Module 9
Commercial Dispute Resolution
International
Winter 2011
©MNoonan2011
This presentation and Copyright therein is the
property of Maureen Noonan and is prepared
for the benefit of students enrolled in the
Commercial Transactions course conducted by
the Law Extension Committee and is available
for their individual study. Any other use or
reproduction, including reproduction by those
students for sale without consent is prohibited.
©MNoonan2011
Is this topic examinable?
Yes,either
--by a short direct question on this topic in
Q6 of the exam. The appropriate answer
would be descriptive.
Or
--as the whole subject of a problem question
in Winter Semester 2011.
©MNoonan2011
Examination Sept 2011
There will be a question on this topic in the exam in conjunction
with the applicable law relating to international sales of Goodssee Module 6 and later slides in this module.
It will consist of several questions testing comprehension of the legal
and arbitration issues raised in the problem set for the VIS
Arbitration Moot 2010 which involves an international sale of goods
and application of the provisions of the Convention for the
International Sale of Goods (CISG) as enacted in NSW as the Sale of Goods
(Vienna Convention) Act 1986 and arbitration of an international dispute.
A detailed knowledge of Arbitration rules is not required.
Students can assume that countries involved are party to all provisions
of the CISG and the NY Convention (regarding enforcement of
international arbitral awards).
The text of the problem and the written memoranda for the claimant
and respondent are available at www.cisg.law.pace.edu and will be
posted on the website for students.
©MNoonan2011
Methods of dispute resolution of
International commercial disputes
involving a decision by a third party
Arbitration
Trans national Litigation
Indirectly-expert determination
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Role of the lawyer in international
commercial dispute resolution
Opportunities to be more involved in international
law and harmonising efforts of model laws such
as CISG.
Opportunities to use non legal skills e.g.
languages, technical knowledge, cultural
training, negotiation.
• As a professional mediator, arbitrator.
• Management of international arbitrations for
exporters/importers/multinationals.
• Role in international organisations.
• Advising clients of alternatives for resolution
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Moot opportunity
Interested in International Arbitration?
LEC regularly puts together a team for the
Vis moot in Vienna at Easter.
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Legal role in Risk Management
• Objective is to avoid dispute or minimise
damage resulting from a dispute
• Must understand business
• Conduct due diligence to ascertain main
areas where dispute/legal liability likely to
arise
• Appreciate bargaining position and
opportunities/limitations
©MNoonan2011
Some Exporter Legal Risks
Customer does not pay-unpaid seller
Unable to recover /enforce rights in foreign country
Product liability-wrong item, quality, quantity,
unsafe, late, incomplete
Unable to produce/acquire-breach contract
Loss in transit-who bears loss?
Competition cheaper-buyer defaults so they can
take advantage of cheaper opportunity
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Some importer legal risks
Goods or services inappropriate, not what was
ordered-claim for compensation available?
Supply does not meet local standards/laws
Crime –bribing foreign officials
Tax, customs issues
Unfamiliar with particular free trade treaty
provisions
Unable to enforce rights /recover money in a
foreign country
Unable to sell items purchased
Vulnerability to local customers for problems
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Some manufacturing risks
Raw material problems
Machinery
Finance
Delivery
Quality/quantity issues
Damage to others
Failure to sell products
Title issues
©MNoonan2011
ARBITRATION
• Parties agree to resolve disputes by
arbitration in accordance with nominated
Rules.
• Parties appoint Arbitrator or panel
• Arbitration conducted
• Decision made by Arbitrator
• Binding on the parties
• Enforceable in approx 142 countries
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Arbitration process
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Can be similar to a court process
Can be informal
Can be remote
Can be on “papers” only, i.e. written materials and no
oral hearing
Parties can choose an arbitrator with expertise in their
business
Usual to choose 1 or 3 arbitrators so no deadlock
possible
Usually confidential, so limited precedent bank to consult
/ research.
Important elements are a process, rules defining how
that works, and a timetable to keep it moving along.
©MNoonan2011
International Disputes
Advantages of arbitration
• Neutrality
• Flexibility
• Efficiency
• Confidentiality
• Enforceability
©MNoonan2011
Global Survey –International Arbitration- large
corporates- PWC 2007 – See: www.pwc.com
• 73% corporations prefer it to transnational litigation
• Advantages outweigh disadvantages
• Clear dispute resolution policy an important strategic asset. 65 % of
respondents had one. Minimised escalation and costs.
• Arbitration clause in contract can give a tactical advantage
• More than 75% arbitrations conducted under the auspices of an
arbitration institution such as ICC and London Court of International
Arbitration; with regional centres growing
• Legal consequences most important for choice of venue
• 91% liked finality and rejected idea of appeals
• Concern that experienced arbitrators scarce. 90% wanted arbitrator
with established reputation in their field and region.
• Corporations retain specialist arbitration counsel rather than usual
litigation lawyers to assist
• 91% in house counsel well informed about international arbitration
©MNoonan2011
Framework for International
Arbitration
UN Convention on the Recognition and
Enforcement of Foreign Arbitral Awards 1958
(The New York Convention)
When local court faced with dispute covered by an
arbitration agreement, it must stay proceedings
and recognise and enforce arbitral awards.
Incorporated into Australian law via International
Arbitration Act 1974(Cth). Note best practice
amendments passed in June 2010 to improve its
appeal for International Arbitration.
Australian Centre for International Commercial
Arbitration. See www.acica.org.au
©MNoonan2011
ACICA
The Australian Centre for International
Commercial Arbitration is a non profit
organisation formed in 1985 to provide a
framework for international commercial
arbitration and to foster Sydney as a
centre for such arbitrations
See www.acica.org.au
©MNoonan2011
Why Sydney?
• Supportive legal environment-International
Arbitration Act provides for various opt in/out
alternatives, foreign lawyers can appear,
signatory to NY Convention on Recognition and
Enforcement of abitral awards, supportive courts
and political stability.
• Sophisticated legal profession and some
internationally respected arbitrators such as Sir
Laurence Street QC. Good support services,
languages, resources.
• Cost savings when compared with London, NY,
Paris, Geneva, HK…cost hotel rooms, rates etc.
©MNoonan2011
The fundamentals of arbitration
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The agreement to arbitrate
Applicable law
Seat of arbitration
The arbitrators
The procedure
Confidentiality
The award
©MNoonan2011
The agreement to arbitrate
Agreement in contract
Empowers independent arbitrator(s) to determine
issues and disputes
Enables parties to choose arbitrator, language,
rules, jurisdiction governing procedural issues
and merits
Makes decision binding
Is enforceable under UN Convention on the
Recognition and Enforcement of Foreign Arbitral
Awards 1958 (NY Convention 1958)
©MNoonan2011
The agreement to arbitrate
• Can refer all disputes to arbitration
• Can refer a specific dispute to arbitration.
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Dispute Resolution Clause
• Whether to refer disputes to arbitration or some other
method
• Institutional or ad hoc arbitration
• Rules, if institutional
• Language
• Where arbitration will be held
• “seat” of arbitration-which law will govern procedure?
• Which law will govern arbitration
• Which law will govern merits of dispute
• Activation trigger
©MNoonan2011
The “seat”
Important considerations:
Neutrality
Sophisticated legal system with trained
professionals
Role of courts suits parties
Public policy may affect remedies…party to
conventions?
Appropriate facilities…hotels,
communications, security etc
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Law of Arbitration
Can be important to interpretion.
Under NY convention dispute must be
capable of being arbitrated….how will that
be interpreted under a particular law?
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Arbitration Clause
ACICA recommends:
“Any dispute, controversy or claim arising out of,
relating to or in connection with this contract,
including any question regarding its existence,
validity or termination, shall be resolved by
arbitration in accordance with the ACICA
arbitration rules. The seat of arbitration shall be
(location). The language of the arbitration shall be
(language). The number of arbitrators shall be
(1,3 or Article 8 of rules).”
Note also need for choice of law clause.
Notice of trigger, referral.
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©MNoonan2009
Arbitration administration
• Institutional-established institutions with
rules, procedures etc.
• Ad hoc-the parties design it themselves.
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International Arbitral Institutions
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International Court of Arbitration and ICC in Paris
London Court of International Arbitration
Swiss Chambers of Commerce and Industry
Arbitration and Institute of Stockholm Chamber of Commerce
American Arbitration Association
HK International Arbitration Centre
Singapore International Arbitration Centre
China International Economic and Trade Arbitration Commission
Kuala Lumpur Regional Centre for Arbitration
The Australian Centre for International Commercial Arbitration
International Centre for the Settlement of Investment Disputes
Asia Pacific Regional Arbitration Group (APRAG) is association of 17
regional arbitral institutions in our area. See www.aprag.org
©MNoonan2011
©MNoonan2009
Institutions
Advantages
Pre established and tested rules, guidelines and
practices
Established format which has proved workable
Neutral entity to collect and hold fees, deposits
List of experienced arbitrators, often by expertise
Efficient with trained and experienced staff
Physical facilities..rooms etc
Neutral and independent
©MNoonan2011
Specialist forms of Arbitration
London Maritime Arbitrators Association-maritime
disputes between commercial parties
Court of Arbitration for Sport-Lausanne, NY and
Sydney
World Intellectual Property Organisation (WIPO)
Geneva
International Centre for Settlement of Investment
Disputes-involves states
WTO
©MNoonan2011
Arbitral Administration
SAMPLE ISSUES
• How will arbitrators be chosen?
• What language will be used for documents and oral
hearings-who will translate
• What if one party delays or refuses to take a step
• Interim measures
• Degrees of discovery or disclosure
• Procedure at hearings
• Rules of evidence
• Fees
• Liability for costs
©MNoonan2011
Arbitration Rules
Arbitrations are conducted in accordance
with rules chosen.
See for example ACICA Arbitration rules at
www.acica.org.au. Selections follow.
Procedural as with civil/criminal procedure
court system rules.
For other rules, see appropriate organisation
Parties can make their own if they prefer
©MNoonan2011
©MNoonan2009
ACICA Rules
4. Party initiating gives ACICA a Notice of
Arbitration which covers a demand for
arbitration, contact details, copy of A
clause, general nature of claim and
remedy sought and proposal re number of
arbitrators.
Notice can include detailed Statement of
Claim or that can come later
©MNoonan2011
©MNoonan2009
ACICA Rules
5. Within 30 days of receipt of Notice,
Respondents submit Answer which
includes contact details, any plea disputing
jurisdiction, comments on particulars in
notice and answer to relief/remedy sought.
It may also include Defence to Statement
of claim, but this may come later.
©MNoonan2011
©MNoonan2009
ACICA Rules
6. Parties may be represented
8-16 Appointment of arbitrators
17-31 Arbitral proceedings. Tribunal may
conduct arbitration as it sees appropriate
provided that it treats parties equally and
each is given opportunity to present their
case.
Usually held in private
21 Contents of statement of claim
©MNoonan2011
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What does it all cost?
Appendix A to ACICA rules
Notice of Arbitration Registration fee $2,500
Admin fee
$1-$500,000
1% of amount in dispute
And upwards
Over $100m
$39,000 plus 0.02% of
amount in dispute above $100m up to maximum
$60,000.
PLUS costs of representation, presenting case.
©MNoonan2011
©MNoonan2009
Attitude of our courts
Mainly support
Care must be taken when drafting to avoid
multi-party, multi-contract and multi-venue
disputes.
If arbitration clause too narrow, it may limit
range of disputes that can be settled by
arbitration
©MNoonan2011
©MNoonan2009
The Arbitral Tribunal
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How does arbitration process commence
How many arbitrators on Tribunal?
Role of Institution in formation of Tribunal
How is chair chosen?
Can a party object to appointment of an
arbitrator? How?
• Who decides on any difficulties?
©MNoonan2011
Assessing Prospective Arbitrators
• CV?
• Track record?
• Expertise, language, neutral, skills in
procedure of arbitration
• Qualifications and experience
• Reputation
• Cost
• Compatibility with other Arbitrators.
©MNoonan2011
Local requirements
Under Arbitration Law of the PRC 1994 (CN), the
arbitration commission is required to appoint
“fair and honest persons as its arbitrators” and
arbitrator must meet one of following:
1. Engaged in arbitration work, or worked as a lawyer
or judge for at least 8 yrs
2. Engaged in legal research or teaching in senior
positions
3. Legal knowledge and engaged in professional work
relating to economics and trade in a senior position.
©MNoonan2011
Conflicts of interest
Arbitrator should disclose as cannot be
neutral or be seen to be neutral.
Most legislation relating to arbitration
includes a requirement to do so.
©MNoonan2011
Confidentiality
• Proceedings are private unless agreed
otherwise….
• Privacy and confidentiality are important
reasons for selecting arbitration for
commercial organisations
• Lack of precedents, but some awards
made public
©MNoonan2011
Awards
TYPES
Jurisdiction
Preliminary issue e.g. any applicable statute
Interim-e.g. measures of protection
Partial award dealing with some claims
Cnsent award
Default award-e.g. a party fails to appear
Final award
©MNoonan2011
Enforceability
NY Convention
An attractive feature over domestic court
judgements
©MNoonan2011
Example
Australian company entering JV with Malaysian
company to build infrastructure in Phillipines.
You negotiate a clause submitting disputes to
Australian courts.
However, judgement may not be enforceable (no
reciprocal enforcement treaty with Malaysia),
dispute very public, and judge may have no
expertise.
Arbitral award would be enforceable (Malaysia and
Australia both signatories to NY Convention),
and can choose arbitrator(s) with expertise
©MNoonan2011
©MNoonan2009
Another example
Importer of ginger from China. No choice of
law clause. No arbitration clause. Ginger
rotten.
Bring proceedings in China? Or Australia?
Vienna convention applies to sale?
Chinese law has closest connection?
Chinese law very different to ours. E.g.
limitation periods, no precedent value
©MNoonan2011
©MNoonan2009
WTO dispute settlement
understanding (DSU)
Came out of Uruguay Round
Clearly defined rules and timetables
Parties/countries first discuss.
First WTO stage is good offices, conciliation.
Then a panel and endorsed (or rejected) by
WTO membership.
Appeals on points of law are possible.
©MNoonan2011
©MNoonan2009
DSU timetables
60 days
Consultation, mediation
45 days
Panel set up, appointments
6 mths
Panel hears dispute and reports
3 wksPanel reports to WTO members
60 days
Dispute Settlement Body adopts report
(if no appeal)
TOTAL 1 year
60-90 days Appeals report
30 days
Dispute Settlement Body adopts
appeals report. TOTAL 1.25 years
©MNoonan2011
©MNoonan2009
How the panels work
• Each side presents case in writing to panel
• First hearing-complaining country and
responding country present case
• Rebuttals-written and oral
• Experts, if appropriate
• Draft panel report given to both sides
• Interim report to both sides
• Review for two weeks
• Final report given to both sides and 3 weeks
later to all WTO members
©MNoonan2011
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Remedies?
• Obligation on parties to respect ruling
• Trade sanctions possible
• Limited discussion in this course
• Reading some cases is useful
e.g. See www.wto.org and go to Case Studies
Thailand: Conciliating a Dispute on Tuna Exports to the EC
Dispute Settlement between Developing Countries-Argentina and
Chilean Price Bands
Pakistan’s Dispute Settlement with the US on Combed Cotton Yarn
exports.
©MNoonan2011
©MNoonan2009
Trade with China
• Australian exports include mainly rural
products, minerals and energy-wool,
cotton, beef, dairy products, wine, iron ore,
liquified natural gas-and a few services in
education, tourism, architecture, banking
and legal.
• Also considerable outsourced
manufacturing done in China with
products/components then imported.
©MNoonan2011
©MNoonan2009
Trade Disputes involving China
Resolution mechanisms include:
• Consultation
• Negotiation
• Conciliation or mediation
• Arbitration
• Litigation
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Trade Disputes involving China
• Less formal methods are preferred
• Desirable to maintain a harmonious and
consensual working relationship, so
confrontational/adversarial methods often not
helpful.
• Conciliation and arbitration therefore common
• Arbitration clauses common in JV contracts –
avoid unfamiliar Chinese court system, reduce
costs, preserve business relationships,
enforceability.
©MNoonan2011
©MNoonan2009
Trade Disputes involving China
• CIETAC (China’s International Economic
and Trade Arbitration Commission) is the
mechanism China has set in place to
resolve problems in trade
• Legislative encouragement for negotiation
and conciliation first and arbitration or
litigation if that fails.
• JV contracts MUST contain provisions re
settling of disputes.
©MNoonan2011
©MNoonan2009
International Sales of Goods
Where a contract for sale of goods is
between an Australian business and a
foreign business in a country a party to the
Vienna Convention, the CISG applies (by
virtue of State Acts), with certain
exceptions, unless specifically excluded
and prevails over Australian law to the
extent of any inconsistency.
©MNoonan2011
CISG application
Note that for the purposes of this module,
certain subtleties of CISG application are
glossed over to enable a general view to
be given in one module.
In practice, these subtleties may have
significance.
©MNoonan2011
CISG
Applies:
Where law of the contract is law of a party to the
convention. Students can assume in this course
that that is always so.
Does not apply
To sales of goods bought for personal, family or
household use, auction sales, sales of financial
instruments and securities, ships, electricity and
sales by authority of law.
©MNoonan2011
Formation of Contract
While Agreement (offer and acceptance) and
intention to be bound are elements of a
contract under the Convention,
consideration is not a necessary element.
See Article 23
©MNoonan2011
Offer
• Offer must be sufficiently definite and indicate an
intention to be bound…indicate goods,price and
quantity. Article 14
• Offer to be interpreted “according to the offeror’s
intention as perceived by the offeree”
• Offer becomes effective when it reaches offeree.
Article 15
• Offer can be revoked if revocation reaches
offeree before they have dispatched acceptance.
Article 16
• Offer terminated when rejection reaches offeror.
Article 17
©MNoonan2011
Acceptance
Acceptance is statement or conduct indicating
assent to an offer. Article 18
Acceptance effective as soon as it reaches offeror.
An acceptance which attempts to modify an offer is
a counter-offer and a rejection of original offer.
Article 19
Subjective intent important and parol evidence can
be used, even if written contract meant to be
complete record-different to local law.
©MNoonan2011
Modification and usage
Can be modified by agreement. Article 29
A failure to object to a unilateral attempt to
modify does not constitute agreement.
Parties bound by any usage they have
agreed or any practices they have
established between themselves. Article 9
©MNoonan2011
Conformity
Seller must deliver goods which are of the quantity, quality
and description required by contract and in containers or
packaging required by Contract. Article 35.
In the absence of agreement to contrary, goods do not
conform unless
• they are fit for the purposes for which goods of the same
description would ordinarily be used
• fit for any particular purpose made known.
• Have same qualities as any sample
• Packaged in manner usual for such goods or if no such
way, adequate to preserve and protect goods.
Note details in Article 35.
©MNoonan2011
Liability for non conformity
Seller liable for nonconformity existing at the time risk
passes even if only becomes apparent later. Article 36
Also liable for nonconformity occurring after risk has
passed due to a breach of any seller obligation.
If delivered prior to delivery date, seller can make up
deficiency or part to time of delivery. Article 37
Buyer must examine goods for nonconformity within
shortest period practicable Article 38
Buyer must notify non conformity or lose right to
rely on it. Article 39
If goods do not conform, buyer may reduce the price in
certain circumstances. Article 50
©MNoonan2011
Liability for third party claims
Seller must deliver goods free from rights or
claims of third parties. Article 41
Seller must deliver goods free of IP claims.
Article 42
Buyer cannot rely on these provisions
unless they give notice. Articles 43,44.
©MNoonan2011
Payment
Buyer must pay price, including take steps
required by contract or law to enable
payment to be made. Articles 53,54.
In absence of price deemed to have agreed
comparable price. Article 55
Buyer not bound to make payment until
given the opportunity to examine goods,
and other payment details. Article 58.
©MNoonan2011
Delivery
Seller must deliver and transfer property in
goods. Article 30.
If place not specified, provisions in Article 31.
Date –on date specified or within range
specified or reasonable time after contract.
Article 33
Buyer must take delivery as required. Article 53,
including all acts reasonably expected to
enable delivery. Article 60.
©MNoonan2011
Risk
Loss or damage to goods after risk has
passed to buyer does not discharge
obligation to pay unless loss or damage
caused by seller’s act or omission. Article
66
Where carriage included, risk passes when
handed to first carrier. Article 67
See also 68, 70.
©MNoonan2011
Exemptions
See Article 79.
Party not liable for failure due to an
impediment beyond their control Article 79
Party who fails to perform must notify other
party of impediment. If notice not received
within reasonable time, defaulting party is
liable for damages resulting.
©MNoonan2011
Anticipatory breach
Article 71.
A party may suspend performance if, after
entry into contract, it becomes apparent
that the other party will not perform a
substantial part of their obligation as a
result of a serious deficiency in their ability
to perform or creditworthiness or their
conduct in performance or preparation.
Must give notice.
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Fundamental breach
Article 25
A fundamental breach results in such
detriment to other party as substantially
deprives them of what they are entitled to
expect BUT not fundamental breach if
party in breach did not foresee, and a
reasonable person would not have
foreseen such a result.
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Buyers remedies
Exercise rights provided by Articles 46-52-require
performance, give an extension, require
nonconformity to be remedied, avoid
contract or reduce price.
And/or
Claim damages. Article 45
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Seller Remedies
Exercise rights Articles 62-65
require performance, given an extension,
avoid contract or make a specification
Damages. Article 61
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Avoidance
No automatic avoidance.
Must be declaration.
Avoidance releases parties from contract obligations
subject to damages, but does not affect terms re dispute
settlement or rights and obligations on avoidance.
See Articles 72, 64, 49 for circumstances when
declarations of avoidance can be made.
See Article 73 re instalment deliveries.
©MNoonan2011
Damages and measure
Articles 74,75
Meant to provide equivalent of benefit of bargain
Must be capable of calculaton
Lost profits recoverable
Can recover interest Article 78
Specific performance determined under domestic law Art 28
Restitution Article 81.
©MNoonan2011
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Module 6 Commercial Dispute Resolution