International

Arbitration
European and International Business Law (advanced LLM)
2024
Prof. Dr. Nikos Lavranos, LLM
Leiden University
contact@nl-investmentconsulting.com

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 WEEK 1: teaching schedule
• WEEK 1
• WEEK 5
1. Friday, 2 Feb 2024, 13.15 – 15.00; KOG C006
2. Monday, 5 Feb 2024, 13.15 – 15.00; KOG C006 • 9. Monday, 26 Feb 2024, 13.15 – 15.00; KOG C006
• 10. Wednesday, 28 February 2024, 13.15 – 15.00;
• WEEK 2 KOG C006
3. Wednesday, 7 February 2024, 13.15 – 15.00; KOG C006
4. Friday, 9 Feb 2024, 13.15 – 15.00; KOG C006 • WEEK 6
• 11. Friday, 15 March 2024, 13.15 – 15.00. KOG C006
• WEEK 3
• 12. WED, 20 March 2024, 9.15-13.00 Mock
5. Monday, 12 Feb 2024, 13.15 – 15.00; KOG C006
Arbitration A.028 Moot Court Room {to be
6. Wednesday,14 February 2024, 15.15 – 17.00; KOG C006 determined how we could do it with so many
students]
• WEEK 4
7. Friday, 16 Feb 2024, 13.15 – 15.00; KOG CC06
• EXAM: MON, 25 March 9-12 USC Rom A & Multi
8.Monday, 19 Feb 2024, 13.15 – 15.00; KOG C006

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 WEEK 1: 1 Introduction
History of international arbitration between States: Gary Born

• Inter-State arbitration in antiquity in ancient Greece, Rome, Persia and Mesopotamia

• Inter-State arbitration in European Middle Ages
• Inter-State arbitration in the 18th and 19th century
• 1899 Hague Peace Conference which produced the 1899 Convention for the Pacific
Settlement of International Disputes, which established also in 1899 the Permanent Court
of Arbitration (PCA) in The Hague
• Establishment of the Permanent Court of International Justice (PCIJ) subsequently
International Court of Justice (ICJ) in The Hague

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 WEEK 1: Introduction
• History of international commercial arbitration: GARY BORN

• Earliest reports of commercial arbitration are from the Middle East in antiquity, ancient Greece, Rome and in the European Middle
Ages
• Commercial arbitration was in particular used by merchants in England, France, Germany, the US but also in Asia, Africa and Latin
America.
• In 1919, the International Chamber of Commerce (ICC) was established, which played a major role in developing the legal
framework for international arbitration
• 1922 ICC Arbitration Rules for Arbitration and Conciliation were first published
• 1923 the Geneva Protocol on Arbitration Clauses in Commercial Matters was signed and ratified
• 1927 the Geneva Convention for the Execution of Foreign Arbitral Awards
• 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards
• 1976 UNCITRAL Arbitration Rules (revised in 2010)
• 1985 UNCITRAL Model Law on International Commercial Arbitration (revised in 2006)
• 2021 ICC Arbitration Rules
• 2021 UNCITRAL Arbitration Rules 4
 WEEK 1: Introduction
The concept of international arbitration: Redfern and Hunter, 1.04
International arbitration is a legal process in which parties to a dispute refer that dispute
to a tribunal of one or more independent and impartial arbitrators chosen by or on
behalf of the parties to the exclusion of domestic courts.
The task of that tribunal is to give equal consideration to the claims and defences of the
parties and to arrive at a decision on the dispute pursuant to the applicable legal
framework.
That decision is given in writing in the form of a binding award which the parties are
obliged to perform without delay and which, in the absence of voluntary compliance is
underpinned by an international system of recognition and enforcement through local
courts.
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 WEEK 1: Introduction
Essential elements of international arbitration:
• Agreement to arbitrate = (i) arbitration clause in contract or (ii) submission agreement
• Need of a dispute = definition of the matter (usually formulated in broad terms, i.e., “any dispute
arising out of or in connection with”)
• Commencing of an arbitration = by formal notice in accordance with the applicable arbitration rules
governing the dispute
• Arbitral proceedings = rules governing the arbitration: (i) mandatory provisions of the lex arbitri (law of
the place of arbitration) and (ii) the rules the disputing parties may have chosen (ICC, UNCITRAL etc.)
• Binding decision of the tribunal = arbitral tribunal issues a binding and final arbitral award
• Enforcement of the award = in agreeing to arbitrate, parties impliedly agree to execute the award, but
if one party fails, it is necessary to enforce the award by using domestic courts through obtaining a
judgment (New York Convention 1958)
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 WEEK 1: Introduction
• Objective of International Commercial Arbitration:
a means by which international business disputes can be definitely resolved,
pursuant to the parties’ agreement, by independent, non-governmental decision
makers, selected by or for the parties, applying neutral adjudicative procedures
that provide the parties an opportunity to be heard.
• Advantages of arbitration: neutrality, party autonomy, flexibility,
confidentiality, expertise of the tribunal, finality
• Disadvantages of arbitration: costs, duration

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WEEK 1: Introduction
Ad hoc Arbitration
• Parties may establish their own rules
of procedure but usually the
UNCITRAL Rules are selected
• Principle disadvantage of ad hoc
arbitration is that it depends for its full
effectiveness on cooperation between
the parties and their lawyers and by
the legal system of the place of
arbitration
Institutional Arbitration
• Arbitration is administered by a specialist
institution under its own rules (ICC, LCIA)
• Convenient incorporation of arbitration
rules by way of arbitration clause
• Institutional arbitration clauses are tested
and proven and often revised and updated
• Arbitration institution provide specialized
staff
• Disadvantage: fees for arbitral institutions
• Additional tier of management of the
proceedings
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WEEK 1: Introduction
Arbitration compared to court proceedings and mediation:
Redfern/Hunter, pp.29-38
Court proceedings
• Procedural rules are determined
by law
• Judges are pre-selected
• Particular expertise of Judges reg
the dispute may be lacking
• Multiple appeals options are
usually available
mediation
• Parties can determine the procedural rules
• Parties can select the mediator, upon agreement
• Mediator with necessary expertise can be
selected by parties
• Proposed mediated settlement agreement can
now be treated similar to a judgment in those
States which have ratified the Singapore
Convention
• Mediation is faster and cheaper than arbitration
• Broken relations between disputing parties can
be repaired by a successful mediation
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WEEK 1: Introduction
Arbitration compared to court proceedings and mediation
(source: https://www.whitecase.com/insight-our-thinking/current-choices-and-future-adaptations 2021)

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WEEK 1: Introduction
Arbitration compared to court proceedings and mediation
(source: https://www.whitecase.com/insight-our-thinking/current-choices-and-future-adaptations 2021)

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 WEEK 1: Introduction
• Success of international commercial arbitration
• 28,000 arbitration cases at the ICC Court of Arbitration (Sep 2023)
• Last year, we noted that most institutions did not achieve new records in 2021; together, the institutions included in our research
recorded 7389 new cases. This number did not include ICDR cases as they were not available to us. In 2022, there were 7554 new
cases, out of which 755 were before the ICDR. If we disregard the ICDR figures to compare the two years, there were 6799 new
cases in 2022 i.e., almost 600 cases less than in 2021.
• Was this a one-time effect while overall the numbers of new arbitrations is rising? Not really. The number of new cases is even
lower than in 2012 if one disregards CIETAC which had 1060 cases in 2012 and 4086 cases in 2022! If we disregard CIETAC’s
impressive numbers, the other institutions had 3468 new cases combined; this is less than the 3525 cases they had in 2012.
• Do we see a turning point or a ceiling in the constant increase of the last years? The ICC reached its lowest figure since 2012, with
710 new cases.
• Likewise, the LCIA had the lowest figure of the last five years, namely 293 new cases. The KCAB had 342 new cases, the lowest
figure since 2013. After last years’ record of 205 new cases, the PCA returned to its average figure, with 50 new cases. (source:
https://www.globalarbitrationnews.com/2023/10/02/arbitration-statistics-2022-the-number-of-arbitration-proceedings-continues
-to-drop-but-the-amount-in-dispute-increases/
)

• compared to only 1,300 Investor-State disputes 12

Source: https://www.globalarbitrationnews.com/2023/10/02/arbitration-statistics-2022-the-number-of-arbitration-proceedings-continues-to-drop-but-the-amount-in-dispute-increases/

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WEEK 1: Introduction
Preferred seat of arbitration (source:
https://www.whitecase.com/insight-our-thinking/current-choices-and-future-adaptations 2021)

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 WEEK 1/2: Agreement to Arbitrate
• Starting point for an international arbitration is the Agreement to Arbitrate;
• Ad hoc arbitration or institutional arbitration;
• Typically, an arbitration clause is contained in the contract between the two
disputing parties;
• While arbitration is typically selected to the exclusion of litigation before
domestic courts, domestic courts and domestic law actually play an
important role in the various stages of the arbitration procedure.
• Indeed, there is a regular interaction between the international law level
and the domestic law level.

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WEEK 1: Agreement to Arbitrate

Arbitral Tribunal

Award
Company A company
Agreement to arbitrate

Supervisory and supportive functions

Seat of
arbitration=
Lex arbitri Domestic courts
Domestic law

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 WEEK 1/2: Agreement to Arbitrate
The “international” character of a dispute:
(1) Nature of dispute = containing a foreign element
(2) Nationalities of the parties = foreign domicile

• Article 1 (3) UNCITRAL Model Law:

(3) An arbitration is international if:
(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of
business in different States; or
(b) one of the following places is situated outside the State in which the parties have their places of business:
(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;
(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with
which the subject-matter of the dispute is most closely connected; or
(c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than
one country.
(4) For the purposes of paragraph (3) of this article:
(a) if a party has more than one place of business, the place of business is that which has the closest relationship to
the arbitration agreement;
(b) if a party does not have a place of business, reference is to be made to his habitual residence.
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 WEEK 1/2: Agreement to Arbitrate
The “commercial” character of a dispute:
Article 1 UNCITRAL Model Law:
(1) This Law applies to international commercial2 arbitration, subject to any agreement in force between this State and any other State or
States.
The term “commercial” should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature,
2

whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions:
any trade transaction for the supply or exchange of goods or services;
distribution agreement;
commercial representation or agency;
factoring; leasing;
construction of works;
consulting;
engineering;
licensing;
investment;
financing;
banking;
insurance;
exploitation agreement or concession;
joint venture and other forms of industrial or business cooperation;
carriage of goods or passengers by air, sea, rail or road. 18
 WEEK 1/2: Agreement to Arbitrate
• Legal framework governing arbitration proceedings
• At the level of the arbitration agreement: an arbitration clause is typically based on a model clause of an arbitration
institution, for example:
• ICC model clause:
“All disputes arising out of or in connection with the present contract shall be submitted to the International Court of Arbitration of
the International Chamber of Commerce and shall be finally settled under the Rules of Arbitration of the International Chamber of
Commerce by one or more arbitrators appointed in accordance with the said Rules.”

• SIAC model clause:

“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or
termination, shall be referred to and finally resolved by arbitration administered by the Singapore International Arbitration Centre
(“SIAC”) in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC Rules”) for the time being
in force, which rules are deemed to be incorporated by reference in this clause.”
 The seat of the arbitration shall be [Singapore].*
 The Tribunal shall consist of _________________** arbitrator(s).
 The language of the arbitration shall be ________________.
APPLICABLE LAW
Parties should also include an applicable law clause. The following is recommended:
 This contract is governed by the laws of _________________.****”
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 WEEK 1/2: Agreement to Arbitrate
• LCIA model clause:
• Future disputes
"Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination,
shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference
into this clause.
 The number of arbitrators shall be [one/three].
 The seat, or legal place, of arbitration shall be [City and/or Country].
 The language to be used in the arbitral proceedings shall be [ ].
 The governing law of the contract shall be the substantive law of [ ]."

• Existing disputes
• If a dispute has arisen, but there is no agreement between the parties to arbitrate, or if the parties wish to vary a dispute
resolution clause to provide for LCIA arbitration, the following clause is recommended.
"A dispute having arisen between the parties concerning [ ], the parties hereby agree that the dispute shall be referred to and finally
resolved by arbitration under the LCIA Rules.
 The number of arbitrators shall be [one/three].
 The seat, or legal place, of arbitration shall be [City and/or Country].
 The language to be used in the arbitral proceedings shall be [ ].
 The governing law of the contract [is/shall be] the substantive law of [ ]. " 20
 WEEK 1: Agreement to Arbitrate
• For ad hoc arbitration the UNCITRAL Arbitration Rules are typically selected:
“1. Where parties have agreed that disputes between them in respect of a defined legal relationship, whether contractual or not,
shall be referred to arbitration under the UNCITRAL Arbitration Rules, then such disputes shall be settled in accordance with these
Rules subject to such modification as the parties may agree.”

• Ad hoc arbitration under the UNCITRAL Rules proposed by HK Arbitration Centre:

"Any dispute, controversy, difference or claim arising out of or relating to this contract, including the existence, validity,
interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or
relating to it shall be referred to and finally resolved by arbitration under the UNCITRAL Arbitration Rules in force when the Notice of
Arbitration is submitted.
 The law of this arbitration clause shall be ... (Hong Kong law). *

 The appointing authority shall be … (Hong Kong International Arbitration Centre).

 The place of arbitration shall be ... (Hong Kong).

 The number of arbitrators shall be ... (one or three). The arbitration proceedings shall be conducted in ... (insert language)." **

Note: * Optional. This provision should be included particularly where the law of the substantive contract and the law of the seat are different. The law
of the arbitration clause potentially governs matters including the formation, existence, scope, validity, legality, interpretation, termination, effects and
enforceability of the arbitration clause and identities of the parties to the arbitration clause. It does not replace the law governing the substantive
contract. ** Optional 21
 WEEK 1/2: Agreement to Arbitrate
• Elements to consider when drafting an arbitration clause:

- Scope of the arbitration clause: “arising out of”, “in connection with” or “under”; the right parties need to be party to the arbitration
agreement; carve outs need to be considered and included.
- Seat of the arbitration: The seat of arbitration determines the procedural law of the arbitration. Its importance cannot be overstated:
amongst other things, it determines the availability of interim remedies and rights relating to the enforcement of the award.
- Governing law: The arbitration agreement is a contract in its own right. Consequently, the law governing the arbitration agreement
(which determines the validity and scope of the arbitration agreement) can differ from the governing law of the substantive
contract, i.e., concept of separability.
- Rules: Institutional v. Ad hoc: One of the most important decisions when drafting an arbitration agreement is whether to adopt the
rules of an established arbitral institution, such as the ICC or LCIA, to govern the arbitration procedure. The main benefit of doing so is
that the institution, in return for a fee, plays a key role in administering the dispute and their rules offer a well-established and
predictable procedure. If the parties wish to refer their disputes to ad hoc (un-administered) arbitration, they should consider either
setting out a bespoke process, adopting existing ad hoc procedural rules (such as the UNCITRAL rules) or incorporating the rules of
an institution but making clear that those provisions in which the institution plays an administrative role and receives fees for doing
so will not apply. If this is not agreed prior to entry into the transaction between the parties, such options will need to be agreed
between the parties. Parties should also consider using an institution as an appointing authority.

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 WEEK 1/2: Agreement to Arbitrate
• Examples of rules:
• ICC 2021 Arbitration Rules

• LCIA Arbitration Rules 2020

• UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006

• UNCITRAL Arbitration Rules (with article 1, paragraph 4, as adopted in 2013 and article 1, paragraph 5, as adopted in 2021)

- Language: needs to be determined by the parties in the arbitration agreement.

- Number of arbitrators and appointment: Usually in complex and high value disputes, parties decide that the tribunal will consist of 3
arbitrators. Whereas if the dispute is likely to be low value and uncomplicated it may be more appropriate and cost effective to
provide for a sole arbitrator. In multi-party disputes, where it is unworkable for each party to select an arbitrator, parties should
agree on an appointment procedure. For example, parties can agree that appointments will be made by an appointing authority.
- Joinder and Consolidation: it is possible that parties can request to join an arbitration (Art.7(5) ICC Rules); it is also possible to
consolidate two or more pending arbitrations (Art. 10 ICC Rules)
- Multi-tiered clauses: Multi-tiered clauses provide gateways for attempts at a negotiated resolution, allowing disputes to be gradually
escalated from negotiation to mediation or conciliation and finally to arbitration.

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 WEEK 1/2: Agreement to Arbitrate
• One important source of the legal framework governing arbitration proceedings is the so-called lex arbitri,
which translates into arbitration law.
• The applicable lex arbitri is determined by the seat of arbitration which creates the judicial link between
the arbitration proceeding and the applicable arbitration law.
• For example, if parties select Paris as the seat of arbitration, this triggers the application of the French
arbitration law.
• Consequently, French courts will be responsible for exercizing supervisory and supportive functions in
respect of the arbitration proceedings.
• Also, French law will govern certain aspects of the arbitral procedure, in particular regarding mandatory
rules
• In the absence of a choice by the parties, the seat of arbitration can be identified by the arbitral tribunal,
arbitral institution or a court (in case of ad hoc arbitrations).
• 90 of the 123 jurisdictions have adopted the UNCITRAL Model Law as the basis for their domestic
arbitration laws.
• The domestic arbitration provisions are typically incorporated in the civil code of procedure.
• For example, in France, the arbitration provisions are incorporated in the French civil code of procedure,
the Dutch Arbitration Act 2015 or the 1996 (that is to be updated soon). 24
 WEEK 1/2: Agreement to Arbitrate
• The applicable lex arbitri is determined by the seat of arbitration which creates the judicial link between
the arbitration proceeding and the applicable arbitration law.
• For example, if parties select Paris as the seat of arbitration, this triggers the application of the French
arbitration law.
• Consequently, French courts will be responsible for exercizing supervisory and supportive functions in
respect of the arbitration proceedings.

Paris = seat of arbitration = Lex arbitri =

French law = jurisdiction of French courts

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 WEEK 1/2: Agreement to Arbitrate
Validity of an Arbitration Agreement
• Formal validity = requirement of “in writing”
Article 7 (Definition and form of arbitration agreement) [Option 1] UNCITRAL Model Law 2006
(1) “Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which
may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the
form of an arbitration clause in a contract or in the form of a separate agreement.
(2) The arbitration agreement shall be in writing.
(3) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has
been concluded orally, by conduct, or by other means.
(4) The requirement that an arbitration agreement be in writing is met by an electronic communication if the information contained
therein is accessible so as to be useable for subsequent reference; “electronic communication” means any communication that the
parties make by means of data messages; “data message” means information generated, sent, received or stored by electronic,
magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or
telecopy.
(5) Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the
existence of an agreement is alleged by one party and not denied by the other.
(6) The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing ,
provided that the reference is such as to make that clause part of the contract. 26
 WEEK 1/2: Agreement to Arbitrate
Article 7 (Definition of arbitration agreement) [Option 2] UNCITRAL Model 2006
“Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which
have arisen or which may arise between them in respect of a defined legal relationship, whether contractual
or not.

• This option does not require any particular form, which can be problematic, in particular when it needs to
be determined by arbitral tribunals or domestic courts whether or not an “agreement by the parties” exists.

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 WEEK 1/2: Agreement to Arbitrate
Validity of an Arbitration Agreement
Article 7 (Definition and form of arbitration agreement) [Option 1] UNCITRAL Model Law 2006
(1) “Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or
which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement
may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

• defined legal relationship= Contractual or even tort claims

• As Lord Hoffmann stated in Fiona Trust (2007), the arbitration clause should be construed broadly:

“13. In my opinion the construction of an arbitration clause should start from the assumption that the
parties, as rational businessmen, are likely to have intended any dispute arising out of the
relationship into which they have entered or purported to enter to be decided by the same
tribunal. The clause should be construed in accordance with this presumption unless the language
makes it clear that certain questions were intended to be excluded from the arbitrator's
jurisdiction. As Longmore LJ remarked, at para 17: "if any businessman did want to exclude disputes
about the validity of a contract, it would be comparatively easy to say so.”

https://www.trans-lex.org/312142/_/fiona-trust-holding-corp-v-privalov-%5B2007%5D-ukhl-40/ 28
 WEEK 1/2: Agreement to Arbitrate
Validity of an Arbitration Agreement
• Capacity of the parties to an arbitration agreement:
 Natural persons = depending on the law of domicile
 Corporations = law of place of incorporation
 State and State agencies = depends on the specific authority to enter into an arbitration agreement

• Redfern & Hunter (para. 2.45 refer also to the issue of authority to bind and represent a State in case of civil
war or competing political factions in State by using the example of Maduro v Guaido.
• However, the UK Supreme Court could not decide this issue definitely and send it back to the Commercial
Court (decision in 2021, https://www.supremecourt.uk/cases/docs/uksc-2020-0195-judgment.pdf )
• with effect from 5 January 2023, the interim Venezuelan government led by Juan Guaidó was disbanded.
Accordingly, the Government of the United Kingdom withdrew its ongoing recognition of Mr Guaidó as
interim President of Venezuela. The Court of Appeal decided in Deutsche Bank AG (London Branch) v Central
Bank of Venezuela & Ors [2023] EWCA Civ 742 that executive acts carried out by Mr Guaidó during the
period he was recognised are acts of a foreign state. Now that the Government recognises neither Guaidó
nor Maduro, the Commercial Court will need to determine the future course of the Venezuela gold
litigation. 29
 WEEK 1/2: Agreement to Arbitrate
Validity of an Arbitration Agreement
• Third parties to the arbitration agreement
• The “group of companies” doctrine is dealt with differently in different jurisdictions:
 The Indian Supreme Court confirms that the 'Group of Companies' doctrine is capable of binding non-signatories to
arbitration agreements. In a judgment issued on behalf of the majority of the five-judge bench on 6 December 2023, Mr
Chief Justice Dhananjaya Chandrachud clarified that the 'Group of Companies' doctrine has an important role to play in
Indian arbitration jurisprudence. He noted that arbitration law has developed and adopted the doctrine in response to
the need to adopt a "modern approach to consent" in a business world where multi-party and multi-agreement
transactions are the norm. He provided guidance on the application of the doctrine under Indian law, noting that the
definition of "parties" under the Arbitration and Conciliation Act 1996 ("Arbitration Act") includes both the signatory as
well as non-signatories, and the requirement of a written agreement under the Arbitration Act does not exclude the
possibility of binding non-signatories. In doing so, he made clear that the doctrine has an independent existence to the
principle of piercing the corporate veil and the latter cannot be used as a basis for the application of the doctrine.
 Finally, Justice Chandrachud emphasised that it is for the arbitral tribunal – not the referral court – to decide whether
the non-signatory is bound by the arbitration agreement. In doing so, the tribunal can "delve into the factual,
circumstantial, and legal aspects of the matter to decide whether its jurisdiction extends to the non-signatory party".
Relevant factors – as laid down in the Discovery Enterprises case – include the mutual intent of the parties, the
relationship between the non-signatory and a signatory to the agreement, the commonality of the subject-matter, the
composite nature of the transactions and the performance of the contract.
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https://www.ashurst.com/en/insights/group-of-companies-doctrine-and-arbitration-the-modern-approach-to-consent/
 WEEK 1/2: Agreement to Arbitrate
Validity of an Arbitration Agreement
• Third parties to the arbitration agreement
• The “group of companies” doctrine is dealt with differently in different jurisdictions:
 In English law there is no place for the group of companies doctrine (e.g. Peterson Farms [2004] EWHC 121 (Comm)
at [62]).
 Singapore law has not followed the GoC doctrine (e.g. Manuchar Steel [2014] 4 SLR 832).
 French law, applied the “group of companies doctrine” only if two conditions are met: first, the company that did
not sign the arbitration agreement or was not apart in the arbitration clause has played a role in concluding,
performing or terminating the contract that contains the arbitration agreement. Second, it is also required to have a
common will of the parties that have signed the arbitration agreement, that the non-signatory parties are bound by
the contract and as a consequence they are bound to arbitrate in case a dispute connected to that contract comes
into the existence. (Dow Chemical)

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 WEEK 1/2: Agreement to Arbitrate
Validity of an Arbitration Agreement
• Third parties to the arbitration agreement
• ‘Piercing the corporate veil’:
• This principle is not universally applied in all jurisdictions. However, it can be stated that international
practice on abusive corporate structuring is well developed and one must take into account the principles
already established in various jurisdictions which would seriously assess the corporate structuring and
would take a ‘substance over form’ approach in cases where businesses are aiming to escape their
obligations, including the arbitration clauses, by way of hiding under complex corporate structures.

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 WEEK 1/2: Agreement to Arbitrate
Validity of an Arbitration Agreement
• Third parties to the arbitration agreement
• ‘Piercing the corporate veil’:
• On 9 March 2023, the German Federal Court of Justice (“BGH“) confirmed the decision of the Higher Regional Court of Koblenz to refuse
recognition and enforcement of an arbitral award issued in Russia. Among others, the BGH held that the Arbitral Tribunal exceeded its personal
jurisdiction by extending an arbitration agreement to a de facto group of companies. In its decision, the BGH answered several highly relevant
questions:
• No Arbitration Agreement between Claimant and Respondents even in case of a piercing of the corporate veil under substantive law
• Art. V(1)(a) NYC allows refusal of recognition and enforcement of a foreign arbitral award if, among others, the arbitration agreement is not valid
under the law governing it. The same is true if an arbitration agreement does not exist in the first place.
• The BGH held that in the case at hand, no arbitration agreement existed between Claimant and Respondents.
• The BGH found that even if a parent company or shareholder is directly liable because of fraud, wrongdoing, or injustice to third parties (=
piercing of the corporate veil), this does not warrant the extension of the arbitration agreement to such parent company or shareholder.
According to the BGH, the substantive law aspects – direct liability of the parent company or shareholder – has to be separated from the
procedural aspect – the extension of the arbitration agreement to non-signatories.
• Art. 101 I 2 of the German Constitution safeguards the right to the lawful judge, which is equivalent to a fundamental right. Submitting a dispute
to arbitration means waiving the right to the lawful judge. A valid waiver requires a clear expression of a wish to go to arbitration. An arbitration
agreement therefore only binds the contracting parties, their legal successors, and, exceptionally, the liable partners of a partnership. An
extension to third parties (Drittwirkung) is a priori excluded and may only exceptionally be justified based on a party’s conduct that can be
interpreted as an acceptance of the arbitration agreement in a contract signed by a subsidiary or group company.
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• https://www.lexology.com/library/detail.aspx?g=b8c567be-d228-4275-89e7-927084b049f9
 WEEK 1/2: Agreement to Arbitrate
Seat of Arbitration
• In choosing the seat of the arbitration, the following should be considered:
 Is the country in question a signatory to the New York Convention?
 Has the country in question adopted the UNCITRAL Model Law?
 What is the approach of the local courts, e.g. towards enforcing the parties’ agreement to arbitrate, supporting the
arbitration process, and enforcing awards?
 Does the proposed country have a sufficient pool of resident experienced and qualified arbitrators?

 Seat v. Venue (physical location where the tribunal meets or holds hearings).

 “pro-arbitration” jurisdiction?
 Level of judicial interference by domestic courts in respect of the finality of the award? (judicial oversight by
domestic courts)

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Applicable law
• In choosing the governing law, the following should be considered:
 Single law? If so, national law or general principles of law/ common principles of national laws?
 More than one law? If so, which is to take precedence or are they to be concurrent?
 Does a separate law governing the arbitration agreement need to be specified? If so, which?
 Should the arbitrators be given power to act as amiables compositeurs? / Decision ex aequo et bono .

• Different systems of law may become relevant during the course of an arbitration:
(a) the law applicable to the substance of the dispute;
(b) the law that determines the capacity of the parties;
(c) the law that determines the validity of the arbitration agreement;
(d) the law governing the arbitration itself (in particular the procedure);
(e) if there is a conflict of applicable substantive laws, the law under which the conflict is to be resolved; and
(f) the law of the likely place of enforcement of the award.

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• Doctrine of separability

• Article 16 (Competence of arbitral tribunal to rule on its jurisdiction) UNCITRAL Model Law
(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence
or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a
contract shall be treated as an agreement independent of the other terms of the contract. A decision by
the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the
arbitration clause.

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• The Kout Food saga
• The Kout Food saga has its roots in a franchise development agreement entered into in 2001 by Al Homaizi Foodstuff Company (AHFC) as
franchisor and Kaba-Ji as franchisee (the Agreement). The Agreement provided that it would be governed by English law, and that any
dispute would be referred to arbitration under the ICC Rules of Arbitration, with the seat being in Paris, France.

• Following corporate restructuring in 2005, AHFC became a subsidiary of Kout Food Group (Kout Food), which was thereafter heavily
involved in the performance of the Agreement despite not being a signatory. When the subject of renewal arose in 2011, Kout Food
entered into discussions to terminate the Agreement. In response, Kabab-Ji initiated an ICC arbitration against Kout Food in order to
obtain damages. Kabab-Ji’s co-contractor, AHFC, was not a party to the arbitration.

• As Kout Food was not a signatory to the Agreement, and AHFC was not a party to the arbitration, the arbitral tribunal’s jurisdiction
was disputed.

• The arbitral tribunal ultimately upheld its jurisdiction, and extended the arbitration agreement to Kout Food on the basis that (i)
France being the seat of the arbitration, French law governed the arbitration agreement, and (ii) under French law, Kout Food had
become party to the arbitration agreement by virtue of its involvement in the performance of the Agreement. Kabab-Ji was awarded
nearly US$7 million in damages.

• Kabab-Ji subsequently moved to have the award recognised and enforced before the English courts. However, unhappy with the award,
Kout Food challenged the application on the grounds that it was not a party to the arbitration agreement and, hence, the arbitration
had proceeded on the basis of an invalid arbitration agreement. Meanwhile, on the other side of the Channel, in parallel to the 37
enforcement proceedings before the English courts, Kout Food sought to have the award annulled at the seat.
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• Supreme Court’s confirmation of position under English law
• In its decision dated 27 October 2021, the UK Supreme Court affirmed the previous decisions of the English
High Court and Court of Appeal, which both refused to recognise and enforce the award. The Supreme
Court took its own view in determining that, by virtue of the particular wording of the contract, the parties’
choice of English law as the governing law of the Agreement extended to the law governing the validity of
the arbitration agreement. The fact that the parties had chosen Paris as the seat was not enough to
displace this finding. As a result, the Supreme Court applied English law and found that Kout Food had not
become party to the arbitration agreement. This approach is in line with the long-standing position under
English law.
• French Cour de cassation decision
• The French Court of Appeal’s decision was challenged before the French Cour de cassation, which issued its
decision on 28 September 2022. As expected, the Cour de cassation confirmed that “the choice of English
law as the law governing the contracts [...] is not sufficient to establish the common will of the parties to
submit the effectiveness of the arbitration agreement to English law, in derogation of the substantive rules
of the seat of arbitration expressly designated by the contracts”. The Cour de cassation added that Kout
Food “did not provide evidence of any circumstances that could unequivocally establish the parties'
common intention to designate English law as governing the effectiveness, transfer or extension of the
arbitration clause”, and rejected the appeal. 38
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• The Cour de Cassation thus reaffirmed the long-standing French position that, absent an express choice from
the parties, it is the substantive rules of the seat that govern the arbitration clause. The reasoning of the
Cour de Cassation does allow the parties to submit the arbitration clause to the lex contractus; however, it
made clear that this must be done “unequivocally” – this precaution might prove useful considering the
divergence between the French and English rulings.

Practical consequences
• The Kout Food saga sheds light on the importance of the law governing the arbitration agreement, and the
risk of inconsistent decisions that can be reached in different jurisdictions if parties are not careful when
negotiating. Parties generally give very little thought to the precise wording of their arbitration
agreements, and almost never stipulate the law applicable to them. However, this lack of thought can lead
to disastrous results and even, as illustrated by this saga, to decisions that can be enforced in one country,
but not in another.

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• Enka v Chubb case
• A Russian power plant was severely damaged in a fire. After paying out on an insurance claim for the damage, Chubb, the
Russian insurer of the plant’s owner, brought proceedings in the Russian courts against 11 companies, including Enka, a
Turkish subcontractor involved in construction work at the plant, arguing they were liable for the damage caused. Enka
brought a claim in the English courts for an anti-suit injunction restraining Chubb from continuing the Russian
proceedings. Enka argued that the Russian proceedings had been brought in breach of an arbitration agreement, which
provided for arbitration in London under ICC Rules. Neither the main contract nor the arbitration agreement within the
contract included an explicit governing law clause.
• At trial, the Commercial Court dismissed Enka’s claim on the basis that the English court was not the appropriate forum
to decide it. Following an expedited appeal, the Court of Appeal allowed Enka’s claim, holding that questions as to
whether the English courts were the appropriate forum were irrelevant, the arbitration agreement was governed by
English law and that an anti-suit injunction should be awarded to restrain the Russian proceedings. Chubb appealed to
the Supreme Court.
• Although both parties agreed that the main contract was governed by Russian law, the parties disagreed on the law
governing the arbitration agreement. Chubb argued that, because the main contract was governed by Russian law, the
arbitration agreement was also governed by Russian law. Enka argued that the law of the arbitration agreement was
that of the seat of the arbitration, namely English law.

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• As the Supreme Court acknowledged, the issue of which system of law should govern an arbitration agreement when
the law of the main contract differs from the law of the seat of arbitration has “long divided courts and commentators,
both in this country and internationally”.
• On one side, some have argued that the law that governs a contract should generally also govern the arbitration
agreement which, though separable, forms part of that contract.
• On the other side, others have argued that the law of the seat of the arbitration, not the law of the main contract,
should generally govern the arbitration agreement. The debate is an important one because it affects which laws govern
issues around the validity and scope of arbitration agreements. This has proven a thorny issue for some time, with Court
of Appeal decisions falling on either side of the fence.
• By a 3:2 majority, the Supreme Court dismissed Chubb’s appeal.
• As the EU regime of Rome I does not apply to arbitration agreements, the English court must apply English common law
rules to determine which law governs an arbitration agreement. The law applicable to an arbitration agreement is:
(1) The law expressly or impliedly chosen by the parties to govern the arbitration agreement; or
(2) In the event no choice has been made, the law which is “most closely connected” to the arbitration
agreement.
• Express or implied choice? Whether the parties have expressly or impliedly agreed on a choice of law to govern the
arbitration agreement will be determined by construing the arbitration agreement and the contract containing it as a
whole, applying English law rules of contractual interpretation. This will depend on the particular circumstances. 41
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• Law governing the main contract? Where the parties have not expressly or impliedly chosen the law governing the arbitration
agreement, but they have chosen a law governing the main contract, the law of the arbitration agreement will usually be governed by
the law chosen to govern the main contact. Such an approach fosters certainty, consistency and coherence, and avoids complexities,
uncertainties and artificiality.
• The choice of a different jurisdiction as the seat of the arbitration is not in itself enough to negate an inference that a choice of law to
govern the contract was intended to apply to the arbitration agreement. Additional factors that may, however, imply that the
arbitration agreement was intended to be governed by the law of the seat include where the chosen law would render the arbitration
agreement invalid or defeat the commercial purpose of the arbitration clause.
• Closest connection test? This case was relatively unusual because the parties had not chosen a law to govern the main contract (or the
arbitration agreement). Where no choice (express or implied) has been made, the court must determine objectively with which system
of law the arbitration agreement has its closest connection. This involves the application of a rule of law.
• The majority found that, as a general rule, in the absence of choice, the law of the place chosen as the seat of arbitration will be the
law most closely connected with the arbitration agreement, even if it differs from the law applicable to the law of the main contract,
because:
1. The seat of arbitration is the legal place where the arbitration agreement is to be performed.
2. It is consistent with international law, such as the New York Convention, and English laws that give effect to it.
3. It gives effect to commercial purpose and is likely to uphold the reasonable expectations of parties who have chosen to resolve
their disputes by arbitration in a specified place but have not chosen a governing law for their contract.
4. Applying a clear default rule that, in the absence of choice, an arbitration governed by the law of the seat of the arbitration
(where designated) is in the interests of legal certainty and enables the parties to predict easily which law the English courts will
apply.

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The seat of arbitration different than the

Arbitration
law governing the main contract
clauses/
agreement
Absent a choice of law
governing the main contract
separability the law of the seat of
arbitration will be most
closely connected to the
main contract
The selected law
Main contract governing the main
contract will govern
the arbitration
agreement absent
any choice

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Several arbitration laws of important jurisdictions:
• English Arbitration Act 1996
• Dutch Arbitration Act 2015
• US Federal Arbitration Act 1925
• French Arbitration Act 2011
• Swiss Arbitration Act 1987
• German Arbitration Act
• Chinese Arbitration Act 1995
• Turkish Arbitration Act 2001

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Summary of the key elements of an Arbitration Agreement:
 A valid arbitration agreement
 Number of arbitrators
 Ad hoc v. institutional arbitration
 Procedure regarding how to fill any vacancies in the tribunal
 Seat of arbitration
 Governing law = reg both contract and the arbitration agreement itself
 Separability
 Default clauses
 Language of the arbitration
 Multi-tier clauses

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Pathological arbitration clauses
Exercise: Identify the possible problems in the following clauses?
a) ‘In the event of any unresolved dispute, the matter will be referred to the International Chamber of Commerce’.

b) ‘All disputes arising in connection with the present agreement shall be submitted in the first instance to arbitration. The
arbitrator shall be a well-known Chamber of Commerce (like the ICC) designated by mutual agreement between both
parties.

c) ‘Any and all disputes arising under the arrangements contemplated hereunder … will be referred to mutually agreed
mechanisms or procedures of international arbitration, such as the rules of the London Arbitration Association’.

d) ‘All disputes directly arising out of the present contract shall be finally settled by arbitration/mediation by the Tribunal
of the Chamber of International Commerce by one or three arbitrators appointed in accordance with the Rules of
Arbitration of the London Court of International Arbitration. The venue of the Arbitration will be London.’

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