International Commercial Arbitration
Peter Maggs International Commercial Arbitration Fall 2008
Chapter 1 – Introduction
August 25, 2008
· Much of the course is going to cover what comes before/after an arbitration
o The process of arbitration itself is not that different to what happens in most countries in a trial – more limited discovery than in US court cases (US is unusual in this respect – closer to systems in other countries)
o Arbitrators play the role of judges.
· We’ll spend a lot of time looking at the New York Convention (in supplement or at www.uiuc.edu/ph/www/p-maggs)
o One of the greatest advantages to Arbitration
o Also called UN Convention on the Enforcement of Arbitral Awards
o Your chances of getting an arbitral award rendered in one country enforced in another are much greater than chances of getting a court judgment enforced.
o We’ll essentially have to know the NY Convention by memory – most cases deal with it.
Approaches to Dispute Resolution
· How should one resolve disputes? The question is still wide open:
o Arbitration and litigation at one end – both involve 3rd party adjudication
o Are judicial or arbitral proceedings better methods than negotiation, mediation, or conciliation for resolving controversies w/ international dimensions?
· Mediation, conciliation and “med-arb” à a 3rd party appears, but the role of this party boils down essentially to facilitation of a compromise rather than decision-making.
Mediation and Conciliation
· No clear distinction of when to call sthg mediation or conciliation
· Some question as to whether this chapter belongs in the book:
· You’ve got 2 types of dispute resolution:
o ADR (negotiation, etc. à “talking”)
§ You never know if it’ll work or not – you talk to the other party, maybe bring in a 3rd party to see if you can settle it, but you never know if it’ll work or not
§ A high percentage of attempts will fail
o JUDICIAL (and quasi-judicial à courts, arbitration)
§ Here, you know there’ll be a resolution – there’ll be a winner or a loser.
§ Unless an arbitrator fails to follow proper procedures, you’ll reach a result and this will be enforceable.
§ Arbitration is essentially un-appealable (unlike a trial court decision)
· Mediation seems to fall under ADR
· 2 types of Mediation:
o Ad Hoc – more informal talking
o Institutional – you go to an institution to help you resolve the problem (focus of Ch. 1)
Arbitration and Mediation
World Intellectual Property Organization Guide to WIPO Mediation
· What is Mediation?
o A non-binding procedure:
§ Parties are not obligated to continue w/ the mediation process after the first meeting. à Parties are always in control
§ A decision cannot be imposed on the parties – they must voluntarily agree to a settlement for it to be concluded.
§ The mediator is NOT a decision-maker, then, unlike the judge or arbitrator
o 2 types/models of mediation:
§ Facilitative Mediation: mediator endeavors to facilitate communication btwn the parties and to help each side to understand the other’s perspective, position and interests in relation to the dispute
§ Evaluative Mediation: mediator provides non-binding assessment/evaluation of the dispute, which parties are then free to accept or reject as the settlement of the dispute.
Parties decide which model to follow and the WIPO Arbitration and Mediation Center (the Center) will assist them in identifying an appropriate mediator World Intellectual Property Organization (WIPO) – provides treaties on IP, arbitration, or mediation – wants to be seen as full-service institutions
o A confidential procedure:
§ Encourages frankness and openness of the process
§ Assures the parties that admissions, proposals or offers for settlement will not have any consequences beyond the mediation process. They cannot, as a general rule, be used in subsequent litigation or arbitration
§ Offer for a settlement: you can’t use it as an admission of guilt if refused, later if it goes to court.
· Incentive – we want to encourage settlement negotiations (strong public policy disfavoring such usage)
· Even before the rules of evidence, courts would not like to admit it for this reason
§ As far as CL countries are concerned, the confidentiality of mediation is fairly consistent
§ Mediators talking to one party or another – perfectly appropriate, whereas it would be inappropriate for a judge (a judge shouldn’t listen to arguments of 1 party without the other party being there to offer counter arguments, but it’s ok for a mediator)
· How does Mediation differ from Arbitration?
o Differences stem from the fact that in mediation, the parties do not transfer decision-making power to the mediator à
Outcome is determined in accordance with an objective standard (the applicable law) à rights-based procedure
Any outcome is determined by the will of the parties à interest-based procedure (parties can take into account business interests, can decide outcome w/ reference to their future relationship rather than only their past conduct)
A party’s task is to convince the arbitral tribunal of its case (addresses arguments to the tribunal, not to the other side)
A party’s task is to convince, or negotiate with, the other side (addresses the opposing party, not the mediator)
· For Which Disputes is Mediation Appropriate and What are Its Advantages?
o Mediation doesn’t work in a situation where one party refuses to cooperate
§ If the party is being a sort of pirate, arbitration won’t work either, b/c they won’t have signed an agreement to arbitrate.
§ After a dispute has arisen, it’s hard to get an agreement to arbitrate, b/c one party will think they have better chances in litigation
· Easier to get them to agree to mediate b/c there’s less risk – you can always turn down the result of the mediation.
Zurich Mini-Trial Rules (p. 10)
· Vigorous competition between various arbitration and mediation organizations
o They put on their websites model arbitration agreement clauses (makes it easy for you to hire them – it’s a business)
o They also post the rules on the internet, usually in several languages
o Maggs says that the Swiss has recently come up with a uniform set of Swiss Rules since the book was written – no more individual city chamber of commerce rules
o They hold a mock trial, then the mediator says how he would decide it if it were a real trial
o Law firms often run an internal moot-court (secret mini-trial)
o These help determine what your chances are, gives a starting point for settlement negotiations.
· Something in the Vienna Rules that allows the party, if they agree to a settlement amount, to turn it into an arbitral award:
o Settlement agreements are like contracts, harder to enforce
o So, sometimes, if the parties agree, the mediator can become an arbitrator and issue an arbitral award enforceable in different countries
§ Advantage to guy paying: if the other side has a powerful award, they might settle for less money; also, you know they can’t come back and ask for more
Frydman v. Cosmair, Inc.
US Dist. Ct., Southern Dist. of NY, 1995
· Situation: you get a 3rd party to supply a missing term to a contract
· Facts/Procedural History:
o Ps file an action in NY Supreme Court (trial court), as a regular lawsuit
o Federal Arbitration Act:
§ The US is a party to the NY Convention
§ Creates some problems w/ our federal system – we must live up fully to our obligations under the NY Convention (so that we can argue that other countries should do the same)
§ The NY Convention was incorporated into the Federal Arbitration Act à a provision was made that someone arguing over arbitration could remove a case to the federal court system (so we’ll have consistent court/rules operating)
· When one party moves to remove, it’s up to the other party to argue that it should be sent back
· Court says:
o The agreement supplies the missing term in the contract – you have a complete and enf
o Will there be other leverage at the time of a dispute (i.e. dependence by one party on another for spare parts, etc.)?
o Where are the parties’ assets?
o Is there security (in the form of guarantees/letters of credit)?
o Language of the parties’ interaction?
o Governing law of the contract?
o Does either party have a substantial base of operations in a 3rd country and familiarity w/ its legal system?
· Table on p. 20 – Maggs thinks it’s the most interesting summary of pros/cons to arbitration
o Neutrality: Parties can choose unbiased arbitrators – in litigation, you have a natural bias for the party from that nation
o Experience: typically, arbitrators are people who have maintained a good reputation over years and years
o Predictability: results say it’s not more predictable
§ Generally, loser pays expenses
§ Basically, there’s a strong incentive to settle if it’s clear that one side or the other is right. à Cases that go to arbitration or litigation are ones where it’s not clear who is right – naturally, the result is unpredictable in such cases.
o Greater degree of voluntary compliance with results
§ Seems to be some consensus that this is not true
§ Typically, if you go to court, you’ll go to court where the other party resides. If you win a judgment there, the other person knows that you can enforce it in the court system where they’re located à high degree of voluntary compliance.
§ W/ an arbitration, it’s usually in a 3rd country, and people come up with all sorts of reasons for why they shouldn’t have to comply
o NY Convention à Huge advantage of arbitration
§ If you win, you can get the judgment enforced almost anywhere in the world.
§ Article II, paragraph 3: “The court of a contracting state when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being enforced.” à courts will send disputes to arbitration
§ Article V: if you have your award, the courts in every country must enforce your award, unless one of a very small list of exceptions is there
· Must have an agreement to arbitrate. Recent case in US courts trying to enforce an award, but the other party claimed that the signature on the original agreement to arbitrate was a forgery, so that was one exception
· Fairness: you have to be given proper notice
· You have to have agreed to arbitrate about that particular subject
The list of exceptions is really very short
o Arbitrations are confidential – often int’l businesses have things going on that they don’t necessarily want in the press
o Limited discovery – each side may submit a list of docs it wants from the other side, if the other side doesn’t produce them, the arbitrator will take a negative implication from that.
§ Discovery – builds up huge bills, but it also helps you narrow the case, pushes toward settlement
§ The experts thought limited discovery was a good idea
o No appeal – the experts thought it was a good idea
o The experts also thought that it wasn’t less costly, less time consuming or more amicable than litigation