"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.

Friday, December 17, 2010

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

Impact of Insolvency of a Party on Pending Arbitration Proceedings in Czech Republic, England and Switzerland and Other Countries
Alexander J. Belohlavek
Abstract:
The interference between insolvency law and the law applicable to arbitration is inevitable. Council Regulation (EC) No. 1346/2000 of 29 May 2000, on insolvency proceedings (Regulation), deals with proceedings being conducted in one EU Member State, while an insolvency proceedings involving one of the parties to the arbitration agreement was opened in another Member State. The present article describing impacts of opening an insolvency proceedings (within the scope of Regulation) and declaration of bankruptcy on pending arbitration in light of recent decisions of the Czech, English and Swiss arbitral tribunals and courts dealing with the insolvency of one of the parties in pending international arbitrations. Some case law of particular Austrian, Dutch, French and German courts will be reflected as well.

The formulation pending lawsuit within the meaning of Art 15 of the Regulations is broader than a lawsuit pending within the jurisdiction of the courts and it covers all proceedings, which might have the same or similar effect as a court judgment. The wording of Art 15 covers therefore pending arbitrations seating within the Member States applying the Regulation as well. Irrespective of the duty to apply all EC regulations within their territorial scope as a part of the law of all Member States (excl Danmark) the acceptance of the principle of suspension of ongoing proceedings, if being a part of the national law within the seat of any finding and contradictory dispute resolution mechanism, forms part of internal public policy.

Neither arbitration (arbitration clause) nor any other jurisdictional clause create a security of an contractual obligation. Trying to take out arbitration from the scope of the Insolvency Regulation or any law applicable on the effect(s) of insolvency proceedings within the seat of arbitration is a breach of the public policy principle prefering the equal and partial distribution of the bankruptcy assets to all (registered) creditors under a public supervisory. A reliance on the arbitration clause as a principle can not prevail the equality of all unsecured creditors of the debtor. The prevalance of the later principle over a reliance on the arbitral clause has furthermore to be understood as a part of international public policy (ordre public).

Court-Connected Arbitration in the Superior Court of Arizona: A Study of its Performance and Proposed Rule Changes
Roselle Wissler and Bob Dauber
Abstract:
This article reports the findings of an empirical study of arbitration in Arizona's general jurisdiction civil trial courts. The study found that the arbitration program's primary goals of providing faster and less expensive resolution of cases, reducing the court's workload, and maintaining or enhancing the satisfaction of users, were not entirely being met. Many cases did not meet arbitration deadlines and court case processing time standards. Most cases eligible for arbitration concluded before a hearing was held, and those cases that had a hearing seemed more likely to have been diverted from settlement than from trial. Consequently, the arbitration program was likely to affect the court's workload in a relatively small proportion of cases, was more likely to reduce the use of court pretrial rather than trial resources, and was unlikely to substantially reduce litigants' costs. But arbitration did increase access to a hearing on the merits. Lawyers who represented clients in arbitration had generally favorable assessments of the process and award, but expressed concerns about the adequacy of arbitrators’ knowledge of both substantive issues and arbitration procedures. A majority of lawyers favored retaining compulsory arbitration and some of its basic components but changing policies relating to arbitrator service and assignment. These findings, which were consistent with studies in other jurisdictions, suggest that court-connected arbitration does not have negative consequences, but also does not consistently or substantially improve the effectiveness and efficiency of dispute resolution.

Law Applicable to the Merits of International Arbitration and Current Developments in European Private International Law: Conflict-of-Laws Rules and the Applicability of the Rome Convention, Rome I Regulation and Other EU Law Standards in International Arbitration
Alexander J. Belohlavek
Abstract:
The determination of the applicable law may never exceed the limits of the contract entered into by the parties and their expectations and legal certainty. This criterion is to be understood as the main dogma. The global financial and economic crisis only confirmed that commercial practices became extremely brutal, and the current global situation confirms that any arbitral or choice-of-forum clause, i.e., an authorisation of the tribunal to choose any law or rules or even principles of law, does not indicate a greater willingness of the parties to settle potential disputes in a fair manner. The tribunals have to determine the applicable law as a legal system of a particular country using standard conflict-of-laws methods and conflict-of-laws rules as prescribed by applicable lex arbitri or (if authorised by lex arbitri and/or by the parties themselves) to first determine the relevant choice-of-law methods and rules. They have to reflect on the contract as well as potentially applicable lex arbitri if these contain binding instruction for conflict-of-laws resolution. In respect to the applicability of the Rome I Regulation in arbitration, the author‘s opinion is that the tribunals must apply it at once if they have to apply particular conflict-of- laws rules (as adapted by a number of national lex arbitri rules) and such conflict-of-laws rules are those of a country bound by the Regulation. The refusal to apply it would endanger certainty and foreseeability. Nevertheless, the arbitrators might do so, and they often have to find a more rational and commercially practical approach in interpreting the Regulation. In addition, they often determine the limits of the parties‘ autonomy, which in EC law are in fact (de iure) rather broad. And this occurs even though EU administrative structures usually attempt to subordinate arbitration conducted in EU countries under the ECJ (EU Tribunal) adjudicated standards, which are (in contrast to the Rome I Regulation itself) not binding for the arbitrators if determining substantial law issues.

Compulsory Arbitration Changes Proposed: Time to Comment
Roselle Wissler and Bob Dauber
Abstract:
This article summarizes the discussions and recommendations of the Committee on Compulsory Arbitration in the Superior Court of Arizona that form the basis of proposed changes to the Arbitration Rules and the authorizing statute. The proposed changes include increasing the maximum jurisdictional limit for arbitration, increasing arbitrator compensation and permitting CLE credit for arbitrator service, and altering some aspects of the process and associated deadlines to enhance efficiency. In addition, the committee proposed requiring wholly dispositive motions to be decided by the trial judge instead of the arbitrator and expanding the evidence admissible at arbitration hearings beyond that permitted by the Rules of Evidence. The article also explains the reasons behind the Committee's decision to retain other aspects of the arbitration system.

Lawyer Views on Mandatory Arbitration
Roselle Wissler and Bob Dauber
Abstract:
This article summarizes some of the key findings from a survey of Arizona lawyers regarding Arizona's court-connected arbitration system. Most lawyers who had represented clients in arbitration thought the process and award were fair. Their ratings of the arbitrators’ level of preparation and knowledge of the law and arbitration procedures, however, were less favorable. A majority of lawyers thought either that arbitration should remain mandatory for cases below the current jurisdictional limit or that a different ADR process should be made mandatory. A majority of lawyers favored retaining most of the basic components of the current arbitration system. But a majority favored changes in arbitrator service, assignment, and compensation. The lawyers appeared to be skeptical about court-connected arbitration's ability to provide a more efficient and effective dispute resolution process for smaller cases.

Mandatory Arbitration in Arizona: Structure and Performance
Roselle Wissler and Bob Dauber
Abstract:
This article summarizes some of the key findings regarding the structure and performance of Arizona's court-connected arbitration system. Most cases eligible for arbitration concluded before a hearing was held, and those cases that had a hearing seemed more likely to have been diverted from settlement than from trial. Consequently, the arbitration program was likely to affect the court's workload in a relatively small proportion of cases, was more likely to reduce the use of court pretrial rather than trial resources, and was unlikely to substantially reduce litigants' costs. Many cases did not meet arbitration deadlines and court case processing time standards. These findings, which were consistent with studies in other jurisdictions, suggest that court-connected arbitration does not have negative consequences, but also does not consistently or substantially improve the effectiveness and efficiency of dispute resolution.

Arbitration Agreement, MDR Clauses and Relation Thereof to Nature of Jurisdictional Decisions on the Break of Legal Cultures
Alexander J. Belohlavek
Abstract:
Arbitration is usually defined as a manner of dispute resolution. While in most legal systems the arbitration agreement is considered a type of procedural agreement, it is more closely connected with substantive law than procedural agreements stricto sensu, i.e. agreements entered into between parties related to particular pending or immediate proceedings with the intention of directing the course thereof. If one accepts the definition of procedural agreement as an agreement that induces its direct effect in the area of procedure, in relation to a certain formal procedure (whatever the kind), i.e. that these agreements are effective in relation to such procedure, such definition is evidently correct and relatively broad and is a definition of procedural agreement in the broad sense. The term procedural agreement so broadly defined can no doubt cover also arbitration and prorogation agreements, as arrangements on the manner of resolving potential disputes arising from substantive legal relations based either on a contract or otherwise (for example within extra-contractual obligations and on jurisdiction of a particular forum/tribunal or the manner of constituting tribunal to hear and to resolve such disputes, as well as other procedural terms relating to the particular procedure. It is an arrangement on a potential [future] procedure (approved and regulated at least in its basic principles by law) in its broadest sense, usually a procedure in the sense of an adversary fact-finding proceeding. Therefore there is no need for such an agreement to be made in respect of one specific proceeding. The basic typical feature of procedural agreement in the above-defined broad sense is its ability to induce effects approved by procedural law, including establishing the jurisdiction of particular forum (tribunal) before which a certain proceeding may be commenced and held. Besides, there is also another type of procedural agreement which I call procedural agreement in the narrow sense (or narrow procedural agreement) and which are entered into only in the course of a particular proceeding. The effects of these agreements are operative solely and exclusively within such particular proceeding or with respect to the subject of the proceeding, whether to the subject in its entirety or partially, when the subject matter scope delimited by the relevant procedural agreement is more narrow than the scope of the subject of the given proceeding. Thus the subject of such procedural agreement in the narrow sense cannot in any situation exceed the scope of the subject of the proceeding. If such situation occurs, it has to be considered according to the relevant applicable law whether such subject matter excess of the procedural agreement brings about some qualified effect (such as invalidity/nulity or simply ineffectiveness of the agreement) in respect of the procedural agreement in its entirety or to the part exceeding the subject of the procedure only. This category of procedural agreements includes for instance reconciliation agreements concluded in the course of proceedings, agreements on withdrawal of action, agreements on withdrawal of a remedy already filed, evidentiary agreements (on types of evidence and manner of taking evidence) etc. It is not only possible but in the author‘s opinion also necessary to apply substantive law to procedural agreements, at least as supportive instruments in questions not regulated by procedural law, the effect of procedural agreements (in any case at least of narrow procedural agreements and as a rare exception possibly also in broad procedural agreements in some countries according to their legal approach under the theory of extensive effect) is limited solely to the area of procedure. For a narrow procedural agreement to be valid and binding for parties, the parties must act within their respective procedural capacities, that is, within their respective procedural personalities. It is an agreement entered into by parties in civil proceedings in which they agree certain procedural legal effects. The subject-matter of the agreement is all relations that are subject to discretionary freedom of the parties in compliance with the law and rules applicable to a given specific proceeding and to the manner and course of the proceeding. In any case the procedural agreements in terms arbitration agreement (arbitration clause) will commonly be evaluated pursuant to substantial law and its institutes, at least in civil law, while in the common law the judges dispose of a broad range of possibilities to evaluate such agreements abstractedly from the substantive law. This close link between arbitration agreements and substantive law arises from the fact that arbitration clauses are entered by the parties before any particular proceedings are initiated, and in most cases, simultaneously with the establishment of a substantive legal relation itself, i.e. a particular contract or legal relation similar in nature, and they are intended to serve as a dispute resolution mechanism in order to settle disputes concerning the main agreement in cases concerning arbitration clauses, or a separate contract in cases of formally separate arbitration agreements. The purpose of the arbitration agreement is purely procedural, i.e. designating the method of dispute resolution for the main agreement.

The theoretical problem of distinguishing between the procedural and substantive nature of dispute resolution agreements becomes very real in practice when it comes to the question of determining the nature and legal effect of multi-step (called as combined or multi-tiered as well) agreements. The determination of the substantive or procedural nature of such agreements directly affects their enforcement in practice. The effect of the initial tiers of the MDR agreement is limited mean that MDR clauses are unsuitable as efficient means of dispute resolution? It has to be stated that by saying that the MDR clause is not suitable to prevent resorting to the arbitration or court proceedings, it does not mean that it is of no effect. The nature of the clause as a substantive agreement does indeed affect the position of the parties in the dispute. The question of the effectiveness and nature of MDR clauses has to be separated.

Civil law jurisdictions generally tend to provide a less rigorous approach to jurisdictional awards, which means that the judicial review of such awards is performed at the outset, i.e. the court is authorized to fully remit the arguments of the arbitral tribunal related to jurisdiction and in turn overturn the arbitral tribunal’s decision on grounds of improper justification of the award or inconsistency with applicable law. In other civil law jurisdictions the rigid nature of the jurisdictional ruling is softened by the possibility of the continuous review of the issue of jurisdiction, which can be addressed throughout the proceedings. In the Czech arbitration law and in other jurisdictions there is also an otherwise rarely recognized duty of arbitrators to address the issue of jurisdiction ex officio. On the other hand, common law jurisdictions only provide limited possibility for the review of jurisdictional decisions. This solution gives the arbitrators great autonomy to acquire jurisdiction over disputes, or more precisely, it enables parties to the arbitration agreement to transfer their fate fully into the hands of arbitrators. This situation is both criticized and praised at the same time. From the above, it seems obvious that a large number of civil law jurisdictions that have been examined do not consider the decision on jurisdiction to be a decision on the merits, or a substantive decision. This decision, in terms of the definitions presented, is of a purely procedural nature, and in turn does not constitute a res iudicata objection. One of the consequences is that for example the rendering of an award on jurisdiction as a kind of interim award does not limit the court to set-aside the final award in the same proceedings, even if any setting-aside has not been applied specifically regarding the [interim] award on jurisdiction, if rendered. The jurisdictional issue is, as a matter of principle, to be understood in the particular jurisdictions as a spine of the whole proceedings (arbitration).

Arbitration's Suspect Status
Hiro N. Aragaki
Abstract:
Concerned about abuses of power in the arbitration area, state legislatures have stepped up efforts to regulate arbitration agreements. But under the U.S. Supreme Court’s Federal Arbitration Act ("FAA") jurisprudence, such measures are uniformly preempted, resulting in what one scholar has described as "federal imperialism" in an area of law traditionally reserved for the states. This has led to numerous calls for reform, including the controversial "Arbitration Fairness Act" currently pending in Congress.

Under the Constitution’s Supremacy Clause, the FAA should preempt only state laws that stand as an "obstacle" to its purpose. The traditional understanding of that purpose is to enforce arbitration agreements as written. In this Article, I offer a different interpretation of that purpose as one of anti-discrimination: of reversing centuries of "judicial hostility," pursuant to which courts refused to honor pre-dispute arbitration agreements in quite the same way they did other contracts. If I am correct, the FAA should preempt only those state laws that can be said to discriminate improperly against arbitration. Many courts, scholars, and practitioners have lent credence to this theory, but this is the first article systematically to develop it.

This is the first of two works in which I use anti-discrimination law and theory as a lens to critique the Court’s FAA preemption jurisprudence and to develop a more sophisticated approach - one that is better at reconciling the states’ regulatory interests with the "national policy favoring arbitration."

Court Related Arbitration: Access, If Not Efficiency
Roselle Wissler and Bob Dauber
Abstract:
This article summarizes the findings of an empirical study of arbitration in Arizona's general jurisdiction civil trial courts. The study found that the arbitration program's primary goals of providing faster and less expensive resolution of cases, reducing the court's workload, and maintaining or enhancing the satisfaction of users, were not entirely being met. Arbitration cases often did not meet court case processing time standards. Cases that had an arbitration hearing appeared more likely to have been diverted from settlement than from trial. The findings, which were consistent with studies in other jurisdictions, suggest that court-connected arbitration does not have negative consequences, but also does not consistently or substantially improve the effectiveness and efficiency of dispute resolution.

Fee Shifting in Investor-State Arbitration: Doctrine and Policy Justifying Application of the English Rule
David P. Riesenberg
Abstract:
In investor-state arbitration, tribunals can and should apply the English rule on legal costs and abandon the two alternatives, the American rule and the pro-claimant rule. Under the English rule, the unsuccessful party in a dispute must indemnify the prevailing party for the costs of dispute resolution. Both doctrine and public policy support the application of the English rule, particularly in light of the much-publicized backlash against the investor-state arbitration system. Most importantly, the English rule would help to mitigate the two most commonly identified causes of the backlash — the system’s alleged proinvestor bias and its chilling effect on host states’ legitimate use of police power. Though a slowly growing number of tribunals have either followed or purported to follow the English rule, the doctrine and policies that justify applying it have so far been either poorly articulated or ignored. This Note presents those justifications in detail for the first time.

Harmonization of International Investment Law: Illustrations from the Case of Suez, Sociedad General de Aguas de Barcelona S.A., Vivendi Universal S.A. and AWG Group v Argentine Republic
James Harrison
Abstract:
Arbitral tribunals charged with deciding investment treaty disputes have sought to harmonize the interpretation of those treaties in such a way that one can begin to speak of an emerging jurisprudence constante on certain issues of international investment law. One recent case which clearly demonstrates this trend for harmonization is Suez, Sociedad General de Aguas de Barcelona S.A., Vivendi Universal S.A. and AWG Group v Argentine Republic. This note considers how the claims made by the investors were dealt with by the tribunal. In particular, it will pay attention to whether or not differences in the language of the three BITs at issue in this case had any impact on the decision of the tribunal. It will also consider how the tribunal used previous investment arbitral awards in its reasoning. It is argued that the most convincing way of harmonizing the substantive standards of the three BITs would be to consider them as incorporating customary international law standards, as was implicitly done with the expropriation standard in this case. In contrast, the reasons for following previous arbitral awards are less convincing when the substantive rules being applied are interpreted as an autonomous treaty standard. In these circumstances, interpretation is not an appropriate technique for harmonizing international investment law, given inherent differences in the language and context of investment treaties. It does not follow that harmonization cannot occur, however. The MFN clause could be used to that a better standard of treatment is applied to all investors, as was done in relation to the procedural prerequisites in this case.

Enjoining Employers Pending Arbitration: Some Misconceptions and Clarifications
William P. Kratzke
Abstract:
Labor organizations increasingly sue in federal courts to obtain an injunction enjoining an employer from pursuing a contemplated course of action pending arbitration. This Article will demonstrate that the Norris-LaGuardia Act is inapplicable in this context, which leads to the conclusion that a "Boys Markets" injunction against an employer simply is not possible. When a union seeks to have contemplated employer conduct enjoined pending arbitration, the action should not be governed by the principles of the Norris-LaGuardia Act, Boys Markets, or Buffalo Forge. Rather, an employer should be enjoined from pursuing a contemplated course of action when its conduct interferes with the preservation and advancement of a strong, underlying policy of labor relations law - namely, the maintenance of the central role played by the arbitration process. Injunctive relief should minimize the risk of erroneous, irreparable injury as well as provide the final judicial solution to the arbitrable dispute. This premise does not mean that the employer must always be thwarted in its efforts to make changes. It does mean, however, that the employer should bear the risk that arbitration as a process will be undermined. If the employer cannot bear this risk and its cost, it should be enjoined.

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