Post on 06-Apr-2023
Prof. Dr. John JA Burke1
Le BuissonGlandon 87500Francejjaburke@mykolab.comwww.eilfe.com
DRAFT ARTICLE
A Gateway Question of Arbitrability: The Ambiguity ofArticle II of the New York Convention on the recognitionand enforcement of foreign arbitral awards of 1958
Abstract
This article addresses, a well established but unsettled, gateway question of
International Commercial Arbitration: who, national courts or arbitral
tribunals, has primary competence to decide whether parties have entered
into an internationally cognizable arbitration agreement. The flip side of this
question implicates the doctrine of Kompetenz/Kompetenz. The uncertainty,
for both issues, stems from the legal status accorded to Article (2)(3) of the
New York Convention on the recognition and enforcement of foreign arbitral
awards of 1958 [1958 NYC or Convention]. Article (2)(3) obliges Courts of a
Contracting State to refer parties to arbitration provided two conditions
precedent are met thereby creating a potential conflict with the doctrine of
“Kompetenz/Kompetenz” conferring upon arbitral tribunals the power to
determine their jurisdiction. However, despite a leading scholar’s view, that
1 Associate Professor, RISEBA, Riga, Latvia, and of counsel to SayatZholshy & Partners, Almaty, Kazakhstan.
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the Convention sets forth “binding international legal principles governing the
entire arbitral process – including the recognition of arbitration agreements,
the arbitral process and the recognition of arbitral awards”, Article (2)(3) is
honoured more in the breach than the observance.2 Consequently, this article
attempts to identify the legal status of Article (2)(3).
Introduction
The post-West Tankers period, followed by Brussels I
(Recast), and the pending case of OAS Gazprom before the
Court of Justice of the European Union make it a
propitious time to revisit the “question of
arbitrability”.3 This article interprets Article (2)(3)
upon a hypothetical tabula rasa free from the barnacles of
judicial doctrine and scholarly analysis. The approach
provides the opportunity to construct an interpretation
of Article (2)(3) upon grammar, plain language
principles, and guidelines drawn from the Vienna
Convention 1969 and posit the article’s rank within the
NY Convention. Contrary to select national legislation,2 Gary B. Born, International Commercial Arbitration, Vol. 1International Arbitration Agreements 105-106 (2nd ed. WoltersKluwer2014). The interpretation of Mr. Born’s language is the author’s. 3 Allianz and Generali Assicurazioni Generali, Case 2009/69(West Tankers); REGULATION (EU) No 1215/2012 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast); and Gazprom OAO Case C-536/13.
Draft_Article_ICA 06/11/22 2
the negative effect of Kompetenz/Kompetenz, and the
UNCITRAL Model Law, the result suggests that Article (2)
(3) constitutes a mandatory norm of international law.4 A
review of the extant literature and legal sources failed
to discover a single clear statement on the legal status
of Article (2)(3) and its integration with related
legislation and principles of ICA.5 Therefore, after
submitting an interpretation of Article (2)(3) based on
linguistic analysis, the article visits French national
legislation arguably representing the extreme form of the
negative effect of Kompetenz/Kompetenz, revisits the
decision in West Tankers, and examines the interface of
Brussels I Recast within the context of the Advocate
General’s opinion in OAS Gazprom to draw tentative
conclusions.6
4 UNCITRAL Model Law on International Commercial Arbitration (1985)with amendments as adopted in 2006; Tibor Varady, John J. BarceloIII, and Arthur T. von Mehren, Internarional Commercial Arbitration:A Transnational Perspective, pp. 103-06 (West 2012)(explaining thenegative effect of Kompetenz/Kompetenz); and Code de procédurecivile, Libre IV: l’arbitrage, Titre II: l’arbitrage international,arts. 1504-1527.5 E.g., Gary B. Born, International Commercial Arbitration, Vol. 1,II, and III (2nd ed. WoltersKluwer 2014); Redfern and Hunter, OnInternational Arbitration, (Oxford 2009); and Margaret L. Moses, The Principlesand Practices of International Commercial Arbitration (Cambridge 2008); 6 West Tankers, supra n. 3.
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1. THE PLAIN AND ORDINARY MEANING OF ARTICLE (2)(3)
Article (2)(3) of the 1958 NYC provides:
“The Court of a Contracting State, when seizedof an action in a matter in respect of whichthe parties have made an agreement within themeaning of this article, shall, at the requestof one of the parties, refer the parties toarbitration, unless it finds that the saidagreement is null and void, inoperative, orincapable of being performed”.
The starting point to discern the meaning of this article
is to parse the sentence.7 Article (2)(3) consists of a
complex sentence that must be read as a whole; the
various clauses comprising the sentence define a set of
coherent instructions. Stripped of qualifying terms, the
subject is “The Court”, the predicate is “shall refer”,
the direct object compliment is “parties”, and the
indirect object compliment is “to arbitration”. However,
there is one noun clause, one prepositional phrase, and
one adverbial clause. The noun clause modifying the
7 Sentence diagramming is a valuable tool that enables a person toaccurately understand the structure - and hence the meaning - of asentence. What is Sentence Diagramming, available at www.journal33.org.The Vienna Convention on the law of treaties [with Annex] concludedat Vienna on 23 May 1969, available athttps://treaties.un.org/doc/.../UNTS/.../volume-1155-I-18232-English.pdf, provides in Article 31(1) that “A treaty shall beinterpreted in good faith in accordance with the ordinary meaning tobe given to the terms of the treaty in their context and in the lightof its object and purpose ».
Draft_Article_ICA 06/11/22 4
subject is: [1] “when seised of an action in a matter in
respect of which the parties have made an agreement
within the meaning of this article”, [2] the
prepositional phrase modifying the verb is “at the
request of one of the parties”, and [3] the adverbial
clause modifying the verb is “unless it (Court) finds
that the said agreement is null and void, inoperative, or
incapable of being performed”.8
Principles of grammar, supported by adherence to the
Vienna Convention’s instructions to give terms, their
ordinary meaning lead ineluctably to the following
result. “When a party files a claim according to
applicable procedure, a court of a “Contracting State”
has an obligation to refer parties to arbitration, but
only if two conditions are met: [1] there exists an
“arbitration agreement” within the meaning of Article 2,
and [2] the arbitration agreement is valid, operative,
and capable of being performed”, and the following
requirements are satisfied: (1) The arbitration agreement
must fall within the Convention, (2) There must be a8 The diagrammed sentence is found in the Annex.
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dispute, (3) The dispute involves a defined legal
relationship within the scope of the arbitration
agreement, and (4) The subject matter is capable of
settlement by arbitration. Since the instructions of
Article (2)(3) are contained in a single sentence, and
constitute a peremptory norm, the Court must evaluate the
conditions and requirements within a single judicial
process, whether prima facie or otherwise.9
The sentence also contains a presumption that the parties
have not yet started the arbitral process, or at the very
least, completed the arbitral procedure, since, if a
Tribunal has issued a final award, it would be absurd to
refer the parties back to arbitration. This view comports
with that set forth by Professor Barceló who divides the
court-arbitration process into three stages.10 Stage One
comprises the period in time when the “who decides”
question is posed, and presumes that the arbitral process
9 Albert Jan van den Berg, The New York Convention of 1958: An Overview,Yearbook Commercial Arbitration. Private parties cannot contract outof a peremptory norm if a Treaty.10 John J. Barceló, Who Decides the Arbitrators’ Jurisdiction? Separability andCompetence-Competence in Transnational Perspective, 36 Vand. J. Transnar’l L.1115 (2003); Cornell Law Faculty Publications, Paper 508 [2003],available at http://scholarship.law.cornell.edu/facpub/508.
Draft_Article_ICA 06/11/22 6
has not yet proceeded to consider procedural or
substantive issues. Stage Two comprises the period when
the arbitral process has commenced, the arbitral panel is
cloaked with its authority derived from the doctrine of
competence-competence, but a party nevertheless may
challenge the jurisdiction of the arbitral panel. Stage
Three comprises the period at which the arbitral panel
has issued a preliminary award on jurisdiction or has
issued a final award.
Article (2)(3) is best suited for Stage One proceedings,
when the “question of arbitrability” arises at the point
where a legal dispute first has arisen between the
parties. Article (2)(3) arguably fits Stage Three at the
moment when the arbitral tribunal has decided its
jurisdiction and issued a preliminary award. Article (2)
(3) is ill-suited at Stage Three when the arbitral
tribunal has issued a final award, since, if a party
seeks recognition and enforcement of a final award in
another State, that court will rely upon Article V of the
1958 Convention to decide the question of recognition and
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enforcement. Support for this argument is found in the
scholarship of Professor Albert van den Berg stating
clearly that the “field of application” of Article (2)(3)
is enforcement (or not) of the arbitration agreement, [my
emphasis] when the arbitration agreement provides for
arbitration in another Contracting state.11
Consequently, the answer to the “who decides” question,
limited to the internationally cognizable qualification
of an arbitration agreement, is answered by the 1958
Convention: when a party files an action in a matter
where the parties have made an arbitration agreement, the
court of a Contracting State primes the authority of an
arbitral tribunal to resolve the issue of jurisdiction as
limited by the specific scope of Article (2)(3). Nothing
in that Article refers to the doctrine of
“Kompetenz/Kompetenz”; however, equally compelling,
nothing in Article (2)(3) suggests that the Court of a
Contracting State may disregard its obligations under
11 Professor van den Berg states that, “The Convention does notspecify what is the latest moment at which a party may invoke thearbitration agreement. Failing a provision in the Convention, thisquestion is to be determined under the law of the forum.” Van denberg, supra note 4 at 10.
Draft_Article_ICA 06/11/22 8
Article (2)(3) due to the existence of the
Kompetenz/Kompetenz doctrine, whether used in its
positive or negative sense.12 This result is perfectly
consistent with the decision of the United States Supreme
Court in First Options of Chicago, Inc. v. Kaplan and its progeny, as
extended to international arbitrations, though the cases
were decided under US domestic law.13 In addition, there
is no evidence, that any provision of Article 31(2) of
the Vienna Convention is applicable to alter the ordinary
and plain meaning of Article (2)(3) of the 1958
Convention. Article 31(3) of the Vienna Convention 1969
does not apply since the words of Article (2)(3) of the
1958 Convention are not special. Nevertheless, this
answer does not square with the contemporary reality of
International Commercial Arbitration (ICA) that has
effaced the force of Article (2)(3).
12 The positive effect of Kompetenz/Kompetenz recognises theauthority of an arbitral tribunal to rule on its jurisdiction; thenegative effect goes further, providing that a court is precludedfrom resolving the competence of the arbitral panel. See, Varady,supra n. 4 at 104.13 514 U.S.938 (1995)
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Equally important to this analysis is whether Article (2)
(3) is a peremptory norm. Identifying any legal rule as
mandatory is difficult because drafters of legislation
fail to provide a “label”. Therefore, a reader of law is
left to surmise whether any particular legal rule is
mandatory or non-mandatory. This characterisation is
pivotal in the law of contract that forms the foundation
of arbitration, and of treaties that are simply contracts
among states. Taking the view supported by Mr. Born that
the Convention provides uniform international rules for
the recognition of internationally cognizable arbitration
agreements to its logical conclusion, then Article (2)(3)
is a peremptory norm that cannot be altered by domestic
legislation or by private contract. An analogy may be
made to the “writing requirement” of Article 2 that
presumptively constitutes a mandatory rule under the
Convention, though the drafters of the UNCITRAL Model Law
loathe this requirement.14
14 The author agrees that the « writing requirement » is absurd givencontemporary means of communication. However, the author does nothave the prerogative of stating that the Convention recognises non-written arbitration agreements. That position requires an amendementto the Convention.
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REVISITING THE NEGATIVE EFFECT OF COMPETENCE-COMPETENCEUNDER FRENCH LEGISLATION
The positive effect of the doctrine of competence-
competence obliges parties, that have entered into an
arbitration agreement, to submit disputes to arbitration
and confers jurisdiction upon the arbitral tribunal. The
negative effect of competence-competence prohibits
parties that have entered into an arbitration agreement,
from seeking a resolution of their disputes in court. In
effect, the extreme version of the negative effect of
competence-competence requires a court to decline
jurisdiction, when the parties have entered into an
arbitration agreement, without any review, in direct
conflict with Article (2)(3).
The French Code of Civil Procedure regarding
international arbitration and arbitration principles in
general is ultimately extreme. Take Article 1501, for
example, stating, with regard to international
arbitration that, “La convention d'arbitrage n'est
soumise à aucune condition de forme”. In other words, the
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Code Civil does not impose a writing requirement upon an
international arbitration agreement. Article 1501
flagrantly flouts Article (2)(2) of the NY Convention, a
requirement that, without any qualification, is a
peremptory norm.
Further, Article 1448 within the Chapter of International
Arbitration provides:
Lorsqu'un litige relevant d'une conventiond'arbitrage est porté devant une juridiction del'Etat, celle-ci se déclare incompétente saufsi le tribunal arbitral n'est pas encore saisiet si la convention d'arbitrage estmanifestement nulle ou manifestementinapplicable. La juridiction de l'Etat ne peutrelever d'office son incompétence.Toute stipulation contraire au présent article
est réputée non écrite.
Article 1448 is an incredible invention. A court is
prohibited from examining an arbitration agreement unless
an arbitral tribunal is not seized of the dispute and the
arbitration agreement is manifestly null or manifestly
unenforceable. The French version of the negative effect
of competence-competence is inconsistent with Article (2)
(3) of the 1958 NYC, by precluding a Court of a
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Contracting State, even seated in the lex arbitri, when
seized of an action subject to an arbitration agreement,
to undertake its mandatory obligations to review
conditions and requirements, prior to referring the
matter to arbitration. There is nothing in the 1958 NYC
Convention that distinguishes between when a party may
make an Article (2)(3) request, as French national
legislation does: only if an arbitral tribunal has not
already been seized of the arbitration, and then the
inquiry is limited to nullity or unenforceability of the
arbitration agreement. Under French law, a court is
required to declare that it lacks jurisdiction, provided
an arbitral tribunal is seized of the dispute. Even if
the pro-arbitration bias of the 1958 NYC is recognised,
there is nothing in the pro-arbitration bias to alter the
plain and ordinary meaning of Article (2)(3).
The question arises: may national legislation deviate
from an International Convention by providing less or
different protection than that which the International
Convention provides as to review of the internationally
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cognizable quality of an arbitration agreement. In
addition, French legislation introduces novel terminology
such as manifestly “unenforceable.” What does this term
“unenforceable” mean? It is bad enough that content must
be given to the following terms: “null and void,
inoperative or incapable of being performed”.
France ratified the 1958 NYC in 1959, taking no
reservations. Article 26 of the 1969 Vienna Convention
states, “Every treaty in force is binding upon parties to
it and must be performed by them in good faith.” Article
27 provides, “A party may not invoke the provisions of
its internal law as justification for its failure to
perform a treaty. This rule is without prejudice to
article 46.” (Inapplicable here) Nothing in Article I or
Article II of the 1958 NYC, that ostensibly sets forth
its context and purposes, justifies a qualification or
modification of Article (2)(3). In fact, the French
approach leads to waste of resources by requiring
arbitration to go forward, and only at a time when the
arbitral tribunal may have issued a preliminary award on
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its jurisdiction, to permit recourse to national courts
to make a review more limited than that provided by the
International Convention. The view that, because the
Convention does not set a deadline for review, and
therefore devolves to national legislation, is
unpersuasive and potentially leads to non-uniformity, if
not absurdity.15 The French national law implementation
virtually eviscerates the right conferred upon a party to
seek court review of an arbitration agreement at the
point where it makes most sense: the inception of
arbitration.
Equally significant, but beyond the scope of this
article, is the question whether private parties by
agreement may contract out of Article (2)(3) of the
Convention.16 The obvious answer is no, since an
arbitration agreement ipso facto excludes the jurisdiction
15 Neil Kaplan, Introduction, ICCA’s Guide to the Interpretation ofthe New York Convention : A Handbook for Judges (InternationalCouncil for Commercial Arbitration 2011) p. 20 (reproduced in KluwerArbitration), available at www.kluwerarbitration.com; 16 Article 38 of the Statute of the International Court of Justicesetting forth sources upon which it decides cases arguably delineatesthe hierarchy of legal norms, giving primacy to InternationalConventions. Statute of the International Court of Justice, availableat www. icj -cij.org/documents/?p1=4&p2=2 .
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of courts. However, Article (2)(3) envisions matters
where the exclusion of courts by party agreement may run
afoul of minimum rules to assure that the agreement is
internationally cognizable.
REVISTING WEST TANKERS
In 2009, the European Court of Justice (now post-Lisbon
the Court of Justice of the European Union) rendered its
decision in Allianz SpA, and Generali Assicurazioni Generali SpA v. West
Tankers, Inc. declaring that anti-suit injunctions were
incompatible with Brussels I Regulation Nr. 44/2001
concerning jurisdiction and the enforcement of judgements
in civil and commercial matters.17 Stated broadly, the
Court relied upon the Brussels I regime of providing
certainty, uniformity and predictability, by providing a
court first seized of a matter to determine its
jurisdiction prior to any other court, exercising
jurisdiction over the same legal dispute, in spite of the
exclusion of arbitration from the Regulation.
Noting that an anti-suit injunction had the capacity to
effect the operation of Regulation No. 44/2001, the Court17 Case C-185/07; 10 February 2009 (Grand Chamber)
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held that anti-suit injunctions came within the ambit of
the Regulation, though the Regulation explicitly excluded
arbitral proceedings.18 Since the Tribunale di Siracuse
was the court first seized of the dispute under Article
(5)(3) of the Regulation, it followed that the courts of
the United Kingdom were prohibited from issuing an anti-
suit injunction until the Italian court resolved the
issue of jurisdiction, including West Tanker’s objection
based upon the arbitration agreement.
In August 2000, Front Conor, a vessel owned by West Tankers
and chartered by Erg Petroli collided with a jetty, owned
by Erg, in the port of Syracuse, Italy causing damage to
the jetty. Allianz, Erg’s insurers, compensated Erg to
the limit of its insurance coverage; Erg commenced
arbitration proceedings in London to recover the excess.
The charterparty was governed by English law and
contained an arbitration clause. Having paid Erg, on 30
July 2003, the insurers, Allianz and Generali, commenced
a proceeding (subrogation) against West Tankers before
18 For critical remarks, see Specer Wolff, Tanking Arbitration or Breaking theSystem to Fix It? A Sink or Swim Approach to Unifying European Judicial Systems : The ECJ inGasser, Turner, and West Tankers, 15 Colum. J. EUR. L. Online, 65 (2009)
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the Syracuse court to recover sums paid to Erg. West
Tankers objected to the jurisdiction of the Italian Court
based on the arbitration agreement contained in the
charterparty.
On 10 September 2004, West Tankers brought proceedings
before the High Court of Justice of England and Wales,
Queens Bench Division (Commercial Court) seeking a
declaration that the dispute between itself and the
insurers was to be settled by arbitration, and sought an
injunction to restrain the insurers from pursuing any
proceedings in the Italian Court. The High Court granted
the anti-suit injunction against the insurers, and the
latter appealed to the House of Lords, arguing that the
anti-suit injunction was contrary to Regulation Nr.
44/2001. The House of Lords, though agreeing in principle
with the decision of the High Court, noting the virtues
of anti-suit injunctions, and finding that the Brussels I
Regulation excluded “arbitration”, nevertheless, referred
the following question to the ECJ: “Is it consistent with
Regulation Nr. 44/2001 for a court of a Member State to
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restrain a person from commencing or continuing
proceedings in another Member State on the ground that
such proceedings are in breach of an arbitration
agreement”.
The ECJ determined that anti-suit injunctions violated
Regulation Nr. 44/2001 because it deprived a court first
seized of an action, here under Article 5(3), to rule on
its very jurisdiction based upon a claim for damages and
to examine the objection to its jurisdiction: the
validity and applicability of the arbitration agreement.
Stated broadly, the Court relied upon the Brussels I
regime of providing certainty, uniformity and
predictability, by providing a court first seized of a
matter to determine its jurisdiction prior to any other
court, exercising jurisdiction over the same legal
dispute. Since the Tribunale di Siracuse was the court
first seized of the dispute under Article (5)(3) of the
Regulation, it followed that the courts of the United
Kingdom were prohibited from issuing an anti-suit
injunction until the Italian court resolved the issue of
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jurisdiction, including West Tanker’s objection based upon
the arbitration agreement. The Court stated in paragraph
27 that, “It follows that the objection of lack of
jurisdiction raised by West Tankers before the Tribunale
di Siracusa on the basis of the existence of the
arbitration agreement, including the question of the
validity of the agreement, comes within the scope of
Regulation No. 44/2001, and that it is therefore
exclusively for that court to rule on the objection and
on its own jurisdiction, pursuant to Articles 1(2)(d) and
5(3) of that regulation”.
In paragraph 31, the Court remarked that, if by means of
anti-suit injunction, a party (here West Tankers) could
avoid the structured regime of Brussels I by denying the
insurers the right derived from Article (2)(3) NY
Convention from arguing before the Italian Court that the
arbitration agreement was “null and void, inoperative or
incapable of being performed”, thereby squaring its
conclusion with Article (2)(3) of the NY Convention In
finding that an anti-suit injunction was incompatible
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with Regulation No. 44/2001, the Court stated in dicta that
the, “finding is supported by Article II(3) of the New
York Convention”.
Both the United Kingdom (1975) and Italy (1969) are
Contracting States. Had the ECJ decided the case under
the Convention, unfettered from the straightjacket of
Brussels I, what would have been the result? It is
impossible to say. However, two options are available.
The Court may have held that since UK courts, the seat of
the arbitration, were best positioned to determine the
question of Article (2)(3) and best positioned to support
the arbitration process, if the arbitration agreement was
not “null and void, inoperative, or incapable of being
performed”, rare exceptions to standard arbitration
clause, often copied and pasted from standard clauses
recommended for use by Institutional Arbitration Centres,
then the UK had authority to issue anti-suit injunctions
against recalcitrant parties.19 However, even though19 Implicit in this conclusion is a reading of Article (2)(3) of theConvention giving the Court of a Contracting that is the seat ofarbitration, the first shot at deciding the question of jurisdiction.Sound policy and practical reasons support this conclusion. The mainconcern of limiting party access to public courts when an arbitrationagreement exists is to minimise obstructionist behaviour and waste of
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recognising the exclusion of arbitration from the
Regulation, the ECJ, based on different reasoning, may
have reached the same result as in West Tankers. This
conclusion follows from the silence of Article (2)(3) to
identify which Contracting State among a competition, has
the first shot at determining the international validity
of the arbitration agreement. Since the Italian Court was
first seized of the matter, the Court may have reasoned
that the Italian Court had to be given the opportunity to
decide the Article (2)(3) question. The thorny issue of
Article (2)(3) of which court ought to exercise first
jurisdiction to refer the matter to arbitration remains
ambiguous.
ANALYSIS OF BRUSSELS I RECAST AND ITS RELATIONSHIP TOARTICLE (2)(3) WITHIN THE CONTEXT OF THE ADVOCATEGENERAL’S OPINION IN GAZPROM OAO
Advocate General Wathelet delivered an Opinion on 4
December 2014 in Gazprom OAO upon a request for a
preliminary ruling from the Lithuanian Court. As of the
date of this writing, the case is pending before the
resources.
Draft_Article_ICA 06/11/22 22
Court of Justice of the European Union. The Advocate
General states that, “The present request for a
preliminary ruling concerns the status of arbitration and
anti-suit injunctions in light of Council Regulation (EC)
Nr. 44/2001 of 22 December 2000 on jurisdiction and the
recognition and enforcement of judgments in civil and
commercial matters”. While the request arose under
Brussels I, the Advocate General applied Regulation (EU)
Nr. 1215/2015 of the European Parliament and of the
Council of 12 December 2012 (effective 10 January 2015).
(Brussels I Recast)
The facts are complicated and must be scrupulously set
forth before undertaking an analysis of the Advocate
General’s Opinion. The story begins with the
incorporation of “Lietuvos dujos AB (LDAB) under
Lithuanian law. The company was engaged in buying gas
from Gazprom OAO, a Russian Federation company, conveying
and distributing the gas to Lithuania, and also managing
the gas pipelines and transporting gas to Kaliningrad.
When the dispute arose, the largest shareholders of LDAB
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were E.ON Ruhrgas International GmbH (38,91%), Gazprom
(37,1%), and the Republic of Lithuania (17,7%).20 Gazprom
acquired its shares in LDAB in 2004; the sale and
purchase agreement incorporated a previously concluded
long-term gas agreement, requiring Gazprom to deliver gas
in sufficient quantity and at “fair” prices. Article 7.14
of the shareholder’s agreement contained an arbitration
clause. The arbitration clause provided:
“Any claim, dispute, or contravention inconnection with this Agreement or its breach,validity, effect or termination, shall befinally settled by arbitration in accordancewith the Rules of the Arbitration Institute ofthe Stockholm Chamber of Commerce. The place ofarbitration shall be Stockholm, Sweden, thenumber of arbitrators shall be three (all to beappointed by the Arbitration Institute) and thelanguage of the arbitration shall be English.”
A dispute arose on the grounds that three directors of
LDAB failed to act in the best interest of the company,
and that amendments to the long-term gas agreement
unfairly favoured Gazprom. What followed was a complex
interplay between litigation and arbitration proceedings
illustrated as follows:
20 The Opinion does not identify the remaining minority shareholders.
Draft_Article_ICA 06/11/22 24
Court/Tribunal Facts
Lithuanian
Regional Court
MOE of Lithuania requested Court toremove three directors alleged to haveacted contrary to the company'sinterest, and to fix a "fair" and"correct" price for gas purchased fromGazprom.
Stockholm Chamberof Commerce (SCC)
On 29 August 2011, in reply to MOElitigation, Gazprom invoked thearbitration clause and requested theSCC to order the MOE to withdraw itssuit before the Lithuanian RegionalCourt.
Lithuanian
Regional Court
In response, on 9 December 2011, theMOE dropped its complaint against thealleged malfeasant directors, butasked the court to order Gazprom toenter into new negotiations to re-fixthe price of gas.
PCA Hague In March 2011, Gazprom extended thedispute to the Permanent Court ofArbitration regarding EU Directivesconcerning unbundling management ofthe pipeline network from the supplyand production of gas.
SCC Nr. V (125/2011) On 31 July 2012, theArbitration Institute of the SCCrendered a Final Award holding thatthe MOE breached the arbitrationagreement contained in theshareholder’s agreement by commencingcourt proceedings in Lithuania,ordered the MOE to withdraw select
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requests submitted to the lowerLithuanian Court and to reformulateanother request to adhere to the termsof the arbitration agreement, anddismissed Gazprom's claim for damages.
Lithuanian
Regional Court
On 3 September 2012, the lowerLithuanian Court upheld the action ofthe MOE, appointed experts toinvestigate LDAB, and found that theaction was not subject to arbitration.
Lithuanian Courtof Appeals
LDAB and the three alleged malfeasantDirectors appealed the lower courtdecision, and Gazprom appealed toenforce the SCC arbitral award underthe NYC 1958 Convention.
SCC In October 2012, the Republic ofLithuania commenced arbitralproceedings against Gazprom, claimingthat Gazprom violated the long termgas agreements and asking for 1.9billion in damages
Lithuanian Courtof Appeals
On 17 December 2012, the LithuanianCourt of Appeal refused to grantGazprom’s request, invoking Article V(2)(a) and (b) of the NY Convention.It also ruled that the arbitralTribunal had no authority to determinea question already brought before anddecided by the lower Lithuanian Court,holding that the Lithuanian Civil Code[Art. 2.134] prohibited settlement byarbitration of the legal dispute. TheCourt of Appeal also held that thearbitral tribunal lacked any authorityto enjoin the Government from seeking
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recourse to the Lithuanian Courts andenjoin the Court from determining itsown jurisdiction as provided by theConstitution of Lithuania.Consequently, the Court of Appealdismissed the appeal of LDAB and theDirectors.
Lithuanian Courtof Cassation
Court of Cassation was seized of bothissues: the dismissal of the appealand the refusal to recognise andenforce the arbitral award.
Court of
Cassation
The Court of Cassation stayed theproceedings, and referred threequestions to the CJEU.
The three questions were:
1. Where an arbitral tribunal issues an anti-suitinjunction and thereby prohibits a party from bringingcertain claims before a court of a Member State, whichunder the rules on jurisdiction in the Brussels IRegulation has jurisdiction to hear the civil case as tothe substance, does the court of a Member State have theright to refuse to recognise such an award of thearbitral tribunal because it restricts the court’s rightto determine itself whether it has jurisdiction to hearthe case under the rules on jurisdiction in the BrusselsI Regulation?21
2. Should the first question be answered in the
21 The SCC arbitral tribunal did not issue an anti-suit injunction,but rendered a final award. However, as Advocate General Watheletobserved that is a distinction without a difference, as the finalaward functioned like an anti-suit injunction.
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affirmative, does the same also apply where the anti-suitinjunction issued by the arbitral tribunal orders a partyto the proceedings to limit his claims in a case which isbeing heard in another Member State and the court of thatMember State has jurisdiction to hear that case under therules on jurisdiction in the Brussels I Regulation?
3. Can a national court, seeking to safeguard the primacyof EU law and the full effectiveness of the Brussels IRegulation, refuse to recognise an award of an arbitraltribunal if such an award restricts the right of thenational court to decide on its own jurisdiction andpowers in a case which falls within the scope of theBrussels I Regulation?’
While a comprehensive restatement of the AG opinion
exceeds the scope of this article, nevertheless select
portions of the AG’s analysis, particularly its analysis
under Questions One and Three, are relevant to the
question of arbitrability. The AG posited the analysis
within Brussels I (Recast), though that Regulation was
not in effect at the time of the parties dispute. The
decision to provide an opinion to the CJEU on the basis
of the new Regulation arguably is correct, since the new
Regulation, as to arbitration, merely clarifies, the
extant rule that the Brussels I Regulation excludes
arbitration. Recital 12 of the European Parliament and
Council set forth in Brussels I Recast are keys to open
the revelation of the arbitration exclusion:
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1. This Regulation should not apply toarbitration. Nothing in this Regulation shouldprevent the courts of a Member State, whenseised of an action in a matter in respect ofwhich the parties have entered into anarbitration agreement, from referring theparties to arbitration, from staying ordismissing the proceedings, or from examiningwhether the arbitration agreement is null andvoid, inoperative or incapable of beingperformed, in accordance with their nationallaw.
2. A ruling given by a court of a Member Stateas to whether or not an arbitration agreementis null and void, inoperative or incapable ofbeing performed should not be subject to therules of recognition and enforcement laid downin this Regulation, regardless of whether thecourt decided on this as a principal issue oras an incidental question.
3. On the other hand, where a court of a MemberState, exercising jurisdiction under thisRegulation or under national law, hasdetermined that an arbitration agreement isnull and void, inoperative or incapable ofbeing performed, this should not preclude thatcourt’s judgment on the substance of the matterfrom being recognised or, as the case may be,enforced in accordance with this Regulation.This should be without prejudice to thecompetence of the courts of the Member Statesto decide on the recognition and enforcement ofarbitral awards in accordance with theConvention on the Recog nition and Enforcementof Foreign Arbitral Awards, done at New York on10 June 1958 (‘the 1958 New York Convention’),which takes precedence over this Regulation.
4. This Regulation should not apply to anyaction or ancillary proceedings relating to, inparticular, the estab lishment of an arbitral
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tribunal, the powers of arbitrators, theconduct of an arbitration procedure or anyother aspects of such a procedure, nor to anyaction or judgment concerning the annulment,review, appeal, recognition or enforcement ofan arbitral award.
With a single exception, the first paragraph of Article
12 reflects, and is perfectly consistent with, the
language of Article (2)(3) of the NY Convention. The
offending exception is the ending phrase “in accordance
with their national law”, as it potentially conflicts
with the NY Convention’s objective to achieve
uniformity.22 Regardless, the European Parliament and
Council explicitly recognised the continuing validity of
Article (2)(3) as to a Member Court’s authority and
obligation under the NY Convention, and in four lengthy
paragraphs articulated the arbitration exclusion.
According to Advocate General Wathelet, paragraph 2 of
the Recital referred to as the “verification” provision,
is the “ark of the covenant”. The Advocate General
22 National law may be applicable in limited circumstances such assubstantive questions of arbitrability, but the terms « null andvoid, inoperative, or incapable of being performed » must be accordeda supra-national meaning.
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correctly observes in paragraph 125 of the Opinion that
Brussels I Recast excludes arbitration from its scope and
does not (nor could it) affect the NY Convention. The
Advocate General, relying upon paragraph two of Recital
12, appears to state, in paragraph 140, that only the
court of the seat of arbitration has the authority to
undertake an Article (2)(3) review, by stating “since an
anti-suit injunction is among the measures which the
court of the seat of the arbitral tribunal may order in
support of arbitration”. This interpretation does not
follow from Recital 12, though it may constitute the most
compelling argument of how to resolve Article (2)(3)
questions, when two Courts of Contracting States are
seized of the same question, to deter obstructionist
parties from deploying delaying tactics. But this result
neither follows from Recital 12 nor the language of
Article (2)(3). It also does not follow that the court of
the Contracting State, seized of the issue, must defer
its Article (2)(3) review until after the arbitral
tribunal has issued its Final Award.
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The AG remarks importantly in paragraph 153 that, while
the solution in West Tankers cannot apply to anti-suit
injunctions issued by arbitral tribunals, that are solely
within the province of the NY Convention, nevertheless,
that solution (West Tankers), is therefore limited “to the
case in which the anti-suit injunction is issued by a
court of a Member State against proceedings pending
before a court of another Member State. Taken literally,
the consequence of this statement is that, if a scenario
similar to West Tankers arises after the effective date of
Brussels I Recast, then we are back to square one: the
court first seized must be given the chance to decide its
jurisdiction, an undesirable result from a policy
standpoint, and a missed opportunity to clarify the
question of arbitrability, given its multi-faceted parts,
and thereby forbidding the court second seized from
issuing an anti-suit injunction.
In its conclusions, in paragraph 189(1), the AG states
that “Council Regulation (EC) No 44/2001 of 22 December
2000 … must be interpreted as not requiring the court of
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a Member State to refuse to recognise and enforce an
anti-suit injunction issued by an arbitral tribunal”. In
paragraph 189(2), the AG finds that an arbitral award
containing an anti-suit injunction does not provide a
ground to refuse to recognise and enforce the arbitral
award on the basis of Article V (2)(b), the public policy
exception, of the By Convention. The AG’s extensive
analysis to support its two conclusions regrettably
missed the opportunity to clarify the operation of
Article (2)(3) of the NY Convention, and to re-introduce
explicitly the authority of a court to issue anti-suit
injunctions. The AG opinion, if anything, augments and
articulates the authority of arbitral tribunals, without
answering Question One in its entirety: the interface
between jurisdictional authority of public courts and
private arbitral tribunals. The coordinate parts
comprising the multi-faceted question of arbitrability
remain to be synthesized.
CONCLUSION
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This article raised the “question of arbitrability”
within a single article of the NY Convention. The results
of reviewing fragments of relevant legal sources are
disappointing. The author maintains that Article (2)(3)
of the NY Convention is critical to establish uniform
rules governing internationally cognizable arbitration
agreements, and therefore that article requires a
coherent interpretation and a synthesis with related
doctrines such as Kompetenz/Kompetenz, common law
developments, such as anti-suit injunctions,
clarification as to when a party may invoke Article (2)
(3) and before which Court of a Contracting State. The AG
opinion in Gazprom falls short of resolving these
interrelated issues. What is needed is a single unified
image of all related threads to support a simple and
clear statement of the law in this area. This article has
sketched the main threads of the enigma but merely sets
forth a platform for further elaboration.
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