Our focus turns to Germany this issue, where our practice is led by Patricia Nacimiento in Frankfurt. Patricia was recently named as an arbitration specialist in the fourth edition of Best Lawyers in Germany. On the back page Patricia shares her thoughts on life and arbitration in our informal Q&A series.
Following the German theme, Patricia has written an article on Germany as a venue for international arbitration. German businesses are significant users of arbitration globally and Germany’s importance as an arbitration centre is growing. Michael Mendelowitz and Camilla de Moraes consider the latest twist in the West Tankers saga and how best to protect your arbitration agreement in the face of potential court proceedings in Europe. Recent developments in relation to bilateral investment treaty arbitration are scrutinised by Martin J Valasek and Éric-Antoine Ménard who look at three recent cases on Most Favoured Nation clauses. The law in this area lacks clarity and we await further developments with interest.
Global practice leader - international arbitration
Norton Rose Group
Head of international arbitration
Norton Rose LLP
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Yukos v Rosneft
The English Court of Appeal has recently considered the application of the act of state doctrine to arbitration enforcement proceedings. In Yukos Capital SARL v OJSC Rosneft Oil Company  EWCA Civ 855 the Court of Appeal concluded that judicial acts are generally not regarded as acts of state for the purposes of the doctrine. The right to examine the substantial justice of a foreign court must arise when a party is asking the English court to recognise a decision of a foreign court, although cogent evidence is required before it is possible to call a foreign court decision partial and dependent. It was argued that because the Dutch Court of Appeal had already found that the setting aside of the arbitration awards in question by the Russian Courts was partial, the English courts were issue estopped from considering this point. The Court of Appeal disagreed finding that the English courts must make their own determination based on English public policy considerations.
Sulamerica v Enesa Engenharia ( EWCA Civ 638)
In Sulamerica the English Court of Appeal provided guidance on determining the law of an arbitration agreement in the absence of any express clause. The Court established firstly, that there is no assumption that the law of the agreement will follow the law of the contract. Secondly, one should perform a three stage enquiry into ‘express choice’, ‘implied choice’ and ‘closest and most real connection’. In the absence of other factors the implied law of the agreement will follow the law of the contract; however, one must always consider the wider commercial and legal context. To ensure certainty parties should stipulate the law they wish to apply. It is notable that the arbitration clause was upheld despite a concurrent exclusive jurisdiction clause.
On 13 July 2012 the Democratic Republic of Congo ratified the OHADA treaty.
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Germany as a venue for international arbitration
By Patricia Nacimiento and Fabiola Münch
Germany has a long tradition of international commercial arbitration. As a major industrial nation, Germany’s business community is one of the major users of arbitration. Statistics from the leading international arbitration institutions show the important role of German parties in international arbitration worldwide.
Today, arbitration is widely used in most areas of business and commerce in Germany. Arbitration in Germany has blossomed since the new German arbitration law entered into force in 1998.
Implementation of the Model Law in 1998
The revision was intended to make German arbitration law more user friendly and to align it with international practice. The drafters therefore decided on a broad adoption of the Model Law. The German Arbitration Act is part of the German Code of Civil Procedure (ZPO) where it constitutes the 10th book and its 41 sections (§§ 1025- 1066 ZPO) are to a large extent a verbatim adoption of the Model Law. The German arbitration law incorporates the Model Law for all arbitrations in Germany, both international and domestic.
“Arbitration in Germany has blossomed since the new German arbitration law entered into force in 1998”
The ZPO provisions apply if the parties agree on Germany as the place of arbitration or if an arbitral tribunal decides on Germany as the place of arbitration.
There are only a few mandatory provisions. The German arbitration law is governed by the principle of party autonomy and the parties may determine the procedure either in detail or by reference to a set of arbitration rules. In the absence of a specific agreement, the ZPO applies to an arbitration in Germany.
Unless specifically agreed otherwise in the arbitration clause, parties may apply either to a court or to the arbitral tribunal for interim measures. The tribunal is deemed competent to issue an interim measure where a valid arbitration clause exists and if that power is not explicitly excluded. However, the competence of the tribunal is not exclusive and the parties can apply to a state court to issue an interim measure even where an arbitration clause exists.
German law does not prescribe any particular interim measures. Unless otherwise agreed, the tribunal may, at the request of a party, order such interim measure of protection as it considers necessary.
Interim measures available include injunctive relief, security for costs and security for the amount in dispute. Orders requiring pre-arbitration disclosure of documents and preservation of evidence can be made. Interim measures are available to assist with the taking evidence of a witness and/or securing their attendance at a hearing. It is also possible to appoint a receiver.
Challenge and Enforcement of Arbitral Awards
Recourse against an arbitral award is provided for in the ZPO within strict limits. A party may apply to a court to set aside an award if the applicant can show sufficient cause. The following grounds may be raised:
- A party to the agreement did not have the legal capacity to enter into it
- The arbitration agreement is not valid under the applicable law
- A party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present its case
- The award deals with matters outside the terms of the arbitration agreement
- The composition of the tribunal or the procedure did not accord with an applicable provision of the ZPO or with a binding agreement between the parties, and this affected the award
- The subject matter of the dispute was not capable of settlement by arbitration under German law
- Recognition and enforcement leads to a result which conflicts with public policy
The application to the court must be filed within three months of receipt of the award, unless the parties have agreed otherwise.
Germany is a party to the New York Convention. Under German law, an arbitral award has the same effect on the parties as a final judgement. Enforcement requires a declaration of enforceability by the court.
Enforcement of foreign arbitral awards is based on the New York Convention so that enforcement may be denied only under the restricted grounds of Article V of the New York Convention. Grounds to deny enforcement are mainly the same as the grounds for setting aside an award described above.
“Germany has an experienced and arbitration friendly court system”
As described above, Germany is not only among the major users of arbitration. It has also developed into a venue for arbitration since the implementation of the Model Law. This is reflected in the existing and very effective arbitration infrastructure. In addition to a modern law, it also has an experienced and arbitration friendly court system. Arbitration matters are allocated to a specialist section of the Higher Courts thereby guaranteeing expert judges. And finally, institutional support is available through the German Institution of Arbitration (DIS) which offers efficient case administration.
Patricia Nacimiento is a partner and Fabiola Münch is an associate in the Frankfurt office of Norton Rose LLP.
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The interpretation of Most Favoured Nation clauses in bilateral investment treaties
by Martin J Valasek and Éric-Antoine Ménard
The interplay of a bilateral investment treaty (BIT)’s disputesettlement provision with a most-favored nation (MFN) clause has proven fertile ground for vigorous debate. This seems especially true after the three most recent awards addressing attempts by claimant investors to use MFN clauses to bypass a common requirement contained in BIT dispute resolution provisions that compels investors to litigate before the host State’s domestic courts for 18 months before becoming entitled to institute international arbitration proceedings against the State.
The application of MFN clauses to a disputesettlement provision
Twelve years ago, in Maffezini v Spain1, a BIT tribunal ruled for the first time that an MFN clause could apply to a dispute-settlement provision, and allowed the investor to circumvent an 18-month domestic litigation requirement. Up until now, the case law has overwhelmingly followed suit (with the notable exception of Wintershall v Argentina)2.
Most recently, in Impregilo v Argentina3, Hochtief v Argentina4 and ICS Inspection v Argentina5, arbitrators were all presented with a challenge to the tribunal’s jurisdiction on the basis that the investor had failed to observe the prior litigation requirements of the BITs (Italy-Argentina; Germany- Argentina; and UK-Argentina respectively). In each case, the investor countered that it could bypass the requirement by virtue of the MFN clause in the respective basic treaty, through which it could import a more favourable dispute resolution clause from a third-party treaty.
The majorities in Impregilo and Hochtief held that the tribunal had jurisdiction over the claim through the operation of the MFN clause, albeit for fundamentally different reasons and with strong dissenting opinions. Conversely, in ICS Inspection, the third and most recent case, the tribunal unanimously decided that the MFN clause could not be used to circumvent the treaty’s prior-litigation requirement.
In Impregilo, the majority (J Hans Danelius and Judge Charles N Brower) decided that while the pre-arbitration requirement was a mandatory jurisdictional requirement without which no ICSID jurisdiction could be asserted, the MFN clause could expand that jurisdiction. They attached a “special weight” to the wording of the clause, which provided that MFN treatment was to be accorded to “all (…) matters”. Given “the breadth of this language” and the “massive volume of case law” dealing with similarly worded MFN clauses, the majority concluded that the clause encompassed dispute settlement provisions.
In a lengthy dissent, Professor Brigitte Stern expressed disagreement with the application of MFN clauses to dispute resolution. In her opinion, all conditions qualifying a State’s consent are matters of jurisdiction. While an MFN clause may be invoked to expand an investor’s existing rights under a BIT, it cannot alter the conditions for the enjoyment of such rights. To Stern, the acceptance that MFN clauses may alter dispute resolution provisions undermined the importance of State consent in international arbitration and thus presented “great dangers”.
In Hochtief, the majority accepted that the MFN clause was only applicable to the exercise of rights and duties that were already established in the BIT. However, they concluded that the opportunity to commence an arbitration without observing the prior litigation requirement concerned the exercise of a pre-existing right to arbitrate. The 18-month litigation period could be regarded as “a provision going to the admissibility of the claim rather than to the jurisdiction of the Tribunal”. Thus, the MFN clause operated within the jurisdiction of the tribunal to which the parties to the basic treaty had consented.
In dissent, Christopher Thomas Q.C. rejected the view that the litigation requirement was a provision going to admissibility. Instead, he viewed the requirement as both “mandatory and jurisdictional in nature”. He also noted that the MFN clause did not include the “all matters” language that was found to be highly relevant by tribunals that had decided that an MFN clause applied to dispute resolution.
An uncertain future
While there is much that is contradictory in the reasoning of the majorities in Impregilo and Hochtief, in both cases the majority allowed the investor to use the MFN clause as a segway to bypass prior-litigation requirements. If recent developments in this area ended with Impregilo and Hochtief, it would be tempting to say that, despite strong intellectual attacks in the dissents of Stern and Thomas, the spirit of Maffezini still carried the day. However, earlier this year in ICS Inspection, the tribunal unanimously decided that an MFN clause did not extend to dispute resolution and could not be used to bypass the treaty’s prior-litigation requirement, which it characterized as going to jurisdiction, not admissibility. This decision, representing a break with two earlier cases which came to the opposite conclusion in relation to the very same MFN clause6, appears to vindicate the dissents of Stern and Thomas, and joins company with the earlier and until now isolated Wintershall decision.
In sum, these recent developments highlight the unpredictability and the inconsistency of the current body of case law on the interplay between MFN clauses and dispute resolution provisions. To our knowledge, at least three pending arbitration tribunals are currently faced with an attempt by an investor to overcome an 18-month litigation requirement. If anything, it will be interesting to see whether these cases can successfully make some order in this field of the law.
Martin J Valasek is a partner and Éric-Antoine Ménard is an associate with Norton Rose Canada LLP in Montréal.
- Maffezini v Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction, January 25, 2000.
- Wintershall Aktiengesellschaft v Argentine Republic, ICSID Case No. ARB/04/14, Award, 8 December 2008.
- Impregilo S.p.A. v Argentine Republic, ICSID Case No. ARB/07/17, Award, June 21, 2011.
- Hochtief AG v The Argentine Republic, ICSID Case No. ARB/07/31, Decision on Jurisdiction, 24 October 2011.
- ICS Inspection and Control Services Limited (United Kingdom) v Argentina, UNCITRAL, PCA Case No. 2010-9, Decision on Jurisdiction, 10 February 2012.
- National Grid plc v The Argentine Republic, UNCITRAL, Decision on Jurisdiction, 20 June 2006; and AWG Group Ltd. v The Argentine Republic, UNCITRAL, Decision of Jurisdiction, 3 August 2006
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The West Tankers saga; how to protect your jurisdiction clause
By Michael Mendelowitz and Camilla de Moraes
The West Tankers saga is a long-running and well documented one. In this issue, we consider the recent developments in the matter and how you may protect yourself if your contract counterparty sues you in another EU jurisdiction, in breach of an agreement to refer all disputes to arbitration in England.
The facts of the original case are remarkably simple. Erg Petroli SpA (Erg) chartered a vessel, the Front Comor, from West Tankers Inc (West Tankers). The charterparty was governed by English law and contained an agreement to arbitrate, with London as the seat of the arbitration. The vessel collided with a pier in Syracuse, Italy in 2000. Erg claimed on its insurance policy but then commenced an arbitration against West Tankers in London to recover the uninsured portion of its loss. In the meantime, Erg’s insurers (Allianz SpA) brought a claim against West Tankers in the court of Syracuse to recover the sum paid out by them.
West Tankers sought and obtained an anti-suit injunction from the English court to prevent the insurers from pursuing the proceedings in Italy, in breach of the arbitration clause, and a declaration that disputes were subject to arbitration. However, a leapfrog appeal by the insurers went to the House of Lords and was subsequently referred to the European Court of Justice (ECJ) on the question of whether an antisuit injunction could be granted to restrain proceedings in another EU member state or whether such an order was precluded by the EU jurisdiction rules set out in Council Regulation 44/2001 (the Brussels Regulation).
Meanwhile the London arbitration continued (with the insurers joined to the proceedings as co-claimants) and in May 2008 the tribunal declared West Tankers was not liable to Erg.
The ECJ decision, handed down on 10 February 2009, stated that anti-suit relief was unavailable. The result of this was that West Tankers had the benefit of an English arbitral award which exonerated them from any liability but nonetheless was embroiled in court proceedings in Italy which could not be injuncted.
In January this year, the English Court of Appeal held that an order could be made under section 66 of the Arbitration Act 1996 enforcing the arbitral award by way of a court judgment even though it was only in declaratory form. The order would then preclude enforcement by the insurers of any favourable judgment obtained from the Italian courts in England on the basis that the English courts would not be required to recognise and enforce a judgment from an EU court which conflicted with an earlier English judgment.
Following the ECJ decision, the arbitral tribunal dealt with two further matters which had been postponed. West Tankers claimed:
- damages from the insurers for breach of the arbitration clause; and
- a declaration as to West Tankers’ right to an indemnity against any damages that the Italian courts might award.
The arbitrators’ award
The tribunal dismissed both claims, holding that its jurisdiction to award damages for breach of the arbitration agreement was precluded by the Brussels Regulation and the ECJ decision. The tribunal’s view was that the ECJ had made it clear that the right of a party to have access to a national court with jurisdiction under the Brussels Regulation was a fundamental right in EU law and that denial of that right was contrary to the principle of “effective judicial protection.” Under article 5(3) of the Brussels Regulation the insurers had a right to bring proceedings against West Tankers in Italy, as that was the place where the harmful event occurred.
The further arguments
West Tankers appealed to the English Commercial Court on the basis of the following three arguments:
- Article 5(3) of the Brussels Regulation did confer a right upon the insurers to sue in Italy, but the right did not apply where the issue of jurisdiction was before the tribunal because arbitration was outside the Brussels Regulation. West Tankers argued that the Regulation affected the interface between EU courts and not between courts and arbitrators. The principle of effective judicial protection was not free-standing and its effect was limited to protecting specific rights e.g. the right to commence court proceedings, but if arbitration was outside the Brussels Regulation then there was no legal right to which it could attach. The insurers countered that arbitrators were required to apply EU law and that obligation overrode the exclusion of arbitration from the Brussels Regulation.
- West Tankers’ second argument was that even if the arbitral tribunal did have to apply the principle of effective judicial protection, the award of damages did not interfere with the insurers’ rights under the Brussels Regulation because the exclusion of arbitration inevitably gave rise to the possibility that there could be conflicting judicial and arbitral decisions. The insurers argued that an award of damages would amount to an interference with the Italian proceedings on a par with an anti-suit injunction by the English courts.
- Finally, West Tankers argued that the tribunal’s dismissal of the claim was premature. The arbitrators should have waited for the outcome of the Italian proceedings, as if the Italian court were to rule that there was a valid arbitration clause, there would be no conflict.
The High Court held, in a decision handed down by Flaux J on 4 April 2012, that the arbitral tribunal was wrong; the arbitrators did have jurisdiction to award damages for breach of the arbitration clause.
Flaux J’s decision to allow the appeal was based on the first submission advanced by West Tankers. He drew on the reasoning of the ECJ, namely the entitlement of the court first seised to rule on jurisdiction and the principle of mutual trust between member states. According to the judge, the principles identified by the ECJ extended to member states’ legal systems, but did not extend to private arbitral tribunals. The arbitrators were bound to apply EU law, but there was nothing in EU law which prevented the arbitrators from reaching a conclusion different from that reached by an EU court. If the arbitrators were not required to give effect to Article 5(3) of the Brussels Regulation, then they were not deprived of jurisdiction to award damages for breach of an arbitration clause which involved invoking Article 5(3).
This reasoning meant that it was unnecessary for Flaux J to consider West Tankers’ second and third submissions, although he confirmed that he found in West Tankers’ favour with respect to both arguments.
Implications and practical steps
As a practical measure parties should consider whether a declaration from the tribunal should be sought in any future arbitration that if foreign proceedings are commenced in breach of the arbitration agreement, damages should be payable by the party at fault. This is the case even if foreign proceedings have not yet been commenced and there is no indication that they will be.
Parties should also consider conferring express powers on the arbitral tribunal in their arbitration agreements to grant anti-suit relief and to make awards or declarations in respect of damages for breach of the arbitration agreement and/or an indemnity in respect of any damages awarded by a court in proceedings commenced in breach of the arbitration clause where such damages are inconsistent with the arbitral tribunal’s award.
Michael Mendelowitz is a partner and Camilla de Moraes is an associate in the London office of Norton Rose LLP.
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Reviewing the rules
Pierre Bienvenu (Global Pratice Leader, Montréal) has accepted an invitation to co-chair the task force revising the IBA Guidelines on Conflicts of Interest in International Arbitration. He will be assisted by Alison FitzGerald (associate, Ottawa). Joe Tirado (Head of International Arbitration, London) has been appointed by the ICC International Centre for ADR and the Steering Committee of the ICC Commission to the Task Force for the Revision of the ICC ADR Rules, ICC Expertise Rules and ICC Dispute Board Rules. Ramon Alvins (Senior Partner, Caracas) has been appointed as a member of the group for the revision of the CEDCA Arbitration rules. Pedro Saghy (associate, Caracas) has been appointed as a member of the group for the revision of the Caracas Chamber Arbitration rules.
Joe Tirado has been selected for inclusion in the second edition of the Best Lawyers in United Kingdom in the practice areas of Arbitration and Mediation and International Arbitration. Patricia Nacimiento (partner, Frankfurt) has been included in the fourth edition of Best Lawyers in Germany in the practice area of Arbitration and Mediation. Selection to Best Lawyers is based on an exhaustive and rigorous peer-review survey comprising more than three million confidential evaluations by top attorneys.
In May, Joe Tirado spoke on costs and Michael Kotrly (associate, Dubai) chaired a panel on the enforcement of arbitral awards at the Centre for International Legal Studies’ conference on international arbitration. Joe also spoke at an ICC Nigeria event in Lagos to launch the new ICC arbitration rules. In June, Pierre Bienvenu was a speaker on the jurisdictional aspects of ethical standards at McGill University. Michael Mendelowitz (partner, London) spoke on dealing with reinsurance disputes as part of a Falconbury conference, understanding the reinsurance industry.
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Pierre Bienvenu, Norton Rose Canada LLP
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Joe Tirado, Norton Rose LLP
Head of international arbitration
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Focus on Germany
Patricia is a partner in the Frankfurt office of Norton Rose LLP and specialises in investment arbitration, representing both states and investors. In 2007, the German government appointed her as one of four arbitrators to the panel of arbitrators at the International Centre for Settlement of Investment Disputes (ICSID). Patricia is also a lecturer at the University of Heidelberg, and in the MBA program of the University of Mainz. She is a member of the advisory board of the Swiss Arbitration Academy and member of the International Law Association’s working group on investment protection. She is also a member of the ICC Commission on Arbitration.
I am a lawyer because...
I love the action, the languages, the insight into other people’s business, the multiple cultures and traditions and having so many interesting people cross my path in this profession.
What gives you greatest satisfaction, professionally?
To make a bunch of egos, languages and legal cultures forget their egos, languages and legal cultures to set their mind solely on winning the case.
Travelling with Rebecca, Helena and Alexander (children), Hans Christian (husband) and Cookie (dog).
How do you spend the weekends?
I devote it to my second job as a driver for hockey, tennis and soccer teams.
If you weren’t a lawyer, what would you be doing?
What is your favourite arbitration institution?
The German Institution of Arbitration (DIS). It is well organised and has played a major part in Germany’s development into an established place of arbitration.
What is your biggest vice?
A little house by the sea on a forlorn Danish island where we spend any free minute we can spare.
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