy this, the Employee Free Choice Act (EFCA) proposes that the National Labor Relations Act (NLRA) provide for first contract arbitration. Using a panel of Canadian jurisdictions that have introduced FCA legislation at different times over several decades, the author addresses three questions: (1) How does First Contract Arbitration (FCA) legislation affect the incidence of first agreement work stoppages? (2) Does FCA encourage or discourage collective bargaining in the negotiation of first agreements? (3) Does FCA influence the duration of first agreement work stoppages? First, the author finds that the presence of FCA legislation reduces first agreement work stoppage incidence by at least 50 percent. Descriptive measures reveal that FCA is accessed infrequently; it is even rarer for a first contract (in whole or in part) to be imposed. Second, the fact that FCA is associated with a substantial reduction in work stoppage incidence, when combined with evidence that it is rarely used, suggests that FCA encourages collective bargaining. Finally, first contract arbitration has no statistically significant impact on the duration of first agreement work stoppages.

The Energy Charter Treaty: A Step towards Consistency in International Investment Arbitration?
Oliver Jones and Justin D’Agostino

The potential for multiplicity of proceedings under international investment treaties has been the subject of concern and much recent debate. One of the most significant drawbacks identified is the possibility of inconsistent outcomes. Cases with materially identical facts and causes of action have resulted in divergent arbitral awards. This article (i) explores the background to and reasons for the contrary decisions in the Czech Republic and Ecuador disputes, (ii) critically appraises the solutions proposed by commentators in the field and (iii) examines whether the Energy Charter Treaty could help solve this problem for energy disputes.

At the Brink of Free Agency: Creating the Foundation for the Messersmith-McNally Decision - 1968-1975
Edmund P. Edmonds

One of the most dramatic periods in baseball’s long history of labor relations occurred from 1968 through 1975. The Major League Baseball Players Association negotiated baseball’s first Basic Agreement in 1968 without the benefit of any leverage that could alter most of Organized Baseball’s long practices that controlled the players’ mobility and wages. In 1975, however, the union won an arbitration panel hearing that determined that pitchers Dave McNally and Andy Messersmith were free agents after playing one full season under the renewed option year of their contracts and filing a grievance under the newly adopted arbitration process. This stunning result fundamentally altered Organized Baseball’s reserve system and launched free agency and the era of tremendous salary growth for major league baseball players.

This article highlights the stories of more than twenty players who refused to sign contracts before reporting to spring training between 1968 and 1975. Part I of the article provide a brief discussion of the creation of the reserve system during the nineteenth century. Part II offers a brief description of the three-year period from 1965 to 1968 that was a prelude to Al Downing’s decision in 1968 to report to spring training without signing his contract offer from the New York Yankees. Part III discusses Downing’s negotiations with the Yankees. Part IV covers events from 1969 to 1972 including the significance of Ted Simmons’ contractual dispute with the St. Louis Cardinals. Part V recounts the stories of the twenty players who began the 1973 through 1975 seasons without signing new contracts. Although all of these players, except Dave McNally and Andy Messersmith, ultimately reached an agreement or disappeared from the major league baseball scene, their collective efforts were an important contribution to the Players Association’s winning strategy over the owners.

The Hague Choice of Court Convention: Magnum Opus or Much Ado About Nothing?
Richard Garnett

It is a truism to note that in the past 50 years there has been an enormous expansion in international commerce and communications and that with such expansion there has been a proportionate increase in the volume and intensity of transnational disputes. The growth in such disputes has led to greater contact and conflict between legal systems. Rules of private international law which arose only rarely in the business of most national courts are now examined and applied regularly.

The problem of multi-jurisdictional adjudication where a single transaction spawns applications for relief in a number of countries pursuant to a number of different laws is becoming commonplace. Such a development has cast particular light on the rules for establishing jurisdiction in national courts and also the principles governing recognition and enforcement of judgments of foreign courts. Once greater attention and scrutiny was placed on the national rules of jurisdiction and enforcement of judgments it is not surprising that disparities and inconsistencies of approach were uncovered.

Typically, European defendants would complain of excessive exercise of jurisdiction by United States courts while US plaintiffs would bemoan the fact that European (and other national) courts were inconsistent and unreliable in recognising US judgments. While such a situation had been present for a long time it was the sheer volume of recent transnational disputes that made a solution more pressing.

The other development which had masked the problem of disparate national jurisdictional and judgment rules was the increased use and popularity of international commercial arbitration beginning in the 1980s. Once advisers realised that they could refer transnational business disputes to a private, neutral panel of their choice whose awards would be recognised by national courts in the vast majority of cases, the problems of transnational litigation could be often ignored.

Yet, international commercial arbitration has not been without its critics or its disadvantages, in particular cost in the large institutional arbitrations. This fact, combined with the problem that a number of transnational disputes could not be submitted to arbitration (eg. personal injury, consumer and employment cases) meant that the need for a globally uniform system of jurisdiction and judgment rules remained acute.

Paul Beaumont in his article in this colloquium traces the at times tortuous history of the Hague Conference negotiations and how the Hague Convention on Choice of Court Agreements (“the Convention”) emerged from what had originally been envisaged as a much larger project. Other contributors to this colloquium have made detailed considerations of particular provisions or subject matter in the Hague Convention. My task, by contrast, is to examine the Convention from a more holistic and forward-looking perspective. Specifically, the question I will address is whether the Convention will be regarded as a great achievement in the history of multilateral reform of private international law or instead will it be seen as a narrow document which allows too much scope for the intrusion of national interests at the expense of harmonisation?

In addressing this dichotomy, the Hague Convention will be examined from two main perspectives: firstly the likely impact of its principal provisions in Australian law and secondly the response to the Hague Convention among governments, practitioners and scholars in other potential Contracting States.

Reconciling Differences: The Theory and Law of Mediating Labor Grievances
Deborah A. Schmedemann

While grievance arbitration is the most common method of resolution of disputes arising under collective bargaining agreements, the author proposes that there is also a place for grievance mediation. The author compares mediation to arbitration and negotiation, and describes the strengths and weaknesses of mediation. She explains how mediation clauses in labor agreements could be enforced under section 301 of the LMRA, to protect rights created by those agreements, and proposes that mediation clauses be a basis for injunctions against strikes during the term of an agreement in certain situations. However, the author suggests that courts and the National Labor Relations Board should still have primary responsibility for enforcing non-waivable statutory rights. The author discusses the legal standards for review of arbitration and mediation in Title VII cases, in which the courts generally do not defer to prior findings. She then analyzes the Board's deferral doctrines in depth, and suggests that agreements to mediate should be given deference by the Board when the rights at issue are waivable. The author concludes that, under that standard, mediation could help maintain the relationships necessary for effective collective bargaining without sacrificing protections guaranteed by the law.

Drafting International Mediation Clauses
Rahim Moloo and Justin Jacinto

This chapter seeks to identify various topics that are important to consider in drafting a mediation clause, whether based on a model clause or not, in the context of an international transaction.

The Compliance with the Law Requirement in International Investment Law
Rahim Moloo and Alex Khachaturian

Investment treaties often require that an investment be made in accordance with the law of the host-State in order to receive protection under the treaty. As such, a tribunal hearing claims under such an investment treaty does not have jurisdiction over claims relating to illegally made investments. Even where no such requirement is present, there is an emerging trend, though inconsistently applied, that requires investments to comply with both host-State and international law in order for claims based on those investments to be admissible. Drawing on international case law and general principles of law this article discusses when an investment’s non-compliance with the law should act as a barrier to the investor’s ability to pursue its claims under an investment treaty.

Review of International Energy Investment Law: The Pursuit of Stability
Rafael Leal-Arcas

This book by Professor Peter Cameron examines the current multifaceted and multilayered system of legal stability for energy investments and how this system has been tested by unilateral state demands for contract renegotiation. Cameron’s contextual point of departure is the extraordinary increase in investor-state disputes in recent years and the growth of protection for investments in international law. In this sense, Cameron wonders how much of a difference it has really made to the energy investment scene.

Reestablishing Doctrinal Clarity and Correctness: Treaty Exceptions, Necessity, and the CMS, Sempra, and Enron Annulment Decisions
Andreas von Staden

Several arbitration awards rendered against Argentina have revealed fundamental problems in the interpretation and application of treaty-based non-precluded measures provisions and the customary law defense of necessity. The ICSID annulment decisions in the cases of CMS, Sempra, and Enron have provided much needed doctrinal clarification in this respect, and two of these have justifiably annulled the awards for failure to apply the proper law.

The International Centre for Settlement of Investment Disputes: Its Emerging Principles with Reference to Some Latest Cases
Sugandh Saksena

It’s an age of globalisation where trade and investment are no where concerned with international boundaries. Where there is trade, there is investment. Likewise, investments bring with them a room for disputes. International disputes are best resolved by Arbitration and Conciliation, i.e., Alternative Dispute Resolution system. In order to facilitate such a system of dispute resolution, the International Law provides for a Convention, known as the Convention for Settlement of Investment Disputes, much popularly as, the ‘Washington Convention’. The body established under this Convention, for the settlement of Investment Disputes, is the International Centre for Settlement of Investment Disputes (ICSID). The ICSID Convention is a multilateral treaty formulated by the Executive Directors of the International Bank for Reconstruction and Development (the World Bank). It was opened for signature on March 18, 1965 and entered into force on October 14, 1966.

To date 143 countries have signed and ratified the Convention to become Contracting State. As evidenced by its large membership, considerable caseload, and by the numerous references to its arbitration facilities in investment treaties and laws, ICSID plays an important role in the field of international investment and economic development.

This Paper aims at throwing light on the functioning of the Centre with the most recent principles laid down by the Centre in its awards, regarding Foreign Investments, and relations between the States and the Parties investing, along with a motive, as to why India should also be one of the signatories and ratifiers of the Convention.

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