Class 2 arbitration agreements class

Class 2: Arbitration Agreements | 2017
Arbitration Law
Class 2: Arbitration Agreements

Class 2: Arbitration Agreements | 2017 CMS Hong Kong | HKU
Introduction -Topics
• Jurisdictional requirements
• Relevance of arbitral seat
• Separability presumption
• Formal validity of international arbitration agreements
• Formation
• Incorporation
• Substantive validity
• Capacity to conclude agreements
• Elements of a well drafted agreement
2

Arbitration Agreement
 Why necessary?
• Arbitration is a consensual process
 Agreement is the basis for the arbitral tribunals jurisdiction
3

7 Jurisdictional Requirements: NY Convention
1. An agreement to ‘arbitrate’
2. A “dispute” or “difference”
3. Arising out of a “commercial relationship”
4. “have arisen or may arise”
5. “in respect of a defined legal relationship whether contractual or not”
6. An international arbitration agreement or one that would produce a foreign
or non-domestic award
7. Satisfaction of reciprocity requirement
4

1.0 Definition of "Agreement to Arbitrate"
 What is contained in arbitration agreement that ensures arbitration will
be adopted to resolve future disputes?
• Article II(1) of the New York Convention refers to an agreement to arbitrate
as including "an agreement in writing under which the parties undertake to
submit to arbitration all or any differences which have arisen or may arise
between them in respect of a defined legal relationship, whether
contractual or not, concerning a subject matter capable of settlement by
arbitration”
• States are encouraged to give a liberal definition of the term "arbitration
agreement" in order to realize the fruits of the New York convention.
5

1.0 Definition of "Agreement to Arbitrate" Cont'd (1)
• Article 7(1) of UNCITRAL Model Law notes that “An arbitration agreement
may be in the form of an arbitration clause in a contract or in the form of a
separate agreement.”
6

• The character of arbitration may be derived from the intentions of the
parties even in absence of the words "arbitration" or "arbitrate".
• Gale Group, Inc. v. Westinghouse Elec. Corp., 683 So.2d 661, 663 (Fla.
App. 1996) "The words "arbitrate" or "arbitration" are not required to be
expressly written in a contract to constitute a valid arbitration agreement."
7

 Courts too have attempted to define arbitration.
• Methanex Motunui Ltd v. Spellman, [2004] 1 NZLR 95 (N.Z. High Ct.). "a
contractual method of resolving disputes. By their contract the parties
agree to entrust the differences between them to the decision of an
arbitrator or panel of arbitrators, to the exclusion of the Courts, and they
bind themselves to accept that decision, once made, whether or not they
think it right."
8

 Certain elements can be derived from the various definitions:
• A consensual agreement- The decision to use arbitration is by consent of
the parties-The New York Convention Article II talks of an agreement which
parties undertake to submit to arbitration. Article 8 of the Model law talks of
"an agreement by parties by the parties to submit to arbitration all or certain
disputes".
• Resolution of "Disputes"- New York convection Art.11(1) adopts the word
"differences" whereas Article 7(1) of the UNCITRAL Model Law adopts
"disputes" or "controversies.
9

• Non-Governmental Decision-Maker Selected by or for Parties- The
persons rendering the decision is a private party and not a government
official or a court of law
• Final and Binding Decision- The decision rendered after the arbitration
process is final and not subject to appeal except in limited circumstances
• Use of Adjudicatory Procedures- Procedural fairness and due process is
accorded to all parties to present their case and enable the arbitration
tribunal render a reasoned award
10

• Arbitration Versus Litigation. Core element of arbitration is that its
consensual whereas in litigation it is not always the case. Litigation
presided over by judges who are employees of the state whereas
arbitrators are private parties who preside over the arbitration.
• Arbitration Versus Expert Determination or Valuation- Mainly focuses
on technical issues, factual or monetary issue. See example in Preferred
Ins. Co. v. Richard Parks Trucking Co., 158 So.2d 817, 820 (Fla. Dist. Ct.
App. 1963) "An agreement for arbitration ordinarily encompasses the
disposition of the entire controversy … whereas an agreement for appraisal
extends merely to the resolution of the specific issues of actual cash value
and the amount of loss,.”
• Arbitration Versus Mediation or Conciliation- Unlike arbitration
mediation or conciliation does not produce a binding decision rather a
mediator attempts to prevails on parties to reach an amicable solution.
11

• "Quality Arbitration"- Used to resolve dispute in certain industries as to
their quality, they revolve around technical issues presided by industry
experts mostly conducted informally with no form of submissions.
• Arbitration Following Other Dispute Resolution Processes-This is
considered as multi-tier arbitration which kicks in after exhaustion of other
means of dispute resolution as set out by parties. See Hong Kong Case of
Westco Airconditioning Ltd v. Sui Chong Constr. & Eng'g Co., [1998] 1 HKC
254, 255"An agreement that requires that the parties submit their disputes
ultimately to arbitration, although it may also require the parties in the first
instance to follow a procedure – such as, attempting an amicable
settlement – is, to my eyes, an arbitration agreement.…It matters not, it
seems to me, that the parties must, firstly, take some other step before
[referring disputes to arbitration]."
12

2.0 Other Jurisdictional Requirements affecting Legal Regime
applicable to International Arbitration Agreements Cont'd (8)
2. "Disputes" or "Differences"
• What is a dispute?
• UNCITRAL Model Law, Art. 7(1)
• Burlington Res. Inc. v. Repub. of Ecuador & PetroEcuador, Decision on
Jurisdiction in ICSID Case No. ARB/08/5 of 2 June 2010, ¶¶289, 320, 325
"(i) a disagreement between the parties on their rights and obligations, an
opposition of interests and views, and (ii) an expression of this
disagreement, so that both parties are aware of the disagreement"
• Texaco Overseas Petroleum Co. v. Libyan Arab Rep., Preliminary Ad Hoc
Award of 27 November 1975, 53 I.L.R. 389, 416 (1979)."present
divergence of interests and opposition of legal views."
13

2. Disputes " Whether Contractual or Not"
• This include tort claims, antitrust/competition etc.
• New York Convention, Art. II(1)
• Inter-American Convention, Art. 1 "any differences that may arise or have
arisen between them with respect to a commercial transaction"
• European Convention, Art. I(1)(a) "arbitration agreements concluded for the
purpose of settling disputes arising from international trade"
• UNCITRAL Model Law, Art. 7(1) "whether contractual or not"
• Larsen v. Hawaiian Kingdom, Award in PCA Case No. 99-001 of 5 February
2001, 119 I.L.R. 566, 585-86 "there appears no reason why the UNCITRAL
Rules cannot be adapted to apply to a non-contractual dispute"
14

3. Commercial Relationship
• Transactions involving commerce
• New York Convention, Art. I(3) states may enter a reservation on the
application of the New York convection to apply to dispute that they
consider commercial.
• United States reservation "The United States of America will apply the
Convention only to differences arising out of legal relationships, whether
contractual or not, which are considered as commercial under the national
law of the United States."
15

2.0 Other Jurisdictional Requirements affecting Legal
Regime applicable to International Arbitration Agreements
4. “Existing or Future” Dispute
• Applies to either existing or future disputes
• New York Convention, Art. II(1) ”differences which have arisen or may
arise”
16

2.0 Other Jurisdictional Requirements affecting Legal
Regime applicable to International Arbitration Agreements
5. Defined Legal Relationship
• Limits when arbitration can be used, it is not possible to enter into unlimited
agreement that any dispute that may arise between them will be solved by
arbitration. In most cases, relate to a written contract.
• New York Convention, Art. II(1)
17

6. "International" or "Foreign" Arbitration Agreements
• Article I(1), the New York Convention applies to "foreign" or "non domestic"
awards- the drafter intention is to apply the convention to international
arbitration agreements
• In United State courts have been reluctant to apply the convention to
nationals of the same state on matters purely domestic of that state.
18

7. Reciprocity Requirement
• New York Convention, Art. I(3)-A state may make a reservation that the
convention will only apply to a state party to the convention
• No reciprocity provision in :UNCITRAL Model Law, the FAA, the French
Code of Civil Procedure, the Swiss Law on Private International Law, or the
Japanese Arbitration Act.
19

3.0 Relevance of Arbitral seat to legal framework governing
international Arbitration Agreements
 The arbitral seat plays an essential role in determining the legal
framework for international arbitral proceedings and international
arbitral awards.
 The law of the arbitral seat provides a mandatory legal framework
applicable to the conduct of the arbitral proceedings and to the form,
notification, correction and annulment of an arbitral award.
 Model Law Article 8(1) directs the courts not to entertain the dispute
but to refer it to arbitration.
20

4.0 International Arbitration Agreements and separability
Presumption (1)
 Rationale for Seperability:
 the parties agreement to arbitrate consists of promises that are
independent from the underlying contract.
 Common law consider it as "seperability" or "severability"
 Civil law system refer to it as "autonomy" or "independence" of the
arbitration clause
21

4.0 International Arbitration Agreements and separability
Presumption (2)
Effects of seperability
1. Invalidity or non-existence of underlying contract does not necessarily
entail invalidity or non-existence of arbitration agreement
2. Invalidity of arbitration agreement does not necessarily entail
invalidity of main or underlying contract
3. Law governing main or underlying contract is not necessarily the
same as the law governing the arbitration agreement
4. Different form requirements for main or underlying contract and
arbitration agreement
22

4.1 Development of separability Presumption (1)
 International conventions
• New York Convention assumes that international arbitration agreements
are separable from the parties' underlying contract, impliedly treats them as
such, and sets forth substantive rules applicable only to such agreements.
• Article II and Article V(1)(a) of the New York Convention impliedly treat
arbitration agreements as separable from underlying contracts.
• ICSID Convention does not expressly refer to the separability doctrine but
tribunals adopt it in their decisions.
.
23

 International Arbitration Awards
• In Elf Aquitaine v. National Iranian Oil Company the tribunal held that "The
autonomy of an arbitration clause is a principle of international law that has
been consistently applied in decisions rendered in international arbitrations,
in the writings of the most qualified publicists on international arbitration, in
arbitration regulations adopted by international organizations and in
treaties. Also, in many countries, the principle forms part of national
arbitration law."
• Similarly in LIAMCO v. Libya, the tribunal held that it
"is widely accepted in international law and
practice that an arbitration clause survives
the unilateral termination by the State of
the contract in which it is inserted and
continues in force even after that termination."
24

 Institutional Arbitration Rules
• 2017 ICC Rules, Art. 6(9) "Unless otherwise agreed, the Arbitral Tribunal
shall not cease to have jurisdiction by reason of any allegation that the
contract is non-existent or null and void, provided that the arbitral tribunal
upholds the validity of the arbitration agreement.”
• ICDR Rules, Art. 15(2) “Such an arbitration clause shall be treated as an
agreement independent of the other terms of the contract. A decision by the
tribunal that the contract is null and void shall not for that reason alone
render invalid the arbitration clause."
25

5.0 Applications of separability Presumption (2)
Non-Existence, Invalidity, Illegality, or Termination of Underlying
Contract Does Not Necessarily Affect Arbitration Agreement
• Decisions in domestic courts have shown that even assuming the
underlying main contract is illegal it does not render the arbitration clause
invalid
• Globe Union Indus. Corp. v. G.A.P. Mktg Corp the Canadian British
Columbia Supreme Court held that a claim that underlying contract was
illegal does not affect arbitration clause
• Fittydent Int'l GmbH v. Brawn Labs., Ltd, a High Court in New Delhi
rejected a claim that, because of lack of required regulatory approval,
nullity of underlying contract rendered arbitration clause void held that:
"[E]ven assuming for the sake of arguments that the agreement dated 20
May 1994 between the parties was illegal and non-est, the same shall not
own its own render the arbitration clause invalid and it is still within the
competence of the Arbitrator to decide the validity of the same."
26

Non-Existence, Invalidity, Illegality, or Termination of Underlying
Contract Does Not Necessarily Affect Arbitration Agreement
• Compare Fittdent v Brawn Labs with Prima Paint Corp. v. Flood & Conklin
Manufacturing co United States Supreme Court which held "[I]f the claim is
fraud in the inducement of the arbitration clause itself – an issue which
goes to the "making" of the agreement to arbitrate – the federal court may
proceed to adjudicate it. But the statutory language does not permit the
federal court to consider claims of fraud in the inducement of the contract
generally."
27

 Competence-Competence Doctrine
• Competence-competence doctrine allows an arbitral tribunal to consider
and decide upon its own jurisdiction even where the existence or validity of
an arbitration agreement is disputed.
• European Convention Articles V(3) and VI(3).
• UNCITRAL Model Law Article 16(1).
28

6.0 Formation of international Arbitration Agreements
 For an arbitration agreement to be recognized it must be validly
formed.
 Article II New York Convention.
 Article 8 of the UNICTRAL Model Law.
 For arbitration agreement to be formed, requires:
• Consent
• Proof of Arbitration Agreement
• Formal Validity
• Substantive Validity
29

7.0 Consent
 Valid consent is prerequisite of a valid arbitration agreement
 Consent is generally governed by contract formation principles
 In Tyco Bldg Servs. v. Elbex Video, Ltd, the Israel Supreme Court held
that "In order to know if an agreement has been formed between the
parties to submit to arbitration and if so what is its validity, we must
look to the general contract laws. According to the general contract
laws, in order to enter into a contract, including an arbitration
agreement, offer and acceptance are required, i.e., the free consent of
both of the parties.”
30

7.0 Consent
 Grounds for Lack of Consent to International Arbitration
Agreement
• Challenging consent to, or the existence of, an international arbitration
agreement fall into familiar categories of contract law. These grounds
include:
• lack of agreement on essential terms;
• lack of consent;
• indefinite or uncertain arbitration agreements;
• arbitration agreements referring to nonexistent arbitral institutions or rules;
• internally contradictory arbitration agreements;
• "optional" arbitration agreements;
• duress or undue influence; and
• lack of notice.
31

8.0 Proof of International Arbitration Agreements
 Burden of Proof of Existence of Arbitration Agreement
• Not addressed by the New York Convention or national laws.
• Article II(3) New York might be interpreted as imposing a burden of proof of
an party asserting the existence of such an agreement. [court may
“request”]
• Article 8 of the UNICTRAL Model Law does not address issue of burden
of proof.
• Compare: An English High Court in Lombard N. Cent. plc v. GATX Corp
held that "an applicant for a stay must…show (to the civil standard) that
(i) there is an arbitration agreement; (ii) he is party to it;
and (iii) the legal proceedings are "in respect of" a matter
which under the agreement is to be referred to arbitration…"
32

8.0 Proof
 Standards of Proof for Establishing Existence of Arbitration
Agreement
• Some tribunals have adopted a standard that "the consent of each party
must be unambiguously demonstrable."
• Some courts demand clear evidence that arbitration agreement was validly
formed.
33

9.0 Formal validity of international Arbitration Agreement
 Key form requirements:
• Written form requirement
• Other form requirements determined by national law
34

 Written form Requirement
• The written form requirement crystallize the parties intention to exclude the
jurisdiction of national court in adjudicating present and future disputes.
• Provides verifiable evidence of the parties intention to arbitrate
• A written arbitration clause sets out key aspects the arbitration such as,
arbitration seat, choice law, language, institutional rules.
• in some cases, states may choose to enforce oral arbitration agreements
or unsigned arbitration agreement and as a result the New York Convention
will be inapplicable and the national law will kick in.
35

Written Form Requirement- email
• In the explanatory note to the 2006 Model Law prepared by UNICTRAL
acknowledges that arbitration agreement may take "any form" which here
includes oral as long as the content of the agreement is recorded and this
could be by email.
• A US court in Orbis, Inc. v. Objectwin Technology held that "there is a
valid written agreement to arbitrate in this case as evidenced by the emails
and faxes exchanged between the parties."
• See English Arbitration Act Section 5(2)& (3) which has modernized its
provision on the writing requirement.
36

 Other Form Requirements for International Arbitration
Agreements
• Large Font or Capital Letters e.g in South Carolina laws require an
arbitration agreement to be in capital letters and located in the first page
• Separate Agreement e.g. in Germany consumer contracts the arbitration
clause must be contained in a separate document and signed by the
consumer
• Signature of Attorney e.g Medical Care arbitration agreement in some
states in US require it to be signed in presence of the party and his/her
attorney signing too.
37

Other Form Requirements for International Arbitration Agreements
• Selection or Number of Arbitrators in Arbitration Agreement-Some national
laws require the names of the arbitrators to be name in the arbitration
agreement e.g. Argentine National Code of Civil and Commercial
Procedure, Art. 740(2)
• Institutional Arbitration-For instance for arbitration seated in China it must
be conducted through an institution (CIETAC, BAC etc)
38

9.0 Incorporation of Arbitration Agreement
A valid arbitration agreement may be incorporated from another
document
 New York Convention does not address this subject.
 In Hong Kong the CFI in Guangdong New Tech. Imp. & Exp. Corp. v.
Chiu Shing t/a B. C. Pty & Trading Co held that there is a valid
arbitration agreement "there was a reference in a written contract to a
document containing an arbitration clause.."
39

10.0 Substantive validity of international Arbitration
Agreements
International Arbitration Conventions
 An international arbitration agreement gives rise to substantive validity issue.
 UNCITRAL Model Law, Arts. 7, 8(1)
 New York Convention, Arts. II(1), (3)
 Under New York Convention, Arts. II (3)- three categories outline when an
arbitration agreement is considered invalid: “null and void,” “inoperative,” or
“incapable of being performed.”
 “null and void” – encompasses contractual defenses that an agreement is
not valid including: unconscionability, fraud, mistake, lack of capacity, illegality.
 “inoperative”- agreement that has ceased to have effect based on
termination, waiver, changed circumstances etc.
 “incapable of being performed.” refers to a situation where it is physically or
legally impossible to actualize the arbitration agreement (ie: arbitrator
deceased)

10.0 Substantive validity of international Arbitration
Agreements
 Invalidity of International Arbitration Agreements Under National
Arbitration Legislation
• In most national legal systems adopted grounds applicable under contract
law, the New York convention which are:
41
 Fraudulent Inducement or Fraud
 Mistake
 Lack of Consideration
 Unconscionability
 Asymmetrical or Non-Mutual
Arbitration Agreements
 Waiver of Right to Arbitrate
 Termination or Repudiation of
Arbitration Agreement
 Impossibility and Frustration
 Standard Form Contracts
 Consumer and Employment
Contracts
 Illegality
 Public Policy
 Statutes of Limitations
 Res Judicata and Other
Preclusion Rules

10.0 Capacity to conclude international Arbitration
Agreements
 International Arbitration Conventions:
• Article V(1)(a) New York Convention sets in during the enforcement stage
where a party resisting enforcement furnishes evidence that "under the law
applicable to them, under some incapacity".
• assessment will pursuant to the choice of law by the parties [ie: mental
incompetence, minority, limitations in corporate documentation]
42

10.0 Capacity to conclude international Arbitration
Agreements
 National Arbitration Legislation:
• National legislation is mostly silent on the issue of capacity in arbitration
agreements - so too is the model law.
• UNCITRAL Model Law, Art. 34(2)(i)- applicable to setting aside an award.
• UNCITRAL Model Law, Art. 36(1)(a)(i)- applicable during the enforcement
stage of the award.
• Swiss Federal Tribunal in a Judgment of 4 July 2003, DFT 4P.137/2002,
¶3.2 held that "The question of jurisdiction of the arbitral tribunal also
comprises the question of… whether all parties to the proceedings are
bound to it, is a question of their capacity to be a party to the arbitration
proceedings …].”
43

11.0 Failure to comply with pre-arbitration procedural
Requirement (1)
 Effects of Agreements to Negotiate Resolution of Disputes
• In general, agreements to negotiate prior to arbitration are considered
unenforceable on account of uncertainty and are vague.
• An English court in Wah (aka Tang) v. Grant Thornton Int'l Ltd held that
"Agreements to agree and agreements to negotiate in good faith, without
more, must be taken to be unenforceable: good faith is too open-ended a
concept or criterion to provide a sufficient definition of what such an
agreement must as a minimum involve and when it can objectively be
determined to be properly concluded.”
44

11.0 Failure to comply with pre-arbitration procedural
Requirement (2)
Effects of Agreements to Negotiate Resolution of Disputes
• BUT: If dispute resolution clauses unequivocally provide that negotiations
or other procedural steps are a mandatory obligation, then both arbitral
tribunals and national courts have given effect to the parties' intentions.
• A Singapore High Court in Int'l Research Corp. plc v. Lufthansa Sys. Asia
Pac. Pte Ltd held that "Where an agreement is subject to a condition
precedent, there is, before the occurrence of the condition, no duty on
either party to render the principal performance under the agreement. … A
dispute resolution clause, which may be multi-tiered in nature, should be
construed like any other commercial agreement. … Therefore, until the
condition precedent to the commencement of arbitration is fulfilled, neither
party to the arbitration agreement is obliged to participate in the arbitration.
In the same vein, an arbitral tribunal would not have jurisdiction before the
condition precedent is fulfilled."
45

HK: Is an arbitration agreement limited to contractual
disputes?
 Provided the terms of the arbitration agreement are broad enough, in
addition to contract claims, the following claims may be subject to
arbitration:
• Tort claims
• Restitution
• Breach of statutory duty
46

Is an arbitration agreement limited to contractual disputes?
• Arbitration of disputes arising "thereunder or in connection with" the
contract
 Held: included claims that the contract was procured by fraud, bribery,
misrepresentation and tort claims
 Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40.
• "If at any time any dispute, difference or question shall arise concerning the
interpretation of this Agreement or the rights or liabilities of the [parties]…"
 Held: to include tort claims
 New Sound Industries Ltd v Meliga (HK) [2005] 1 HEC 59
47

Cases not arbitrable under HK Law
48
Criminal cases.
Competition and anti-trust disputes.
Disputes relating to intellectual property (for example, patents, trade marks,
copyright and registered designs), subject to certain exceptions.
Divorce proceedings.
Guardianship applications.
Matters reserved for resolution by state agencies and tribunals (for example,
taxation, immigration and national welfare entitlements).

Contents of an arbitration clause
 What should the contents of a well drafted arbitration clause include?
• A well drafted arbitration clause will specify a number of matters including:
 1. A clear reference to arbitration
 2. What disputes are to be referred to arbitration.
 3. The seat of arbitration.
 4. The law of the underlying contract.
 5. Any choice of procedural law.
49

HKIAC clauses
 Arbitration Administered by the HKIAC:
• "Any dispute, controversy or claim arising out of or relating to this contract,
including the validity, invalidity, breach or termination thereof, shall be
settled by arbitration in Hong Kong under the Hong Kong International
Arbitration Centre Administered Arbitration Rules in force when the Notice
of Arbitration is submitted in accordance with these Rules.
• *The number of arbitrators shall be … (one or three). The arbitration
proceedings shall be conducted in … (insert language)."
 Note: *Optional
50

Groupings
 6 groups of 6:
51
11 , 16 , 30 , 34 , 29 , 7 , 13
18 , 10 , 26 , 9 , 24 , 22 , 23
8 , 2 , 19 , 32 , 5 , 14
3 , , 33 , 1 , 36 , 12
35 , 21 , 4 , 17 , 15 , 31
6 , 20 , 27 , 28 , 37 , 25

Group Project
52
You are a member of an arbitral tribunal that has to decide an arbitral
complaint for breach of contract filed by Connecting Airlines Co. against
Catering, B.V. The procedural law applicable to the arbitration is the
text of the Model Law. On answering the arbitral complaint, Catering
B.V. raises the invalidity of the main contract as a defense and, on the
basis of this, the invalidity of the clause contained in the contract. It
informs and proves that, before commencing the arbitration proceedings,
Catering B.V. filed a complaint against Connecting Airlines Co. before
a court of law to request the invalidity of the contract. The judge has
not solved the question yet. You believe prima facie that the contract is
valid and that the grounds for invalidity contended are not reasonable.
• Do you continue the arbitration proceedings or do you suspend
them?
• How do you account for your decision?
• Can the court oblige you to suspend the arbitration proceedings?

What is missing? Discuss how to improve:
1. “Arbitration if any in Hong Kong. English Law to apply”
2. “If no settlement can be reached, the case in dispute shall then be
submitted for arbitration to the arbitration commission in London,
United Kingdom, for arbitration in accordance with the rules of
arbitration.
53

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