Editorial
On 1 June two leading law firms joined Norton Rose Group: Ogilvy Renault LLP of Canada (now Norton Rose OR LLP) and Deneys Reitz of South Africa (now Norton Rose South Africa, incorporated as Deneys Reitz Inc.). With more than 2,600 lawyers, the enlarged Norton Rose Group is a top ten international legal practice by number of lawyers, with 39 offices throughout Europe, Asia Pacific, Canada, Africa and the Middle East.
Our strengthened arbitration practice has over 100 arbitration specialists. Five of our partners are listed in the International Who's Who of Commercial Arbitrators, including L. Yves Fortier, who is recognised as one of the world's top arbitrators and features on the back page Q&A of this newsletter.
In this issue we focus on Canada and look at both the development of arbitration in Canada and the increasing importance of investor-state arbitration. We also provide a commentary on the new IBA guidelines on drafting arbitration clauses.
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Pierre Bienvenu |
Joseph Tirado |
Legal update
Hong Kong's new arbitration ordinance came into force on 1 June 2011
It brings together Hong Kong's previous domestic and international arbitration regimes under the same rules. This is based largely on the UNCITRAL model law subject to a few modifications.
The new legislation will make Hong Kong's arbitration law more user-friendly and cement Hong Kong's position as a leading arbitration centre in Asia, and as a regional centre for legal services and dispute resolution.
In the High Court case of B v S, Flaux J has held that the Scott v Avery clause used in the Federation of Oilseeds and Fats Association (FOSFA) 54 standard form sales contract excludes the right to apply to the court for interim relief under section 44 of the Arbitration Act 1996 (the 1996 Act). Flaux J did not consider any of the other provisions of the 1996 Act. This decision has significant implications for all entities, especially in the commodities sector. The interplay between Scott v Avery clauses and clause 44 of the 1996 Act has not previously been considered by the courts and many within the commodities industry will not have predicted this decision. Parties may need to consider amending standard form contracts if they want to preserve the right to seek interim relief.
The Australian government's new policy on investor-state dispute resolution procedures
On 12 April 2011 the Australian government released a trade policy statement, its agenda for future trade policy. Whilst a number of the announcements are welcomed, the government's rejection of investor-state dispute resolution procedures in trade bilateral and multilateral agreements may cause problems for Australian and foreign investors alike.
International arbitration in Canada
By Stephen L. Drymer and Michael Kotrly
Canada's bilingual heritage and its legal system, which is rooted in both common and civil law, gives it a unique ability to grapple with the challenges of international commercial arbitration.
Canadian courts generally have a positive attitude towards arbitration, respecting the jurisdiction of arbitrators and following modern, liberal international standards on enforcement of awards. Canada became the first country to adopt the UNCITRAL model law on International Commercial Arbitration (the model law) in 1986 when the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention") also came into force in Canada.
After early experience suggesting an ambivalent approach to arbitration, the Supreme Court of Canada now sets the tone for courts across the country by unambiguously recognizing arbitration as a legitimate and valuable method of dispute resolution. It respects and gives full effect to the intentions of parties who agree to resolve their disputes this way.
Implementation of the model law
The model law has full force in Canada (although, as in most states, the 2006 amendments to it have yet to be adopted). However, in light of Canada's federal structure and the division of powers between the federal Parliament, on the one hand, and the provincial (and territorial) legislatures, on the other, implementation of the model law required legislation at both levels of government and took various forms. Given that jurisdiction over most arbitration agreements and enforcement matters lies within the provincial sphere, each province has enacted legislation giving effect to the model law, and it is before provincial Superior Courts that most arbitration-related issues are resolved judicially in the first instance.
First adopted by the federal Parliament in 1986 by means of the Commercial Arbitration Act, the model law and the New York Convention were soon rolled into provincial legislation, with the model law often simply incorporated by reference (and attached as a schedule) to it. With the exception of the federal government and Québec, Canadian jurisdictions maintain discrete (albeit similar) legal regimes for domestic and international arbitration.
Enforcement
Arbitration awards, whether domestic or foreign, are not self-enforcing. They must be recognized by court order. Article 36 of the model law sets out the limited grounds for a court to refuse to enforce an award and is fully incorporated in Canadian law. Canadian courts have been consistent in holding that the reasons to review an award pursuant to Article 34 of the model law and to refuse enforcement of an award under Article 36 of the model law are to be narrowly construed. In addition, courts have maintained that there is no scope for review on grounds of error of law or fact, and that there is a powerful presumption that a tribunal acted within its powers. Judges engage sparingly in judicial review of awards.
Canada's approach to kompetenz-kompetenz
The principle of kompetenz-kompetenz, the ability of the arbitral tribunal to rule on the question of whether it has jurisdiction, is now well established in international arbitration. Following the English case law of the time, Canadian courts of a previous generation were frequently hostile to arbitration, often finding arbitration clauses which purported to oust the courts' jurisdiction to be void as contrary to public policy. By the early 1980s the Supreme Court began to adopt a more 'friendly' view of arbitration, and nowadays courts across the land tend to favour a generous approach to both the arbitrability of claims and the arbitrator's jurisdiction to make an initial determination on arbitrability.
In Desputeaux v Éditions Chouette (1987) Inc., 2003 SCC 17, the Supreme Court confirmed that arbitration clauses on statutory claims are valid unless the statute in question explicitly states that claims cannot be arbitrated or that the statute's subject matter is of "public order" and non-arbitrable.
Then in Dell Computer Corp v Union des consommateurs, 2007 SCC 34, the Supreme Court clarified the Canadian approach to the kompetenz-kompetenz principle:
"... in any case involving an arbitration clause, a challenge to the arbitrator's jurisdiction must be resolved first by the arbitrator. A court should depart from the rule of systematic referral to arbitration only if the challenge to the arbitrator's jurisdiction is based solely on a question of law. This exception is justified by the courts' expertise in resolving such questions, by the fact that the court is the forum to which the parties apply first when requesting referral and by the rule that an arbitrator's decision regarding his or her jurisdiction can be reviewed by a court."
The approach adopted by the Supreme Court in Desputeaux and Dell reflects a very positive attitude towards arbitration, perceived as a system of justice that runs parallel to – and by no means inferior or subservient to – the system of justice in the courts.
The Supreme Court of Canada recently released what has become a much-debated decision in Seidel v Telus Communications Inc., 2011 SCC 15, a case which (as with Dell) addressed the enforceability of an arbitration clause in the context of consumer protection and the role of the courts (as opposed to the arbitrator) in making that determination. The Court unanimously affirmed the kompetenz-kompetenz principle and stayed the contractual and certain statutory claims alleging unlawful practices in cellular phone billing, which had been brought before the courts, and referred those claims to arbitration. However, by a five-four majority, the Court concluded that the arbitration clause was ineffective with respect to claims arising out of the consumer protection legislation in question. In so concluding, the majority used language that suggests a potential weakening of the Court's enthusiasm for arbitration as expressed in its earlier jurisprudence.
The consumer legislation at issue provided that any waiver of a person's rights or protections under the legislation "is void except to the extent that the waiver is expressly permitted by this Act", and the majority found that the legislation provided for the right to enforce the legislation in court. The majority reasoned that it was open to the legislature to prefer the "vindication" and "denunciation" available through a "well-publicized court action" rather than through "low-profile, private and confidential arbitrations," and that having done so, a consumer could not then waive the right to go to court. Integral to this decision was the majority's observation that "private arbitral justice, because of its contractual origins, is necessarily limited." The dissent opined that "access to justice is fully preserved by arbitration," and that the arbitration agreement did not constitute an improper waiver of the plaintiff's rights.
While the decision has resulted in some expression of concern within arbitration circles, other observers counter that the Court's findings are necessarily limited to the context of consumer claims and to domestic arbitration. It remains to be seen how lower courts will interpret and apply Seidel in areas of the law and to claims which have nothing to do with consumer protection.
Conclusion
The Supreme Court of Canada has held that questions regarding the New York Convention and model law need to be determined with respect to the Convention, not with respect to Canadian law itself, and judges openly refer to and borrow from developments in other countries.
While the Supreme Court continues to attempt to articulate the precise relationship between arbitration and the judicial system, courts nationwide have a positive, liberal and deferential attitude towards international commercial arbitration, in full respect of the spirit of the model law.
Stephen L. Drymer is co-chair of international arbitration at Norton Rose OR LLP and practices at the Montréal office and Michael Kotrly is a lawyer in the Toronto office of Norton Rose OR LLP.
IBA guidelines on arbitration clauses
By Matthew Buckle and Nikhil Lakhani
Guidelines on drafting arbitration clauses, adopted by the International Bar Association (IBA) in October 2010, are designed to help guard against the twin enemies of ambiguity and inconsistency. They were designed to assist not only arbitration specialists but, particularly, in-house counsel and business lawyers involved in contract drafting.
The IBA's Guidelines for Drafting International Arbitration Clauses (the guidelines) cover both basic and more complex drafting issues and include model clauses.
Basic drafting guidelines
The first eight guidelines cover the essential points in drafting an arbitration agreement.
Institutional or ad hoc arbitration
The first decision is whether to opt for institutional or ad hoc arbitration. The IBA promotes the benefits of institutional arbitration (especially for parties with little experience in international arbitration), for a number of reasons, including the significant procedural 'know-how' which it can offer.
Arbitration rules
A set of arbitral rules should be selected to provide the procedural framework for any arbitration. Inevitably, the IBA recommends that the parties adopt the rules of the arbitral institution chosen to administer the proceedings and the model clause recommended by that institution. In the case of ad hoc arbitration the IBA recommends using the UNCITRAL rules.
Scope of disputes subject to arbitration
To avoid ambiguity about whether or not a dispute is subject to arbitration, the IBA recommends drafting the scope of an arbitration clause as broadly as possible so that it covers not only all disputes 'arising out of' the contract but also all disputes 'in connection with' the contract. Some disputes can be excluded from the scope of the arbitration clause (for example, the technical and pricing aspects of a dispute may be referred to expert determination).
Place of arbitration
The place (or legal 'seat') of the arbitration is distinguished from the place of the hearing and the IBA recommends that the latter is left open to give the arbitrator flexibility in where the hearings are held. When deciding the seat of the arbitration, the parties should consider practical factors including neutrality, proximity to likely witnesses as well as the parties' familiarity with language and culture. However, the most important consideration is whether the seat's legal regime is appropriate: it is this territory's law that will govern procedural aspects of the arbitration and its courts can be called upon to provide assistance. The seat of the arbitration will determine the nationality of the award which, in turn, will affect enforcement.
Number of arbitrators
Ordinarily, either one or three arbitrators are chosen (and, in any case, it should be an odd number). The IBA recommends that a number is specified before a dispute arises. Considerations, including the cost, duration and quality of arbitrators, should be taken into account. A sole arbitrator may be the most cost efficient option, but a three-member tribunal may be more suitable if the dispute involves complex issues of fact and law.
Method of selection and replacement of arbitrators
The parties can choose either to rely on the default mechanisms for selecting and replacing arbitrators, set out in the institutional or ad hoc arbitration rules, or they can agree an alternative method. They may want to select the chair person in a three-member tribunal themselves, notwithstanding the applicable arbitration rules. In ad hoc arbitration, it is essential that an 'appointing authority' is designated to select or replace arbitrators in the event that the parties fail to do so.
Language of arbitration
The language of the arbitration should be specified, particularly when the contract is between parties who speak different languages, or whose shared language differs from that of the seat of arbitration.
Governing law
Although the governing law clause should be separated from the arbitration clause, it is imperative that the law governing the contract and any subsequent disputes is set out in the contract.
In addition to the basic drafting guidelines, the IBA has provided guidelines and model clauses in several other areas:
Optional elements which the parties may wish to include in an arbitration clause
Some elements, such as the extent of document production and information exchange, are commonly left to procedural hearings. However, if the parties have specific concerns, such as the minimum qualifications of potential arbitrators, the guidelines provide helpful advice on how to incorporate them into a clause.
Multi-tier dispute resolution clauses
The guidelines include suggestions for parties seeking to provide for negotiation, mediation or some other form of ADR as a preliminary step before arbitration. In particular, they highlight the potential difficulties which may arise as a result of ambiguous and inconsistent drafting between the negotiation/mediation and arbitration steps of the clause.
Multi-party arbitration clauses
The guidelines help navigate the process of drafting arbitration clauses involving multiple parties, which is helpful because model clauses of arbitration institutions are usually drafted with two parties in mind. In particular, the parties should consider the procedural complexities in multi-party contracts, including the mechanics for appointing the tribunal.
Multi-contract arbitration clauses
Commonly, a single international transaction involves several related contracts. Drafting arbitration clauses in this context presents specific challenges, particularly in ensuring the different dispute resolution provisions under each contract are consistent and whether consolidation of related arbitrations would be desirable.
See the arbitration section of our online Global Arbitration Manual for guidance on drafting arbitration clauses www.nortonrose.com/arbitrationmanuals.
Matthew Buckle and Nikhil Lakhani are associates in the London office of Norton Rose LLP.
Investor-state arbitration in Canada
By Martin J. Valasek and Renée Thériault
Investor-state arbitration has revolutionized the protection of foreign investment. Canada, long dependent on the rules-based trade and investment order, has been an active participant in its development and Canadian companies are also quickly catching on.
What is investor-state arbitration?
Investor-state arbitration, a relatively recent innovation in international law, allows investors themselves to bring arbitration claims directly against host states. Described as "arbitration without privity," this form of dispute resolution does not depend on the investor's home state 'espousing' the claim, nor does it require a contractual relationship between the investor and the host state. Although some investors still enter into specific investment agreements with host states, and those agreements can provide for investor-state arbitration, most of today's investor-state arbitrations are based on the general consent to arbitration that host states provide in investment treaties or, in some cases, their foreign investment laws.
What is ICSID?
The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID convention) is a multilateral treaty that establishes a dedicated procedural framework for investor-state arbitration. The convention's distinctive self enclosed system excludes the possibility of court intervention in the arbitral process and provides for direct enforceability of a final arbitral award in favour of the foreign investor. It establishes the International Centre for Settlement of Investment Disputes (ICSID), which provides facilities for the arbitration of investment disputes in Washington, D.C. and its secretariat administers the arbitrations. The current Secretary-General of ICSID, Meg Kinnear, is Canadian.
Canada's investment treaties
Canada has always been a nation dependent on trade and investment. As a result, it is highly dependent on the rules-based international trade and investment order that has developed in the past sixty years, thanks to successful multilateral, regional, and bilateral treaty negotiations.
Canada is a party to 23 bilateral investment treaties (BITs) with countries in various regions, including Argentina, Egypt, Thailand, the Czech Republic and the Russian Federation. Since January 1, 1994, Canada, Mexico and the United States have been parties to the North American Free Trade Agreement (NAFTA). In the past several years, Canada has concluded additional bilateral free trade agreements, most recently with Panama. The country is also negotiating to expand its network of trade and investment treaties with important economies such as China, India and the European Union.
Canada's BITs are called Foreign Investment Promotion and Protection Agreements (FIPAs). Canada's FIPAs as well as the investment chapters of many of its free trade agreements (notably Chapter 11 of NAFTA) incorporate obligations on the host state to ensure that foreign investors receive certain basic guarantees, including fair and equitable treatment and compensation in the event of an expropriation. Importantly, Canada's investment treaties offer investors access to investor-state arbitration.
Canada and ICSID
The ICSID convention has been very successful in attracting 147 signatory states since 1965. Unfortunately, Canada is still not among them. While it signed the ICSID convention on 15 December 2006, the legislation required to implement it is not yet in force and the convention has yet to be ratified. Based on political and constitutional considerations, the federal government said that it will seek the support of Canada's ten provinces and three territories prior to ratification. To date, however, only four provinces and two territories had passed implementing legislation and it remains unclear whether the remaining provinces and territories will follow suit.
Canada's experience with investor-state arbitration
Although it is not yet a contracting party to the ICSID convention, Canada and its nationals have been active participants in investor-state arbitration under the other procedural frameworks that are typically available in investment treaties. These commonly provide that the arbitration can be conducted under the UNCITRAL rules if neither ICSID nor its Additional Facility is available.
To date, Canada has faced 28 investor claims under NAFTA, of which four resulted in favourable outcomes for investors (most recently, a $130 million settlement to our client AbitibiBowater Inc.). Four were dismissed, seven are pending, and 13 were withdrawn or are inactive. Canada is among the pioneers on transparency in the arbitration process, having now entrenched rules on open hearings, publication of awards and third-party ("amicus") participation in its 2003 Model FIPA.
Canadian investors abroad are increasingly aware of the benefits of investor-state arbitration, and many now structure their investments to capitalise on investment treaties. Several years ago, one of our clients obtained an award of over $83 million following the expropriation of its investments in Hungary, having brought a claim through its affiliates in Cyprus under the Cyprus-Hungary BIT. Recent claims by Canadian companies or their affiliates have been brought against Venezuela and Mongolia.
It is hoped that Canada will soon ratify the ICSID convention. Although investor-state arbitration is possible under other procedural frameworks, Canadian investors abroad would benefit from access to the convention. Ratifying it would send a further signal that Canada continues to welcome investment under the rules-based international system on which it so heavily relies.
Martin J. Valasek is co-chair of international arbitration at Norton Rose OR LLP and practices at the Montréal office and Renée Thériault is Of Counsel in the Ottawa office of Norton Rose OR LLP.
Noticeboard
Partnership promotions
Ben Allen in Sydney and John Liberopoulos in Athens have been promoted to partner with effect from 1 July and 1 May 2011, respectively. Nane Oganesyan in Moscow, Sherina Petit in London and Henry Quinlan in Dubai have been promoted to Of Counsel from 1 May 2011.
Chambers and Partners Global 2011
Our arbitration practice has had a positive write up in Chambers and Partners Global 2011. Highlights include a Band 1 ranking for international arbitration in Singapore and a promotion in our ranking for the same category in the Asia-wide section. L. Yves Fortier is listed among the most in demand arbitrators and Pierre Bienvenu gets a Band 1 ranking in Canada.
Getting the Deal Through – Arbitration 2011
Adam Vause has written a chapter on arbitration in Bahrain for inclusion in the book entitled Getting the Deal Through – Arbitration 2011.
IBA newsletter article on Jivraj v Hashwani
The International Bar Association's arbitration newsletter of March 2011 published an article written by Joe Tirado and James Thomas on the controversial case of Jivraj v Hashwani [2010] EWCA Civ 712. In that case, arbitrators were held to be employees for the purposes of discrimination law, and an arbitration clause was void because it required the arbitrators to be from a certain religious group. The case has gone to the UK Supreme Court and judgment is expected shortly.
Willem C. Vis International Commercial Arbitration Moot, Vienna, 15-17 March 2011
We were well represented at this year's moot with Sven Förster acting as an arbitrator and Azim Hussein and Erik van Eyken acting as coaches to the McGill University team.
Contacts
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Pierre Bienvenu, Norton Rose OR
LLP |
Joe Tirado, Norton Rose LLP |
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Australia Norton Rose Australia Rob Buchanan Ernest van Buuren Bahrain Norton Rose (Middle East) LLP Adam Vause Belgium Norton Rose LLP Michael Jürgen
Werner Canada Norton Rose OR LLP Stephen L. Drymer Martin J. Valasek China Norton Rose LLP Jim James Czech Republic Norton Rose v.o.s., advokátni kancelář Pavlína
Beránková France Norton Rose LLP Barthélemy Cousin Germany Norton Rose LLP Jamie Nowak Greece Norton Rose LLP Marie Kelly |
Hong Kong Norton Rose Hong Kong Ruth Cowley Italy Norton Rose Studio Legale Cecilia Buresti Netherlands Norton Rose LLP Yke Lennartz Poland Norton Rose Piotr Strawa and Partners LP Malgorzata
Patocka-Zbikowska Russia Norton Rose (Central Europe) LLP Yaroslav Klimov Singapore Norton Rose (Asia) LLP Guy Spooner South Africa Norton Rose South Africa (incorporated Michael Hart Thailand Norton Rose (Thailand) Limited Somboon Kitiyansub UAE Norton Rose (Middle East) LLP Patrick Bourke United Kingdom Norton Rose LLP |
Focus on Canada: L. Yves Fortier
L. Yves Fortier is recognized as one of the top arbitrators in the world. He has served as chairman or party-appointed arbitrator on more than 100 arbitral tribunals, either ad hoc or constituted by different arbitral institutions, and is formerly Canada's ambassador and permanent representative to the United Nations in New York.
I am a lawyer because
I never considered any other profession. I have always been fascinated by life in a court room, whether as a lawyer or as an adjudicator.
What gives you greatest satisfaction, professionally?
Yesterday, as a 'barrister', sensing that I was able to convince a judge.
Today, as an arbitrator, being seduced intellectually by counsel's argument.
And personally?
Contributing, in any way I can, to the well-being and happiness of my wonderful family (wife, three children and spouses, and eight grandchildren).
How do you spend the weekends?
In the summer, I play tennis, (skiing and snowboarding in winter); I read, listen to the opera, eat well, enjoy a good bottle of wine and... work (read briefs and write awards).
If you weren't a lawyer, what would you be doing?
I would be a professional tennis player, a writer (mystery novels) or an explorer. Do not search for a link between these three occupations.
What's on your iPod?
I have never felt the need to own an iPod. Whether at home, in my car or on an airplane, I can always find the music that suits my mood of the moment – an opera, a piano concerto, jazz or a French ballad.
And your favoured arbitration center?
This is an easy one for me. As a former president of the London Court of International Arbitration, but still being very objective, it has to be the LCIA.
What is your biggest vice?
I don't have any vices and – I always tell the truth!
What is your biggest mistake?
Being unable to say no.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
