ILQ Winter 2011 Issue

continued, next page

Vol. XXV, No. 3 Winter 2011

THE INTERNATIONAL LAWQ U A R T E R L Y

a publicatioN of the florida bar iNterNatioNal laW sectioN

www.floridabar.org • www.internationallawsection.org

See “UNIDROIT,” page 10

In ThIs Issue:Message from the Chair .............3

International Arbitration in Australia ...................................4

Florida Adopts UNCITRAL Model Law on International Commercial Arbitration to Further Bolster Miami’s Ability to Compete as a Viable Seat ...7

The Better Approach to Deciding 28 U.S.C. §1782 Applications for U.S. Discovery in Private Arbitrations Abroad ................23

A View from Abroad: Corporate Responsibility for International Crimes? ................................31

The Evolution of International Arbitration in Latin America ....34

Applications for Executive Council Members and Treasurer Sought ...................37

The Florida Bar Foundation: A Cause We Can Share ............38

The Enforcement of Foreign Arbitral Awards in Brazil and the Ratification of the New York Convention.............................39

The Necessity Defense in Bilateral Investment Treaties: Looking Forward ....................46

Production of Electronic Documents and Information: New UK Practice Direction Targets Costs of Electronic Disclosure ..............................54

Lost in Translation: American Juror Perceptions of Foreign Litigants .................................56

Unchartered Waters: The Kishenganga River Project Dispute and Arbitration Under the Indus Waters Treaty .........57

The Application of the UNIDROIT Principles of International Commercial Contracts to International Commercial

Arbitration as lex contractusBy Ludwina Klein, Warsaw

Introduction the uNidroit prin-ciples of international commercial contracts (“picc”),1 prepared and published by the international insti-tute for the unifica-tion of private law (“uNidroit”) in

1994 and revised in 2004, can be defined as “a non-legislative codification of the general part of the law of international

L. Klein

commercial contracts.”2 according to the guidelines contained in the com-ments to the preamble to the picc, the term “international” contracts should be interpreted broadly so as to exclude only those contracts with elements connected exclusively with one country and where no international aspect can be found.3 the phrase “commercial” contracts, on the other hand, is not to be understood in opposition to “civil” contracts, where the former depends on the commercial

From the Editor . . . Miami, london, sydney, Warsaw, the hague, Montreal and los angeles; the geographic diversity of the authors selected for this special international litigation and arbitration edition of the International Law Quarterly is truly remarkable—and the articles themselves are even more impressive. on the heels of our highly successful “focus on china” edition, the ILQ cannot be accused of focusing solely on latin america. indeed, this journal is rapidly becoming required

reading for any truly international lawyer. in this issue alone, we cover areas from peter anagnostou’s analysis of australia’s newly amended international arbitration act, to omar ibrahem’s fascinating piece on the Kishenganga river arbitration between india and pakistan. in addition, polish lawyer ludwina Klein provides her excellent scholarship on the role of the uNidroit principles of international commercial contracts in resolving in-

page 2 Winter 2011

The International Law Quarterly

EDITOR’s NOTEfrom page 1

The International Law Quarterly is prepared and published by the International Law

Section of The Florida Bar.

Edward M. Mullins, MiamiChair

Nicolas Swerdloff, MiamiChair-elect

Richard C. Lorenzo, MiamiSecretary

C. Ryan Reetz, MiamiTreasurer

Francisco Corrales, WestonImmediate Past Chair

Mark R. Weiner, TampaCLE Chair

Clarissa A. Rodriguez, MaimiCLE Vice-Chair

Alvin F. Lindsay, MiamiEditor-In-Chief

Angela Froelich, TallahasseeProgram Administrator

Lynn M. Brady, TallahasseeLayout

Elizabeth Ortega Media Contact, ECO Strategic Communications,

[email protected]

Articles between 7 and 10 pages, double-spaced, involving the various disciplines af-fecting international law may be submitted on computer disk with accompanying hard copy, or via electronic format in Word (with the use of endnotes, rather than footnotes.) Please contact [email protected] for submissions and for any questions you may have concerning the Quarterly.

DeADLIne FOR nexT Issue Is APRIL 15, 2011.

ternational arbitral conflicts. british practitioners Neil Mirchandani and Matthew davis write on the uK’s new directive on the production of elec-tronically stored information. Jenelle lachuisa proposes a better approach for applying 28 u.s.c. 1782 to arbitra-tions abroad. and top trial consultant dr. philip K. anthony gives the sur-prising facts on biases of u.s. jurors to foreign litigants and tells how to prepare your foreign witnesses for testimony in u.s. courts. certainly latin america is not left out. in this issue, adam Gutin and britteny Keck write on Miami’s ability to compete as a viable seat of arbitra-tion given its competitive advantage in the latin american market. patrick Miller discusses the necessity defense as used by argentina in defending bilateral investment treaty arbitra-tion in the wake of its financial crisis. leonardo lima provides the definitive analysis of the enforcement of foreign

arbitral awards in brazil historically, and after ratification of the New York convention. and Judy angulo tracks the historic transformation of arbitra-tion in latin america from protection-ist to modern. in short, there is something here for everyone interested in internation-al litigation and arbitration, and we believe this publication will make ev-ery international lawyer a better one. on behalf of the international law section of the florida bar, our editors and leadership, i would like to extend my sincere thanks to those authors who contributed to make this edition another success. to everyone else, i would encourage you to think about what international expertise you could provide for an upcoming edition of the ILQ, and write an article! our fine publication has never been better and, with your active and continued support, we will achieve our goal of being the world’s best journal cover-ing all areas of international law.

Alvin F. LindsayEditor-in-Chief

Hogan Lovells US LLP

CLes in This Issue:

9th Annual International Litigation and Arbitration Conference (Audio CD)

Course no. 1260(Page 30)

Florida Quebec Forum 2011Course no. 1268

March 18-19, 2011(Page 44)

New Frontiers in ArbitrationCourse no. 1214

June 24, 2011(Page 53)

page 3 Winter 2011


Message from the Chair World-class seminars and conferences have always been an important part of the section, and the 9th annual international litigation and arbitration conference held on 4 february at the Westin diplomat in hollywood, florida, got 2011 off to an impressive start. the conference featured speakers from around the globe—including a recently retired Justice of the eastern caribbean court of appeal—on cutting-edge topics and included the signing of a cooperative agreement with the state of parana (brazil) bar association. these events were preceded the night before by a superb cocktail reception at the Viceroy hotel’s club 50 and a special speakers’ dinner with a keynote address from a brazilian supreme court Justice. on behalf of the entire section, i want to give a special thanks to the ilac co-chairs Rafael Ribeiro and Arnie Lacayo, the 9th annual conference co-chairs santiago Cueto and Quinn smith, the confer-ence steering committee members, and each of the presenters at the conference for their hard work and a job well done. the 9th annual ilac built off of last year’s excellent event with strong attendance by a good cross-section of ils members and non-members, as well as lawyers from other states and countries. if you did not attend, turn to pages 28-29 to see what you missed and then to page 30 to order the audio cd. coming up quickly on the section’s conference calendar—this week, in fact— is the Florida Quebec Forum 2011 (1268R). designed to further improve relationships between Quebec and florida, as well as in-form the public, the forum will optimize participation by attorneys, business people and other professionals. scheduled for 18 and 19 March at the fort lauderdale airport hilton hotel, the forum brings together law-yers from Quebec and florida, business people, bankers, accountants and financial institutions, with renown legal experts. the focus will be current issues involving business, immigration, taxes, real estate, mortgages, family law and insurance. register now or on-site. for details, see the brochure on pages 44-45. the ils ex-tends a special thanks to Lapierre Law Center, Desjardins Bank, Lucius smejda, Lex International Law Firm, and Greenspoon Marder, P.A., for sponsoring this event! Next month the ils will be hosting a reception at the ABA sections of Litigation and Criminal Jus-tice 2011 Joint Annual Conference to be held 13-15 April at the fountainbleau resort on Miami beach. Go to americanbar.org for more information, and plan on joining us at this premier cle event for civil and criminal litigators. Make a vacation of it and stay at the fountainbleau through 22-24 April for the ABA’s First Annual International Legal symposium on the World of Music, Film and Television. on 2 and 3 May 2011, an iba cross-border real estate conference will be held at the Mandarin oriental hotel in Miami, florida. the conference, entitled “Global Investments in Real Estate: Trends, Opportu-nities, and New Frontiers,” will include seven substantive panel sessions on topics such as “cross-border real estate investments: hot topics”; “distressed deals: turning problems into opportunities”; “shopping centers in a recovering Market”; and “real estate development: re-starting the engine.” the program will conclude with a session entitled, “preparing for a Major sporting event: real estate, legal and other is-sues arising from the olympics, as seen from rio.” after the real estate conference, stick around for the IBA Leaders Conference and the second Conference of the Americas on 4-6 May at the same location. the latter is an opportunity for legal professionals from North america and south america to network, share information and identify issues, concerns and opportunities across the americas’ legal markets and jurisdic-tions. for details on these international bar association events, click on the “conferences” tab at ibanet.org. the section’s year winds up at the florida bar’s annual convention in June at the Gaylord palms resort & convention center in Kissimmee. as a bookend to february’s ilac, and continuing one of the themes of this edition of the ILQ, the section will be sponsoring a seminar on 24 June entitled “New Frontiers in Arbitration” (1214R). for more information, see the cle brochure on page 53. finally, if you missed one of our webinars, you can still purchase cds for each, including the “bp deepwa-ter horizon,” “china (the New silk road),” and “cross-border e-discovery.” cds can be purchased online, by fax and by mail. please go to the florida bar’s website for complete order information. this is a great way to get caught up on important international legal issues at your convenience.

Edward M. MullinsAstigarraga Davis Mullins & Grossman, P.A.

page 4 Winter 2011


International Arbitration in Australia

By Peter Anagnostou, sydney

international arbi-tration in austra-lia is governed by the international arbitration act 1974 (cth) (“iaa”). on 6 July 2010, the International Arbitration Amend-ment Act 2010 (cth)

(“iaa amendment act”) received royal assent and passed into law. the intent of the iaa amendment act is to revise substantially the iaa in order to promote the use of arbitra-tion as a method of resolving disputes arising out of transnational contracts and increase the attractiveness of australia as a seat for international commercial arbitration. the iaa amendment act is com-plemented by other regulatory and government initiatives also intended to modernise the national and domes-tic arbitration laws1 and to create an international venue for the settlement of international disputes in sydney, australia.2 the impetus behind the initial implementation of the iaa was to en-shrine the New York convention into australian legislation to ensure the recognition and enforcement of foreign arbitral awards.3 thus, the iaa per-mitted parties to move an australian court for an order staying the proceed-ings so as to enable an international arbitration to proceed. further, it ensured the international enforcement of arbitration agreements and awards made in other states. the legislation was substantially amended in 1989 to incorporate the provisions of the united Nations commission on international trade law (“uNcitral”) Model law on in-ternational commercial arbitration. this amendment was widely praised

since australia was one of the first countries to adopt the Model law. Nevertheless, australia’s legal and judicial framework did not always create the ideal environment for international arbitration. a number of high-profile decisions gave rise to con-cerns about the australian judiciary’s approach to international arbitra-tion.4 these deficiencies, coupled with the growth of the asia-pacific economy, have led to a strong push by the australian government to reform the current legislation in an effort to make australia a major centre for international arbitration in the asia-pacific region.

Purpose of the IAA Amendment Act of 2010 the new regime seeks to promote australia as both the seat and place of choice for international arbitrations as well as to provide parties with greater certainty regarding recogni-tion and enforcement in australia. on 25 November 2009, the attorney-General of australia, the honourable robert Mcclelland Mp, introduced into parliament proposed reforms for the iaa designed to “en-sure the act remains at the forefront of international arbitration practice.” the amendments to the iaa were seen by the attorney-General to be essential in order to “emphasise the importance of speed, fairness and cost-effectiveness in international arbitration, while clearly defining and limiting the role of the courts in international arbitration without compromising the important protec-tive function they exercise.”5

in general terms, the aim of the iaa is “to facilitate international trade and commerce by encouraging the use of arbitration as a method of

resolving disputes.”6

the impetus for such an overhaul of australian international and do-mestic arbitration legislation lies in the following key areas: (1) to clarify and update the application of the iaa by adding provisions from the 2006 revision of the uNcitral Model law on international commercial arbitration 1985; (2) to improve the overall operation of the iaa; (3) to provide greater guidance to the courts in interpreting the iaa; (4) to provide additional option provisions to assist the parties to a dispute; and (5) to clarify the circumstances in which a court may refuse to enforce a foreign award.

Key Amendments the following so-called “Model law plus”7 amendments of the iaa amendment act may be significant in the practice of international arbi-tration in australia. Notably, the amendments apply only to arbitration agreements entered into after 6 July 2010 unless the parties agree to adopt them.

Enforcement of foreign arbitra-tion awards. there are a wider range of options when enforcing ar-bitral awards in australia. a foreign arbitration award may be enforced in australia by a court of a state or territory or the federal court as if it were a judgment of that court. the iaa now provides an exhaustive list of the grounds that mirror those set out in the Model law and New York convention upon which the enforce-ment of an award can be challenged: (1) the party challenging the award was under an incapacity; (2) the arbitration agreement was invalid; (3) no proper notice was given to the challenging party; (4) the dispute is

P. Anagnostou

page 5 Winter 2011



beyond the scope of the arbitration agreement; (5) the tribunal or process was or is inconsistent with the arbi-tration agreement; (6) the award is not yet binding on the parties; (7) the subject matter of the dispute is not capable of settlement by arbitration; and (8) the enforcement of the award would be contrary to public policy. the amendments to the iaa make it clear that the court does not have any discretion to refuse enforcement on any other ground.

Optional provisions. there is now a necessity expressly to “opt-in” or “opt-out” of the optional provisions of the iaa. unless parties agree to “opt-out,” they will have the following rights in arbitrations governed by the iaa: (1) a right to request that subpoenas be issued;8 (2) a right to apply to a court for relief as a result of non-compliance with a subpoena;9 (3) a right to seek security for costs;10 and (4) a right to apply to a court for relief in the event that the respondent to an arbitration refuses to participate. similarly, un-less parties agree expressly to “opt-in”

to the provision, there will be no right for either party to apply to the court for an order for the disclosure of confi-dential material.

Impartiality of Arbitrator. there is now a higher threshold for challeng-ing the independence of an arbitrator. the iaa amendment act contains a long-awaited clarification of the op-eration of the Model law with respect to challenges to the appointment of an arbitrator.11 the traditional “reasonable apprehension of bias” test has been replaced with a test based on whether there is a “real danger of bias” in order to protect arbitrators and the process from speculative chal-lenges.12

Interim measures. the iaa has granted parties enhanced powers to obtain interim measures. parties to an international arbitration, taking place both in australia and overseas, can now ask the arbitral tribunal to order interim measures. except in limited circumstances, such an interim measure will be recognised

and enforced by australian courts, ir-respective of the country where it was issued.13

Appeal. there is now limited scope to appeal or challenge an award. appeal-ing an award handed down by arbi-tration now requires both the consent of the parties and leave of the court.

Arbitration Agreements. there are new ways in which an arbitra-tion agreement may be formed. the definitions used in the iaa have been amended, whereby agreements in writing have been extended to cover electronic components,14 in line with the Model law.15 subject to the agreement being recorded in some form, the agreement will be valid and enforceable.

Model Law. significantly, if an arbitration agreement is interna-tional and the seat is in australia, the parties can no longer “opt-out” of the Model law and have a domestic arbitration with the right to apply for leave to appeal the award.16

Aballí Milne Kalil, P.A. is a Miami legal boutique, now in its nineteenth year, which focuses its practice on international commercial litigation, international business transactions, tax and estate planning, and domestic real estate transactions. The firm’s attorneys are fluent in a number of languages including English, Spanish, Portuguese and French, and have connections with a strong network of capable lawyers across the United States, Europe, Latin America and the Far East.

www.aballi.com

page 6 Winter 2011


AUsTRALIAfrom preceding page

the above reforms provide a more predictable framework for interna-tional arbitration in australia based on the Model law, with increased powers for arbitrators and the benefit of greater court assistance to the arbi-tral process if required. as noted, these transitional provi-sions of the iaa amendment act do not have retrospective effect, leaving agreements made prior to 6 July 2010 subject to the unamended iaa.

Conclusion in a speech to the australian centre for international commercial arbitration (“acica”) on 4 december 2009, the attorney General said that the “legislative reform is only part of what is required to build a truly aus-tralian brand of international com-mercial arbitration,” and that what is needed is “cultural reform as to how arbitration is conducted in australia.” he stressed the necessity to “invent a form of arbitration that is tailored to the needs of the parties—to the needs of business.”17 this iaa amendment act rep-resents only part of the enormous change in the landscape of arbitra-tion in australia over the past thirty years. throughout the profession, the attitudes of the various courts and practitioners have evolved to embrace

arbitration as a legitimate mecha-nism for the resolution of disputes. this has been reflected in the estab-lishment of facilities for arbitration, such as the acica and the austra-lian international disputes centre (“aidc”). the iaa amendment act is a wel-come development to those partici-pating in international arbitrations with an australian seat and is sure to attract a good deal of attention from both the community of Model law countries and the users of interna-tional arbitration. as the demand of the asian economies to provide a neutral location for dispute resolution intensifies, australia has emerged as an efficient centre with enhanced sup-port of the australian courts.

Peter Anagnostou is the Chair of the New South Wales Young Lawyers In-ternational Law Committee. He is also a member of the Australian Branch of the International Law Association and the Australian Forum for Inter-national Arbitration. He is currently a Sydney-based construction lawyer working in-house for one of Australia’s largest construction firms.

Endnotes:1 the recently introduced commercial arbitration act 2010 (NsW).

2 the australian international disputes centre was officially opened by the austra-lian attorney-General robert Mcclelland and NsW state attorney General John hatzistergos on 10 aug. 2010.

3 the New York convention is “widely recognised as the foundation instrument

of international arbitration.” uNcitral, “1958 - convention on the recognition and enforcement of foreign arbitral awards - the ‘New York’ convention,” uNictral website, viewed 25 Nov. 2010, http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NY-convention.html.

4 Esso Austrl. Res. Ltd. v. Plowman, 128 a.l.r. 391 (1995) (regarding confidentiality), and Eisenwerk v. Australian Granites Ltd., 1 Qd. r. 461 (2001) ( regarding the role of the Model law in the case of an icc arbitration).

5 robert Mcclelland, austl. atty-Gen., address to the australian Maritime and transport arbitration commission (10 July 2010), available at http://www.ag.gov.au/www/ministers/mcclelland.nsf/page/speeches_2010_1July2010-addresstotheaus-tralianMaritimeandtransportarbitrationcommission%28aMtac%29.

6 international arbitration amendment bill 2009, (austl.) australian parliamen-tary library website, viewed 25 Nov. 2010, http://www.aph.gov.au/library/pubs/bd/2009-10/10bd163.htm.

7 these australian-made “Model law plus” provisions were developed after a care-ful assessment of international jurisprudence on international arbitration and the austra-lian common law.

8 iaa §. 23.

9 iaa § 23a.

10 iaa § 27.

11 iaa § 28.

12 iaa § 18a.

13 iaa c. iV(a).

14 iaa § 3(1).

15 Model law art. 7, opt. 1.

16 iaa § 21.

17 robert Mcclelland, austl. atty-Gen., address to the australian centre for inter-national commercial arbitration (4 dec. 2009), available at http://www.ag.gov.au/www/ministers/mcclelland.nsf/page/speech-es_2009_fourthQuarter_4december2009-internationalcommercialarbitrationinaus-traliaMoreeffectiveandcertain

ChAnGe YOuRADDRess On-LIne!

Log on to The Florida Bar’s website (www.FLABAR.org) and use the form found under “Find a Lawyer” and then “Attorney Search.” The form is also found under “Member Services.”

Ethics Questions?Call The Florida Bar’s

eThICs hOTLIne 1/800/235-8619

page 7 Winter 2011


See “UNCITRAL,” next page

Florida Adopts UNCITRAL Model Law on International Commercial Arbitration to

Further Bolster Miami’s Ability toCompete as a Viable seat

By Adam Gutin & Brittney C. Keck, Palm Beach Gardens

speaking at a recent meeting of the Miami international arbitration society (“Mias”), renowned interna-tional arbitration expert Jan paulsson challenged Mias members to compete on behalf of Miami to host the pres-tigious international council for com-mercial arbitration (“icca”) congress in the near future.1 the challenge came immediately on the heels of the adoption by the florida legislature of a statute2 based on the uNcitral Model law on international com-mercial arbitration with amendments as adopted in 2006. Mr paulsson’s suggestion was a direct reference to the often-asked question—what should we do next to increase Miami’s viability as a venue for international arbitration? Miami offers an interesting case of a city trying to compete with several other urban centers around the world as a preferred venue for international arbitration proceedings. the adop-tion of the uNcitral Model law is not the first step in this effort but merely the latest in a trend that has been developing over the past several decades. efforts can be traced back to at least the early 1980’s when several prominent members of the Miami business and legal commu-nity attempted to launch an inter-national arbitration institute called the international center of florida.3 the institute lasted only a few years, later merging with the World trade center of florida and taking on a different purpose. but international commercial arbitration in Miami has continued to gain steam steadily. for example, as of the international chamber of commerce’s (“icc”) most recently published statistical report,

Miami was the seat of more arbitra-tions than any other u.s. city, with the exception of New York.4 among other things, Miami-based practi-tioners are seeking to exploit their competitive advantage—geographic location and a high number of trained practitioners of latin american and caribbean descent, fluent in both english and spanish—to draw arbi-trations from latin america and the caribbean.5

in adopting the Model law-based legislation, florida became the seventh u.s. state to do so, joining california, connecticut, illinois, loui-siana, texas and oregon.6 the Model law became effective 1 July 2010.7 its passage was the direct result of a concerted effort by members of the international law section of the florida bar, many of whom are also members of Mias.8 the goal of the adoption of the Model law was to cre-ate a sense of security among parties and their counsel in selecting Miami as a forum for international arbitra-tion.9 touting pro-business interests, the bill steadily gained bipartisan support and successfully navigated its way through the florida legislature.10 Notwithstanding the recent legisla-tive victory, Miami’s progress has not been without obstacles. in response to the case of The Florida Bar v. Rapo-port11 in 2003, members of the florida legal community pushed for strict rules governing the unauthorized practice of law.12 the case involved an out-of-state lawyer soliciting clients in florida to represent them in securities arbitration cases held in florida.13 rapoport claimed that the federal arbitration act (“faa”) preempted florida law and that he

was authorized to solicit and act for parties in federal securities matters under the faa.14 the florida su-preme court held against rapoport and found him to have engaged in the unauthorized practice of law.15 on the heels of Rapoport, the florida bar sought to implement amendments to the florida rules of professional conduct making it very difficult for attorneys not licensed in florida to represent clients in arbitrations in the state.16 realizing the poten-tially devastating effect this proposed change in rules could have had on the practice of international arbitration in Miami, many international prac-titioners fought for several years to carve out an exception so that foreign attorneys could represent parties in international arbitrations.17 conse-quently, the revised rules contain stricter requirements for out-of-state counsel representing parties in domestic arbitrations but do provide an exception for counsel representing parties in international arbitrations.18

the question arises whether the adoption of the Model law upgrades Miami’s appeal all that much. after all, there are numerous other coun-tries which have adopted the Model law that are not at the top of the arbitration venue lists (e.g., bulgaria, cambodia, etc.).19 however, as eduar-do palmer, the Miami-based attorney at the helm of the push to adopt the uNcitral Model law, has stated: “this is a multi-faceted mosaic that [is being pieced] together to continue to build on Miami’s reputation as a leading city to conduct international arbitration proceedings.”20

page 8 Winter 2011


UNCITRALfrom preceding page

this “mosaic” is a combination of the adopted laws discussed above, conferences, an engaged academic community, and of course, a support-ive legal community. since 2003, for example, the icc has been holding an annual conference, “international commercial arbitration in latin america: the icc perspective,” in Mi-ami.21 similarly, since 2003, the inter-national centre for dispute resolu-tion has held an annual international arbitration conference in Miami.22 in addition, an engaged academic community has benefited from the development of Miami as an inter-national arbitration venue. the law schools at florida international university (“fiu”) and the university of Miami (“uM”) both have interested students who are vested in education in international arbitration, at least based on their participation in the annual Willem c. Vis Moot in Vienna, austria.23 both schools host Vis prac-tice moots in the spring of each year.24 the fiu Vis practice Moot attracts schools from the united states, latin america, and europe. the uM annual moot is sponsored by the florida bar’s international law section and consists of all the florida law schools that participate in the Vis Moot.25 also, in addition to the Vis Moot, uM students have begun participating in the Madrid Moot, a spanish-lan-guage moot focused on international commercial arbitration,26 and fiu students have branched into interna-tional investment arbitration through the foreign direct investment Moot held in frankfurt.27 further, both schools have begun to invest increas-ing time and effort in cultivating interest in international arbitration. uM has secured big names in the international arbitration community, such as Jan paulsson, president of the london court of arbitration, and Judith freedberg, former general counsel to the permanent court of ar-bitration, to head up the law school’s

new llM program in international arbitration.28 spearheaded by profes-sors Manuel Goméz and M.c. Mirow, fiu has also created a Global studies initiative seeking to foster dialogue regarding international legal con-cerns by taking a more “grass roots” approach, forming partnerships with local law firms and holding conferenc-es such as the international arbitra-tion annual summit. the summit’s inaugural event took place in early March and gathered a number of key practitioners, policymakers and schol-ars from latin america and the u.s.29 Moreover, fiu has launched a com-prehensive empirical study on the use of arbitration in latin america and is planning a series of other initiatives, both in investment and international commercial arbitration.30

as discussed above, as of 2008, icc statistics reported that Miami is currently behind only New York as an icc arbitration venue in the united states.31 concurrently, the demand for arbitrations where one or both of the parties are from latin america is drastically increasing.32 parties from both latin america and abroad have long been hesitant to entrust dis-putes arising from their investments and commercial transactions to local court litigation in latin america for a variety of reasons.33 currently, based on the available statistics, there ap-pears to be a large, untapped market from latin america and the carib-bean participating in icc arbitrations upon which Miami has yet to draw fully.34 Given the combination of this increase in demand for arbitration, the hesitance to entrust disputes to local litigation in south america, and florida’s recent adoption of the Model law, the Miami legal commu-nity is continually positioning itself to compete better as the venue of choice for international arbitrations stem-ming from places south of the united states.

Adam Gutin obtained his Juris Doctor from the Florida International University College of Law in May of 2010. He also has a Master of Busi-ness Administration, Bachelor of

Science in Finance, and a Bachelor of Arts in English from the University of Florida. Adam would like to thank Professor Manuel Goméz, Eduardo Palmer, Burton Landy, Brittney Keck, his family, and friends at the Interna-tional Law Section of The Florida Bar for their support.

Brittney C. Keck obtained her Juris Doctor from the Florida International University College of Law in May of 2010. She also has a Bachelor of Arts in Political Science from the Univer-sity of Central Florida. Brittney would also like to thank Professor Manuel Goméz, Eduardo Palmer, Burton Landy, Adam Gutin, her family, and friends at the International Law Sec-tion of The Florida Bar.

Endnotes:1 for more information on Mias, see http://www.miamiinternationalarbitration.com. 2 2010 fla. laws ch. 2010-60.3 andres oppenheimer, New Arbitration Institute Isn’t First on the Block, MiaMi Her-ald, feb. 20, 1984.4 2008 Statistical Report, 20 iCC int’l Ct. arb. bull. 12 (2009).5 See Miami international arbitration society, Miami: An International Arbitra-tion Center for the Americas and Beyond, http://miamiinternationalarbitration.com/en/miami-as-a-center-for-arbitration.html (last visited June 30, 2010) (“Miami is also a[n international] . . . city with a large workforce of first-class bilingual and multilingual pro-fessionals . . . . in addition, Miami is a more convenient and far less expensive location to host international arbitration proceedings re-lating to disputes arising in the americas.”).6 uNcitral.org, uNcitral Model law on international commercial arbitration, as adopted by the u.N. commission on inter-national trade law (21 June 1985) http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.html (last visited June 24, 2010) [hereinafter Model law].7 2010 fla. laws ch. 2010-60.8 florida bar international law section, Minutes of the Mid-year executive council Meeting, Jan. 16, 2009, http://international-lawsection.org.9 Julie Kay, Miami ramps up efforts to be the seat of international arbitration, S. Fla buS. J., dec. 4, 2009.10 See susannah a. Nesmith, Law would let Florida adopt U.N. arbitration model, apr. 29, 2010, http://www.dailybusinessreview.com/Web_blog_stories/2010/april/u.N._arbi-

page 9 Winter 2011


tration.html.11 TFB v. Rapoport, 845 so. 2d 874 (fla. 2003).12 http://arias-us.org/index.cfm?a=11.13 TFB v. Rapoport, 845 so. 2d at 875.14 Id. at 876.15 Id. at 878.16 See In re Amends. to R. Reg. Fla. Bar and Fla. Rules of Jud. Admin., 907 so. 2d 1138, 1139 (fla. 2005).17 See Matthew haggman, Court Limits Out-Of-State Attorneys, MiaMi Herald, May 13, 2005. also, for a discussion of how various u.s. jurisdictions have dealt with the issue of the unauthorized practice of law in regard to arbitration, see david M. spector & Jessica romero, Arbitration and The Unauthorized Practice of Law, 13 ariaS 16-19 (1st Q. 2006).18 r. reg. Fla. bar 1.3.11 (d), (e).19 See Model law, supra note 1. 20 Kay, supra note 9.21 icc, ICC Conference spotlights arbitra-tion in Latin America, oct. 19, 2007, http://www.iccwbo.com/id16810/index.html; see also Miami international arbitration society, Thriving Infrastructure Geared Toward In-ternational Arbitration, http://miamiinterna-tionalarbitration.com/en/miami-as-a-center-for-arbitration/infrastructure.html.22 am. arb. assoc., icdr, AAA Construc-tion Division to Hold Miami Conference, http://www.adr.org/sp.asp?id=37444.

23 for general information on the Moot, see the annual Willem c. Vis international commercial arbitration Moot, http://www.cisg.law.pace.edu/vis.html. for a list of the participants in the Moot, including the uM and fiu teams, see seventeenth annual Willem c. Vis international commercial ar-bitration Moot 2009-2010 registered teams, http://www.cisg.law.pace.edu/cisg/moot/par-ticipants17.html#uni.24 See fiu, http://calendar.fiu.edu/main/events/view/2010/02/06/1935; see also M.i.a.s. blog, http://miamiinternationalarbi-tration.com/blog/2009/11/florida-bar-vis-pre-moot-call-for-arbitrators/.25 See fiu, http://calendar.fiu.edu/main/events/view/2010/02/06/1935; see also M.i.a.s. blog, http://miamiinternationalarbi-tration.com/blog/2009/11/florida-bar-vis-pre-moot-call-for-arbitrators/.26 MootMadrid, http://www.mootmadrid.es/.27 foreign direct investment international Moot competition, http://www.fdimoot.org/.28 for director of professional programs Judith freedberg’s full biography, see uni-versity of M.iami school of law, http://www.law.miami.edu/facadmin/admin/jfreedberg.php.29 fiu, Global legal studies initia-tive, http://law.lawnet.fiu.edu/index.php?option=com_content&task=view&id=461&itemid=838.30 fiu, Global legal studies initia-

tive, http://law.lawnet.fiu.edu/index.php?option=com_content&task=view&id=461&itemid=838.

31 2008 Statistical Report, 20 iCC int’l Ct. arb. bull. 7, 12 (2009).

32 See generally Jonathan hamilton & Mi-chael roche, Survey of Trends in Latin Amer-ican Arbitration, int’l diSputeS Q. (summer 2009), available at http://www.whitecase.com/idq/summer_2009_1a/ (discussing the growth of icc commercial arbitrations in a variety of countries in latin america); see also, ar-noldo Wald, The Development of Arbitration in the Brazilian Court (2006-2009), arb. rev. oF tHe aMeriCaS (2010), available at http://www.globalarbitrationreview.com/reviews/21/sections/79/chapters/819/brazil/ (discuss-ing the increased rate of arbitration growth specifically in brazil).

33 See generally Nigel blackaby & sylvia Noury, International Arbitration in Latin America, latin lawyer rev. (2006), available at http://www.freshfields.com/publications/pdfs/2006/llreviewarbitration.pdf (describ-ing parties’ hesitance to participate in local court litigation in latin american because of risks including: unfamiliarity with local procedures; partiality; corruption; unenforce-ability of the judgment outside of the local district; delay; and appeals).

34 See generally 2008 Statistical Report, 20 iCC int’l Ct. arb. bull. 7, 12 (2009).

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page 10 Winter 2011


character of the transaction or the “merchant” status of the parties. the term “commercial” is instead intended to exclude “consumer” contracts from the scope of application of the picc, as such contracts may be subject to special restrictions in some legal systems. the picc do not define “con-sumer” contracts but recommend nar-row interpretation so that the term “commercial” contract can be given the broadest possible meaning.4 sixteen years after the promulga-tion of the first version of the picc and six years after their amendment, there is no doubt as to the significance of the picc in the practice of inter-national commercial contracts. they have received much attention in the literature, as well as in the practice of national courts and arbitral tribunals. the general approval of the picc is reflected in the extensive uNileX database5 comprising the relevant bibliography and case law. the value of the picc has been approved in at least three contexts. first, as contem-plated in the preamble, they “serve as a model for national and interna-tional legislators.”6 second, they are widely used in drafting and negotiat-ing cross-border contracts.7 finally, they are referred to in the process of settling disputes arising from inter-national transactions. in this context, because of their non-binding charac-ter, the picc are relevant predomi-nantly in international arbitration.8 the role of the picc in resolving arbitral conflicts is perhaps the most controversial and therefore subject to ongoing debate.9

the aim of this article is to assess the extent to which the picc can con-tribute to international commercial arbitration, despite their non-binding character. in so doing, we will first identify various contexts in which the picc may apply. the analysis of their use in international commercial ar-bitration will be limited to one of the spheres of their applicability, namely

their role as lex contractus, with a focus on the drafters’ intent expressed in the preamble, as well as an exami-nation of different ways in which the picc have been used in arbitration practice in this context. We will also assess whether the practical use of the picc in international commer-cial arbitration corresponds with the purpose intended by the drafters. the following section examines the character and the scope of the picc. the next section discusses their ap-plication as lex contractus chosen by the parties or arbitrators. the final section is devoted to the problem of qualifying the picc as trade usages and the possibility of their application in this context. little attention will be given to matters relating to the appli-cation of the picc to state contracts or the challenge and enforcement of arbitral awards based on the picc. other interesting aspects of the picc, such as the application of the picc to arbitration agreements themselves or the substantive content of the picc and its quality, are also beyond the scope of this article.

1. The Character and the scope of the PICC The PICC as a set of General Rules for International Commercial Contracts the picc were designed as a neutral set of rules of international contract law to be used “throughout the world irrespective of the legal tra-ditions and the economic and political conditions of the countries in which they are to be applied.”10 the intent of the authors was to create a system of rules that would be a restatement of the law of international commer-cial contracts reflecting the concepts present in the majority of national law systems and that, therefore, could become widely accepted.11 the drafters wanted to assimilate various rules from both civil and common law systems. at the same time, their am-bition was to provide solutions best-suited for use in commercial transac-tions of international character, and in certain cases preference was given

UNIDROITfrom page 1

to rules that are not yet common to the majority of legal systems but that facilitate the overriding purpose best.12 thus, the picc are not simply restatements of the most widely ac-cepted trade practices and usages. at the same time, it is worth noting that the description of the picc as a set of “general rules”13 does not do them justice. Many of the provisions are far from being abstract and in fact contain very precise rules that easily can be used by contracting parties, as well as by arbitrators in their decision making. on the other hand, in order to provide greater flexibility and allow adaptation to changing circumstanc-es, many of the provisions contain integrated safety mechanisms, such as the “unless the circumstances indi-cate otherwise” clause, leaving some discretion to the arbitrators in their application.14 the picc—through “privatiza-tion”—represent a new, modern approach to the unification of in-ternational-trade law.15 traditional instruments, such as international conventions or model laws, have been replaced by a non-binding, “soft law” instrument adopted by an intergov-ernmental organization. Moreover, the fact that they do not have the force of law may make them even more at-tractive.16 first, they were written by independent experts, academics and practitioners who specialize in com-parative contract law and, therefore, arguably have a better understanding of the subject than officials delegated by national governments to participate in drafting international conventions. a second advantage of the picc over traditional legal tools is greater flex-ibility and adaptability to changing business realities in cross-border trade practice, with the possibility of amend-ment without the need for complicated procedures similar to those required by international conventions and “hard” law instruments. finally, unlike most international law instruments, the picc do not apply automatically but are based on consensus. that is to say, their application is based on voluntary acceptance by the parties or arbitrators and depends on whether

page 11 Winter 2011


See “UNIDROIT,” next page

they prove to be useful in the circum-stances of the particular transaction. on the other hand, the consensual character of the picc can at the same time potentially limit the number of cases in which they come into force. the other aspect worth mentioning is that the picc, as a non-binding in-strument, cannot be applied as a law governing the merits of the dispute by national courts that are obliged to apply the law.

1.2 The scope of Regulation the picc are not limited to any particular type of contract. they begin with the preamble, contain-ing guidelines on the scope of ap-plication, followed by some “general provisions.”17 the picc originally contained 120 articles covering areas such as formation and validity of the contract, interpretation and content, performance and non-performance, as well as remedies for non-performance. since the original picc generally worked well in practice, most of the 2004 revisions related to comments and illustrations, and only one “black letter” rule was amended. further modifications reflected the need for adjustment of the picc to the needs of rapidly developing electronic com-merce.18 the current edition includes five additional chapters dealing with authority of agents, third-party rights, set-off, assignment of rights, transfer of obligations, assignment of contracts, and limitation periods. the novelty of the current version is that it moves out of the traditional scope of contract law and now also covers tri-partite relationships (e.g., agency or assignment) as well as some topics traditionally governed by mandatory rules, such as limita-tion periods. this has raised doubts about the compatibility of the above-mentioned changes with the soft-law character of the picc.19 the main concern is the position of third par-ties, who should not be bound by any rules without their consent. there are still areas that the picc do not cover, such as the transfer of

property by sale. Moreover, there are other aspects of transactions, such as capacity to contract, corporate powers, prescription or statutory interest—aspects not regulated by the picc—that are traditionally governed by domestic law. this implies the need for application of additional rules (in most of cases, domestic law) to supple-ment the picc.

1.3 The Applicability of the PICC – General Remarks the scope of the picc is set out in the preamble which, in paragraphs two through six, indicates a num-ber of possible situations in which they apply. examination of these provisions results in the conclusion that the picc work in three gen-eral contexts: as law governing the contract (lex contractus); as a means of interpreting and supplementing ap-plicable domestic law; or as a means of interpreting and supplementing international uniform law instru-ments. in the last two cases, the picc are used as an equivalent to lex fori. according to the preamble, the picc can become the law governing the contract in several ways. ideally, the parties expressly decided that their contract be governed by the picc exclusively or in conjunction with domestic law. other situations arise when the parties referred to “general principles of law, the lex mercatoria or the like,” or where they did not make any choice as to the governing law. in these circum-stances, the power to decide whether or not to apply the picc is vested in the arbitrators. this distinction is reflected in the preamble, providing that the picc “shall” apply when the parties have chosen them to govern the contract, but they “may” apply in the other cases. the possibility of applying the picc as lex contractus in the absence of any choice of law by the parties arose through the 2004 revisions. the changes were introduced to reflect ar-bitral practice. the drafters took into account the fact that, even though arbitrators will usually apply a par-

ticular domestic law, they may still wish to refer to the picc in situations where it is apparent that the parties wanted to exclude application of any domestic law or where the contract has connections to many countries, none of which predominates.20 the second context in which the picc can be a useful legal tool is when they are applied as a means of interpreting applicable domestic law. this provision is also a result of the 2004 edition. in the original version of the picc their supplementing role in this regard was limited to situations “when it proved impossible to identify the relevant rule of the applicable law.”21 this amendment was another response to general practice of arbi-tral tribunals.22

finally, the last important area of the picc’s application is interpret-ing and supplementing international uniform law. in this regard, the most significant seems to be the role of the picc with respect to the united Nations convention on contracts for the international sale of Goods (“cisG”).23 the number of interna-tional law instruments that are being interpreted with the use of the picc is growing constantly, thanks to the official recommendations of interna-tional organizations.24 here, it is important to stress that the provisions of the preamble regu-lating the scope of the picc were only guidelines for those in international trade, as well as judges or arbitrators, setting forth general areas in which the picc can prove to be a useful legal tool. the situations set forth therein do not constitute an exhaus-tive list of the contexts in which the picc can be applied.25 there are other possibilities for bringing them to the arbitration proceedings; for ex-ample, through incorporation as con-tractual provisions or use as a means of contract interpretation. the former possibility is the consequence of the parties’ freedom of contract. they can decide to subject their agreement to a particular domestic law and at the same time incorporate the picc into their contract, either by simply

page 12 Winter 2011


UNIDROITfrom preceding page

copying their provisions or through reference.26 in such a case, the picc will become a part of contractual provisions and will need to be applied within the applicable domestic law, the mandatory provisions of which will prevail over the contractual terms. the use of the picc to interpret contracts is closely connected to their role as an equivalent of lex contrac-tus and therefore will be discussed in more detail in a later section. also worth mentioning when dis-cussing the applicability of the picc are the prerequisites as to the “inter-national” and “commercial” character of the contracts. this has already been discussed27 and is repeated here only to underline that despite the above-mentioned requirements, the picc can apply to all contracts, international as well as domestic, regardless of their commercial or non-commercial (consumer) character.28 this is based on the permissive char-acter of the preamble, as well as the express recommendations contained in the comments.29 on the other hand,

many national legal systems regulate domestic and international arbitra-tion differently. consequently, they impose more restrictions on the par-ties’ freedom of choice of applicable lex contractus in the domestic cases and limit it to the commercial con-tracts.30

2. The PICC as lex contractus 2.1 Arbitrators’ Freedom to Determine the Law Governing the Merits of the Dispute the first point that needs to be made when discussing the role of the picc as lex contractus in interna-tional commercial arbitration is that this form of dispute resolution is far better suited for the use of soft-law instruments than traditional litiga-tion in domestic courts. therefore, the picc recommend combining the choice of law made in their favor with an arbitration clause.31 this is justified given the benefits to arbitrators from a concrete refer-ence to rules governing the merits of any dispute. their decision is not subject to any lex fori, which would prevent them from applying soft-law instruments. instead they have lex arbitri; that is, the law governing the

procedural aspects of the interna-tional commercial arbitration in the country in which the arbitral proceed-ings take place. the vast majority of modern arbitration laws and rules allow the arbitral tribunal to enforce not only choice-of-law clauses made in favor of a particular domestic law, but also those referring to the “rules of law.”32 unquestionably, the latter also encompasses soft-law instruments like the picc.33 similarly, nobody today questions the parties’ right to exercise their autonomy by choosing a body of rules other than domestic law or international law instruments.34 the position of the arbitrators is different when no valid choice of law was made and that determination depends largely on the applicable lex arbitri and the arbitration rules chosen as well as the form of the arbi-tration (institutional versus ad hoc). this subject will be discussed in more detail later in this section.35 if a dispute is brought before a do-mestic court, the choice of law clause designating the picc as lex contrac-tus probably would not be enforce-able. Judges are bound to apply their domestic law that in most cases does not allow for the application (as lex contractus) of a body of rules other than the particular national law sys-

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tem, even with an express choice-of-law clause.36 in such a situation, the parties’ reference to the rules of law will be treated as mere incorporation of contractual provisions that serve to supplement domestic law determined with rules of private international law.37 the choice of the picc as lex contractus, by parties or arbitrators, can in practice cause difficulties. the first potential problem may occur if the picc prove to be in contraven-tion of the mandatory rules of the otherwise applicable law. in that situation, even though the picc will exclude application of that domestic law, in the vast majority of cases the provisions of the former (also manda-tory) will not be able to override the mandatory provisions of the latter.38 the mandatory rules that should be taken into account would be not only those of the domestic law of the seat of the arbitration, but also those contained in the domestic law of the country in which the enforcement will be sought.39 other complications can be caused by the choice of the picc excluding the application of some of the provi-sions classified by them as mandatory. the picc do not constitute a com-plete system of rules regulating all aspects of international commercial contracts. therefore, in some cases it will be necessary to determine the other system law to govern what is not covered. the arbitral tribunal facing this problem will most likely decide to apply a particular domestic law that has the strongest connec-tion with the transaction. the parties not wishing to have their agreement governed by any domestic law are advised to decide to incorporate the entire picc as governing transna-tional law.40

2.2 Reference to the PICC by the Parties 2.2.1 Express Choice of Law the parties’ right to agree on the law governing their contract is one of the aspects of the rule of “party au-tonomy” currently present in the vast

majority of national legal systems. in the context of arbitrators’ freedom to determine the law governing the merits of the dispute, a clause indicat-ing the picc as lex contractus will, as a rule, constitute a valid choice of law and will be enforced by the arbitral tribunal.41 this is true also when one or both of the contracting par-ties are states or intergovernmental organizations.42 the best approach is to include the choice-of-law clause in the contract, but the parties are also free to agree on the application of the picc at a later stage, even after the dispute has arisen and the request for arbitration has been filed. the parties can subject their agreement exclusively to the picc or refer to them in conjunction with a domestic law. in the latter case, they can decide that their reference should be treated as cumulative, alternative or exclusive. depending on which is chosen, the arbitral tribunal will have to base its decision on both of the sys-tems of rules, on either of them, or on one of them, depending on the subject of the dispute.43 the relevant clauses to this effect can be found in the foot-notes to the preamble.44 in addition, many modern model contracts pre-pared by international organizations, such as the international chamber of commerce (“icc”) or the interna-tional trade centre uNctad/Wto, contain reference to the picc as lex contractus to be applied exclusively or in conjunction with a domestic law.45 if parties do not determine the scope of application of the chosen bodies of rules, and in the event of conflict be-tween them, the decision as to which should prevail will be left to the ar-bitrators. in most cases, however, the mandatory provisions of the chosen domestic law will override the picc.46 in this context, the most reasonable practice seems to be combining the choice of the picc with another body of rules (e.g., domestic law), given the need for covering the areas not regulated by the former. alternatively, the parties may decide to refer to the picc as a part of lex mercatoria. this last solution would allow the parties to avoid the application of any domes-

tic law. cases where the parties referred to the picc are still relatively rare, even though arbitral tribunals have so far treated their choice as lex contractus very favorably.47 there are sixteen awards reported, rendered in institu-tional as well as ad hoc arbitration, where the picc were applied pursu-ant to an express choice of the par-ties. in some cases, parties referred exclusively to the picc48 whereas in others, they were applied in conjunc-tion with other rules such as terms of the agreement, equity or domestic law.49 Notably, in only three of these cases did parties make an express choice in favor of the picc in their contract.50 of course, a larger number of such contracts no doubt exist but have not given rise to any dispute yet, and thus are not reported. this thesis seems to be confirmed by the results of two inquiries carried out in 1996 and 1999 by uNidroit and the centre for transnational law (ceN-tral), respectively, in which about 25% of respondents (lawyers, in-house counsel, business people and arbitra-tors) admitted referring to the picc as to lex contractus at least once. None of the awards decided accord-ing to the picc chosen by the parties as governing law has been reported to have been set aside on the ground of conflict with mandatory rules or public policy.51 2.2.2 Implied Choice of Law as has been suggested, a good practice in the area of cross-border transactions is to insert the choice-of-law clause in the contract during its formation. in some cases, however, parties prefer not to determine the applicable lex contractus in their agreement, but that does not neces-sarily imply that a decision in this regard has not been made. this can occur when the parties are unsure how to express their preferences or when the crafting of such a clause is considered too time consuming or even unnecessary in the “honeymoon”

See “UNIDROIT,” next page

page 14 Winter 2011


period of negotiation. in these circum-stances, the arbitrators may decide that the parties’ choice has been made implicitly (tacit choice of law). the approach of the arbitral tri-bunals to the tacit choice varies from case to case. possible indicators of the parties’ will as to the law governing their agreement are the language of the contract, use of specific terms, currency, the choice of the place of performance or the circumstances of the conclusion and execution of the contract.52 the more these factors show connection with a particular domestic law or other set of rules, the more probable that the arbitrators will be willing to apply them. this approach is also expressed in many private international law instru-ments, requiring that the choice must be “clearly demonstrated by the terms of the contract or the circumstances of the case.” 53 according to some theo-

ries, there are two conditions that must be fulfilled in order to establish parties’ tacit choice. first, it needs to be proved that they were aware of the problem of the choice of applicable law and, second, that it was their mu-tual intention to solve this problem.54 the analysis of arbitral awards shows that the arbitrators will refer to the picc pursuant to the interpre-tation of parties’ tacit choice where they believe the parties wished to have their agreement governed by some “neutral rules.” examples can be parties’ reference to the principle of “natural justice”55 or “fairness.”56 this approach is reasonable and is prefer-able in such cases than referring to vague concepts of the lex mercatoria or general principles of law.57

2.2.3 Negative Choice of Law in certain cases, parties to inter-national commercial transactions, instead of designating the particular lex contractus, may agree (expressly or impliedly) on the rules that they

do not want to govern their contract. this situation is usually described as negative choice of law.58 depending on the preferences of the parties, the negative choice can have one of three forms. first, the parties may exclude the application of some of the domestic laws that have connection with the contract and at the same time allow for the possibility of the application of those remain-ing. the second possibility involves elimination of all laws connected with the contract. finally, the parties may choose to derogate from all national legal systems, even those that do not have any connections with the con-tract. in some cases, this effect also can be achieved by the choice of the international law.59 in certain exceptional circum-stances, silence in the contract as to the applicable law can have the same result.60 in this situation, the arbitrators’ approach will depend on the results of analysis of some back-ground information. in particular, it will be necessary to establish whether the absence of the choice-of-law clause


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was a mere omission or rather an intentional act resulting from the impossibility of reaching compromise. the tendency to interpret silence in the contract as a negative choice of law is characteristic of disputes involving state parties.61

in arbitral practice, the negative choice of law is usually seen as the reference to transnational rules.62 thus, it is not surprising that, in practice, arbitrators facing the prob-lem of negative choice often decided to refer also to the picc. the main arguments in favor of their applica-tion are that the picc represent the “principles generally applicable in international commerce”63 that “seem to be a faithful transposition of rules admitted to be applicable to inter-national contracts between traders engaged in international trade”64 and that they “have earned a wide accep-tance and international consensus in the international business commu-nity.”65

2.3 Reference to the PICC by the Arbitrators 2.3.1 Incorporation as a Part of Transnational Law the parties’ choice, express or im-plied, positive or negative, is not the only situation in which the picc can become the applicable lex contractus. as will be demonstrated, in the vast majority of cases, the picc become relevant in this context thanks to a decision of the arbitrators, particular-ly where the parties subjected their contract to transnational rules. in order to establish whether the picc can be considered an expres-sion of the transnational law, it is first necessary to determine the meaning of the latter. the picc as a whole are not composed exclusively of rules that can be qualified as “generally recognized principles of law and trade usages.”66 on the other hand, the ex-pression “transnational law” can also be defined in broader terms so as to include “all rules and principles other than those by a particular domestic law.”67 if the preference is given to the second approach, then the picc

could potentially be regarded a part of transnational law. the next problem arises in the context of the introduction to the 1994 edition, in which the drafters expressly state that even though the picc, for the most part, reflect widely accepted concepts, they “also embody what are perceived to be the best solutions, even if still not yet gener-ally adopted.”68 With this language, the authors seem to suggest that the picc as a whole cannot be treated as an expression of the lex mercatoria or commonly accepted general prin-ciples. the question remains, then, what is the significance of paragraph three of the preamble that provides for the application of the picc when the parties have agreed that their contract be governed by “general prin-ciples of law, the lex mercatoria or the like”? the answer seems to be in the comment to that paragraph, where the authors advise that the picc can be used “to determine the content” of the above-mentioned systems of rules. the foregoing implies that the picc are not to be considered a “codifica-tion” of general principles of law, the lex mercatoria, etc., but to the extent to which they correspond to the com-monly accepted standards, they can be a useful tool in ascertaining the content of the transnational rules.69 in this context, their role is to over-come, or at least reduce, the uncer-tainty created by the vague concepts forming transnational law by creating a source of rules expressed in a much more precise way. the analysis of the arbitral awards available in the uNileX database reveals that the picc frequently have been used in the context of transna-tional law. these cases can be classi-fied into three groups. first, there are cases where the tri-bunal applied the picc as an expres-sion of the lex mercatoria70 or “general principles of law”71 referred to in the contract. the wording of the choice-of-law clauses differed from case to case; however, arbitral tribunals did not hesitate to apply the picc in this context even where the relevant rules were described as “natural justice,”72

“general principles of equity,”73 or even “anglo-saxon principles of law.”74

second, are cases where the arbitrators applied the picc in the absence of parties’ choice of law or alongside the law chosen.75 in some of these awards, the arbitrators went so far as to say that the picc are an expression of “international prac-tices”76 and “the central component of the general rules and principles regarding international contrac-tual obligations,”77 or even that they “contain in essence a restatement of those ‘principes directeurs’ that have enjoyed universal acceptance and, moreover, are at the heart of those most fundamental notions which have consistently been applied in arbitral practice.”78

certainly, in some cases arbitrators were clearly more cautious and de-scribed the picc as “useful source[s] for establishing general rules for international commercial contracts,”79 or expressed the view that the use of the picc in the context of transna-tional law is limited, and they can be considered a part of the lex mercato-ria only inasmuch as they constitute “a faithful transposition of the rules which business people involved in international trade recognize as ap-plicable to international contracts.”80 there are also remarkable awards where the picc were applied not as an expression of, but as an alternative to, the vague concepts of lex merca-toria, the nature and scope of which are uncertain.81 this may suggest the possibility that the picc will at some point take over the function of at least some of the concepts within the trans-national law. finally, in some cases arbitral tribunals simply refused to apply the picc as an expression of transna-tional law because “at present there is no necessary connection between the individual principles and the rules of the lex mercatoria.”82 Most of these awards, however, relate to the appli-cation of the picc as a trade usage, which will be discussed further below. the domestic courts tend to treat

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favorably the arbitral awards refer-ring to the picc as to the expression of the transnational rules and uphold their validity in the cases where the arbitrators were not acting as amia-bles compositeurs, or mediators.83

2.3.2 Absence of Any Choice of Law by the Parties there can be various reasons behind the absence of any valid choice of law. first, even though it may seem unbelievable, in certain cases parties do not think about the choice of law at all or do not consider this aspect important enough to waste any time on it. the other possibility is that the silence in the contract is to be interpreted as intent to exclude the application of certain or all national law systems. this is the previously discussed “negative choice of law” situation.84 the absence of any validly chosen lex contractus can also result from the designation of two or more national law systems. the parties can decide on the “split choice of law” (dépeçage), but they have to state explicitly which aspects of the transaction are gov-erned by each of them. if, however, the choice-of-law clause refers to two or more systems of law without specify-ing their scope of application, it will not be valid. in certain circumstances, the arbitrators can also interpret such a clause as a negative choice of law.85

finally, it is possible that there was absolutely no consensus as to the applicable law and therefore it needs to be determined by the arbitrators according to the relevant arbitration law or rules. if that is the case, it is still advisable first to ask the parties about their preferences with regard to the applicable law. even if they did not find this aspect important during the negotiation and drafting of the contract, they may be interested in determining it in the context of the

already existing dispute. otherwise, the award could be challenged on the ground of the parties’ fundamental right to present their case.86 the procedures to be followed by arbitrators in determining the appli-cable law are regulated by the lex ar-bitri of the seat of arbitration and the arbitration rules, if any. the solutions adopted by arbitration laws and rules can be divided into two categories; namely, those allowing for the direct choice of law and those requiring the arbitral tribunal to make an indirect choice with the use of the rules of private international law. traditionally, in order to estab-lish the law applicable to the merits, arbitrators were required to apply the rules of private international law (usually those in the seat of the arbitration). this indirect method (voie indirecte) is still preferred by the uNcitral Model law, which provides that “failing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.”87 consequently, many domestic arbitration laws that adopted the Model law followed this approach.88 the method of direct determina-tion of the law applicable to the merits (voie directe) has been adopted by the majority of arbitration rules89 and a number of modern arbitration laws.90 Moreover, most of them favor the unlimited version of voie directe and allow the arbitrators to apply the “rules of law that they determine to be appropriate.”91 there are, however, some texts that require the arbitra-tors to apply the rules of law “with which the case has the closest con-nection”92 or even limit their choice to the domestic law “with which the subject-matter of the proceedings is most closely connected.”93 the above implies the conclusion that most of the domestic arbitra-tion laws impose restrictions on the arbitrators’ freedom to determine the lex contractus and deprive them of the possibility of applying other rules of law and, therefore, the picc. in contrast, the same cannot be said

with regard to the arbitration rules, the majority of which allow the arbitrators to apply the most appro-priate rules of law. in this context, it is important to remember that in the cases where the parties decide on the administered form of arbitra-tion, the rules of the chosen institu-tion will override provisions of the applicable lex arbitri regulating the same issues.94 the situation will be otherwise only if the latter have the status of mandatory rules. therefore, in practice, the limitations contained in the arbitration law of the seat will affect the arbitrators’ freedom pri-marily in the case of ad hoc arbitra-tions or where they have the status of mandatory provisions that cannot be excluded by any arbitration rules.95 Given that in most cases arbitra-tors will be expected to apply the “rules of law that they determine ap-propriate,” the meaning of this term is important. specifically, under what circumstances will the picc be the most “appropriate” lex contractus? the drafters of the picc chose a cautious approach. in the comments, they recommend that arbitral tribu-nals facing the absence of the choice of law should turn first to the domes-tic law and apply it unless inappropri-ate for the resolution of the particular conflict.96 on the other hand, given the extent of discretion left to the arbitrators by most arbitration rules, there is no reason why arbitrators should always look for the solution first in the domestic law. therefore, arbitrators should give as much at-tention to the rules of transnational law as to the relevant domestic laws.97 Moreover, it could also be argued that rules of law such as the picc “meet the expectations of the parties” better.98 the choice of arbitration is usually motivated by the wish to have the dispute resolved by a neutral forum. therefore, arbitrators should, by reference to neutral rules, comple-ment the decision of the parties to submit their case to arbitration.99 the picc are not only neutral, but also pass the test of appropriateness in terms of their sophistication and ad-vancement of the adopted solutions.100


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in practice, on several occasions arbitral tribunals applied the picc as “rules of law considered to be most ap-propriate” before this possibility was expressly provided for in the picc.101 the most notable is the award ren-dered by arbitration institute of the stockholm chamber of commerce where the arbitral tribunal defined the picc as rules that “have wide recognition and set out principles that in the tribunal’s opinion offer[] a pro-tection for contracting parties that ad-equately reflects the basic principles of commercial relations in most if not all developed countries.”102 in most of these cases, the arbitral tribunal followed the approach recommended by the picc and, before referring to them, considered the possibility of basing its decision on one of the oth-erwise applicable domestic laws. importantly, application of the picc as lex contractus by arbitra-tors in the absence of parties’ choice of law does not, in most of the cases, constitute a ground for the refusal of recognition and enforcement of such award.103

2.3.3 Arbitrators Empowered to Decide Ex Aequo et Bono in the practice of international commercial arbitration there are situations in which the arbitrators’ duty to apply the law or rules of law is waived. this can occur when they have been authorized to act as ami-able compositeurs or decide ex aequo et bono, and it is subject to two condi-tions. first, the applicable lex arbitri have to provide for such possibility. the majority of modern arbitra-tion laws and rules expressly allow the parties to empower the arbitral tribunal to decide on the basis of fair-ness, equity and justice.104 the second requirement, expressly provided for in most of the above-mentioned laws and rules, is that these powers have to be vested in the arbitrators by virtue of parties’ express consent. the extent to which arbitrators acting as amiable compositeurs can depart from any domestic laws and

rules of law varies from case to case and depends on the provisions of the applicable lex arbitri.105 there is also no agreement as to whether compe-tence to decide ex aequo et bono enti-tles the arbitral tribunal to disregard the express terms of the contract. the most appropriate approach seems to be that the arbitrators should at least not attempt to rewrite the text of the agreement.106 regardless of these limitations, the arbitral tribunal is expected to reach a solution that, given all circumstances of the case, seems fair and just. at the same time, the mere fact that arbitrators are not bound by any rules does not imply that they cannot look for the solu-tion in the rules expressed in soft-law instruments. therefore, the picc can be a useful tool in this context, obvi-ously to the extent to which arbitra-tors consider them to be the equitable principles suitable to the decision ex aequo et bono.107 the arbitral tribu-nal’s decision will not be based on the provisions of the picc; instead, they will be used to confirm that the chosen solution is just and fair. in spite of the fact that the cases where arbitrators are authorized to act as amiable compositeurs are relatively rare, several do exist where the arbitral tribunal decided to refer to the picc.108

3. Incorporation of the Principles as Trade Usages trade usages can be defined as “prevailing practices established among parties to a contract or ac-tors in the same industry.”109 in the context of international commercial arbitration, they can become relevant in two ways. first, as much as other concepts within the transnational law (general principles or lex mercatoria), they can be applied as lex contrac-tus instead of otherwise applicable domestic law. this can be the case where the parties decided to subject their relationship exclusively to terms of their agreement supplemented by relevant usages of trade. the second opportunity for the application of widely accepted practices is created

by the provisions of numerous arbi-tration laws and arbitration rules that oblige the arbitrators to take into account the relevant trade usages or customs.110 similarly, some interna-tional conventions provide that the arbitrators should always refer to the relevant trade usages.111

there is no certainty as to whether the picc and other similar soft-law instruments can be treated as an ex-pression of trade usages.112 the prob-lem with making such qualification is twofold. the first issue concerns their status as a set of legal rules, which seems disqualifying from the outset. on the other hand, the term “trade usages” also could be given a broader meaning so as to include not only practices but also systems of rules, as long as they facilitate the needs of the cross-border trade.113 the second difficulty is caused by the fact that, as discussed in the context of the lex mercatoria and general principles of law, not all of the provisions of the picc reflect widely accepted concepts. thus, the most appropriate view seems to be that the picc cannot be regarded a codification of trade us-ages, but the relevance of its particu-lar provisions in this context should be assessed on a case-by-case basis.114

this approach is reflected in the practice of international commercial arbitration. there is a trend to qualify the picc as trade usages, especially where the arbitral tribunal is re-quired to take the latter into account according to the relevant arbitration laws,115 rules116 or international uni-form law instruments.117 the argu-ments in favor of the application of the picc in this context range from cautious statements that they con-stitute “an accurate representation, although incomplete, of the usages of international trade”118 to submis-sions clearly confirming their status of “codified trade usages.”119 there are also awards where reference to the picc as the “usages of international trade” was made without detailed justification.120 on some rare occasions, arbitra-

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tors refuse to apply the picc as trade usages on the grounds that the “recourse to the picc is not purely and simply the same as recourse to an actually existing international commercial usage,”121 and they “do not generally reflect trade usages.”122

Conclusion the picc may be and have been applied as lex contractus in several ways that can be grouped in two categories. the first comprises cases where the picc have been chosen by the parties at the time of the execu-tion of the contract or at a later stage, even after the dispute has arisen. the second is when the picc are invoked by arbitrators despite the lack of

reference to them by the parties. the preamble, underlying the consensual character of the picc, can be viewed as the expression of the intent of the drafters as to the preferred way of ap-plication. an analysis of the arbitral awards reveals that practice seems to reduce these expectations. only rarely do parties to international contracts choose to have their agree-ment governed by the picc. arguably, if not for arbitrators, who tend to ap-ply the picc as lex contractus where the parties have referred to the lex mercatoria, “general principles of law” or other concepts of transnational law, use of the picc in this context would be minimal. this trend, however, does not extend to cases where there is no choice of the applicable law or rules of law at all. in such cases, arbitra-tors will refer to the picc only if they conclude that the parties have made a negative choice resulting in the exclu-sion of any domestic law.

the above conclusions, revealing that the picc in most of the cases are applied by the arbitrators on their own initiative rather than pursuant to the parties’ decision, could cause doubts as to their soft-law charac-ter. on the other hand, it cannot be forgotten that unlike the hard-law instruments, the picc do not apply automatically and become relevant only if they prove to be the most ap-propriate rules of law in light of the circumstances of the particular case. regardless, the picc contribute to international commercial arbitration by providing a neutral set of rules that address the needs of the cross-border transactions. thus, the picc can increase effectiveness of inter-national dispute resolution. finally, the significance of the picc is even greater thanks to the extensive uNi-leX database that makes them easily accessible by both contracting parties and arbitrators.


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Ludwina Klein is a junior associate at Salans in Warsaw, Poland. She has an LL.M in international corporate and commercial law from the Uni-versity of York (U.K.) and a Master of Laws from the University of Wroclaw (Poland). Ms. Klein is a member of the Chartered Institute of Arbitrators (CIArb), the LCIA Young Internation-al Arbitration Group ( YIAG), and the ICC Young Arbitrators Forum (YAF). She speaks Polish, English, Italian and German.

Endnotes:1 int’l inst. for the unification of private law [uNidroit], Unidroit Principles of Interational Commercial Contracts (2004), available at http://www.unidroit.org/english/principles/contracts/principles2004/integral-versionprinciples/ [hereinafter picc].2 Michael Joachim bonell, Towards a Legislative Codification of the UNIDROIT Principles?, u.l.r. 233, 233 (2007).3 picc, supra note 1, preamble cmt. 1, available at http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13637&x=1.4 Id. cmt. 2.5 uNileX, available at http://www.uni-lex.info/.6 picc, supra note 1, preamble para. 7; see also Michael Joachim bonell, UNIDROIT Principles 2004 – The New Edition of the Principles of International Commercial Con-tracts adopted by the International Institute for the Unification of Private Law, u.l.r. 5, 7 (2004).7 bonell, supra note 6, para. 8.8 Michael Joachim bonell and tommaso Monfeli, Rassegna giurisprudenziale sui Principi UNIDROIT dei Contratti Commer-ciali Internazionali, 15 dir. CoMM. int’l 169, 170 (2001); Matthias scherer, The Use of the UNIDROIT Principles in International Ar-bitration, in CoMMentary on tHe unidroit prinCipleS oF international CoMMerCial ContraCtS (piCC) 81,82 (stefan Vogenauer and Jan Kleinheisterkamp eds., 2009).9 See, e.g., Klaus peter berger, Interna-tional Arbitral Practice and the UNIDROIT Principles of International Commercial Con-tracts, 46 aM. J. oF CoMp. l. 129-150 (1998); fabio bortolotti, The UNIDROIT Principles and the Arbitral Tribunals, u.l.r. 141-152 (2000); alejandro M. Garro, The Contribution of the UNIDROIT Principles to the Advance-ment of International Commercial Arbitra-tion, tul. J. int’l & CoMp. l. 93-128 (2000); emmanuel Jolivet, The UNIDROIT Prin-ciples in ICC Arbitration, iCC int’l Ct. arb. bull.: SpeCial SuppleMent 2005: unidroit prinCipleS: new developMentS and appliCa-tionS 65-72 (2005) [hereinafter iCC int’l Ct. arb. bull.: SpeCial SuppleMent 2005]; ole lando, Assessing the Role of the UNIDROIT

Principles in the Harmonization of Arbitra-tion Law, tul. J. int’l & CoMp. l. 129-44 (1995).10 int’l inst. for the unification of private law [uNidroit], Unidroit Principles of Interational Commercial Contracts, introduc-tion para. 9 (1994), available at http://www.jus.uio.no/lm/unidroit.international.commer-cial.contracts.principles.1994.commented/ [hereinafter picc 1994].11 Id. para. 8. 12 Id. See also bortolotti, supra note 9, at 143; Julian d.M. lew, loukas a. Mistelis, stefan M. Kröll, Comparative International Commercial Arbitration, Klu. law int’l 463 (2003); loukas Mistels, The UNIDROIT Principles Applied as “Most Appropriate Rule of Law” in a Swedish Arbitral Award, 8 u.l.r 631, 633 (2003). 13 picc, supra note 1, preamble para. 3.14 See, e.g., id., at art. 1.12(2) and (3), art. 2.1.8, art. 6.1.2, art. 6.1.4. 15 berger, supra note 9, at 130. 16 bonell, supra note 2, at 3.17 freedom of contract; no form required; binding character of contract; mandatory rules; exclusion or modification by the par-ties; interpretation and supplementation of the principles; good faith and fair dealing; inconsistent behavior; usages and practices; notice; definitions; computation of time set by parties.18 picc, supra note 1, introduction para 3; bonell, supra note 6, at 19.19 bonell, supra note 6, at 29.20 picc, supra note 1, preamble cmt. 4(c).21 picc 1994, supra note 10, preamble para. 4.22 bonell, supra note 6, at 20.23 u.N. convention on contracts for the international sale of Goods, 11 apr. 1980, available at http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980cisG.html.24 formal endorsement of the picc by the uNcitral; Model contracts prepared by icc and itc uNctad/Wto.25 francesco paolo traisci, Principi UNIDROIT, lex mercatoria e diritto del commercio internazionale: note a margine di un lodo arbitrale, 2 dir. CoMM int’l 474, 479 (1999).26 lauro da Gama e. souza Jr., The UNIDROIT Principles of International Com-mercial Contracts and Their Applicability in the MERCASOUR Countries, 36 revue JuridiQue tHéMiS 375, 400 (2002).27 See supra p. 2.28 lew, supra note 12, at 463.29 Garro, supra note 9 at 98; picc, supra note 1, preamble cmt.3.30 uNcitral Model law on international commercial arbitration applies only to inter-national commercial arbitration. similarly, many countries made reservations under the New York convention that they will apply it

only to disputes arising out of legal relation-ships that are considered commercial under the domestic law; see, e.g., argentina, china, denmark, poland or the u.s.31 picc, supra note 1, preamble cmt. para 2.32 See art. 28(1) of uNicitral Model law; art. 42(1) of icsid convention; art. 1496 of french code of civil procedure; art. 17(1) of icc rules. but, §1051(2) of German code of civil procedure obliges the tribunal to apply the “law” unless expressly empow-ered by the parties to act otherwise; see also art. 33(1) of uNcitral rules and § 46(3) of english arbitration act, which do not allow for the application of the “rules of law” in any case.33 berger, supra note 9, at 147; nigel blaCKaby et. al., redFern and Hunter on international arbitration 222 (2009); lando, supra note 9, at 135; see also § 1-302 cmt. 2 of the u.s. uniform commercial code. cmt. 2 to § 1-302, which, since the revision in 2001, contains express reference to the picc.34 friedrich blase, Proposing a New Road Map for an Old Minefield. The Determina-tion of the Rules Governing the Substance of the Dispute in International Commercial Arbitration, 20 J. int’l arb. 267, 267 (2003); françois dessemontet, Use of the UNIDROIT Principles to Interpret and Supplement Do-mestic Law, iCC int’l Ct. arb. bull.: SpeCial SuppleMent (2002) 39, 40; pierre lalive, The UNIDROIT Principles as lex contractus, With or Without an Explicit or Tacit Choice of Law: an Arbitrator’s Perspective, iCC int’l Ct. arb. bull.: SpeCial SuppleMent (2002) 77, 79; det-lev f.Vagts, Arbitration and the UNIDROIT Principles 270 (1998), <http://www.cisg.law.pace.edu/cisg/biblio/vagts.html> (accessed 6 aug. 2010); see also the center for trans-national law’s list of principles, rules and standards of the lex Mercatoria.35 See supra pp. 22-23.36 See, e.g., art. 3.1 of the regulation (ec) No. 593/2008 of the european parliament and of the council of 17 June 2008 on the law applicable to contractual obligations (rome i); however, the inter-american con-vention on the law applicable to interna-tional contracts 1994 in art. 9(2) and art. 10 allows the application of rules of law and thus is deemed to allow the application of the principles.37 roberta peleggi, L’applicazione dei Principi Unidroit en vole directe alla luce di un recente lodo della Corte Arbitrale della Camera di Commercio, dir. CoMM int’l 483, 496 (2004). 38 picc, supra note 1, art. 1.4; bortolotti, supra note 9, at 145-147. But see the icsid convention, which does not contain such limitation.39 scherer, supra note 8, at 84.40 lando, supra note 9, at 133. this ap-proach was followed in icc case No. 11018, where the parties agreed their dispute would


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be resolved according to “lex mercatoria as expressed by the uNidroit principles.”

41 See, e.g., art. 1054(2) of dutch code of civil procedure; art 182 of swiss law on pri-vate international law; art. 834(1) of italian code of civil procedure; § 46(1) of english arbitration act 1996.

42 Karl-heinz böckstiegel, The Application of the UNIDROIT Principles to Contracts Involving States or Intergovernmental Orga-nizations, iCC int’l Ct. arb. bull.: SpeCial SuppleMent (2002) 51, 52.

43 scherer, supra note 8, at 86.

44 “this contract shall be governed by the uNidroit principles (2004) [except as to articles . . . . ]”; “this contract shall be gov-erned by the uNidroit principles (2004) [except as to articles . . . . ], supplemented when necessary by the law of [jurisdiction X].”

45 See, e.g., art. 14 of the Model contract for the international commercial sale of perishable Goods issued by the itc uNc-tad/Wto in 1999 and art. 12 of icc Model international franchising contract (icc publication No. 557, 2000).

46 See supra note 39.

47 the cases where the arbitral tribunal

refused to apply are very rare; see, e.g., icc award No. 9419 of september 1998, available at http://www.unilex.info, where the arbitral tribunal found that “they cannot constitute a normative body in themselves that can be considered as an applicable supranational law to replace a national law, at least as long as the arbitrator is required to identify the applicable law by choosing the rule of conflict that he considers most appropriate.”48 See, e.g., icc award No. 8331 of dec. 1996, available at http://www.unilex.info.49 See award of 21 april 1997 rendered in ad hoc arbitration in paris; award No. a-1795/51 of dec. 1996 of camera arbitrale Nazionale ed internazionale di Milano; award No. 116 of 20 Jan. 1997 of the inter-national arbitration court of the chamber of commerce and industry of the russian fed-eration; all available at http://www.unilex.info.50 icc award No. 11880 of 2004; award of 30 Nov. 2006 of centro de arbitraje de México (caM); award of 2009 of permanent court of arbitration (number unknown); all available at http://www.unilex.info.51 Markiyan Kliuchkovskyi, Applicability of UNIDROIT Principles of International Commercial Contracts in Courts and Arbitra-tion Tribunals, 1 diSp. reSol. int’l 199, 202 (2007).52 lalive, supra note 35, at 81. 53 art. 3(1) of regulation rome i, supra note 37; see also art 116 § 2, of swiss law on private international law.

54 lalive, supra note 35, at 81.

55 See icc first partial award No. 7110 of June 1995, available at http://www.unilex.info, where the arbitral tribunal came to conclusion that “the general legal rules and principles, enjoying wide international con-sensus, applicable in international contrac-tual obligations . . . are primarily reflected by the uNidroit principles.” the arbitral tribunal considered the picc “to be the central component of the general rules and principles regarding international contrac-tual obligations and enjoying wide interna-tional consensus.”

56 icc award No. 9474 of feb.1999, avail-able at http://www.unilex.info.

57 fabrizio Marrella, Choice of Law in Third-Millennium Arbitrations: The Relevance of the UNIDROIT Principles of International Commercial Contracts, 36 vand. J. tranSnat’l l. 1137, 1155 (2003); but see lalive, supra note 5, at 81, who suggests that the arbitrators should be more cau-tious when assuming the tacit choice of the principles. similarly, Marc blessing, Choice of Substantive Law in International Arbitration 14 J. int’l arb. 39, 43 (1993) points out the problem of imposing on the parties’ inten-tions, which in fact they did not have.

58 the concept of negative choice has been accepted by the majority of commentators; see, e.g., scherer, supra note 8, at 92; lalive, supra note 5, at 82; e. allan farnsworth, The Role of the UNIDROIT Principles in International Commercial Arbitration: A U.S.


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Perspective on Their Aims and Application, iCC int’l Ct. arb. bull.: SpeCial SuppleMent (2002) 21, 24; pierre Mayer, The Role of the UNIDROIT Principles in ICC Arbitration Practice, iCC int’l Ct. arb. bull.: SpeCial SuppleMent (2002) 105, 110; blessing, supra note 58, at 44; Marrella, supra note 58, at 1156; but see also berger, supra note 9, at 144, who notices that this concept is sur-rounded by a lot of skepticism, and horacio Grigera Naón, Closing Remarks iCC int’l Ct. .arb. bull.: SpeCial SuppleMent (2002), who underlines that express or implicit indica-tions that each party wished to avoid the application of the national law of the other party are not sufficient to establish a nega-tive choice of law. he points out that “other decisive concurring factors must be present, such as the parties’ desire to have a neutral decision for their case.”59 icc first partial award No. 12111 of 7 Jan. 2003, available at http://www.unilex.info, where the reference to “international law” as the law governing the contract was interpreted as the reference to the general principles of law and the lex mercatoria and, as a result, the uNidroit principles were applied.60 picc, supra note 1, preamble cmt. 4(c); berger, supra note 9, at 146; piero bernardini, International Arbitration and A-National Rules of Law, 15 iCC int’l Ct. arb .bull. 58, 65 (2004); icc award No. 7375 of 5 June 1996, available at http://www.unilex.info, where silence in the contract was interpreted by arbitral tribunal as exclu-sion of the domestic law of both parties; icc award No. 15089 of 15 sept. 2008, available at http://www.unilex.info, where silence was interpreted as a negative choice with regard to the parties’ respective domestic laws and no objective connecting factor in favor of any particular domestic law.61 blessing, supra note 58, at 44; Marella, supra note 58, at 1156; Mayer, supra note 59, at 111; scherer, supra note 8, at 93. 62 this was the approach of the arbitral tribunal in Primary Coal v. Compania Va-lenciana de Cementos Portland (icc partial award No. 5953) 1 sept. 1988, available at http://www.unilex.info); lalive, supra note 35, at 82-83; Mistelis, supra note 12, at 637-639; scherer, supra note 8, at 92.63 icc award No. 5835 of June 1996, avail-able at http://www.unilex.info.64 icc award No. 10422 of 2001, available at http://www.unilex.info, the contract refer-ring to “a neutral legislation as agreed by the parties,” in the absence of parties’ agreement the tribunal applied “rules and principles generally recognized in international trade (lex mercatoria) and in particular the uNidroit principles.”65 icc 7375, supra note 61.66 Michael Joachim bonell, The UNIDROIT Principles and Transnational Law, u.l.r. 199, 199 (2000).67 Id.68 picc 1994, supra note 10, para. 8.

69 blackaby, supra note 36, at 219; bonell, supra note 67, at 205; Garro, supra note 9, at 113; Julian d.M. lew, The UNIDROIT Prin-ciples as Lex Contractus Chosen by the Par-ties and Without an Explicit Choice-of-Law Clause: The Perspective of Counsel, iCC int’l Ct. arb. bull: SpeCial SuppleMent (2002) 85,88; scherer, supra note 8, at 88; traisci, supra note 26, at 486; views as to whether the picc can be regarded as an expression of “the general principles of law, the lex mer-catoria or the like” vary across the countries; for detailed analysis, see Michael Joachim bonell, UNIDROIT Principles: A Signifi-cant Recognition by a United States District Court, u.l.r. 651, 651-53 (1999); but see, Michael Joachim bonell, A “Global” Arbitra-tion Decided on the Basis of the UNIDROIT Principles: In re Andersen Consulting Busi-ness Unit Member Firms v. Arthur Andersen Business Unit Member Firms and Andersen Worldwide Société Coopérative, 17 arb. int’l 249, 251 (2001), where the author suggests that the award in the Arthur Andersen case proves that the arbitral tribunal did consider the picc to be “a codification of international principles of contract law.”70 award No. 11/2001 of 5 Nov. 2002 of international arbitration court at the chamber of commerce and industry of the russian federation; award of 30 april 2001 rendered in ad hoc arbitration in san José (costa rica); icc 10422, supra note 65; both available at http://www.unilex.info.

71 Eureko B.V. v Republic of Pol. (award of 19 aug. 2005 rendered in ad hoc arbitration in brussels); icc partial award No. 13012 of 2004; icc award No. 9797 of 28 July 2000; icc 9474, supra note 57; award rendered in ad hoc arbitration in New York (date un-known); icc award No. 8264 of april 1997, where the arbitral tribunal concluded that the picc “embody . . . rules largely accepted throughout the world in legal systems and the practice of international contracts”; all available at http://www.unilex.info.

72 icc 7110, supra note 56.


74 lccia award of 1995, available at http://www.unilex.info.

75 icc 13012, supra note 72; icc award No. 11926 of 2003; icc 10422, supra note 65; award No. 117/1999 of 2001 of arbitration institute of the stockholm chamber of com-merce; icc award No. 10114 of March 2000; icc partial award No. 9875 of Jan. 1999; icc award No. 8261 of 27 sept. 1996; icc award No. 8540 of 4 sept. 1996, available at http://www.unilex.info.


77 icc 7110, supra note 63, where the arbitral tribunal gave five reasons for its submission.

78 See icc 9797, supra note 72, at 6.

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79 icc 8540, supra note 76.80 icc 10422, supra note 65; see also icc 7375, supra note 61, where the tribunal decided to “take into account the uNidroit principles, as far as they can be considered to reflect generally accepted principles and rules.”81 icc award No. 11575 of 2003 and icc award No.11265 of 2003, both available at http://www.unilex.info.82 icc award No. 9029 of March 1998, available at http://www.unilex.info.83 Kliuchkovskyi, supra note 52, at 205.84 See supra pp. 17-18. 85 scherer, supra note 8, at 94.86 See art. 34(2)(a)(iv) uNcitral Model law.; it is also a ground for non-enforcement under art. V(1)(b) of the New York conven-tion.87 art. 28(2) of uNcitral Model law, as amended in 2006; see also art. Vii of the european convention on international com-mercial arbitration.88 See, e.g., § 46(3) of english arbitration act 1996.89 See art. 28(1) of aaa icdr; art. 19(1) of icc rules; art. 22(3) of lcia; art. 24(1) of scc rules; art. 59(1) of Wipo rules. But see also, art. 33(1) of uNcitral rules, art. 16(1) of Vienna rules and § 23 of dis rules, which all require the arbitral tribunal to ap-ply the “law.”90 See art. 1496 of french code of civil procedure; art. 1051(2) of German code of civil procedure; art. 187(1) of swiss law on private international law.91 See e.g., art.. 17(1) of icc rules; art. 24(1) of scc rules.92 art. 187 of swiss law on private inter-national law.93 See § 1051(2) of German code of civil procedure; similar requirement can be found in art. 834 of italian code of civil procedure.94 lew, supra note 12, at 28; but see, alan redFern & Martin Hunter, international CoMMerCial arbitration 179 (2d ed., london, sweet & Maxwell 1991), who submit that the arbitration rules cannot override the applicable lex arbitri and the scope of their application depends on the extent of freedom provided for in the latter.95 But see, bernardini, supra note 61, at 65, who submits that this is always the case. 96 picc, supra note 1, preamble cmt. 4(c).97 Marella, supra note 58, at 1156; Miste-lis, supra note 12, at 638.

98 Yves derains, The Role of the UNIDROIT Principles in International Com-mercial Arbitration: a European Perspective, iCC int’l Ct. arb. bull.: SpeCial SuppleMent (2002) 9, 14; Marrella, supra note 58, at 1156; but scherer, supra note 8, at 91, expresses scepticism because this goes further than the drafters intended.99 Garro, supra note 9, at 120. 100 Mistelis, supra note 12, at 638.101 See recent icc 15089, supra note 61, where the principles were defined as “an in-ternational re-statement (or pre-statement) of modern contract law in its most authori-tative form, well-known in international arbitration practice and endorsed by the united Nations commission on international trade law (uNcitral)”; see also award of 29 March 2005 of institute of the stockholm chamber of commerce and icc 112, supra note 82, available at http://www.unilex.info.102 arbitration institute of the stockholm chamber of commerce, supra note 76; see also, the commentary in Mistelis, supra note 12.103 scherer, supra note 8, at 104 and 108; this is the approach in austria, switzerland and france; see, e.g., oGh 18 Nov. 1982 (8 ob 520/82), (1984) Xi Yb comm. arb. 159 and cass civ 22 oct. 1991 (89-21528), (1992) rev. arb. 457; but in Germany such choice would be a ground for setting the award aside; see supra note 94.104 art. Vii (2) of the european convention; art. 42(3) of icsid; art. 28(3) of uNcit-ral Model law; art. 187(2) of swiss law on private international law; § 45(1)(b) of english arbitration act 1996; art.1497 of french code of civil procedure; §1051(3) of German code of civil procedure; art. 822 of italian code of civil procedure; art. 17(3) of icc rules; § 23(3) of dis rules. But see, e.g., russian federation law on international commercial arbitration, art .28.105 scherer, supra note 8, at 103, suggests that this is true also with regard to the mandatory provisions; however, the right approach seems that even where acting as amiable compositeurs, the arbitrators are still bound by the mandatory rules of the otherwise applicable law; see, Gary b. born, International Commercial Arbitration 2241 (Klu. law int’l 2009).106 born, supra note 106.107 Id. at 2240; lalive, supra note 35, at 82.108 See award of 24 feb. 2001 of arbitral tribunal of the city of panama; award of 10 dec. 1997 rendered in ad hoc arbitration in buenos aires; award of camera arbitrale Nazionale ed internazionale di Milano, supra note 50; icc award No. 8874 of dec. 1996; all available at http://www.unilex.info.109 scherer, supra note 8, at 89.110 See art. 17(2) of icc rules; art. 33(3) of uNcitral rules; art. 28(4) of uNici-

tral Model law, art. 834 of italian civil procedure code; art. 1054 the Netherlands arbitration act 1986 but not english arbitra-tion act; for the analysis of the distinction between the meaning of “trade usages” and “customs,” see Jovilet, supra note 9, at 71.111 See, e.g., art.Vii (1) of the european convention and art. 9(2) of the cisG.112 See James otis rodner, The Applicable Interest Rate in International Arbitration (UNIDROIT Principles, Article 7.4.9), iCC int’l Ct. arb. bull. 43 (2004), who submits that the principles are a part of “interna-tional practices and usages”; but Marrella, supra note 58, at 53, says that it is uncertain, and scherer, supra note 8, at 89, says that the answer to this question should definitely be negative.113 fabio bortolotti, Reference to the UNIDROIT Principles in Contract Practice and Model Contracts, icc int’l Ct. arb. bull.: SpeCial SuppleMent (2005) 57, 60.114 scherer, supra note 8, at 90.115 See award t-9/07of 23 Jan. 2008 of foreign trade court of arbitration attached to the serbian chamber of commerce, available at http://www.unilex.info, where the picc were applied as an expression of trade usages on the basis of art. Vii(1) of the european convention as well as art. 50(4) of serbian law on arbitration of 2006. 116 See icc awards No. 10022 of oct. 2000 and icc award No. 9593 of dec. 1998, both available at http://www.unilex.info, where the picc were taken into account on the basis of art. 17 of icc rules.117 See awards 229/1996 of 5 June 1997 and 302/1997 of 27 July 1999 of international arbitration court at the chamber of com-merce and industry of the russian federa-tion, where the picc were applied on the basis of art. 9(2) of the cisG as “reflection of international trade usages.” 118 icc award No. 9479 of 1999, available at http://www.unilex.info. 119 icc award No. 10021 of 2000; see also award in ad hoc arbitration in buenos aires, supra note 109, where the arbitral tribunal ruled that the picc constituted “usages of international trade reflecting the solutions of different legal systems and of international contract practice,” and award of 4 dec. 1996 in ad hoc arbitration in rome, where the picc were described as a “parameter of the principles and usages of international trade”; all available at http://www.unilex.info. 120 icc award No. 11051 of July 2001; icc award No. 9479 of feb. 1999; icc award No. 8502 of Nov. 1996; all available at http://www.unilex.info.121 icc award No. 8873 of July 1997; see also, icc 9029, supra note 83.

122 icc award No. 11256 of 2003, available at http://www.unilex.info.


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The Better Approach to Deciding 28 U.s.C. §1782 Applications for U.s. Discovery in

Private Arbitrations AbroadBy Jenelle E. La Chuisa, Miami

28 u.s.c. § 1782 authorizes u.s. district courts to aid foreign litigants and “international and foreign tribunals” in seeking evidence from witnesses located within the u.s. in particular,

28 u.s.c. § 1782 provides:

the district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal. . . . the order may be made pursuant to a letter rogatory issued, or request made, by a foreign or international tribunal or upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced, before a person appointed by the court. . . .

28. u.s.c. § 1782(a) (emphasis added).1

the scope and meaning of “foreign or international tribunal” has generated significant debate with respect to what adjudicative bodies qualify as “tribu-nals” for purposes of 1782 applications for discovery. indeed, the question of whether a private arbitral panel con-stitutes a “tribunal” remains unsettled and hangs in the balance today. in 2004, the u.s. supreme court in Intel Corp. v. Advanced Micro Devices, Inc., 542 u.s. 241, 246-47 (2004), suggested that the term “foreign and international tribunal” was broad enough to encompass “administra-tive and quasi-judicial proceedings,” including intel’s antitrust complaint

filed with the commission of euro-pean communities. Id. at 258. spe-cifically, the supreme court found that when congress amended section 1782 in 1964, substituting the words “a proceeding in a foreign or interna-tional tribunal” for the previous “any judicial proceeding,” it did so in order to “provid[e] the possibility of u.s. judicial assistance in connection with [administrative and quasi-judicial pro-ceedings abroad].” Id. at 258 (citing s. rep. No. 1580, at 7-8, u.s. code cong. & admin. News 1964, pp. 3782, 3788). the supreme court went on to hold that the european commission was, in fact, a section 1782 “tribunal” because it acted as a “first-instance decision-maker” with authority to “determine liability and impose penalties, disposi-tions that [would] remain final unless overturned by the european courts.” Id. at 258 (relying on 255, n.9). since the supreme court’s 2004 decision in Intel, there has been considerable disagreement among lower courts (even within the same circuit) as to whether the definition of “foreign tribunal” under section 1782 is broad enough to include private arbitral tribunals.2

While grappling with this question, most courts have afforded leeway to “state-sponsored” arbitration (such as those convened pursuant to bilateral investment treaties) as meeting the definition of “foreign tribunal,”3 while courts remain heavily divided on the issue of whether private panels fall within the scope of 1782.

A “slim Majority” of Federal Courts Have Held That Private Arbitrations are subject to 1782 Discovery a recent district court decision on

the issue of whether a private arbitral tribunal is a “foreign or international tribunal” observed that “[s]ince the Intel decision, a slim majority of federal courts have followed a simi-lar reasoning [to the Intel court’s] to conclude that private arbitrations fall within the scope of section 1782.” OJSC Ukrnafta v. Carpatsky Petro-leum Corp., 2009 Wl 2877156 *3 (d. conn. aug. 27, 2009). for instance, in In re Roz Trading Ltd., 469 f. supp. 2d 1221 (N.d. Ga. 2006), the court concluded that: “a finding that an arbitral panel located in austria4 is a ‘tribunal’ within the meaning of §1782(a) is consistent with the reasoning in Intel. although Intel did not expressly hold arbitral bodies to be ‘tribunals,’ it quoted approvingly language that included ‘arbitral tribunals’ within the term’s meaning in §1782(a).” Id. at 1224-25; see, e.g., In re Hallmark Cap. Corp., 534 f. supp. 2d 951, 957 (d. Minn. 2007) (arbitral panel is “tribunal” for the purposes of section 1782); In re Application of Babcock Borsig AG, 583 f. supp. 2d 233, 240 (d. Mass. 2008) (same); OJSC Ukrnafta v. Carpatsky Petroleum Corp., 2009 Wl 2877156 (d. conn. aug. 27, 2009) (same). in validating the private arbitra-tion as a “foreign tribunal,” the Roz court noted that “[w]here a body makes adjudicative decisions respon-sive to a complaint and reviewable in court, it falls within the widely accepted definition of ‘tribunal,’ the reasoning of Intel, and the scope of § 1782(a), regardless of whether the body is governmental or private.” Roz Trading, 469 f. supp. 2d 1221, 1228. taking a similar approach, in april 2010, the southern district of

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florida held that a private arbitration under england’s arbitration act was a “tribunal” and subject to section 1782. in In re Winning (HK) Shipping Co., Ltd., 2010 Wl 1796579 (s.d. fla. 2010, apr. 30, 2010), the court noted that Intel “suggests that courts should examine the nature of the arbitral body at issue to determine whether it functions as a ‘foreign tribunal’ for purposes of section 1782.” Id. at * 7 (emphasis added). the court therefore applied the “functional analysis test”5 to the arbitral tribunal to be convened in england6 and concluded that the anticipated proceedings fell within the scope of section 1782. Id. at * 7-8. specifically, the Winning (HK) Shipping court held that the arbi-tration likely to occur between the parties involved a “foreign tribunal” because it arose pursuant to a clause in a private agreement between two purely private parties; the arbitrators in the anticipated arbitration would be able to collect evidence and issue a decision on the merits of the dispute; and because, to the extent applicable, the arbitration act 1996 (of england) or the rules of the london Maritime arbitrators association would provide sufficient reviewability, permitting judicial challenges to awards under certain circumstances. Id. at * 8-10.

A Minority of Courts Have Conversely Held That Private Arbitrations are not “Foreign Tribunals” oddly, just a few weeks following the southern district of florida’s ruling in Winning (HK) Shipping, in Dockeray v. Carnival Corp., 2010 Wl 2813803 (s.d. fla., May 11, 2010), the southern district of florida declined to retain jurisdiction to compel 1782 discovery in connection with a private arbitration to be convened under the rules of the american arbitration association and the international centre for dispute resolution, calling

28 U.s.C. §1782from preceding page

into question whether private arbitra-tions are even subject to 1782:

[e]ven assuming, in light of Intel Corp. v. Advanced Micro Devices, Inc., 542 u.s. 241(2004), that 28 u.s.c. § 1782 applies to private arbitrations, but see Republic of Kaz. v. Biedermann Int’l, 168 f.3d 880 (5th cir. 1999) (“[W]e conclude that the term ‘foreign and international tribunals’ in § 1782 was not intended to authorize resort to united states federal courts to assist discovery in private international arbitrations. the provision was enlarged to further comity among nations, not to complicate and undermine the salutary device of private international arbitration.”); Nat’l Broad. Co. v. Bear Stearns & Co., 165 f.3d 184, 191 (2d cir. 1999) (“[o]ur conclusion, based upon an analysis of the text and legislative history of § 1782, [is] that congress did not intend for that statute to apply to an arbitral body established by private parties.”), the court declines to “retain jurisdiction,” assuming it needs to, to compel carnival to produce testimony and documents here. (citations omitted).).

Dockeray, 2010 Wl 2813803, * 10, n.4 (court compelled arbitration of claims against carnival brought by cruise line operator). Dockeray’s obvious conflict with Winning (HK) Shipping is indicative of the current divide among u.s. fed-eral courts, and even within the same court. indeed, other courts, including the Middle district of florida in In re Operadora DB Mexico, S.A., 2009 Wl 2423138 (M.d. fla. aug. 4, 2009), have held that section 1782 does not apply to permit evidence gathering in aid of private international arbitra-tion. in Operadora, the district court rejected a section 1782 application in aid of arbitration proceedings before the international chamber of com-merce (“icc”), distinguishing Intel on the basis that it did not involve a private international arbitration, and that congress’ intent on this issue was, in its view, ambiguous. Id. at *6,

9. according to the court in Opera-dora, “judicial reviewability” of the european commission’s ultimate disposition of the matter was key to the supreme court’s rationale permit-ting the section 1782 application in Intel. Id. at *10. applying the review process for decisions of the icc panel on the facts before it, the Operadora court noted:

icc rules dictate that the icc panel must submit its proposed award to the icc court, whose review is limited to “lay[ing] down modifications as to the form of the award.” the icc court “may also draw [the icc panel’s] attention to points of substance,” but must do so “without affecting the [icc panel’s] liberty of decision.” the icc rules [noted the Operadora court] do not provide for any review by a state-sponsored tribunal.

Id. at *10. the Operadora court appears to have focused its analysis largely on reviewability, which is but one part of the analysis conducted in Intel and other post-Intel decisions. a similar result was reached in In re Arbitration between Norfolk S. Corp. and Ace Bermuda Ltd., 626 f. supp. 2d 882 (N.d. ill. 2009), where the court ruled that a private icc arbitration in london, england, was not entitled to judicial assistance under section 1782 because it is not a “foreign or international tribunal.” See id. at 886. the court reasoned that although it was congress’ intent to expand the scope of 1782, Intel did not specifically include private arbitral bodies within the definition of “tribunal.” See id. at 885. rather, the court took the position that section 1782 covers only “state sponsored” arbitration, such as arbitral proceed-ings before uNcitral pursuant to bilateral investment treaties, while admittedly relying on pre-Intel cases and similar rulings by a minority of courts. See id. at 884, 886. the Norfolk court likewise found that the “narrow circumstances” for review of an arbitral award did not “allow

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for judicial review of the merits of the parties’ dispute,” such that the arbitral panel at issue did not “fall within the definition the supreme court embraced in its Intel dictum.” Id. at 886 (appeal dismissed following settlement). Yet, the fifth circuit recently held that, even in the wake of Intel, a private swiss arbitration panel, con-vened under uNcitral arbitration rules, was not a “tribunal” within the meaning of section 1782. See El Paso Corp. v. Comisión Ejecutiva Hidroeléc-trica del Río Lempa, 341 fed. appx. 31 (5th cir. 2009) (citing Republic of Kazakhstan v. Biedermann Int’l, 168 f. 3d 880 (5th cir. 1999) (pri-vate arbitration in stockholm was not a “tribunal”); but see In re Veiga, 2010 Wl 4225564 (d.d.c., oct. 20, 2010) (arbitral tribunal established pursuant to uNcitral rules was a “foreign tribunal”) (citing In re Oxus Gold PLC, 2006 Wl 2927615 *6 (d.N.J., oct. 11, 2006) (1782 discovery permitted in bit arbitration); and In re Chevron Corp., 709 f. supp. 2d 283 (s.d. N.Y. 2010) (same).7

Permitting 1782 Applications in Private Arbitrations Will Promote International Arbitration Among U.s. Companies Doing Business Abroad While some federal courts have cited public policy reasons, including that u.s.-based discovery is contrary to the efficiency sought in internation-al arbitration, for declining to permit 1782 discovery in private arbitral proceedings,8 such reasoning would appear to ignore the district court’s discretion to decide 1782 applica-tions, even assuming the arbitration proceeding in question is a “foreign tribunal.” for instance, even after concluding that an icc arbitration was in fact a “foreign tribunal,” the district court In re Babcock Borsig AG, 583 f. supp. 2d 233 (d. Mass. 2008) declined to permit 1782 discovery:

section 1782 does not require a

district court “to grant a § 1782(a) discovery application simply because it has the authority to do so.” Intel at 264. the supreme court in Intel identified two general factors that district courts should consider when determining whether an application brought under § 1782(a) should be granted: (1) whether the person from whom discovery is sought is a participant in the foreign proceedings, and (2) the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign tribunal to judicial assistance. Id. at 264-65. a district court may also consider “whether the § 1782(a) request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the united states.” Id. at 265.

Babcock, 583 f. supp. 2d 233, 240-241. “the district court may also deny or narrow a discovery request that is unduly intrusive or burdensome.” Id. at n.6 (citing Intel, 542 u.s. 241, 265). although the first factor (whether a person from whom discovery is sought is a participant in the foreign proceedings) is the most compelling reason for a court to grant a 1782 application, the other considerations are far more discretionary, leaving the court with some room for flexibility in its analysis. the court in Babcock therefore denied the 1782 application, stating: “the apparent bad blood between the parties, coupled with the fact that [the applicant] had not taken any formal steps toward initiating arbitration . . . after allegedly discov-ering [the] misconduct almost two years ago, are grounds for exercising restraint before ordering discovery in this setting.” Babcock, 583 f. supp. 233, 242. the supreme court in Intel also recognized the court’s discretion to permit or condition discovery as ap-propriate, in support of its decision to expand the reach of 1782. See Intel, 542 u.s. 241, 260-61 (“§1782(a) leaves the issuance of an appropriate order

to the discretion of the court which, in proper cases, may refuse to issue an order or may impose conditions it deems desirable”) (citing s.rep. No. 1580, at 7, u.s.code cong. & admin.News 1964, pp. 3782, 3788). Given the court’s discretion to decline 1782 discovery (particularly when the Intel discretionary fac-tors are not satisfied), as well as the arbitration panel’s ability to define the scope of discovery, the better ap-proach, as stated in In re Hallmark Cap. Corp., 534 f. supp. 2d 951, 956-57 (d. Minn. 2007) is for district courts to analyze 1782 applications on a case-by-case basis to determine the need for and appropriateness of the discovery sought in each particular instance:

[t]his court believes that the better approach to this issue is to reject any inflexible rule that would categorically exclude all private arbitrations from the definition of “tribunal.” rather, a district court should consider whatever arguments might exist in a particular case against extending section 1782 to arbitration bodies as part of its exercise of discretion in deciding whether to grant the application. . . .

even if the district court would permit the discovery, nothing prohib-its the arbitration body from never-theless conditioning its acceptance of the evidence as it sees fit, or even re-fusing to allow the resulting evidence to be introduced or admitted. Id. at 957 (citing Intel, 542 u.s. 241, 262). such an approach would permit parties to a private international arbi-tration to, at a minimum, seek the dis-covery they deem necessary to prove their respective claims and defenses, while at the same time still empower-ing the arbitral tribunal to regulate the scope and extent of discovery, as well as the admission of evidence at the final hearing. Moreover, parties who wish to opt out of discovery in the u.s. may expressly stipulate in their arbitration agreement that section 1782 applications are prohibited. or,

page 26 Winter 2011


conversely, parties who jointly wish to avail themselves of such discovery can agree in advance to the use of 1782 discovery proceedings in the u.s. similarly, a private arbitration tribu-nal may determine that in order to adjudicate the parties’ claims fully, it requires evidence in the u.s. that is otherwise outside of its jurisdiction. a more flexible approach to decid-ing 1782 applications would permit the court to consider the arbitration tribunal’s need for evidence in the u.s., rather than simply denying the request on the grounds that the pro-ceeding is not “foreign tribunal” and is thus ineligible for 1782 evidence. providing a more accommodating method for determining 1782 requests in connection with private arbitra-tions, rather than attempting to fashion a bright-line rule, might also have the effect of quelling some reluc-tance on the part of u.s. practitioners and corporations to arbitration of international disputes, given the fear that international arbitration permits little or no discovery. contrary to the arguments that permitting 1782 discovery in private arbitrations will open the floodgates to discovery disputes in the u.s., making section 1782 available to all private arbitral proceedings similarly could incentivize more companies engaged in international transac-tions to consider arbitration as a more

appealing alternative to litigation, potentially reducing the number of international lawsuits on the federal court dockets. until the eleventh circuit or the u.s. supreme court weighs in on the issue, the split of authority in this circuit, as well as among the federal circuits, presents uncertainty and considerable challenges to the international lawyer when advising clients on the risks of litigation versus arbitration, or when developing case strategies without knowing the avail-ability of discovery in the u.s.

Jenelle E. La Chuisa is an attorney at Astigarraga Davis, where she focus-es her practice on international com-mercial arbitration and litigation. She has extensive experience representing multi-national companies in a variety of commercial contract disputes.

Endnotes:1 courts have construed the statutory language of 28 u.s.c. § 1782 to require the following basic jurisdictional elements prior to its application:

(1) the request must be made by a foreign or international tribunal, or by any interested person; (2) the request must seek evidence, whether it be the testimony or statement of a person or the production of a document or other thing; (3) the evidence must be for use in a proceeding in a foreign or international tribunal; and (4) the person from whom dis-covery is sought must reside or be found in the district of the district court ruling on the application for assistance.

In re Clerici, 481 f. 3d 1324, 1331-32 (11th cir. 2007); see also Intel Corp. v. Advanced Micro Devices, Inc., 542 u.s. 241, 246-47 (2004).

2 prior to Intel, the second circuit had

held that a private arbitration before the international chamber of commerce was not a tribunal for purposes of section 1782, find-ing that “when congress in 1964 enacted the modern version of § 1782, it intended to cover governmental or intergovernmental arbitral tribunals and conventional courts and other state-sponsored adjudicatory bodies,” not private parties before a private organization, such as the icc in paris. Nat’l Broad. Co. v. Bear Stearns & Co., 165 f.3d 184, 190 (2d cir. 1999). Not long after, the fifth circuit in Republic of Kazakhstan v. Biedermann Int’l, 168 f. 3d 880 (5th cir. 1999), similarly held that a private arbitration in stockholm was not a “tribunal” within the meaning of section 1782, citing public policy reasons. “arbitration is intended as a speedy, economi-cal, and effective means of dispute resolution. the course of the litigation before us sug-gests that arbitration’s principal advantages may be destroyed if the parties succumb to fighting over burdensome discovery requests far from the place of arbitration.” Id. at 883.

3 See, e.g., In re Oxus Gold PLC, 2006 Wl 2927615 * 6 (d. N.J. 2006, oct. 11, 2006) (1782 discovery permitted when the arbitral proceedings were “authorized by the sovereign states of the united Kingdom and the Kyrgyzstan republic for the purpose of adjudicating disputes under the bilateral investment treaty”); see also In re Chevron Corp., 709 f. supp. 2d 283 (s.d. N.Y. 2010) (uNcitral investment arbitration panel seated in ecuador, and established by an international treaty between the u.s. and ecuador, is a “foreign tribunal.”).

4 the commercial tribunal at issue was before the international arbitral centre of the austrian federal economic chamber in Vienna.

5 the court adopted this test from the Middle district of florida’s decision in In re Operadora DB, S.A., 2009 Wl 2423138 (M.d. fla. aug. 4, 2009).

6 the tribunal was to be convened under the rules of the london Maritime arbitrators association.

7 Notably, the Chevron case currently is on appeal before the second circuit, where the court, on 16 November 2010, denied a motion to stay the lower court’s order requir-ing a deposition and document production, choosing instead to set an expedited briefing schedule and oral argument on the matter. In re Chevron, case No.: 10-1966 (2d cir. 2010).

8 See, e.g., Operadora DB Mexico, 2009 Wl 2423138 (“empowering arbitrators or, worse, the parties, in private international disputes to seek ancillary discovery through the federal courts does not benefit the arbi-tration process. arbitration is intended as a speedy, economical, and effective means of dispute resolution.”) (citing Biedermann Int’l, 168 f. 3d 880, 883, supra, note 3).

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page 28 Winter 2011


Rafael Ribeiro, Ministro João Otávio Noronha (speaker), Luis Claudio Ferreira (sponsor), Fernando Serec (speaker and sponsor), Elizabeth Leonhardt (speaker), Quinn Smith (vice chair of conference).

Section Chair Edward M. Mullins with Gary Davidson, member of the Section’s Executive Council (R).

(L-R): Neil Klein (speaker), Henk Milne (speaker and sponsor), Eduardo Palmer.

Section

page 29 Winter 2011


Scene

ILAC Program Chair Santiago A. Cueto, Giselle Cueto, and Sean Santini.

(L - R): Raphael Ribeiro,Quinn Smith (ILAC Program Vice Chair ), Ministro João Otávio Noronha, Ed Davis (Past Section Chair), Ed Mullins (Section Chair), Fernando Serec, and Luis Claudio Ferreira.

Ed Mullins and Mauricio Gomm Santos (Brazil Foreign Legal Consultant) sign a cooperative agreement between the International Law Section and the Parana Bar Association of Brazil at the Conference.

9th AnnuAl InternAtIonAl lItIgAtIon And ArbItrAtIon ConferenCe

Westin Diplomathollywood, FloridaFebruary 4, 2011

page 30 Winter 2011


AuDIO CD ORDeRs

The Florida Bar Continuing Legal education Committee and theInternational Law section present

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The audio CD for the 9th International Litigation and Arbitration Conference includes all litigation and arbitration sessions for a total of 9 hours of CLE credit. Topics include: privacy and censorship; judge’s panel on international receivership litigation; hot topics on international litigation; managing international arbitration or arbitrator; your client has been sued in the U.S., now what?; hot topics in international arbitration; extraterritorial application of U.S. laws; and an international arbitration case study: The Ecuador v. Chevron case.

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A View from Abroad:Corporate Responsibility for

International Crimes?By Neil Fishman, The Hague

since relocating to the Nether-lands, my colleagues have often asked the question: as a florida lawyer, what are you doing in the hague? during my moments of weakness (which usually occur when it is in-tensely cold and rainy in the Neth-erlands but perfect beach weather in south florida), i have asked myself the same question. aside from the weather—which nevertheless provides some of the world’s most beautiful tulips—the hague (the “city of peace and Jus-tice”) has much to offer an interna-tional lawyer. it is home to over 130 international institutes and agencies and hosts more than 300 internation-al businesses. it is the headquarters of several international organizations and u.N. organs such as the inter-national court of Justice (icJ), the international criminal tribunal for the former Yugoslavia (ictY), the international criminal court (icc), the organisation for the prohibition of chemical Weapons (opcW) and europol. it also possesses numerous research centers and academic insti-tutions, such as the hague academy of international law, the tMc asser instituut, the clingendael institute, the institute of social studies and the Grotius centre for international legal studies, that focus on interna-tional law. for this reason, the hague is often referred to as the de facto judicial capital of the united Nations. in 2009, i moved to the hague to earn an ll.M. in public international law at leiden university, which is the oldest university in the Nether-lands and a research leader in public international law. during my year of study, i attended hearings at the icJ and the icc, as well as the criminal

trials of charles taylor at the special court for sierra leone (scsl) and radovan Karadži at the ictY. i also attended a variety of conferences and symposia on issues of public interna-tional law. one common theme in the hague this past year has been the need to develop more robust criminal liability for corporations implicated in inter-national crimes and human-rights abuses. it should be recalled that the creation of the ad hoc tribunals (the ictY and the international criminal tribunal for rwanda) raised the level of consciousness in the legal commu-nity and the general public about the need to prosecute those responsible for international crimes including war crimes, crimes against humanity and genocide. the prosecutors at these tribunals have typically focused their attention on political and military leaders. a recent example of the global at-tention generated by such trials took place last summer in the hague in the scsl case against charles taylor, the former president of liberia who was charged with eleven counts of crimes against humanity and war crimes for his alleged involvement in the sierra leone civil war during 1996 to 2002. on 5 august 2010, the prosecution called as a witness super-model Naomi campbell, who testified that associates of taylor provided her with uncut diamonds after a charity dinner with the former warlord and other dignitaries in south africa. the prosecution sought Ms. campbell’s testimony to prove that taylor was not truthful during his testimony in front of the scsl.1 the intense media scrutiny of Ms. campbell’s involve-ment with taylor and her subsequent

testimony at the tribunal underscores the public peril for those who, per-haps unwittingly, associate with those accused of international crimes. While Ms. campbell’s contact with taylor was brief and perhaps unin-tended, others purposefully embraced the chance to profit from relationships with political leaders such as taylor. one example is Guus Kouwenhoven, a dutch businessman who forged a close relationship with taylor’s political regime to profit from a poorly regulated liberian timber sector, which was heavily exploited during liberia’s civil war. Mr. Kouwenhoven is currently being prosecuted in dutch national courts for a variety of criminal offenses including complic-ity in the commission of war crimes and the violation of a united Nations arms embargo.2

in 2009, i served as a legal consultant for the truth & reconciliation com-mission for liberia (trc) and assist-ed in drafting the section of its final report related to economic crimes committed during the liberian civil war. the trc final report succinctly described the destructive relationship between liberian government and business:

success ive governments, including the taylor regime, established a massive patronage system with domest i c and foreign-owned corporations in several critical economic sectors, such as timber, mining and telecommunications, and granted illegal benefits to the corporations in exchange for financial and military support. corporations and private individuals engaged in a


page 32 Winter 2011


host of illegal and anti-competitive activities such as tax evasion, bribery, looting, forced displacement of civilians, money laundering, arms smuggling, and illegal price fixing.3

such experiences have motivated international efforts to increase criminal liability for corporate actors that are involved in international crimes and human rights abuses. one recent event was the confer-ence, “corporate liability for pillag-ing Natural resources,” which was co-sponsored by the open society Justice initiative and several other institutions at the peace palace in the hague on 29 october 2010. the purpose of the conference was to introduce to the legal community a recently published manual, Corporate War Crimes. the manual is intended to “act as a catalyst for reinvigorat-

ing [the] prosecution of the war crime of pillage and to bring accountability to companies that illegally trade in conflict commodities.”4 the conference brought together judges and lawyers from leading international tribunals and institutions. it also featured an address by luis Moreno ocampo, the icc prosecutor, on the future prospects of international criminal liability for corporate actors. While political leaders are increas-ingly being held individually respon-sible for international crimes under international criminal law, there is significantly less case law in inter-national or national courts that has held corporations and their officials responsible for international crimes. Nevertheless, the tide appears to be turning. legal scholars now fre-quently acknowledge that the illegal exploitation of natural resources pro-vides the financing for deadly conflict. consequently, there is also increased recognition of the importance of holding responsible those businesses

that contribute to the commission of international crimes. the legal content of pillage is well established under international law. under international humanitarian law, pillage has been prohibited since the hague regulations of 1907.5 it was also reaffirmed as a war crime by the 1949 Geneva conventions and the 1977 additional protocol ii, which governs non-international armed con-flicts. the ad hoc tribunals included pillage as a criminal offense under their jurisdiction. further, the statute of the icc provides that pillage is a crime under its jurisdiction. although the united states is not a party to the icc statute, as of 12 october 2010, 114 nations have ratified it. under the complementarity system established by the statute, these state parties are obligated to criminalize pillage in their domestic legislation. as evidenced by the German code, however, not all will define pillage in the same way.6 because pillage is an international crime, some states

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have gone so far as to provide their courts with universal jurisdiction for prosecuting alleged offenders.7 such domestic legislation expands the emerging transnational “web of liability” for corporate actors involved in international crimes.8

according to the icc elements of crimes, pillage is evidenced by the following legal requirements:

(a) the perpetrator appropriated certain property;

(b) the perpetrator intended to deprive the owner of the property and to appropriate it for private personal use;

(c) the appropriation was with-out the consent of the owner;

(d) the conduct took place in the context of and was associated with an international or non-interna-tional armed conflict; and

(e) the perpetrator was aware of factual circumstances that estab-lished the existence of an armed conflict.9

the Corporate War Crimes Manual succinctly analyzes many of the icc elements, including the armed-conflict requirement, the ownership of natu-ral resources, exceptions, consent, and the required mental elements for the crime of pillage and jurisdiction. the conclusion to be drawn from the manual is that there is a substantial body of international and national case law that has outlined the con-tours of the war crime of pillage. consequently, prosecutors and human rights advocates may find generous legal support—if they choose to pur-sue legal action—against corporations that are implicated in pillage. of course, it also should be noted that the war crime of pillage is only one manner in which a corporate actor may incur criminal liability for involvement in international crimes. international criminal law has al-ready established aiding and abetting, for example, as a form of responsibil-ity. aiding and abetting is considered the “practical assistance, encourage-ment or moral support which has a substantial effect on the perpetration

of the [international] crime.”10 the aider and abettor is also required to have both knowledge that his or her acts assist in the commission of the perpetrator’s crime11 and an aware-ness of the essential elements of the crime committed by the principal perpetrator.12 consequently, corporate actors that knowingly provide assis-tance that substantially aids the com-mission of international crimes may also be exposed to criminal liability under the legal concept of aiding and abetting in both international courts and certain national jurisdictions. of course, one would expect the vast majority of corporations to be mo-tivated to avoid the negative publicity and other effects of being associated with those who commit international crimes. Nevertheless, there is a need to increase the business community’s awareness of legal developments in international criminal law. for inter-national lawyers who advise corpora-tions, the developments in the hague with respect to corporate criminal liability certainly merit attention.

Neil Fishman, LL.M. (Leiden), J.D. (Florida International), previously served as a legal consultant for the Truth & Reconciliation Commission for Liberia (TRC) and the program coordinator of the Center for Interna-tional Law & Justice at Florida A&M University College of Law. He is cur-rently a legal intern in the Chambers of the International Criminal Tribu-nal for the former Yugoslavia (ICTY). He may be contacted at [email protected]. The views expressed in this article are those of the author

alone and do not necessarily reflect the views of the TRC, ICTY or the United Nations in general.

Endnotes:1 Prosecutor v. Charles Taylor, case No. scsl-03-01-t, prosecution Motion for the issuance of a subpoena to Naomi campbell, 20 May 2010, para. 13.2 See Dutch Supreme Court quashes Court of Appeal decision in Guus K. case, the hague Justice portal, april 20, 2010, http:// www.haguejusticeportal.net/ecache/def/11/630.tGfuZz1ftg.html; for an analy-sis of the lower court’s decision, see larissa van den herik, The Difficulties of Exercising Extraterritorial Criminal Jurisdiction: The Acquittal of a Dutch Businessman for Crimes Committed in Liberia, 9 int’l. CriM. l. rev. 211-26 (2009).3 truth and reconciliation commission for liberia, dec. 3, 2009, Final Report, vol. iii, para. 4.4 James stewart, Corporate War Crime, open soc’y inst., oct. 2010, available at http://www.soros.org/initiatives/justice/focus/anticorruption/articles_publications/publica-tions/pillage-manual-20101025.5 Id. at 11.6 Id. at 14, citing to the German code of crimes against international law.7 Id. at 87-8, referring to the criminal codes of Germany and spain.8 for a comparative legal analysis of international criminal law and the transna-tional criminal law with respect to potential corporate liability for international crimes, see robert thompson, anita ramasastry and Mark taylor, The Expanding Web of Liability for Business Entities Implicated in Interna-tional Crimes, 40 geo. waSH. int’l. l. rev. 841-902 (2009).9 2000 icc elements of crimes, u.N. doc. pcNicc/2000/1/add.2.10 Prosecutor v. Furundžija, case No. it-95-17/1-t, Judgement, 10 dec.1998, para. 191-3.11 Id., para. 249.12 Prosecutor v. Blagoje Simi, case No. it-95-9-a, Judgement, 28 Nov. 2006, para. 86.

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page 34 Winter 2011


The Evolution of International Arbitration in Latin America

By Judy Angulo, North Miami

latin america has come a long way from its previous isolationist policies in the field of inter-national arbitra-tion. although the region continues to pose challenges for international ar-

bitration practitioners, it now boasts a full house of ratifications and new laws supporting international arbitra-tion. latin american states have a growing involvement in international trade across a wide range of indus-tries including energy, transportation, telecommunications, entertainment, chemicals, labor and agriculture. as a result of this growth, latin america has sought to adopt a dispute reso-lution culture favorable to foreign investment. among the most notable trends and developments adopted in the region are the wide recognition of the arbitration clause, increased coop-eration between the arbitral tribunals and the judiciary, and ratification of the 1958 united Nations convention on the recognition and enforcement of foreign arbitral awards (the “New York convention”) and uNictral model law on international com-mercial arbitration (the “uNcitral model law”). all of the aforementioned have become key elements in over-coming political, cultural and econom-ic barriers in the region.

Moving Past the Calvo Doctrine historically, latin america has had a hostile attitude towards interna-tional arbitration. this hostility was partly based on the calvo doctrine, which required that foreign investors be treated on an equal footing with

locals. for many years, latin ameri-can states rejected international arbitration due to the suspicion that it granted greater rights to foreign investors, in breach of the doctrine. things have now changed substan-tially, and the mentality and target of most latin american states is to attract international investors, for whom they are open to granting the necessary and generalized protection through the means of the convention on the settlement of investment dis-putes between states and Nationals of other states (the “icsid conven-tion”) included in their bilateral investment treaties (“bits”).1 in the case of investor-state arbitration, the foreign direct investment (“fdi”) inflow seen in the region during the 1990’s was accompanied by the execu-tion of relevant agreements such as Nafta and other bits that provide for arbitration proceedings before icsid or ad hoc tribunals under uN-citral arbitration rules. currently, the icsid convention is in force in fourteen latin american states. ad-ditionally, nineteen latin american states have ratified the 1975 inter-american convention on interna-tional commercial arbitration (the “panama convention”), while the New York convention has been ratified by nineteen latin american states. additionally, eleven latin american states have adopted, with slight changes, the uNcitral Model law (either in its 1985 or 2006 version).2 the increasing importance that arbitration is assuming in latin america is today undisputed, but the future looks significantly different depending on the type of proceedings. While commercial arbitration seems to be evolving at a slow but steady pace, the explosion in investor-state arbitration has raised increasing re-

sistance among some latin american states. another important factor to con-sider when dealing with the latin american region is that it is neither easy, nor is it proper, to include all latin american states in one gen-eral opinion. there is no such thing as “latin american arbitration.” each and every state has its own legislation, institutions and by-rules, and even group efforts made at the regional level have not yielded any uniform results. commercial inter-ests in the region vary over time and with changes of government and their policies. What may have been true of Venezuela a decade ago is no longer the case, owing to a new government that has extremely different priori-ties; thus, even traditional commer-cial allies have been substituted by others. We need to question tradition-al paradigms if we are to meet today’s challenges.3 the foregoing should help facilitate a more thorough understanding of the state of arbitration in contemporary latin america. in light of this foun-dational review, the following summa-ry serves as a review of some of the recent developments in three of latin america’s more active arbitration fora—argentina, brazil and ecuador.

Argentina argentina is a party to the New York convention and the panama convention. this ensures the enforce-ment of foreign arbitral awards in ar-gentina4 as well as awards rendered in argentina for which enforcement is sought in another member state. argentina is a party to the icsid convention and is the state with the greatest number of cases pending resolution before the icsid. 5 as a

J. Angulo

page 35 Winter 2011


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result of the political and economic crisis suffered in 2001-2002, argenti-na enacted the emergency laws that heavily interfered with the interests and rights of foreign and national investors. the implementation of the emergency laws led to a considerable number of foreign investors submit-ting claims and requesting arbitration before icsid or uNcitral arbitra-tion panels. there were twenty-eight pend-ing cases against argentina before icsid tribunals as of mid-december 2009, with total potential liabilities estimated by private sector analysts in the $12 billion range. ten of these pending icsid cases were filed under the u.s. bit. over the past five years, several icsid claimants who repre-sent a substantial share of the total value of claims against argentina suspended their icsid proceedings to facilitate further negotiation with the government. a number of the pending cases have reached their final stages. as of January 2010, the Government of argentina has not complied with a september 2007 final icsid judg-ment awarding approximately $133 million plus interest in favor of a u.s.

investor, nor a september 2009 final icsid judgment awarding $165 mil-lion plus interest in favor of another u.s. investor. 6

two cases recently received annul-ment decisions in investment arbitra-tion involving argentina. in Sempra Energy International v. Argentine Republic (icsid case No. arb/02/16), decision on annulment of 29 June 2010 (c söderlund, president, dao. edward, aJ Jacovides), the Sempra ad-hoc committee annulled the award in its entirety based on the “manifest excess of powers (article 52(1)(b) of the convention) owing to the failure of the arbitral tribunal to apply ar-ticle Xi of the bit between the [u.s.] and [argentina].” in Enron Creditors Recovery Corp. v. Argentine Republic (icsid case No. arb/01/3), decision on annulment of 20 July 2010 (G Griffith, president, pl robinson, per tresselt), the Enron ad-hoc committee annulled the findings on liability and damages by the tribunal, finding that it had manifestly exceeded its powers (article 52(1)(b) of the convention) in failing to apply the proper law to the dispute. 7 these decisions, which annulled two awards in excess of

$100 million against argentina, lend further support to a state’s defense of necessity in times of economic and political turmoil and suggest that the scope of annulment committee review may be more expansive than previ-ously thought. they have also contrib-uted to the continuing uncertainty regarding the proper application of the “necessity” clause—a standard provision in bilateral investment treaties that exempts state actions in extraordinary circumstances from the protection of the treaties.

Brazil Milestones in brazil’s development are: in 1996, the enactment of the arbitration law;8 in 2001, the recog-nition of the constitutionality of that law by the federal supreme court;9 and, in 2002, the ratification of the New York convention on the recog-nition and enforcement of foreign arbitral awards.10 since 2006, brazil-ian companies have been some of the leading users of the international chamber of commerce (“icc”) in latin america, achieving the position of fourth-most-active country that

page 36 Winter 2011


year. são paolo and rio have been increasingly chosen as the places of arbitration, leading the icc latin american ranking in recent years.11

brazilian courts also have been pivotal in the increasing numbers of arbitrations. since the end of the twentieth century, their attitude towards arbitration has moved from skepticism to enthusiasm. arbitra-tion agreements and awards have been duly respected. recent research that was coordinated by the brazil-ian arbitration committee and the law school of the fundação Getulio Vargas, and was published in august 2009, reached such a conclusion. it showed that arbitration has been developing as a consistently useful method of private resolution and that arbitration has counted on broad ac-ceptance and cooperation from brazil-ian courts.12

Ecuador ecuadorian law permits interna-tional arbitration when the parties have agreed to it and when certain stipulated requirements have been met. arbitration is regulated by the arbitration and Mediation law that follows the uNcitral Model law and was enacted on 4 september 1997.13 it allows the state to submit itself to domestic or international arbitration. once the arbitrators have issued their arbitration sentence or award, their decision is not subject to appeal. if one of the parties solicits it, however, the award may be clarified or amplified. because it is a private and single-step process, arbitration in ecuador is much more agile and expedient than traditional litigation. for the purpose of promoting, attract-ing and protecting foreign invest-ment, ecuador signed the icsid convention in 1986 (which became fully ratified in 2001), has executed numerous bits, and remains a party to the World trade organization.

the administration of president rafael correa has openly voiced its doubts about icsid impartiality, al-leging that the centre favors only the interests of the developed countries and of those countries’ companies coming to invest in ecuador. at the end of 2007, president correa sent a letter to icsid stating his intent to limit ecuador’s consent to submit to arbitration on issues pertaining to the utilization of natural resources such as oil, gas and minerals.14 the new constitution, prepared by the Na-tional constituent assembly (“Nca”) and approved by referendum on 28 september 2008, contemplates the existence of arbitration and includes provisions relating to its treatment and regulation. additionally, the 2008 constitution expressly prohibits ecuador from entering into interna-tional treaties or instruments waiv-ing jurisdiction with a view towards international arbitration involving contractual and commercial issues. in summary, the execution of treaties allowing arbitration in investment cases has not been prohibited—that is, not for contractual or commercial reasons, nor under the standards on international public law on invest-ment. rather, the prohibition refers to contractual or commercial matters where the state is the counterparty of private persons. Not surprisingly, ec-uador pulled out of the icsid in July 2009. its neighbor bolivia has pulled out as well.

Latin America takes center stage the result of all of the above fac-tors has been an explosion of inter-national arbitrations in the region, to the point where latin america has become one of the hottest topics of discussion in arbitration circles.15 in the last several years, high-profile conferences relating to latin ameri-can arbitration have taken place in london, paris, rio, New York, Miami and dallas. the 2009 icc data16 show significant and constant growth in the latin american market. ap-proximately 12% of the 817 new cases

filed in 2009 involved the region.17 the icc conference on international commercial arbitration in latin america held last year in Miami showcased 330 participants from over thirty countries, yet another sign that international arbitration in latin america is steadily becoming a topic demanding both scholarly and public attention. the increasing number of regional commercial exchanges and the quality of experts in the field of arbitration, as well as a high level of trust in arbitration versus litiga-tion in many national court systems, appear to be some of the reasons for this recent growing success.18 im-provement of case law on important matters relating to arbitration will further help establish a uniform point of view promoting a positive approach to arbitration.19

Challenges Aheadalthough latin america has come a long way from the days of the calvo doctrine, political unrest in the region bears watching. the leftist political wave spreading throughout the region has already left its mark on interna-tional arbitration, as evidenced by ecuador and bolivia pulling out of the icsid and by recent changes taking place in Venezuela. another concern is the considerable confusion about the applicable arbitral rules in the states in the region, given the coex-istence of international and regional conventions in addition to arbitration laws that have evolved at the regional and national level. the courts can be misused to intervene in arbitration proceedings through challenges based on alleged constitutional rights (such as amparos and mandados de segu-rança).20 in conclusion, the desire to pro-mote international arbitration in latin america clearly exists, and a common language and understanding of arbitration seem to have developed within the region. With few excep-tions, arbitration has turned into a well-accepted means for dispute reso-lution, actively encouraged by states’ legislation and frequently based in

LATIN AMERICAfrom preceding page

page 37 Winter 2011


tested legal frameworks under inter-national guidelines and treaties. the growth in the number of arbitrators appointed in either institutional or ad hoc arbitrations is another sign of the continuing progress made.

Judy Angulo is Co-Chair of the International Law Section Member-ship Committee. She was born in Colombia, has business ties to South America and has travelled through-out the region. She received her B.A. in International Studies from the University of Miami and her J.D. from St. Thomas University. She practices commercial litigation in North Miami at Florida Insurance Advocates.

Endnotes:1 rafael rodriguéz-Mercenio, Arbitration in Latin America: Friend or Foe?, tHe aMeri-Cano, oct. 13, 2010, http://theamericano.com/2010/10/13/arbitration-latin-american-friend-or-foe/.2 uNcitral, 1985 uNcitral Model law on international commercial arbitra-tion, as adopted by the u.N. commission on international trade law (21 June 1985), available at www.uncitral.org/uncitral/en/uncitral_texts/arbotration/1985Model_arbi-tration_status.html. 3 Guido santiago tawil, Strengthen-ing International Arbitration’s Presence in the Americas, arb. rev. oF tHe aMeriCaS 2010, available at http://www.globalarbi-trationreview.com/reviews/21/sections/77/chapters/810/strengthening-international-arbitrations-presence-americas/.4 argentina has made a reservation whereby it will apply the New York conven-tion only to awards on commercial matters issued in the territory of another member state.5 World bank website: http://worldbank.org/icsid/cases/cases.htlm, accessed oct. 2010. 6 dep’t of state website: http://www.state.gov/e/eeb/rls/othr/ics/2010/138028.htm, ac-cessed oct. 2010.7 adriana braghetta, International Com-mercial Arbitration in Latin America, arb. rev. oF tHe aMeriCaS 2010, p.2.8 law No. 9,307 enacted on 23 sept. 1996.9 ag.reg. na sentença estrangeira contestada (sec) 5206-7, full session of the federal supreme court (stf), report-ing Justice sepúlveda pertence, judgment of 12 dec. 2001, available at www.stf.gov.br. the prevailing opinions of Justice Nelson Jobim and ellen Gracie are published in the revista de direito bancário, do Mercado de capitais e da arbitragem, No. 11, Jan/Mar 2001, pp 361-374 and No. 13, Jul/sep 2001,

pp 391-394, and the entire opinion published in revista trimestral de Jurisprudencia (from federal supreme court), No. 190/908.

10 decree 4,311, enacted on 23 July 2002.

11 2006 Statistical Report, 18 iCC int’l Ct. oF arb. bull., 5-16 (2007), and 2007 Statisti-cal Report, 19 iCC int’l Ct. oF arb. bull., 5-16 (2008).

12 the initial report of the research, “Arbitragem e Poder Judiciário,” is avail-able at www.cbar.org.br/pdf/relatorio final pesquisa GV cbar.pdf. the second part of this research, focused on the setting aside of domestic arbitral awards, is available at www.cbar.org.br/pdf/pewuisa GV-cbar relatorio final i etapa 2fase 24.06.09.pdf.

13 the aMl was codified in official register No. 417 dated 14 dec. 2006. previ-ously, the original text of the aMl had been amended by the amendatory aMl law published in official register No. 532 dated 25 feb. 2005.

14 See http://iscsid.worldbank.org/icsid/index.jsp. See also Ecuador partially with-draws from ICSID, latin lawyer (dec. 2007). the pertinent portion of the communication reads as follows: “the republic of ecuador will not consent to submit to the jurisdiction of the international centre on settlement of investment disputes (icsd) the differences

arising on matters pertaining to treatment of investments deriving from economic ac-tivities relating to the utilization of natural resources such as oil, gas, minerals or others. all instruments containing the willingness previously expressed by the republic of ec-uador of submitting those disputes to the ju-risdiction of the centre and not yet perfected by means of the express and explicit consent of the other party before the date of presen-tation of this notice are withdrawn by the republic of ecuador, effective immediately as of this date.”

15 Nigel blackaby and sylvia Noury, Inter-national Arbitration in Latin America, latin lawyer (sept. 2005).

16 approximate percentages and informa-tion provided by José ricardo ferris at the icc latin american committee meeting held in paris on 24 sept. 2010.

17 International Commercial Arbitration in Latin America, arb. rev. oF tHe aMeriCaS 2011. information provided at the icc conv. on int’l arb. in latin america held in Miami on 8 Nov. 2010.

18 rodriguéz-Mercenio, supra note 1.

19 International Commercial Arbitration in Latin America, supra note 17.

20 Id.

Applications for Executive Council Members and

Treasurer sought six slots will be opening up on the section’s executive council in 2011. Qualified candidates should have been active in the section for a suf-ficient time to show commitment, and should have led a major project or conference or run a committee. interested persons should forward a resume along with a cover letter explaining what you have done for the section and why you would like to join the executive council.

the section is also seeking applications for treasurer, a position that puts the person in line for chair. applicants for treasurer must come from the existing council membership. again, those interested should for-ward a resume along with a cover letter explaining what you have done for the section and why you would like to become treasurer.

applicants for executive council and treasurer must send their ma-terials no later than March 31, 2011, by email to chair ed Mullins at [email protected]; the chair-elect, Nicolas swerdloff at [email protected]; and past chairs francisco corrales at [email protected] and J. brock Mcclane at [email protected]. please also copy current executive committee Members richard lorenzo at [email protected] and c. ryan reetz at [email protected].

page 38 Winter 2011


The Florida Bar Foundation:A Cause We Can shareBy John A. Noland, President, The Florida Bar Foundation

i hope lawyers in florida will join me in supporting a common cause: the florida bar foundation.

the foundation, a 501(c)(3) public charity, is a means through which lawyers can support a commonly held belief that everyone should have access to legal representation – regardless of his or her ability to pay.

the florida bar foundation’s mission to provide greater access to justice is accomplished through funding of programs that expand and improve representation and advocacy for the poor in civil legal matters; improve the fair and effective administration of justice; and make public service an integral component of the law school experience.

in 1981, financial support for the foundation increased significantly when the florida supreme court adopted the nation’s first interest on trust accounts (iota) program. over the past 29 years, the florida iota program has distributed more than $350 million to help hundreds of thousands of florida’s poor receive critically needed free civil legal assistance and to improve florida’s justice system. More than 30 percent of the total funding for legal aid organizations in florida comes from the florida bar foundation.

domestic violence, predatory lending and foreclosure, and access to public benefits are among the types of cases flooding legal aid offices throughout the state. for the sake of those throughout florida with nowhere else to turn for legal help but to legal aid, your support of the florida bar foundation is vital.

Gifts to the foundation provide added value to your local legal aid organization because of foundation ini-tiatives such as salary supplementation and loan repayment programs to help retain legal aid attorneys, a summer fellows program that places law students at legal aid organizations for 11 weeks each summer, new technological efficiencies such as a statewide case management system, and training opportunities for legal aid staff attorneys.

the foundation is unique as a funder in providing leadership, along with its financial support, by working with its grantees to improve florida’s legal services delivery system and identifying and addressing the legal needs of particularly vulnerable client groups. You can learn more about the foundation at www.floridabarfoundation.org.

i hope you will come to consider the florida bar foundation one of your charities. it’s truly an organization in which all of us, as florida attorneys, can take tremendous pride.

P.O. Box 1553 • Orlando, Fl 32802-1553 • 407-843-0045 • 800-541-2195 • Fax: 407-839-0287 • www.flabarfndn.org

page 39 Winter 2011


The Enforcement of Foreign Arbitral Awards in Brazil and the Ratification of the

New york ConventionBy Leonardo Daldegan Lima, Montreal

Introductionsince the sixteenth century, when brazil was still a portuguese colony, it has evolved unique-ly with accompany-ing consequences to its commerce with the world.1 even

though the huge south american na-tion has always depended on the ex-port of primary goods—or goods sold as they are found in nature2—through the years brazil has succeeded in diversifying into a highly industrial-ized nation.3

at this level, as one of the largest economies in the world, brazil’s role in international commerce has be-come critical.4 With the largest gross domestic product in latin america, brazil has continued to increase its exports even through the global economic crisis.5 inevitably, with the growth of its economy, there has also been increasing international invest-ment and, consequently, a rise in international contracts settled in the country. plainly, with this increase in contracting, brazil needed to ensure a modern legal system that would provide sufficient protection to all in-vestors conducting business there. in this regard, to deal with the eventual conflicts that come from these private agreements,6 arbitration arose.7 to give support to its new role in the international trade community, brazil had to adjust its legislation8 concern-ing international arbitration proceed-ings, since the provisions previously applied were not compatible with the demands of the international invest-ment community. although arbitration existed in

brazilian law since the Ordenações Filipinas9 in the sixteenth century, there has often been a conflict be-tween the brazilian legislation—mainly the licc10 (introduction law of brazilian civil code)—and the principle of party autonomy, the main component of the institution of arbitration. thus, the institution of arbitration was always kept under a certain level of repression by brazil-ian legislation. the divergence between provisions in brazilian law prevented parties to an international contract established within the country from choosing their rules. on the other hand, the interpretation of licc11 and its pref-erence for the law of the place where the act occurred12 always prevailed, causing a level of discontent among international investors, who wanted more autonomy to choose the arbitra-tion rules most convenient for them. With the 1996 enactment of lei No. 9.307 de 23 de setembro de 1996—the brazilian arbitration law (hereinafter “lei 9307/96”)—arbitration proceed-ings in brazil began the process of catching up to modern investor expec-tations. this law introduced essen-tially the same provisions as the New York convention,13 which had not yet been ratified by the brazilian govern-ment. in the new law, outmoded provi-sions were removed, like the obliga-tion to formalize a new submission agreement (compromisso arbitral) to complement the arbitration clause in the contract14; the need for a brazilian court to “homologate”15 any arbitral award; as well as the requirement of double homologation where the inter-national arbitration award was made (duplo exequatur).16

despite the importance of the enactment of that law, which revolu-

tionized brazilian arbitration pro-ceedings, brazil still had not ratified the New York convention itself. for international investors, ratification would signal that brazil was ready to provide the true juridical protection for their investments. finally, in 2002, brazil ratified the New York conven-tion and, since then, international arbitration in brazil has changed significantly.17 this article discusses the evolution of the enforcement of foreign arbitral awards in brazil through ratification of the New York convention.

A. Enforcement of Foreign Arbitral Awards in Brazil Before Ratification of the New york Convention1. Brazilian economic changes and consequences concerning arbitration until 1822, as a portuguese colony, brazil had little significance in inter-national trade. its commerce, consist-ing primarily of agricultural exports, was considered to be that of portu-gal.18 by the beginning of the twenti-eth century, brazil had left behind its dependence on the exportation of agricultural products and become a country with a considerable and solid industrial base.19 With devel-opment policies, brazil built core industries, like iron smelting, mining and oil, that improved its economic status and, consequently, increased its participation in the international market.20 brazil then entered into secondary industries, like auto manu-facturing, resulting in further devel-opment. after the two world wars, brazil realized spectacular growth in

L. Lima


page 40 Winter 2011


its economy due to the industrializa-tion that occurred through the early 1960’s. at this time the new federal capital of brasilia was planned and built, symbolic of a new brazil.21 throughout that time, however, arbitration was rarely used in the country. in fact, in any commercial dispute arising out of international contracts in which there was a brazil-ian party, arbitration clauses were not considered valid by brazilian judges, because those clauses were interpreted as essentially illusory promises to agree to arbitrate in the future.22 therefore, no legal provision existed for foreign arbitral awards to be enforced in brazil. subsequently, with rising cold War tensions, and political and social upheaval, many problems arose in brazilian society. Notwithstanding the continued growth of the brazilian economy, quality of life for the people did not improve, such that most of the population lived in poverty.23 con-sequently, brazil elected a socialist candidate as its president, causing further social tension in the coun-try. eventually, this tension led to a takeover by the military and, with it, serious consequences. despite the civil strife, brazil’s economy saw an increase in its ex-ports and the “milagre econômico,”24 a phase when economic growth increased to levels never before seen. techniques for bio-fuel were discov-ered using brazil’s abundant sug-arcane at the fortuitous time of the 1970’s oil crisis. brazil expanded its exports of industrialized goods and began to produce soy, which quickly became one of the country’s main export products. but despite the steady and con-siderable growth of its economy, brazil continued to ignore arbitra-tion. brazilian courts still considered arbitration clauses only a promise to arbitrate in the future (pactum in contrahendo); and double exequatur

continued to be required to enforce any foreign arbitral awards. in the 1980’s, there were a suc-cession of changes in the country, as much politically as economically. a democratic movement removed the military forces and, in 1988, brazil promulgated its current constitution, called A Constituição cidad.25 Many scholars consider the 1980’s to be an economically lost decade due to the stagnation of the brazilian economy and the loss of international credit.26 the institution of arbitration re-mained ignored. by the 1990’s, brazil began a process of economic stabilization in which inflation was strictly controlled. this stabilization, however, brought recession and more stagnation.27 but over the last decade, brazil has retaken its position as an exporting country. it diversified its economy and reached a status as one of the largest in the world.28 thus, it finally became impera-tive for brazil to modernize and to establish mechanisms to resolve trade conflicts quickly in order to attract international investments on a large scale. this could only happen through a complete makeover of its arbitration rules.29 2. Arbitration in Brazil up to 1996 the institution of arbitration technically existed in brazil since the colonial period of the sixteenth century. at that time, as a portuguese colony, brazil was under the authority of felipe i, King of spain, since the two crowns—portuguese and span-ish—were united. provisions called Ordenações Filipinas were enacted regarding trade in the colony and the institution of arbitration ap-peared for the first time under the name Dos Juízes Árbitros (the Judge arbitrators).30

in the provisions of Ordenações Filipinas regarding arbitration, it was possible to appeal from an arbitral award to a judge, regardless of wheth-er there was any clause in the agree-ment to the contrary. the arbitral award, however, did not depend on the

judge’s homologation.31 the provisions also provided that “if each of the par-ties do not appeal from the arbitral award in the due time, this award will be enforced by the trial judges.”32

Years after its first appearance in brazilian law and after its gradual disuse, the institution of arbitration resurfaced in the brazilian imperial period, when the country had just become independent from portugal in 1822. in the first brazilian constitu-tion, in 1824, article 160 stated that: “[i]n civil or criminal cases, the par-ties may nominate arbitrators. their awards will be enforced, without ap-peal, if pre-matched by the parties.”33

subsequently, in 1850, when the first brazilian commercial code34 was enacted, there was a provision stating that “the social issues arising out of partnerships, during the existence of the company or society, including its liquidation or its shares, shall be sub-mitted to an arbitrator.” Nonetheless, this provision was revoked sixteen years later. also in 1850, commercial arbitra-tion was regulated by regulation 737, in which article 411 distinguished consensual arbitration from man-datory arbitration.35 at that time, arbitrators made awards based on the commercial legislation and on the “promise to arbitrate” clauses. in 1867, the brazilian government enacted a provision, the Decreto 3.900, regulating arbitration proceedings in brazil.36 this enactment stated that arbitrators would judge by fairness, if authorized by the parties. in 1939, the brazilian civil proce-dure code37 was enacted, including provisions regarding arbitration. the provisions, however, did not clearly define how arbitral disputes would be resolved. and worse, they set forth the requirement of homologation of all arbitral awards by trial judges. also, there was no reference to the “promise to arbitrate” clause (cláusula compro-missória),38 which would be treated in the amendment to the civil procedure code in 1973. despite language addressing the cláusula compromissória in the 1973 amendment, the institution

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of arbitration remained unsettled because of divergence concerning this promise-to-arbitrate clause that remained merely a promise to submit future disputes to arbitration, not an actual agreement that could itself be submitted as the basis for conven-ing an arbitration. Most cases ended up in state courts, because one party could simply refuse to sign the subse-quent agreement or submission. thus, at that time, there was no certainty for investors doing business in brazil since brazilian law could not afford protection in their trade disputes.39

in addition to the issues concern-ing the cláusula compromissória and its non-enforcement, there also remained the problem concerning ho-mologation of arbitral awards.40 the civil procedure code of 1973 gener-ally stated that all arbitration awards made in brazil had to be approved by the Supremo Tribunal Federal, the federal brazilian supreme court, which would use a “homologation procedure” to determine if brazilian law had been properly applied.41

thus, international arbitration was an unattractive option in brazilian disputes:

[f]irst, when arbitrating in brazil there was a requirement to conclude a post-dispute submission agreement (o compromisso ) to supplement the arbitration clause in the contract (a cláusula compromissória), in the absence of which the judicial courts retained jurisdiction; secondly, the award had to be formally approved by the brazilian courts in a process of “homologation”; thirdly, when the dispute had been arbitrated outside of brazil the courts of the place of arbitration and the brazilian courts needed to “homologate” the award to ensure that the requirements of both the law of the place of arbitration and brazilian law had been fulfilled.42

in many cases, in an interna-tional dispute involving the cláusula compromissória, a brazilian party defied the obligation of application of arbitration proceedings made in the

agreement by maliciously submitting the dispute to brazilian state courts, which sometimes would not properly apply the law, and which would take years to resolve the matter in any event. as blackaby noted, “concerns have been voiced that this basic protection for foreign investments is sometimes lacking in brazil, which has long been regarded as the ‘black sheep’ of latin america in its ap-proach to arbitration.”43

3. The Brazilian Arbitration Law (Lei 9.307/96) the brazilian arbitration law, lei 9307/96, was revolutionary for brazil-ian arbitration. the new law brought clarity and simplicity to commercial arbitration proceedings.44

indeed, prior to its enactment, the institution of arbitration seemed all but forgotten in brazilian com-merce due to the obstacles created by the cláusula compromissória’s mere promise to solve eventual or future conflicts through arbitration, which had no effect in practice, and by the need to homologate arbitral awards to give them the same effect as state court judgments.45 the need for homologation alone removed any cost advantage to arbitration, and any supposed benefit of confidentiality was also lost by having to seek ap-proval of the state courts.46

observing the principle of party autonomy, lei 9.307/96 gave parties


Section CalendarMark your calendars for these important dates.

For more information contact: Angela Froelich: 850-561-5633 / [email protected]

APRIL 13-15, 2011

ILs Reception at ABA sections of Litigation andCriminal Justice Conference

Fountainbleau Resort, Miami Beach

MAY 2-3, 2011

International Bar Association“Global Investments in Real estate” Conference

Mandarin Oriental Hotel, Miami

MAY 5-6, 2011

2nd International Bar AssociationConference of the Americas

Mandarin Oriental Hotel, Miami

June 24, 2011

(At The Florida Bar Annual Convention)

“new Frontiers in Arbitration” (1214R)

ILs executive Council Meeting

Gaylord Palms Resort & Convention Center, Orlando

page 42 Winter 2011


the freedom to choose their own rules concerning the arbitration proceedings and determine arbitrators to make decisions based on fairness or on the general principles of law.47 important-ly, regarding foreign arbitral awards, the new arbitration law eliminated the double homologation (duplo ex-equatur). the superior tribunal of Justice (hereinafter, “stJ”)48 now ho-mologated the foreign arbitral awards directly by determining whether there is any offense to brazilian public order or to its good customs. the lei 9.307/96 was essentially well accepted by the international trade community. shortly after its enactment, however, the question of its constitutionality was raised by way of an appeal contesting an arbitral award made by a spanish arbitrator, for which the brazilian federal supreme court denied homologation, alleging lack of official registration of the arbi-tral award by the spanish court. five years after the enactment of the law, in 2001, the brazilian supreme court finally judged that lei 9.307/96 was constitutional, holding that it was not necessary for the spanish award to be homologated by the spanish court, since in spain any arbitral award has as much legitimacy and authority as any state court decision.49

although, the 1996 arbitration law was a large step forward toward modernizing brazilian arbitration law, a final step came in 2002 when the New York convention was ratified.50 although the arbitration law had included nearly identical language to the New York convention, true com-fort came to the international trade community only after the constitu-tional affirmation by the country’s supreme court, coupled with its ratifi-cation of the New York convention.51

B. Enforcement of foreign arbitral awards in Brazil after New york Convention1. The ratification of the

New york Convention by the Brazilian government the New York convention was ratified through legislative decree52 No. 52/2002, and with it brazil en-sured the validity of foreign arbitral awards, as long as the basic principles of public order, reciprocity, and due process were observed.53 the New York convention also brought other important provisions to the brazil-ian legal system.54 all foreign awards formerly rendered under bilateral conventions, all awards rendered under the bustamante code,55 and all awards rendered under any other system56 were absorbed under the New York convention. Notably, the stJ57 enforces foreign awards under the newly ratified convention, when formerly only the brazilian supreme court had that authority. thus, it can be stated there are two procedures for enforcement of foreign arbitral awards in brazil by the stJ: the arbitral awards subordinated to the New York convention, which are the vast majority of foreign awards; and the arbitral awards subordinated to the Protocol de Las Leñas—con-cerning the members of Mercosul, an economic and political agreement among argentina, brazil, paraguay and uruguay, as well as other local countries with associate-member sta-tus—which are enforced through the exequatur or enforcement of rogatory letters.58

Notably, the newly ratified New York convention has not yet been discussed in the stJ decisions. to the contrary, the stJ continues to refer-ence the brazilian arbitration law, lei 9.307/96, as the legal basis for conced-ing or not conceding the enforcement of the foreign arbitral awards.59 curi-ously, there is no mention of the New York convention in the stJ decisions, despite the fact that the convention is in plenary and universal binding force in the brazilian legal system. this is likely because the New York convention has essentially the same provisions as the brazilian arbitra-tion law; thus, absent conflict, there is no need for the New York conven-tion to prevail. in this regard, there is

a decision of the stf stating that any international treaty ratified by the brazilian government revokes a prior law.60 on the other hand, any newly enacted law also revokes a prior in-ternational treaty, since both of them have the same hierarchy.61

2. The importance for Brazil of the ratification of the New york Convention the New York convention, by vir-tue of its ratification by the brazilian government, has absolute primacy over existing legal dispositions in the domestic law. as noted, however, lei 9.307/96 and the New York conven-tion are very similar.62 Nonetheless, the ratification of the New York con-vention represented one of the most important steps in the consolidation of international arbitration in brazil. the New York convention, of course, is the most important treaty on the recognition and enforcement of foreign arbitral awards in the world.63 thus, it ensured more juridical safety in international trade and commerce with brazil. perhaps future brazilian stJ decisions may even take ad-vantage of the comparative doctrine and jurisprudence arising from the New York convention as persuasive authority.64

even as solely an emotional crutch, the importance of the ratification of the New York convention in brazil cannot be overstated. as the near uni-versally adopted legal infrastructure for international commercial disputes, it provides the key to the effective en-forcement of international awards.65

Conclusion the brazilian economy has devel-oped from that of portugal’s agricul-tural outpost to one of the world’s greatest economic machines. for many years, however, the country’s system of resolving international disputes lagged behind the rest of the world and hindered investment into a country whereby foreigners would always worry that any resulting disputes would have to be resolved by “local” courts which, at best, would

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take considerable time for resolution. lei 9.307/96 was an important first step. but the ratification of the New York convention—although too long in coming—finally gave brazil an international commercial legal foun-dation in keeping with its economic status in the world.

Leonardo Daldegan Lima is a member of the Brazilian Bar Associa-tion (OAB 29.926). He graduated with a Master of Laws (LL.M – Busi-ness Law in a Global Context) from the University of Montreal in 2010.

Endnotes:1 lael brainard & leonardo Martinez-diaz, brazil aS an eConoMiC Superpower?: underStanding brazil’S CHanging role in tHe global eConoMy, at vii (2009).

2 Id.

3 Id. at 2.

4 ralpH lattiMore & przeMySlaw Kowal-SKi, Brazil, in globaliSation and eMerging eConoMieS: brazil, ruSSia, india, indoneSia, CHina and SoutH aFriCa 211 (2008).

5 Id. at 212-16.

6 pHilippe FouCHard et al., FouCHard, gaillard, goldMan on international CoM-MerCial arbitration 11 (2d ed. 1999).

7 etiene Maria boSCo breviglieri & deniS MarCoS veloSo SoareS, ContratoS interna-CionaiS FirMadoS no braSil: a poSSibilidade de eSColHa da legiSlação apliCável Mediante a lei de arbitrageM (2007).

8 Id.

9 MárCio a. M. MoraeS, arbitrageM naS relaçõeS de ConSuMo 151 (1st ed. 2006).

10 decreto-lei 4.657 de 04 de setembro de 1942, l.i.c.c., d.o.u., 09 sept. 1942, art. 9.

11 Id.

12 beat walter reCHSteiner, direito inter-naCional privado: teoria e prátiCa 133-55 (9th ed. 2006).

13 convention on the recognition and enforcement of foreign arbitral awards, 10 June 1958, 21. u.s.t. 2517, 330 u.N.t.s. 38 [herinafter New York convention].

14 Nigel blackaby, Arbitration and Brazil: A Foreign Perspective in Arbitration Interna-tional, 17 arb. int’l 129, 131 (2001).

15 Id. at 132. homologation is a technical term, derived from the Greek homologeo for “to agree,” generally used to signify the granting of approval by an official authority

16 Id.

17 brazil ratified the New York convention on 07 June 2002.

18 lattiMore & KowalSKi, supra note 4, at 211.

19 taMáS SzMreCSányi & wilSon Suzigan, HiStória eConôMiCa do braSil ConteMporâneo 3 (2d ed. 2002).20 Id. at 4.21 bianor SCelza CavalCanti et al., deSen-volviMento e ConStrução naCional: polítiCaS públiCaS 165 ( 2005).22 Pactum in contrahendo.

23 Marieta de MoraeS Ferreira, João gou-lart: entre a MeMória e a HiStória 57 (2006).24 adriana lopez & CarloS guilHerMe Mota, HiStória do braSil: uMa interpretação 834 (2008).25 ConStituição da repúbliCa Federativa do braSil de 1988.26 antônio CarloS robert MoraeS, territó-rio e HiStória no braSil 142 (2005).27 werner baer, a eConoMia braSileira 217 (2nd ed. 2002).28 lattiMore & KolwalSKi, supra note 4, at 237.29 irineu Strenger, arbitrageM CoMerCial internaCional 44 (1996) .30 romeu falconi, A gênese das Ordenações Filipinas, novoS eStudoS JurídiCoS, vol. 10, n.2, (27 March 2007), https://www6.univali.br/seer/index.php/nej/article/view/411.31 Strenger, supra note 29, at 13.32 ordenações filipinas (1603), available at http://www.planalto.gov.br/ccivil_03/revis-ta/rev_03/ordenamento%20jur%20brasil.htm.33 ConStituição polítiCa do iMpério do brazil, secretaria de estado dos Negócios do império do brazil, (22 april 1822), available at http://www.planalto.gov.br/ccivil_03/consti-tuicao/constitui%c3%a7ao24.htm. 34 lei 556 de 25 de junho de 1850, código comercial brasileiro, brazilian commercial code (25 June 1850), available at http://www.planalto.gov.br/ccivil_03/leis/l0556-1850.htm.35 Mariulza franco, Aspectos da Arbitra-gem, revista unipar (article presented to universidade paranaense) (31 March 2008), http://revistas.unipar.br/juridica/article/viewfile/1288/1141.36 Marcos paulo félix da silva, A arbitra-gem como alternativa à execução das obri-gações no âmbito empresarial, buscalegis, (florianópolis: ufsc, 14 March 2007), http://www.buscalegis.ufsc.br/revistas/index.php/buscalegis/article/viewfile/32706/31905.37 decreto-lei 1.608 de 18 de setembro de 1939, código de processo civil brasileiro, brazilian civil procedure code (18 sept. 1939), available at http://www.planalto.gov.br/cciVil/decreto-lei/1937-1946/del1608.htm. 38 Strenger, supra note 29, at 25.39 aloísio Gonçalves de castro Mendes, Direito Processual Romano, aJuFerJeS 14 (13 March 2009) http://www.ajuferjes.org.br/pdf/011direitoprocessualromano.pdf>.40 Strenger, supra note 29, at 31.

41 blackaby, supra note 14.

42 Id.

43 Id.

44 lei 9.307 de 23 de setembro de 1996, dispõe sobre a arbitragem, d.o.u., 24 sept. 1996.

45 Strenger, supra note 29, at 43-52.

46 Id.

47 Id.

48 through the Emenda Constitucional 45/2004, a constitutional amendment, com-petence to enforce foreign arbitral awards in brazil was given to the brazilian stJ. before the amendment, the brazilian supreme court had that authority. Strenger, supra note 29, at 52-53.

49 horacio Grigera Naón, Arbitration and Latin America: Progress and Setbacks, fresh-fields lecture, 21 arb. int’l n.2 (2005).


51 brazilian supreme court decision deter-mining the constitutionality of the brazilian arbitration law. (s.t.f. – s.e. – 5.206 – d.J.u. (19 dec 2001).

52 Decreto Legislativo 52, de 25 de abril de 2002, about the ratification of the New York convention (25 april 2002), available at http://www.planalto.gov.br/ccivil_03/de-creto/2002/d4311.htm.

53 Strenger, supra note 29, at 142.

54 Id. at 131.

55 decreto 18.871 de 13 de agosto de 1929, código de bustamante, about private international law (havana, 13 aug 1929), available at http://www2.mre.gov.br/dai/bus-tamante.htm.

56 such as the panama convention from 1975, the Montevidéu convention from 1979, the Geneva protocol from 1923 and the ‘lex mercatoria’ system from uNcitral.

57 superior tribunal de Justiça (stJ) is the brazilian superior tribunal of Justice. until 2004, the enforcement of all the foreign arbitral awards in brazil was done by the brazilian supreme court (stf).


59 Id. at 138.

60 supremo tribunal federal (stf): the brazilian supreme court.

61 ‘lex posteriori derogati priori,’ s.t.f. – ac. 80.004, r.t.J. 83/809 (01 Jun 1977).


63 clávio de Melo Valença filho, Ratifica-ção da convenção sobre o reconhecimento e execução de sentenças arbitrais estrangeiras (Nova Iorque, 1958), y. 5, n. 16 (são paulo: revista de direito bancário, do Mercado de capitais e da arbitragem, 2002) at 387-90.


65 Miguel Virgós soriano, Arbitraje comer-cial internacional y El convenio de Nueva York de 1958, n.6679 (2007) at. 1.

page 44 Winter 2011


The Florida Bar Continuing Legal education Committee and theInternational Law section present

Florida Quebec Forum 2011COuRse CLAssIFICATIOn: InTeRMeDIATe LeVeL

Live Presentation: March 18 - 19, 2011

FortLauderdaleAirportHilton • 1870GriffinRoad FortLauderdale,FL33004 • 954-920-3300

Course no. 1268R

Friday, March 18, 20118:30 a.m. – 9:00 a.m.Late Registration & Welcoming Remarks by Florida and Quebec Attorneys

9:00 a.m. – 9:50 a.m.Joint Legal Representation of Foreign Clients in Florida and Quebec. ethics. using notariesPamella A. Seay, Florida Gulf Coast

University, Port Charlotte Andrew Penhale, QuebecWilliam H. Hill, Jr., Ponte Vedra Beach

9:50 a.m. – 10:40 a.m.execution of a Foreign Judgment in Quebec and Florida; Practical, Financial and Legal Aspects & ethicsFrancesca Russo, Espinosa Trueba P.L.,

MiamiFrédérique Sabourin, QuebecValerie Duane-Dray, Valerie Y. Duane-Dray,

P.A., Fort Lauderdale

10:40 a.m. – 11:00 a.m. Break

11:00 a.m. – 11:50 a.m.Accidents in Florida Involving non-Residents and Insurance LawNancy Lapierre, PlantationLu Chan khuong, QuebecClaude Gélinas, Quebec

11:50 a.m. – 12:40 p.m.establishing and Managing a Florida enterpriseJoseph B. McFarland, Lavigne, Coton &

Associates, P.A., OrlandoFrancisco A. Corrales, Silverberg & Weiss,

P.A., Weston

12:40 p.m. – 2:00 p.m.Lunch (Canadian Consul - Invited) (included in registration fee)

2:00 p.m. – 2:50 p.m.u.s. Income & estate Tax Consequences of u.s. Investment structures for CanadiansWilliam H. Newton III,

William H. Newton III, P.A., MiamiSteven Garellek, Berger Singerman P.A.,

Boca Raton

2:50 p.m. – 3:40 p.m.Current Mortgage Laws and Considerations in FloridaThomas L Raleigh, III, Akerman Senterfitt,

OrlandoLaurence D. Gore, Laurence D. Gore &

Associates, P.A., Fort Lauderdale

3:40 p.m. – 4:00 p.m. Break

4:00 p.m. – 4:50 p.m.Current Immigration Rules and Practices in Canada and the u.s. Criminal Antecedents, Request for Pardon and extraditionHerschel Gavsie, Greenspoon Marder P.A.,

Fort LauderdaleGlenn M. Cooper, Glenn M. Cooper &

Associates P.A., PlantationMark R. Weiner, Weiner Law Group, P.A.,

Tampa

4:50 p.m. – 5:40 p.m.Acquiring and Managing Florida Real estateLucius Smejda, LEX International Law Firm,

P.A., MiamiRobert Kiderchah, LEX International Law

Firm, Quebec

6:00 p.m. – 7:30 p.m.honors Reception

saturday, March 19, 20118:30 a.m. – 9:00 a.m.Opening Remarks

9:00 a.m. – 9:40 a.m.Accidents In Florida Involving non-Residents and Insurance LawNancy Lapierre, PlantationClaude Gélinas, QuebecLu Chan khuong, Quebec

9:40 a.m. – 10:10 a.m.Consumer Protection Laws: how to Protect YourselfRachel Journeault, QuebecFrancisco A. Corrales, Silverberg & Weiss,

P.A., WestonNancy Lapierre, Plantation

10:10 a.m. – 10:20 a.m. Break

10:20 a.m. – 10:50 a.m.Current Immigration Rules and Practices in Canada and the u.s.Herschel Gavsie, Greenspoon Marder P.A.,

Fort LauderdaleElke Rolff, Rolff Law P.A., Miami

10:50 a.m. – 11:20 a.m.Taxation of Individuals and Tax Planning in FloridaLucius Smejda, LEX International Law Firm,

P.A., MiamiDaniel Veilleux, President, Dejardins Bank,

Florida

11:20 a.m. – 12:00 p.m.Acquisition, Financing and Rental of Real estate in FloridaLucius Smejda, LEX International Law Firm,

P.A., MiamiRobert Kiderchah, LEX International Law

Firm, QuebecMarie-Eve Paré, Quebec

12:00 p.m. – 1:00 p.m.Detailed Question and Answer session, along with Canadian Consular Clinic for Passports / Visas - Information and Forms

CLE

page 45 Winter 2011


ReFunD POLICY: A $25 service fee applies to all requests for refunds. Requests must be in writing and postmarked no later than two business days following the live course presentation or receipt of product. Registration fees are non-transferrable, unless transferred to a colleague registering at the same price paid. Registrants who do not notify The Florida Bar by 5:00 p.m., March 11, 2011 that they will be un-able to attend the seminar, will have an additional $75 retained. Persons attending under the policy of fee waivers will be required to pay $75.

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page 46 Winter 2011


The Necessity Defense in Bilateral Investment Treaties: Looking Forward

By Patrick Miller, Miami

the necessity defense is a corner-stone of internation-al law. essentially, it is the recogni-tion that although states may contract with other states to oblige them to certain activities,

they cannot abdicate their fundamen-tal responsibility to maintain order within their societies. at its core it is a pragmatic doctrine, acknowledging that no one obligation is more impor-tant than the integrity of the interna-tional system as a whole. the term “state of necessity” refers to exceptional cases where the only way for a state to safeguard an es-sential interest against a grave and imminent peril is to breach a less se-rious or less urgent international ob-ligation.1 this language underscores the fact that states of necessity occur in very rare circumstances. Numerous jurists have highlighted the poten-tial for abuse that would arise from granting a broad reading of what is “necessary”; several tribunals have decided that the measures undertak-en were not the only means of avert-ing an imminent peril. although the defense has been met with very strict interpretations, it is still a prevailing doctrine of customary international law and has been codified in the fol-lowing language by the international law commission’s articles on state responsibility:

Article 25. Necessity

Necessity may not be invoked by a state as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that state unless the act:

is the only way for the state to safeguard an essential interest against a grave and imminent peril;

and

does not seriously impair an essential interest of the state or states towards which the obligation exists, or of the international community as a whole.

2. in any case, necessity may not be invoked by a state as a ground for precluding wrongfulness if:

(a) the international obligation in question excludes the possibility of invoking necessity;

or

(b) the state has contributed to the situation of necessity.2

the recent argentine financial cri-sis has demonstrated that the neces-sity defense can play a decisive role in international investment adjudica-tion.3 argentina may be liable for as much as $17 billion dollars due to the emergency measures undertaken at the peak of the crisis—measures that effectively shifted substantial losses upon foreign investors.4 in response, those investors have filed claims in international tribunals like the inter-national centre for the settlement of investment disputes (“icsid”), under the protections granted them through bilateral investment treaties (“bits”). in virtually every action where a tribunal found jurisdiction over the claim, argentina has asserted the necessity defense as a justification for its alleged treaty violations. the tri-bunals have analyzed necessity based on international law commission (“ilc”) article 25 (entitled “Neces-sity”), as well as the specific Necessity provision (article Xi) in the u.s.-argentina bit. in the few cases that have been decided on the merits by

tribunals, the necessity defense has proven critical to the determination of argentina’s liability. this article will examine those cases and describe the recurring issues arbitrators have con-sidered when analyzing the necessity defense.

Tribunal Decisions 2005-2009 in the late 1980’s and early 1990’s, argentina began a vast privatization regime of its formerly government-owned utilities industry5 by asking private foreign companies to partner with local, formerly government-owned entities, to provide services more efficiently. argentina also passed various regulatory measures to incentivize those foreign inves-tors.6 concurrently, argentina signed numerous bits with other capital-exporting countries, hoping to as-suage foreign investor fears about entering the newly privatized market. argentina even introduced a pegged currency system that calculated the argentine peso to the u.s. dollar at a ratio of one-to-one.7 in the early years, the privatized utility industries gave argentina efficient and reliable en-ergy, and the overall economy looked quite promising. the constraints of maintaining the pegged currency later forced argen-tina into macroeconomic dysfunction and, by 1999, the country began a precipitous economic decline.8 once there became significant distrust over the viability of the peg and the ability of argentina to pay its foreign debts, many argentines began converting their savings from pesos to dollars.9 “in one day alone, the argentine peso lost 40% of its value.”10 this then created a run on the banking indus-try, and the argentine government reacted by capping the amount of

P. Miller

page 47 Winter 2011



money citizens could withdraw from their bank accounts.11 throughout the collapse, “income per person in dollar terms . . . shrunk from around $7,000 to around $3,500,” and “unemploy-ment [rose] to perhaps 25%.”12 this turbulent economic decline led to mass unrest and protests. the protests eventually cost tens of lives, and president de la rua resigned from office. then, in a matter of weeks, three more presidents were appointed and resigned from office, culminating in president duhalde’s appointment. the duhalde govern-ment reacted to the mass outrage by, among other things, passing the emergency law, which changed sev-eral of the basic regulatory structures that had previously incentivized foreign companies to operate in the argentine market.13 these measures significantly reduced the investor’s ability to recoup an investment. sev-eral investors entered into negotia-tions with the argentine government to modify their agreements while many other investors decided to take their grievances to international arbi-tral tribunals, claiming a violation of the rights they held under bits. this article will focus solely on disputes between american inves-tors and argentina, thus limiting the scope of the inquiry to claims under the u.s.-argentina bit. the u.s. investors have generally claimed that three specific bit rights were vio-lated: (1) they were the victims of ex-propriation without compensation; (2) they were not given fair and equitable treatment; and (3) various contracts they had with the argentine govern-ment had been abrogated (umbrella clause claim).14 argentina sought to defend itself, in part, by claiming that those measures were necessary to maintain public order and referred the tribunal to the customary interna-tional law definition of “necessity,” as well as article Xi of the u.s.-argenti-na bit. the article reads:

this treaty shall not preclude the application by either party of measures necessary for the maintenance of public order, the

fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.15

there have been five different ic-sid tribunal decisions, all with simi-lar facts, arising from the argentine crisis. the first four cases are: CMS v. Argentine Republic;16 LG&E v. Ar-gentine Republic;17 Enron v. Argentine Republic;18 and Sempra v. Argentine Republic.19 the main issues in all four of those cases will be discussed first because they all used the ilc articles on state responsibility’s definition of “necessary” to interpret the Necessity clause in the u.s.-argentina bit.20 in the fifth case, involving Continental Casualty v. Argentine Republic,21 the tribunal used a separate interpretive method than the first four for ana-lyzing necessity, so that case will be taken up last. the four tribunals uniformly held that article Xi is not self judging.22 a self-judging clause would give defer-ence to the state in its interpretations of whether the violating measure was necessary and whether an emergency existed. the tribunal would then decide only whether the state had exercised its determinations in good faith. since the tribunals found that the clause was not self judging, they went on to consider whether or not the measures were necessary de novo. Notably, however, the LG&E tribunal stated: “Were the tribunal to conclude that the provision is self-judging, argentina’s determination would be subject to a good faith review anyway, which does not significantly differ from the substantive analysis pre-sented here.” 23 all four tribunals found three main subsets of the necessity defense: (1) whether an emergency situation existed; (2) whether the measures violating the treaty were the only available options; and (3) whether the state contributed to the creation of the emergency situation.24 the respective claimants all ar-gued that article Xi should include only military incursions or political

upheavals, thus precluding consider-ation of the economic emergency. the tribunals all agreed that an economic crisis could rise to the level of emer-gency required by the treaty and by customary international law, though the tribunals differed on whether this economic situation actually rose to that level. the LG&E tribunal found that during the period from decem-ber 2001 until 26 april 2003, there was in fact an article Xi emergency situation,25 whereas the CMS, Enron, and Sempra tribunals found that the crisis did not rise to that level.26 although the three tribunals were unconvinced that the crisis rose to the level of an emergency, they still went on to discuss the other relevant questions concerning the necessity defense. the classification of the crisis as an emergency appears to be highly dispositive as to whether the other elements of the necessity test will be met. the Sempra tribunal seemed to allude to this idea when it stated: “this tribunal must note, first, that in addition to differences in the legal interpretation of the treaty in this context, an important question that distinguishes the LG&E decision on liability from CMS, and for that matter also from the recent award in Enron, lies in the assessment of the facts.”27 the “facts” concerned the extent of the crisis. the emergency situation is certainly a threshold is-sue, but it may also be determinative as to whether or not the tribunal will preclude damages, irrespective of the other subsets of the defense. an important aspect of the CMS decision was that the emergency law and tariff readjustments were not ar-gentina’s only option for dealing with the economic crisis.28 Enron agreed with this analysis.29 the Sempra tribunal interpreted the “only option” aspect quite restrictively: “a rather sad global comparison of experiences in the handling of economic crises shows that there are always many approaches to addressing and resolv-ing such critical events. it is therefore

page 48 Winter 2011


difficult to justify the position that only one of them was available in the argentine case.”30 this reasoning creates a situation that if any alter-native is available, article Xi cannot be invoked. other courts in different contexts have used a much more nu-anced approach by asking questions like: What policy has the best chance of succeeding? does this policy have a less violative effect than others? What policies could be reasonably enacted during an emergency situation? the LG&E tribunal did not ap-proach its analysis of the tariff read-justment by considering whether it was the only available option: “article Xi refers to situations in which a state has no choice but to act. a state may have several responses at its disposal to maintain public order or protect its essential security inter-ests. in this sense, it is recognized that argentina’s suspension of the calculation of tariffs in u.s. dollars and the ppi adjustment of tariffs was a legitimate way of protecting its social and economic system.”31 the tribunal considered whether or not the state’s only option was to act and then concluded that the activity was legitimate. as far as whether or not argentina contributed to the crisis, the tribunals generally fall along the same line. the CMS tribunal found that through its economic policies of the 1980’s and 1990’s, argentina actually contributed to the crisis, negating its use of article Xi under customary international law.32 the Enron tribunal discussed this issue but did not make a conclu-sive determination because there was conflicting testimony. the tribunal simply concluded that since the other aspects of necessity were not met, it did not need to rule expressly on the contribution issue.33 Sempra came to a similar determination that the evidence was mixed as to whether it was endogenous or exogenous factors, but the tribunal also intimated that

the state’s contribution may have pre-cluded necessity even if an emergency had been found.34 LG&E tribunal stated that the claimant had the burden of proving that argentina contributed to the crisis, and that it had not.35 this has been criticized as contrary to the gen-eral course of affirmative defenses,36 but it seems reasonable if one consid-ers the notion that a state contribut-ing to an emergency is actually more like an affirmative defense against the affirmative defense of necessity. Just for good measure, the tribunal also added that “the attitude adopted by the argentine Government has shown a desire to slow down by all the means available the severity of the crisis.”37

the Continental Casualty case arose from similar facts, but the analysis here is separate because the interpretative method is quite differ-ent from the previous four cases. the tribunal began by noting that it was required to interpret the language of the treaty before turning to custom-ary international law and the ilc articles on state responsibility.38 the tribunal then advised that since ilc article 25 Necessity may be claimed in a variety of circumstances, whereas article Xi of the bit may be invoked only in the specified conditions under the treaty, a tribunal must read the ilc language more restrictively than the article Xi language. 39

the CMS annulment panel also criticized the tribunal for interpret-ing “necessity” based on ilc language before the bit language. although it concluded that the tribunal inti-mated that the same analysis would take place under the treaty, and that it had demonstrated a rationale for its decision, that precluded annul-ment.40 the later cases have all found that the lex specialis rule applies and have considered the bit language before examining customary interna-tional law, though they usually have found that the vague language of the treaty eventually directs them to customary international law and the ilc articles anyway. Continental is unusual because it expressly states

the analysis would be more restrictive under customary international law. this is a dramatic pronouncement that goes further than the first four tribunals toward granting deference to argentina, but the real shift is the tribunal’s decision that Wto jurispru-dence should guide its interpretation of what is necessary to protect an es-sential security interest. the tribunal found that the older u.s. friendship, commerce and Navigation treaties provided the basis for the later model bit language, and that since these treaties were also the basis for Gatt article XX and later Wto jurispru-dence, it was appropriate to look to those Wto decisions for interpreta-tive guidance.41 the tribunal found that in the Wto context, tribunals have granted broad scope for what constitutes an essential security interest, and the situation before it fell within that cat-egory. in deciding whether it was the only option, the tribunal referred to the article XX holdings that it should balance several factors: “the relative importance of interests or values fur-thered by the challenged measures, the contribution of the measure to the realization of the ends pursued by it and the restrictive impact of the mea-sure on international commerce.”42 it found that the measures “were in part inevitable, or unavoidable, in part in-dispensable and in any case material or decisive in order to react positively to the crisis, to prevent the complete break-down of the financial system.”43 the tribunal also quickly dismissed the notion that argentina contributed to the financial crisis, noting that the international financial community promoted those very economic poli-cies.44 the tribunal concluded that the measures argentina took were allowed under the circumstances of the treaty and under article Xi and awarded continental casualty a mere $3 million damages for a subset of one of their claims. this brings up the final contro-versial element of the necessity defense—the question of to what


NECEssITy DEFENsEfrom preceding page

page 49 Winter 2011


extent it precludes liability. the CMS, Sempra and Enron tribunals did not find an adequate necessity claim, so they did not expressly approach the issue. the Continental tribunal began by clarifying that if argentina is suc-cessful in their article Xi claim, this would in fact preclude continental from claiming any rights under the treaty; thus, the tribunal awarded basically no damages to continental.45 the LG&E tribunal seemed to find a middle ground, holding that during the time of crisis, which was narrowly proscribed, lG&e was precluded from claiming its bit rights. after the im-mediate crisis passed, however, this further derogation of rights was found in breach of the bit, and lG&e was awarded roughly $57 million for this damage.46 so we have seen that the argentine tribunal decisions are not necessarily predictable or reliable because dif-ferent tribunals have used different analyses and come to different con-clusions. this is certainly not to say they are unjust; only that if a state is concerned about predictability or deference in times of emergency, it may be inclined to craft its own neces-sity clauses with greater specificity. the next section will examine the two most recent annulment decisions, those annulling both the Sempra and Enron tribunal awards.

The Annulment Decisions of 2010 in the summer of 2010, both the Sempra and the Enron annulment committees annulled their respective tribunal awards due to issues involv-ing argentina’s necessity defense. they found that the tribunal’s neces-sity defense analysis was flawed to the point of manifestly exceeding the powers of the tribunal. the Sempra annulment commit-tee found that the tribunal failed to apply the applicable law, which fail-ure was a manifest excess of powers,47 by making its necessity determina-tion solely after reviewing the article 25 language without also analyzing the defense based on article Xi of the

bit. 48 the committee noted that the tribunal determined it should use the article 25 analysis because it provides legal elements for the necessity de-fense.49 after comparing the language from the different articles, however, the committee found it apparent “that article 25 does not offer a guide to interpretation of the terms used in article Xi. the most that can be said is that certain words or expres-sions are the same or similar.”50 the committee further distinguished the operative functions of the two texts—article Xi outlines the events neces-sary to preclude wrongfulness under the treaty, whereas article 25 presup-poses international wrongfulness and lays out conditions for preclusion under customary international law.51 the committee also noted that it is not necessary that parties to trea-ties outline their necessity preclusion articles along the lines of customary international law; rather, they might choose to grant themselves broader preclusion during times of emergency than available through article 25.52 since the tribunal used article 25 as the applicable law, it failed to apply the true applicable law, which was article Xi of the bit. this failure was a manifest excess of its powers.53

after determining that there was a failure to apply the applicable law resulting in an excess of powers, the committee went on to discuss whether this excess of powers was manifest. the committee noted that to determine if an excess was mani-fest, it must be obvious from reading the award and that since the tribunal relied only upon its interpretation of article 25, this was a manifest excess of powers.54 the committee did not go on to determine whether article Xi would insulate argentina from liabil-ity, leaving such a determination for a future tribunal. the Enron annulment committee did not speak to the issue of whether the tribunal should have applied article Xi after interpreting article 25. the committee decided that the tribunal’s interpretation of the subsets of article 25 failed to apply it accurately and that this failure was a

failure to apply the applicable law. the Enron committee found that the tribunal’s determination that argentina had other ways of dealing with the crisis, thereby precluding ar-ticle 25 Necessity, failed to apply the applicable law.55 the committee be-gan by stating that there are different ways of interpreting the “only way” provision in article 25. the commit-tee acknowledged that it could mean “any other way possible,” and since there was an expert economist’s testi-mony stating there were other ways, this would have been sufficient.56 the committee found, however, that the tribunal needed to do a legal analysis articulating that the “only way” provi-sion literally meant that any other alternative negates necessity. the committee went on to discuss other interpretations of the “only way” provision. the “only way” language could also mean that “there must be no alternative measures that the state might have taken for safeguard-ing the essential interest in question that did not involve a similar or grav-er breach of international law.”57 in this interpretation, a tribunal would have to measure whether the other alternatives were more violative. another interpretation might take into account the relative effectiveness of the various options, requiring the tribunal to weigh the options for their respective efficacy.58 another question regarding the “only way” provision is just who decides? is it for the tribu-nal, with the benefit of hindsight, to decide there were other ways? or, do the representatives deserve a margin of appreciation under the circum-stances for determining whether other options truly existed?59 the committee’s cursory reading of the tribunal demonstrated that the latter took the position of the claimant’s ex-pert economist over the position of the respondent’s expert economist, and that this was an annullable failure to apply the applicable law because the tribunal did not provide a legal analysis of article 25(1)(a).60 the committee then explained


page 50 Winter 2011


that it could not ascertain whether or not the tribunal made a deter-mination regarding article 25(1)(b) concerning argentina’s obligations toward the international community as a whole.61 the committee went on to state that since it could not find whether the tribunal made such a determination, that would constitute a failure to state reasons for that deci-sion, within the meaning of article 52(1)(e) of the icsid convention.62

the committee then turned to the issue of whether argentina contrib-uted to the state of necessity. in that portion of the decision, like in the “only way” section, the committee found that there are several inter-pretations of this provision, “and that the tribunal was necessarily required, either expressly or sub silentio, to de-cide or assume the correct interpreta-tion in order to apply the provision to the facts of the case.”63 the commit-tee noted that a literal interpretation of the passage means that any causal link would negate the use of necessity. the committee goes on to state that the tribunal seemed to imply that some measure of fault is required for there to be contribution, but that its determination that argentina contrib-uted to the state of emergency was

again based only on the testimony of the claimant’s expert economist. simi-lar to the “only way” analysis above, the committee found that the tribu-nal failed to identify, by legal analysis, how argentina contributed to the crisis64 and this failure amounted to a failure to apply the applicable law under article 52(1)(b) of the icsid convention.65 the committee then turned to the relationship between article Xi of the bit and article 25, stating that its position as an annulment commit-tee was not to decide the substantive content of the two texts, or whether they can be applied simultaneously. the committee stated that such a determination is for the tribunal, but since the committee already found annullable errors in the customary international law analysis, it did not proceed to any further issues regard-ing the treaty.66

the committee annulled the tribu-nal award because a different inter-pretation of the necessity defense may have precluded liability, though the committee made it clear that it was not in the position of deciding wheth-er the necessity claim, if analyzed cor-rectly, would insulate argentina from liability. 67

Conclusion these various decisions are a testament to the notion that reason-

able minds may, and often do, differ. the Continental and LG&E tribunal decisions are now in the annulment process, and the Sempra and Enron disputes may revert to the tribunal stage. No simple solution or trend ap-pears in this line of cases that would lead toward consistency of these awards going forward. the aim of this article was merely to lay out the important issues of the necessity de-fense as they have been addressed by various arbitrators. as the number of investment disputes increase over the coming years, more practitioners will be forced to grapple with the nuances of the necessity defense. hopefully, this attempt to point out the various issues will aid in the effort for greater clarity and predictability in the fu-ture.

Patrick Miller graduated from University of Miami School of Law in May of 2010. He has recently obtained his license from The Florida Bar and begun practicing law in the Miami area.

Endnotes:1 Draft articles on Responsibility of States for Internationally Wrongful Acts, in report of the international law commission on the Work of its fifty-third session, u.N. Gaor, 56th sess., supp. No. 10, u.N. doc. a/56/10 (2001), art. 25 cmt. 1 (2001), available at http://untreaty.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf.2 Id. at art. 25.3 it may be interesting to note that the author of the draft articles, James crawford, was an expert witness for the claimant, cMs, in their icsid case. 4 charity l. Goodman, Uncharted Waters: Financial Crisis and Enforcement of ICSID Awards in Argentina, 28 u. pa. J. int’l eCon. l. 449, 479 (2007).5 harout samra, Five years Later: The CMS Award Placed in the Context of the Argentine Financial Crisis and the ICSID Arbitration Boom, 38 u. MiaMi inter-aM. l. rev. 667, 674 (2007).6 for instance, argentina passed the “Gas law” referred to in paragraph 38 of the LG&E decision. the Gas law created an agency to calculate tariffs and to oversee the energy industry. See LG&E v. Argentine Republic, icsid case No. arb/02/01 (3 oct. 2006), para. 38.7 Id. at para. 36.8 samra, supra note 5, at 676.

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9 LG&E, supra note 6, at para. 63.10 William burke-White and andreas von staden, Investment Protection in Extraordi-nary Times: The Interpretation and Applica-tion of Non-Precluded Measures Provisions in Bilateral Investment Treaties, 48 va. J. int’l. l. 307, 309 (2008).11 samra, supra note 5, at 676.12 White, supra note 10, at 310.13 “the emergency law adopted measures modifying public-service contracts, such as establishing that tariffs and prices for public services were to be calculated in pesos, instead of u.s. dollars; abolishing all clauses calling for tariff adjustments in u.s. dollars or other foreign currencies; eliminating all indexing mechanisms; and directing the executive branch to renegotiate all public-service contracts.” See LG&E, supra note 6, at para. 65.14 the relevant u.s.-argentina bit provi-sions concerning these claims are found in, respectively: (1) article iV.1 concerning ex-propriation; (2) article ii.2a concerning fair and equitable treatment; and (3) article ii.2c concerning the umbrella clause; see treaty With argentina concerning the reciprocal encouragement and protection of invest-ment. (entered into force 1994), available at http://www.bilaterals.org/article.php3?id_ar-ticle=435.15 Id. at art. Xi.16 CMS Gas Transmission Co. v. Argentine Republic, icsid case No. arb/01/8 (12 May 2005).17 LG&E v. Argentine Republic, icsid case No. arb/02/01.18 Enron Creditors Recovery Corp.. v. Ar-gentine Republic, icsid case No. arb/01/3 (22 May 2007).19 Sempra Energy Int’l v. Argentine Re-public, icsid case No. arb/02/16 (28 sept. 2007).20 due to its limited jurisdiction, the CMS annulment decision does not have much substance, although there is some notewor-thy dicta that will be relevant for our inquiry into the later cases.21 Continental Casualty Co. v. Argentine Republic, icsid case No. arb/03/9 (5 sept. 2008).22 the discussion of self judging is brief in this article because the tribunals have uniformly agreed that art. Xi is not self judging, but the issue has been contentious throughout the cases. 23 See LG&E v. Argentine Republic, icsid case No. arb/02/01, at para. 214.24 another subset of the necessity defense arises from ilc art. 25(1)(b), which states that necessity is not available if the measure seriously impairs an essential interest of the other state or the international community. this situation did not rise to that level, so this subset was rarely discussed. another question relates to how long the emergency situation occurred, and thus how long the

measures were legitimated by art. Xi; only LG&E addressed this question. 25 LG&E v. Argentine Republic, icsid case No. arb/02/01, at para. 226. 26 the Sempra tribunal went on to say “it also readily accepts that the changed economic conditions have an influence on the questions of valuation and compensation.” See Sempra Energy Int’l. v. Argentine Re-public, icsid case No. arb/02/16, at para. 346. interestingly enough, two members of the CMS tribunal and one member from the LG&E tribunal made up the Sempra tribu-nal. 27 Id. at para. 346. 28 CMS Gas Transmission Co. v. Argentine Republic, icsid case No. arb/01/8, at para. 323.29 Enron Creditors Recovery Corp. v. Argen-tine Republic, icsid case No. arb/01/3, at para. 309. 30 Sempra Energy Int’l. v. Argentine Repub-lic, icsid case No. arb/02/16, at para. 350.31 LG&E v. Argentine Republic, icsid case No. arb/02/01, at para. 239. 32 CMS Gas Transmission Co. v. Argentine Republic, icsid case No. arb/01/8, at para. 325. 33 Enron Creditors Recovery Corp. v. Argen-tine Republic, icsid case No. arb/01/3, at para. 311.34 “this means that there has to some extent been a substantial contribution of the state to the situation giving rise to the state of necessity, and that it therefore cannot be claimed that the burden falls entirely on exogenous factors. this state of affairs has not been the making of a particular adminis-tration, given that it was a problem that had been compounding its effects for a decade. still, the state must answer for it as a whole.” See Sempra Energy Int’l. v. Argentine Republic, icsid case No. arb/02/16, at para. 354.35 LG&E v. Argentine Republic, icsid case No. arb/02/01, at para. 256. 36 sarah hill, The Necessity Defense and the Emerging Arbitral Conflict in its Applica-tion to the U.S.-Argentina Bilateral Invest-ment Treaty, 13 law & buS. rev. aM. 547, 562 (2007).37 LG&E v. Argentine Republic, icsid case No. arb/02/01, at para. 256.38 Continental Casualty Co. v. Argentine Republic, icsid case No. arb/03/9, at para. 164, available at http://www.investment-treatynews.org/documents/p/24.aspx.39 “the strict conditions to which the ilc text subjects the invocation of the defence of necessity by a state is explained by the fact that it can be invoked in any context against any international obligation. therefore ‘it can only be accepted on an exceptional basis.’ this is not necessarily the case under art. Xi according to its language and purpose under the bit. this leads the tribunal to the conclusion that invocation of art. Xi under

this bit, as a specific provision limiting the general investment protection obligations (of a ‘primary’ nature) bilaterally agreed by the contracting parties, is not necessarily subject to the same conditions of application as the plea of necessity under general inter-national law.” See id. at para. 167.40 CMS Gas Transmission Co. v. Argentine Republic, icsid case No. arb/01/8, decision of the ad hoc committee on the application for annulment of the argentine republic. (25 sept. 2007), para. 124-127. the committee goes on in paragraph 135 to state in dicta that this might have swayed its decision if a court of first instance. it is important to note that argentina invoked the ilc language only when it argued the case before the CMS tribunal, so it was not necessarily the tribu-nal’s fault for considering only that language. 41 “since the text of art. Xi derives from the parallel model clause of the u.s. fcN treaties and these treaties in turn reflect the formulation of art. XX of Gatt 1947, the tribunal finds it more appropriate to refer to the Gatt and Wto case law that has extensively dealt with the concept and requirements of necessity in the context of economic measures derogating to the obliga-tions contained in Gatt, rather than to refer to the requirement of necessity under customary international law.” See id. at para. 192. it might be important to note that the president of the Continental tribunal was also a member of the Wto appellate body. 42 Id. at para. 194. this language was quoted from panel report, EC Tyres, para. 7.104, summing up the appellate body case law in Korea-Beef, para. 164; EC- Asbestos, para. 172; U.S.-Gambling, para. 306; Domini-can Republic-Cigarettes, para. 70.43 Id. at para 19744 “our analysis in the preceding para-graphs shows that the economic and exchange policies whose ultimate unsustain-ability led to the crisis were regarded as sound economic policies that had been ben-eficial for years to argentina’s economy. the fixed parity/convertibility/currency board system was praised by the international financial community and by many qualified observers.” Id. at para. 235.45 they were awarded $2,800,000 for a very narrow claim, where it was decided that a particular restructuring of a smaller con-tract was a breach of the fair and equitable treatment obligation. Id. at para. 305.46 LG&E v. Argentine Republic, icsid case No. arb/02/01, at para. 226.47 the fact it found the tribunal did not ap-ply the applicable law precluded a discussion of whether the tribunal did not accurately ap-ply the law, rising to a level of manifest error. See Sempra Energy Int’l v. Argentine Republic, icsid case No. arb/02/16, decision on the argentine republic’s request for annulment of the award (29 June 2010), para 165. 48 ”in this case, the committee finds that the following sentence in paragraph 388 of


page 52 Winter 2011


the award demonstrates that the tribunal failed to apply the applicable law: since the tribunal has found above that the crisis invoked does not meet the customary law requirements of article 25 of the articles on state responsibility, it concludes that neces-sity or emergency is not conducive in this case to the preclusion of wrongfulness, and that there is no need to undertake a further judicial review under article Xi given that this article does not set out conditions differ-ent from customary law in such regard.” Id. at para. 207.

49 Id. at para. 196.





53 “the tribunal adopted article 25 of the ilc articles as the primary law to be applied, rather than article Xi of the bit, and in so doing made a fundamental error in identifying and applying the applicable law.” Id. at para. 208.54 Id. at para. 218-219.55 Enron Creditors Recovery Corp. v. Ar-gentine Republic, icsid case No. arb/01/3, decision on the application for annulment of the argentine republic (30 July 2010), para. 377.56 Id. at para. 367.57 Id. at para. 370.58 Id. at para. 371.59 Id. at para. 372.60 “the committee concludes that in determining that the measures adopted were not the ‘only way,’ the tribunal did not in fact apply article 25(1)(a) of the ilc articles (or more precisely, customary international law as reflected in that provision), but instead

applied an expert opinion on an economic is-sue. in all the circumstances the committee finds that this amounts to a failure to apply the applicable law, as ground of annulment under article 52(1)(b) of the icsid conven-tion.” Id. at 377.






66 “in the circumstances, there is no occa-sion for the committee to go further and to express any view on the correctness or other-wise of the tribunal’s findings with respect to the substantive operation and content of, and interrelationship between, article Xi and the customary international law principles of necessity, and the committee does not do so.” Id. at para. 405.

67 Id. at para. 406-408.

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Production of Electronic Documentsand Information:

New UK Practice Direction TargetsCosts of Electronic Disclosure

By Neil Mirchandani and Matthew Davis, London

the new practice direction (pd 31b) on the disclosure of electronic docu-ments will certainly focus in-house counsel on their company’s record-management poli-cies and litigation

strategies. this, however, may not be a bad thing if it al-lows these organisa-tions to take greater control of the costs of electronic produc-tion or disclosure.

The story so Far parties involved in litigation in england and Wales must disclose only the documents on which they rely, or that support or adversely affect their own, or another party’s, case. Civil Procedure Rule (“CPR”) 31.6. the par-ties are obliged to carry out a “reason-able search” (CPR 31.7) for disclosable documents. “document” is defined as “anything in which information of any description is recorded” (CPR 31.4), which includes electronically stored information. since 1 october 2005, disclosure of electronic documents has been covered by paragraph 2a of the practice direction to cpr part 31 (paragraph 2a). two key decisions on electronic disclosure are Digicel (St Lucia) & Ors v. Cable & Wireless Plc & Ors ([2008] EWHC 2522) and Earles v. Barclays Bank Plc ([2009] EWHC 1). in both cases, the judges commented on per-

ceived shortcomings in complying with paragraph 2a’s requirement to meet to discuss the scope of the reasonable search for electronic documents.

The New Regime: Key Points on 1 october 2010, pd 31b replaced paragraph 2a. pd 31b formally applies only to multi-track claims—that is, claims that are not suitable for allocation to the small-claims track or the fast track (CPR 26.1(2)) that were started on or after 1 october 2010. Judges, however, are given express discretion to apply pd 31b in any case. as they are likely to do so if electronically stored informa-tion is a significant part of disclosure, we expect that pd 31b will come to represent best practice for dealing with any electronic disclosure issue that might arise, even in cases where it does not formally apply. a key change is that, as soon as litigation is contemplated, parties’ legal representatives must notify their clients of the need to preserve disclosable electronic documents. pd 31b also sets out the points that parties should (where appropriate) discuss before the first case manage-ment conference (“cMc”) (a hearing at which the judge will typically make the first order for directions in a case, setting down the timetable to trial). these points of discussion include:

• Thecategoriesofelectronicdocu-ments within the parties’ control; the computer systems, electronic devices and media on which any relevant documents may be held; the storage systems that exist; and

any document retention/destruc-tion policies that might apply.

• Thepreservationofelectronicdocuments.

• Thescopeofthereasonablesearchfor electronic documents. some non-exhaustive factors that may be relevant include: the number of documents involved; the ease and expense of retrieval of any particu-lar document; the availability of the documents or contents of docu-ments from other sources; and the significance of any document that is likely to be located.

• Thetoolsandtechniques(forexample, filtering or searching) that should be considered to reduce the burden and cost of disclosing electronic documents.

• Theexchangeofelectronicdocu-ments, including their format and the accompanying information to be provided.

• Thebasisforchargingfor,orshar-ing, the cost of the disclosure of electronic documents.

pd 31b states that the primary source of disclosure is normally “rea-sonably accessible data” and that a party requesting the specific disclo-sure of electronic documents that are not reasonably accessible must demonstrate that the relevance and materiality of the documents justify the cost and burden of retrieving them. to facilitate the required discus-sions, pd 31b appends an elec-tronic documents Questionnaire that contains a statement of truth. the questionnaire is voluntary (unless its

N. Mirchandani

M. Davis

page 55 Winter 2011


completion is ordered by the court) but, in the event that one is produced, pd 31b states that the person signing the statement of truth should at-tend any hearing at which disclosure is likely to be considered. careful consideration will therefore need to be given to who might be the appropriate person to sign the statement of truth. the person should be someone with a suitable level of knowledge of the party’s systems and electronic infor-mation. in addition, the parties will now need to inform the court before the first cMc as to whether they have reached agreement about electronic disclosure. if not, the parties are re-quired to identify the issues that the court should address so that it can give directions (perhaps requiring one or more of the parties to complete the questionnaire if they have not already voluntarily done so).

Other points other points to note from pd 31b are as follows:

• Itmaybereasonabletosearchforelectronic information using key-word or other automated searches if a full review of each and every document would be unreasonable, but pd 31b warns against the inju-dicious use of such techniques.

• Savewhereotherwiseagreedorordered, electronic information should be provided in its native format (in a way that preserves metadata relating to the creation of each document). also, save where redactions have been applied, any available searchable ocr (optical character recognition) versions of documents should also be provided.

• Ifelectronicdocumentsarebestac-cessed using technology that is not

readily available to the party en-titled to disclosure and that party reasonably requires additional inspection facilities, the party mak-ing disclosure should co-operate in making available such reasonable additional inspection facilities as may be required.

Practical implications it will be critical for in-house and external counsel to be aware of what is required as they, along with the party’s it and records management personnel, are likely to be intrinsi-cally involved in the steps required by pd 31b and may end up signing the statement of truth in the electronic documents Questionnaire. organisations with an up-to-date, clear and enforced records manage-ment policy, and a litigation readi-ness policy, will be far better placed to comply with pd 31b and identify, preserve and collect their electronic documents in an efficient and cost-effective manner. focussing the collec-tion of documents should also reduce the overall costs of the review and production of documents for disclo-sure. by understanding its electronic documents at an early stage, a party will be able to conduct the required discussions with the other party not just in relation to what they have and will produce, but also in terms of what documents are required from the other side. some have argued that pd 31b will increase the already heavy cost burden of disclosing electronic docu-ments. although it may be true that more work may need to be done at an earlier stage, it should be borne in mind that the sheer volume of elec-tronic information is what is driving up costs. pd 31b did not create this

situation; it is part of a solution. also, the pd 31b requirements are really just an amplification of those found in paragraph 2a but, in practice, the latter was often ignored. the investigation and discussion required by pd 31b will provide the foundations for determining (whether through agreement or a direction from the judge) the boundaries of a reasonable search for electronic documents. in this way, the overall costs of the review and disclosure of electronic documents (which are often a significant proportion of the overall costs in a case) can be controlled, and expensive disputes over disclosure can be limited to those areas that are unavoidable.

Neil Mirchandani is a litigation partner at Hogan Lovells Interna-tional LLP where he focuses on clients in the investment banking and funds sectors. Neil has experience in a broad range of corporate disputes, and is adept at using technology in large-scale litigation to achieve cost savings. Since 2008, Chambers has listed Neil as a leading dispute-resolution lawyer, describing him as “truly commercial” with a commitment to “finding solu-tions even in the most adverse circum-stances.”

Matthew Davis is the litigation-sup-port lawyer for Hogan Lovells Inter-national LLP. Previously a litigation lawyer for ten years, Matthew advises legal teams and their clients on the selection and best use of technology in regulatory investigations, arbitrations and litigation, including strategies and techniques for dealing with large-scale electronic disclosure projects.

This article was first published in the November 2010 issue of PLC Maga-zine.

Visit the section Website: internationallawsection.org

page 56 Winter 2011


Lost in Translation: American Juror Perceptions of Foreign Litigants

By Dr. Philip K. Anthony, Los Angeles

When a foreign com-pany is informed that its officers, directors, and high ranking employees will be required to testify at a jury trial in the united states, there is usually immediate

concern on the part of the involved individuals. equally so, their ameri-can counsel often have reservations. almost always, the first question asked by all involved focuses on the extent to which the biases and preju-dices of an american jury might creep into juror perceptions of and attitudes toward foreign defendants. specifically, trial teams want to know the extent to which foreign litigants will be penalized merely for the fact that they are foreign. Will the american adversary (when there is one) be favored and given the benefit of a doubt when issues are close calls? Will the foreign parties be perceived as less credible, less believable, or less likable than their american counter-parts? and, ultimately, will the ver-dict go against the foreign company? interestingly, jury research over the years has consistently shown that jurors are relatively blind toward the origins of a litigant. Whether litigants are Japanese, israeli, chinese, or Ger-man, jurors, during deliberations, are rarely focused on nationalities. Many of the juror behaviors antici-pated by trial teams—and which have frequently been cited by trial lawyers concerning foreign parties—in fact, rarely take place. counter to what many trial lawyers have expressed, jurors do not “hate Japanese defen-dants because they have forced prod-ucts upon america and destroyed our automobile industry.” likewise, amer-

ican juries do not focus on World War ii or Nazi Germany when German defendants are present. our research has shown that jurors do not fear the rise of china, much less castigate chi-nese defendants because of such fears. overall, jurors discuss plaintiffs and defendants in civil litigation on the merits of the facts and theories being debated at the trial, not on the basis of one party being foreign. Nonetheless, the lack of bias exhib-ited toward a foreign defendant may at times, actually work against the for-eign party in unexpected ways. Jurors typically take witnesses at face value without concern for their national origin but, in the process, they do not take into account cultural differences a particular witness may possess. consider, for instance, the impor-tance of this perception by jurors: a Japanese witness takes the stand and during testimony, laughs repeatedly, covering her or his mouth while laugh-ing. in Japanese culture, such expres-sion is often the reaction to embarrass-ment about the nature of the subject. the question asked by the examining attorney may be considered too direct, not appropriately subtle. though the answer itself may not be at all damag-ing to the Japanese witness, he or she does not wish to answer a question so publicly, directly or candidly, and is very uncomfortable having to talk so openly about someone else. in this setting, most jurors see only a witness. they do not stop to ask themselves what the standard demeanor is for a Japanese citizen. in part they don’t ponder the issue, because they have no experience with the nuances of behavior in different cultures. additionally, jurors likely do not have prior experience with the american court system or with the role of a juror. as a result, american

jurors in this setting ask themselves: Why is the witness laughing? Do they not take this seriously? Is the witness uncaring and arrogant? Have they been caught in a lie? the american jurors do not ask themselves: Why is the “Japanese” witness laughing? this is but one example, but for every culture there are subtleties in the testimony of foreign litigants that are not factored into the thought process of most american jurors. What can be done about this general problem? first and foremost, foreign parties to litigation who are going to have their depositions taken and/or ultimately testify at trial need to have a thorough understanding of american culture prior to beginning testimony preparation at a content level. they need to be shown exam-ples of how american juries perceive their mannerisms. if jury research has been undertaken in advance of trial, the details of surrogate juror reactions to the witness often can be shared with the witness prior to trial preparation. the witness thereby can be sensitized to the expectations of the american jury. Where possible, showing the witness a videotape of her or his own testimony can be an effective way to help the witness be-come self-aware. once this first step of sensitization and cultural familiar-ization is complete, preparation for testimony can be far more efficient.in conclusion, a trial team represent-ing a foreign defendant should not be concerned that the client will be treated unfairly, but the team should be cognizant of the fact that american juries are likely to apply the same standards and expectations to both the foreign and domestic witness.

Dr. Philip K. Anthony is the CEO of DecisionQuest, a leading trial-consult-

P. Anthony

page 57 Winter 2011


ing firm. Over a career spanning more than 30 years— and more than 1,000 civil trials in all 50 states—Dr. Antho-ny has built a reputation as one of the nation’s leading and most sought-after trial consultants. He has shared his expertise as a frequent lecturer at the

Unchartered Waters:The Kishenganga River Project Dispute and Arbitration Under the Indus Waters Treaty

By Omar K. Ibrahem, Miami

American College of Trial Lawyers, the American Bar Association (ABA), the Association of Business Trial Lawyers (ABTL), Practising Law Institute, and the National Institute for Trial Advo-cacy (NITA), to name just few—and he has brought a wealth of experience to

bear as an author or contributor to six books and numerous articles on the nuances of trial strategy. Dr. Anthony may be reached at 310.618.9600 or via e-mail at [email protected].

the indus Waters treaty (the “treaty”)1 is regarded as one of the most significant and successful agree-ments ever executed between india and pakistan.2 the treaty’s resilience through multiple wars and political instability between the two parties is in large part due to its well-thought-out, multi-layered, dispute-resolution mechanisms. one of the mechanisms provided for in the treaty is arbitra-tion under the auspices of a to-be-cre-ated court of arbitration.3 interesting-ly, the creation of this unique court of arbitration could involve the president of the World bank, the secretary Gen-eral of the united Nations, the presi-dent of the Massachusetts institute of technology, the rector of the imperial college of science and technology in london, the lord chief Justice of england, and the chief Justice of the united parties supreme court.4 While other dispute-resolution mechanisms provided for in the trea-ty have been utilized, before 2010, in the approximately fifty-year history of the treaty, the arbitral provisions of the treaty have never been invoked to resolve a dispute.5 in June 2010, however, pakistan for the first time invoked the arbitral provisions of the treaty in an action to resolve a dis-pute regarding india’s plans to build a 330-megawatt hydroelectric power

plant on the Kishenganga river (the “Kishenganga project dispute”).6 this article provides a brief overview of the arbitral provisions of the treaty and the ongoing arbitration of the Kishen-ganga project dispute.

Background of the Treaty the indus waters begin in the himalayan Mountains of indian-held Kashmir and flow between pakistan and india, eventually emptying into the arabian sea south of Karachi, pakistan. disputes over the indus waters predate the independence of india and pakistan from british rule. prior to 1935, the indus waters were under the jurisdiction of one politi-cal authority, british india, and any disputes regarding the indus waters were resolved by executive order.7 in 1935 the Government of india act put water under provincial jurisdiction and disputes began to arise between the provinces, most notably punjab and sindh.8 the disputes centered around sindh’s concern that the pun-jabi irrigation works would disrupt the water flow to the indus, negative-ly affecting sindhi irrigation.9 in 1935 and 1941 the british government established two dispute-resolution commissions—the anderson com-mission and the rau commission—to

examine the dispute.10 before the provinces could reach a final agree-ment, however, the subcontinent was partitioned in 1947. the resulting international boundary between india and pakistan was drawn through the state of punjab. With the source of the indus waters in india, pakistan was left threatened by the prospect of in-dian control over the tributaries that fed water into the pakistani portion of the basin.11 between 1947 through 1951 india and pakistan engaged in fruitless bilateral negotiations to resolve the disputes over the indus waters. the impasse was broken when david lilienthal, the former head of the ten-nessee Valley authority, suggested in a collier’s Magazine article that the dispute over the indus waters could be resolved better by engineers from the two parties with the World bank acting as a neutral mediator, rather than by the parties’ politicians.12 the president of the World bank, david black, who was a close friend of lil-ienthal, acted on this suggestion and offered up the World bank to serve as a neutral mediator.13 both india and pakistan accepted the World bank’s offer and, after almost a decade of negotiation, the treaty was born.


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Dispute Resolution Under the Treaty due to the violent history between the two nations, the treaty includes a detailed, multi-layered, dispute-reso-lution mechanism intended to facili-tate peaceful resolution.14 the treaty identifies three escalating tiers of disputes that may arise concerning the application and interpretation of the treaty between the parties: “ques-tions,” “differences” and “disputes.” the treaty provides a different reso-lution mechanism for each. first, the treaty created a stand-ing permanent indus commission (the “commission”) to examine “questions” concerning the interpreta-tion or application of the treaty. the commission is made up of one com-missioner from each state.15 While, the main goal of the commission is to operationalize the treaty and facilitate cooperation between the two parties,16 article iX of the treaty pro-vides that any “question” concerning the interpretation or application of the treaty is to be first examined by the commission.17 if the commission is unable to resolve such a “question” by agreement, then the “question” escalates into a “difference” between the two parties. a “difference” is referred to a neutral expert who, ideally, is to be appointed by agreement between the parties.18 if the parties cannot agree on a neutral expert, or on a third par-ty to appoint a neutral expert, then the neutral expert would be appointed by the World bank.19 according to annexure f of the treaty, the neutral expert must be an eminent engineer. thus, the treaty provides only for a limited set of “differences” that the neutral expert may resolve. the trea-ty lists twenty-three types of “differ-ences” that fall under the jurisdiction of the neutral expert, and most of the listed “differences” are technical in nature.20 “differences” outside the list

in annexure f do not fall within the authority of the neutral expert and would have to be settled by a “court of arbitration,” referred to in article iX and annexure f of the treaty but detailed in annexure G. if the neutral expert determines that the “difference” (or part of it) referred to him or her does not fall under the expert’s jurisdiction as prescribed by the treaty, then the “difference,” or that part, becomes a “dispute” to be resolved by a court of arbitration or by agreement of the parties.21 additionally, the commis-sion, or either party, can unilaterally deem a “difference” a “dispute” and submit the dispute to the court of arbitration.22 although the treaty provides that the decision of the neu-tral expert is final and binding, it also provides that if any issue not within the competence of the neutral expert should arise out of his or her decision, then that issue should be settled in accordance with the procedures pro-vided for in the treaty, which would likely involve the court of arbitra-tion.23

Notably, although the treaty identifies three escalating tiers of dis-putes, the dispute-resolution process in the treaty is not hierarchical.24 a “question” referred to the neutral expert is not an appeal of a deci-sion of the commission. rather, it is referred to the neutral expert because the commission cannot resolve it. this is to be expected with complex questions, given that the commis-sion consists of two persons, each representing one of the two countries. Moreover, the decision of the neutral expert is final and binding and, as such, cannot be appealed to the court of arbitration. indeed, the treaty provides that any decision within the competence of the neutral expert is binding not just on the parties, but also on any court of arbitration.25

as noted above, should an ini-tial “question” between the parties transform into a “dispute,” then the treaty provides for the “dispute” to be resolved by the court of arbitration. under the treaty, courts of arbitra-tion must consist of seven arbitrators,

with each party having a right to appoint two.26 the remaining three arbitrators are referred to as “um-pires,” and they are selected through a complex and detailed mechanism. first, according to the treaty, in-dia and pakistan agreed to maintain a standing panel of umpires consist-ing of four people in each of the fol-lowing three categories: “(i) persons qualified by status and reputation to be chairman of the court of arbitration who may, but need not, be engineers or lawyers. (ii) highly qualified engineers. (iii) persons well versed in international law.”27 if the standing panel has been proper-ly constituted, then the parties must first attempt to reach an agreement on the remaining three arbitrators by choosing one of the four standing panel members from each category. if the parties cannot agree, they are to decide by drawing lots.28 accord-ing to the appendix to annexure G of the treaty, the parties had nominated the following individuals to the standing panel: the secretary General of the united Nations or the president of the World bank for category (i), the president of the Massachusetts institute of technol-ogy or the rector of the imperial college of science and technology in london for category (ii); and the chief Justice of the united parties or the lord chief Justice of england for category (iii). since four mem-bers had not been nominated for each category, the standing panel had not, according to the treaty, been properly nominated. in the event the standing panel is not properly nominated, the treaty provides that the parties can agree on the umpires, provided that the umpires are from one of the stated categories. if the parties cannot agree, the parties must then attempt to agree on one or more persons to help them in selecting the remaining three umpires.29 if the parties cannot agree to one or more persons to assist them, then the parties will draw lots for the names of persons from the categories noted above to make the necessary selection for that category.30

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The Kishenganga Project Dispute and Arbitration Under the Treaty as previously noted, in June 2010 pakistan for the first time invoked the arbitral provisions of the treaty to re-solve the Kishenganga project dispute with india.31 the essence of the dispute is pakistan’s claim that india, by di-verting the course of the river to build the Kishenganga hydroelectric power plant, would reduce pakistan’s water flow by one-third during the winter, thereby constituting a violation of the treaty.32 india argues that it is well within its treaty rights to build the Kishenganga power plant, which it has been planning since the late 1980’s.33 prior to pakistan initiating arbitration, pakistan and india had attempted to reach a resolution for the past two decades but were unable to do so. 34

as provided for in the treaty, when pakistan instituted arbitral proceed-ings it nominated bruno simma, a German jurist currently serving as a justice on the international court of Justice, and Jan paulsson, an inter-nationally recognized attorney and arbitrator, as its party-appointed arbitrators.35 india, for its appointed arbitrators, selected peter tomka, a slovak national who, like bruno sim-ma, is a justice on the international court of Justice, and lucius caflisch, a professor at the Graduate institute of international studies in Geneva.36 because the standing panel called for in the treaty was not properly constituted, india and pakistan first attempted to agree on the selection of the remaining three umpires from the categories noted above, but they were unable to do so.37 the next step was to determine if they could agree on one or more persons to assist them in selecting the three umpires. again, they were not able to reach an agree-ment. as a result, in July 2010, they drew lots. the secretary General of the united Nations was selected to appoint an umpire from category (i) to become the chair of the court of arbitration. the rector of the impe-rial college of science and technology in london was selected to appoint an

umpire from category (ii). and, the lord chief Justice of england was selected to appoint the umpire from category (iii).38

the secretary General of the united Nations appointed stephen Myron schwebel, an american jurist who previously served on the inter-national court of Justice.39 professor howard s. Wheater was selected as an umpire by the rector of the impe-rial college of science and technology in london. the lord chief Justice of england selected Justice sir franklin beman, as the third umpire.40

With the court of arbitration finally constituted, hearings began in the dispute on 14 January 2011.41 although the dispute concerns a pub-lic matter—water rights—the treaty provides that “deliberations” by the members of the court of arbitration are private, and “discussions” in the court of arbitration are private, absent agreement from both the parties and the tribunal. as such, the public will likely not learn much about the arbi-tration until its ultimate resolution.

Conclusion in the approximately fifty-year his-tory of the treaty, its complex and multi-layered dispute-resolution mechanism has effectively functioned to facilitate peaceful outcomes be-tween the two parties. although not yet resolved, the mere fact that an arbitration panel has been conformed in the Kishenganga project dispute is testament to the success of the trea-ty’s dispute-resolution mechanism in deftly navigating indo-pakistani politics toward the peaceful resolution of potentially explosive issues.

Omar K. Ibrahem, an attorney in Miami, focuses his practice on com-mercial litigation and arbitration. He can be reached at [email protected].

Endnotes:1 indus Waters treaty, india-pak., sept. 19, 1960, 419 u.N.t.s. 125, also available at http://web.worldbank.org/Wbsite/eXter-Nal/couNtries/southasiaeXt/0,,contentMdK:20320047~pagepK:146736~pipK:583444~thesitepK:223547,00.html (last visited

february 6, 2011).

2 Manav bhatnagar, Reconsidering the Indus Waters Treaty, 22 tul. envtl. l.J. 271, 278 (summer 2009).

3 indus Waters treaty, supra note 1, at art. iX and annex. f.

4 Id. at annex. f.

5 amol sharma and tom Wright, India and Pakistan Feud Over Indus Waters, wall St. J., March 30, 2010.

6 amy Kazim, India and Pakistan to Arbitrate Water Feud, Fin. tiMeS (June 18, 2010), available at http://www.ft.com/cms/s/0/2587c9b4-7aba-11df-8549-00144feab-dc0.html#axzz1ddGugdbe.

7 aaron t. Wolf and Joshua t. Newton, Water conflict Management and transfor-mation at oregon state university, Case Study of Transboundary Dispute Resolution: the Indus Waters Treaty, (2008), http://www.transboundarywaters.orst.edu/research/case_studies/documents/indus.pdf (last visited feb. 6, 2010).

8 Id.; see also, bhatnagar, supra note 2, at 272-73.

9 Id.

10 bhatnagar, supra note 2, at 272-73.

11 the henry l. stimson center, The Indus Waters Treaty: A History, http://www.stimson.org/research-pages/the-indus-waters-treaty-a-history/ (last visited feb. 6, 2011).

12 Wolf and Newton, supra note 7; colleen p. Graffy, Water, Water Everywhere, Nor Any Drop To Drink: The Urgency of Transnational Solutions to International Riparian Disputes, 10 geo. int’l envtl. l.rev. 399, 426-27 (Win-ter 1998).

13 Wolf and Newton, supra note 7; see also, bhatnagar, supra note 2, at 273

14 indus Waters treaty, supra note 1, at arts. Viii-iX, annex. f and annex. G.

15 indus Waters treaty, supra note 1, at art. Viii.

16 sandeep Gopalan, India-Pakistan Rela-tions: Legalization and Agreement Design, 40 vand. J. tranSnat’l l. 687, 699 (May 2007).

17 indus Waters treaty, supra note 1, at art. iX.

18 indus Waters treaty, supra note 1, at annex. f.

19 Id.

20 Id.

21 indus Waters treaty, supra note 1, at art. iX and annex. f.

22 Id.

23 Id.

24 Salman M. A. Salman, The Baglihar Difference and its Resolution Process- A Tri-umph for the Indus Waters Treaty?, 10 water pol’y 105, 107 (2008).

25 indus Waters treaty, supra note 1, at annex. f.


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26 indus Waters treaty, supra note 1, at annex. G.

27 Id.

28 Id.

29 indus Waters treaty, supra note 1, at annex. G.

30 Id.

31 Kazim, supra note 6.

32 sharma and Wright, supra note 5. 33 Id. 34 Id. 35 UN court to hear Pakistan-India water dispute, tHe peninSula, Jan. 14, 2011, http://www.thepeninsulaqatar.com/pakistan/afghanistan/139014-un-court-to-hear-paki-stan-india-water-dispute.html (last visited feb. 6, 2011). 36 Id. 37 Id. 38 Gargi Parsai, Stephen Schwebel to head

Kishanganga arbitration court, tHe Hindu, oct. 30, 2010, http://www.thehindu.com/news/national/article857632.ece (last visited feb. 6, 2011).

39 Id.

40 Mushtaq Ghumman, International Court of Arbitration to hear Kishanganga project dispute on January 14, buS. reCorder, Jan. 3, 2011, http://www.brecorder.com/news/top-stories/1143059:news.html (last visited feb. 6, 2011).

41 Id.

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