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Summary Week 2 - Arbitration or Litigation (1)? Arbitrators’ Competence
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CHAPTER 2 - Arbitration or Litigation (1)? Arbitrators’ Competence2.1Arbitration… or litigation… Which way to go? The ‘fork in the road’
How to adjudicate cross-border commercial conflicts?
Proceedings in an international commercial transaction can be initiated:
1 In the court of a sovereign legal order which suits the interest of the party seeking enforcement of his
commercial rights (referred to as plaintiff, opposed to the defendant) in optimal manner (cf. a ‘neutral’
stand, enforceability on assets of the defendant, swift proceedings, compensation, court expertise in the
field). Transacting parties may even agree in which legal order (country) potential future proceedings shall
take place (prorogation; choice of forum).
Commercial contracting parties are also free, however, to oust the jurisdiction of ‘state’ courts and, instead,
2 Agree to opt out of the court system all together by submitting disputes to ‘non state’ conflict
adjudicators, namely via private adjudication, more in particular by ‘arbitrators’ The party seeking
enforcement of his commercial rights is referred to as requesting party, the defendant as responding party.
What does the road map look for, the coming weeks?
The core issue of chapter 2 is the ascertainment of competence of arbitrators and, alternatively (chapter 3),
jurisdiction of courts. Chapter 3 also deals with the question what happens in case of a clash (defendant in
court or responding party in arbitration stating: ‘this case is already pending!’, followed by a request an for
anti-suit injunction elsewhere) between both parties on which road to follow. Chapter 4 will subsequently
deal with the question which system of law will be applied by either arbitrators or courts.
2.2 The case study continued… Toyota v. Sunshine
De Wit might be off the hook – having done the deal with Toyota, she’s left the company with a rather
decent severance package – but so far there was still no settlement between Sunshine and VDLI. So, Naber
reasons, he now has a claim on Toyota. And these Japanese are not likely to be as tough as De Wit.
Although now being financially independent, for some reason she has failed to perform her obligation to
pay USD 35,000 reached under a mediated settlement agreement. This is something Naber understandably
would also care resolve quickly…
However, as Toyota is the biggest of the fish Naber has yet to fry, he decides that actions against Toyota
should be the first to be commenced. As Naber feels Toyota is not likely to publicly admit that it is
liable vis-à-vis Sunshine, Naber feels arbitration is a better forum to deploy his pressure
tactics. Also, on multiple occasions the people at Toyota have indicated they prefer
arbitration over court litigation. Naber understands the Singapore International Arbitration Centre
(“SIAC”) would be Toyota’s preferred arbitration institute, with Singapore also being the seat of the
arbitration. Toyota has actually sent a number of e-mails confirming these preferences.
Naber instructs you – as counsel to Sunshine – to commence arbitration proceedings under the auspices of
SIAC. You do so by request for arbitration dated @@. Subsequently, the secretariat of SIAC invites Toyota
, to file an answer to such request. In such answer, Toyota argues the (to be appointed) arbitral tribunal is not
competent to hear the case for the lack of a valid arbitration agreement.
You discuss with counsel to Toyota the constitution of the arbitral tribunal. Three arbitrators are appointed:
At the first procedural hearing the parties agree on a procedural order for the arbitration. In view of
Toyota’s position that no valid arbitration agreement exists, it is agreed that the proceedings are bifurcated,
i.e. the issue of jurisdiction of the arbitral tribunal is to be resolved first.
Discuss the following defenses as to jurisdiction:
1.Toyota first argues that there is no document signed by the parties involved, just a series of mail
communications stating preferences on the elements of an arbitration agreement, nothing less,
but certainly nothing more.
No formal agreement between Toyota and Naber Article 2 §2 NY convention “The term
“agreement in writing” shall include an arbitral clause in a contract or an arbitration
agreement, signed by the parties or contained in an exchange of letters or telegrams.”:
exchange of mails there exist an obligation agreement between the parties.
Can you elaborate force on the legal instruments, on everyday life…?
The point is: do we have something like uniform interpretation? This instrument, only the
few pages (very importance: success stories of international commercial law in arbitration):
what is the trouble with this instrument in present life?
If we stick with the essence with this question: there is no documents signed, just a series of
mail communications, etc…: somewhere there is a..
Letter of intent: before starting the business there was a letter of intent of the Van der land
industries, basically committing to start the transaction or the business with Sunshine: one
of the questions: is that letter of intent an actual contract, there might be an arbitration
clause inside. Other questions: if there is sequence action implied, there is a contract
relationship between sunshine and this company?
Why is this requirement, the prescription and description of article 2: writing: why is this
important this establish before you can start anyway with arbitration proceedings?
Because you are basically given away the right to have access to jurisdiction (national
court): you are giving away your right: you should be well understood that you are
consenting to that specific arbitration procedure.
This instrument (1958: Convention on the Recognition and Enforcement of Foreign Arbitral
Awards Important to have proof of the consent of the parties): even before: after World War
II, it is important to have a write and signature to establish to have a proof of the consent of
the parties for arbitration, even though the convention speak of recognition and
enforcement, there is a corridor between the enforcement and the start of the arbitration
proceedings.
Case Sphere Drake insurance: insurance contract, main contract with an arbitration
clause with no signature. However, there is a policy received, and that document was
, signed: cross-over: you need to establish consent for the arbitration agreement it can be
included (main contract), it could be in a separate document, from an exchange of
communication, ok but: the professor has a fear to pick the phone: you never know what is
happening (are you interested in this? No! Because you never know).
Is this still inwriting, does it still comply with article 2? One of the party said this cannot be
inwriting because there was an insurance policy which we signed but not the main contract
so there is no consent. The judge of the federal court disagrees with the interpretation of the
convention (NY Convention): we would outline the definitions of agreement inwriting to
include
1) Arbitration clause in the contract
2) A separate arbitration agreement signed by the parties or contained in exchange of
letters or telegrams but a signature is therefore not required in that particular case.
Strong appreciation of the facts but what is the risk of an interpretation which it is healed
too ledged or to? an interpretation could be literal like here? what would happen if the
restrictions would be too strict? Restrictive interpretation of the wording. Not be suited or
not be accepted in arbitration. On the other hand, if it would be too deemed and too willing
to accept, it might frighten the business partners to communicate because before you know
you would be involved in an arbitration.
Maybe the emails could be an option to say it is subject to arbitration because all the big
process of information regarding of the arbitration it depends on the interpretation of the
person or it doesn’t?
Last shot and first shot theory, so many theories, they maybe concluded that here there is
an agreement on the choice of court: yes or no : in a way it is arbitrary, if you read the
interpretations of like swiss courts: why the professor like the book of Moses more than
other is because she comes up with interpretations from civil and and common law legal
order.
If you read on how it’s done in Switzerland: they consider all the circumstances and try to
find out whether there is consent. (Less formalities = loss of legal certainty). What some
people tend to do is try to make the instrument (NY Convention) suited for modern times.
How did they achieve this goal? It’s a matter of interpretations of this instrument: use
convention on electronics means.
Try to upheld legal relationships whenever it’s possible. Article 7.1 of the NY Convention.
2. Valid or not, the arbitration agreement is alleged not to be binding as there is no contractual
relationship between Toyota and Sunshine.
The fact of the case: Toyota bought the company, they acquire all debts and all obligations
that this company has, say that they didn’t have a contractual relationship because they
didn’t sign up a contract is quite difficult, because it acquires all the obligations that the
company had before. So that’s not an argument possible in case of arbitration.
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