A Gateway Question of Arbitrability: The Ambiguity of Article II of the New York Convention on the...

Prof. Dr. John JA Burke1

Le BuissonGlandon [email protected]

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.

Draft_Article_ICA 06/11/22 1

http://www.eilfe.com/

mailto:[email protected]

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.


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.


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 ».


https://treaties.un.org/doc/.../UNTS/.../volume-1155-I-18232-English.pdf

https://treaties.un.org/doc/.../UNTS/.../volume-1155-I-18232-English.pdf

http://www.journal33.org/

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.


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.


http://scholarship.law.cornell.edu/facpub/508

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


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.


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)


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.


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


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


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


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


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 .


http://www.icj-cij.org/documents/?p1=4&p2=2

http://www.kluwerarbitration.com/

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)


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)


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


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


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


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


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.


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


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.


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


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


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.


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:


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


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.


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.


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


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


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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