June 17, 2013

Introduction to International Arbitration

Elodie Dulac Leyou Tameru

Addis Ababa, June 17, 2013

June 17, 2013

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I. Foreign Investment in Ethiopia

Top 10 FDI sources in Ethiopia 2011/2012

Sources: Ethiopian Business Review

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II. What Is International Arbitration?

• Illustration: contract between an Ethiopian company and a Chinese company for oil exploration.

― Chinese courts: not appealing to Ethiopian party for several reasons: • Unfamiliarity with proceedings • Need to retain a Chinese lawyer • Inability to speak the language • Need for Ethiopian witnesses to testify with a Chinese interpreter • Need to attend hearings in China over several years • Perception that Chinese courts may favor the Chinese party

― Ethiopian courts are unappealing to the Chinese party for the same reasons.

• Solution? Choose international arbitration, in English, in a neutral venue, e.g. Dubai, Geneva, Paris to create a neutral level playing field for the parties.

• Leading survey on corporate choices in international arbitration (by PwC/Queen Mary College, University of London): international arbitration is by far the preferred dispute resolution mechanism for international disputes, across industries.

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• International arbitration is a process by which the parties agree to the binding resolution of their disputes by arbitrators, who are selected by the parties, either directly or indirectly via a mechanism chosen by the parties.

• Key features:

II. What Is International Arbitration? Key Features

— Arbitration is always the product of agreement between the disputing parties = consent is the cornerstone of arbitration (different from court litigation which need not be chosen by the parties together). If consent = arbitration instead of court litigation;

— Dispute is resolved by non-governmental decision-makers chosen by the parties, arbitrators (different from court where parties don’t select their judge);

— Resolution is binding (different from non-binding processes such as mediation).

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II. What Is Not International Arbitration

• International v. Domestic Arbitration • Mediation/Conciliation: no binding decision • Expert Determination: binding resolution of specialised, usually

technical categories of disputes by an expert (accountant, engineer, etc.) selected by the parties

• Forum Selection/Choice-of-Court Agreements

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I. What is International Arbitration? Arbitration Clauses Are Essential

• Disputes between parties from different countries.

• Importance of managing the risk.

• Disputes resolutions clauses: from “midnight clauses” to “8 o’clock in the morning clauses”.

Value of a contract may ultimately reside in how any dispute arising out of it will be resolved. If no certainty as to contract provisions will be enforced, it can effectively be the same as having no contract at all!

• Not all business will have leverage to insist on dispute resolution in their

own backyard under their own country’s laws.

• International arbitration is a way of mitigating the risk of dispute resolution away from home.

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III. What is International Arbitration? Legal Framework in a Nutshell

• 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards

• National arbitration legislation UNCITRAL Model Law on International Commercial Arbitration Adopted by

UNCITRAL in 1985 and revised in 2006 • Over 60 countries have adopted some version of the Model Law,

including Malaysia, Singapore, Hong Kong, Japan, Germany, and Canada

• Provides comprehensive legislative treatment of international arbitral process, including:

Validity and enforceability of arbitration agreements Judicial non-interference in arbitral process Provisional measures Setting aside or vacating awards Recognition and enforcement of awards

• Arbitral institutions and their rules

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III. What is International Arbitration? Ethiopian Legal Framework

• Shemegelena in traditional context

• Arbitration in Ethiopia is governed by two national laws:

• Civil Code

Article 3325 to 3346 (enforcement of agreements to arbitrate)

• Civil Procedure Code

Provides rules on procedural aspects of arbitration

The Codes do not distinguish between domestic and international arbitration except for the enforcement of foreign arbitral awards

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Why arbitrate international disputes rather than go to courts? International Arbitration is preferred to court litigation generally because:

IV. Why Arbitrate?

• Neutrality

• Expertise of decision-maker, the arbitrators

• Enforceability of Awards

• Flexibility of procedure

• Confidentiality

• Cost savings?

• Time savings? See the 2013 PwC/Queen Mary College, University of London on corporate choices in international arbitration.

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Neutrality: Advantage to International Arbitration

International Arbitration Court litigation Parties are free to determine place (“seat”) of arbitration

anywhere in the world = a neutral forum.

Avoid unfamiliar and sometimes inefficient/ biased courts of the counterparty’s country.

Arbitral seat denotes the legal site of the arbitration for limited supervisory role of national courts and certain procedural aspects (e.g. enforcing arbitration agreement and determining forum for annulment actions).

Parties should select a seat in a country that has ratified the New York Convention and has favourable national arbitration legislation.

Parties spend little time at the place of arbitration over the course of an arbitration.

Hearings are typically held at the seat but need not be.

The selected seat of an arbitration does not dramatically increase the cost of an arbitration.

Courts of a neutral country likely to be unfamiliar and may not have jurisdiction, so rarely a viable option.

Courts of one party: unlikely to be acceptable to other party as unfamiliar, and sometimes suspicions of inefficiency or bias towards local party.

Practical difficulties: language; attending hearings in a foreign which may take place over long period of time.

IV. Why Arbitrate? Neutrality

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Specialised and Neutral Decision-Makers: Advantage to International Arbitration

International Arbitration Court litigation Parties appoint their co-arbitrator and

choose the method of appointment of the chair of the arbitral tribunal.

Ability to select decision-makers with specific legal, commercial or technical expertise most suitable to given case.

Specialisation of arbitrators = one of the most frequently cited advantages of arbitration.

Requirement that arbitrators be independent and impartial.

Parties do not choose which judges will hear the case. Judge/bench is selected by the court.

Judges usually will not have the level of specialisation of arbitrators. Judges are likely to hear all types of civil disputes.

IV. Why Arbitrate? Specialised and Neutral Decision-Makers

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Flexibility of Procedure: Advantage to International Arbitration

Arbitration Court litigation Do not apply procedural rules of a national legal

system.

Arbitration rules are usually not very detailed (see ICC Rules and UNCITRAL Rules).

Parties and tribunal are largely free to determine the procedure best suited for a given case based on parties’ preference and amount in dispute.

Only limits: due process and equality of the parties.

Not formalistic (eg service through “private” means; no need for notarisation etc.).

Parties are free to choose language and their counsel

No similar freedom of parties and court to determine procedure. Rules of Civil Procedure that are:

Requirements to proceed in local language and with local counsel.

Service of process abroad creates considerable potential for complications and delays.

Can be an advantage in multi-party cases.

IV. Why Arbitrate? Flexibility of Procedure

• Designed to apply in all types of cases;

• Applied uniformly by the courts.

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Right of Appeal / Finality of the Award or Judgment: Advantage of International Arbitration

International Arbitration Court litigation Award is a binding decision. Presumption of finality.

There is no right of appeal as there is in court litigation.

Generally limited possibilities to have the award annulled/set aside:

Depending on national laws:

Most countries have:

IV. Why Arbitrate? Right of Appeal / Finality of the Award or Judgment

• Before courts of place of arbitration;

• Leading places of arbitration: very limited grounds to annul/set aside an award / no full appeal or review of the substance of the award;

• If not a leading place of arbitration: check the national arbitration law to identify recourse against the award.

• Award immediately enforceable pending set aside action;

• No automatic stay of enforcement of award pending action to set aside

• At least one jurisdiction of full appeal (complete review of facts + law)

• Plus tier of jurisdiction for review of law only.

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Enforceability of the Award or Judgment Wherever in the World Where Debtor Has Assets: The Key Advantage to International Arbitration

International Arbitration Court litigation

New York Convention 1958: No equivalent to New York Convention:

IV. Why Arbitrate? Enforceability of the Award or Judgment

• Worldwide convention: 149 member states

• Ethiopia not party to New York Convention but Ethiopian parties can seek enforcement of an arbitral award issued in a country that has ratified the New York Convention in that country or any other country that has ratified it

• Presumptive obligation to recognise foreign arbitral awards

• Subject to limited exceptions: lack of jurisdiction, denial of procedural fairness, non-compliance with arbitral procedures, non-arbitrability and public policy. No review on the merits.

• New York Convention makes it easier to enforce an award

• No worldwide convention on recognition and enforcement of judgments equivalent to New York Convention;

• Some bilateral or regional (European Union) conventions/regulations but very partial geographical coverage (eg the US are not party to any convention on the recognition and enforcement of foreign judgement);

• Recognition and enforcement of foreign judgments will depend on national laws of enforcement state and whether a treaty exist between that state and the state of origin of the judgment: very challenging to enforce foreign judgment in practice, at least without re-litigation of the merits.

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Confidentiality: Advantage to International Arbitration

Arbitration Court litigation Private process = proceedings and award are

not accessible to the public.

However, do not overestimate:

Best protection: through specific language on confidentiality in arbitration agreement.

Proceedings and judgments are typically a matter of public record.

IV. Why Arbitrate? Confidentiality

• No particular legal protection of confidentiality;

• Sanctions for breach of confidentiality are unclear if they are not contractually defined

• Confidentiality can be compromised if a party applies to court for interim relief, annulment or recognition and enforce of an award.

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Arbitration Court litigation Fees and expenses of arbitrators are paid by the parties.

But rarely a decisive consideration for parties, which are willing to pay to have an efficient dispute resolution mechanism

Unlikely to be cheaper than proceedings in first instance, but no costly appeal.

Major factor: usually “looser pays”, i.e. loosing party is ordered to reimburse costs of the arbitration to the winning party.

Time: generally longer than court litigation in first instance, but no full appeal before courts, i.e. “one-short process”.

Expedited procedures available under certain arbitration rules (see, e.g. SIAC Rules and Swiss Rules).

Time and cost saving measures available to parties and tribunal, as part of the flexible/tailor-made procedure.

Salary of judges is not paid by the parties.

Cost and time of several layers of appeal, including at least one layer of full appeal on the facts of the law.

In many countries, only limited recovery of costs, no “looser pays” principle.

IV. Why Arbitrate? Time & Costs

Contact Information Elodie Dulac King & Spalding LLP 9 Raffles Place, Level 31 Republic Plaza Singapore 048619 Tel.: +65.6303.6004 / +65.8499.7283 Email: edulac@kslaw.com Leyou Tameru Tel.: +251911737251 Email: leyou.tameru@gmail.com