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CONTENTS 

3 FOREWORD James Lewis

4 INTRODUCTION Ten years on


WilmerHale’s Gary Born and Wendy Miles look at the influence of the English Arbitration
Act 1996 on the choice of London as an arbitral seat

10 INDUSTRY SPECIALISMS Captains of industry


A generalist approach may work for straightforward disputes but, as Camilla Sutton
reports, for the more complex international arbitration cases clients now demand
specialist expertise, tailored to their particular sector

18 DISCLOSURE Conflict rules


Arbitrators are increasingly being challenged over conflicts of interest. There is some
concern that these challenges are a tactical tool used to derail proceedings. Herbert Smith
LLP’s Laurence Shore and Justin D’Agostino analyse the issues

22 FIONA TRUST JUDGMENT Why all the fuss?


Described as ‘fundamentally important’, Fiona Trust was the hot topic at the recent LCIA
European Users’ Council symposium in Madrid. Rowan Planterose and Steven Friel of
Davies Arnold Cooper explain why

26 DAMAGES Expert analysis


LECG’s James Nicholson and Mark Bezant outline the key considerations when engaging
damages experts

30 LITIGATION Caught in court


The advantages of arbitration could be undermined if disputes end up in court.
Wragge & Co’s Andrew Manning Cox considers the message the courts ought to give
when invited to adjudicate arbitration matters

34 CHINA AND RUSSIA Tipping the balance


These countries may offer seemingly limitless opportunities, but even in such fertile
investment climates it pays to be prepared for the worst. Chris Johnson navigates the pitfalls

continued overleaf 

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 CONTENTS

42 LATIN AMERICA Growth market


Rising foreign investment in Latin America has resulted in an increase in arbitration proceedings.
José Maria Alonso of Garrigues describes why this has encouraged many countries in the region to update
their laws in recent years

46 MULTIPLE PARTIES The third man


The involvement of third parties in arbitration continues to cause confusion. Guy Pendell and
Thomas Lennarz of CMS examine the issues

50 DAMAGES A certain calculation


As the ways in which damages are quantified in commercial and investment-treaty arbitrations
grow increasingly diverse, Philip Haberman and Vikki Wall of Ernst & Young present the case for a
universal method

54 DRAFTING Court support


Recent case law reveals that English courts are in favour of a liberal approach when construing
arbitration clauses. Norton Rose’s Steve Abraham and Anna Kirkpatrick highlight the importance of
clarity in drafting

58 ENFORCEMENT Reality bites


Little attention has been paid to the harsh commercial reality that arbitral awards are of no value
unless and until they can be turned into cash. DLA Piper’s Matthew Saunders and Claudia Salomon
explore what’s at stake

63 INTERNATIONAL REFERRALS

Editor Special reports manager Subscriptions, Legalease, for information. For licensed photocopy within
James Lewis Helen Berwick 12-14 Ansdell Street, a firm, please enquire about a group
London W8 5BN, UK subscription.
Reporters Senior sales executive
Chris Johnson, Camilla Sutton Tel: +44 (0) 20 7396 9313 The publisher and other sponsors are not
Raju Mann
subscriptions@legalease.co.uk responsible for the results of any actions (or lack
Production editor Business development director thereof) taken on the basis of information in this
Jennifer Ong Claire Bostock © Legalease Ltd 2007
publication. Readers should obtain advice from
Sub-editors Printed and bound by Buxton Press, a qualified professional when dealing with
Editor-in-chief
Eleanor King, Laura Sharp, Derbyshire.
John Pritchard specific situations.
Rachel Turner Copyright applies: no photocopying (Copyright Without limiting the above, the publisher,

Design Legal Business Arbitration Report is Licensing Agency Ltd and Publishers Licensing co-publisher, contributors or other sponsors

Áine Kelly, Jennifer Ong, published in association with Legal Business Society Ltd licences do not apply). Copyright shall each have no responsibility for any act or
Laura Sharp, Rachel Turner magazine. For subscription details, contact: licences are available – contact subscriptions omission of any co-publisher or contributor.

2 Legal Business Arbitration Report 2007


AR07 Foreword p3 19/4/07 16:17 Page 3

FOREWORD 

Going global
Welcome to the 2007 edition of the Legal Business clear just what can be at stake in the
Arbitration Report. First things first: it’s been a commercial world and the important role
pleasure working with some of the leading that arbitration has to play.
practitioners in the field again this year. Many Nevertheless, as Clifford Chance’s Audley
thanks to all those who contributed features, and Sheppard points out: ‘Arbitration is no
to those who helped our team with the extensive panacea as you cannot guarantee that
research that has gone into producing this report. awards are going to be enforced.’ This is a
We hope you enjoy it. theme developed by DLA’s Matthew
We also hope that – largely by tapping into this wealth Saunders and Claudia Salomon in the final
of knowledge and experience – we’ve produced a report feature in the report, ‘Reality Bites’ (see p58).
that is accessible, insightful and wide-ranging. Clearly, we As they point out, little attention has been James Lewis, editor
realise that space does not permit exhaustive coverage of focused upon the harsh commercial reality
an area as diverse and complex as international that arbitral awards are of little value unless and until they
arbitration. Nevertheless, this year’s report has attempted can be turned into cash.
to go some way towards reflecting the inherently global Of course, having emphasised the international
nature of the business community that the various dimension to this year’s report, there remains a recognition
arbitration institutions and practitioners are serving. that London plays an increasingly central role in the
With this in mind, the scope of the report has been arbitration community. This is manifested in various
broadened. Last year’s (inaugural) edition was focused developments. Strategically, any successful, large
largely – and with good reason – on the London market. In international arbitration practice needs to have a centre of
this, the second edition of the report, we have made every gravity in one of the major arbitral locations. Among the
effort to play up the international dimension to arbitration. American firms, for example, the focal point ofShearman’s
Notable in this respect is a feature on Latin America practice is Paris, where Gaillard is based. The centre of
written by the managing partner of leading Spanish firm gravity for Debevoise & Plimpton is New York, and for
Garrigues (see p42) and an excellent feature written by WilmerHale it’s London. Recently, as reported in the April
Legal Business journalist Chris Johnson. In ‘Tipping the edition of Legal Business, Freshfields Bruckhaus Deringer has
balance’ (see p34), Chris provides an in-depth analysis of brought leading arbitration names from Paris, New York and
the best way to avoid the pitfalls inherent in operating in
China and Russia – currently two of the business world’s In this, the second edition of the report,
most exciting markets. As LB’s expert on these markets
(having travelled to both to undertake research in the last 12 we have made every effort to play up the
months), he has garnered some telling insight from leading
figures in the world of arbitration who have cutting-edge
international dimension to arbitration.
experience of matters arising from these countries.
Emmanuel Gaillard, the highly revered head of
Shearman & Sterling’s international arbitration practice is as Amsterdam together in London. This has shifted the balance
well placed as anyone. He is currently acting on the largest of its practice somewhat – historically perceived to be
ever investment arbitration: a claim by Group Menatep – Paris-centric, due largely to the presence of Jan Paulsson in
Mikhail Khodorkovsky’s holding company and majority the French capital – in favour of London.
shareholder in Yukos – against the Russian state, the value Such strategic moves within the arbitration practices of
of which may exceed $50bn. ‘If your opponent is the state leading global law firms makes sense, not least because
then you don’t want to appear before the organs of that London is growing in strength as an arbitral centre. In
state – by definition the local courts are an organ of the addition, as various articles in this report reveal, much of the
state,’ he says. ‘In the local courts in Russia you have zero concern about the role of the UK courts is being overcome:
chance, as we have seen – Yukos has litigated in local courts all great news for arbitration in London. This is where
and lost every time except for one, after which the judge WilmerHale kicks off the report, with an introduction that
was sacked in the following months. It was a clear signal… reviews the ten years since the English Arbitration Act and an
there is no independence.’ In a similar vain, Gaillard makes analysis of London’s unique place in the arbitration world. 

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 INTRODUCTION

Ten years on
The English Arbitration Act 1996 has had a fundamental impact on the
arbitration world, making London an increasingly popular choice of arbitral situs.
WilmerHale’s Gary Born and Wendy Miles explain why

London has long been a popular seat for


international arbitration. If anything, recent years
have seen that popularity increase. The trend has
been encouraged by the use of the English language,
as well as English law, in international commercial
and financial transactions; the growth of London as
Europe’s capital for legal and financial services; and
London’s development of a truly international
arbitration community. These trends are confirmed
both anecdotally and by research from Queen Mary
University, ranking London as the preferred
international arbitral ‘venue’ for corporate parties,
surpassing Switzerland, France and the United
States. The ICC’s statistics corroborate that, placing
London alongside Paris and Switzerland as the
preferred choice for parties in ICC arbitration
proceedings.
Given these developments, it is both timely and
pertinent to consider how influential the English
Arbitration Act (the 1996 Act) – now in its tenth year – has
been in decisions by commercial parties to select London
as the seat for their arbitral proceedings. Influencing such
decisions was, after all, one of the stated objectives of the
1996 Act, just as it was one of the reasons for the reform of
arbitration legislation in our European neighbours
Germany (1998), Austria (2006), Spain (2003), Sweden
(1999) and Denmark (2005).
There can be no doubt that, whatever the aspirations
Gary Born and Wendy Miles are partners at WilmerHale of some practitioners for ‘a-national’ or ‘de-localised’

4 Legal Business Arbitration Report 2007 Sponsored feature


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INTRODUCTION 

arbitrations, the content of national arbitration legislation


remains profoundly important to the arbitral process.
Unlike predecessor English legislation,
Seating an arbitration in a jurisdiction with archaic, the 1996 Act greatly limits the English
parochial or dysfunctional arbitration legislation – or
inadequate courts – can frustrate many of the purposes of courts’ supervisory powers over
the parties’ agreement to arbitrate. Conversely, seating an
arbitration in a jurisdiction with workable arbitration
international arbitral proceedings.
legislation can secure a non-intrusive, supportive legal
regime, leaving the procedural and substantive issues in
dispute to the tribunal. decisive. In that respect, three key aspects of the 1996 Act
The 1996 Act was drafted – in great measure are important.
successfully – in order to provide just such a legal regime,
enabling England to compete on this score with UNCITRAL Separability and competence-competence
Model Law states (France, Switzerland and the United First, the 1996 Act permits the English courts to determine
States) as a premier arbitral seat. The Act grants parties a preliminary point of jurisdiction or law (s32). These
very broad autonomy to agree upon the conduct of the determinations include questions relating to the existence,
arbitral proceedings and, failing such agreement, grants validity or scope of the arbitration agreement and/or the
the arbitral tribunal broad discretion to conduct such jurisdiction of the tribunal, which, under the terms of the
proceedings without interference from local courts. 1996 Act, may be dealt with by the tribunal or the courts.
The Act provides a sound statutory framework for
Powers granted to English courts handling jurisdictional issues. It incorporates two critical
Unlike predecessor English legislation, the 1996 Act greatly principles: the separability doctrine (s7) and the principle
limits the English courts’ supervisory powers over that a tribunal is competent to rule on its own jurisdiction
international arbitral proceedings. Instead, the courts’ (s30). Based on these principles, most threshold issues on
powers are limited to those that are specifically conferred jurisdiction are determined by tribunals (rather than
by statute. These include powers to remove arbitrators courts). Section 32 of the Act gives a party that participates
(s24), to determine a preliminary point of jurisdiction (s32) in arbitral proceedings a limited right to apply to the
or law (s45), to make orders in relation to witnesses and English courts to determine a question of jurisdiction, but
evidence (s44(1)), and to set aside or remit an award that is only by consent of both parties or, with the permission of
made without jurisdiction (s67) or tainted by serious the tribunal, where the court is satisfied that the
irregularity (s68). In addition, unless otherwise agreed by determination is likely to save costs, is made without delay
the parties, the 1996 Act grants the courts powers to and there is good reason for the matter to be decided by it.
appoint, or set aside the appointment of, arbitrators (ss17 Conversely, s72 of the Act permits a party that does not
and 18), to enforce pre-emptory orders of the tribunal participate in the arbitration to obtain an immediate
(s42), and to consider an appeal by a party on a question judicial decision on most jurisdictional objections.
of law arising from the award (s69). The effect of the separability doctrine was considered in
The powers granted to the English courts appear to be some detail in Vee Networks Ltd v Econet Wireless
significant, but are with a few exceptions consistent with International Ltd [2004] and Fiona Trust & Holding
the UNCITRAL Model Law. The Model Law contemplates Corporation & ors v Yuri Privalov & ors [2007]. (For a detailed
court assistance in support of the arbitration, including, in discussion see the article by Davies Arnold Cooper on p22). In
relation to formation of the tribunal, challenges to both cases, the applicant sought to challenge the tribunal’s
arbitrators, determination of jurisdictional issues and the jurisdiction under the relevant arbitration agreement on the
taking of evidence. The Model Law also contemplates basis that the underlying contract was void or voidable.
annulment or setting aside of an award on the grounds In Vee Networks, the court reiterated that the effect of
paralleling those set out in the New York Convention s7 was to confirm that arbitrators had jurisdiction
(including where a tribunal has acted outside the scope of conclusively to determine issues as to whether a matrix
its jurisdiction or where there has been a serious contract is void or voidable. The court affirmed that the
procedural irregularity in the arbitration). The Model Law tribunal would not lose that jurisdiction if the underlying
does not, however, permit appeal to a national court on a matrix contract were void or voided:
question of law or other review of the substance of the
tribunal’s award. Section 7 of the 1996 Act reflects this concept of
Whilst the scope of the powers granted to the English separability. Its effect in substance is to confirm that
courts by the 1996 Act is important, it is the manner in arbitrators have jurisdiction conclusively to determine
which the courts exercise those powers that is ultimately issues on the voidness or voidability of the matrix 

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 INTRODUCTION

 contract to the effect that they do not lose jurisdiction One of the reasons given in the cases for a liberal
by reason only that the matrix contract may be void or construction of an arbitration clause is the
voidable. presumption in favour of one-stop arbitration. It is not
to be expected that any commercial man would
The court went on to observe that the arbitration knowingly create a system which required that the
agreement itself must be valid and binding. If it were not court should first decide whether the contract should be
binding, for reasons other than that the matrix contract rectified or avoided or rescinded (as the case might be)
was void, then the arbitrators would not retain conclusive and then, if the contract is held to be valid, required the
jurisdiction pursuant to s7. Instead, they would need to arbitrator to resolve the issues that have arisen. This is
determine, pursuant to s30, the scope of their own indeed a powerful reason for a liberal construction.
substantive jurisdiction.
In Fiona Trust the English Court of Appeal again This interpretative rule parallels that in the United
confirmed and clarified the effect of the separability and States and, to a lesser extent, Switzerland, and promises to
competence doctrines under English law. In response to reduce significantly the possibility of litigation over
the argument that a contract procured by bribery is void jurisdictional objections based upon the scope of the
and that this would necessarily void the arbitration arbitration agreement.
agreement contained therein, the Court said:
Judicial assistance to arbitral proceedings
It is not enough to say that the bribery impeaches the Secondly, English courts are granted the power to assist, in
whole contract unless there is some special reason for defined ways, arbitral proceedings that are conducted in
saying that the bribery impeaches the arbitration England. Generally, the 1996 Act transfers any procedural
clause in particular. decisions in an arbitration to the tribunal, wherever
practicable, through ss38 to 43. The overriding principle of
Determining the circumstances in which a party has the Act is that the courts shall not interfere in arbitral
identified a ‘special reason’ for impeaching the arbitration proceedings and shall only act if or to the extent that the
clause ‘in particular’ remains to be defined; it will, however, tribunal has no power or is unable to do so.
clearly be a limited set of cases akin to forgery of the Section 44, for example, gives the courts the power to
underlying contract or actions directed towards the act in support of the arbitral proceedings if the case is one
arbitration clause itself (eg, fraud regarding incorporated of urgency, or on the application of a party with the
documents, alteration of the arbitration clause and the like). permission of the tribunal or agreement of the other
At the same time, the Court of Appeal settled (subject to parties. In exercising that power in Cetelem SA v Roust
further appeal to the House of Lords) a long-standing Holdings Ltd [2005], the court found that it only has
debate as to the scope of jurisdiction conferred by wording jurisdiction to make interim orders as it thinks necessary
in various arbitration clauses, stating that: ‘the time has for the purpose of preserving evidence or assets,
now come for a line of some sort to be drawn and a fresh overruling earlier authority that it had broader powers to
start made at any rate for cases arising in an international grant orders pursuant to s44. Clarke LJ said that:
commercial context.’ On this issue, the Court stated that:
… it was intended to interfere as little as possible with
As it seems to us, any jurisdiction or arbitration clause the arbitral process and to limit the power of the court
in an international commercial contract should be in urgent cases to the making of orders which it thinks
liberally construed. The words ‘arising out of’ should are necessary for the preservation of evidence or
cover ‘every dispute except a dispute as to whether assets.
there was ever a contract at all’.
Nonetheless, there are situations where judicial
The Court explained the strong policy reasons in favour of a assistance for the arbitrators can be desirable. These
liberal reading of arbitration agreements, pointing out that: include enforcing disclosure orders made by an arbitral
tribunal and enforcing orders for provisional relief. The
availability of such judicial support can make an arbitral
In the ten-year history of the 1996 Act, seat more attractive (although in many instances these
sorts of judicial assistance must for practical reasons be
there have been less than 100 reported sought from national courts outside the seat).
An issue of some practical importance, and current
cases of appeals under s67. interest, is the power of English courts to issue anti-suit
injunctions restraining parties from pursuing foreign

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INTRODUCTION 

proceedings in breach of an English arbitration Applications to set award aside


agreement. This is a power available in other common law Thirdly, the national courts in the arbitral seat are almost
jurisdictions (including the United States), but generally always competent (and exclusively competent) to
not found in civil law regimes. entertain actions to vacate or set aside the arbitral award.
In West Tankers Inc v RAS Riunione Adriatica di Sicurta The scope of judicial review of an arbitral award is a
SpA & anor (the Front Comor) [2007], the House of Lords matter of national law that varies from country to country.
considered the power of the English courts to restrain Under many developed national laws, an arbitral award is
foreign court proceedings in support of arbitration. It subject to little or no review of the merits of the tribunal’s
pointed out that: decision and limited review of the arbitral procedures. In
contrast, the English Act – at least in theory – permits
It is generally regarded as an important and valuable reasonably extensive review of the merits of arbitral
weapon in the hands of a court exercising supervisory awards. Awards rendered in England may be challenged
jurisdiction over the arbitration. It promotes legal on the basis of the substantive jurisdiction of the tribunal
certainty and reduces the possibility of conflict (s67), serious irregularity affecting the tribunal (s68), or
between the arbitration award and the judgment of a appealed on a point of law (s69).
national court… [and] saves a party to an arbitration It is important, however, to keep these provisions for
agreement from having to keep a watchful eye upon judicial review of arbitral awards in perspective. In the ten-
parallel court proceedings in another jurisdiction, year history of the 1996 Act there have been less than 100
trying to steer a course between so much involvement reported cases of appeals under s67. Only a handful of
as will amount to a submission to the jurisdiction… those – approximately 13 –have been set aside on the
and so little as to lead to a default judgment. That is grounds that the tribunal lacked substantive jurisdiction,
just the kind of thing that the parties meant to avoid by which is little more than one successful appeal per year.
having an arbitration agreement. While statistics regarding the number of arbitrations
conducted annually in London are elusive, the rate of
In the course of its analysis, the House of Lords went on successful appeals must be well below 0.05%.
to consider the effect of such court support on the decision Appeals pursuant to s68, on the grounds of serious
of parties to select London as an arbitral situs. irregularity, are even less common. In order to succeed to
set aside an award on the basis of serious irregularity, an
Whether the parties should submit themselves to such applicant must show there to be an irregularity that the
a jurisdiction by choosing this country as the seat of court considers has caused or will cause substantial
their arbitration is, in my opinion, entirely a matter for injustice to the applicant. The types of irregularity envisaged
them. The courts are there to serve the business by the Act include the tribunal: failing to comply with its
community rather than the other way round. No one is general duty; exceeding powers (otherwise than by
obliged to choose London. The existence of the exceeding substantive jurisdiction); failing to conduct the
jurisdiction to restrain proceedings in breach of an proceedings in accordance with the agreed procedure; and
arbitration agreement clearly does not deter parties to failing to deal with all the issues put to it. They also include:
commercial agreements. On the contrary, it may be any arbitral or other institution or person exceeding its
regarded as one of the advantages which the chosen powers; uncertainty or ambiguity as to the effect of the
seat of arbitration has to offer. award; award obtained by fraud or procured contrary to
public policy; failure to comply with requirements as to
Nonetheless, the House of Lords was concerned that the form; and any irregularity in the conduct of the proceedings
case highlighted a question ‘of very considerable practical or in the award that is admitted by the tribunal or by any
importance on which different views have been expressed.’ arbitral or other institution or person vested by the parties
The question: ‘Is it consistent with EC Regulation 44/2001 with powers in relation to the proceedings or the award.
for a court of a member state to make an order to restrain a Out of the 70-odd reported section 68 appeals since the
person from commencing or continuing proceedings in enactment of the 1996 Act, only 19 have been successful and
another member state on the ground that such proceedings even fewer were found to have resulted in substantial
are in breach of an arbitration agreement?’ was therefore injustice. That said, as a challenge under ss67 or 68 can be
referred to the ECJ for determination. It remains to be seen mounted as of right without leave, these now appear to
whether or not the ECJ will concur with the English House of exceed in number applications for leave to appeal under s69.
Lords’ view that arbitration falls outside Regulation In a display of pro-active support of arbitration, the
44/2001, or take a contrary view and risk reversing years of court recently provided some guidance to arbitrators in an
English precedent in support of anti-suit injunctions in effort further to lower the number of appeals. Tomlinson J
arbitration. in ABB AG v Hochtief Airport GmbH & anor [2006], said that: 

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 INTRODUCTION

 Those who resort to and practise in international set aside as a whole. The general approach of the courts is
commercial arbitration are rightly jealous of the not to interfere with the decision of experienced
autonomy of the process, and the case law which has commercial arbitrators. This approach was illustrated by
developed in this field demonstrates that the court will the Court of Appeal when it overturned the first instance
respect that autonomy… Whilst the court will never decision in BMBF (No 12) Ltd v Harland and Wolff
dictate to arbitrators how their conclusions should be Shipbuilding and Heavy Industries Ltd [2001] to set an
expressed, it must be obvious that the giving of clearly award aside. The Court of Appeal expressed its
expressed reasons responsive to the issues as they unequivocal view that ‘it is not for the courts to substitute
were debated before the arbitrators will reduce the its own view for that of experienced arbitrators on a
scope for the making of unmeritorious challenges, as question such as this’.
this ultimately has proved to be.
Other factors
That leaves appeals on points of law. It is this final There are two additional, important considerations for
category of review that distinguishes England from most parties to consider. First, the location of the arbitral seat
UNCITRAL Model Law jurisdictions, as well as France and affects the law applicable to the arbitration agreement.
Switzerland, while broadly paralleling the ‘manifest Articles II(3) and V(1)(a) of the New York Convention
disregard of law’ standard of review applicable in the contemplate that the validity of the parties’ arbitration
United States. At the time of the 1996 Act’s enactment, agreement will be determined under ‘the law to which
Saville LJ described the section as a ‘feature of our existing the parties have subjected it or, failing any indication
law which has caused disquiet abroad and which is thereon, under the law of the country where the award
regarded by many as detracting from arbitrating here [in was made.’ National law requirements on subjects such
England]’. as contract formation, validity and illegality, and
Section 69 must be seen in context. The right to appeal arbitrability can vary significantly, with the legal rules in
on a point of law is non-mandatory and the parties are some jurisdictions disfavouring international arbitration
free to opt out of its application. By incorporation of the agreements. For their part, and as discussed above,
rules of most leading arbitral institutions, many parties do English courts have taken a broad approach to the
precisely that. This includes the LCIA Rules, which provide question of arbitrability.
that the parties ‘waive irrevocably their rights to any form Further, the arbitral seat is usually the place where the
of appeal, review or recourse to any state court or other arbitral award will be ‘made’ for purposes of the New York
judicial authority’ (Article 26.9) and the ICC Rules, which Convention and other international agreements. This has
provide that the parties ‘shall be deemed to have waived significant legal consequences for the enforceability of
their right to any form of recourse’ (Article 28(6)). arbitral awards outside the country where they are
Consequently, appeals under the 1996 Act on a point of rendered. The UK is party to the New York Convention and,
law are relatively rare. In more than half of reported cases therefore, awards made within its territory are subject to
of appeal (many of which included appeals pursuant to the Convention’s pro-enforcement rules in other
ss67 and/or 68 as well), the award was upheld. In most Convention parties (many signatories to the New York
other cases, it was varied or remitted. It was only in a very Convention, including the United Kingdom, have adopted
small proportion of cases, less than 10% (which equates to ‘reciprocity’ reservations and will only apply the
substantially less than one per year), that the award was Convention to awards ‘made’ in another signatory state).
After legal considerations, parties often cite
convenience, neutrality and location as other factors
ABB AG v Hochtief Airport GmbH & anor influencing the choice of arbitral situs. These factors
[2006] EWHC 388 (Comm) include ease of air travel, facilities and resources (including
BMBF (No 12) Ltd v Harland and WolffShipbuilding and Heavy Industries Ltd counsel), language and culture – all of which position
[2001] EWCA Civ 862 London highly in the English-speaking world. Most
Cetelem SA v Roust Holdings Ltd important, however, is the availability of a large number of
[2005] EWCA Civ 618 skilled arbitrators and arbitration counsel in the potential
Fiona Trust & Holding Corporation & ors v Yuri Privalov & ors arbitral seat. Where such a community exists, arbitrations
[2007] EWCA Civ 20 will follow. Equally, parties continue to return to a location
Vee Networks Ltd v Econet Wireless International Ltd (and a formula) that has served them well in the past. All
[2004] EWHC 2909 (Comm) of this points in the direction of continued growth of
West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA & anor international arbitration in London. The 1996 Act has
[2007] UKHL 4 played an important, though by no means exclusive, role
in this cycle. 

8 Legal Business Arbitration Report 2007 Sponsored feature


AR07 p9 19/4/07 16:30 Page 9

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AR07 p10-17 Camilla 19/4/07 17:37 Page 10

 INDUSTRY SPECIALISMS

Captains of
industry

10 Legal Business Arbitration Report 2007


AR07 p10-17 Camilla 19/4/07 17:38 Page 11

INDUSTRY SPECIALISMS 

These days, a generalist


approach to international
arbitration cases just won’t cut
it. Clients are demanding a
more sophisticated service,
with greater specialist knowledge
of the issues in dispute.
Camilla Sutton reports

Many of the world’s top clients turn to the dispute


resolution group of their preferred firm, particularly
in what appears to be a straightforward dispute. But,
for international arbitrations, clients are increasingly
seeking out firms with the most honed specialist
expertise to deal with their specific problem. This is
especially the case for the really complex matters,
like Allen & Overy’s Energy Charter Treaty work; the
high-profile, such as Herbert Smith’s Eurotunnel
case; and the high-value pieces of work, for example
Debevoise & Plimpton’s successes on two of the
largest arbitration awards for CME and Occidental
Petroleum, or Shearman & Sterling’s instruction by
the Yukos investors in the $33bn expropriation case.
PricewaterhouseCooper’s 2006 report ‘International
arbitration: corporate attitudes and practices’ found that
instead of transnational litigation, 73% of in-house counsel 

Legal Business Arbitration Report 2007 11


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 INDUSTRY SPECIALISMS

 ‘prefer to use international arbitration either alone or in matter of the transaction is not particularly important. In
combination with alternative dispute resolution mechanisms those cases, it is arbitration and procedural skills that are
in a multi-tiered dispute resolution process’. The reasons for critical. Counsel needs to know how best to present their
this? ‘Flexibility of procedure, the enforceability of awards, the case — to prepare the written submissions, obtain and
privacy afforded by the process and the ability of parties to present the relevant documents and witness evidence,
select the arbitrators’. No surprises there then. and argue the law. Substantive knowledge will be less
What is significant, however, is that the report found that important than procedural expertise in these situations.’
‘75% of corporations retain specialist arbitration firms or If the dispute emerges out of an M&A transaction, or a
firms with a substantial arbitration practice rather than their joint venture, it doesn’t make any difference if it is in the
usual external litigation counsel.’ Why? Because ‘corporations chemical industry or if it relates to hotels. Let’s face it – the
seek a firm that specialises in international arbitration, is client will care more about your M&A or joint venture
experienced in the subject matter of the dispute, has access experience. That said, if the dispute revolves around technical
to counsel in the place of the dispute to provide regional aspects of a faulty pipeline, then specialist knowledge will be
expertise, and is a specialist in the applicable law.’ required. ‘It depends on the sophistication of the client and
Understanding the relevant laws and procedures, getting how often that industry sector has disputes that result in
to grips with the strengths and weaknesses of the arbitrators arbitration,’ comments Freshfields Bruckhaus Deringer’s
and appreciating the subtleties of forum shopping are Geoff Nicholas. ‘Our energy clients, like the major oil and gas
prerequisites to the job. Nowadays, firms have to add more companies for example, have high expectations that not only
value. Successful firms must provide specialist industry will we have arbitration specialisation, but that we will have
knowledge, whether in construction, shipping, commodities, a thorough knowledge of their business area too.’
insurance/reinsurance or public international law. ‘At big firms like ours, we can also rely on the sector
‘The market has matured,’ says Clifford Chance expertise of our transactional lawyers,’ says HerbertSmith’s
arbitration partner Audley Sheppard. ‘There was a Larry Shore. Judith Gill at Allen & Overy adds: ‘Clients don’t
preliminary phase where the market, ie clients requiring want to have to pay us to reinvent the wheel. While most of
arbitration advice and other lawyers, needed to be the time we can meet their demands through our arbitration
convinced by arbitration practitioners that arbitration and dispute resolution group, on other occasions we will
experience added value. It was challenging the view that work with our non-contentious colleagues across our global
“if you can litigate, you can arbitrate”.’ The market was network to get the correct result.’
convinced and publications such as The Legal 500 started to
include a separate international arbitration category. ‘The Building bridges
second phase involved law firms seeking to persuade the Having the requisite background can be imperative in
market that they had more international arbitration large construction disputes. ‘Construction disputes can
experience than their competitors,’ Sheppard continues. be so technical,’ says Robert Volterra of Latham & Watkins.
‘The third phase, which we have just entered, involves law ‘Basically they can be engineering oriented, and you must
firms seeking to persuade the market that they have more have a clear understanding of construction processes to
industry-specific experience than their competitors. The first make sense of the documents. The technical aspects can
question clients often ask is: how many times have you be a world unto themselves.’
dealt with ICC or LCIA arbitrations? The real players can reel White & Case is currently acting on a number of high-
off dozens, so that is no longer a measure that differentiates value construction cases involving hotels, gas extraction
the top firms. The next question is: what experience do you plants and hydroelectric projects. ‘You need to understand
have in this type of dispute? Clients want you to be in a everything from the client’s business to the different
strong position to give advice on strategy and the likely contract forms. Only then can you see the project all the
outcome using your arbitration experience. But they also way through, and provide a cradle-to-the-grave service,’
want familiarity with the type of contract in dispute, as well says White & Case partner John Bellhouse.
as the relevant technology and industry practices.’ At Pinsent Masons, the disputes handled are far from
simple building disputes and usually involve substantial
Commerce and industry infrastructure projects around the world. In 2006, the
With the big-ticket commercial disputes, specialist firm advised on the successful defence of a $200m ICC
expertise depends on the nature of the dispute. ‘There are, arbitration regarding a major power plant in South-East
of course, many cases that require specialist knowledge,’ Asia. It also acted on behalf of a Saudi Arabian contractor
says Gary Born, head of WilmerHale’s arbitration practice, in an ICC arbitration relating to the construction of a
‘but there are also more general commercial disputes. power station in that country.
Sometimes disputes focus entirely on language used in a Phillip Capper of Lovells and David Brynmor Thomas
contract, or particular factual issues, where the subject from Herbert Smith have amongst the strongest

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INDUSTRY SPECIALISMS 

reputations in high-value, complex construction-related ’Clients want to know that you understand
disputes in the City. Steve Abraham at Norton Rose, David
Howell at Fulbright & Jaworski and Stephen York at their business, that you know the gossip
Kilpatrick Stockton also have decades of impressive
experience in the construction and engineering sectors.
and who’s screwed up recently.’
Other firms that excel in this sector include Allen & Nicola Boulton, Byrne & Partners
Overy, which fields six arbitration partners from its
London office; Clifford Chance which deals with major
infrastructure projects around the world; and CMS Juliet Blanch of McDermott Will & Emery advises
Cameron McKenna, which in 2006 was involved in arbitral investment banks and other clients involved in the energy
disputes involving sums in excess of $1bn. Shadbolt & Co commodity trading sector. ‘An in-depth knowledge of the
and Fenwick Elliott are smaller firms that boast extensive sector specificity is essential,’ Blanch says. ‘Different
construction expertise. considerations apply depending upon whether you are
‘My particular view,’ says Bellhouse, ‘is if you’ve got involved in a claim relating to an oil dispute arising in Central
experience in the construction industry and arbitration, Asia or a power dispute in western Europe. Quite different
it’s the best combination your client can get.’ levels of liberalisation and sophistication exist in these
markets that cannot just be picked up from a text book.’
Valuable commodity Clifford Chance has expertise in commodities and
The commodity arbitration market is small. Serious players international trade, particularly in oil and oil products,
in this area include Diane Galloway at Reed Smith Richards metals and sugar. Stephenson Harwood has recently acted
Butler, Paul Turner and John Whittaker at Clyde & Co and for an international trading company in various arbitrations
Mike Pollen at DLA Piper. Mark Aspinal and Chris Jones at in respect of commodity disputes, including under The Grain
Waterson Hicks deal with oil-related business. & Feed Trade Association and The Federation of Oils, Seeds
‘Commodities is about common sense,’ says Nicola and Fats Associations. Taylor Wessing also has expertise in
Boulton at Byrne & Partners. ‘Clients want to know that this area. The firm is currently advising a Far Eastern
you understand their business, that you know the gossip, manufacturing company on a $120m London Metal
and you’ve picked up on who’s screwed up recently.’ Exchange arbitration claim against a trading company for
Byrne & Partners have expertise on trading structures contract default. At Reed Smith Richards Butler, partner
and how commodity dealers organise their businesses. Mark Connoley has commodity arbitration experience.
The firm is currently acting on disputes involving major oil Lawrence Graham and Hill Taylor Dickinson also have
company interests and trade and capital financing. partners who specialise in this field.
‘We handle a lot of work in the oil, metal and sugar
sectors,’ says Clyde & Co’s John Whittaker. ‘ When you’re Dire straits
dealing with commodities, it’s often necessary to have ‘Shipping law is complicated,’ says Whittaker, ‘and you need
industry knowledge. Although arbitration as a dispute someone with specialist knowledge; someone who will
resolution skill is important, you need a lawyer who know all about, say, the limitation of liability regime or the
understands how the markets work in practice.’ environmental issues that could arise.’ At any one time, Clyde 

SEE YOU LATER ARBITRATOR


L e a d i n g l i t i g a t o r s i n N o r wa y f o r m o r e t h a n a c e n t u r y.

w w w. h a a v i n d . n o

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 & Co is involved in over 500 arbitration cases that involve its Maritime law is a core practice area for Hill Dickinson,
core practice areas of shipping, insurance and reinsurance, Taylor Wessing and Lawrence Graham.
international trade and finance, energy and construction.
Holman Fenwick & Willan also has an impressive Protect yourself
shipbuilding litigation practice that lends itself to There is an entire body of law dedicated to the insurance and
international arbitration. Its shipping and insurance group reinsurance markets that requires specialist knowledge. Clyde
is currently dealing with a rig dispute valued at between & Co’s experience in this area is vast. The firm is currently
$50m and $60m. ‘You can lead as an arbitration specialist,’ working on cases involving healthcare, product liability,
says Guy Hardaker, a partner at the firm, ‘but you have to workers’ compensation and sports and medical businesses.
have industry knowledge. Our firm grew from shipping. ‘We have always been involved in international arbitration,’
Almost every charterparty contract has an arbitration says Jonathan Wood, a partner at the firm. ‘It’s the dispute
clause, so we are dealing with literally hundreds at a time.’ resolution forum of choice for our core clientele. We have one
of the largest insurance/reinsurance practices in London and
’We’re not trying to take on are always handling big ticket Bermuda form arbitrations.’
Clyde & Co is also a leading firm in political risk. ‘The
every piece of investment Export Credits Guarantee Department insures political risk
and expropriation’ explains Wood. ‘We’ve been
treaty work, just be the best representing them for over 20 years.’ Ince & Co and Holman
at what we do.’ Fenwick & Willan also have particular expertise in this field.
Guy Henderson and Richard Smith at Allen & Overy
Jane Player, Bird & Bird are particularly recommended for complex insurance/
reinsurance work. At Taylor Wessing in 2006 James
Crabtree joined the group from Pinsent Masons, adding
‘As a specialist firm, our sector knowledge is one of our insurance/reinsurance arbitration expertise as a new
biggest selling points,’ says Peter Rogan, senior partner at dimension to the firm’s practice.
Ince & Co. ‘If you come to work at this firm, you live with the At Barlow Lyde & Gilbert, Colin Croly has particular
industry. Our lawyers learn about shipping, trade, insurance expertise in the insurance/reinsurance and international risk
and reinsurance from the outset. It means they don’t apply sectors. Other partners specialising in this field include Stuart
the law in a vacuum.’The firm’s shipping and international Hall, John Hanson and Giles Kavanagh. At Hill Dickinson,
trade expertise has made it one of the most frequent users Rhys Clift takes on insurance work using ADR methods.
of the London Maritime Arbitrators’ Association. At CMS Cameron McKenna, John Hall and Andrew
Another specialist in this field is Norton Rose’s Chris Symons have been particularly active in 2006, dealing with
Hobbs. Recently returned from the firm’s office in Greece, reinsurance arbitration matters, while Stephen Netherway
he now heads up the international arbitration group in has been busy on insurance cases. At Morgan Lewis, Peter
London. His expertise is impressive and includes Hardy has a strong reputation for his insurance and
charterparty and bill of lading disputes, shipbuilding and reinsurance work, while at LeBoeuf, Lamb, Greene & Macrae,
ship sale as well as purchase disputes. He has recently acted Nik Rochez and Dean Hansell have recent experience dealing
on a series of arbitrations for the buyers of six bulk carrier with insurance/reinsurance arbitrations.
vessels constructed by a shipyard in Shanghai. It’s clear why
a specialist was needed – the dispute concerned coating Media world
deficiencies and compliance with technical specifications. ‘Ours is first and foremost a sector-specific firm,’ says Bird &
At Clifford Chance, Alex Panayides was a partner in the Bird dispute resolution partner Jane Player. ‘We know about
firm’s shipping group before transferring to the arbitration our client’s businesses. We know their world and we can
group. Watson Farley Williams acts for many of the largest compete with anyone else in our sector both in terms of
ship owners/operators and banks in the world, including procedural and sectoral expertise.’ The firm specialises in
Nordea, Mearsk and CMA-CGM. highly technical, industry-specific disputes, including the
At Stephenson Harwood, Duncan McDonald heads up firm’s core sectors of media, sport, IT, telecoms, life sciences,
the firm’s shipping litigation group whilst at Barlow Lyde & IP and biotechnology. ‘We punch above our weight in our
Gilbert, Richard Black has extensive maritime arbitration sectors,’ says Player. ‘We’re not trying to take on every piece
expertise. At Reed Smith Richards Butler, Mark Connoley, of investment treaty work, just be the best at what we do.’
Stephen Kirkpatrick, Lindsay East and Andrew Taylor all ‘In IP disputes, our clients come to us for our IP
have impressive maritime arbitration experience. expertise,’ says Richard Marsh of Taylor Wessing, ‘and as
MFB Solicitors is a ten-partner niche shipping and arbitrations within the IP world develop, they will still
insurance firm that specialises in dispute resolution. come to us as market leaders.’

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INDUSTRY SPECIALISMS 

Olswang also has experience in this sector. In Other firms that compete in the TMT sector in
2006, Richard Bamforth continued to act for SIA international arbitration are Bristows, which has a
Kempmayer Media against Digital Latvian Radio & dedicated mediation group of four partners, DLA Piper,
Television Centre in an ICC arbitration concerning the a firm that has a leading reputation for handling IT and
rollout of a digital terrestrial television network in the telecoms disputes, and Clifford Chance. Last year at Clifford
Republic of Latvia. The firm provides international Chance, Rob Lambert successfully obtained an award for
arbitration services to the technology, media and tele- state-owned Digital Latvia Radio & Television Centre in ICC
coms sectors, whether in ICC, LCIA or ad hoc international proceedings in Stockholm.
arbitrations.
At Herbert Smith, Paula Hodges has particular expertise Compact cases
in telecoms disputes, whilst at Allen & Overy, Matt Gearing The work involved in resolving investment treaty disputes
specialises in telecoms and media cases. through arbitration requires specific knowledge, but it’s 

Bright young things

Alejandro Escobar
Escobar was formerly senior counsel at International Centre for Settlement of Investment Disputes (ICSID) in Washington, DC,
where he handled more than a dozen of the first investor-state arbitration proceedings ever brought under BITs and multilateral
treaties for the protection of investment. Formerly at Herbert Smith, he is now practising at Latham & Watkins.
Legal Business says: Escobar is an academic superstar.

Sophie Lamb
Lamb began her legal career as a barrister at One Essex Court. She was then under Gary Born’s tutelage at WilmerHale for seven
years, before joining Bird & Bird as a partner in 2006.
Legal Business says: Lamb’s impressive pedigree will further propel Bird & Bird’s growing international arbitration practice.

Bruce Macaulay
Macaulay was previously Juliet Blanch’s protégé at Norton Rose but is now set to make a name for himself at Skadden, Arps,
Slate, Meagher & Flom. He has an industry focus on energy-related disputes.
Legal Business says: Macaulay is a definite arbitration star in the making.

Franz Schwarz
Schwarz is an Austrian-qualified civil law practitioner at WilmerHale.
Legal Business says: He is analytically and academically superb. A partner for only a matter of months, Schwarz has already sat
as a sole arbitrator on a number of cases.

Carlos Ignacio Suarez Anzorena


Suarez Anzorena is an Argentine-qualified lawyer who works for Clifford Chance in London. He previously worked for the Argentine
government defending ICSID claims.
Legal Business says: Suarez Anzorena has outstanding knowledge about arbitration and the Latin American market.

Matthew Weiniger
Weiniger has just secured an outstanding victory for Herbert Smith, successfully acting for Eurotunnel in its arbitration claim
against France and the UK.
Legal Business says: Weiniger is fantastic with clients.

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 INDUSTRY SPECIALISMS

 not the industry sector that dominates. ‘Energy disputes international principles applicable to such claims could
have been the big trend over the last three years, and that apply equally to telecoms or other forms of licences. ‘The
broad industry category encompasses a range of disputes,’ specialist knowledge in these cases relates to the law that
says Skadden Arps’ Karyl Nairn. ‘In one case you can be should be applied, rather than the industry sector that the
arguing about a joint venture, in another rights to the use dispute evolved from. ‘It is principally because we’re
of a pipeline. Many of the treaty claims can be summarised investment treaty specialists that firms like us, Freshfields
as being about the granting of rights by a government and Clifford Chance are currently picking up the best
that have been then taken away or diminished.’ The energy-related treaty arbitration work,’ says Nairn.

European specialists

Brussels Stockholm
Hanotiau & van den Berg Mannheimer Swartling
Albert Jan van den Berg – investment treaty arbitrations and Kaj Hobér – investment treaty arbitrations, with a focus on
general international commercial arbitration. China.

Bernard Hanotiau – general international commercial Vinge


arbitrations including: TMT; construction; investment Hans Bagner – general commercial and insurance arbitrations.
treaties; oil & gas; pharmaceuticals; transport; banking; joint
venture; and multiparty disputes.
Vienna
Wolf Theiss & Partners
Paris Christoph Liebscher – general commercial international
Freshfields Bruckhaus Deringer arbitration including: construction; joint ventures;
Jan Paulsson – general commercial; investment treaties; intellectual property; distribution; and pharmaceuticals.
and sports arbitrations.
Hausmaninger Herbst
Shearman & Sterling Christian Hausmaninger – capital markets and joint ventures.
Emmanuel Gaillard – general commercial and investment
treaty arbitrations.
Geneva
Schellenberg Wittmer
Zurich Gabrielle Kaufmann-Kohler – commercial, investment and
Walder Wyss & Partners sports arbitrations.
Philipp Habegger – acted in over 50 international
arbitrations; deals with general commercial arbitrations. Laurent Lévy – general commercial; competition; oil & gas;
finance; joint ventures; and consortia.
Bär & Karrer
Michelle Sindler – an international arbitration specialist who Lenz & Staehelin
speaks English, French, Italian and Czech. Paolo Michele Patocchi – general commercial international
arbitration law; shareholders’ and/or joint venture agreements;
shipbuilding agreements and investment projects.
Milan
Bonelli Erede Pappalardo Lalive & Partners
Antonio Crivellaro – general international commercial Michael Schneider – general commercial arbitrations
arbitration including: joint ventures; foreign investment; including: construction engineering and public procurement;
and project finance. international contracts; e-commerce; and telecoms.

Python Schifferli & Peter


Wolfgang Peter – mergers and acquisitions.

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INDUSTRY SPECIALISMS 

The key to becoming an investment treaty specialist is Very rarely do these firms instruct outside counsel.
having a thorough understanding of public international More often than not they perform their own advocacy,
law. ‘BIT disputes are governed by public international law and apply their own experience, tactical judgement and
in procedure and substance,’ says Robert Volterra, a knowledge of arbitral practice and process.
partner at Latham & Watkins. ‘It’s an entirely distinct area
of law.’ And one that shouldn’t be dabbled with unwisely. Crystal balls
‘The problem is,’ says one leading arbitrator, ‘that there are More and more international arbitration groups are shifting
people who think that because there is no governing body their focus to concentrate on core practice areas that are
for people who do public international law, anyone can either traditionally associated with their firms, or are a step
get away with it. I’ve seen one-hit wonders without the in a new direction. Trying to spot future trends is part of the
necessary expertise trying to do BIT arbitrations and the process. ‘Next year there will be more big corporates taking
client always suffers.’ on governments in ICSID claims,’ Lovells’ Phillip Capper
There are in fact relatively few law firms that have the predicts. ‘Arbitration isn’t seen as just an exit strategy
requisite experience to carry out the international anymore,’ Lovells’ Simon Nesbitt adds. ‘Investors are
arbitration cases governed by public international law. ‘It becoming more aware of investment treaty claims and are
is a different way of litigating a case,’ remarks Peter Griffin, more willing to put pressure on unfriendly governments.’
a partner at Baker Botts. ‘There is actually a trend towards
a specialist ICSID bar. Very few firms worldwide have ‘It’ll take a few years for the tax treaty
actually done more than two to three ICSID cases; certainly
very few can claim they have had sufficient experience to disputes to filter through, but when they
say they are expert.’
London does, however, boast a few such firms, which
do, they will be enormous.’
have ample experience in this area. Allen & Overy is Peter Griffin, Baker Botts
representing the Republic ofSlovenia in a dispute under the
Energy CharterTreaty (ECT) with the national electricity
company of Croatia at the moment. In a second ECT case, Look to the future and tax disputes could become a
Stephen Jagusch and Judith Gill, from the same firm, are niche area for international arbitration specialists. ‘Think
representing the Republic of Azerbaijan in a highly politicised about international tax treaty disputes,’ says Peter Griffin
dispute involving persons implicated in an alleged plot to of Baker Botts. ‘It’ll take a few years for the disputes to
stage a coup d’etat. filter through, but when they do, they will be enormous.
At Clifford Chance, Audley Sheppard represented Oxus And it will be the big multinational companies that will
Gold plc in 2006 in its ongoing arbitration against the be fighting to get their overpayments back. In the future
Kyrgyz Republic under the UK-Kyrgyz BIT. there will be treaty provisions that will provide for
Recently, Robert Volterra from Latham & Watkins acted arbitration in case of tax disputes. It could be vast and a
for the Republic of Ecuador in a bilateral investment dispute new population of tax arbitration lawyers will emerge.’
at ICSID. The case involved an alleged expropriation of a US ‘What are and will be the main areas of industry focus?’
investor’s electricity plants and their contracts for $1bn. considers Audley Sheppard. ‘The major arbitration practices
Debevoise & Plimpton won two of the four largest will be focusing on energy and natural resources, telecoms,
arbitration awards for cases involving claims of breach of and construction and engineering. Then there’s M&A and
BITs for its clients CME and Occidental Petroleum – $370m post-completion disputes and more general intercorporate
and $75m respectively. The firm is currently handling BIT cases such as manufacturing and joint venture disputes.
arbitrations involving Ghana, Lithuania and the Congo. There will continue to be a concentration on BITs and
Baker Botts continue to act for Hunt and ExxonMobil in investment protection disputes. We will also be focusing on
their dispute against the Republic of Yemen, and Helnan Kyoto and climate disputes – carbon trading, for example.’
Hotels in its ICSID claim against the Arab Republic of Egypt. ‘The era of the generalist has a fixed term,’ says Griffin.
Other firms in London getting the lion’s share of this ‘Consider investment banking. They have product groups
kind of work include Freshfields, whose London office is and industry groups. In our industry, we are traditionally
gaining Constantine Partasides, Nigel Rawding and Brian viewed as product specialists in that the value we add
King in spring 2007; SJ Berwin, which has particular expertise comes from choosing the right arbitrator, tailoring the
in Russia-related disputes thanks to David Goldberg; and procedure and so on. It doesn’t much matter if the dispute
WilmerHale, due to the stellar reputation of Gary Born. is about telephones, oil rigs or widgets, we work out the
Skadden Arps’ boasts the talents of Karyl Nairn, Paul Mitchard matrix. But as our industry grows – and it is growing –
and Bruce Macaulay, while McDermott’s investment treaty clients are expecting us to know about their business. We
arbitration capability is led by Juliet Blanch. have to become industry specialists.’ 

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 DISCLOSURE

Conflict rules
Differentiating between genuine and questionable conflicts of interest is an
area of growing concern in international arbitration. Herbert Smith LLP
partners Laurence Shore and Justin D’Agostino analyse the issues

The impartiality and independence of arbitrators is


a cornerstone of the arbitration process. Any
arbitrator who believes they are incapable of
acting in an impartial manner should refuse an
appointment, and additional safeguards exist – in
the form of disclosure and the ability to challenge
arbitrators – so as to ensure that impartiality and
independence are preserved.
However, the process of disclosure and the challenging of
arbitrators for conflicts of interest have been attracting
attention recently, due to a perceived rise in the number of
challenges being made. There is some concern that
challenges are becoming a tactical tool used to derail or
delay arbitration proceedings, or vacate an unfavourable
award. If recalcitrant challenges are perceived as an abuse of
process, many of the perceived advantages of arbitration
could be undermined. Equally, it is important that the
arbitration process continues to be seen to be fair and
impartial, and the ability to challenge arbitrators is a crucial
element of this.
This article considers (in light of three recent cases) two
particular situations where arbitrators have been challenged
recently for conflicts of interest. The first involves party-
based conflicts, where the impartiality of the arbitrator is
questioned due to their relationship with one of the parties
(or its representatives). The second involves issue-based
conflicts, where the ability of the arbitrator to take an
impartial view on a particular issue is questioned due to
current or previous involvement with that issue.

To disclose or not
Party-based conflicts occur where the potential partiality
Laurence Shore (left) is a partner and head of international of an arbitrator relates to a link between them and one of
arbitration and Justin D’Agostino is a partner at Herbert Smith LLP the parties (or counsel for one of the parties). Clearly,

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DISCLOSURE 

Rules of disclosure

The general principle that arbitrators must be impartial and independent is well accepted, although the exact
formulation of this duty may vary among different institutional rules and national legislation. In the context of
challenging arbitrators, the test for bias or impartiality will also be jurisdiction-specific. Therefore, although the
overarching values remain the same, reference to the relevant provisions/tests will be required in each case.
It is worth briefly noting two recent regimes that have been instituted in respect of disclosure: the IBA Guidelines
and the new ICSID Rules of Procedure for Arbitration Proceedings.

IBA Guidelines
The Guidelines, while not binding, purport to provide international standards on disclosure and the challenging of
arbitrators that are useful across jurisdictions. They set out general principles and illustrate them with lists of
conflicts where an arbitrator should decline to act (the ‘red list’), potential conflicts that should be disclosed (the
‘orange list’), and circumstances where no conflict is likely to exist (the ‘green list’). The key to disclosure under the
Guidelines is a subjective test as to whether the parties might view a particular circumstance as creating a conflict.

ICSID Rules
It is interesting to note that the new ICSID Rules, which came into force in April 2006, set out a regime that requires
a high standard of disclosure. This standard includes disclosure of all previous relationships with the parties and
‘any other circumstance that might cause [the arbitrator’s] reliability for independent judgment to be questioned by
a party’ (Rule 6). The rigorous standard adopted in this rule is illustrative of the importance attached to full
disclosure in the arbitration process and the need for arbitrators to ensure that any potential conflict of interest is
disclosed, regardless of whether the arbitrator believes it may affect their impartiality.

arbitrators have a duty to disclose relationships with Discussion of the case has revealed a concern that the
parties, but the extent of that duty remains a contentious vacation of an award in cases of non-disclosure of an
issue. Does an arbitrator have to disclose every insignificant relationship may lead to a situation where
relationship between them and those involved in the losing parties conduct a rigorous post-award search for any
dispute, or can an arbitrator decide that a relationship potential relationship that could be used to challenge it (this
does not warrant disclosure? If a relationship is not point was also made by the Court). It may, therefore, create
disclosed, what are the consequences of non-disclosure if an incentive not to investigate arbitrators before the hearing.
a party later objects? On the other hand, allowing arbitrators to decide when a
relationship is worth disclosing risks undermining
Recent examples confidence in the disclosure regime and, consequently, in the
These issues arose in the case of Positive Software Solutions independence of the arbitration process itself.
Inc v New Century Mortgage Corp [2007], which was The precedent on this issue in the US was set by the
decided by the US Court of Appeals for the Fifth Circuit. The Supreme Court ruling in Commonwealth Coatings Corp v
case involved an application to vacate an arbitral award Continental Casualty Co [1968]. In that case, failure to
because of the failure of the arbitrator to disclose a previous disclose a previous business relationship with one of the
relationship with counsel for one of the parties. Positive parties led to the award being vacated. The relationship in
Software Solutions alleged that the award should be that case was more significant than that in Positive Software
vacated due to the appearance of bias, as the arbitrator Solutions, but the Court held that even the ‘impression of
failed to disclose that, seven years earlier, he and his possible bias’ must be avoided and that standards for
former law firm had acted as co-counsel in a lengthy arbitrator disclosure should be, if anything, more rigorous
litigation with the law firm (and one of the counsel) than those for judges. The Court in Positive Software
representing one of the parties. Several law firms and Solutions distinguished Commonwealth Coatings on the
lawyers were involved in the previous litigation, and the facts, and also concluded that Black J’s opinion regarding
arbitrator had not worked with the particular counsel on the ‘appearance of possible bias’ was a plurality decision
the case, although their names appeared together on some rather than a majority decision and, therefore, not binding
pleadings. The Court held that the relationship was too on lower courts.
trivial to warrant vacating the award and that the fact of A similar issue arose in Europe in the Eureko BV v Republic
non-disclosure was not, in itself, evidence of partiality. of Poland arbitration. Poland challenged an arbitration 

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 DISCLOSURE

 award on the grounds of a breach of impartiality due to the party will be able to challenge an award after it has been
relationship between the arbitrator and the law firm made. This is especially important as parties may try to
representing Eureko, which was not initially disclosed by the challenge an unfavourable award on a ground which, if
arbitrator. In particular, Poland claimed that the close disclosed initially, would not have raised any objection
proximity of the offices of the law firm and the arbitrator, as prior to the award being made.
well as an article falsely claiming that they were acting as
co-counsel in an unrelated case against Poland, created an Issue-based conflicts
appearance of partiality. However, the Belgian Court found Another situation where conflicts of interest have recently
no evidence of partiality, noting that the mere fact that the attracted attention is where issue-based conflicts occur.
arbitrator’s office was in the same building as the law firm This type of conflict may arise where an arbitrator has
was not sufficient grounds to order a recusal and that the taken, or is taking, a particular view on an issue in another
false claims made in the article had been rectified. The case capacity – such as when acting as counsel, or in an
is currently on appeal. academic context.
These perceived conflicts raise difficult issues, as
ICSID Rules and IBA Guidelines parties usually prefer to appoint an experienced
The debate around disclosure demonstrates the clash of arbitration expert, and it may be difficult, if not impossible,
two competing policy objectives. There is clearly a need to to find someone who has not previously argued a position
encourage disclosure and to ensure that arbitrators feel on a relevant issue. This is especially the case in
compelled to disclose all relevant information to the investment treaty arbitration, where arguments often
parties. However, there is also a need to discourage revolve around the interpretation of standard investment
challenges based on trivial connections being used as a treaty obligations. Commercial arbitration, on the other
means of vacating unfavourable awards. hand, is more likely to be fact-specific and dependent on
The position in the new ICSID Rules is that all prior specific contractual clauses.
working relationships (with the parties) should be disclosed, It is often acknowledged that the key to an impartial
as well as any other factor that may affect impartiality. The arbitrator in this context is someone with ‘an open but not
broadness of these provisions suggests that arbitrators an empty mind’. Arbitrators will often have a history of
should err on the side of disclosure, even regarding small or acting in arbitrations both as counsel and arbitrator, and
insignificant connections. may have written articles on particular issues in an
The IBA Guidelines, on the other hand, propose a regime academic capacity. This should not disqualify them from
indicating that previous working relationships with counsel acting as an arbitrator in a particular case, unless specific
would not generally require disclosure, while working circumstances suggest that there are additional reasons to
relationships with parties within the last three years may question their impartiality.
require disclosure (although the test is subjective).
While there is a danger that, without reasonable limits, Recent cases
spurious challenges could be made regarding insignificant Such a reason may occur where the ‘conflict’ is seen as
relationships, it is suggested that the balance should concurrent. Issue conflicts have been highlighted recently
generally favour disclosure, even regarding less significant in situations where an arbitrator has been acting as
relationships. Moreover, when disclosure is made, an counsel in another simultaneous, but unconnected, case
arbitrator should be prepared to stand down if a party on the same issue. In the Telekom Malaysia Berhad v
raises reasonable objections on the basis of the Government of the Republic of Ghana [2004] arbitration,
information disclosed. While the intention is not to force Ghana challenged the appointment of Professor
disclosure of every trivial relationship, it is crucial that Emmanuel Gaillard in the Dutch courts. Ghana alleged that
arbitrators err on the side of disclosure on issues which Gaillard could not act impartially in the arbitration, as he
may affect the parties. It is suggested that, the more was acting as counsel in a concurrent case – seeking the
thorough the initial disclosure, the less likely it is that a setting aside of an award on which Ghana sought to rely
in the present arbitration. The Dutch Court held that
Gaillard should withdraw as arbitrator unless he stood
The broadness of the ICSID provisions down as counsel in the other case within ten days.
suggests that arbitrators should err on The Court found that, even if Gaillard could distance
himself from the arguments being made in the setting-
the side of disclosure, even regarding aside proceedings, there remained an appearance that he
might not be able to keep the two roles strictly separate.
small or insignificant connections. This appearance was enough to justify a doubt as to
impartiality. As Gaillard stood down as counsel, no conflict

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DISCLOSURE 

was then seen to exist and he remained as an arbitrator in


the Telekom Malaysia/Ghana arbitration. Commonwealth Coatings Corp v Continental Casualty Co
Nonetheless, Ghana raised a subsequent challenge in 393 US 145 (1968)
the Dutch courts, arguing that Gaillard should still be Positive Software Solutions Inc v New Century Mortgage Corp
removed as arbitrator due to his initial involvement in the No 04-11432, 2007 WL 111343 (Fifth Circuit, 18 January 2007)
other case. This challenge was dismissed by the Court, The Republic of Ghana v Telekom Malaysia Berhad
which held that: District Court of The Hague:
18 October 2004, Challenge No 13/2004, Petition No HA/RK 2004.667;
It could easily happen in arbitrations that an arbitrator 5 November 2004, Challenge No 17/2004, Petition No HA/RK 2004.788
has to decide on a question pertaining to which he has The Republic of Poland v Eureko BV
previously, in another case, defended a point of view. Court of First Instance of Brussels (Fourth Chamber)
Save in exceptional circumstances, there is no reason to 22 December 2006, RG 2006/1542/A
assume however that such an arbitrator would decide
such a question less open-mindedly than if he had not
defended such a point of view before. (Para 11 of the exists. However, courts have been cognisant of the
English translation.) appearance of bias and the potential for ‘unconscious bias’
to occur. Given that many experienced arbitrators have
The key factor in the Court’s initial decision was, encountered most common issues before, parties must be
therefore, that the proceedings involved were able to trust in the integrity and professionalism of
simultaneous, and the generally accepted position is that arbitrators to detach themselves from any personal view
a previous view taken on an issue (regardless of the and decide the dispute on its merits. If it were not so,
capacity in which the arbitrator was acting) would not be almost any arbitration award would be open to challenge
sufficient to mount a challenge against an arbitrator in by the losing party.
normal circumstances. It is also notable that the potential As with party-based conflicts, it is essential that
conflict in this case concerned a very specific point – acting arbitrators ensure that they disclose any potential issue-
simultaneously in unrelated cases that concerned the based conflict as soon as they become aware of it, even if
same broad issue may not create the appearance of they believe they can continue to act in an impartial
partiality that was found here. matter. It would be a shame, however, if arbitrators felt
A similar issue reportedly arose in relation to the disinclined to disclose what may seem minor or
Eureko case discussed above. It is understood that the insignificant issue conflicts for fear that parties may seize
arbitrator in Eureko also acted as counsel in a separate, on the opportunity to delay or derail the proceedings.
ongoing arbitration against Argentina, in which he referred Therefore, the dismissal of the second Telekom
to the Eureko award in support of his arguments. While Malaysia/Ghana challenge is significant in showing the
Argentina did not allege improper conduct, it raised an limitation of this ground and, hopefully, discouraging
objection to counsel relying on a case that he had just further challenges of this nature.
decided as arbitrator.
Conclusion
Summary While the encouragement of tactical challenges must be
Some commentators have suggested that a choice should avoided, it is important that arbitrators disclose any
be made to practice as either counsel or arbitrator, but not potential conflicts of interest that may exist and be
both. This view has been rejected by others on the prepared to stand down if a legitimate challenge is raised
grounds that it would dilute the pool of talent if the most by one of the parties. Full disclosure is crucial for
experienced people could no longer act as counsel, and maintaining confidence in the arbitration process and
would be impractical given the small number of specialists arbitrators should always favour disclosure if uncertain as
in the area. Moreover, it would undermine one of the to whether an issue may be relevant to the parties.
advantages of arbitration, being the parties’ ability to Whether a potential conflict (disclosed or not)
choose whomever they wish as the arbitrator. Proponents constitutes sufficient grounds to remove an arbitrator will
of this latter view suggest that it is possible to distinguish a always depend on the facts of the case and the governing
professional stance taken on an issue as counsel from law. In issue-based conflicts there is clearly a trend towards
personal convictions that might suggest a less open mind. preventing situations of simultaneous conflicts, but this
In all of the above cases, the arbitrators have does not extend to previous roles. Overall, the cases
considered themselves capable of acting in an impartial discussed above generally indicate that courts will not
manner with respect to the case before them, and there remove an arbitrator lightly and that challenges based on
has been little assertion by parties that any overt bias tenuous grounds are unlikely to succeed. 

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 FIONA TRUST JUDGMENT

Why all the fuss?


The recent Court of Appeal judgment in Fiona Trust & Holding Corporation
& ors has caused considerable excitement throughout the London and
international arbitration community. Rowan Planterose and Steven Friel of
Davies Arnold Cooper reveal why it has created such a stir

Described by the President of the Chartered Institute


of Arbitrators as ‘fundamentally important’, Fiona
Trust & Holding Corporation & ors v Yuri Privalov &
ors [2007] was raised for discussion by no fewer than
six separate arbitration practitioners, including
Steven Friel of Davies Arnold Cooper, at the recent
London Court of International Arbitration European
Users’ Council symposium in Madrid.
Is this case really a landmark for English arbitration? In
itself, probably not. However, coming as it did on the tenth
anniversary of the Arbitration Act 1996, a time of reflection
on the development of London as a centre for international
arbitration, the case provides an interesting focus on a
number of issues, including:

■ the increasing tendency for liberal construction of


arbitration clauses;

■ the judicial display of trust in arbitration as a ‘one-stop


shop’ for the resolution of disputes;

Rowan Planterose (left) is managing partner and Steven Friel is a ■ the coming-of-age of the doctrines of separability and
dispute resolution partner at Davies Arnold Cooper competence-competence; and

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FIONA TRUST JUDGMENT 

‘Law and litigation’ clause

The contracts contained a ‘law and litigation’ clause, which provided as follows:

41(a) This charter shall be construed and the relations between the parties determined in accordance with the laws of England.

(b) Any dispute arising under this charter shall be decided by the High Court in London to whose jurisdiction the parties hereby agree.

(c) Notwithstanding the foregoing, but without prejudice to any party’s right to arrest or maintain the arrest of any maritime
property, either party may, by giving written notice of election to the other party, elect to have any such dispute referred…
to arbitration in London…

(i) A party shall lose its right to make such an election only if:

(a) it receives from the other party a written notice of dispute which –
(1) states expressly that a dispute has arisen out of this charter;
(2) specifies the nature of the dispute; and
(3) refers expressly to this clause 41(c)
And
(b) it fails to give notice of election to have the dispute referred to arbitration not later than 30 days from the date of
receipt of such notice of dispute… [emphases added]

■ the ability of international arbitration to deal with First instance decision


complicated allegations of fraud and bribery in At first instance, Morison J declined to stay the court claims
international disputes. for rescission and restrained the arbitration proceedings
pending the trial of the court action. He held that the
Fiona Trust question of whether the owners validly entered into the
Facts charterparties could not be said to be a dispute that arose
A dispute arose out of a series of charterparties (the out of the charterparties, and it certainly did not arise
charterparties) entered into between a Russian group of ‘under’ the charterparties. Further, he decided that the
shipowners (the owners) and a number of chartering arbitration clause was not severable from the matrix of
companies (the charterers). It was alleged by the owners charterparties where rescission was an available remedy.
that the charterparties, and numerous other agreements Accordingly, he ruled that the arbitrator did not have
entered into by the parties, were procured by bribery. The jurisdiction to hear the dispute.
extent of the alleged bribery went far beyond the The charterers appealed. The Court of Appeal allowed
charterparties, which formed only a small part of an the appeal, based primarily on a wide construction of
overall set of fraud allegations. the clause and a rigorous application of the doctrine
Court proceedings were commenced in England relating of severability. 
to the fraud allegations on the whole. One of the claims
made in the English proceedings was that the charterparties
had been validly rescinded and that restitution of benefits
under the charterparties should be made.
The contracts contained a key ‘law and litigation’
clause, details of which can be seen in the box above. The
charterers commenced arbitration proceedings pursuant
to this clause. The owners therefore applied to the English
Commercial Court under s72 of the 1996 Act, seeking to
restrain the arbitration proceedings on the basis that the
charterparties, and the arbitration clauses contained
therein, had been validly rescinded. In turn, the charterers
made a cross-application under s9 of the 1996 Act for a
stay of the ongoing court proceedings for rescission.

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 FIONA TRUST JUDGMENT

 Issues under consideration competing considerations that the court had to take into
Liberal construction of the arbitration clause account:
The first question to be considered by the Court of Appeal
was whether the arbitration clause was wide enough to ■ On the one hand, there was the fact that, if the
cover allegations that bribery had induced the arbitration was allowed to proceed, it would almost
charterparties. Counsel for the parties pursued arguments certainly do so concurrently with the High Court
based on the differences between arbitration clauses that litigation, in which the fraud allegations were being
refer to disputes ‘arising under’ and disputes ‘arising out considered in a wider context.
of’ the relevant contract. After citing a large number of
authorities (from Heyman v Darwins Ltd [1942] to The ■ On the other, there was what Longmore LJ described as
Delos [2001]) on the construction of arbitration clauses the presumption in favour of ‘one-stop arbitration’, by
and the subtle differences in language used therein, which he meant that, rather than a court deciding on
Longmore LJ held that the arbitration clause was wide whether a contract should be rectified, avoided or
enough to allow the arbitral tribunal jurisdiction to decide rescinded, followed by an arbitration on the merits of
the bribery allegations. He stated: the dispute, it was to be presumed that the arbitrators
should decide on all the relevant issues.
… the time has now come for a line of some sort to be
drawn and a fresh start made at any rate for cases in an That the presumption in favour of one-stop arbitration
international commercial context… If businessmen go was not rebutted by the resultant concurrency of
to the trouble of agreeing that their disputes be heard… procedures (High Court litigation and arbitration) shows
by a tribunal of their choice they do not expect (at any how far the English courts have come from the days when
rate when they are making the contract in the first place) a presumption in favour of arbitration was readily
that time and expense will be taken in lengthy argument rebutted. In this context of supporting arbitration,
about… whether any particular cause of action comes Longmore LJ’s judgment in Fiona Trust can be seen as
within the meaning of the particular phrase that they following a path taken by Lord Steyn in Lesotho Highlands
have chosen in their arbitration clause. If any business Development Authority v Impregilo SpA & ors [2006].
man did want to exclude disputes about the validity of a
contract, it would be comparatively simple to say so… Separability
It seems to us that any jurisdiction or arbitration clause It has long been accepted in English law that an
should be liberally construed. arbitration clause is a separate agreement that survives
the destruction (or other termination) of the parent
This statement has been welcomed by many. It is contract. The principle is that the arbitration agreement
widely considered that one of the main threats to the gives rise to a distinct legal obligation and is not
flexibility of London arbitration and to the success of the conditional on the rest of the contract. This principle is
1996 Act is the increasingly litigious nature of the process given statutory form by s7 of the 1996 Act, which states:
and the tendency by unwilling parties to arbitration to
engage in lengthy jurisdictional arguments based on Unless otherwise agreed by the parties, an arbitration
semantic readings of the arbitration clauses in question. agreement which forms or was intended to form part
The Court of Appeal has, to large extent, now put a lid on of another agreement (whether or not in writing) shall
these arguments and sent the very clear message that if not be regarded as invalid, non-existent or ineffective
you refer to arbitration, then arbitration you shall have. because that other agreement is invalid, or did not
come into existence or has become ineffective, and it
One-stop arbitration shall for that purpose be treated as a distinct
The Court of Appeal judgment can be viewed as agreement.
particularly supportive to arbitration if we consider two
In Fiona Trust, the limits of the doctrine of separability
were tested. The evidence before the court was that the
In Fiona Trust, Longmore LJ held that the owners would not have entered into the charterparties at
arbitration clause was wide enough to all if they had been aware that their employees had been
bribed. With no contract, the argument went, there could
allow the arbitral tribunal jurisdiction to have been no arbitration agreement.
Longmore LJ posed the question of ‘whether the
decide the bribery allegations. assertion of invalidity goes to the validity of the arbitration
clause, as opposed to the validity of the charterparties as a

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FIONA TRUST JUDGMENT 

whole of which the arbitration agreements are a part.’ In Arnold Cooper has decided to undertake and we hope to
answering this question, he stated: publish our findings by the end of this year.

It is not enough to say that the bribery impeaches the Complex international frauds
whole contract unless there is some special reason for In the context of the Fiona Trust case, it has been asked
saying that the bribery impeaches the arbitration whether London arbitration is best equipped to deal with
clause in particular. There is no such reason here. multi-jurisdictional fraud allegations. Can an arbitral tribunal
move quickly enough, and does it have the requisite powers
The separability doctrine is, of course, not peculiar to of subpoena, investigation and preservation of assets to
English law. Many jurisdictions have adopted Article 16 of the ensure that justice is done in these cases? Many would say
UNCITRAL Model Law on International Commercial that, together with the assistance and supervisory
Arbitration, which provides that ‘an arbitration clause which jurisdiction of the English High Court, there is no reason why
forms part of a contract shall be treated as an agreement London arbitration cannot handle these cases effectively.
independent of the other terms of the contract’. See, for However, would an alleged victim of a complex international
example, s1040(1) of the German Code of Civil Procedure and fraud, who is forced to arbitration despite the allegations of
s13B of the Hong Kong Arbitration Ordinance. fraud, necessarily agree?
Despite its almost universal acceptance, the doctrine of
separability has been under attack. Many arbitrators will Conclusion
be comforted, however, by the knowledge that the English Fiona Trust provides Court of Appeal authority that
Court of Appeal is not the only important domestic court to arbitration clauses in international commercial contracts
vigorously defend it. In the 2006 case of Buckeye Check should be construed in a liberal and expansive fashion.
Cashing Inc v John Cardegna et al, the US Supreme Court, The Court has drawn a line under previous case law, which
by a majority of 7-1, reaffirmed that the doctrine applies in had laboured on the precise forms of wording of dispute
the US. In overturning a decision of the Florida Supreme resolution clauses, and has set a precedent that the
Court, which had held that Florida state law did not allow English courts should no longer scrutinise the minutiae of
parts of an illegal and void contract to be severable, the US the wording. In doing so, the Court has further
Supreme Court established that the landmark 1967 strengthened England’s status as an arbitration-friendly
decision in Prima Paint Corp v Flood & Conklin Mfg Co jurisdiction, where commercial parties will benefit from
continued to hold good. greater certainty that arbitration clauses will be upheld.
In addition, this case has upheld the all-embracing
Competence-competence principle doctrine of severability and confirmed that it applies to
Although not referred to in terms by the Court of Appeal, contracts where it has been alleged that the contract in
the Fiona Trust case provides further support in England question has been procured by bribery. The Court of
for the principle of competence-competence and takes us Appeal has reiterated that, under s7 of the 1996 Act, an
further away from the pre-1996 days, when it was arbitration clause that forms part of a contract will be
generally thought that arbitrators could do no more than treated as an agreement independent of the other terms
express a view as to whether they had jurisdiction – the of the contract and that it is possible to arbitrate disputes
ultimate decision always being reserved for the courts. as to the illegality of a contract, including circumstances
The question of whether England should more fully where there has been alleged bribery. 
embrace the principle of competence-competence was
raised recently by a body set up to review the 1996 Act on
its tenth anniversary. As it stands, a tribunal’s decision on Buckeye Check Cashing Inc v John Cardegna et al
jurisdiction is open to challenge under s67. Further, when 126 S Ct 1204 (No. 04-1264, February 21 2006)
considering the challenge, an English court is entitled to Fiona Trust & Holding Corporation & ors v Yuri Privalov & ors
consider the question of jurisdiction de novo and is in no [2007] EWCA Civ 20
way bound by the tribunal’s findings of fact or law. Heyman v Darwins Ltd
Although the review committee concluded that it was not [1942] AC 356
yet time to amend this position in English law, the Lesotho Highlands Development Authority v Impregilo SpA & ors
committee did state that further research was necessary [2006] 1 AC 221
on the question whether the current English position has a Prima Paint Corp v Flood & Conklin Mfg Co
detrimental effect on London arbitration – are [1967] 388 US 395
international parties wary of arbitrating in London due to The Delos
the risk of English courts rehearing and re-deciding [2001] 1 Lloyds Rep 703
jurisdictional issues? This is a research task that Davies

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 DAMAGES

Expert analysis
The use of experts in assessing complex damages can be an important aspect of
international arbitration. LECG’s James Nicholson and Mark Bezant provide an
insider’s perspective

It’s 10am on Monday morning and expert reports


were due for exchange the previous Friday. You’ve
just seen the latest draft from your damages expert
– who has been working all weekend – and you
still have some concerns. You ignore your ringing
phone in case it’s the other side calling, again, to
demand an explanation. As you take a deep breath,
you ask yourself what went wrong.
Based on our experience, we will describe some of the
things that could have gone wrong, and some of the things
you can do when engaging damages experts to help things
go right. We discuss the potential roles for an expert in
international arbitration, before taking you through the
steps of a damages expert’s involvement in a complex
international arbitration, from the initial decision to engage
an expert through the analysis and quantification of loss, to
the production of a written report and the delivery of oral
testimony.

The role of an expert


The usual role for a damages expert is as an independent
expert witness, presenting expert reports and oral
testimony to assist a tribunal. The duties of an expert
witness may be less formally defined in international
arbitration than in the national court, but typically such an
James Nicholson (left) is a principal at LECG Paris and Mark Bezant is expert will perform their work on the understanding that
a managing director at LECG London. They are part of LECG’s team their opinions are objective and independent – that
specialising in complex damages matters in high-value international although the client pays the piper, the tribunal calls the
arbitration cases tune. At LECG, we fulfil the duties of an expert by analogy

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DAMAGES 

to the role in the court systems of England and Wales


and/or the United States, but such a presumption
It is typically not worth compromising on
should be explicitly understood between the legal team the essential skills in damages assessment
and the expert.
and expert testimony to find an expert
Selecting an expert with discrete industry experience.
Experts come from a variety of disciplines and
backgrounds, suiting different cases. A utility
expropriation case might lend itself to an experienced
economist, while an auditor might be unfamiliar with team and the client need to be comfortable that the team
modelling market and price evolution; a commercial put forward by the expert can deliver, and that the expert
dispute over control of a joint venture would require will give compelling oral testimony. The expert must be
finance and valuation skills that may not be the prepared to be involved at each stage in the work. The
economist’s forte; an accountant might be the right depth of understanding required of a case to give effective
person to perform a complex review of costs incurred in oral testimony can only be generated through such
making an investment. Anticipating the issues of the case involvement, and to do otherwise would risk the expert
and matching the right expert or team of experts is key. being asked to give testimony on points in the report with
We often receive enquiries that are industry-specific: ‘We which they do not agree.
need an accountant with significant experience in Difficulties can arise when clients are not sufficiently
Norwegian retailing/Asian direct marketing/the involved in expert selection, or do not fully understand the
construction of hydro-electric dams.’ Our response is role of the expert, particularly if the expert has clear views
generally the same. Such combinations are hard to find in over what they are prepared to say, which may not accord
the same individual, and it is typically not worth with the client’s case.
compromising on the essential skills in damages assessment
and experience of the arbitration process and expert When to engage an expert
testimony to find an expert with discrete industry There are advantages to engaging an expert as early as
experience. possible. They can help advise on the principal issues
Communicating technical concepts clearly and affecting damages, including providing an initial damages
persuasively is also a core requirement for experts. An assessment that may affect the legal strategy. An expert’s
expert with the right damages assessment skills (economics, experience of similar matters means they can often help
accounting, valuation, regulation etc) and experience in identify critical information, documents and witnesses
expert-witness work will find out what they need to about relevant to assessing damages, and bring key issues to the
the industry, perhaps with additional help from client surface at an early stage. An expert can also advise on
personnel or a supporting industry expert. An industry potential outcomes from arbitration in considering
expert lacking the right damages skills or experience may settlement proposals.
misunderstand their role and fail to deliver credible, robust Independent experts can give guidance on disclosure
expert testimony, either written or oral. In one recent case, issues, including advising on which documents to request 
an industry expert with little damages experience –
appointed by the other party, we hasten to add – withdrew
his evidence and advised the tribunal to accept the evidence
the LECG expert was putting forward. The outcome is
typically not so dramatic, but the fact remains that it is
critical to use an expert with extensive experience in
damages analysis.
A related point is that, from a damages expert’s point of
view, the forum or arbitral rules do not generally affect the
basis of our opinion or approach. Whether a case is heard
in front of, say, the ICC or LCIA makes little difference to our
analysis. An ICSID matter is somewhat different, as bilateral
investment treaty cases typically raise slightly different
issues, but there are no significant procedural differences
from an expert’s point of view.
An expert is typically supported by a team drawn from
their firm, with varying degrees of experience. The legal

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 DAMAGES

 from the other party, and pointing out disclosure-related arbitration, the client CEO and CFO based themselves at our
issues that the other party may raise. In a recent post- offices in the week before our deadline, furiously discussing
acquisition dispute, based on our input, counsel for the issues amongst themselves before suggesting yet another
other party was forced to admit to the tribunal that key potential set of disclosure. When that disclosure came, it was
board documents relating to the proposed price of the late and contradictory, and was hard for us to use. Delayed
acquisition had not been disclosed. His explanation that disclosure of important documents can create as many
there were several versions, and that his client was not difficulties for an expert as being brought late into a project.
sure which one to disclose, left the tribunal in no doubt as It is also important to manage any tensions between the
to the true significance of this omission. An experienced client and the expert. This is helped by the client having a
expert, engaged sufficiently early, can alert the client to clear understanding of the role of the independent expert at
such lines of enquiry and the potential damaging effect. the start of the project. Tensions can also arise within the
team. One relatively inexperienced manager returned from a
Managing the process meeting with counsel that the expert was unable to attend
Importantly, experts need time to do their work. Being an and showed the expert a redrafted report – to be met with
expert is hard – there are extensive materials to master, howls of laughter. ‘As soon as the other side see this,’ the
damages frameworks and scenarios to develop, logic-flows expert explained, ‘they’ll know it was written by counsel. The
to think through, alternative views to anticipate, existing tribunal will pick up on that too.’The offending drafting was
analysis to interpret and new analysis to plan and execute. removed, but the helpful review points were incorporated.
One’s reputation is permanently on the line when signing a Particularly on long and complex projects, it may help
report or giving oral evidence. Doing all this well takes time. for the expert to produce interim ‘issue papers’ on topics
Time can also promote efficiency. It is much more efficient to relevant to the case. In one arbitration, producing such a
do the analysis once the disclosure and witness statements paper revealed a number of issues on which the client and
are largely complete, and to write the report once the the legal team had differing understandings, and aided
analysis is largely complete, rather than doing these in resolution of those issues. Significant elements of such
parallel. Early involvement should not necessarily mean the documents can readily be incorporated into formal
expert or their team is working full-time from that point, but reports that are produced for tribunals.
will avoid the pitfalls of time pressure. We have extensive experience working on investment
A vital first step is to ensure that the relevant issues are treaty arbitrations that often revolve around disputed
correctly framed. A damages expert will typically bring a investments in utilities or infrastructure projects, and we are
different perspective to the quantum issues of a case than familiar with such industries. Where this is not the case,
those anticipated by the legal team – and often needs however, we need assistance to understand an industry or
clarity on the precise basis of damages that they are being project. In such a situation, where possible and appropriate,
asked to assess, which is typically achieved through a site visit by the expert is valuable. Such visits typically
discussion with the legal team. Generating that clarity at clarify our thinking and deepen our understanding of the
an early stage is very important. Needless to say, regular issues involved in a matter. We also find, in giving oral
update meetings and teleconferences are vital. testimony, that being able to state that we are familiar with
It is also essential, in our experience, to discuss the nature the relevant industries and have visited the relevant sites
of the required output early, including the outline of the final can in some cases add authority to our testimony.
report. This is a key means of forcing issues into the open
that might otherwise remain hidden, and of promoting Output
efficiency in developing hypotheses and the report itself. Report generation is very time-consuming. Even when the
A barrier to completing an expert report often arises issues are framed and detailed analysis has been
from delays over disclosure. When information is performed, it takes some time to draft a clear and careful
forthcoming, several iterations are sometimes still required report. The difficulty of report generation is one major
before the information is clear and complete. In one reason why costs can climb above expectations. Any
uncertainty, unexpected disclosure, or significant late
changes to instructions adds rapidly to the cost and delay,
It is essential to discuss the nature of the so it is essential to work hard to minimise such issues. If
required output early. This is a key means you have already chosen the right expert and kept close to
their work and the report outline, this will help
of forcing issues into the open that might considerably in minimising surprises in the nature as well
as the cost of the expert’s opinion.
otherwise remain hidden. The report is one of the expert’s key outputs. Experts
should aim for high-quality, zero-defect reports. This

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DAMAGES 

means, ideally, that there is a final draft comfortably


before the deadline, and a preliminary draft well before An alternative role for an expert
that – otherwise there is insufficient time for checking,
reconsidering and clarifying the opinion rendered. The In some cases, there is a role for an expert adviser or shadow expert
legal team needs to encourage such timeframes. as well as an expert witness, as sometimes seen in large litigations.
Moreover, experts benefit considerably from the external Such an adviser might provide input to the case on matters that are
review of the legal team and client. However experienced important, but do not require expert testimony. On operational details
experts are in preparing such reports, the legal team of the relevant industry, for example. An adviser may be able to act
and client can give a sense of how effective a report is to as a sounding board for counsel or as devil’s advocate to test the
a lay reader. expert’s views.
Sequential exchange of reports, in our experience, The boundaries of such a role, and its distinction from the role of
supports more efficient working. We know what we are the testifying expert, are subtle, and these subtleties are increased by
responding to, and we know that the other expert will be the more fluid nature of the function of the expert in arbitration as
scrutinising and responding to our opinions. Simultaneous opposed to litigation.
exchange runs the risk that the experts will have addressed Where a single expert is to be retained by a party, an experienced
different questions, and it can take further reports before expert will be sure to be clear about the capacity in which they are
the experts’ views on all of the issues are fully articulated. providing advice or opinion, and will be sensitive to the implications
Expert meetings are a feature of many arbitral of an actual or possible migration of their role over the course of an
processes. These can help to narrow the issues between engagement. These issues are particularly relevant in cases where
experts, with the experts meeting without lawyers present quantum is heavily disputed. In such situations, the expert is often
and on a without-prejudice basis in an attempt to playing an important role in the overall case, and advising on key
understand the causes of any differences between them issues affecting it, and must do this with care if they are also to fulfil
and to identify matters on which they agree and disagree. their role as an independent expert.
Such meetings are useful for focusing the experts on the
points of agreement between them, points that might
otherwise be under-emphasised. Moreover, the setting out the relevant issues. In general, the more robust an
of the matters not agreed between the experts can help expert’s views, and the better-prepared the expert, the
identify where differences of opinion arise as a result of the easier it will be to put their points of view across in such
experts’ instructions or understanding of the facts. They can a situation.
also help expose poorly supported conclusions on the part An occasional frustration for us as experts is the time
of one expert or another – an expert who has done their job allotted to expert evidence. Despite large amounts of
properly will be comfortable with this, whereas one who money spent on expert reports, as well as legal fees, and
has not thought their views through will be less so. extensive differences of opinion on matters of quantum,
Another benefit of the flexibility of international hearings sometimes allocate very short periods of time for
arbitration is that it often allows more direct questioning examination of experts. This gives very little time for key
of experts during the hearing. Having given evidence issues to emerge. We recognise that there are many
individually, one LECG expert recently participated in important issues to resolve in any hearing, and that we
witness conferencing before a tribunal under UNCITRAL deal with only one dimension of a dispute, but we would
Rules. The tribunal – which was up-to-speed on the recommend that due consideration is given to the length
relevant issues – was hearing conflicting evidence from of time required for an expert’s views to be fully explored.
the two parties and was finding it difficult to get to the
root of these differences. By interrogating both experts Back to Monday…
simultaneously, the tribunal was able to pursue the So, it’s Monday evening. You read your expert’s report with
individual points underlying each expert’s views, and satisfaction a week ago and discussed a few late-emerging
reach a better-informed judgement than would otherwise minor points, giving you time to amend your accompanying
have been possible. submissions. Thanks, in part, to an article you read a few
A different LECG expert, under recent direct months ago, all went smoothly – on your side – but you
questioning from the tribunal, knew that he had got his exchanged late on Monday morning rather than last Friday,
point across when the lead arbitrator asked: ‘Are you due to the other side’s inexplicable delays. You reflect on the
saying, in essence, that…?’ ‘That’s exactly what I’m obvious poor quality of the other side’s expert’s report and
saying,’ the expert was able to reply, knowing also that the the lack of integration between the expert’s views and
transcript would admit no doubt of his opinions. opposing counsel’s submissions. If only they had a better
Experts generally welcome such forms of examination, idea of how to work with their expert, they could have done
as they allow tribunals to get more quickly and directly to a better job for their client. 

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Caught in court
Arbitration disputes are increasingly ending up in court, raising questions as to
whether this pays proper regard to the wishes of the parties. Wragge & Co’s
Andrew Manning Cox considers the message the courts ought to give when
invited to adjudicate arbitration issues

In today’s global economy, companies have been


increasingly choosing arbitration as the preferred
method of dispute resolution in commercial
agreements. International trading partners may
find an arbitration clause more palatable than a
High Court jurisdiction clause. Often, the parties
will prefer to incorporate the rules of
internationally recognised and accepted arbitration
bodies, even if they will accept an English law
clause – indeed, one issue is regularly traded off
against the other at the drafting stage.
London is a leading centre of excellence for
international arbitration and English law is regularly
chosen as the applicable law in international contracts.
Both of these factors contribute to the invisible earnings of
London and, indeed, the UK. They will, however, come
under pressure if parties see that a future dispute stands a
realistic chance of ending up in court. Although the parties
may have freely chosen arbitration as their dispute
resolution mechanism, recent case law continues to
demonstrate that they may still find themselves litigating
issues in court. This may be to the considerable surprise of
one or more of the parties and could give rise to a lack of
confidence in the credibility of arbitration and its
Andrew Manning Cox is a partner at Wragge & Co, perceived advantages, leading them to consider choosing
where he is head of international arbitration another applicable law/jurisdiction.

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So why choose arbitration? If court intervention is not restricted to


Confidentiality
Arbitration decisions are not reported – pleadings, directions very limited circumstances, it encourages
and awards are confidential. Hearings take place privately. In
contrast, hearings in court are almost always in public. the litigation of arbitration.
Recent (and controversial) changes to the Civil Procedure
Rules 1998 in England mean that all court pleadings are
publicly available as soon as they are served, unless the court appeal is more extensive in court proceedings and
has ordered otherwise. This is proving to be a fertile source therefore it is more difficult to assess the likely costs to be
of information for journalists. It is increasingly being used as incurred to get to a final decision.
a tactic by litigants, actual or potential, and is having the
effect of discouraging some litigation. This change alone No precedent established
gives a boost to arbitration and is certainly now a factor in Because arbitration awards are not reported, arbitrators
favour of agreeing to arbitrate rather than litigate. are not bound to reach a decision based on the precedent
made in an earlier decision. By contrast, judges are often
Greater control restricted when reaching their decisions, as they must
Parties to arbitration have more control over the dispute follow (or, of course, distinguish) precedent.
resolution process than parties in court proceedings,
especially since the introduction of the CPR. These Rules Interference or justified intervention?
require active case management by the court and the wishes Despite the fact that parties to a contract have made the
of the parties are no longer necessarily paramount. choice to arbitrate rather than litigate, arbitrations have a
tendency to sneak into the courtroom. This is an increasing
Relative and predictable speed trend and brings with it the danger of creating a parallel
This is a hot topic for debate. The relative speed of resolution universe of satellite litigation. Typically, a party will go to
by means of arbitration and certainty of timetable as court either to raise a particular discrete issue in the
compared to court litigation will vary with the circumstances. arbitration or to complain that the ultimate award is unfair.
There may be times where the intervention of the court is
Convenience of seat and hearing location necessary during an arbitration to ensure it is properly
The parties choose the law to apply to the dispute and conducted. For example, it may be necessary to ask the court
where in the world hearings are to take place. to assist in taking evidence, to make an order for the
preservation of property, or to prevent the disappearance of
Particular expertise assets. But is it right that, as Donaldson LJ suggested in
With the specific commercial context in mind, the parties Babanaft International Co SA v Avant Petroleum Inc [1982],
may wish to stipulate the qualifications and expertise of the parties or arbitrator should be able to ‘nip down the road
the arbitrator/s to ensure that they are confident that the to pick the brains of one of Her Majesty’s judges and, thus
eventual decision-maker will be appropriately skilled. In enlightened, resume the arbitration’?
the High Court a judge will be allotted to hear and If court intervention is not restricted to very limited
manage the case. The assignment of a judge to a case is circumstances, it encourages the litigation of arbitration
normally made as an administrative exercise, based on and brings with it the danger of a dilution of the benefits
a judge’s availability, with particular expertise a of the arbitral process.
secondary consideration. Although one of the general principles of the 1996 Act is to
restrict intervention by the court, it does provide for judicial
More than one decision-maker intervention in certain circumstances. For example, the losing
Often, a party will feel that a fairer decision will be reached party may challenge an award on the basis that the tribunal
if made by an arbitral tribunal of three rather than by one exceeded its jurisdiction, there was a substantial miscarriage
person sitting alone. Parties can stipulate in their contract of justice or on some other legally recognised ground. The
that decisions must be reached by any number of decision- position under the Act is certainly not unique. The UNCITRAL
makers, whereas in the High Court first instance decisions Model Law on International Commercial Arbitration adopts a
are reached by a judge sitting alone. similar approach. Although Article 5 seeks to exclude the
involvement of the courts as far as possible, the Model Law
Finality does not exclude their participation in ‘certain functions of
There are only limited rights of appeal under the arbitration assistance and supervision’.
Arbitration Act 1996. This provides another of the benefits In the majority of cases, the litigation of arbitration
of arbitration: better costs predictability. The right of starts after an award has been made and involves an 

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problems that arbitration, as a method of dispute resolution,


ASM Shipping Ltd of India v TTMI Ltd of England should be addressing and that form the basis of many
[2006] EWCA Civ 1341 decisions to opt for an arbitration, as opposed to a High
Babanaft International Co SA v Avant Petroleum Inc Court jurisdiction clause.
[1982] 3 All ER 344 Donaldson LJ’s dictum about ‘nipping down the road’
CGU International Insurance plc & ors v AstraZeneca Insurance Co Ltd was, no doubt, never intended to encompass unwarranted
[2006] EWCA Civ 1340 attempts by unsuccessful parties to avoid being bound by
Chaim Kohn v Sheva Wagschal & ors an arbitral award. If contracting parties do not have
[2006] EWHC 3356 (Comm) confidence that stipulating arbitration as the dispute
Elektrim SA v Vivendi Universal SA & ors resolution forum provides any certainty of benefit, they
[2007] EWHC 571 (Comm) simply will not use arbitration. If they believe there is a real
Fiona Trust & Holding Corporation & ors v Yuri Privalov & ors possibility that any issue arising in the arbitration or the
[2007] EWCA Civ 20 decision itself will end up in the English courts, even if they
Lesotho Highlands Development Authority v Impregilo SpA & ors agree to the principle of arbitration, they may refuse to
[2005] UKHL 43 agree to it being subject to English law.
Sinclair v Woods of Winchester Ltd & anor In this context it is pleasing to see the recent and robust
[2006] EWHC 3003 (TCC) decision of the Court of Appeal in Fiona Trust & Holding
Sumukan Ltd v The Commonwealth Secretariat Corporation v Yuri Privalov [2007], holding that any
[2007] EWCA Civ 243 jurisdiction or arbitration clause in an international
commercial contract should be liberally construed. If the
original intention was to refer disputes to arbitration then
 attempt to overturn aspects of the award. If the last 15 neither party should be allowed to avoid that
months of reported cases are anything to go by, this is a consequence through legal niceties. In giving judgment,
growing phenomenon (see box opposite). Longmore LJ said:

It’s not fair … if businessmen go to the trouble of agreeing that their


Recent case law shows that attempts to persuade the disputes be heard… by a tribunal of their choice they do
English courts to reverse a decision of an arbitral tribunal are not expect… that time and expense will be taken in
largely failing. However, that has not stopped the courts lengthy argument about the nature of particular causes
getting involved and it demonstrates a growing trend of of action and whether any particular cause of action
parties to arbitration being prepared to litigate if they comes within the meaning of the particular phrase that
perceive that there may be an advantage in doing so. In the they have chosen in their arbitration clause.
immediate aftermath of the 1996 Act, there were few
challenges which reached the courts. That has now changed. This principle – on the facts of this case it was relevant to
This trend means that the assumptions the parties had the proper interpretation of an arbitration clause – could and
(and which no doubt underpinned their original decision to should also be applied to issues arising once the arbitration
select arbitration as the agreed method of dispute has commenced or when the decision is reached.
resolution) are being undermined. This results in the
perceived advantages of arbitration being substantially Balancing act
reduced, if not in some cases removed entirely, and leads to The litigation of arbitration is unlikely ever to disappear
extra cost, time and uncertainty of outcome. It also means entirely, nor should it. Arbitration cannot exist in aspic. As the
that the fact (if not the detail) of a dispute comes into the 1996 Act recognised, there will always be a need for the
public domain, rather than remaining confidential. The potential of court support and intervention when the agreed
ability of one party to make use of that fact tactically, and the machinery has broken down. That machinery will have been
corresponding concern of another party to preserve agreed between the parties at a time when they were co-
confidentiality, may lead to inappropriate attempts to involve operating to achieve a commercial goal and a dispute was a
the courts in private arbitrations. These are precisely the far and distant prospect (if contemplated at all).
However, there must be a balance. While there is a place
Recent cases show that attempts to for the courts to become involved, the circumstances in
which they do so should be limited – the scope for such
persuade the English courts to reverse involvement allowed by the 1996 Act should be construed
narrowly. Otherwise, the perceived advantages of
arbitral tribunal decisions are largely failing. arbitration as a method of resolving disputes, English law
and jurisdiction, and indeed the reputation of London and

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Recent cases illustrating the view taken by the English courts

Sumukan Ltd v The Commonwealth Secretariat [2007] the applicant sought permission to appeal the arbitrator’s third
The claimant sought leave to appeal the decision of the tribunal award. That too failed but only after the judge considered some
on a point of law. The Court held that, on the wording of the underlying facts – thereby removing the confidentiality of the
arbitration clause, the parties had agreed for the purposes of dispute, at least in relation to these issues.
s69 of the 1996 Act to exclude the jurisdiction of the Court. The
claimant argued that such an exclusion infringed its rights CGU International Insurance plc & ors v
under Article 6 of the European Convention on Human Rights AstraZeneca Insurance Co Ltd [2006]
1950 (ECHR): the right to a fair hearing before an impartial A partial arbitration award on a preliminary issue ended up in
tribunal. The Court of Appeal held that the 1996 Act permitted the Court of Appeal. On 1 December 2005, the judge refused an
the incorporation by reference of an agreement excluding the application under s69(8) of the 1996 Act for permission to
right of appeal and that such incorporation was not contrary to appeal the award. The applicant, AstraZeneca, alleged that
the ECHR. Earlier this year, the Court also refused the claimant’s refusal was unfair. The Court of Appeal delivered its judgment
subsequent challenge to the award on the grounds that the in October 2006, 18 months after the original award,
arbitral tribunal lacked substantive jurisdiction and there had confirming there was no unfairness in the judge’s decision.
been serious irregularity in the form of bias.
ASM Shipping Ltd of India v TTMI Ltd of England [2006]
Elektrim SA v Vivendi Universal SA & ors [2007] Another decision from the Court of Appeal and, again, another
The applicant issued court proceedings to set aside a partial refusal to grant relief to a party dissatisfied with an arbitration
arbitration award, alleging that the actions of the respondent award. As in Sumukan, the dissatisfied party attempted to rely
amounted to fraud. Under the 1996 Act an award is on the ECHR to avoid being bound by the award. The judge at
unenforceable if obtained by fraud. The Court held there was no first instance dismissed a challenge to an award on the ground
link between the alleged fraudulent actions of the respondent and of serious irregularity for apparent bias. On appeal the
the award. It could not be said that the award was obtained by applicant argued that the judge’s decision contravened Article 6
fraud and so the Court refused to set the award aside. of the ECHR. The Court of Appeal refused the application for
leave to appeal on the grounds that they lacked jurisdiction
Chaim Kohn v Sheva Wagschal & ors [2006] because there was no realistic argument that the judge’s
The Court refused to set aside an order enforcing the award of decision contravened the ECHR.
an arbitrator, finding that the objections to the enforcement
were specious. The applicants alleged that to enforce the award Lesotho Highlands Development Authority v
would be to enforce an arrangement tainted with illegality, that Impregilo SpA & ors [2005]
an agreement that the award would not be enforced had been This case involved the power of the arbitral tribunal to decide
made which superseded the award, and also raised the currency in which to make their award and the power to
jurisdictional objections. The Court found no evidence of award interest. The House of Lords decided that the erroneous
illegality and no binding agreement. The applicants’ exercise of an available power could not by itself amount to an
jurisdictional arguments were also rejected. The Court found excess of power under s68(2)(b) of the 1996 Act and neither
there was no basis for objecting to the award. However, in could a mere error of law. Lord Steyn stated:
dealing with the applications the Court had to look at the detail
of the dispute and it was recorded in the judgment. I am glad to have arrived at this conclusion. It is consistent
with the legislative purpose of the 1996 Act, which is
Sinclair v Woods of Winchester Ltd & anor [2006] intended to promote one-stop adjudication. If the contrary
The applicants tried on two separate occasions to challenge an view of the Court of Appeal had prevailed it would have
arbitration. First, they applied to the Court to remove the opened up many opportunities for challenging awards on
arbitrator and to set aside his first award for serious irregularity the basis that the tribunal exceeded its powers on ruling on
under s68 of the 1996 Act. The attempt failed. Over a year later the currency of the award.

the UK as a centre of excellence for international arbitration, Additionally, it is hoped that attempts to undermine the
will be damaged. agreed dispute resolution forum simply in an attempt to
It is to be hoped that the recent guidance set out in Fiona avoid liability under an award will be strongly discouraged
Trust will be followed by further robust court decisions and we will in future see far fewer reported decisions
extending to challenges during the arbitration process. arising from the litigation of international arbitration. 

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 CHINA AND RUSSIA

Tipping
the balance
While China and Russia’s rapidly growing Gazing across Shanghai’s ever-changing cityscape,
with its endless sea of skyscrapers, it’s impossible
economies present enormously attractive not to be filled with a sense of all-conquering
optimism. Meanwhile, Russia’s novye bogaty –
among whom the oligarchs reign supreme – pass
investment opportunities, they are also their time washing down Beluga caviar with
imported vodka, driving around the streets of
notoriously difficult markets to operate in. Moscow in luxurious European saloons and
contemplating their next mega-merger. The
Chris Johnson navigates the pitfalls opportunities, as they say, are without limits. But
even in such fertile investment climates, it pays to
be prepared for the worst.
Shortly after 5am on 23 October 2003, the private jet of
Mikhail Khodorkovsky – head of the oil company Yukos
and then Russia’s richest man – touched down at a
Siberian airport. The scheduled stop was part of a tour of
Yukos and Sibneft (now Gazprom Neft) production
facilities. Little did Khodorkovsky know that he was flying
straight into a trap. Two vans of FSB (successor to the KGB)
operatives, sped across the tarmac. The heavily armed
operatives then stormed the plane and arrested
Khodorkovsky at gunpoint. Subsequent charges of tax
evasion were to have drastic consequences for Yukos and
Khodorkovsky. The government froze the company’s
shares eight days after the arrest, and the proposed
merger with Sibneft fell through. On 31 May 2005,
Khodorkovsky was sentenced to nine years in prison,
where he still languishes.

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 A 2005 Resolution by the Council of Europe’s some clients who might prefer dealing with a firm that was
Parliamentary Assembly was scathing in its assessment of not involved in such cases,’ Goldberg warns.
the arrest. It says: ‘the interest of the state’s action goes The arbitration is based on the offer to arbitrate that is
beyond the mere pursuit of criminal justice, and includes found in the Energy Charter Treaty (ECT), which gives
elements such as the weakening of an outspoken political substantive protection against issues such as
opponent, the intimidation of other wealthy individuals expropriation and governmental interference, and
and the regaining of control of strategic economic assets.’ ensures that parties receive fair and equitable treatment in
any subsequent disputes.
Heavyweight claim ‘With Yukos, there is a clear violation of the treaty – you
This has given rise to the largest-ever investment should not expropriate without proper compensation,’
arbitration: a claim against the Russian state by the majority suggests Gaillard. ‘It is a violation of fair and equitable
shareholders of Yukos, the value of which could exceed treatment, and it is hard to deny that this was politically
$50bn. It is understood that several firms passed on the motivated.’
chance to represent Yukos in this landmark dispute. ‘This The main point of contention is whether Russia is
case has a strong political flavour, which drove many firms actually bound by the ECT. While the Russian Federation
away from it,’ says David Goldberg, co-head of SJ Berwin’s became a signatory state of the treaty in 1994, it has
international arbitration group. ‘Doing business in Russia, not yet ratified. This, it claims, renders it exempt, as
one would generally consider whether to take on a case signing is just a declaration of intent and therefore has
which is so politicised.’ no legal value.
However, he suggests that, rather than any threat to Gaillard sees no such uncertainty, however. His
personal safety (‘those days are gone,’ he says), taking such argument centres on Article 45 of the ECT, which states
a case is potentially damaging to your business. that the treaty is immediately applicable upon signing,
Emmanuel Gaillard, head ofShearman & Sterling’s unless the country specifically opts out. Some countries,
international arbitration practice, accepted the instruction to such as Norway, did make such a declaration when
advise Group Menatep – Khodorkovsky’s holding company signing. Russia did not. ‘Therefore it technically is binding,
and majority shareholder in Yukos. ‘Shearman & Sterling so we have started an arbitration with an initial claim of
doesn't operate in Russia now. While I don't think taking this $33bn as compensation for the 60% stake of Yukos,’ says
case would affect its ability to open an office, it may deter Gaillard (see ‘Pensions crisis’ box below).

Pensions crisis

There are some parties for which arbitration is not even a possibility. American pension funds, which accounted for
a significant proportion of Yukos’ capital (Gaillard estimates it to be in the region of 20%), are not covered by the
ECT as the US – which prefers to negotiate on a bilateral, rather than multilateral basis – is not a signatory member.
‘The bondholders were screwed – basically the US pension funds lost $20bn for the US not having even signed the
ECT,’ Gaillard explains.

YUKOS capital structure (as of 31 December 2002)

3.6%
Treasury shares

10% Veteran Petroleum Trust

Other individual and


10.6% 60.5% institutional shareholders
Shares available to back UBS
exchangeable bonds
2.5% 12.8% American Depository
Receipt holders

Group Menatep

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CHINA AND RUSSIA 

The jurisdictional hearing is set for June, the outcome of


which will settle the debate over Russia’s obligations of Russia’s arbitration system
ECT adherence and, ultimately, whether an option to
arbitrate is available to the shareholders. Level 1: 82 federal arbitration courts of the subjects of the Russian
Federation
Skating on thin ice • Hear cases as courts of first instance
Gaillard is all too aware of the importance of this decision,
as a ruling in favour of Russia would force the case into the Level 2: 20 arbitration appellate courts
local courts. He is in no doubt as to what the result would • Fully re-examine cases on appeals against decisions that have not yet
be. ‘We’d be dead,’ he says emphatically. ‘If your opponent come into force
is the state then you don’t want to appear before the
organs of that state – by definition the local courts are an Level 3: ten federal district arbitration courts
organ of the state. In the local courts in Russia you have • Function as courts of cassation and assess legality of decisions
zero chance, as we have seen – Yukos has litigated in local passed by arbitration courts in their districts
courts and lost every time except for one, after which the
judge was sacked in the following months. It was a clear Level 4: the Supreme Arbitration Court of the Russian Federation
signal. Judges understand in Russia. There is no • Superior judicial body of state authority – supervises all arbitral courts
independence,’ he adds.
The judge he refers to is Natalya Cheburashkina, who
agreed to acceptYukos’ appeal against the tax authorities, Audley Sheppard, an international disputes partner
thereby suspending fulfilment of the tax bill while the case based in Clifford Chance’s London office, explains: ‘I think
was considered. This stance was seen as too sympathetic by anyone who is involved in commercial contracts with
the Tax Ministry, whose request that the judge be removed parties outside of Europe is conscious that arbitration gives
was agreed to by the Moscow arbitration court . An official enforcement options that may not exist with court
statement by the court claimed that Cheburashkina ‘has an judgments.’
interest in the outcome and is biased against the Tax Ministry’.
This is no isolated incident. Judge Vlada Bliznets lost her
job after twice making favourable decisions relating to
‘In the local courts in Russia
structures closely connected with Yukos. The termination you have zero chance, as we
followed specific requests by Federal Tax Service deputy chief
Boris Korol. A number of independent lawyers acting for have seen with Yukos.’
Yukos in criminal cases have also been imprisoned. Nor are
Emmanuel Gaillard, Shearman & Sterling
such problems exclusive to Russia: ‘The Chinese courts are still
not completely independent, put it that way,’ Gaillard adds.

Keeping a finger on the scales This was certainly the case when, on 30 April 1984,
This lack of independence is made startlingly apparent by Occidental Petroleum Corporation entered into a joint
guidance distributed by the Ministry of Justice-controlled venture with China National Coal Development – the
All China Lawyers Association in March 2006. It clearly Chinese ministry’s development subsidiary – to establish a
states that lawyers who handle cases of ‘a mass nature’ major open-pit coal mine in Shanxi province. Disagreements
(ten or more people serving as one party to the matter) over issues such as financing caused the project to collapse,
‘shall accept supervision and guidance by judicial with the subsequent dispute falling back on a Stockholm
administration departments’, and must ‘promptly and arbitration clause contained within the agreement.
fully communicate with the relevant justice bureau’. ‘That clause was enormously helpful,’ says Michael
This is in direct contravention to the ‘Basic Principles on Moser, head of O’Melveny & Myers’ Asia practice. ‘It was
the Role of Lawyers’, as adopted by the United Nations extremely high pressure, but the proceedings in Stockholm
General Assembly in 1990, which demands that finally pushed the parties to a settlement. If that had been
governments ensure lawyers are able to perform their a Chinese arbitration clause then I don’t think the Chinese
professional functions ‘without intimidation, hindrance, parties would have settled. It would’ve been very difficult,
harassment or improper interference’. and ultimately the foreign party could have lost.’
Unsurprisingly, then, companies with dealings in China
and Russia are increasingly insisting that arbitration clauses A risky game
are written into commercial contracts, in an attempt to avoid Among clients’ primary concerns over arbitral awards are
exposure to such third-party influence in any disputes. recognition and enforceability. ‘Arbitration is no panacea,’ 

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 CHINA AND RUSSIA

of proceedings – not least the multibillion-dollar


Yukos/Menatep arbitration – I don’t expect they’re
in any hurry to give effect to any international
instruments that make enforcement of foreign
arbitral awards any easier.’ Goldberg believes that
the boot is firmly on the other foot. ‘I think it is
easier for the International Monetary Fund or
World Trade Organisation to force a country to
ratify something when that country is in need of
help – the way that Russia is placed now
financially, they don’t need help from anyone.’
The courts in both jurisdictions have reputations
for not being the most reliable upholders of arbitral
awards. The Russian courts have been known to refuse
enforcement on the slightest technicality. For example,
on the grounds that the arbitration institutions have not
been named precisely in the agreements. In November 2003,
 says Sheppard, ‘as you cannot guarantee that awards are a Moscow federal court refused to enforce an agreement
going to be enforced.’ because the institution was listed as the ‘Arbitration Court of
While both China and Russia are signatory states to the the Chamber of Commerce and Industry of the Russian
New York Convention, when it comes to the Washington Federation’, rather than the ‘International Commercial
Convention – a mechanism that applies to awards that have Arbitration Court at the Chamber of Commerce and Industry
been issued by the International Centre for Settlement of of the Russian Federation’.
Investment Disputes, and only has jurisdiction in respect of In China, the Court of First Instance can decide not to
disputes between an investor and a state – Russia has enforce a foreign-related award. In such instances the
signed but not yet ratified. decision must then be referred to the court at the next level,
‘I’m sure [Russia] will be encouraged to,’Sheppard and ultimately to the Supreme People’s Court for approval.
suggests, ‘but given that they are the defendant in a number Sheppard believes that Chinese courts are ‘generally
supportive of arbitration’, but that there are ‘isolated
incidents, which still give people some cause for concern.’
Look East
Home advantage
The Hong Kong International Arbitration Centre (HKIAC) has risen to The main arbitration centre in Russia is the International
prominence in recent years. It is often used as a compromise venue Commercial Arbitration Court (ICAC) at the Chamber of
for Chinese disputes where CIETAC has been rejected as an arbitral Commerce and Industry of the Russian Federation (see
forum by the non-Chinese party. ‘Russia’s arbitration system’ on p37). In China, it’s the
Michael Moser, who, it should be noted, currently resides as HKIAC China International Economic and Trade Arbitration
vice chairperson and is to be instated as chairman on 1 March 2007, Commission (CIETAC).
explains the appeal. ‘Hong Kong has become particularly attractive Both hold themselves out as leading international
because, even after 1997, it’s still an English-based legal system and it institutions. Nevertheless, many westerners are reluctant
is independent from China. But yet, territorially, and from a ‘face’ to use them due to questions over neutrality,
perspective, it has been part of China since 1997. It is a good enforceability and proficiency. The finality of award –
compromise of east and west, for both sides.’ usually considered one of the main advantages of
He also suggests that its increasing popularity is helped by a arbitration – also gives cause for concern. Finality is the
number of perceived cons to the more renowned international last thing parties on the wrong side of an unfair or
venues. ‘Many Chinese companies are disadvantaged going to a place incorrect award would want.
like Stockholm to arbitrate. They have to spend a lot of money, often But, as Gaillard explains, the proficiency of an arbitral
with foreign lawyers, and they don’t really understand the institution is not the only consideration. As when buying a
proceedings. It will often be held in English, whereas in China it will all property, it’s location, location, location. ‘It’s quite
be in Chinese,’ he explains. dangerous when you’re a foreigner and you enter into a
Despite this, the number of Chinese disputes held at the ICC has contract in China, with Chinese parties – often a state
increased steadily over the last five years, in stark contrast to the owned party – to rely on CIETAC. I am not critical of the
centre’s Russian dispute caseload (see graph on p41). CIETAC system per se – the arbitration phase will be akin to
the LCIA, SCC or ICC. You can choose the arbitrators you

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CHINA AND RUSSIA 

want, so the arbitration would take place in a neutral way


and would be fair. What worries me is that the award would
‘For major Russian disputes the tendency
be rendered in China and will therefore be subject to an is still to go to the West.’
annulment proceeding in China, which puts you back
before the courts. That in itself gives competence to the local David Goldberg, SJ Berwin
courts to review the award. In fairness, they should review
the merit, review on the violation of public policy, the extent
of the arbitration agreement – but there’s always a chance it is able to provide a comparable service. At the moment it is
that they’ll refuse the award for something stupid.’ highly unsatisfactory, both from the point of view of an
Gaillard recalls a case where the courts declared an ICC arbitrator and a user or a party representative.
clause void, as they would only recognise CIETAC Communications sent to it get lost, documents are not
arbitrations. He also stresses the importance of the returned – it is an administrative mess. The biggest challenge
chairman’s nationality. ‘Parties have to be very careful to that ICAC faces, if it is to survive as an arbitral institution, is
say in the clause that the chairman should be selected pulling its act together in terms of the secretariat's efficiency.’
from a certain given number of countries, so that it is not This, Goldberg suggests, explains the steady decline in
the Chinese, for the same reasons of neutrality,’ he says. the volume of cases handled at ICAC (see graph below).
A senior figure in China’s arbitration community says ‘The way that it is structured doesn’t help. Also, every
CIETAC is ‘fine for everyday commodity and trading other institution not only promotes themselves but also
disputes’, but that for more complex investment disputes promotes arbitration – ICAC doesn’t. Though it is still much
‘you are much better to go elsewhere’. better than the state institutions, for major Russian
Sheppard rather mutedly suggests that CIETAC is disputes the tendency is still to go to the West,’ he says.
‘satisfactory’ and feels that ICAC’s rules could do with a Sheppard feels that the decision on whether to
review. ‘They are a bit out of date – they don’t reflect the arbitrate in a domestic or international venue is down to
provisions in many of the more modern arbitral rules.’ the nature and value of the dispute. ‘The more high-value
Goldberg believes that, while ICAC is set up to allow for fair or serious the dispute, the more concerns people will have
and effective arbitrations, it suffers from a lack of about even a possibility of interference. A neutral venue
independence and the gross inefficiency of the secretariat. ‘It becomes more important if it’s a state or state entity as a
is not an independent institution, as it is heavily dependent respondent. The courts are well aware if a respondent is a
on the Russian Chamber of Commerce and there is a great major employer in that area and could well be paying
deal of red tape and bureaucracy there,’ he says. ‘The ICC, LCIA taxes towards the judge’s salary,’ he says.
and the Stockholm Arbitration Institute are extremely Despite a belief that China is finally beginning to tackle
efficient. ICAC, on the other hand, has a long way to go before the issue of corruption, there is clearly much work still to 

Russian disputes – the fall of ICAC

2 250
Total number of disputes (millions)

210 1,626,133 While the total number of


Total number of disputes

Russian litigation disputes at ICAC dropped


1.5 200
ICAC arbitration in each of the three years
1,340,699
running up to 2005, the
number of disputes
162
involving non-Russian
1 150 parties practically doubled
148
951,778 (9 in 2002, 17 in 2003 and
854,748 30 in 2004).
745,626
634,363
0.5 100
2000 2001 2002 2003 2004 2005
Year

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 CHINA AND RUSSIA

 be done. Zhang Decai, a lawyer at Beijing-based firm Shenzhen, home to China’s domestic stock exchange,
Zhonglun Jintong, was suspended and ‘severely presents the most shocking example of just how
reprimanded’ last February for conducting secret meetings widespread a problem corruption is. Following a series of
with arbitration officials overseeing a dispute between raids between June and October last year, five senior
Fuji Xerox and the firm’s client, Tianjin Guangyin Real judges – including three court presidents – were arrested
Estate. Then Wang Shengchang, the secretary general of on charges of corruption and bribery. 20 further judges in
CIETAC, was arrested in March 2006 under charges of the region were also implicated in what amounts to the
‘illegally distributing state assets to staff’. The charges, for city’s largest ever judicial corruption case.
which he could face up to seven years in jail, relate to ‘case
handling fees’ paid to commission employees. Redressing the balance
‘Nobody is really quite sure what the situation is,’ the Change is afoot, however, with the domestic institutions of
senior figure in China says. ‘One of the allegations against both countries currently undergoing a process of reform,
Mr Wang is that he made a decision in a Stockholm designed to bring procedures into compliance with
arbitration that went against very powerful interests in a international norms and standards.
Chinese company. There are concerns over this The new CIETAC rules, which came into effect on 1 May
politicisation and corruption. The independence of the 2005, have been described as ‘the most significant update
judiciary continues to raise questions.’ of CIETAC rules in the past twenty years’. The most notable

Statistics

As Table 1 shows, the LCIA handles far more Russian and Eastern European disputes than Chinese disputes, thanks
in part to a sustained marketing campaign in the region. Its relatively low level of Chinese disputes is a result of a
perception by the Chinese that the LCIA is ‘not international enough’. Russia’s 17 cases in 2006 made it the country
with the most disputes handled in the SCC other than Sweden (which had 102 out of the total 141, including
domestic disputes), with Germany coming in third with 12.

Table 1: number of international arbitrations by volume


LCIA SCC ICC AAA
Year TOTAL PRC RUS TOTAL PRC RUS TOTAL PRC RUS TOTAL PRC RUS
2000 87 1 – 73 12 18 541 14 5 510 2 0
2001 71 1 – 74 8 13 566 7 26 649 2 0
2002 88 2 – 55 13 9 593 10 18 672 4 2
2003 104 3 – 82 8 19 580 15 13 646 5 6
2004 87 5 – 50 2 4 561 24 7 614 8 4
2005 118 2 5 56 5 4 521 26 7 580 17 2
2006 133 1 14 74 5 17 593 – – 586 22 1

Table 2: Chinese alternatives


HKIAC SIAC NB: Data for Chinese parties does not include Hong
Kong. The statistics for Russian-related disputes are,
Year TOTAL PRC TOTAL PRC to some extent, misleading. Because of the way
2000 298 – 41 22 business is conducted in Russia, assets are often
2001 307 – 44 11 held by foreign parties, and businesses are often
2002 320 – 38 12 registered abroad. Millhouse Capital, Abramovich’s
2003 287 44 35 13 holding company, for instance, is registered in the
2004 280 66 48 21 UK. Goldberg gives an example: ‘I’ve just finished a
2005 281 79 45 17 very large case where one party is French and the
2006 394 100 – – other party is English. All the evidence was given in
Russian,’ he says with a knowing smile.

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CHINA AND RUSSIA 

ICC – proportion of Chinese and Russian disputes

4
The ICC’s proportionally
high level of Chinese
Russian disputes can be explained
3
% of total disputes

Chinese by a strong presence in


Asia – there is an ICC
National Committee in
2 Hong Kong and it has a
consultant in Kuala
Lumpur. Its profile in Russia
1 has ‘disappeared’,
according to leading
arbitration specialists.

0
2001 2002 2003 2004 2005
Year

amendment is the scope for parties to appoint arbitrators


of any nationality from outside the CIETAC panel.
‘A neutral venue becomes
Previously ad hoc selection was not permitted. ICAC more important if it’s a state or
procedures have also undergone a substantial review,
with new rules designed to increase transparency and state entity as a respondent.’
accountability coming into force in March 2006. Rather
Audley Sheppard, Clifford Chance
worryingly, the amendments include a requirement for
ICAC arbitrators to sign a form indicating consent to
comply with ICAC rules.The state court systems in both
China and Russia have also promulgated a series of new Go West
regulations. Although both Russia and China’s economies are
But Goldberg feels that, after an impressive start, the developing rapidly, the jurisdictional infrastructure has
reform of the Russian courts lost momentum. ‘The reforms failed to progress at the same rate.
stopped far from where they needed to go,’ he says. ‘It looked While some feel that the domestic arbitral institutions
very impressive when the reforms started, as new procedural are acceptable for lower-level disputes, questions over
rules were introduced – the arbitrazh procedural code, for proficiency and neutrality remain. Major corporates
example – which are very good. But this, unfortunately, is as doing business in either region would be well advised to
far as it went. The administration was charged with other insist that an arbitration clause be written into commercial
duties, so legal reform was, in effect, abandoned.’ agreements – one which ideally allows for any arbitration
He feels that the main issue is the standard of judges’ to be held in a neutral venue outside the host nation. If this
training, but that establishing a reliable system is a is not possible (there is still particular pressure in China to
mammoth task. ‘Uniformity is important, but in order to hold arbitrations within the country), it is important to
achieve uniformity you need to have appropriate training. specify in the clause that the presiding arbitrator should
There is a programme of training, but it is not good enough,’ be selected from a list of countries neutral to the dispute.
he says. ‘Even in London, where the legal profession is well- CIETAC’s new rules state that it will honour such clauses.
developed and sophisticated, there are difficult issues to And as for the local courts – will they, in time, reach a
resolve – imagine how difficult it is with a system of courts standard where international firms and their clients are
that is bigger than the entire western European system.’ comfortable engaging in litigation against a domestic
That said, the Russian state courts have experienced a entity? This is a point, it seems, on which opinions are
sustained increase in the number of cases since 2000 (see united. Ask a lawyer, foreign or domestic, and the response
graph on p39). is identical: laughter, a wry smile, and ‘not in my lifetime’. 

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Growth market
Foreign investment in Latin America, particularly from the US and Spain, has
resulted in an increase in arbitration in the region. José Maria Alonso of Garrigues
examines how countries in the region have developed common ground on
international arbitration, and suggests how they can continue to improve

World trade in recent decades has been marked by


a considerable increase in international investment
flows between countries in differing phases of
development. Spanish enterprises have not
remained on the sidelines and most have
channelled their international investments towards
the Latin American market. Steady growth in
commercial transactions has also been seen among
Latin American countries, bolstered by the climate
of ever-diminishing economic protectionism and by
the signing and implementation of transnational
agreements to promote international transactions.
This growth in international trade has been
accompanied by a veritable boom in international
arbitration as an ADR method, to the detriment of local
courts. The reasons for the boom include greater neutrality
than in the jurisdictions of the parties’ respective
countries, speed, the expertise of arbitrators, the freedom
that the parties have to tailor the rules of procedure to
their needs, and confidentiality.

Changing viewpoints
In Latin America, international arbitration was often
viewed in the past as an alien institution. The factors that,
historically, contributed to a sometimes distant perception
José Maria Alonso is managing partner of Garrigues and of this private form of ADR in the context of international
responsible for the firm’s international arbitration team disputes included the absence of a proper legal

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LATIN AMERICA 

framework to regulate arbitration, scepticism over the


benefits of arbitration versus those yielded by classical Adaptation of national laws
judicial dispute resolution mechanisms, and the reluctance
of governments to resolve disputes with foreign investors In the past two decades, virtually all of the countries in Latin America
in a forum other than that of their own state jurisdictions. have been busy overhauling their legislation on arbitration:
The last few decades in Latin America have, however,
seen rather hostile attitudes gradually soften and become ■ Bolivia (Arbitration and Conciliation Law 1770/97)
more respectful towards arbitration in general and ■ Brazil (Arbitration Law 9307/96)
towards international arbitration in particular. The ■ Chile (2000 Procedural Code, Articles 242-251 and 628-644, and
ratification of international treaties on arbitration, International Arbitration Law 19971/04)
including, most notably, the multilateral New York and ■ Colombia (Decree no. 1818/98 is a revised version of the arbitration and
Panama Conventions, and the ICSID Convention in the area conciliation rules previously contained in different pieces of legislation)
of investment protection, and the progressive ■ Costa Rica (Decree Law 7727/97, which contains the Law for ADR
modernisation of national laws on arbitration by most Methods and the Promotion of Peace)
Latin American countries (see boxout, right), not to ■ Ecuador (Arbitration and Conciliation Law, Official Register no. 145/97)
mention the proliferation of initiatives by Latin American ■ El Salvador (Arbitration and Conciliation Law – Decree 914/02)
civil society to increase the use of arbitration and other ■ Guatemala (Arbitration Law – Decree 67/95)
ADR methods, are good examples of the significant ■ Honduras (Arbitration and Conciliation Law – Decree 161/00)
progress made by Latin America in becoming a major ■ Mexico (by making substantive changes to the Mexican Commercial
player in the global economy. This is something which, by Code, Articles 1415-1463; to the Civil Procedure Federal Code; and to
right, it undoubtedly deserves. the Civil Procedure Code of the Federal District and Territories)
■ Panama (Arbitration Law – Decree 5/99)
New York and Panama Conventions ■ Paraguay (Arbitration and Conciliation Law no. 1879/02)
A prominent feature of this evolution in Latin America ■ Peru (General Arbitration Law no. 26572/96)
towards arbitration can be seen in the recognition of ■ Venezuela (Commercial Arbitration Law, Official Gazette no. 36.43/98)
foreign arbitral awards. The New York Convention, the
50th anniversary of which we will be celebrating next The two main exceptions to this modernising trend are Argentina
year, has been ratified by virtually all Latin American and Uruguay. In the case of Argentina, which regulates arbitration in
countries. Book VI of the Civil and Commercial Procedural Code, an arbitration Bill is
The widespread acceptance across the globe of the currently before the Upper House of the Argentine Parliament (executive
New York Convention has proved essential for meeting the message no. 1594/99, file no. PEN 840/99) although its passage through
international need for arbitral awards to be truly effective. the House is not expected to be delayed for much longer. Thus far,
Before the Convention came along, the recognition and Uruguay has not updated its scant legislation on arbitration, which is
enforcement of foreign arbitral awards depended currently contained in its Procedural Code (Law 15982/88).
exclusively on the national laws of each state, something In retrospect, the modernisation of arbitration laws in Latin America
that resulted in a large diversity of methods and has undoubtedly been a positive development, even if progress has been
techniques for recognition and enforcement and, slower in some countries than in others. Leaving aside idiosyncrasies,
therefore, in a high degree of uncertainty. The which are not always beneficial, in general it is fair to say that the core
contribution by the Convention to the goal of making the tenets of international arbitration – such as the competence-competence
system of recognition and enforcement of arbitral awards principle, the respect of arbitration agreements by state courts, the
more uniform has been decisive, since it removed the freedom of the parties to appoint arbitrators and organise the rules of
obstacles posed by having different systems in different procedure, the requirements of arbitrator independence and impartiality,
countries and thus ensured greater legal certainty in and the limited possibility of having arbitral awards set aside – are,
international trade. nowadays, a legislative reality in Latin America.
When the New York Convention was adopted in 1958,
few Latin American countries ratified it immediately.
However, as arbitration began to be considered a strategic Commercial Arbitration, better known as the Panama
instrument in international commercial dealings, the need Convention, in 1975. Today, the Panama Convention has
to have a multilateral convention for recognising and been ratified by 18 countries. Cuba and Jamaica have not
enforcing awards grew too. Progressive accession to the signed. The Dominican Republic has signed, but not
New York Convention by Latin American countries paved ratified it.
the way for a regional multilateral convention on While there are certain differences between the New
international commercial arbitration, culminating in the York and Panama Conventions, their methodology and
signing of the Inter-American Convention on International structure are fairly similar. Generally speaking, both 

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 LATIN AMERICA

 impose an obligation on local courts to respect the validity (i) the right to fair and equitable treatment;
of arbitral decisions and to recognise and enforce foreign
arbitral awards, thereby limiting the possibility of refusal (ii) the right to receive the same treatment as domestic
to recognise or enforce an arbitral award to a number of investors;
strictly defined cases. These relate to the incapacity of any
of the parties, the denial of due process, the making of (iii)the right to be compensated in the event of
ultra vires awards, a breach of the agreement on expropriation, including indirect expropriation;
appointment of arbitrators or on the arbitration
procedure, the non-arbitrability of the dispute, and (iv)the right to transfer funds related to investments
contravention of public policy. without restrictions; and

ICSID Convention and BITs (v) the right to receive the ‘most favoured nation’
In the area of investment protection in Latin America, treatment.
recognition should be given to the decisive role played
by the Convention on the Settlement of Investment An important contribution by modern BITs is that they
Disputes between States and Nationals of Other States (the expressly provide for the possibility of investors
ICSID Convention), signed in Washington on 18 March (individuals or legal entities) submitting their disputes with
1965 and ratified by Spain in 1994. the host state to international arbitration. Most BITs
The International Centre for Settlement of Investment envisage recourse to arbitration as an ADR method for any
Disputes, which was set up under the auspices of the ICSID disputes arising from them. The terms of their provisions
Convention, has played and continues to play a crucial role usually vary – some BITs allow the parties to choose
in the field of dispute resolution between Latin American between various sets of arbitration rules, while others
countries and foreign investors, basically through directly refer to certain specific arbitration rules. Most
arbitration. ICSID is an institution attached to the World commonly, they allow the investor to choose between
Bank and came into being partly due to the need to free various types of arbitration. Apart from ICSID arbitration,
the President of the World Bank and its staff from having the investor may be able to choose between, say, an ad
to frequently become involved in disputes hoc arbitration subject to the United Nations Commission
between investors and the states receiving their on International Trade Law Arbitration Rules, or an
investment. It was also set up to create a climate of trust arbitration administered by the International Court of
between states and foreign investors and thereby Arbitration of the International Chamber of Commerce .
encourage access by developing countries to international The Spanish state has signed BITs with most Latin
capital. Nowadays, ICSID facilitates investment dispute American states. Colombia has signed a BIT with Spain,
resolution between contracting states and nationals of but it has yet to enter into force.
other contracting states through conciliation and At present, over 150 countries have signed the ICSID
arbitration proceedings. Convention, and most of the Latin American states are
Arbitrations at ICSID generally begin under bilateral among the 143 that have ratified it. However, there are
investment treaties or arbitration agreements – mostly countries that have an indisputable weight in the region,
taking the form of clauses in agreements signed by the such as Brazil, Mexico and Cuba, that have not yet ratified
states and investors. the Convention.
At present, there are nearly 2,000 BITs signed all over
the world. Although there is no pre-defined format for Looking ahead
treaties of this type, the structure and terms of many are The still relatively recent crisis in the Argentine economy,
very similar. The protection afforded by each party to and the policy of nationalisation now being pursued in
investments made by the other party in its territory Bolivia and in other Latin American countries, seem to
usually includes: have introduced an element of uncertainty into the region
of late. However, I believe that there are good reasons for
remaining upbeat on the future development of
Modern BITs expressly provide for the international arbitration and, more generally, of ADR
possibility of investors submitting their methods in the Latin American arena.
There has been positive convergence of Latin American
disputes with the host state to countries towards ‘common ground’ on international
arbitration, both in the area of international treaties and in
international arbitration. the area of their respective national laws. The great
challenge of the future for these countries is to achieve

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LATIN AMERICA 

some similarity in the approaches taken by their respective The New York Convention allows
state courts. This would create an increasingly uniform and
predictable body of case law on international arbitration. recognition of an award to be refused
Role of judges where it contravenes the public policy of
In Spain, it is fair to say that for years (even before the the country in which recognition is sought.
enactment of the current Spanish Arbitration Act of 2003)
judges have often shown that they understand that
arbitration – and, more particularly, international
arbitration – needs and deserves their respect and ‘Public policy’ has different meanings in different legal
protection. The recognition and enforcement of foreign traditions. In the English-speaking, common law tradition,
arbitral awards in Spain is a good example of this. public policy has a relatively narrow scope – addressing
If we take a look at the decisions of the Spanish Supreme ‘matters of public morals, health, safety, welfare, and the
Court from 1981 to 2003 (until the Arbitration Law of like’ – and is distinguishable from matters relating to due
2003, it was for the Supreme Court to decide on requests process. In the continental European tradition, public policy
for exequatur), approximately nine out of ten requests refers to a wider range of judicial concerns, which would
for exequatur of foreign arbitral awards were upheld. encompass breaches of procedural justice. In the context
Latin American judges have a crucial role to play in and tradition of international arbitration practice, the most
consolidating the achievement of modernising arbitration accepted meaning of ‘public policy’ is the broader one.
laws in the region, and should be aware that they have Indeed, the report from UNCITRAL on the Model Law on
two functions in relation to arbitration: support International Commercial Arbitration stated that:
(appointment of arbitrators, assistance with the taking of
evidence, adoption of interim measures, enforcement of … the term ‘public policy’, which was used in the
the award and exequatur of foreign arbitral awards) and 1958 New York Convention and many other treaties,
control (hearing applications to set aside awards). In covered fundamental principles of law and justice in
relation to the latter function, a uniform approach by the substantive as well as procedural respects.
state courts to the negative effect of arbitration
agreements, which prevent state courts from hearing To define a transnational notion of public policy, both
disputes already submitted to arbitration, and to the substantive and procedural, would be advisable, although
principle of minimum intervention, which prevents judges such a definition may be fraught with difficulties, mainly
from intervening in arbitration unless the law so provides, from the substantive standpoint. I believe that the
is decisive. arbitration community should focus on defining a
To fulfil the aim of achieving a growing and more common notion of procedural public policy as a first step.
predictable body of Latin American case law on In this regard, we can say that the basic principles that
arbitration, mainly for foreign parties, the training of govern transnational procedural public policy in
judges on arbitral matters is essential in the coming years. international arbitration may be subsumed under two
In Spain, the Spanish Arbitration Club has entered into an main categories: the right to equal treatment and a full
agreement with the General Council of the Judiciary – opportunity to present one’s case.
reflecting the commitment from both institutions to co-
operate in training judges on arbitral matters. It would be Future prospects
desirable to combine similar initiatives already in place in From the standpoint of a foreign investor or party to a
Latin America with further measures to encourage a more contract, the current situation and the prospects for
widespread use of arbitration in the future. international arbitration in Latin America can generally be
viewed as being good. Most Latin American countries
Defining ‘public policy’ have ratified the New York, Panama and ICSID Conventions
One specific field that is especially sensitive to this need for and have signed BITs with a variety of countries, including
the approximation of national bodies of case law on Spain. Furthermore, virtually all of the Latin American
arbitration is that of public policy. Taking into account that states have made major progress in the necessary task of
the New York Convention allows recognition of an award attuning their arbitration laws to the demands of
to be refused where it contravenes the public policy of the international trade today.
country in which recognition and enforcement of the Consequently, I have every confidence that Latin
award is sought, it would be desirable for there to be a American governments and state courts are fully aware of
common notion of public policy, or rather ‘international the requirements of international arbitration and will do
public policy’. their utmost to achieve that goal. 

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The third man


The role of third parties in international arbitration remains unclear. Guy Pendell and
Thomas Lennarz of CMS shed some light on the area

Many questions surround the involvement of third


parties in arbitration. What do we mean by third
parties in arbitration? A third party is not a
claimant or a respondent that is a party to the
arbitration agreement or to the arbitral
proceedings since its commencement, nor is it any
member of the tribunal or its appointed experts. A
third party in arbitration is a party that, for a
variety of reasons, might be joined into the
proceedings in some capacity. Whilst the joinder of
such parties to proceedings in court is common,
that is not the case in arbitration.
Part one of this article considers the factors that give
rise to the problems of third parties in arbitration: privity
of contract and the formation of the tribunal. Part two
discusses the issue of consent and how joinder and
consolidation operate in allowing a third party to join an
arbitration when all parties, including the third party,
have consented. Part three examines the circumstances in
which a party to the arbitration agreement might
subsequently be joined to an arbitration between other
members of the same agreement (a contractual third
party). Part four considers the limited circumstances
where third parties, which are not party to any arbitration
agreement, can be joined to arbitral proceedings (a
non-party).

Part one
Privity of contract
A commercial arbitration, and the tribunal’s powers in
that arbitration, derive from the arbitration agreement. A
tribunal, unlike a court, cannot require a third party to
become party to the proceedings. Even where the
claimant or respondent might want the third party to join
Guy Pendell (left) is a litigation and arbitration partner at CMS Cameron the proceedings, absent agreement between the parties
McKenna and Thomas Lennarz is a lawyer at CMS Hasche Sigle (including the third party), that will not occur.

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Formation of the tribunal


In many arbitrations with a tribunal of three (or occasionally
Where consent is given by both parties
more) arbitrators, each party will usually have given itself and any third party seeking to participate,
the right to appoint or nominate its own arbitrator. In
arbitrations with a single arbitrator, it is common for the there is no reason why the third party
parties to attempt to agree upon that arbitrator. Any party
that has not been able to participate in the appointment
cannot be joined to proceedings.
process would understandably be aggrieved if it was not
afforded equal rights. Indeed, should this arise, there is
every chance that the aggrieved party might challenge any contrast, without the consent of the parties, joinder of third
subsequent award if made against it. parties is only possible in exceptional cases.
If there are multiple claimants or multiple respondents, Only two of the main institutions have any provisions
the claimants (collectively) or respondents (collectively) dealing with the joinder of a third party. These provisions
ideally should agree on their party-appointed arbitrators. allow the arbitral tribunal to involve third parties in the
If one side is unable to reach agreement on a common arbitration after ‘consultation’ with the parties but not
arbitrator, the competent arbitration institution (where requiring their consent. Article 4.2 of the Swiss Rules
applicable) will bypass the appointment process and states:
appoint all the arbitrators.
This appointing procedure has its origins in the well- Where a third party requests to participate in arbitral
known Ducto decision of the French Cour de Cassation. In proceedings already pending under these Rules or where
1992 the Cour de Cassation decided that the principle of a party to arbitral proceedings under these Rules intends
equal treatment of the parties must lead to them both to cause a third party to participate in the arbitration, the
being able to have the same amount of influence on the arbitral tribunal shall decide on such request, after
composition of the tribunal. The Court said that the principle consulting with all parties, taking into account all
of equal treatment is breached if one side can appoint its circumstances it deems relevant and applicable.
arbitrator but on the other side several parties have to
accept an arbitrator appointed by the arbitral institution. Meanwhile, Article 22.1(h) of the LCIA Rules says:
Procedures to ensure fairness in the appointment process
are now embodied in Article 10.2 of the ICC Rules, Article 8.5 … the Arbitral tribunal shall have the power,… after
of the Swiss Rules, Article 8 of the LCIA Rules and section giving the parties a reasonable opportunity to state their
13.2 of the DIS Rules. views… to allow, only upon the application of a party,
In a three-member tribunal, each party will nominate or one or more third persons to be joined in the arbitration
appoint its arbitrator and those arbitrators or the institution as a party provided any such third person and the
will go on to appoint the chairman. If multiple parties are applicant party have consented thereto in writing…
involved from the outset (as claimants and/or as
respondents), the arbitral tribunal must be formed in a way The Swiss Rules and the LCIA Rules envisage that the third
that is fair and observes the rights of all of the parties. A third party will agree to be joined. There are limited circumstances,
party joining the proceedings later will not have been able to however, where a third party will willingly join an
participate in the formation of the tribunal and might have arbitration. The most likely situation would be where a third
any number of objections to its constitution. For example, an party has claims to make against the claimant or respondent
existing member of the tribunal might find themselves in a and wishes them to be made together with the claimant’s or
potential conflict of interests that would at the time of respondent’s claims. The Swiss Rules also envisage that an
formation have led the third party to object to the existing party to the arbitration ‘intends to cause a third
arbitrator's appointment. (See HerbertSmith’s article on p18 party to participate in the arbitration’. No guidance is
for discussion of genuine and questionable conflicts.) Thus, provided as to how the third party will participate. Any
the arbitration institutions and the legislator are confronted arbitrator confronted with an application to join a third party
with a dilemma: how can third parties properly be joined will need to consider the effect of the joinder on the
into arbitration proceedings? enforceability of their ultimate award against all of the
parties (including the third party).
Part two Another mechanism for the joining of third parties to
Consent, joinder and consolidation an arbitration involves the consolidation of proceedings.
Where consent is given by both parties to an arbitration and In order to understand the possibilities of consolidation
any third party seeking to participate in the proceedings, between different parties, it is helpful to consider it
there is no reason why the third party cannot be joined. In involving the same parties. 

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 Consolidation may arise where two (or more) separate avoids this by deeming the waiver of such rights where a
arbitrations exist and one or more parties to those new case is referred to an existing arbitral tribunal.
arbitrations wish the proceedings to be brought together. Parties are becoming more sophisticated in their choice
Consolidation of proceedings between the same parties in of arbitration agreements to attempt to confer on
relation to disputes arising under a single agreement should, institutions and tribunals wide powers to introduce new
at first glance, cause no problems and does not result in parties to arbitral proceedings and to order consolidation
third parties being joined. In many cases it will be economic where necessary. Such agreements are becoming common
for all such disputes to be determined in a single arbitration, in complex multi-party, multi-contract projects and banking
and the risk of inconsistent decisions will be avoided. transactions. However, even in these transactions, where
Consolidation may not be practical where one arbitration is possible, all parties to the various agreements will usually
significantly more advanced than the other, and if separate be party to a ‘master agreement’ that will incorporate
arbitral proceedings have been commenced, this may detailed consolidation and joinder provisions that will apply
indicate that one or both parties have a reason for the to all transaction documents. The intent behind such
separation of those proceedings. If the claimant has provisions is that all parties consent to the possibility that
multiple claims, ordinarily one would expect those claims to they might be joined to existing arbitrations or that their
be brought in the same proceedings. disputes under one or more transactional document might
If the same tribunal presides over both proceedings, be consolidated with any other related dispute. The
consolidation may be brought about through the skill and agreements often incorporate a waiver of each party’s right
guidance of the arbitrators. Where the proceedings are to nominate an arbitrator and set down guidance on the
presided over by different tribunals, consolidation is factors to be taken into consideration when deciding
unlikely. First, for consolidation to occur, one of the whether to join or consolidate. The agreements also explain
tribunals would have to step down (which, for various the procedures for consolidation and joinder, if ordered.
reasons, it may be reluctant to do). Secondly, each tribunal
has no power over the other (absent agreement between Part three
the parties) to order consolidation. Contractual third parties
Consolidation is recognised and available under some When can a contractual third party be joined? The
institutional rules. Article 4.6 of the ICC Rules expressly contractual third party might want to join with the claimant
provides for the possibility, on request of oneparty or respondent for the purpose of supporting it (third-party
(without the consent of the other party), for arbitrations to intervention). Conversely, the claimant or the respondent
be consolidated. It is only available where the terms of might have a legal interest in a contractual third party being
reference (for the arbitration) have not been signed or bound by the award, or at least by the facts determined by
approved by the ICC. The Swiss Rules have a similar the tribunal. If the contractual third party cannot be joined,
provision at Article 4.1, although there is no time limit on the respondent may face the current arbitration and then
the application of that rule. have to commence separate proceedings against this third
party, and risk contradictory decisions.
Consolidation between different parties
The circumstances in which arbitral proceedings involving Counterclaims
different parties can be consolidated are limited and such Most arbitral rules provide for the possibility of
consolidation will not occur unless the parties have counterclaims. A precondition is that the subject of the
consented (even where all parties to the arbitral proceedings counterclaim falls within the scope of the arbitration
are parties to the same arbitration agreement). Article 4.1 of agreement. The counterclaim will be directed at the
the Swiss Rules is the only provision in all the main rules that claimant, but the respondent might also wish to pursue,
expressly envisages consolidation of proceedings between with the counterclaim, a claim against a contractual third
different parties. Again, the difficulty will be the rights of the party. In theory, Article 4.2 of the Swiss Rules and Article
parties in relation to the formation of the tribunal; Article 4.1 22.1(h) of the LCIA Rules could permit such a third party to
be joined for the purposes of a counterclaim. However,
given that the LCIA Rules require consent of the third party,
Parties are becoming more sophisticated it is difficult to envisage many situations where a
in their choice of arbitration agreements contractual third party might willingly consent to be joined
in proceedings in order for claims to be made against it.
to attempt to confer on tribunals powers Thus, the respondent may not be able to join the
contractual third party. This raises the question of whether
to order consolidation where necessary. the arbitral process, therefore, favours the claimant, as only
the claimant can effectively choose the parties to the

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MULTIPLE PARTIES 

arbitration by identifying itself, other claimants and any investment treaty arbitrations. Investment treaty
respondents in the request for arbitration. arbitrations, as distinct from traditional commercial
In circumstances where the formation of the tribunal has arbitrations, involve a private investor and a state. They have
been left to an independent entity (for example, the relevant become increasingly common in recent years through the
institution or an appointing authority), there may be many treaties entered into across the world that confer
situations in which a contractual third party could fairly be rights on foreign investors. The treaties permit investors to
joined to the proceedings against its will. Indeed, a number claim for damages against a state where the state is alleged
of awards suggest this is possible. However, in cases where to breach the standards enshrined in the treaty. One
the tribunal has been nominated by the parties, that is likely striking difference between investment treaty arbitrations
to be precluded, unless the third party consents or has and commercial arbitrations is that they are not confidential
waived its rights relating to nomination or appointment. and, by their nature, stray into matters of public law.
Recent investment arbitration cases in the US have
Part four permitted non-party participation in proceedings by
Involvement of a non-party agreeing to accept submissions of ‘amicus curiae briefs’.
Absent consent from all the parties, participation by a non- This is largely because of the public interest that is
party is unlikely to occur. (In many cases, confidentiality considered to lie in the outcome of such proceedings
alone will prevent a non-party from participating.) This involving states, due to the significant consequences of the
situation is not, however, entirely different to litigation tribunal’s decision on the state budget and the welfare of
where individuals or groups affected by a dispute to which the people. Non-parties can seek to participate through
they are not a party are normally without a remedy or written or oral submissions, and gain access to hearings,
route to participate. It is here where the amicus curiae plays documents, submissions and awards. However, their
its part. The role of the amicus curiae is emerging in the precise role in the arbitration will be open to question. They
field of investment treaty arbitration. certainly will not be expected to participate as a full party
Before considering the amicus curiae, it is worth noting and are highly unlikely to bear any of the burden of the
some limited circumstances where non-signatories to the arbitral process (for example, the costs of the arbitral
arbitration agreement might be party to an arbitration. process other than their own costs).
Assignment, the English Contract (Rights of Third Parties) Recognising this trend, ICSID recently amended Article
Act 1999 and the ‘group of companies’ doctrine all operate 41 of its Arbitration (Additional Facility) Rules, which now
to permit non-signatories to participate in arbitrations openly contemplates non-party participation, requiring the
that would normally only arise between the contracting tribunal only to consult rather than secure the consent of
parties. What is common in all these circumstances is that the parties. Draft amendments to the ICSID Rules (Articles 32
the non-party has usually participated in the contractual and 37), which contemplate transparency in relation to
relationship in some way. In these circumstances the non- awards and expressly allow for amicus submissions, have
party is likely to be a willing participant in the arbitration. now been adopted by the ICSID Administrative Council. The
This is not always the case with the group of companies UNCITRAL Rules (which are also commonly used for
doctrine. However, the doctrine is not universally accepted investment treaty arbitrations) contain no such provisions
and is not, by way of example, recognised under English at present, but the UNCITRAL Working Group has under
law. Circumstances might also arise where it could be consideration amendments that will provide for greater
argued that a potential respondent to an arbitration could transparency for such arbitrations, including the
be estopped from denying it is a party to the arbitration introduction of amicus curiae briefs. The revision process,
agreement by its conduct. however, is not expected to be completed until 2008 and
the amendments are likely to be debated at length.
The amicus curiae
In line with its translation as a ‘friend of the court’, the Conclusion
traditional role of amicus curiae is someone who, from a Problems with third parties will remain whilst users and
position of impartiality, provides the court with an practitioners in arbitration continue to look for ways to
argument or information to supplement a legal argument, avoid them. Where the involvement of a third party is a real
by the court’s invitation. Current usage of the amicus prospect, the only practical remedy is to seek to deal with it
curaie device has worked to ‘fill in the cracks’ of English in the arbitration agreement. 
litigation by providing an opportunity for a non-party to
be represented and to have some influence on the court’s
decision. BKMI Industrieanlagen GmbH v Ducto Co (Pty) Ltd
Non-party involvement in arbitration has emerged as a [1994] ADRLJ 36
topical issue with the involvement of amicus curiae in

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A certain
calculation
There are widely differing ways of quantifying the damages awarded in
commercial and investment-treaty arbitrations. Philip Haberman and Vikki Wall
of Ernst & Young consider the issues

With the growing number of commercial and


investment-treaty disputes being dealt with by
international arbitration, it is perhaps surprising
that there remain many different ways of
quantifying the damages awarded. It seems as
though tribunals are sometimes unhappy that what
appears to be theoretically sound does not accord
with their commercial ‘feel’ for an appropriate
award. To an accountant, these concerns are
understandable, but they should not stand in the
way of reaching a conclusion that is both
theoretically sound and commercially reasonable.
From a legal perspective, the first sources to examine
when considering damages are the contract or treaty
concerned and past practice. Our experience suggests that
it is very unusual for a contract to specify an approach to
the calculation of damages, and we are not aware of any
investment treaties that go into such level of detail. None of
the commonly encountered arbitral institutions, such as ICC,
ICSID and UNCITRAL, provides rules or guidance on the
quantification or the valuation of damages. Moreover, with
the limited publication of awards (especially in commercial
arbitrations) and the willingness of tribunals to reconsider
matters rather than follow precedent, past practice can only
be of limited assistance, but it is nevertheless interesting.

Winning awards
A wide range of awards have been granted in recent years
within investment-treaty and similar disputes, based on a
wide range of calculation methodologies. These range
from quantification based solely on the cost of investment
Philip Haberman is a partner and Vikki Wall is an assistant director in to complex calculations involving projections for many
Fraud Investigation & Dispute Services at Ernst & Young in London years into the future to capture the loss of future profits.

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Damages based on the cost of investment appear to be and should be accounted for through the discount rate
preferred by tribunals where a contract or business is used in the DCF calculation.
stopped at an early stage, or when profits are deemed to be As we have explained, the discount rate takes account
too speculative, such as when an enterprise has not of both the changing value of money over time and the
operated for a sufficiently long time to establish a risks that future cash flow either will not crystallise or will
performance record or has so far failed to achieve a profit do so at amounts different from those predicted. A simple
(for example Metalclad Corporation and Tecnicas example will give some idea of how important the
Medioambientales Tecmed SA, see boxes below and on p52). discount rate is: if we predict a steady annual cash flow for
In our view, an award of this nature compensates the 20 years, its value is 12.5 times the annual cash flow at a
claimant for the cost of the lost investment, but not for the discount rate of 5%, but reduces to 8.5 times at a discount
benefits that would have been obtained from that rate of 10%, 6 times at a rate of 15%, 5 times at a rate of
investment. It therefore runs the risk of confusing the cost 20%, and only 4 times at a rate of 25%.
of an investment with the value of that investment. Clearly, it is important to get the discount rate right, or
At the other extreme lie those cases (for example the as close to ‘right’ as possible, by taking account of all the
Turkish electricity industry and CMS Gas Transmission appropriate risks and uncertainties inherent in the
Company, see boxes on p52 and p53) where there is more projections of future cash flow. A way of looking at this is
certainty of the profit stream, such as when an to consider three components of the discount rate – the
established contract is interrupted. Then tribunals seem time value of money, the relevant external economic
happy to consider the value of the lost future profits in factors, and the relevant operational factors. 
determining the appropriate level of damages. They do so
using the well-established economic basis for estimating
the commercial value of a company or investment, the Metalclad Corporation v
discounted cash flow (DCF) method. This method requires The United Mexican States [2000]
future cash flows to be predicted and then discounted
back to the relevant date to reach a ‘present value’. Metalclad alleged that Mexico, through local governments, interfered
Discounting in this sense is something like reverse interest: with its development and operation of a hazardous-waste landfill.
it recognises that money to be received in the future is Metalclad claimed that this interference was a violation of the Chapter
worth less than money now. But it also recognises that Eleven investment provisions of NAFTA. In its award, dated 30 August
money that is likely to be received in the future is not 2000, the tribunal found that Metalclad had lost its entire investment.
certain to be received (the eventual receipt might be Metalclad proposed two alternative methods for calculating
greater or less than the amount assumed), and that damages: first a discounted cash flow analysis of future profits to
uncertainty needs to be taken into account. It is that establish the fair market value of the investment (approximately
uncertainty that is described in economic terms as the $90m); and, secondly, to value Metalclad’s actual investment in the
‘risk’ associated with future cash flow. landfill (approximately $20-25m), as well as additional claims for
Whilst the DCF method is the standard approach used alleged negative impact on its other business operations.
by financial and economic specialists, for example in The arbitral tribunal stated that:
international finance to estimate the value of a business or
its assets, other methods (such as price/earnings ratio) are Normally, the fair market value of a going concern which has a
also used. That will usually be because the detail required history of profitable operation may be based on an estimate of
for a DCF valuation is not available, or because there are future profits subject to a discounted cash flow analysis… However,
rules of thumb that can be used to simplify the valuation – where the enterprise has not operated for a sufficiently long time to
but those other methods are themselves based on DCF. establish a performance record or where it has failed to make a
profit, future profits cannot be used to determine going concern or
Certain uncertainty fair market value… The Tribunal agrees with Mexico that a
It seems to us unsatisfactory for there to be an unknown discounted cash flow analysis is inappropriate in the present case
point of time between too much uncertainty (leading to a because the landfill was never operative and any award based on
‘cost of investment’ approach) and sufficient certainty future profits would be wholly speculative… Rather, the Tribunal
(leading to a conventional DCF approach). We believe that, agrees with the parties that fair market value is best arrived at in
despite the reluctance of tribunals to use it in all this case by reference to Metalclad’s actual investment in the project.
circumstances, the DCF method can be used to calculate
the fair value of all going concerns, both new and The tribunal accordingly awarded an amount reflecting Metalclad’s
established ventures, and hence to evaluate damages in investment in the project, which, after certain deductions, totalled
all cases. The increased risk of start-up projects, or projects $16.6m (interest was added).
where future cash flows are particularly uncertain, can

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 The time value of money is conceptually easy – it is


reflected in the return available on government securities Turkish electricity industry
in the relevant currency issued by the relevant Some years ago, parts of the Turkish electricity industry
government. This assumes that the lowest risk in a given (both generation and distribution) were to be privatised
country’s environment is that of the government. The through a series of concessions that were awarded, but
external economic factors, such as inflation, economic were subsequently cancelled before they began
growth and the wider environment, will be reflected in the operations. Several of these cancellations led to private
return anticipated by the local stock market. law arbitrations, with claimants seeking damages for the
Operational factors can themselves be divided into early and wrongful termination of their contracts, based
two: those that are common to all businesses operating in in all cases on the future profits lost as a result of the
the same sector, such as competitive pressures, and those cancellation. Many of these cases have reached a
that are unique to the entity itself. conclusion and we are aware of cases resulting in
These different factors are captured in the usual damages limited to the refund of wasted expenditure, as
theoretical basis for arriving at a discount rate, the capital well as others where damages were awarded on the
asset pricing model (CAPM), which is based on the theory basis of profit projections for future periods.
that a higher return is required on a riskier investment. The In an arbitration where we provided expert evidence,
basic CAPM begins with the appropriate ‘risk-free’ rate the award was based on profits projected for 30 years
(taken from quoted prices on government securities) and into the future, largely using assumptions that formed
adds an amount that comprises the market-risk premium. the basis for the original tender. The damages were
calculated on a DCF basis, using a discount rate based on
the capital asset pricing model.
Tecnicas Medioambientales Tecmed SA v
The United Mexican States [2003]
This is the additional return expected to be generated by
Tecnicas brought a claim for its investment in land, buildings and other the market as a whole, reflecting the economy-wide
assets relating to a controlled landfill of hazardous industrial waste. In external factors multiplied by the ‘beta’ (a measure of how
its award, dated 29 May 2003, the tribunal found that Mexico had similar entities’ share prices move in relation to the market
breached its obligations under the provisions of the Spain-Mexico BIT. as a whole, reflecting other external and some operational
The tribunal noted: factors). Entities that have reliable cash flows, and whose
share prices therefore do not fluctuate in line with the
… both the remarkable disparity between the estimates of the two market as a whole, such as utilities, tend to have betas of
expert witnesses upheld throughout the examination directed by the less than one. Entities whose cash flow fluctuates more
parties and the arbitral tribunal at the hearing held on 20 to 24 May than the market as a whole, such as software and computer
2002 and also the considerable difference in the amount paid under services companies, tend to have betas greater than one.
the tender offer for the assets related to the landfill – $4m – and the The CAPM is also commonly modified to reflect
relief sought by the claimant, amounting to $52m, likely to be empirical factors such as size – in practice, smaller entities
inconsistent with the legitimate and genuine estimates of return on are widely regarded as riskier than larger entities, and
the claimant’s investment at the time of making the investment. hence require a higher discount rate, even though there is
no theoretical basis for a difference.
The tribunal disregarded DCF in determining the damages, due to: Finally, it is then possible to adjust the result to take
account of specific risks that are not otherwise reflected.
… [the] non-relevance of the brief history of operation of the For example, if comparable entities are well-established
landfill by Cytrar – a little more than two years – and the and one is dealing with a start-up, an additional factor
difficulties in obtaining objective data allowing for application of might need to be included.
the discounted cash flow method on the basis of estimates for a
protracted future, not less than 15 years, together with the fact Start again
that such future cash flow also depends upon investments to be Ultimately, it is important to recognise that the choice of an
made – building of seven additional cells – in the long term. appropriate discount rate to use in a DCF calculation is not
wholly scientific. It is a matter of experience and judgement
The tribunal, on the basis of its own valuation, awarded to reach a discount rate that takes account of all relevant
approximately $5.6m plus interest to Tecnicas. It took into account the factors and is appropriate for the levels of risk present in the
landfill’s market value at acquisition, the investments made thereafter, estimates of future cash flow. Each case must be considered
and profits for two years of operation. on its own merits and its own individual circumstances –
there is no general rate to use as a starting point.

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Having nailed our colours firmly to the DCF mast, with


what we regard as its sound theoretical basis and its
CMS Gas Transmission Company v
widespread commercial use, where does this leave the
The Argentine Republic [2005]
‘cost of investment’ approach?
We believe that the concern of tribunals over CMS claimed for its investment under the provisions of the US-Argentina
uncertainty, which leads them to reject the DCF approach BIT following the alleged suspension by Argentina of a tariff adjustment
in some cases, can be reconciled with DCF through a two- formula for gas transportation.
step process: the use of ‘modified cost’ and a proper In its award of 12 May 2005, the tribunal sets out its thinking on
consideration of the discount rate. the appropriate compensation in some detail. First, it notes:
Modified cost is an approach to estimating the value of
a business or assets, which is based on the underlying The Treaty offers no guidance as to the appropriate measure of
cost of the assets. It works by taking the actual historical damages or compensation relating to fair and equitable treatment
cost of the assets and then adjusting it to bring that cost to and other breaches of the standards laid down… This is a problem
a current equivalent. Adjustments are made for inflation common to most bilateral investment treaties and other
(to reflect the fact that an equivalent current investment agreements such as NAFTA. The tribunal must accordingly exercise
may cost more), depreciation (to reflect the past usage of its discretion to identify the standard best attending to the nature
the assets, which may no longer have a full lifetime of the breaches found.
ahead), and development expenditure (which may have
been written off in accounting terms but is a part of the The tribunal considers various valuation methodologies to
investment necessary to achieve value from it). calculate the fair market value of the investment and concludes that
Development expenditure might include, for example, the DCF method:
exploration costs for a resources company or research and
development costs for a technology company. … is the most appropriate in this case. TGN was and is a going
The result is likely to be reliable and well-supported, concern; DCF techniques have been universally adopted, including
and gives an indication of the replacement cost of the by numerous arbitral tribunals, as an appropriate method for
investment (rather than its original cost). In some specific valuing business assets… Finally, there is adequate data to make a
circumstances, in particular where the investment has rational DCF valuation.
recently been acquired through a market transaction,
modified cost may turn out to be a reasonable On this basis, the tribunal awarded damages, based on a DCF loss
representation of market value. In general, though, valuation, of $133.2m, in addition to a share transfer and interest.
modified cost is not the same as the value of the
investment, as it does not capture the benefits likely to be
gained from the investment, especially the future profits The preference of tribunals for cost-based valuations of
to be generated, but it is a better starting point than pure some investments rather than DCF valuations suggests
historical cost. that those tribunals were uncomfortable with the discount
rate being put forward by the claimants. In effect, they felt
Risky business that the risks inherent in the businesses were higher than
The second step to reconciling ‘cost of investment’ and had been suggested, but had not rationalised their
DCF is to re-examine the discount rate. By modelling the thoughts in this way.
expected future cash flows at different discount rates, it is We would suggest that, when they are asked to consider
possible to identify the discount rate that results in the DCF alternatives to DCF valuations, tribunals would benefit from
method giving a result equal to modified cost. That assessments of modified cost and the ‘modified-cost-
‘modified-cost-equivalent’ discount rate, which might be equivalent’ discount rate. They would then have the
much higher than would normally be used to value the materials with which to reach a decision on value that is
business, can be interpreted as giving an indication of the both commercially reasonable and theoretically sound. 
riskiness of the underlying investment. If it appears that
the true risk inherent in the business is lower than the
‘modified-cost-equivalent’ rate, that would be an CMS Gas Transmission Company v The Argentine Republic
indication that the value of the investment is higher than ICSID Case No ARB/01/8 Award 12 May 2005
the modified cost. If, on the other hand, it appears that Metalclad Corporation v The United Mexican States
the ‘modified-cost-equivalent’ rate is a realistic ICSID Case No ARB (AF)/97/1 Award 30 August 2000
assessment of the riskiness of the investment, this Tecnicas Medioambientales Tecmed SA v The United Mexican States
would indicate that modified cost is a fair basis for ICSID Case No ARB (AF)/00/2 Award 29 May 2003
assessing value.

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 DRAFTING

Court support
Several recent cases have shown that the English courts promote arbitration both
domestically and in Europe, but the need for clarity in contracts remains paramount.
Steve Abraham and Anna Kirkpatrick of Norton Rose look at why this is the case

In a series of recent cases, the English courts have


considered some difficult questions regarding the
interpretation and effect of arbitration clauses. At
all levels of the English judicial system, the courts
have striven to uphold parties’ choice to arbitrate
their disputes. They have provided additional
certainty for contract draftsmen and sought to limit
damaging satellite litigation by emphasising the
importance of one-stop arbitration. This article
analyses the judgments and gives practical guidance
on drafting arbitration clauses. Lord Hoffmann’s
statement (in the Front Comor) captured the theme
common to all three cases: ’The courts are there to
serve the business community rather than the other
way around.’
While these cases highlight certain benefits of choosing
England as the seat of arbitration, one of the cases (in the
House of Lords) has resulted in a reference to the
European Court of Justice on the issue of the availability of
anti-suit injunctions in arbitration. It remains to be seen
whether the ECJ will be as supportive of the arbitration
process as the House of Lords.

Drafting arbitration clauses widely


In an increasingly international business environment, the
importance of controlling the forum of any potential
disputes between contracting parties is paramount.
Parties are increasingly relying on arbitration to resolve
their disputes. Contractual provisions stipulating
arbitration are often open to interpretation.
Steve Abraham is a senior associate and Anna Kirkpatrick is an To ensure that a potential dispute will be resolved by
associate at Norton Rose arbitration rather than by some other means, parties often

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DRAFTING 

seek to draft their arbitration clauses as widely as possible


– hence the common use of familiar (and, perhaps on the
There is an unjustified leap of faith in
face of it, benign) phrases such as ‘disputes arising out of’ assuming that the impeachment of the
and ‘disputes arising under’ the contract. However,
numerous English court cases have queried the meaning contract results in the impeachment of
of these phrases, finding, in some cases, that a dispute
should be litigated rather than arbitrated. Helpfully, in
the arbitration agreement.
Fiona Trust & Holding Corporation & ors v Yuri Privalov &
ors [2007], the Court of Appeal has resolved the long-
running uncertainty over the meaning of such wording. particular country or by a tribunal of their choice they
The case concerned eight charterparties (contracts for do not expect (at any rate when they are making the
the hire of ships) entered into by companies from the contract in the first place) that time and expense will
Russian Sovcomflot group of companies acting as owners be taken in lengthy argument about the nature of
of seagoing vessels (Fiona Trust) and three companies as particular causes of action and whether any particular
charterers (Yuri Privalov). Each of the charters allowed for cause of action comes within the meaning of the
‘any dispute arising under this charter’ to be decided by the particular phrase they have chosen in their arbitration
English courts. However, either party could alternatively clause. If any businessman did want to exclude disputes
elect to have a dispute, which had ‘arisen out of this about the validity of a contract, it would be
charter’, referred to arbitration (a so-called ‘split clause’). comparatively simple to say so.
The owners brought claims in court for rescission of the
charterparties. They claimed that the charterparties were In particular, in international commercial contracts ‘any
invalid, having been procured through bribery. The jurisdiction or arbitration clause should be liberally
charterers sought to enforce their rights in arbitration. The construed.’ This means construing clauses liberally and
owners applied to the English High Court under s72 of the dismissing any nuances of meaning between the phrases
Arbitration Act 1996 (the Act), seeking to restrain the ‘arising out of’ and ‘arising under’. In the Court’s view,
arbitration proceedings on the basis that the having used such words, its jurisdiction is limited to
charterparties and the arbitration agreements contained disputes concerning the formation of the contract itself.
within them had been rescinded as a consequence of the The effect of this approach on the facts was that the
bribery and that no arbitration was permissible. The dispute as to whether the contract had been rescinded for
charterers sought a stay of the court action under s9 of the bribery was capable of arbitration under the clause.
Act, which allows the court to stay court proceedings
where a valid and operative arbitration agreement already Separability remains key
covers the dispute in question. The Court reiterated the principle (codified in s7 of the Act
At first instance, finding for the owners, Morison J and s16(1) of the UNCITRAL Model Law) that an arbitration
declined the stay and suspended the arbitration clause is a separate contract that can survive the invalidity or
proceedings on an interlocutory basis. The charterers termination of the underlying contract in which it is
successfully appealed. The owners’ attempts to side step contained. There is an unjustified leap of faith in assuming
the arbitration agreement failed, as did their court claims that the impeachment of the underlying contract necessarily
for rescission. Throughout the case, the Court focused on results in the impeachment of the arbitration agreement. As
giving effect to the arbitration clause, and supporting the a result, an arbitral tribunal has jurisdiction to determine the
arbitration process. issue of the alleged invalidity of a contract. The courts will
only step in where the validity of the arbitration agreement
Liberal construction of the arbitration clause itself is (separately) brought into question.
On the difference in meaning between ‘arising out of’ and On the facts, the Court of Appeal found that there was a
‘arising under’, the Court of Appeal reviewed the key case valid arbitration agreement that was separable from the
law and called for a ‘fresh start’ founded on a more main agreement. The alleged bribery behind the
commercial approach: formation of the underlying contract could not be said to
affect the validity of the arbitration agreement.
Ordinary businessmen would be surprised at the nice Accordingly whether the underlying contract was to be
distinctions drawn in the cases and the time taken up rescinded was a matter for the tribunal.
by argument in debating whether a particular case On the more procedural issue concerning potentially
falls within one set of words or another very similar set conflicting applications under ss9 and 72, the Court again
of words. If businessmen go to the trouble of agreeing applied a liberal approach holding that, on the facts, the
that their disputes be heard in the courts of a section 9 application was to be heard first. In cases such 

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 as these an application to stay court proceedings was the The ECJ ruled in 2004 that it is no longer possible for
primary matter to be decided. such injunctions to be used within the EU. The ECJ held
The judgment is commercially astute and pragmatic, that such injunctions interfere unjustifiably with the
offering clarity concerning the scope of the arbitration business of the courts and, further, that they were
clause and providing welcome support for the arbitration inconsistent with EU Regulation 44/2001 (the Brussels I
process under English law. There is now less scope for Regulation), which regulates the allocation of jurisdiction
argument as to the effect of common forms of wording in between EU states. However, whether or not it is still
arbitration clauses, given the clear line drawn by the Court possible to use anti-suit injunctions to prevent proceedings
of Appeal. brought in breach of an arbitration agreement is unclear.
This was the question before the House of Lords in West
Liberal approach under threat? Tankers Inc v RAS Riunione Adriatica di Sicurta SpA & anor
National courts play an important role in supporting the (the Front Comor) [2007].
arbitration process. Parties generally choose the seat of In August 2000 Front Comor hit a jetty in Sicily. The
arbitration in the jurisdiction that is most suitable for charterparty was governed by English law and provided
them, choosing a location that promotes the parties’ for arbitration in London. The charterer claimed for its
choice to arbitrate. One advantage of England as a forum uninsured losses against the owners in arbitration (which
is that the courts have a long history of granting anti-suit is still underway) and recovered its insured losses from
injunctions to restrain court proceedings in England, Italian insurers. The insurers sought to recover these
Europe and further afield. An anti-suit injunction is a amounts from the owners in the Italian courts.
mechanism by which one state makes an order restraining The owners were granted a temporary anti-suit
a party from commencing or continuing court injunction in the Commercial Court, London, to stay the
proceedings in another state on the grounds that such insurers’ action in Italy in favour of the arbitration. The
proceedings are in breach of a court jurisdiction clause. insurers sought a discharge of this injunction.

Drafting complex clauses

It is not only when dealing with foreign or less familiar commenced arbitration proceedings and sought a declaration
countries that care should be taken when drafting dispute under s32 of the Act that this particular dispute should be
resolution clauses. The facts of Film Finance Inc v The Royal resolved by arbitration under clause 14 of the guarantee. FFI
Bank of Scotland [2007] serve as a reminder of difficult argued that this was a ‘dispute relating to delivery’ as referred
questions of forum that can arise even when dealing with a to in the first sentence of clause 14. RBS argued for a far
familiar jurisdiction such as England. narrower reading of clause 14.
Where parties draft complex clauses, there is a risk that In keeping with the spirit of Fiona Trust, Andrew Smith J
additional complexity leads to reduced clarity. In such cases, promoted a liberal approach to the interpretation of such
parties that believe they have agreed to arbitration may find clauses. When considering the nature of dual regimes, the judge
themselves in satellite litigation to determine the appropriate recognised that where the parties choose that some disputes
forum to hear the dispute. This is distracting and often costly. should be referred to arbitration and some to litigation, there
In this case, RBS provided €4.8m to Film Finance Inc (FFI) to was ‘always a risk that the parties might have to resort to both’.
finance a film. FFI guaranteed the completion and the delivery This problem was exacerbated by unduly narrow interpretations
of the film under a completion guarantee in favour of RBS. of such clauses. He rejected such narrow interpretations on the
Under clause 14 of the guarantee: basis that the parties cannot have intended ‘to make an
arbitration agreement that would result in [the] fragmentation of
… in the event of a dispute relating to delivery hereunder, the the resolution of their disputes’. He applied a wide interpretation
provisions for arbitration specified in Schedule III… shall apply. that avoided the problem of multi-jurisdiction dispute resolution,
Any dispute other than a dispute relating to delivery shall be and gave effect to the parties’ intentions. This was an approach
submitted to the jurisdiction to the courts of law of England. that provided ‘one-stop arbitration’ for the parties.
On the facts, the judge found that the word ‘delivery’ had an
Schedule III set out provisions relating to delivery disputes ordinary, rather than a technical, meaning. This dispute should
between FFI and the distributors of the film (and not to delivery be arbitrated under clause 14 of the completion guarantee.
disputes between RBS and FFI). The film was neither completed Insofar as schedule III was inconsistent with the arbitration
nor delivered on time, and RBS sought to enforce its right to clause, the wording of schedule III should be construed to give
payment under the completion guarantee in court. FFI effect to the arbitration clause.

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Colman J found that, as the insurers were claiming


against the owners by right of subrogation, they were Film Finance Inc v The Royal Bank of Scotland
bound to resolve their claims against the owners through [2007] EWHC 195 (Comm)
arbitration in accordance with the charterparty. Further, in Fiona Trust & Holding Corporation & ors v Yuri Privalov & ors
accordance with the Court of Appeal decision in Through [2007] EWCA Civ 20
Transport Mutual Insurance Association (Eurasia) Ltd v New Through Transport Mutual Insurance Association (Eurasia) Ltd v
India Assurance Co Ltd [2005], the Court had authority to New India Assurance Co Ltd
grant an injunction against the insurers to prevent further [2005] 1 Lloyd’s Rep 67
action in the Italian courts. West Tankers Inc v RAS Riunione Adriatica di Sicurta SpA & anor
Accordingly, he granted an injunction against the [2007] UKHL 4
insurers, staying the action in Italy. However, he referred
three questions to the House of Lords. The most significant
question concerned the interface between anti-suit should be noted that anti-suit injunctions are not available
injunctions and the Brussels I Regulation in relation to in every EU country, and are seen as contentious. The
arbitration agreements. Despite being of the opinion that the arguments for and against anti-suit injunctions are finely
courts of EU states should retain the right to issue anti-suit balanced and it is not possible to predict what the
injunctions to protect the arbitration process, the House of response of the ECJ will be.
Lords recognised that the question should be referred to the
ECJ. In so doing, the House of Lords set out strong arguments Consequences of the ECJ’s ruling
to advance its opinion, providing further illustration of the A ruling that anti-suit injunctions cannot be used to support
English courts’ support for the arbitration process. the arbitration process would have important
It remains to be seen whether the ECJ will follow the consequences for arbitration in the EU. The apparent effect
House of Lords’ steer, although any decision from the ECJ is would be that arbitration agreements may be undermined
likely to be two years away. at any time by litigation being commenced in the courts of
another EU state with jurisdiction under the Brussels I
The case for anti-suit injunctions Regulation to hear the dispute. The courts’ power to grant
Lord Hoffmann referred to express provisions of the Brussels anti-suit injunctions to stay proceedings outside the EU
I Regulation that exclude arbitration from its scope. He (both in relation to court proceedings and arbitration) will,
argued that it would, therefore, be illogical for the Regulation of course, be unaffected by the ECJ’s decision.
to apply to arbitration agreements. An arbitration Lord Hoffmann warned that if the ECJ were to limit the
agreement is a contractual mechanism between commercial courts’ power to issue these injunctions, the European
parties that have specifically chosen not to have their affairs Union would be imposing an unnecessary handicap on
regulated by court procedures. As Lord Hoffmann put it: itself. Other jurisdictions such as New York, Bermuda and
Singapore, which continue to offer this mechanism, would
… perhaps the most important consideration is the seem far more attractive by comparison.
practical reality of arbitration as a method of resolving
commercial disputes. People engaged in commerce Concluding remarks
choose arbitration in order to be outside the The English courts have shown that they are in favour of a
procedures of any national court. liberal approach when construing arbitration clauses. All
three cases discussed here serve to highlight the
As such, and applying recent ECJ case law, the ban on desirability of clear, and not unduly complex, drafting. For
anti-suit injunctions set out in recent law does not apply to instance, would the arguments in Fiona Trust ever have
arbitration. Court proceedings where the subject matter is arisen had the arbitration clause specified that any
arbitration are also excluded. disputes as to the existence, validity or termination of the
Lord Hoffmann referred to England’s history of issuing charterparty would be subject to arbitration?
anti-suit injunctions. He argued that this power promotes One commonly used approach is to state that: ‘Any
legal certainty and ‘reduces the possibility of conflict dispute arising out of or in connection with this agreement,
between the arbitration and the judgment of a national including any question regarding its existence, validity or
court’. When choosing a seat of arbitration, the court’s termination’ should be referred to arbitration. Where parties
ability to restrain court proceedings commenced in breach are drafting complex dispute resolution mechanisms, advice
of an arbitration agreement is viewed as an attractive should be sought. The cases also highlight the danger of
feature of English arbitration. limiting the courts’ discretion to assist the arbitration
Lord Hoffmann did not address the arguments against process. The arbitration community will watch the ECJ with
granting anti-suit injunctions in arbitration. However, it interest over the next few years. 

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Reality bites
Only when arbitrations reach the enforcement stage does commercial reality kick
in for successful claimants, who realise how tricky it can be to achieve execution
of their award. DLA Piper’s Matthew Saunders and Claudia Salomon explain

Any observer of the international arbitration scene


cannot fail to be struck by the alacrity with which
the leading players have developed significant
practices founded on the resolution of investment
disputes under bilateral and multilateral investment
treaties. Much attention has rightly been focused on
such an intellectually stimulating and rewarding
area of practice, but little attention has been paid to
the harsh commercial reality that arbitral awards
issued by even the most august of international
arbitration tribunals are of little value unless and
until they can be turned into cash.
It is at the later stage – where the award creditor moves
from the refined atmosphere of public international law
tribunals into the domestic arenas of enforcement and
execution of the award – that reality is increasingly likely to
hit. Because of the time and expense that can be involved in
enforcement and execution, and the uncertainty (which can
be accentuated by the sometimes unpredictable exercise of
discretion by domestic judges), would-be BIT claimants
would be wise to invest in finding out just what may be
involved in collecting on an award. This requires
understanding an area of law comprising international
treaties and a web of domestic laws on state and sovereign
immunity mixed with issues of public policy. This article will
consider some of the issues that may be encountered.

ICSID Convention
The ICSID Convention provides an international regime for
arbitration of investment disputes. There are 143 parties to
Matthew Saunders and Claudia Salomon are co-leaders of the the ICSID Convention, under which legal disputes between
international arbitration practice of DLA Piper states and foreign investors are submitted to binding

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arbitration administered by the International Centre for


the Settlement of Investment Disputes. The ICSID
Execution is subject to laws on immunity
Convention provides a comprehensive procedure for restricting the categories of state assets
investment arbitrations, and excludes the application of
national arbitration law. Enforcement of an ICSID award is which may be executed against.
governed by the ICSID Convention, whereas enforcement
of other investment treaty awards (such as those rendered
in UNCITRAL Rules arbitrations) is governed by the New ROK’s actions amounted to expropriation, were arbitrary,
York Convention. in wilful disregard of due process of law and ‘were
Article 54 of the ICSID Convention requires contracting shocking to “all sense of judicial propriety”’.
states to enforce an ICSID award ‘as if it were a final The ROK failed to comply with the award and the
judgment of a court in that state.’ There are no grounds for claimants sought to enforce it against securities and cash
refusal of enforcement, although Article 55 makes clear that held by third parties in London on behalf of the National
the Convention does not derogate from the law in force in Bank of Kazakhstan. The claimants contended that these
any contracting state relating to immunity of the state from assets were intended for use for commercial purposes,
execution. Thus, the minefield that is domestic law on the therefore falling outside the protections of the UK State
issue of sovereign immunity remains to be negotiated. Immunity Act 1978 (SIA). The SIA provides that property of
a state is immune from enforcement unless it is intended
Sovereign immunity for use for commercial purposes. It also provides that the
Immunity from execution arises when execution property of a state’s central bank should not be regarded
measures (following the court’s recognition and as intended for such purposes. The Court held in favour of
enforcement of an arbitral award) are to be taken against the ROK – pursuant to the SIA, all property of a central
a state’s assets. States continue to apply such immunity, bank was found to enjoy complete immunity from
with the consequence that a successful ICSID claimant enforcement, regardless of whether the property is used
may suffer a pyrrhic victory unless assets owned by the for commercial purposes.
state but not immune from enforcement/execution While this decision does not depart from previously
(commonly those in use for commercial purposes) can be established principles of sovereign immunity – nor indeed
identified. Having gone to the significant costs of Article 55 of the ICSID Convention, which echoes those
obtaining an ICSID award, and leave to enforce the award principles – it underlines the risk that a defaulting state
(pursuant to Article 54(2)), the claimant may find itself may be immune from execution against an ICSID award.
unable to obtain satisfaction thereunder. Similarly, in Svenska Petroleum Exploration AB v
There is an apparent contradiction in a state’s waiver of Government of the Republic of Lithuania and anor [2006]
immunity from jurisdiction under Article 54 (thereby (a case concerning the enforcement in London of an
enabling the successful party to obtain leave to enforce the arbitration award obtained in International Chamber of
award) but not from execution (pursuant to Article 55). This Commerce proceedings in Denmark), the English Court of
incongruity may be resolved by considering that the failure Appeal noted that the waiver of sovereign immunity
to waive immunity from execution does not imply that the contained in s9 of the SIA regarding enforcement of
successful party cannot execute against any of the state’s arbitration awards extended to both domestic and foreign
assets. It is simply that such execution is subject to laws on awards. The Court concluded that, in order to dispose of
immunity restricting the categories of state assets which the appeal, it did not need to decide the question of
may be executed against. Of course the practical reality is whether the relevant transaction (to do with the
that there are very few state assets which will not fall under exploitation of mineral resources) should properly be
the protective cloak of immunity. characterised as a ‘commercial transaction’ or an exercise
of sovereign authority, within the meaning of s3 of the SIA:
Key cases ‘In the circumstances we prefer to express no concluded
The case of AIG Capital Partners Inc & anor v Republic of opinion on the question.’ It is to be expected that courts –
Kazakhstan & ors [2005], before the English High Court, is as here – will seek wherever possible to avoid founding
an example of the broad protection that sovereign decisions on the public/private divide.
immunity affords states. The claimants brought a claim In the US, the Foreign Sovereign Immunities Act (FSIA)
against the Republic of Kazakhstan (ROK) under the similarly allows execution on property of the state,
bilateral investment treaty between the US and the ROK, in provided that the property is ‘used for a commercial
relation to the cancellation by the ROK of a project to activity in the United States’ (FSIA s1610(a)). In the case of
develop a housing complex and expropriation of land Liberian Eastern Timber Corp (LETCO) v Government of the
without compensation. The ICSID award recorded that the Republic of Liberia [1986], the US District Court for the 

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 Southern District of New York granted enforcement of an enforcement and execution of any award rendered by an
ICSID award against Liberia, but refused execution against Arbitral Tribunal constituted pursuant to this Agreement.
fees and taxes payable by shipowners in the US to Liberia.
The award arose from an ICSID claim by LETCO against However, even such clauses will not necessarily lead to
Liberia for the termination of a concession to harvest and the full panoply of execution processes being available – for
exploit Liberian timber. example, processes of committal and fining will not be
Following LETCO’s initiation of arbitration proceedings, available where the sovereign defendant has failed to
Liberia refused to participate in the arbitration and comply with an order as to the disclosure of assets.
commenced an action in the Liberian courts. Nonetheless,
the arbitral tribunal proceeded to enter an award against Public policy
LETCO for over $9m. Liberia opposed a Writ of Execution Courts may refuse recognition and enforcement of an
issued to the US Marshal for the Southern District of New arbitral award if it would be contrary to the public policy
York, on the basis that execution against its property (or ‘ordre public’) of the country in which it is sought. The
would contravene the FSIA. Liberia argued that by scope of the public policy exception is defined by the
entering into the forestry concession contract with LETCO domestic law of the country of enforcement and there is
it had not waived its sovereign immunity to enforcement no public international law definition of the concept. Due
or execution. The District Court disagreed. It was held that to the lack of certainty as to the remit of the public policy
Liberia, as a signatory to the ICSID Convention, had waived exception, this argument may be raised by an
its sovereign immunity in America with respect to unsuccessful respondent state in order to delay or avoid
enforcement of the arbitral award. However, Liberia was enforcement. While this is not a defence exclusively
not found to have waived its sovereign immunity to available to states, there is clearly scope for arguments
execution against its assets. The collection of taxes by the concerning bribery and corruption of government officials
government of Liberia constituted the exercise of a in relation to the procurement of contracts with states.
sovereign power, and not a ‘commercial activity’ within However, the public policy grounds for refusing
the exception provided for in s1610(a) of the FSIA, and enforcement are narrow, and such challenges rarely
therefore, such taxes were immune from execution. successful. For example, an award requiring payment under
In a subsequent application to the US District Court for a contract for assistance in obtaining a government contract
the District of Columbia, the Court refused execution against in Algeria was enforced by the English Commercial Court,
bank accounts of the Embassy of Liberia on the grounds of notwithstanding that the contract breached Algerian law
diplomatic immunity, pursuant to Article 25 of the Vienna (see Omnium de Traitement et de Valorisation SA v Hilmarton
Convention on Diplomatic Relations 1961 and sovereign Ltd [1999]). The English Court found that there were no public
immunity under s1609 of the FSIA, and an account of the policy grounds on which enforcement of the award could be
central bank of Liberia on the ground of sovereign refused, because the Swiss arbitral tribunal’s express finding
immunity. The Court stated that ‘… the concept of that there had been no bribery or corrupt practice was
“commercial activity” should be defined narrowly because ‘unchallengeable’. The Court considered that while a tribunal
sovereign immunity remains the rule rather than the applying English law might have arrived at a different
exception.’ conclusion, ‘as a matter of policy of the upholding of
A practical solution to the issue of sovereign immunity international arbitral awards’ the award should be enforced.
is inclusion, in the relevant contract or treaty with the The Court relied in this regard on the Court of Appeal’s
state, of a clause expressly waiving immunity from statement, in Westacre Investments Inc v Jugoimport-SDRP
execution. ICSID recommends the following model clause Holding Co Ltd [1999], that if an arbitral tribunal determines
(Clause 15) for that purpose: to enforce a contract that does not offend the domestic
public policy under the proper law of the contract or the
The host state hereby waives any right of sovereign curial law, the arbitral award should be enforced,
immunity as to it and its property in respect of the notwithstanding that English domestic public policy may
have taken a different view. In Westacre, the Court of Appeal
permitted enforcement of an award arising from a contract
A practical solution to the issue of that was for the purchase of personal influence from Kuwait
sovereign immunity is inclusion in the government officials in relation to arms contracts. On the
face of the award, performance of the contract was not
relevant contract of a clause expressly contrary to its proper law and the curial law, or the law of
the place of performance. While a contract for the purchase
waiving immunity from execution. of personal influence was contrary to English public policy, it
did not infringe a rule of English public policy so serious that

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the Court would not enforce it whatever its proper law or


place of performance (as would be the case for bribery, for AIG Capital Partners Inc & anor v Republic of Kazakhstan & ors
instance). As a result, the public policy of finality and [2005] All ER (D) 223 (Oct)
enforcing awards outweighed the public policy of not Brandeis Intsel Ltd v Calabrian Chemicals Corp
enforcing illegal contracts. 656 F Supp 160 (SDNY 1987)
However, in Soleimany v Soleimany [1999], the Court of Indocomex Fibres Pte Ltd v Cotton Co International Inc
Appeal refused to enforce an award concerned with an 916 F Supp 721 (WD Tenn 1996)
illegal contract for the smuggling of carpets out of Iran. In Liberian Eastern Timber Corporation (LETCO) v
that case the Court considered that it would be contrary to Government of the Republic of Liberia
public policy to enforce an award which, on the face of it, 650 F Supp 73 (SDNY 1986); ICSID case no ARB/83/2;
related to a contract contrary to the law of the place of 659 F Supp 606 (DCDC 1987)
performance. This is in distinction to Westacre, in which, at MGM Productions Group Inc v Aeroflot Russian Airlines
least on the face of the arbitral award, the contract was not 91 Fed Appx 716 (2nd Circuit 2004)
contrary to the law of Kuwait, the place of performance. Omnium de Traitement et de Valorisation SA v Hilmarton Ltd
Unless there is good reason for the English courts to [1999] 2 All ER (Comm) 146
doubt the reliability of an arbitral award, they will not embark Parsons & Whittemore Overseas Co Inc v
on an inquiry into the issue of illegality. It is clear that, Société Générale de l’Industrie du Papier (RAKTA) & anor
consistent with the English courts’ non-interventionist 508 F 2d 974 (2nd Circuit 1974)
approach to arbitration proceedings generally (as recognised Soleimany v Soleimany
by s1(c) of the Arbitration Act 1996), the courts are resistant to [1999] QB 785
attempts by defendants subject to enforcement proceedings Svenska Petroleum Exploration AB v Government of the Republic of Lithuania
to reopen facts found by arbitrators. [2006] EWHC Civ 1529
The US courts have taken a similar pro-enforcement Westacre Investments Inc v Jugoimport-SDRP Holding Co Ltd
approach, and declared that ‘the [New York Convention’s] [1998] 4 All ER 570
public policy defence should be construed narrowly’ (see
Parsons & Whittemore Overseas Co v Société Générale de
l’Industrie du Papier (RAKTA) & anor [1974]). In the US, claims that an award conflicted with federal law (eg
‘enforcement of foreign arbitral awards may be denied on Brandeis Intsel Ltd v Calabrian Chemicals Corp [1987])
this basis only where enforcement could violate the forum or that a party to the relevant agreement committed fraud
state’s most basic notions of morality and justice‘. The public (eg Indocomex Fibres Pte Ltd v Cotton Co International
policy defence is rarely invoked successfully in the US courts. Inc [1996]).
In Parsons, the Court made clear that ‘national policy’ of
the US government could not be equated with ‘public policy’ Conclusion
for the purposes of resisting enforcement of an arbitral As the number of awards obtained against states rises, it
award. The award, arising from an American engineering may be increasingly necessary for award creditors to seek
firm’s failure to complete an Egyptian construction project in to enforce those awards pursuant to the ICSID Convention
the wake of the Six Days War in 1967, when Egypt severed (or the New York Convention where the ICSID process is
relations with the US, was held not to contravene public not followed) and onward into the minefield of sovereign
policy. The Court commented, ‘To read the public policy immunity and public policy under domestic law. While the
defense as a parochial device protective of national political public policy exception to enforcement is very narrow in
interests would seriously undermine the [New York scope, domestic rules on sovereign immunity place real
Convention’s] utility’. The Court stated that considerations of restrictions on the ability to enforce an arbitral award. It
reciprocity counselled against an expansive reading of the may be expected that the politically contentious projects
defence as foreign courts may otherwise frequently rely on it underlying BIT proceedings may provoke controversy
to refuse to enforce arbitral awards rendered in America. where enforcement proceedings give rise to opportunities
In another case, a public policy defence to enforcement to cast international award creditors in a negative light.
of an arbitral award arising from a contract alleged by a This can often be the case with significant infrastructure
Russian airline to violate the US’s foreign policy with projects in poverty-stricken countries, perhaps where
respect to Iran was disallowed on the basis that it was not newly elected democratic governments face awards
established that the contract violated the US’s most basic arising from the ‘misbehaviour’ of predecessor
notions of morality and justice (see MGM Productions Group governments. Overall, it is clear that those who set off
Inc v Aeroflot Russian Airlines [2004]). down the BIT path without a full appreciation of the
The US courts have also rejected attempts to resist challenges and uncertainties they may face in turning an
enforcement of foreign arbitral awards on the grounds of award into cash, do so at their peril. 

Sponsored feature Legal Business Arbitration Report 2007 61


AR07 p62 19/4/07 13:12 Page 62

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Checklists
64 Portugal Sweden 66

Directories

68 Greece Romania 70-71

69 Japan Switzerland 71

69-70 Portugal United Kingdom 72

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Portugal Abreu Advogados


The Portuguese business world is experiencing an increasing judgment of the court of first instance without a dissenting
amount of litigation. In fact, most cases handled by our firm opinion, even if on different grounds. The dissent is of one of the
during the last year relate to corporate matters. Clients tend to judges of the court of second instance, as the decision may be
see litigation as one of the ways to achieve their goals. Indeed, taken by a majority of the judges of the court of second instance,
last year our firm ensured the takeover of one of the largest cable instead of being unanimous.
TV companies and one of the largest five-star hotels in Lisbon As compensation, the possibility of appealing against any
through an aggressive litigation strategy encompassed by a decision that contradicts the established case law will be
complex funding structure set in place by the firm’s M&A team. introduced. This is a new concept in civil law. There will be
We usually set up teams for each assignment, which include established case law when the SCJ, within the same legislation
members of the litigation team, even before legal proceedings and point of law, delivers three consecutive judgments in the
have begun. This allows the team to anticipate the consequences same direction, without further dissenting judgment. A new
of legal proceedings in case of disputes and helps to outline an extraordinary appeal against SCJ judgments that contradict
adequate contractual or corporate structure in view of the client’s established or unified case law will also be created.
needs. But does the Portuguese legal system favour this The new Court Fees Regulation will gather all the procedural
business-driven approach? rules on this subject, having as the main objective the simplification
of the existing system. Therefore, the court fees will be paid through
The Portuguese legal system a single charge that will vary according not only to the value of the
The main problem with the Portuguese court system is its lack of legal action, but also to its complexity. The expenses due at the end
timely response. Besides the obvious lack of efficient resources, of the action will reflect the real costs of the procedure.
Portuguese judges tend to have a strict formal approach to all The liability of the winning party may be aggravated if the
procedural matters. Although most of the decisions are right and plaintiff could have used a type of procedure simpler than the one
fair, the proceedings are rather formal and distract judges from they used (for example, if they could have used an injunction, but,
what should require their main attention: serving justice. instead, they used the common civil procedure).
However, we have strong expectations regarding the changes in
procedural law announced by the government. Conclusion
According to the available data, we believe that these amendments
Changes in civil procedural law will have a positive impact on the simplification of the procedures
Towards the end of June, the amendments to the rules on civil and the time spent on the proceedings. Still, arbitration will remain
appeals will be approved, as will the replacement of the Código das common in construction works, IT services and specific industries
Custas Judiciais (Court Fees Code) by a new Regulamento das that involve complex contractual arrangements. Arbitrations take
Custas Processuais (Court Fees Regulation). Given the range of place mostly under the rules of the Portuguese Arbitration Act or
these amendments, we will only refer below to the ones we deem the ICC. Our experience shows that more and more clients are
to be the main changes. As to the rules concerning civil appeals, resorting to arbitration, mostly in matters that require specific
the amounts that define the court jurisdiction (alçada) will be know-how (such as IT). A successful arbitration lawyer has to mix
updated. The amounts of the courts of first instance will be strong procedural knowledge with an effective business-driven
increased from €3,740.98 to €5,000, and Tribunais da Relação approach to client matters. Most of the disputes relate to complex
(which are normally the courts of second instance) from specific economic and industry sectors that require solid in-depth
€14,963.94 to €30,000. It is estimated that the number of appeals awareness and experience from both advisers to parties or
to the Supreme Court of Justice (SCJ) may decrease by about half. arbitrators – precisely the kind of qualities one will have difficulty
The two stages of submission – the appeal and the written finding in civil court judges.
representations – will be pooled into one single stage, as well as
the court decisions relating to the admission of the appeal and
its remittance to the superior court. This will help to decrease the Abreu Advogados
time spent during the appeals procedures. Av. das Forças Armadas 125-12
Ordinary appeals in the courts of first and second instance 1600-079 Lisbon, Portugal
will be merged, as will the extraordinary appeals. A system of www.abreuadvogados.com • Tel: +351 21 723 1800
dupla conforme, similar to the one used in penal procedure, will Fax: +351 21 723 1899 • Contact: Miguel Castro Pereira
be introduced. This means that there will be no appeal against a Miguel.c.pereira@abreuadvogados.com
judgment of the court of second instance that confirms the

64 Legal Business Arbitration Report 2007


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 JURISDICTIONAL CHECKLISTS

Sweden Hammarskiöld & Co


New SCC Rules noted that a decision to include new claims in a pending
Sweden has long been a preferred place for hosting proceeding between the same parties will only be made after
international commercial arbitration. The Arbitration Institute of consulting the parties and the arbitral tribunal.
the Stockholm Chamber of Commerce (the SCC Institute) was
established in 1917 and quickly became one of the world’s The seat of arbitration
leading centres for international commercial arbitration. The According to the new SCC Rules, the term ‘place of arbitration’
SCC Institute has long since had arbitration rules that are has been changed to ‘seat of arbitration’. The change is partly a
applicable in the situation where the parties have agreed on consequence of a highly criticised ruling by the Svea Court of
them. On 1 April 1999, a new Swedish Arbitration Act (the Act) Appeal (Titan v Alcatel, case no T 1038-05) where the Court held
came into force, replacing the old act from 1927. The Act provides that if the place of arbitration is Sweden, the proceedings must
a modern framework for both domestic and international to a certain extent be held in Sweden in order for a court to
commercial arbitration in Sweden and is influenced by the consider the dispute to be of a Swedish interest, in case any of
UNCITRAL Model Law. On the same date, the SCC Institute the parties wish to challenge the arbitral award. According to
adopted new arbitration rules, which have been considered the criticism, sufficient connection should exist regardless of
to be very suitable for both national and international where the proceedings are held, provided that the parties have
commercial arbitrations. designated Sweden as the place of arbitration (observations by
In 2006 the SCC Institute decided to update its rules to take Patricia Shaughnessy, Stockholm International Arbitration
into account the latest trends in the field of international Review 2005:2, page 274). The term ‘seat of arbitration’ can be
commercial arbitration. In making such a revision, the SCC found in other institutional rules and is not merely a geographic
Institute also modified some provisions to remove previous location, but a technical legal term.
uncertainty regarding their interpretation. The rules of the other
leading arbitration institutes, as well as the existing UNCITRAL The arbitrators can grant interim measures
Rules, were considered when revising the SCC Rules. The SCC Institute has further implemented the UNCITRAL Rules
The new SCC Rules entered into force on 1 January 2007 and will regarding interim measures in the new SCC Rules. For the
be applied to any SCC arbitration commencing on or after 1 January purpose of supporting enforceability of interim measures,
2007, unless otherwise agreed by the parties. the new SCC Rules allow the arbitral tribunal to grant any
interim measure it deems appropriate in the form of an order
Salient features of the new SCC Rules or an award.
We will below account for some of the new features of the new
SCC Rules. Separate award on advance on costs possible
According to both the old and new SCC Rules, the Institute will
Provisions on evidence elaborated give a party the opportunity to pay the other party’s advance
One of the changes to the new SCC Rules is amended provisions on costs if the other party fails to make such required payment
on evidence, which now state, inter alia, that the arbitral tribunal in time. If the failing party’s advance on costs is not paid by
may determine the admissibility, relevance, materiality and the opposing party, the SCC Institute will dismiss the claim. In
weight of the evidence. In addition, following a request from order to avoid dismissal, such payment is often made by the
one of the parties, the arbitral tribunal may also order the other opposing party.
party to produce any documents or other evidence that may be According to the old SCC Rules, the party, having made such
relevant to the outcome of the case. payment for its counterparty, could not obtain a separate award
obliging the other party to pay compensation for the advance
Consolidation permitted paid. The new SCC Rules state that the arbitral tribunal may, at
Another new major feature of the new SCC Rules is that, upon the request of the party that makes such payment, make a
submission of a request for arbitration concerning a legal separate award for reimbursement of such payment from the
relationship in respect of which an arbitration between the counterparty. The amendment is a consequence of the Swedish
same parties is already pending under the SCC Rules, the SCC Supreme Court ruling in 3s v Sky Park (case report of the Swedish
Board may, at the request of a party, decide to include the claims Supreme Court, NJA 2000, page 773 also reported in Stockholm
contained in the request for arbitration in the pending Arbitration Report 2001:2, page 75) where (in an ad hoc
proceedings. The possibility to consolidate two cases is arbitration) it ruled that a separate award could not be obtained
completely new compared to the old SCC Rules. It should be unless the parties had specifically agreed thereupon.

66 Legal Business Arbitration Report 2007


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Sweden Hammarskiöld & Co


Conclusions Court of Appeal in challenge proceedings, but only on very limited
The new SCC Rules provide a comprehensive and efficient body grounds related merely to form; this means that the courts cannot
of rules for settling disputes in a neutral, fast, independent and retry the case on its merits. Moreover, only in exceptional cases will
cost-efficient manner. According to information from the SCC the Court of Appeal grant the losing party the opportunity to
Institute, more than half of the SCC arbitration cases are appeal to the Supreme Court, so challenge proceedings are
international. During the period from 1999 to 2006, parties from therefore normally tried only by the Court of Appeal. The chances
more than 50 countries participated in arbitrations handled by of having a court set aside an arbitral award are very slim, and any
the SCC Institute. Many of the cases did not even involve court proceedings initiated for that purpose will be both limited
Swedish parties. and fairly swift.
The new SCC Rules will clearly contribute to enhance the SCC
Institute’s reputation as a preferred venue for international
commercial arbitration. In addition, the 1999 Act provides a Hammarskiöld & Co
flexible, modern and business-friendly approach that conforms to Skeppsbron 42
internationally accepted principles of arbitration. The possibilities P.O. Box 2278, SE-103 17 Stockholm
to challenge an arbitral award under the Act are limited and www.hammarskiold.com
Swedish courts are very reluctant to set aside arbitral awards. The Tel: +46 8 578 450 00 • Fax: +46 8 578 450 99
Swedish courts have in case law emphasised the final and binding Contacts: Per Sundin, Lars Ulrichs or Erik Wernberg
effect of arbitral awards. An arbitral award can be set aside by the

Hammarskiöld & Co is an independent business law firm. The firm’s lawyers have broad experience across the range of legal issues that
companies can expect to confront. The firm has substantial expertise in advising on and handling the international implications of busi-
ness law issues and has a strong international practice. In order to meet the clients’ needs, the firm has formed a number of specialist
groups focusing on different practice areas. At the same time, the full resources of the firm are always available to clients to ensure that
their needs are met. The main areas are mergers and acquisitions, banking and finance, litigation and arbitration, EU and competition law,
TMT and intellectual property. The firm is a true partnership and is committed to providing the highest quality legal services.

Hammarskiöld & Co’s litigation and arbitration practice group specialises in commercial litigation and arbitration, both domestic and
international. The lawyers within the group have vast experience in both domestic and international arbitration. The lawyers frequently
participate in arbitrations under the Rules of the International Chamber of Commerce and the Stockholm Chamber of Commerce. The
practice group also handle other institutional and ad hoc arbitration proceedings. The members of the practice group also act as arbitra-
tors. The litigation lawyers are further active in district, appellate and supreme courts in large commercial disputes, which often involve
international aspects. The lawyers are used to participate in disputes involving application of foreign law and are experienced in obtaining
injunctions and enforcements in support of foreign proceedings.

The practice group place special focus on client service and on the client’s commercial interests. Where expertise in special areas is
required, the group works closely together with the firm’s other specialist groups to ensure that the clients’ needs are met with optimum
efficiency. The practice group has extensive contacts with well-regarded international law firms specialising within the field of litigation
and arbitration.

Skeppsbron 42, P.O. Box 2278 SE-10317 Stockholm Sweden


Website: http://www.hammarskiold.se, telephone: +46 8 578 450 00
Contacts: Per Sundin, e-mail: per.sundin@hammarskiold.se
Lars Ulrichs, e-mail: lars.ulrichs@hammarskiold.se
Erik Wernberg, e-mail: erik.wernberg@hammarskiold.se

Legal Business Arbitration Report 2007 67


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 LEGAL SERVICES DIRECTORY

Kyriakides Georgopoulos & Daniolos Issaias Law Firm


GREECE

Athens – Head office Languages spoken: English, French,


268, Kifissias Ave, 152 32 Halandri, Greece German, Italian, Russian and Spanish
Phone: +30 210 817 1500 Fax: +30 210 685 6657/8
E-mail: kgdi.law@kgdi.gr Number of lawyers: 79
Number of lawyers in Athens: 53
Piraeus – Branch office
Alassia Building, 13, Defteras Merarchias Str, 185 35 Piraeus, Greece Other offices:
Phone: +30 210 413 8800 Fax: +30 210 413 8809 Thessalonica, Piraeus
E-mail: kgdi.law@kgdi.gr
Contacts:
Thessalonica – Branch office Anthony B Hadjioannou, John C Kyriakides
17, Ethnikis Antistasseos Str, 551 34 Thessalonica, Greece
Phone: +30 231 047 8640 Fax: +30 231 045 5126
E-mail: n.panou@kgdi.gr

Website: www.kgdi.gr

• Corporate and commercial • Litigation, arbitration • Aviation law


• Mergers and acquisitions and mediation • Maritime law
• Banking and finance • Employment law • Securities and regulations
• Intellectual/industrial property • Energy law • Administrative law
• Competition law • Pharmaceutical law • Taxation
• Public works and procurement • Telecommunications • Information technology

About the firm


In April 2006 two long-established and professionalism, efficiency and expertise,
renowned Greek law firms, Kyriakides – qualities that our firm constantly
Georgopoulos Law Firm (established in 1933) demonstrates.
and Daniolos, Issaias & Partners Law Firm The firm’s attorneys, in addition to their
(established in 1923), decided to merge and specialisation in various fields of law, are
form Greece’s largest multidisciplinary law fluent in English and a considerable number
firm in order to cover the needs of their of other languages including French,
respective clients in all fields of legal German, Italian, Russian and Spanish.
practice.
Kyriakides Georgopoulos & Daniolos
Issaias Law Firm has offices in Athens,
Piraeus and Thessalonica through which the
firm’s attorneys offer their legal services and
expertise to high-profile Greek and
international clients.
Our objective and commitment is to
provide high-quality legal services and to
meet the evolving demands of legal practice,
endeavouring to be effective, reliable and
consistent. The successful handling of our
clients’ affairs is attributed to our

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LEGAL SERVICES DIRECTORY 

Nagashima Ohno & Tsunematsu

JAPAN
Kioicho Building, 3-12, Kioicho, Chiyoda-ku, Tokyo 102-0094, Japan Languages spoken:
Phone: +81 3 3288 7000 Fax: +81 3 5213 7800 Japanese, English, French, German, Chinese
E-mail: info@noandt.com Website: www.noandt.com
Number of lawyers: 259
Nagashima Ohno & Tsunematsu is Japan’s foremost provider of international and
commercial legal services. The firm’s practice areas include arbitration and litigation; Contacts:
multimedia, technology and intellectual property; real estate; capital and debt markets; Hisashi Hara,
mergers & acquisitions and new ventures; financial services; corporate and commercial; Ms Yuko Tamai
energy; taxation; and construction. Our arbitration and litigation practice includes: (Dai-ichi Tokyo Bar Association)
• Antitrust litigation • Intellectual property litigation
• Commercial litigation • Products liability litigation
• Banking and insurance litigation • Real estate litigation
• Employment and labour litigation • Tax litigation

Miranda Correia Amendoeira & Associados

PORTUGAL
Rua Soeiro P. Gomes, L 1, 2nd Floor, 1600-196 Lisbon, Portugal Languages spoken:
Phone: +351 21 781 4800 Fax: +351 21 781 4802 Portuguese, English, French and Spanish
Website: www.mirandalawfirm.com Number of partners: 13
Number of fee-earners: 80
• Litigation and arbitration • Shipping
• General corporate business and • Real estate Contact partner:
commercial law • Employment Agostinho Pereira de Miranda
• Mergers and acquisitions • Taxation Chairman and head of arbitration
• Project finance and PPPs • Agency and distribution practice group
• Privatisations and public tenders • Intellectual property and IT agostinho.miranda@mirandalawfirm.com
• Energy and natural resources • Environment Direct line: +351 21 781 4811
• Banking and finance • Administrative
• Oil and gas • EU and competition

About the firm


Miranda Correia Amendoeira & Associados The firm is a member of Miranda Alliance practice, please visit:
(Miranda) is a Portuguese full-service firm, – an international association of independent www.mirandalawfirm.com
which counts among its clients a significant lawyers and law firms, currently covering
number of Fortune 500 and FT 100 nine countries: Angola, Cape Verde,
companies. Equatorial Guinea, Guinea-Bissau, US
Working mainly with foreign corporate (Houston, TX), Macao (China), Mozambique,
clients, Miranda has developed extensive Portugal and São Tomé e Príncipe. In addition
expertise in arbitration and litigation, related to its Portuguese practice, the opportunities
to a wide range of legal areas. created by the Miranda Alliance network
The firm’s arbitration practice is headed have allowed Miranda to act in a number of
by Mr Agostinho Pereira de Miranda, a arbitration cases related to the
member of the Steering Committee of the aforementioned jurisdictions.
Portuguese Arbitration Association and For more information on Miranda and
chairman of its Ethics Council. its international arbitration and litigation

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 LEGAL SERVICES DIRECTORY

Sérvulo Correia & Associados


Rua Artilharia UM 79-5, 1250-038 Lisbon, Portugal Languages spoken: Danish, English, French,
Phone: +351 21 383 6900 Fax: +351 21 383 6901 German, Italian, Portuguese, Spanish
E-mail: lisboa@servulo.com Website: www.servulo.com
Number of fee-earners: 34
Number of partners: 11

• Administrative law and • Tax Contacts:


public procurement • Real estate, construction Rui Medeiros, Bernardo Diniz de Ayala
• ADR and litigation and environmental
• Corporate and commercial • Criminal Member: Legalink
• Finance • Regulatory and competition

About the firm


Sérvulo Correia & Associados has broad Although Sérvulo Correia & Associados is
experience of arbitration and alternative qualified to intervene in arbitration in most
dispute resolution, providing a full range of legal areas, and boasts acknowledged
quality and effective services, expertise in the field of international
complementing its capabilities in other areas arbitration, it is particularly well
of litigation. Constantly alert not only to its recommended for representing its clients in
clients’ needs, but also to substantive and the fields of public works contracts and
procedural changes in the legal system, the concessions and public procurement.
firm acts regularly in high-profile arbitration
and alternative dispute resolution
procedures. According to the area of
practice, the firm’s lawyers will either
represent one of the parties or act as
arbitrators.

Musat & Asociatii


ROMANIA

43, Aviatorilor Boulevard 1st District 011853, Bucharest, Romania Number of partners: 9
Phone: +40 21 202 5900 Fax: +40 21 223 3957 Number of associates: 66
E-mail: general@musat.ro Website: www.musat.ro Number of counsel: 35

Contacts:
Litigation/arbitration is a substantial approach to the assessment and conduct of
Gheorghe Musat, managing partner
practice of Musat & Asociatii. litigation cases on behalf of our clients. Our
musat@musat.ro
The litigation department is organised litigation team has successfully represented
Ion Dragne, partner
along departmental lines and has acquired governmental bodies, major privately-held
dragnei@musat.ro
the expertise and ability to offer litigation companies, as well as leading banks in
capabilities on large complex matters. It is multi-million-dollar cases in national and
comprised of 20 lawyers, all of whom are international arbitration (ICSID, ICC and
top litigators with a business-oriented UNCITRAL procedures).

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LEGAL SERVICES DIRECTORY 

Tuca
, Zbârcea & Asociatii
,

Victoriei Square, 4-8 Nicolae Titulescu Ave, America House, West Wing, 8th Floor, Sector 1, Number of partners: 10
Bucharest 011141, Romania Number of associates: 53
Phone: +40 21 204 8890 Fax: +40 21 204 8899 Number of counsel: 30
E-mail: office@tuca.ro Website: www.tuca.ro
Contacts:
Our litigation/arbitration practice group has over 25 lawyers dedicating 100% of their time to Robert Rosu, partner and head of firm’s
5

handling all aspects of litigation and arbitration procedures. litigation/arbitration practice group
The firm has represented clients at all levels of the local judicial system, from the lower E-mail: robert.rosu@tuca.ro
courts to the High Court of Justice, and in special proceedings in the Constitutional Court Cornel Popa, partner
with relation to a broad range of complex cases. The group also acts successfully in public E-mail: cornel.popa@tuca.ro
international law arbitration and has in-depth knowledge of ICC, UNCITRAL and ICSID
arbitration procedural rules. We have successfully assisted both investors and state bodies in
disputes flowing from breaches of bilateral investment protection treaties.

Bär & Karrer

SWITZERLAND
Brandschenkestrasse 90, 8027 Zürich, Switzerland Languages spoken:
Phone: +41 58 261 5000 Fax: +41 58 261 5001 English, French, German, Italian
E-mail: zuerich@baerkarrer.ch Website: www.baerkarrer.ch
Number of lawyers: 110
• Banking, financing and • Listed companies At this office: 80
regulatory matters • Litigation
• Capital markets • Media, entertainment and sports Contacts:
• Competition law • Mergers and acquisitions Dr Felix R Ehrat
• General corporate and and transactions Eric Stupp
commercial matters • Notarial services
• Intellectual property • Private clients and trusts and estates Other offices:
and technology • Reorganisation and insolvency Geneva, Lugano,
• International arbitration • Tax Zug, London

Walder Wyss & Partners


Seefeldstrasse 123, PO Box 1236, CH-8034 Zürich, Switzerland Languages spoken:
Phone: +41 44 498 9898 Fax: +41 44 498 9899 English, French, German, Hebrew,
E-mail: reception@wwp.ch Website: www.wwp.ch Italian, Spanish

• International arbitration • EU, competition, environment, Number of lawyers: 62


• Litigation, international legal energy and utilities
assistance • Healthcare, life sciences Contacts:
• Banking • IT, multimedia and telecommunications Daniel R Wyss, Peter A Straub, Philipp
• Capital markets • Arts, sports and entertainment Habegger, Dieter Hofmann, Marc D Veit
• Structured financial products • Intellectual property,
• Insurance copyright and advertising
• M&A, business reorganisation • Venture capital and private equity
• Corporate and commercial • Insolvency and restructuring

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 LEGAL SERVICES DIRECTORY

SJ Berwin LLP
UNITED KINGDOM

10 Queen Street Place, London EC4R 1BE, UK Languages spoken:


Phone: +44 (0)20 7111 2222 Fax: +44 (0)20 7111 2000 Arabic, Chinese, English, French, German,
Email: info@sjberwin.com Website: www.sjberwin.com Hebrew, Italian, Russian, Spanish, Swedish

• International arbitration • Finance Number of fee-earners: 585


• Alternative dispute resolution • Financial services
• Commercial litigation • Intellectual property Contacts:
• Mediation • Investment funds David Goldberg
• Commerce and technology • Media and communications david.goldberg@sjberwin.com
• Corporate finance • Real estate Tim Taylor
• Employment and pensions • Reconstruction and insolvency tim.taylor@sjberwin.com
• EU and competition • Tax

About the international arbitration group


The SJ Berwin international arbitration group three partners, seven associates and a team the world’s leading arbitration institutions
draws together an array of skills and of specialist counsel in a variety of different and in ‘ad hoc’ international commercial
experience especially attuned to the shifting jurisdictions. arbitrations. We act for commercial concerns,
demands of complex, commercial international We are involved in some of the leading governments and government agencies.
arbitral disputes. international arbitration cases and offer In addition to our international
Our group has a wide global reach and a flexible solutions to resolving disputes on arbitration group, SJ Berwin also has
vast array of industry-specific experience. We neutral ground, under agreed rules and with specialist dispute teams for public law,
have an understanding of different national sole arbitrators or a panel. We are proactive employment, reconstruction and insolvency,
laws, and a broad range of technical and problem-solvers and pride ourselves on IT and telecoms, property, financial markets,
linguistic skills. challenging orthodox and traditional and complex fraud.
Our team is jointly led by Tim Taylor and thinking.
David Goldberg and, together with our new We have a wealth of experience in
partner Justin Michaelson and consultant Per resolving disputes (both advocating for
Runeland, we have a dedicated team of clients and sitting as arbitrators) throughout

72 Legal Business Arbitration Report 2007


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