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The Commercial, Shipping & Investment

ARBITRATION WATCH
October December 2012 Issue no. 16
tool, which is aimed at assisting users to draft effective and clear arbitration agreements. Tool Builder is the first of its kind and can be found at www.ClauseBuilder.org. It is currently designed to assist with commercial arbitration contracts, although other versions designed to address diverse legal areas are on the way. AAAs General Counsel stated that Clause Builder responds to the demands of companies, attorneys and organizations, among others. Young ICSID Last November ICSID launched Young ICSID in Washington D.C. with an event entitled Approaches to Arbitration: Across the Ages. This was an inter-generational discussion seeking to encourage professional development among practitioners, under the age of 45, in the area of investor-State arbitration. CIETAC opens in Hong Kong Last September CIETAC opened a new branch in Hong Kong. This appears to be a natural step for CIETAC due to the large number of disputes related to Hong Kong, administered by CIETAC. The presence of CIETAC along with the Hong Kong International Arbitration Centre and the ICC International Court of Arbitration (Asian branch) in Hong Kong, promotes this arbitration hub as one of the most important in the world. Ukraine launches Arbitration Association The Ukrainian Arbitration Association (UAA) was launched in September 2012 by Ukrainian and international experts in arbitration. The UAA aims to gather practitioners in the field of international arbitration of different nationalities CONTENTS 1. News 2. Laws & Treaties 3. Court cases 4. Notes 5. Contributors

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1. NEWS Fosfa Contracts amended A number of Fosfa Contracts have been subject of amendment and become effective 1 Jan. 2013. These are a few examples. In the Payment Clause of Contracts Nos. 52, 53, 60, 82 and 202, the phrase "in negotiable and transferable form" has been added when referring to Bills of Lading and/or Mates' receipt in order to avoid problems in string with named Bills of Lading. In Contracts Nos. 51, 52, 53, 60 and 82, the demurrage rate in the Loading Clause has been increased to USD 25,000 to better reflect the rates in the freight market. In Contracts Nos. 3, 5, 11, 11A, 13, 16, 26, 29 and 39, the Extension of Shipment Clause has been amended. Finally, the indemnity/guarantee wording in the Payment and Shipping Documents Clause has been harmonised accross Fosfa Contracts. On-line clause building tool The American Arbitration Association has launched an on-line arbitration and mediation

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or place of residence. One of the key roles of the UAA is to promote Ukraine as seat of arbitration, facilitation and knowledge-exchange of international dispute resolution. Launched of the Lagos Court of Arbitration On 9 November 2012, the Nigerian Court of Arbitration in Lagos was launched with the support of the Investment Climate Facility for Africa ICF. The project aims at the reducing costs and procedures associated to the settlement of commercial disputes, and ensure the enforcement of commercial contracts. The LCA also seeks to place itself as an international centre for the resolution of investment disputes in Africa. Hong Kong to approve cap on arbitration costs The Hong Kong International Arbitration Centre plans to reduce the costs of arbitration for companies and individuals. The new rules to be introduced in 2013 will impose a cap on hourly rates for arbitrations held in the Centre. Currently, the fees are calculated on the basis of schedules of fees linked to the value of the disputes, or on the basis of hourly rates, which can reach amounts as high as 1200 per hour. The cap would allow a maximum of 518 per hour.
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international elements arising in disputes involving States, State-controlled entity and intergovernmental organization; enhance flexibility, multiparty disputes involving private parties and the above-mentioned state parties; the tribunal may be composed by one, three and five persons, chosen from the list of Members of the PCA. The new rules can be access here. Reciprocal Promotion and Protection of Investment between Spain Haiti As the third largest donor in Haiti, after the US and Canada, Spain seeks to take part in projects aimed to rebuild the country such as construction, engineering and provision of water and sanitation. The treaty is of pivotal importance in the protection of Spains interests in Haiti. The dispute resolution mechanism allows for the investor-state arbitration and a State-State mechanism, for the interpretation of the treaty.
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3. COURT CASES China ICC arbitration clause in a ship-building contract not applicable when the Chinese shipyard sues in tort or fraud A ship-building contract provided that all the disputes should be arbitrated in Paris under the ICC arbitration rules and in English language. A dispute arose between the owners and the shipyard, and the latter initiated proceedings before Qingdao Maritime Court. The owners raised objection to jurisdiction, which was dismissed by Qingdao Maritime Court and the appeal court Shandong High Peoples Court. They held that Xixiakou Shipyard sued for reason of commercial fraud and it brought this lawsuit basing on the causation of tort. The arbitration clause was deemed not applicable in cases of tort. The owners Spliethoff applied to the Supreme Court of China for retrying its objection to jurisdiction and the Supreme Court
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2. LAWS & TREATIES New PCA Rules The Permanent Court of Arbitration (PCA) adopted new procedural rules on 17 December 2012. The rules are to be used in disputes involving one or more States, a State-controlled entities, or governmental organizations. These rules add a new option for arbitration under the PCA, they are optional and are based on the 2010 UNCITRAL Arbitration Rules, with modifications in order to: reflect public

dismissed its application for reason that the arbitration clause is not applicable to the parties in tort and Qingdao Maritime Court has the jurisdiction. Supreme Court, (2012) MSZ No. 713-714, December 14, 2012. Israel Can an un-enforced foreign arbitral award be used as binding evidence? Almost 40 years ago, the Applicant, an Israeli company named Gad Chemicals Ltd. ("Gad"), and the Respondent, BIP Chemicals Ltd ("BIP"), joined an Iranian citizen named Faruk Mahbubian ("Mahbubian") into a Joint Venture in the Chemical industry in Iran. The Islamic Revolution put an end to the Joint Venture, under which, between 1974 and 1978, Mahbubian transferred US$ 1.083 Million to BIP's bank account, 67% of which was taken by Gad. This payment was additional to Mahbubian's payments for his holds in the Joint Venture and was described by the three parties in their "trio agreement" signed on 20.9.1976, as the "Premium", which Gad and BIP were obliged to return to Mahbubian with an additional agreed interest, named by parties as the "Interest". (Relying on the Joint Venture's dividends as a source for the Premium and Interest payments). The trio agreement also included an arbitration clause. In 1983, after the failure of the Joint Venture, Mahbubian filed an arbitration claim against Gad and BIP claiming the Interest, before the ICC (Switzerland). According to the arbitral award given on 29.7.1986, Gad and BIP were ordered jointly to pay Muhbubian US$ 1.296 Million. Gad and BIP applied for the cancellation of the arbitral award, before a Court in Switzerland, which was rejected. In 1991 Mahbubian filed another arbitration claim for the payment of the Premium before the ICC; this arbitration claim was filed against BIP only. Accordingly, the ICC rendered an arbitral award on 20.1.1994, ordering BIP only to pay US$ 1.110 Million in favour of Mahbubian, plus legal costs. BIP brought proceedings in front of the Israeli Haifa District Court against Gad arguing it had paid Mahbubian the amount awarded by ICC, and claiming an indemnification from Gad at the rate of 67% of its payments. Gad filed an

Application for stay of proceedings due to the arbitration clause in the agreements between the parties to the Joint Venture (the "trio agreement"), and was awarded so. Later the parties reached a procedural arrangement according to which they would commence arbitration proceedings before an Israeli arbitrator, and the arbitral award would be subject to annulment under Clause 24 of the Israeli arbitration law, in front of the Haifa District Court. Should the arbitral award be cancelled, the Court could rule on the BIP's claim, with evidence presented in front of the Arbitrator, not including evidence related to the annulment of the arbitrator's decision. The parties commenced an arbitration proceeding which ended in an Arbitrator's decision dated 4.8.2003. The Arbitrator held that the foreign ICC's arbitral awards constituted evidence in arbitration proceedings, and were valid and effective. The Arbitrator ordered Gad to indemnify BIP in 50% of the amount BIP had paid to Maububian plus costs. Gad applied to the Haifa District Court for annulment of the Arbitrator's decision, which was admitted. The Haifa District Court held that only District Courts have jurisdiction to enforce arbitral awards, including foreign ones, and the Arbitrator had deviated his authority. For these reasons the Court decided to annul the Arbitrators decision. Pursuant to the Courts judgement and pursuant the the procedural arrangement, the parties renewed the proceedings, under BIP civil claim, in front of the Haifa District Court. The Court upheld BIP's claim, based on the evidence presented in front of the Arbitrator, including the ICC's foreign arbitral awards, and also BIP's representative's affidavit and attachments, who was cross examined during the hearings in front of the Arbitrator. Gad appealed before the Supreme Court, which was confronted to the question of the validity of the ICC's arbitral awards as evidence, which were never subject to recognition and enforcement by a District Court. In fact, BIP had never applied for their enforcement. The Supreme Court refered to Clause 29 of the Israeli Arbitration Law, according to which, an application to enforce a foreign arbitral award, which is rendered under a convention which Israel is a party to, will be ruled and subject to the provisions of that convention. The relevant
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Convention is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which Israel is a party to. However, since BIP failed to file an application, since the ICC's awards did not decided in favour of BIP, and since GAD was not a party to the second arbitration proceedings (Gad could not have raised any resistance to enforcement of the awards), the procedure of recognition and enforcement of the ICC's arbitral awards was not appropriate under those circumstances. The Supreme Court considered that BIP's claim for indemnification was made under the agreement between the parties, and that the ICC's arbitral awards were part of BIP's evidence to show its right to claim payments from Gad. Therefore, when the claimant cannot enforce a foreign arbitral award, he should not be stopped from using it as part of the evidence to prove his right to compensation. The Supreme Court noted that this opportunity should be used carefully and rarely, and it should not become a "bay-pass" for relying on foreign arbitral awards which would not have been recognized, under Israeli public policy or other requirements under Clause 5 of the New York Convention. Gad was ordered to pay 67.3% of BIP's payment to Mahbubian for the Premium and Interest and 50% of BIP's legal expenses in the ICC Arbitration proceedings plus 50% of BIP's payments to Mahbubian for his legal costs, and additional total of NIS 1.1Million for BIP's legal costs of the proceedings in Israel. Civil Appeal 1650/2010 Gad Chemicals Ltd V. BIP Chemicals Ltd and others. Malaysia Court rules on role of foreign advocates in arbitration proceedings Sabah in East Malaysia is governed by the Advocates Ordinance 1953, which provides that no one can practise as an advocate or solicitor (or carry out any act as an advocate or solicitor) unless his or her name is on the roll and he or she has a valid practising certificate with authorisation to carry out the act. This provision would ordinarily be of little interest to the international arbitration community. However, in a recent case, the Sabah courts construed various provisions of

the Advocates Ordinance as barring foreign lawyers (including West Malaysian lawyers) from appearing as counsel in arbitral proceedings conducted in Sabah. The Sabah High Court held that West Malaysian or other non-Sabahan lawyers that intend to appear before a Sabah court must apply for an 'ad hoc admission', as would be needed for the right to appear in the Sabah courts. The case involved an application for a declaration that foreign lawyers who are not advocates within the meaning of the Advocates Ordinance could appear as co-counsel for the respondent in arbitration proceedings in Sabah, or alternatively that a West Malaysian legal practitioner be granted permission to appear in the arbitration proceedings. The application was opposed by the claimants on the ground that the applicant was not an advocate within the meaning of the ordinance and was therefore prohibited from representing parties to arbitration proceedings in Sabah. The High Court dismissed the application and held that foreign lawyers who are not advocates within the meaning of the ordinance are prohibited from appearing in arbitration proceedings in Sabah. The court concluded that only lawyers admitted to the Sabah Bar have the right to carry out legal practice both "in and outside" courts; this includes arbitration proceedings. The court also held that there was no evidence as to why the service of the applicant was needed for the arbitration proceedings in question, as a locally qualified lawyer would be more than competent to handle the matter (it related to the Sabah Land Ordinance). The matter was taken up on appeal. The Court of Appeal recently overturned the High Court decision, maintaining that foreign lawyers who are not advocates within the meaning of the ordinance are not prohibited from representing parties in arbitration proceedings conducted in Sabah. No grounds of judgment have yet been given by the Court of Appeal. However, its comments are likely to turn on the definition of the phrase "practice in Sabah" - which covers functions that in England may be performed by a member of the Bar or a solicitor of the Supreme Court - as well as the liberal approach that should be given to interpreting the relevant provisions of the ordinance in the spirit of international arbitration. The Sabah Law Association is reportedly intending to appeal this landmark decision. Re Mohamed Azahari Matiasin, [2011] 2 CLJ 630, High Court, Sabah and Sarawak,

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Judge David Wong Dak Wah. Overturned on appeal, October 2012. Spain Arbitration Agreement Clause The First Instance Court no. 6 of Avils in Spain issued a ruling considering the lawsuit filed by FASACI, SL society against the entity CAIXABANK SA, declaring null and void the framework contract of financial operations, signed between the parties in 2008. The respondent filed an appeal alleging that the ordinary courts lacked jurisdiction over the case, as the parties included in the contract an arbitration clause. Under this clause the parties agreed to submit any dispute to institutional arbitration administered by the Court of arbitration in Barcelona. The respondent the pointed out that the nullity of the contract, at issue in the instant case, was not under the scope of the arbitration clause, since it referred to "conflicts and disputes that arising in connection with the content, interpretation, compliance and execution of such contract". The Provincial Court of Asturias resolved that the issue raised by the claimant in his demand the nullity of the framework contract of financial operations cannot be excluded from the arbitration clause, since such clause has not expressed any exceptions regarding the content of the contract. In this vein, the Court ruled that the Court of First Instance lacked jurisdiction to decide the case, as the case should be decided in arbitration, pursuant to the arbitration agreement. Sentencia no. 23582012 de AP Asturias, Seccin 5, 5 de Octubre de 2012. Switzerland The case involved an asset manager in Zurich and a German lady, who became his client. There was an arbitration clause and the contract between the parties contemplated that a foundation would be constituted in Panama. That foundation would in its turn entrust the portfolio manager with a mandate to manage the funds deposited with a Swiss bank. The parties

to the contract were the portfolio manager, a Panamanian company, another person and the client. Some serious losses took place in 2008, which the client attributed to negligent management and disregard of the instructions received. The assets were all transferred to a bank in Austria and the foundation was dissolved, yet without instructions from the client.When the client sued in the Commercial Court of Zurich, the portfolio manager objected to the jurisdiction of the State Court on the basis of the arbitration clause, which provided for arbitration in Zurich. The Commercial Court of Zurich partially upheld the jurisdictional objection but rejected it to the extent that the claim was based on the liquidation of the foundation and some further aspects, because in the Court's view they were not covered by the arbitration clause. The Federal Tribunal reversed and the following are quite interesting in the opinion: (i) The issue was clearly the negative aspect of the rule of Kompetenz-Kompetenz. In Swiss law, a court seized of a matter in which there is an arbitration agreement between the parties must decline jurisdiction unless the defendant proceeds to the merits, or the arbitral tribunal cannot be constituted for reasons for which the defendant in the arbitration proceedings is manifestly responsible. Also -literally reproducing the wording of the New York Convention- the Court may assume jurisdiction if it finds that _the arbitration agreement is null and void, inoperative or incapable of being performed (see section 3 of the opinion in this respect). (ii) Case law of the Federal Tribunal takes the view that the review of the arbitration clause by the State Court should be conducted on a limited basis, i.e. perfunctorily, but only if the arbitral tribunal involved has its seat in Switzerland. If the arbitration is to take place outside Switzerland, the arbitration agreement must be examined by the Court with full power of review. (See section 3.2 of the opinion in this respect). (iii) This approach has been criticized in two ways: on the one hand, some legal writers take the view that the judicial review of the arbitration clause should not be "limited" because what is really at issue is the jurisdiction of the _Court_ and not that of the arbitral
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tribunal. The Federal Tribunal disagrees and rightly in my view- points out that the review by the Court must indeed be limited if one does not want to prejudge the determination of jurisdiction by the arbitrators. On the other hand, other commentators take the view that the judicial review should be the same -and a limited one- irrespective of where the arbitral tribunal may sit. (iv) The Court, regrettably in my view, continues to draw a distinction between an arbitral tribunal in Switzerland and one sitting abroad. There is some logic in the Court's position: if the arbitral tribunal sits in Switzerland and mistakenly assumes or rejects jurisdiction, an immediate appeal may be made to the Federal Tribunal. If, however, the arbitral tribunal is abroad, the review will take place only at theenforcement level pursuant to the New York Convention. Case: 4A 119/2012, First Civil Law Court, Judgment of August 6, 2012. Portuguese partial reversal of Vivendi award on capacity to be a party to a Swiss arbitration The case involved a Portuguese company created as a joint venture by three German companies. The JV entered into a Sales and Purchase Agreement with a Chinese company in 2008, containing an arbitration clause providing for ICC arbitration in Geneva. In July 2009 the JV became insolvent and insolvency proceedings were opened in Portugal. An attempt to call the bank guarantee issued by the Chinese company was stopped by the Chinese Courts and the Chinese company started arbitration proceedings in August 2010. A three members ICC arbitral tribunal was constituted (Pierre-Yves Gnter, Christophe Pestalozzi and Philippe Preti, chairman). A jurisdictional defense was raised by the insolvency administrator of the Portuguese company because Portuguese law limits the capacity of an insolvent to arbitrate. On November 23rd, 2011 the arbitrators issued a jurisdictional award rejecting the defense and the Portuguese JV appealed to the Federal Tribunal. The very same issue was addressed by the Federal Tribunal in the much commented upon Vivendi judgment of March 31st, 2009. The English version of the Vivendi opinion may be find here:

Effect of foreign bankruptcy on ICC arbitration in Switzerland (capacity to arbitrate) The following are very interesting in the opinion: (i) While Swiss law contains a specific provision preventing state entities from relying upon their national law to refuse to submit to arbitration (Art. 177 (2) PILA). There is no corresponding provision for private companies. Swiss Private International Law submits the legal capacity of private companies to the law of their places of incorporation (see section 3.3.1 of the opinion in this respect). (ii) The provision of Portuguese law applicable here was different from and significantly less far reaching than the provision of Polish law applied in the Vivendi case (see the recapitulation in section 3 of the opinion and the analysis to which it refers). (iii) The Vivendi case is specific to the unique provision of Polish law applicable there and should not be understood as a general statement by the Federal Tribunal that any law limiting the capacity to arbitrate of an insolvent or a bankrupt should be upheld in an international arbitration conducted in Switzerland (see section 3.5 of the opinion in this respect). Case: 4A_50/2012, First Civil Law Court, Judgment of October 16, 2012. United Kingdom Unilateral Election Clauses Clauses allowing a party to unilaterally elect to have a dispute resolved by either arbitration or litigation have become increasingly popular in finance documents in recent years. They give the party with the benefit of the option (in a loan transaction, typically the lender) the flexibility to decide the best forum for a dispute at the time it arises. However, as shown in this case, if a party enters into several linked agreements at the same time, each with a unilateral election clause, it may lose the intended flexibility when exercising the option under one agreement. Deutsche Bank AG (Deutsche Bank) entered into a facility agreement and an export contract
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with a gold mining and exploration company, Tungkum Limited (Tungkum). At the same time, Tungkums parent company, Tongkah Harbour Public Company (Tongkah), gave a guarantee to Deutsche Bank. All three agreements contained dispute resolution clauses that allowed the parties to refer disputes to court. The facility agreement and the export contract also gave Deutsche Bank the option to refer disputes to arbitration. A dispute arose concerning the three agreements. Deutsche Bank brought proceedings against Tungkum in an arbitration under the export contract and in court under the facility agreement. The same Deutsche Bank entity was party to both agreements, but different branches were responsible for exercising the rights under the two agreements. Deutsche Bank also brought court proceedings against Tongkah under the guarantee. Tungkum and Tongkah applied for a stay under s.9 of the Arbitration Act 1996 of the court proceedings brought under the facility agreement and the guarantee while the arbitration took place. The claims under each contract arose from the same event of default and the defence to each claim would be essentially the same. On that basis, the High Court held that they were "aspects of the same matter" and accepted that Deutsche Bank could not simultaneously arbitrate and litigate the same matter. The judge emphasised that there was a close link between the agreements; sales under the export contract would repay sums due under the facility agreement. The judge noted that the position may have been different had the export contract acted by way of security only. The judge considered it irrelevant that different branches of Deutsche Bank had decided whether to litigate or arbitrate the agreements. The same contracting party had brought claims under all three agreements. The court therefore decided that, once Deutsche Bank had referred the matter to arbitration under the export contract, the proceedings under the facility agreement should be stayed. The judge emphasised the presumption in commercial cases that the parties intend the same forum to deal with related disputes. However, the High Court refused to stay the court proceedings against Tongkah as there was no arbitration agreement between Tongkah and Deutsche Bank. Deutsche Bank AG v. Tongkah Harbour

Public Company Limited/ Deutsche Bank AG v. Tungkum Limited [2012] 1 All ER 194. Time limit for challenging jurisdiction under Section 67. arbitral

By a first tier GAFTA award, the Tribunal held that a contract incorporating the GAFTA 125 Arbitration Rules ("GAFTA 125") was concluded between Asia Golden Rice Co Limited ("AGR") and PEC Limited ("PEC") and that it had jurisdiction to hear the dispute. The tribunal ordered PEC to pay AGR US $6,250,000 plus interest, fees and costs. PEC appealed this award to the GAFTA Board of Appeal but left out the question of jurisdiction because GAFTA 125 provide that where a Tribunal determines that it has jurisdiction, no appeal on the question of jurisdiction lies to a Board of Appeal (Rule 8.1(b), GAFTA 125). Section 67 of the 1996 Act provides that any jurisdictional challenge must be made within 28 days of the date of the award. PEC made an application for an order extending time for making any application under section 67 until 28 days after the determination of the GAFTA appeal, more than 28 days after the date of the first tier tribunal's award. AGR's position was that PEC required an extension of time to make this out-of-time application. PEC's primaryargument was that it did not need an extension of time because the 28 day time limit would run from the date of the Board of Appeal's Award. PEC relied on section 70(2) of the 1996 Act, which provides that an application under section 67 cannot be brought if the applicant has not first exhausted "any available arbitral process of appeal or review". Hamblen J disagreed with PEC's submission that the use of the word "any" in section 70(2) was deliberately wide so as to prevent an application being made before a party has first exhausted any available process of appeal or review. The effect of Rule 8.1(b) of GAFTA 125 is that a first tier award is "conclusive and binding" on the question of jurisdiction. As there is no "available" arbitral appeal on the question of jurisdiction, the determination by a GAFTA Tribunal that it has jurisdiction can only be challenged by a section 67 application to the High Court. It followed that a jurisdictional challenge had to be brought within 28 days of the first tier award. PEC was
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therefore out of time; although Hamblen J granted an extension. The position regarding appeals on jurisdiction from a GAFTA award is unusual. If the tribunal determines it does not have jurisdiction such a determination can be appealed; whereas if the tribunal determines it has jurisdiction no appeal lies to the Board of Appeal. The only available challenge is to the Court, by way of section 67 application. A section 67 application must be made within 28 days of the date of the first tier award, regardless of any outstanding appeal to the Board of Appeal on other issues, even if those issues overlap. PEC Limited v. Asia Golden Rice Co Limited [2012] the Commercial Court. United States Competence-Competence. No entitlement to de novo independent judicial review of questions at the enforcement stage This case concerns a bilateral investment treaty dispute regarding a tollway project in Thailand that arose between Werner Schneider (acting as insolvency administrator for Walter Bau AG) (Bau) and the Kingdom of Thailand (Thailand). Bau was awarded 30,000,000 by an arbitral tribunal in view of Thailands unlawful interference in the tollway project, contrary to an investment treaty made between Germany and Thailand in 2002. Thailand challenged the arbitral tribunals jurisdiction on the basis that the tollway project was not an approved investment within the scope of the German-Thai investment treaty. The arbitration panel concluded that it had jurisdiction over the dispute because the dispute concerned an approved investment within the meaning of Article 8 of the 2002 Treaty. Bau petitioned the district court for the Southern District of New York to confirm the award and Thailand moved to dismiss on the grounds that the arbitration panel did not properly have jurisdiction when issuing its award. The district court found that the question of whether Bau had made an approved investment related to the scope of the agreement to arbitrate, rather than its formation, and so should be subject to deferential review on appeal rather that a de novo review. Applying that deferential standard, the district court confirmed the

arbitration award. The Government of Thailand appealed. On appeal, the Second Circuit addressed the issue of whether the district court had been required to make an independent determination on arbitrability and so consider de novo if Bau had made an approved investment in order to determine whether the dispute was arbitrable under the German-Thai investment treaty. The Second Circuit held that the district court had employed the an incorrect analysis to determine which standard of review to apply to the arbitrators determination of their own jurisdiction. Contrary to the district courts holding, whether or not a district court should provide an independent review of the arbitrability issue does not turn on whether it is a question of the scope or formation of the arbitration agreement. Rather, the issue is whether there is clear and unmistakable evidence of the parties intent to commit the question of arbitrability to arbitration. The Second Circuit nonetheless found that there was clear and unmistakable evidence that the parties had agreed to submit the question of arbitrability to the arbitrators and so Thailand was not entitled to independent court adjudication of whether the tollway project qualified as an approved investment under the German-Thai investment treaty. Specifically, the Second Circuit noted that the parties had agreed that the proceedings would be subject to the UNCITRAL Rules, which provide at Article 21 that the arbitral tribunal shall have power to rule on objections to its jurisdiction. The parties representatives had also signed terms of reference stating that the arbitral tribunal was empowered to consider objections to jurisdiction. The Second Circuit determined that incorporation of the UNCITRAL Rules and the broadly similar provision in the terms of reference served as clear and unmistakable evidence of the parties intent to delegate determination of arbitrability to the arbitral tribunal. Schneider v. The Kingdom of Thailand Docket No. 11-1458-cv (2d Cir. Aug. 8, 2012) Dismissal of Petition to Confirm Foreign Arbitration Award for Lack of Personal Jurisdiction

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On December 21, 2012, the United States Court of Appeals for the Fifth Circuit issued its decision in First Investment Corporation of the Marshall Islands v. Fujian Mawei Shipbuilding, Limited, et al., holding that a court may dismiss a petition to confirm a foreign arbitration award for lack of personal jurisdiction under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) implemented in 9 U.S.C. 201, et seq. Petitioner-Appellant, First Investment Corporation of the Marshall Islands (First Investment), appealed an Order from the United States District Court for the Eastern District of Louisiana which granted Defendants motion to dismiss for lack of personal jurisdiction. The underlying dispute arose out of a series of shipbuilding contracts between First Investment and Defendants Fujian Shipbuilding Industry Group Corp. (FSIGC) and Fujian Mawei Shipbuilding Ltd. (Mawei) (collectively, the Fujian Entities), both Chinese companies. First Investment alleged that the Fujian Entities breached the contracts by refusing to honor an option agreement. Pursuant to a contractual arbitration clause, First Investment successfully pursued arbitration in London against the Fujian entities, and was ultimately awarded USD 26 million in damages by the arbitration panel. Thereafter, First Investment commenced a confirmation proceeding on May 27, 2009 in the United States District Court for the Eastern District of Louisiana against the Fujian Entities, as well as The Peoples Republic of China (PRC). The District Court ultimately granted the Fujian Entities motion to dismiss for lack of personal jurisdiction. In the same order, the District Court dismissed First Investments petition against Defendant PRC for lack of subject matter jurisdiction. On appeal, First Investment did not contend that the District Court had personal jurisdiction over the Fujian Entities. Instead, First Investment argued that: 1) the Fujian Entities, as foreign entities with no contacts in the United States, were not entitled to the protections of the Fifth Amendments Due Process Clause; 2) personal jurisdiction is not a valid defense under the New York Convention; and 3) the Fujian Entities were alter egos of the PRC, a foreign state over which personal jurisdiction was not required. The

Fifth Circuit considered First Investments arguments in turn and affirmed the District Courts judgment in all respects. The Fifth Circuit first rejected First Investments argument that foreign entities that are neither present nor have property in the United States are not entitled to due process protections, finding no support for this proposition in current case law. In fact, the Fifth Circuit noted that the U.S. Supreme Court had recently reaffirmed that foreign corporations are entitled to due process protections, regardless of whether they have contacts with the United States. See Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011). Thus, the Court ruled that there was no basis to conclude that a partys status as a foreign entity permits a court to ignore personal jurisdiction or exercise such jurisdiction without first establishing sufficient contacts between the defendant and the forum state. First Investment next argued that a party against whom confirmation of a foreign arbitral award is sought under the New York Convention cannot raise a personal jurisdiction defense. First Investment further observed that an action to confirm an award under the New York Convention is a summary proceeding that does not impact a defending partys rights and thus it is unnecessary for a court to have personal jurisdiction. The Fifth Circuit, in accordance with every circuit to have considered the issue (i.e. Second, Third, Fourth, Seventh and Eleventh Circuits), found that although the New York Convention does not list personal jurisdiction as a ground for denying enforcement, the Due Process Clause requires that a court dismiss an action, on motion, over which it has no personal jurisdiction. The Fifth Circuit confirmed personal jurisdiction to be an essential element of a district courts jurisdiction, without which the court is powerless to proceed. Accordingly, the Court held that a district court is not relieved of its responsibility to enforce constitutional protections, which safeguard a party from appearing in a forum with which it has no contacts. In addition, the Fifth Circuit rejected First Investments arguments that confirmation proceeding does not affect a partys rights, noting that confirmation may result in a party losing the opportunity to raise defenses to enforcement that it might have raised at the
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confirmation stage. Confirmation also allows a party, armed with a court judgment, to seek enforcement of the award as a foreign judgment elsewhere. Finally, the court rejected First Investments alternative argument that the Fujian Entities were alter egos of the foreign sovereign PRC, which would have rendered the need for personal jurisdiction moot as a foreign sovereign is not a person under the Fifth Amendments Due Process Clause. First Investment Corporation Of The Marshall Islands v. Fujian Mawei Shipbuilding, Limited, the United States Court of Appeals for the Fifth Circuit, Case No. 12-30377, December 21, 2012.
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5. CONTRIBUTORS:

4. NOTES The article: Court rules on role of foreign advocates in arbitration proceeding by Shanti Mogan was originally edited and published by International Law Office. The article B/L arbitration clause cannot bind on the subrogating cargo insurer by Philip Peng, has been posted online.

Bodle, Dan SNR Denton UK LLP (United Kingdom) Chalos, George M. Chalos & Co, P.C.International Law Firm (United States) Coates, Eleanor - Clyde & Co LLP (United Kingdom) Gatell, David AACNI Abogados SLP (Spain) Greensmith, Nick - Clyde & Co LLP (United Kingdom) Harris, Yoav - Doron, Tikotzky & Co, International Law Offices (Israel) Mogan, Shanti - Shearn Delamore & Co. (Malaysia) Philip Peng Hai Tong & Partners (China) Poncet, Charles ZPG Geneva (Switzerland) Zaslowsky, David Baker & McKenzie (USA) Reider, Mary Ann - Baker & McKenzie (USA)

This is a non-exhaustive review. Do not rely on its contents without seeking legal advice from experts in the relevant jurisdiction. New contributors are aways welcome in the upcoming issues. We thank those who contributed to the present edition. Editors: Albert Badia and Ana Maria Daza.

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