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«ICCA’S GUIDE TO THE INTERPRETATION OF THE 1958 NEW YORK CONVENTION: A HANDBOOK FOR JUDGES INTERNATIONAL COUNCIL FOR COMMERCIAL ARBITRATION ICCA’S ...»

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Physical impediments to proceeding with arbitration cover very few situations such as the death of an arbitrator named in the arbitration agreement or the arbitrator’s refusal to accept the appointment, when replacement was clearly excluded by the parties. Depending on the particular provisions of the applicable law, these cases could lead to the impossibility of performing the arbitration agreement.

Much more frequently, arbitration clauses may be so badly drafted as to legally impede the commencement of arbitration proceedings. These clauses are usually referred to as “pathological”. Strictly speaking, such arbitration agreements are actually null and void and it is often this ground that is raised in court. Such clauses should be interpreted according to the same law as that governing the formation and substantive validity of the arbitration agreement.

The following scenarios are frequent in practice.

• Where the referral to arbitration is optional Some arbitration agreements stipulate that the parties “may” or “can” refer their disputes to arbitration. Such permissive words make it uncertain if the parties intended to refer their disputes to arbitration.

Such arbitration clauses should nonetheless be upheld, in keeping with the general principle of interpretation according to which contract terms shall be interpreted so as to give effect to all the terms rather than to deprive some of them of effect.

ICCA Guide to the NYC CHAPTER II

• Where the contract provides for arbitration as well as jurisdiction of the courts In such cases, it is sometimes possible to reconcile both stipulations and uphold the arbitration agreement. To achieve this the court must establish the parties’ true intention. In particular, the parties should be referred to arbitration only if they indeed wished to have their disputes settled by that means, whether or not in combination with another dispute-resolution mechanism.

For example, the Singapore High Court held that an agreement that “irrevocably” submitted to the jurisdiction of the courts of Singapore was not, upon a proper construction, necessarily irreconcilable with another clause of the same contract that provided for arbitration. The court found that the parties did intend to have their disputes decided by arbitration and that the reference to Singaporean jurisdiction operated in parallel by identifying the supervisory court of the arbitration (the lex arbitri).11 Such interpretation follows the general principle according to which contract terms shall be interpreted so as to give them effect.

• Where the arbitration rules or arbitral institution are inaccurately designated In some cases the inaccuracy of some clauses makes it impossible for the court to determine the arbitral forum chosen by the parties. The arbitration cannot proceed and the court should then assume jurisdiction over the dispute. In some other cases, however, the inaccuracy may be overcome by reasonable interpretation of the clause. In other cases, courts may rescue a pathological clause by severing a provision that makes it

11. Singapore: High Court, 12 January 2009 (P.T. Tri-M.G. Intra Asia Airlines v. Norse Air Charter Limited) Yearbook Commercial Arbitration XXXIV (2009) pp. 758-782 (Singapore no. 7).

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unenforceable, while still retaining enough of the agreement to put the arbitration into operation.

For example, the United States District Court for the Eastern District of Wisconsin examined an arbitration agreement providing (in the English version) that disputes be arbitrated in Singapore “in accordance with the then prevailing Rules of the International Arbitration” and (in the Chinese version) that arbitration would be conducted “at the Singapore International Arbitration Institution”.12 The court read this to mean the “well-known arbitration organization known as the Singapore International Arbitration Centre”.

• Where there is no indication whatsoever as to how the arbitrators are to be appointed (“blank clauses”) It may happen that the arbitration clause merely states “General average/arbitration, if any, in London in the usual manner”.

In general, such a clause should be upheld only in so far as it contains a detail likely to link the blank clause to a country whose courts are able to provide support for the arbitration to commence.

Such a “linking detail” can be found in the example given above. The parties could apply to the English courts to have the arbitrators appointed. The blank clause could also be upheld if “the usual manner” referred to allows identification of the elements necessary to trigger the commencement of arbitration. The expression “usual manner” may indeed be interpreted as a reference to past practices among members of

12. United States: United States District Court, Eastern District of Wisconsin, 24 September 2008 (Slinger Mfg. Co., Inc. v. Nemak, S.A., et al.) Yearbook Commercial Arbitration XXXIV (2009) pp. 976-985 (US no. 656).

ICCA Guide to the NYC

CHAPTER II

the same commodity or trade association, thus suggesting the application of the arbitration rules of this association, if any.13 In the absence of any “linking detail”, blank clauses could not be upheld.





IV.4. IS THERE A DISPUTE, DOES IT ARISE OUT OF A DEFINED LEGAL

RELATIONSHIP, WHETHER CONTRACTUAL OR NOT, AND DID THE

PARTIES INTEND TO HAVE THIS PARTICULAR DISPUTE SETTLED BY

ARBITRATION?

In order for arbitration to take place, there should be a dispute between the parties. Courts are not required to refer the parties to arbitration where there is no dispute between them, although this occurs very rarely.

Disputes arise out of defined legal relationships, which can be either contractual or in tort. Whether a claim in tort is covered depends on the wording of the arbitration clause, i.e., whether the clause is broadly worded, and whether the claim in tort is sufficiently related to the contractual claim.

However, a party to an arbitration agreement may still argue that the claims asserted against the party relying on the arbitration agreement do not come within the ambit of the arbitration agreement.

IV.4.1. Theoretical Background The requirement that the dispute fall within the scope of the arbitration agreement for the parties to be referred to arbitration is implicit in Article

13. See, e.g., Italy: Corte di Appello, Genoa, 3 February 1990 (Della Sanara Kustvaart Bevrachting & Overslagbedrijf BV v. Fallimento Cap. Giovanni Coppola srl, in liquidation), 46 Il Foro Padano (1991) cols. 168-171; Yearbook Commercial Arbitration XVII (1992) pp. 542-544 (Italy no. 113).

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II(3) which states as a condition thereto that the action be “in a matter in respect of which the parties have made an agreement within the meaning of this article”.

IV.4.2. Practice (i) Should the language in an arbitration clause be interpreted broadly?

The question sometimes arises whether under a strict interpretation, the term “arising under” could be understood as having a narrower meaning than “arising out of” a defined legal relationship. Similar questions arise with regard to the scope of “relating to” and “concerning”.

However, as suggested in the English Court of Appeal case of Fiona Trust v. Privalov,14 attention should rather be focussed on whether it can be reasonably inferred that the parties intended to exclude the dispute at hand from arbitral jurisdiction. As the court then put it “[o]rdinary business men would be surprised at the nice distinctions drawn in the cases and the time taken up by argument in debating whether a particular case falls within one set of words or another very similar set of words”.

The decision was confirmed by the House of Lords who “applauded” the opinion of the Court of Appeal. 15

14. United Kingdom: England and Wales Court of Appeal, 24 January 2007 (Fiona Trust & Holding Corporation & Ors v. Yuri Privalov & Ors) [2007] EWCA Civ 20, para. 17;

Yearbook Commercial Arbitration XXXII (2007) pp. 654-682 at [6] (UK no. 77).

15. United Kingdom: House of Lords, 17 October 2007 (Fili Shipping Company Limited (14th Claimant) and others v. Premium Nafta Products Limited (20th Defendant) and others) [2007] UKHL 40, para. 12; Yearbook Commercial Arbitration XXXII (2007) pp. 654-682 at [45] (UK no. 77).

ICCA Guide to the NYC

CHAPTER II

(ii) What if the arbitration agreement contains some exceptions to its scope?

The language of some arbitration agreements may seem to cover only a certain type of claims or to be limited to a specific purpose. On the other hand, the disadvantages of having disputes under the same contract allocated to different jurisdictions are substantial. Therefore, if an arbitration clause is broad, only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail, particularly where the exclusion is vague.

IV.5. IS THE ARBITRATION AGREEMENT BINDING ON THE PARTIES TO THE

DISPUTE THAT IS BEFORE THE COURT?

To what extent may a non-signatory be deemed a party to the “original” arbitration agreement and may successfully request the referral to arbitration?

IV.5.1. Theoretical Background (i) Arbitration agreements are binding only on the parties The doctrine of privity of contracts applies to arbitration agreements. It means that an arbitration agreement only confers rights and imposes obligations on the parties to it. The scope of the arbitration agreement with respect to parties will be referred to as the “subjective” scope.

(ii) Non-signatories may also be parties to the arbitration agreement The subjective scope of a contract cannot be defined solely with regard to the sole signatories of an arbitration agreement. Non-signatories may also assume the rights and obligations arising under a contract, under certain conditions. By way of example, it is common ground that in principal-agent relationships, the contract signed by the agent actually binds the principal. Succession, the theory of group of companies, the 58 ICCA Guide to the NYC

REQUEST FOR THE ENFORCEMENT OF AN ARBITRATION AGREEMENT

piercing of the corporate veil and estoppel, among other theories, may also lead to conclude that non-signatories have assumed a party’s rights and obligations under an arbitration agreement.

The question arises whether binding a non-signatory to an arbitration agreement could be read as being in conflict with the writing requirement set out in the Convention. The most compelling answer is “no”. A number of reasons support this view.

The question of formal validity is independent of the assessment of the parties to the arbitration agreement, a matter that belongs to the merits and is not subject to form requirements. Once it is determined that a formally valid arbitration agreement exists, it is a different step to establish the parties which are bound by it. Third parties not explicitly mentioned in an arbitration agreement made in writing may enter into its ratione personae scope. Furthermore, the Convention does not prevent consent to arbitrate from being provided by a person on behalf of another, a notion which is at the roots of the theories of implied consent.

(iii) How to determine the subjective scope of the arbitration agreement Article II(3) implicitly requires the court to determine the subjective scope of an arbitration agreement when it states that “[t]he court of a Contracting State, when seised of an action in a matter in respect of which the parties have made an agreement within the meaning of this Article...” shall refer the parties to arbitration.

Various legal bases may be applied to bind a non-signatory to an arbitration agreement. A first group includes theories of implied consent, third-party beneficiaries, guarantors, assignment and other transfer mechanisms of contractual rights. These theories rely on the parties’ discernable intentions and, to a large extent, on good faith principles.

They apply to private as well as public legal entities. A second group includes the legal doctrines of agent-principal relationships, apparent authority, veil piercing (alter ego), joint venture relations, succession and

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estoppel. They do not rely on the parties’ intention but rather on the force of the applicable law.

(iv) The law applicable to the determination of the subjective scope of the arbitration agreement According to which law should it be decided whether a non-signatory is bound or not by an arbitration agreement?

Essentially, the matter should be addressed pursuant to the law governing the arbitration agreement. In the absence of a parties’ agreement on the matter, it is generally understood that the arbitration agreement should be governed by the law of the seat of the arbitration or the law governing the underlying contract as a whole or in some cases the lex fori. However, some court decisions have approached the issue through the application of international principles or lex mercatoria, considering it mainly as a matter of fact and evidence.

IV.5.2. Practice

(i) When exactly does a respondent have a right to be referred to arbitration?

The answer is case-specific. A court facing this question should analyse the issue under the circumstances and decide within that context whether it is arguable or not that a non-signatory may be bound by the arbitration agreement. If it is, the most preferable course of action is to refer the parties to arbitration and let the arbitral tribunal examine and rule on the matter. Courts would be able to review the arbitral panel’s decision regarding the incorporation of a non-signatory to the arbitration at the stage of setting aside or enforcement of the award.

Courts have upheld the referral to arbitration of disputes involving non-signatories on the ground that the dispute between a signatory and a non-signatory appeared sufficiently connected to the interpretation or 60 ICCA Guide to the NYC

REQUEST FOR THE ENFORCEMENT OF AN ARBITRATION AGREEMENT



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