Originally published May 2005
This article has been prepared by DLA Piper Rudnick Gray Cary lawyers based in London, Singapore and New York and marks the launch of their global arbitration practice.
Contents
- Europe
UK - Do principles of non-justiciability prevent an English court from interpreting public international law obligations imposed by BITs?
Singapore - ICC arbitral award challenged - did the expert appointed to assist the tribunal assume the role of the tribunal?
US law developments in requiring non-signatories to arbitrate
1. EUROPE - UK: Do principles of non-justiciability prevent an English court from interpreting public international law obligations imposed by BITs?
In the recent case of The Republic of Ecuador v Occidental Exploration and Production Company,
1 heard on 29 April 2005, the English courts were for the first time required to examine an arbitral award made under a bilateral investment treaty.The applicant, The Republic of Ecuador ("Ecuador") applied to the court under Section 67(1) of the Arbitration Act 1996 (the "Act"), challenging an arbitral award made against it in proceedings commenced by Occidental Exploration and Production Company ("Occidental") under the bilateral investment treaty ("BIT") between Ecuador and the United States.
The dispute the subject of the BIT proceedings arose from a claim by Occidental for reimbursement of VAT paid by it in connection with a contract for oil exploration in Ecuador between Occidental and Petroecuador (a state-owned corporation of Ecuador). Ecuador's challenge to the arbitral award was made on the grounds that the Tribunal had wrongly interpreted and applied the BIT, and therefore exceeded its jurisdiction. Determination of Ecuador's application would therefore require interpretation by the English courts of the public international law obligations set out in the BIT.
Occidental's "non-justiciability" argument
The application was opposed by Occidental on the principal ground that the relevant BIT is an international treaty which is "non-justiciable" by the English courts because (a) the courts are not at liberty to rule on rights and obligations of a state which is not a party to proceedings (in this case the United States); and (b) the English courts cannot interpret international treaties which have not been incorporated into English law. On this basis Occidental contended that the English court could not in this case exercise the power it would otherwise have under Section 67 of the Act.
Ecuador's response
Ecuador argued that Ecuador and the United States had expressly agreed in the BIT a mechanism for an arbitration process which is subject to the municipal (or domestic) law of the seat of the arbitration (in this case the law of England and Wales), and specifically the Arbitration Act 1996. Accordingly the signatories to the BIT had agreed to the supervision of the arbitration by the English courts under the Act. In addition, the English courts have jurisdiction to examine international treaties which are not incorporated into English law if it is necessary to do so in order to determine some domestic law right or interest.2
The decision
Mr Justice Aikens recognised that the rights and obligations under the BIT exist on a public international law plane (including the agreement to arbitrate itself). However, the law by which the arbitral procedure is conducted, and to which the arbitral tribunal is subject, exists on the "municipal" or "private" or "domestic" law plane. As previously established by the English courts,3 in determining such domestic law rights and obligations the courts have jurisdiction to rule on public international law. Section 67 of the Act provides a "foothold in domestic law",4 being the private or municipal law right to challenge the jurisdictional ruling of the arbitral tribunal, to allow such a ruling.
Mr Justice Aikens made clear that the English courts would also have jurisdiction to rule on the public international law rights and obligations under a BIT in order to determine challenges under Sections 68 (a challenge to an award on the grounds of serious irregularity) and 103 (a challenge to enforcement of an award) of the Act in the context of BIT proceedings.
Conclusion
The English courts have indicated that principles of "nonjusticiability" do not prevent them from ruling on public international law rights and obligations contained in BITs in circumstances where it is necessary to do so in order to determine domestic law rights under the Arbitration Act 1996.
Footnotes
1
[2005] EWHC 774 (Comm)2
Ecuador relied on the decision in Dallal v Bank Mellat [1986] QB 441 and The CND v The Prime Minister [2002] EWHC 2759 QB (Divisional Court)3
The court referred to the authorities cited by Simon Brown LJ in The CND v The Prime Minister (ibid) (including Oppenheimer v Cattermole [1976] AC 249 and R ex p Abbasi v Sec of State for Foreign and Commonwealth Affairs [2002] EWCA Civ 1598)4
Mr Justice Aikens cited the judgment of Simon Brown LJ in The CND v The Prime Minister in this regard (ibid)***************************************************
2. ASIA - Singapore: ICC arbitral award challenged - expert appointed to assist tribunal assumed the role of the tribunal?
The Singapore High Court, in Luzon Hydro Corp. v Transfield Philippines Inc,
1 recently considered an application to set aside an arbitral award on the basis that the arbitral procedure was not in accordance with the parties' agreement and there had been a breach of the rules of natural justice in the tribunal's rendering of the award. The court, in dismissing the application, held that an arbitral tribunal may appoint an expert to assist it without requiring a written report from the expert and that communications between such expert and the tribunal are confidential from the parties.Pursuant to the terms of reference entered into by the parties and the arbitrators, the tribunal in this case appointed an expert to assist it. The expert attended the arbitration hearing on liability issues, at which the tribunal informed the parties that it intended to seek the expert's assistance in "administrative matters" concerning the technical issues and the expert's opinion on these, which would be given in writing and shown to the parties. The tribunal also indicated that a copy of the expert's opinion would be given to the parties.
By a subsequent letter to the parties, the tribunal informed that it was no longer necessary to seek any written opinion from the expert, and indicated the scope of work completed by the expert, which included the expert's responses to the tribunal's technical queries. No objection was raised by the parties in relation to the contents of the tribunal's letter.
The party against whom the award was subsequently issued applied to the Singapore High Court to set aside the award under Article 34(1) of the United Nations Commission on International Trade Law Model Law, on the grounds that the arbitral procedure did not accord with the parties' agreement, and under Section 24(b) of the International Arbitration Act 1995, on the grounds that there had been a breach of the rules of natural justice in connection with the making of the award.
The applicant argued that, in view of the tasks which the expert had undertaken and the time spent, the tribunal had allowed the expert to be involved beyond its job scope agreed between the parties (which was merely to assist the tribunal in the collation of technical evidence). As such, there was a breach of the rules of natural justice as the expert had assumed the task of the tribunal of reviewing and determining the relevance of the evidence.
The applicant also argued that, as it had not been provided with copies of correspondence exchanged between the expert and the tribunal, it had been deprived of any opportunity to comment, as required by the ICC Rules and Model Law, on the views which the expert had expressed to the tribunal.
The Singapore High Court held that there was no evidence to suggest that the expert had exceeded his administrative function. The court also found that as the tribunal had not sought any written report from the expert, there was no requirement that the expert produce a written report to the parties. Further, the court found the expert's communications to the tribunal were confidential from the parties.
Conclusion
The court held that, unless there was strong and unambiguous evidence of irregularity in the way in which the arbitration was conducted, the integrity of the arbitral tribunal should not be questioned. The court added, in emphasising that there was no avenue for appeal under the Act, that it would not permit parties to "mount what appeared to be a 'back-door' appeal by attacking the manner in which the tribunal had made use of [the expert] when there was no evidence but only speculation that [the expert] had overstepped his bounds".
The decision is presently on appeal.
Footnotes
1
[2004] 4 SLR 705***************************************************
3. USA: US law developments in requiring non-signatories to arbitrate
It is well established in US law that a party cannot be required to arbitrate a dispute unless it has agreed to do so. Nonetheless, with a growing frequency parties are attempting to compel arbitration with a non-signatory. While some courts have suggested that the distinction between whether the non-signatory is a claimant or respondent is irrelevant, the Second Circuit recently held in Contec Corporation v. Remote Solution Co.
1 that whether the party being compelled to arbitrate is a signatory or a non-signatory is a significant part of the equation.In Contec, the plaintiff, a non-signatory to the agreement, filed a motion to compel the defendant, a signatory to the agreement, to arbitrate an indemnification dispute. The court held in part that because the defendant had signed the agreement, it had an "expectation and intent" to be bound by the agreement.2 In addition, because the arbitration clause was broad in its parameters, the court concluded that as a signatory to the agreement, the defendant could not "now disown its agreed-to obligation to arbitrate all disputes, including the question of arbitrability."3 This decision suggests albeit indirectly that the likelihood of a signatory successfully compelling a non-signatory to arbitrate in the United States is low.
US Courts have compelled a non-signatory to arbitrate if it: (1) incorporated an arbitration agreement into a separate contract it had signed; (2) behaved as if it was assuming the obligation to arbitrate; (3) through an agent acted as a de facto signatory of the arbitration agreement; (4) acted as the "alter ego" of a signatory (also known as "veil piercing"); or (5) knowingly exploited a contract containing an agreement to arbitrate for its own purposes (also known as "estoppel")4. Each of these five situations are described below:
Incorporation by Reference
. A non-signatory may be compelled to arbitrate if it entered into a separate agreement which expressly incorporates an arbitration clause. For example, a clause stating that "Party shall be bound by all of the terms and conditions of Contract X" will bind a nonsignatory.Assumption
. A non-signatory may be compelled to arbitrate where the non-signatory’s conduct indicates a clear intention to be bound to the arbitration clause. The conduct must be explicit, such as participation in the arbitration process without protesting.Agency
. If a non-signatory has acted as a de facto principal, the signatory may successfully be able to compel it to arbitrate. While the non-signatory may not be bound if it was acting on behalf of a disclosed principal, the non-signatory may not succeed in avoiding arbitration if it acted, even in part, on its own behalf as well as for its principal.Corporate Veil-Piercing, or "Alter Ego."
When a nonsignatory is the "alter ego" of another corporate entity, the court may "pierce the corporate veil" and require the nonsignatory to arbitrate if the non-signatory dominated the signatory affiliate for a wrongful purpose. Demonstrating common officers and/or common ownership is not enough to pierce the corporate veil. Instead, the signatory must show a "virtual abandonment of separateness" between the nonsignatory and the other contracting party.Estoppel
. Courts may bind a non-signatory to arbitration clauses where it has "knowingly exploited" an agreement containing an arbitration clause for its own benefit. The courts, however, are careful to distinguish a direct benefit, from an indirect benefit. A non-signatory whose benefit is tangential to the agreement will not be bound to an arbitration clause.Footnotes
1 398F. 3d 205 (2d Cir.2005)
2
ld at 2113
ld4
Thomson - CSF, SA v. American Arbitration Association, 64 F.3d 773 (2d Cir. 1995)4. News from the arbitration institutions International Chamber of Commerce (ICC)
The ICC has recently published its facts and figures on ICC arbitration in 2004. The headline statistics were that an alltime annual high of 1682 parties were involved in cases referred to ICC arbitration and that there was an increase in the proportion of large and complex cases. The statistics also show that the number of Asian parties rose steeply.
The key findings were as follows:
- 561 Requests for Arbitration were filed with the ICC Court in 2004;
- These Requests concerned 1,682 parties from 116 different countries and independent territories;
- In 11.6% of cases, at least one of the parties was a state, parastatal or public entity;
- The place of arbitration was located in 49 different countries throughout the world;
- Arbitrators of 61 different nationalities were appointed or confirmed under the ICC Rules;
- The amount in dispute exceeded one million US dollars in 58.8% of new cases; and, finally
- 345 awards were rendered.
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American Arbitration Association (AAA)
To commemorate the 80th Anniversary of the US Federal Arbitration Act ("FAA") and emphasise the importance of that legislation to the continued success of arbitration in the US, AAA are running a series of lectures around the globe.
Signed into law in 1925, the FAA was enacted by Congress to ensure the validity and enforcement of arbitration agreements. The fourth lecture in the series, "Kissing Cousins: The FAA and Modern Labor Arbitration", is scheduled for 20 October 2005 in Chicago.
Arbitration Institute of the Stockholm Chamber of Commerce (SCC)
Ten years ago, the SCC oversaw only a handful of BIT and MIT claims. Since that time, the number of Treaty based arbitration claims has grown exponentially, to more than 160 cases in 2004. In recognition of significant growth (which has largely been experienced in the last three years), the SCC is organising a conference on Investment Arbitration, with special focus on arbitration under the Energy Charter Treaty. This will be held in Stockholm on 9 and 10 June of this year. Topics covered will include the concept of expropriation, Treaty Claims and contractual claims, state responsibility and investments and investors covered by the Treaty.
This article is intended to provide information on recent legal developments. It should not be construed as legal advice or legal opinion on specific facts. Pursuant to applicable Rules of Professional Conduct, it may constitute advertising.
