Trends In International Litigation : International Business Lawyer & Attorney : Ed Joffe : Joffe & Joffe Law Firm : Miami, Florida Global Customs & Trade Issues

During the late 1980s and early 1990s, Argentina entered into a number of bilateral investment treaties with various foreign nations including the United Kingdom. The applicable treaty provided for a two-tiered system of dispute resolution in which the dispute could be submitted to a “competent tribunal” of the country “in whose territory the investment was made,” after which the matter could be referred to arbitration under certain conditions, or the dispute could be submitted directly to international arbitration.

Also as part of its economic reforms, Argentina divided its gas transportation and distribution industry, Gas del Estado, Sociedad del Estado, into two transportation companies and eight distribution companies. BG Group, a United Kingdom company, invested in one of the eight distribution companies, MetroGAS, through a consortium of investors known as Gas Argentino, S.A Eventually, BG Group acquired a 54.67% interest in Gas Argentino, S.A., which in turn owned 70% of MetroGAS.

In 2002,  Argentina enacted an emergency law implementing regulatory measures that negatively impacted BG Group's investment in MetroGAS. Pursuant to the Investment Treaty, BG Group initiated international arbitration proceedings on April 25, 2003. An arbitral panel commenced proceedings in New York and Washington, D.C. beginning in July of 2006. On December 24, 2007, the arbitral panel unanimously ruled in favor of BG Group and issued an award in the amount of $185,285,485.85 plus costs, attorneys' fees, and interest.

Unsatisfied with the outcome, Argentina filed a petition to vacate or modify the Award on March 21, 2008 in the U.S. District Court for the District of Columbia. Relying on the Federal Arbitration Act (9 U.S.C. §§ 10(a) and 11) to support   its request for vacatur or modification of the Award, Argentina argued that the Award should be vacated for the following reasons: (1) the arbitral panel exceeded its authority under the Investment Treaty, 9 U.S.C. § 10(a)(4); (2) the arbitral panel acted “in manifest disregard of the law,” (3) there was “evident partiality or corruption” on the part of one of the arbitrators on the panel, 9 U .S.C. § 10(a)(2); (4) the Award was procured through “corruption, fraud, or undue means,” 9 U.S.C. § 10(a)(1); and (5) the Award is disproportionate, unfair, and irrational, and therefore should be modified pursuant to 9 U.S.C. § 11.

In reviewing the petition, the court noted that it must remain mindful of the principle that “judicial review of arbitral awards is extremely limited,” and that this Court “do[es] not sit to hear claims of factual or legal error by an arbitrator” in the same manner that an appeals court would review the decision of a lower court. In fact, careful scrutiny of an arbitrator's decision would frustrate the FAA's “emphatic federal policy in favor of arbitral dispute resolution,” -a policy that “applies with special force in the field of international commerce,” by “undermining the goals of arbitration, namely, settling disputes efficiently and avoiding lengthy and expensive litigation Instead, “a court must confirm an arbitration award where some colorable support for the award can be gleaned from the record.” Thus, “[t]he showing required to avoid summary confirmation of an arbitration award is high, and a party moving to vacate the award has the burden of proof.”

On June 7, 2010, and noting its limited scope of review,  the Federal Judge in the District of Columbia ruled against Argentina on all points and denied the petition.
 

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Matthew Weiniger of the London based law firm, Herbert Smith LLP, reports on the continuing tension in the European courts concerning anti-suit injunctions and agreements to arbitrate.

In the decision of Midgulf International Ltd v Groupe Chimique Tunisien, the British court granted an anti-suit injunction restraining Tunisian proceedings brought in apparent breach of an arbitration agreement.

The litigants had entered into a contract for the sale of sulphur. The relationship broke down and the parties disagreed as to whether the contract included a clause providing for arbitration in London. The question turned on when and how the offer had been accepted. Midgulf commenced proceedings in the English courts for an order to appoint an arbitrator, while GCT launched an application in the Tunisian courts for a declaration that there was no arbitration agreement.

At a preliminary hearing, Midgulf obtained an anti-suit injunction to restrain the Tunisian proceedings. The judge at first instance continued the injunction (pending appeal), despite finding upon trial of the issue that there was no arbitration agreement. The appeal was allowed and the anti-suit injunction granted. In the appellate court’s view, an arbitration agreement existed. Furthermore, GCT's application to the Tunisian court for a declaration that the parties had not agreed upon arbitration was repudiatory conduct. Although it is arguable that, strictly speaking, such proceedings do not amount to a breach of an agreement to arbitrate, where such an agreement is valid, they have the effect of undermining that agreement and party autonomy to choose the means by which a dispute is to be resolved.

Although this decision is consistent with English precedent it is at odds with the position within Europe following the European Court of Justice's decision in Allianz SpA v.  West Tankers which related to the effect of the Brussels Regulation.
 

This case is another example of poor planning on the front end (an unclear agreement) costing the parties significant time and expense at the back end. Clarity of contract could have avoided this litigation.
 

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An English distributor, Accentuate Ltd, and Canadian licensor, Asigra Inc., entered into a software distribution agreement which contained clauses requiring arbitration and a choice of law provision providing that the laws of Ontario and Canada govern. When a breach of the agreement occurred, the distributor threatened to bring a claim in England under an EU Directive--Commercial Agents (Council Directive) Regulations 1993– which provides a self-employed commercial agent with indemnity or compensation upon termination of an agency contract.

In response to the threat of litigation, the licensor started arbitration in Canada for a declaration that the distributor had no claims against it. In the resulting awards, the tribunal stated that the laws of Ontario (and federal laws of Canada) applied to the dispute and that the regulations were irrelevant.
Rather than challenge the awards, the distributor applied to an English court for permission to serve the licensor out of the jurisdiction in order to obtain compensation under the regulations. The licensor applied to the court to stay proceedings on the grounds that the parties had agreed to refer disputes to arbitration in Toronto under Canadian law. The judge declared that the court had no jurisdiction, but granted the distributor permission to appeal. The distributor appealed to the High Court, arguing that the choice of law amounted to an evasion of EU law.

The appellate court reversed and found that the requirements of the regulations were mandatory; thus, an arbitration clause in favor of Canadian law was null and void and inoperative to the extent that it required the submission to arbitration of questions pertaining to mandatory provisions of EU law. Furthermore, recognition of any resulting awards would be refused on public policy grounds. As a result, the stay of proceedings was lifted and permission to serve the licensor out of the jurisdiction was confirmed.

This decision is troublesome. The concept behind both choice of law provisions and arbitration clauses is that the parties have the right to contractually agree on all terms of their business arrangement--including the remedies. This decision undercuts these rights. Anyone doing business in the European Union is forced to make sure that he is not falling into a trap of unintended consequences.

 

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 The Kingdom of Bahrain today formally launched the Bahrain Chamber of Dispute Resolution and, in the process, became the first country in the world to establish an arbitration "free zone" and introduce the concept of statutory arbitration. The Chamber, an initiative of Bahrain's Ministry of Justice and delivered in partnership with the American Arbitration Association, the world's leading provider of conflict management and dispute resolution services, will be known formally as the BCDR-AAA.
When international disputes are heard at the BCDR, where the parties involved agree to be bound by the outcome, the award will be guaranteed and not subject to challenge in Bahrain. This resolves an issue that has been a significant problem in many parts of the world, despite existing international conventions. Bahrain's arbitration "free zone" will, therefore, offer jurisdictional and legal certainty to the recognition of arbitration awards, an essential component of modern day commercial transactions.

In another global first, Bahrain has also introduced the concept of statutory arbitration for commercial and financial disputes. Cases that would previously have come before Bahrain's domestic courts, where the claim is over 500,000 BHD ($1.3m USD) and involves an international party or a party licensed by the Central Bank of Bahrain, will now be directed to the BCDR-AAA for final and binding resolution. The move is aimed at providing additional benefit to Bahrain's commercial, banking and financial services sectors, which form a long-established hub within the region.

Bahrain Minister of Justice, HE Sheikh Khaled bin Ali Al Khalifa commented: "In establishing the BCDR-AAA, Bahrain has sought to bring the very latest in global ADR solutions to the region. BCDR has partnered with the world's leading provider - the AAA - to ensure the highest standards of international best practice are consistently delivered. And have also enacted cutting-edge legislation that guarantees the independence of the Chamber itself and, vitally, the interests of its users.
 

AAA President & CEO William K Slate II commented: "The American Arbitration Association is honored and pleased to partner with the Minister of Justice to form the BCDR. As alternative dispute resolution grows internationally, public and private sector legal officials are experiencing its efficiencies and fairness.
 

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