Universität Zürich: International Commercial …00000000-14c0-11a6-0000-000079148f9...5/18/2015 1 Conduct of the Proceedings, Award 31 March 2015 Dr. Martin Bernet Universität Zürich:

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Conduct of the Proceedings, Award31 March 2015

Dr. Martin Bernet

Universität Zürich: International Commercial Arbitration –

FS 2015

Conduct of the Proceedings, Awards 31 March 2015 Page 2/47

Table of Contents

1. Introduction

2. The Typical Timeline of an International Arbitration

3. Who Determines the Procedure?

4. The Minimum Standard of Procedural Fairness and Due Process

5. The Rules Governing the Proceedings

6. The Conduct of the Proceedings

7. State Court Assistance

8. Interim Measures

9. The Law Applicable to the Merits of the Case

10. Taking of Evidence

11. The Award

12. Revision of an Award

13. Challenge of an Award

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Introduction

> Scope> International commercial arbitration, not investment arbitration

> Investment arbitration: arbitration between a state (entity) and a foreign

private investor. Will be covered by August Reinisch on 7 May 2013.

> Focus> Arbitral proceedings in practice

> How does it work? What really happens?

> Use of materials from legal practice

> Reference to institutional arbitral rules limited to ICC and Swiss Rules

> Format> As interactive as possible

> I welcome questions, comments, and participation!


Table of Contents

1. Introduction







8. Interim Measures



11. The Award



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Typical Timeline for an International Arbitration

Pre-Arbitration Commencement of Arbitration ARBITRAL PROCEEDINGS

Post-Arbitration

Contract & Arbitration

Clause

Written Pleadings

Hearing

ARBITRATION TIMELINE

Dispute

Request for Arbitration

Constitution of the Arbitral

Tribunal

Recognition and Enforcement

Felix Dasser

Ulrich Haas

Award


Table of Contents

1. Introduction







8. Interim Measures



11. The Award



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Who Determines the Procedure?

> Primacy of party autonomy> Freedom to agree on the procedure

> Art. 182(1) PILA: “The parties may, directly or by reference to rules of

arbitration, determine the arbitral procedure; they may also submit the

arbitral procedure to a procedural law of their choice.”

> Arbitral tribunal has the power to determine the procedure in the absence of

an agreement by the parties

> Art. 182(2) PILA: “If the parties have not determined the procedure, the

Arbitral Tribunal shall determine it to the extent necessary, either directly or

by reference to a statute or to rules of arbitration.”


Table of Contents

1. Introduction







8. Interim Measures



11. The Award



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The Minimum Standard of Procedural Fairness and Due Process

> Art. 182(3) PILA: “Regardless of the procedure chosen, the Arbitral

Tribunal shall ensure equal treatment of the parties and the right of

both parties to be heard in adversarial proceedings.” > Equal treatment of the parties

> Right to be heard in adversarial proceeding

> The Federal Court’s case law> Requirement at equal treatment and right to be heard overlap to large extent

> “In adversarial proceedings”: comes from French and English concepts

(“principe du contradictoire”)


The Minimum Standard of Procedural Fairness and Due Process (cont’d)

> The Federal Court’s case law (cont’d)> Details

> Equal Treatment: parties must be granted same procedural rights (as, e.g.

with regard to written submissions, questioning of witnesses, filing of

documentary evidence)

> Right to be Heard in adversarial proceedings includes right:

to participate in evidentiary hearings

to rebut the other party’s allegations, and

to examine and challenge the evidence brought forward by the other party

by bringing evidence of its own

Excerpts from decisions of the Swiss Federal Tribunal

• Right to be Heard Cases (Enclosure 1) > For most recent decisions, see

http://www.swlegal.ch/Publications/Arbitration-Case-Digest.aspx

G:\OPEN\Juristen rsönliche Folder\MBE

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The Minimum Standard of Procedural Fairness and Due Process (cont’d)

> The right to challenge the award in case of breach of the procedural

minimum standard> Importance of diligent conduct of arbitration proceedings

> The obligation to act in good faith> Arbitral Tribunal must apply procedural rules in a way which respects the

parties’ justified expectations

> The principle: “raise it or waive it”


Table of Contents

1. Introduction







8. Interim Measures



11. The Award



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The Rules Governing the Proceedings

> PILA, institutional rules: hands-off, little guidance> Art. 182(2) PILA

> “If the parties have not determined the procedure, the Arbitral Tribunal shall

determine it to the extent necessary, either directly or by reference to a

statute or to rules of arbitration.”

> ICC Rules, Art. 19

> “The proceedings before the arbitral tribunal shall be governed by the

Rules and, where these Rules are silent, by any rules which the parties or,

failing them, the arbitral Tribunal may settle on …”

> ICC Rules, Art. 22(4)

> “In all cases, the arbitral tribunal shall act fairly and impartially and ensure

that each party has a reasonable opportunity to present its case.”


The Rules Governing the Proceedings (cont’d)

> Swiss Rules, Art. 15(1)

> “Subject to these Rules, the arbitral tribunal may conduct the arbitration in

such manner as it considers appropriate, provided that it ensures equal

treatment of the parties and their right to be heard.”

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> Flexibility as one of the key features and main advantages of

international arbitration> The Parties “trade the procedures and opportunities for review of the

courtroom for the simplicity, informality, and expedition of arbitration.”

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc. (U.S. S.Ct. 1985)

> International arbitration as a legal “melting pot”> Parties, arbitrators and counsel from diverse legal traditions and practices

> Arbitral proceedings as a hybrid of civil and common law cultures

> Adversarial v. inquisitorial system

> Witness contact / preparation

> Emphasis on oral vs. emphasis on written proceedings



> Existing or still evolving “best practice” for certain aspects of the proceedings> Interviewing potential arbitrators CIArb Interviewing Guidelines

(Enclosure 2) > Conflicts of interests IBA Guidelines on Conflicts of Interest in International

Arbitration (2014) (Enclosure 3) > Combination of written and oral proceedings; oral proceedings considerably

more important than in Swiss state court commercial litigation> Document production document production request more important and

more frequent than in Swiss state court commercial litigation; IBA Rules on the Taking of Evidence in International Commercial Arbitration (2010) (Enclosure 4)

> Previous contacts with witnesses and witness preparation> Art. 4(3) IBA Rules of Evidence> Art. 25(2) Swiss Rules > Art. 7(2) Swiss Bar Rules (Enclosure 5)

> Experts; party-retained experts more important than in state court litigation





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Table of Contents

1. Introduction







8. Interim Measures



11. The Award




The Conduct of the Proceedings

> Constituting Order (Terms of Reference) (Enclosure 6)

> Specific Procedural Rules (Enclosure 7)

> Procedural Timetable (Enclosure 8)

> Language of the proceedings> Arbitration agreements often specify the language of the proceedings

> If they do not, most institutional rules permit the arbitral tribunal to

determine the language (e.g. ICC Rules Art. 20, Swiss Rules Art. 17)

> Practical significance

> Substantive importance (nuance matters!)

> Speed (witnesses / translators)

> Costs (production and translation of documents)

> Choice of counsel




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Table of Contents

1. Introduction







8. Interim Measures



11. The Award




State Court Assistance

> Assistance by the “juge d’appui” in Switzerland:

> [Art. 179(2): Appointment, dismissal, replacement of arbitrators]

> [Art. 180(3): Challenge of arbitrators]

> Art. 183(2): Interim relief and conservatory measures

> Art. 184(2): Taking of evidence

> Art. 185: Other judicial assistance (examples: extension of appointment,

complaints regarding mature length at proceedings)

> Art. 193(1) and (2): Deposit and certificate of enforceability

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Table of Contents

1. Introduction







8. Interim Measures



11. The Award




Interim Measures

> Competence of the arbitral tribunal governed by the lex arbitri

> Switzerland:> “Unless the parties have otherwise agreed, the Arbitral Tribunal may, on

motion of one party, order provisional or conservatory measures.”

(Art. 183(1) PILA)

> Before constitution: state courts have exclusive jurisdiction

> After constitution: concurrent jurisdiction

> Institutional Rules very general: > E.g. ICC Rules Art. 28, Swiss Rules Art. 26

> Prerequisites generally include:> Prima facie jurisdiction of the arbitral tribunal

> Harm not adequately reparable by an award of damages is likely to result if

the measure is not ordered

> Reasonable probability that the requesting party will succeed on the merits

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Interim Measures (cont’d)

> Which claims and which measures?> Protective / regulatory / performance measures (example of performance

measure) (Enclosure 9)

> The majority of legal scholars deny the arbitral tribunal’s power to order

interim measures relating to the enforcement of monetary claims.

> Under some laws, the arbitral tribunal is empowered to order an attachment

(“Arrest”, “Retenue”) or sequestration.

> Under the prevailing view among Swiss legal authors, the arbitral tribunal

may not grant an attachment within the meaning of Art. 271 of the Swiss

Debt Enforcement Act (DEBA).

> Security> “The arbitral tribunal or the state judge may make the granting of provisional

or conservatory measures subject to appropriate sureties.” (Art. 183(3) PILA)

> Same: ICC Rules Art. 28(1), Swiss Rules Art. 26(2)



Interim Measures (cont’d)

> No challenge of interim measures, except request for reconsideration

> State court support

> Conclusion: interim protection from arbitral tribunal often not a realistic

option, in particular> if arbitral tribunal is not yet constituted

> if respondent cannot be expected to voluntarily comply with interim orders

> if order is directed against a third party

> However new trend: Emergency Arbitrator provided for by arbitration

institutions> Swiss Rules Art. 43, ICC Rules Art. 29

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Table of Contents

1. Introduction







8. Interim Measures



11. The Award




The Law Applicable to the Merits of the Case

> The law applicable to the merits / applicable conflict of law rules

> Rules of law chosen by the parties

> Absence of choice of law by the parties – the “closest connection test” > Art. 187 PILA: “The arbitral tribunal shall decide the dispute according to the

[rules of] law chosen by the parties or, in the absence of such a choice,

according to the [rules of] law with which has the closest connection.”

> The proof of the applicable law

> Awards “ex aequo et bono”

> Sanctions for violation of Art. 187 PILA

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Table of Contents

1. Introduction







8. Interim Measures



11. The Award




Taking of Evidence: Overview

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Taking of Evidence: In General

> Determining the rules for the taking of evidence> Wide room left to arbitral tribunal (Art. 184(1) PILA, Swiss Rules Art. 24 and

25, ICC Rules Art. 25 and 26)

> Evidence taking as the example where international arbitration

successfully combined common law (adversarial) and civil law

(inquisitorial) systems> IBA Rules of Evidence

> Free weighing of evidence (“freie Beweiswürdigung”) generally

accepted; arbitrators take robust, non-technical approach to establish

true facts (Swiss Rules Art. 24(2), IBA Rules of Evidence Art. 9(1))


Taking of Evidence: In General (cont’d)

> Burden of proof

> Civil law: substantive law common law: procedural law

> Accepted standard in most legal systems: each party has to prove the facts

upon which it relies (see Swiss Rules Art 24(1))

> Evidentiary means> Witness testimony

> Production of documents

> Expert witness testimony

> Site or subject-matter inspections

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Taking of Evidence: Production of Documents

> Document Production> Another example of divergence between jurisdictions

> common law: wide-ranging discovery / disclosure of documents in possession of opposing party or third parties

> civil law: orders for the production of documents rare> Best practice today

> production of documents “with reason” (IBA Rules of Evidence Art. 3) > Specific Procedural Rules) (Enclosure 7)

> Order of steps:> each party produces documents on which it relies> request for document production> objections> order by the arbitral tribunal (Procedural Order with enclosed Redfern

Schedule) (Enclosure 11)




Taking of Evidence: Witness Testimony, Hearing and Closing Submissions

> Witness testimony> Any person, including a party or party’s officer can be a witness (Swiss Rules

Art. 25(2), IBA Rules of Evidence Art. 4(2))> Witness preparation> Witness Statement (Enclosure 10) > Swiss Rules Art. 25(3), IBA Rules of Evidence Art. 4(4)

> Hearing> Organization of Hearing

> Specific Procedural Rules (Enclosure 7)

> Pre-hearing Order (Enclosure 12)

> Abyei Webcast

> Closing Submissions> Example Closing Submission (Enclosure 13)





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Table of Contents

1. Introduction







8. Interim Measures



11. The Award




The Award: Types & Bifurcation

> Types of awards> Final Awards

> Partial/Preliminary Awards (see Art. 188 and Art. 190(3) PILA)

> Bifurcation> If jurisdiction is unclear or contested (cf. Art. 186(3) PILA)

> As a matter of practice, need to ascertain jurisdictional dispute early on

Art. 186(2) PILA: Parties must raise challenge prior to defence on merits;

Address jurisdiction in constitutional documents (Terms of Reference)

> Theory of doubly-pertinent facts (doppelrelevante Tatsachen) not

applicable in international arbitration (BGE 121 III 495) - “S’agissant de

déroger à une garantie de rang constitutionnel, on se gardera d’admettre

trop facilement qu’une convention d’arbitrage a été conclue, si ce point est

contesté” BGE 128 III 50; BGer v. 19.01.2006, 4P.298/2005

> Liability and quantum

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The Award: Challenge

> Challenging partial and preliminary awards> Partial awards (stricto sensu)

> May be challenged just like full final awards (more recently BGer v.

19.06.2006, 4P.74/2006, compare Art. 91 BGG)

> Preliminary award

> May only be challenged based on Art. 190(2)(a) and (b) PILA (constitution

& jurisdiction) (see 190(3) PILA, BGE 130 III 76)

> Must challenge partial and preliminary awards immediately or risk waiver

> Content of a decision is decisive, not its title (e.g., must immediately

challenge a “procedural order” containing an implicit decision on the

Tribunal’s jurisdiction (BGE 4A_210/2008))


The Award: Making of an Award

> Things to consider> See, e.g., ICC Award Checklist (November 2012) (Enclosure 14)

> Adoption mechanism> Art. 189 PILA:

> (1) “The arbitral award shall be rendered in conformity with the procedure

and in the form agreed upon by the parties.”

> (2) “In the absence of such an agreement, the arbitral award shall be

rendered by majority vote, or, in the absence of a majority, by the

chairperson alone. …”

> ICC Rules Art. 31(1)

> “When the arbitral tribunal is composed of more than one arbitrator, an

award is made by a majority decision. If there is no majority, the award

shall be made by the president of the arbitral tribunal alone.”

> Same: Swiss Rules Art. 31(1)


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The Award: Making of an Award (cont’d)

> Reasons> Art. 189(2) PILA, ICC Rules Art. 31(2), Swiss Rules Art. 32(3) require that

the award state the reasons upon which it is based.

> An award cannot be attacked solely because it lacks reasons (BGE 130 III

125 and 4P.242/2004).

> Dissents> ICC Rules do not address this topic, but the ICC Court of Arbitration usually

attaches the dissenting opinion to the award

> A dissenting opinion does not form part of the award itself

> The minority arbitrator cannot request that the dissenting opinion be

attached to the award or communicated to the parties together with the

award (4P.23/1991).


The Award: Confidentiality & Publication

> Confidentiality and publication> General principle of Swiss law: confidentiality governs the entire arbitration

(unless the parties expressly provide otherwise) but not uncontested

> Publication of awards only with the Parties’ consent

> E.g. Swiss Rules Art. 44(1) and (3)

> In practice, consent is often given regarding arbitration awards of important

arbitral institutions like the ICC or the LCIA

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Table of Contents

1. Introduction







8. Interim Measures



11. The Award




Revision of an Award

> PILA does not expressly address revision of arbitral awards> Lacuna that the Federal Tribunal has the power to fill (BGE 118 II 199)

> Must file within 90 days of the discovery of the ground for revision

> Available per Art. 123 BGG (since 2007, formerly Art. 137 OG):> New facts (revisio propter nova)

> That existed at the time the award was rendered (unechte Noven),

provided they were unknown to the party seeking revision and that party

acted with sufficient care to identify the relevant facts and adduce the

evidence (see BGer v. 28.9.2010, 4A_144/2010 “Pechstein”)

> Crimes (revisio propter falsa)

> Criminal proceedings establish that the decision was influenced to the

detriment of the moving party by a felony or a crime (conviction not

necessary)

> Rare (only twice granted) (new facts: 4P.102/2006, crime: 4A.596/2008).

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Table of Contents

1. Introduction







8. Interim Measures



11. The Award




Challenge of an Award: Procedural Framework & Grounds for Challenge

> Procedural framework> Art. 191 PILA

> Challenge may only be brought before the Federal Tribunal

> Procedure shall be governed by Art. 77 of the BGG

> Formal requirements

> Challenge must be filed within 30 days of notification of the award (Art.

100(1)) BGG

> Challenge must comply with the requirements of Art. 40 and 42(1) BGG

> Grounds for Challenge> Exclusive list in Art. 190(2) PILA

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Challenge of an Award: Importance of the Arbitral Procedure

> Limited opportunities to challenge an arbitral award

> Art. 190(2) PILA provides an exclusive list of grounds for setting aside

> (a) Improper constitution of the arbitral tribunal (e.g. BGE 136 III 605

“Valverde”)

> (b) Lack of jurisdiction

> (c) Decision ultra & infra petita

> (d) Violation of equal treatment & right to be heard (e.g. 4A_600/2010)

> (e) Violation of public policy (e.g. 136 III 345 and 138 III 322)

> Similar (but not identical) to Art. V New York Convention

> No right to set aside on substantive grounds other than public policy

> Even procedural violations must be significant to set aside an award

Arbitral Procedure is Crucial


Challenge of an Award: “Check the Box”

> Federal Tribunal: restrictive interpretation of Art. 190 PILA, setting aside

petitions rarely granted> Focus of judicial review is not on substance

> Mistakes of fact or erroneous legal decisions are not bases for appeal

> Arbitrators have wide leeway, and may:

Engage in anticipated assessment of evidence (antizipierte

Beweiswürdigung)

Apply law not briefed (iura novit curia) unless not reasonably foreseeable

> Focus of judicial review is on procedure: arbitral tribunal must “check the

box”

> Makes diligent conduct of the arbitral proceedings very important

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Challenge of an Award: “Raise it or Waive it”

> Objective of commercial arbitration: swift and final dispute resolution

> The law supports this objective by limiting the grounds for challenge of

an arbitral award and . . .

> The law seeks to minimize the uncertainty of challenges, therefore . . .

> Parties must raise objections to procedural violations at penalty of

waiver> ICC Rules Art. 39

> Swiss Rules Art. 30

> Art. 373(6) ZPO (domestic arbitration)

> “Verstösse gegen die Verfahrensregeln sind sofort zu rügen, andernfalls

können sie später nicht mehr geltend gemacht werden”

> Excerpts from BGer decisions

> ("Raise it or Waive it" Cases) (Enclosure 15)

> For most recent decisions, see

http://www.swlegal.ch/Publications/Arbitration-Case-Digest.aspx



Challenge of an Award: Chances of Success or the Lack Thereof

> Chances of Success*

> On average, only about 7% of all petitions before the Federal Tribunal to set

aside international arbitral awards are (partially or fully) granted

> Success under Art. 190(2) PILA, grounds of appeal:

> (a) (constitution): 2.2%

> (b) (lack of jurisdiction): 9.4%

> (c) (ultra and infra petita): 3.6%

> (d) (equal treatment & right to be heard): 5.5%

> (e) (public policy): 1.3%

* From Felix Dasser & David Roth, Challenges of Swiss Arbitral Awards – Selected Statistical Data as of 2013, 32 ASA Bull. 2014, pp. 460-466

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Dr. Martin Bernet

[email protected]

Schellenberg Wittmer Ltd / Attorneys at Law

Löwenstrasse 19 / P.O. Box 1876 / 8021 Zurich / Switzerland

T +41 44 215 5252 / F +41 44 215 5200

www.swlegal.ch

Thank you for your attention.

ZURICH / GENEVA / SINGAPORE