Lord Mance challenges "transnational" theory in Freshfields lecture - N...

Page 1 of 8

Lord Mance challenges "transnational" theory in

Freshfields lecture
Alison Ross . Monday, 23 November 2015 (16 houß ago)

ln thê 3oth Freshfields Arbitration Lecture, UK Supreme Courl judge Lord Mânce argued against th€ view that
internalional erb¡tration's bâg¡s in consênt makes it an ¡ndependênt system thal is free of nationel legel systems.

Lord Manæ

"An unfortunate difference" has developed between common law and French
civil law thinking as regards "the fundamental basis of arbitration", Lord
Mance said in the lecture on 4 November.

"l question both the coherence and the wisdom of theses advocating an
independent or transnational system of arbitration, while detaching this from
the web of existing legal systems whose inter-relationship is already well
established by rules of private and public law and treaties."

Such theses risk exacerbating the current difficulties with maintaining

coherence in arbitration jurisprudence'and confidence in the efficacy of the
process, he warned. They also ignore parties' choice to submit to decisions
of courts of the seat.

With arbitration users already enjoying "very substantialautonomy"' he

argued that "siren calls" for more should be viewed sceptically.

"An increasingly inter-connected world needs mutually supportive and inter-

related systems for the administration of law, not more legal systems."

Of practlcal importanco

Lord Mance quoted former FreshfieldS partner Jan Paulsson, who has written
that the definition of a legal order falls within "a domain to which erudite and
disputatious scholars, as generations come and go, have devoted pages as
countless as the stars, destined to be read, it seems, chiefly by others
intending to add to their production."

http:llg\obalarbitrationreview.com/new slartic\el34332l\ord-mance-chall... 24lIIl20l5

Lord Mance challenges "transnational" theory in Freshfields lecture - N... Page 2 of 8

"l discovered this only after writing the bulk of my text. lt was too late to turn
back," Lord Mance said.

His "excuEe" was that the jurisprudential questions his lecture raised "are
also of practical significance". They link with "familiar questions" concerning
the role of the courts of the seat and whether they have a special claim to
determine the validity of an arbitration or award or whether each enforcing
court has an equal claim.

ln his lecture, Lord Mance sought to answer these questions and more -
drawing on English jurisprudence to discuss the basis for enforcing awards
set aside at the seat under Article V,1 of the New York Convention and the
potential to use abuse of process or estoppel to resist the set aside of an
award upheld at the seat.

The English position

Under English law, an arbitration must be assigned a juridical seat by simple

agreement of the parties or by the tribunal - which need not coincide with the
place where the case is held, Lord Mance explained.

The seat is where English law treats an award as made for the purposes of
the New York Convention and where "circumscribed court intervention" may
take place to ensure the effectiveness of arbitration: to determine whether an
arbitration agreement exists; to remove or replace arbitrators; to injunct
proceedings brought in breach of an agreement to arbitrate (save between
EU and Lugano states); to issue interim measures, and to enforce or, in
some cases, set aside an award.

ln England, in contrast to many other jurisdictions, courts also have a limited

but significant appellate or review role.

Lord Mance gave examples of cases where the view that arbitration is rooted
in thg Seat waS aCCepted, inCluding Acçidentat Exploration Product¡on co v Ecuador, Telekom

MataysiaBehardvGhanaâîd BGGroupvArgentina. ln theSe CaSeS, the EngliSh, DUtCh

and US courts, respectively, regarded it as their role, as the courts of the
seat, to decide issues arising from bilateral investment treaties under
domestic arbitration law.

"Further, in the much-publicised Dutch arbitration under the Energy Charter

Treaty in which GML Ltd, former 60 per cent owner of Yukos Oil Company'
has been awarded some US$50 billion [..^], the Russian Federation is
positively relying on the jurisdiction of the Dutch courts in applying to set
aside the award," he said.

"This is [...] on the interesting ground, among others, that an assistant to the
tribunalappears from his fee notes to have played an allegedly unexpected
role in drafting the tribunal's reasons [...] I must at once acknowledge my
gratitude to my own judicial assistant [Jacon rurner] for helpful suggestions".

A defence o1 Dallah

http:llglobalarbitrationreview.com/newslarticlel34332llotd-mance-chall. 24ltU20l5
Lord Mance challenges "transnational" theory in Freshfields lecture - N... Page 3 of 8

Decisions that fail to give strong support to the seat have been castigated,
said Lord Mance. for example, has criticised the UK Supreme Court
Gary Born,

for failing to stay English enforcement proceedings in deference to parallel

proceedings at the Seat, Ffance, in Da/Æ¡n Reat Estate and Toutism Hotding co v The Ministry of

RetisiousAffaitsorpakistan.This led to "a foreign court [the Supreme Court]

disagreeing with the courts of the arbitral seat [France] over the application of
its own law," Born wrote.

The criticism "came close to home," Lord Mance admitted, since he himself
was on the Supreme Court bench that decided Dattah àîd wrote one of the two
leading judgments. He did not, however, see the decision as showing
disregard for the law of the seat, "which - rightly or wrongly - we thought we
were applying".

The decision not to grant the stay was "the product of a particular procedural
course of events", he explained: the fact that Dallah only began the French
enforcement proceedings after the state's objection to enforcement was
maintained in England at two instances.

That the French Court of Appeal took a different view of the law from the
Supreme Court was "unfortunate", he said. "lf the decision of the Paris cour

¿'appethâd preceded ours, it would have received the closest attention."

Tho French posltion

"lf one sêês as a case where the views of the French courts of the seat
Dal/aå

should have prevailed, it is ironic that French courts and doctrine would not
themselves allow the courts of the seat any such significance," Lord Mance
said.

The French view is that an international arbitral award is "not anchored in

any national legal order" but "a decision of internationaljustice, whose
validity must be ascertained with regard to the rules applicable in the country
where its recognition and enforcement are sought" (as stated by the French
Court of Cassation in the 2008 putnbatidecision).

A chief advocate of this view is Emmenuolcalllard, who has argued in his 2010

book, t-egal rheotyof tntemational Aú¡trat¡on, and elsewhere, that international

arbitration "is rooted in and constitutes its own separate legalorder, based
on a generalconsensus on governing principles".

Gaillard has also put his theory into practice, Lord Mance noted. ln sar¡ni
costruttoti spA v Ethiop¡a, he was chair of a tribunal that declined to obey injunctions

of the court of the seat (Addis Ababa) purporting to stay the arbitration,
maintaining a previous decision to hold it in Paris.

ln July this year, Gaillard's theory received support from the French Court of
Cassation "in the unexpected context" of a decision on the distinction
between France's civil and adminstrative jurisdictions.

http:llglobalarbitrationreview.com/news/artic\el34332l\ord-mance-chall... 24lIll20l5
Lord Mance challenges "transnational" theory in Freshfields lecture - N... Page 4 of 8

Ryanair had applied to set aside a London arbitration award against a French
public body under French law contracts relating to airports, Lord Mance said.
Successive French courts declined to set aside the award because of its
foreign seat but held that an application for enforcement raising issues of
public policy would fallto them to decide.

ln a judgment reputedly written b! Domlnique Hascher, the Court of Cassation

held that the award could be set aside because it was "not attached to any
state legalorder" but "a decision of internationaljustice, the regularity of
which falls to be examined with regard to the rules applicable in the country
where its recognition and execution are sought."

Lord Mance quored Gailard in G,4R, praising the court for its acknowledgement of
an "aLrtonomous arbitral legal order".

"ln international arbitration, just as in any other field, concepts become reality
when they shape the way in which the players, be they counsel, arbitrators or
nationaljudges, comprehend a situation," Gaillard said.

No coherent body of princiPles

Lord Mance acknowledged "something noble, as well as bold" about

Gaillard's disregard of the law of the seat in the higher interest of justice, as
well as that the French view might appear "the more international view of an
international phenomonen."

He took issue, however, with the idea that there is a "coherent and consistent
body of principles" relating t0 årblträtlön that would be accepted around the
world in all types of case.

He was also "sceptical" about the ability of the arbitration community to agree
such principles, noting the level of disagreement over the European
Commission's efforts to promote common principles of contract law over the
past decade.

There may be fundamental conceptions of justice that most legal systems

would share, he said: for example, that one could not arbitrate a dispute over
the divisions of spoils between highwaymen, "or - to update the example -
between money launderers".

But he said "the ad hoc nature of arbitration and its finality and privity militate
against overall consistency". Even in the relatively open field of investment
treaty arbitration, tribunals differ on central points such as what constitutes
an investment or fair and equitable treatment.

Contradicting Gaillard

Lord Mance offered a series of eloquent rebuttals to Gaillard's argument that

the existence of an international arbitral order is affirmed by the effect given
to arbitration by the actors involved and by states. Not only is it irreconcilable
with the New York Convention but with the reality that parties who agree to

http:llglobalarbitrationreview.com/newslarticlel34332llord-mance-chall... 24llll20l5
Lord Mance challenges "transnational" theory in Freshfields lecture - N... Page 5 of 8

arbitrate look for the "solid underpinning" of court assistance and

enforcement, he said.

"Even if an award is seen as valid in one country but invalid in another, that
does not in my mind establish autonomy. lt merely confirms the award's
dependence on recognition by at least one national legal system."

Lord Mance called the French approach "a mix of parochialism and
universalism" because it applies its own standards to all international
arbitration - "in terms of the comity of nations [...] a large step backwards"

Consent is also a common basis of court jurisdiction, he noted, with judges

dependent on others to recognise and enforce their decisions abroad, in
accordance with treaties, statutes or the common law. "We do not suggest
that this means that court authority needs some further explanation in the
form of some underlying international consensus or legal orde/'.

He also identified "a basic inconsistency at the heart of the thesis" in that it
"invokes a unified order, but [...] leads to disunity".

"What the world needs today is [...] greater coordination and coherence
betwen different legal systems - more, rather than less, mutual recognition
and enforcement of each other's decisions," he argued, mentioning the
Hague Convention on Choice of Court Agreements as "a promising new
arrival" in this regard.

Meetlng the transnat¡onâl¡$t3 on their own ground

According to Lord Mance, parties that choose a seat (or allow a tribunal or
institution to do so on their behalfl should be taken to accept its decisions, as
contemplated by the New York Convention in Article V.1(a) and (e) and
Article Vl.

Lord Mance said this argument "meets the transnationalists [...] on their own
ground", as advocates of party autonomy and giving effect to the parties'
agreement to arbitrate.

Parties submit to the law of the seat and whatever control it exerts in the
interest of certainty, he argued. "This may be a more parochial vision of
arbitration than romantic transnationalism, But I believe it to be more
realistic."

Lord Mance questioned a claim by Paulsson in rhe øea or Arbitrat¡on that the
choice of seat of arbitration is often fortuitous. Particularly under English law,
where the place and seat of arbitration can be differentiated, one would
expect it to be chosen "for good legal reasons, not just for hotel convenience
or as a good place to dine or party," he said,

That this is increasingly understood is confirmed by a comparison of the

2006 and 2015 Queen Mary lnternationalArbitration Surveys, he said. The
2006 survey suggested that seats were chosen as much for convenience as

http:llglobalarbitrationreview.com/newslartîclel34332lIord-mance-chall... 24llIl20I5
Lord Mance challenges "transnational" theory in Freshfîelds lecture - N... Page 6 of 8

legal relevance, while this year's survey said preferences are based on the
seat's "established formal legal infrastructure: the neutrality and impartiality
of the legal system; the national arbitration law; and its track record for
enforcing agreements to arbitrate and arbitral awards."

Lord Mance also highlighted the "idiosyncratic and fragmenting" outcomes

that can arise from an autonomous arbitral order - for example, in Puftab"ti,

where one side's "cunning" idea to turn to the French courts in response to
an "unfavourable turn of events" at the London seat paid off.

An inbetwoen approach

Lord Mance went on to consider the status in the enforcement courts of

awards set aside or upheld at the seat, with detailed reference to the New
York Convention and English case law.

ln relation to an award set aside at the seat, there is "a spectrum" of

possibilities, he said. "A rigidly territorial approach would treat the
international validity of an award as linked inseparably to its domestic validity
in the law of the seat. The opposite French approach would mean that no
account whatever was taken of an award's validity at its domestic seat".

He quoted thê c/ash of fåe sinoapore lltans. recenttv reporlêd in GAR, when Singapofe's cnler

said "there is something to be said for the territorial

Justice sundaresh Menon

approach" and SIAC president Gary Born countered "we [...] should reject it and
reject it emphatically".

"For my part, there is more to be said for the territorial approach than its
French opposite. However, the true position may lie inbetween," said Lord
Mance.

He argued that the New York Convention provides the flexibility for an award
set aside at the seat to be recognised and enforced by a foreign court - but
not because of Article Vll, which was relied on in putraøat¡in a way that distorts
"the general scheme" of the convention.

lnstead, he said the word "may" in Article V.l means there are "exceptional
circumstances" in which this course can be taken, providing it is justified by
"some recognised common law principle" and not simply an exercise of open
discretion.

An example he gave was the recent decision of the English High Court to
enforce awards set aside in Moscow in yukos Capitat sarLv 1JSC oit Co Rasneñ, ofl thê
basis that they were biased, contrary to natural justice, perverse and part of a
politically-motivated campaign against the oil company. Mr Justice slmon's
"nuanced approach" was based on the "public policy of the common law," he
said.

As for the obligation to recognise a seat court's decision upholding an award,

Lord Mance said it is not clearly stated in the New York Convention but he

http:llglobalarbitrationreview.com/newslarticlel34332llord-mance-chall... 24llll20l5
Lord Mance challenges "transnational" theory in Freshfields lecture - N... Page 7 of 8

would expect an enforcement court "in today's world" to pay attention to the
decision of any other court, particularly at the seat.

He proposed that common law enforcement courts clothe their respect for
the prior court decision in the language of "abuse of process" or "the even
stronger language of estoppel". Estoppel was the basis for the English High
Court's recent decision to uphold an Austrian court decision to refuse
enforcement of a Czech award ià Dias Human v czech Repubtic, he noted.

Briefly, Lord Mance also touched on injunctions, calling them a "particularly

brutal intervention [...]when issued to restrain arbitration" but appropriate
when issued by the courts of the seat to restrain proceedings inconsistent
with an arbitration clause.

Mutual rêspêct

Returning to his key message, Lord Mance argued that "most, if not all
courts, see themselves today as part of an international legal order - and
rightly so."

"We should respect each other's decisions in the fullest sense and so far as
possible avoid duplication, repetition and inconsistency in decision-making,"
he said. Such order and coordination are necessary if arbitration and
litigation are to be conducted "efficiently and economically in a globalised
world".

He also urged the arbitration community to recognise courts of the seat as

"collaborators, rather than unwelcome interferers in a separate arbitral
order."

As Micrraer Hwans sG has said, courts "should supervise with a light touch but
assist with a strong hand".

"lt is unrealistic, and I think unwise, to expect the latter without the former,"
said Lord Mance.

The debate continuês

Lord Mance gave his lecture at Freshfields office in London, before an

audience that included eminent figures from the arbitration community and
his wife and Colleague on the UK Supreme Court bench, Lady Justice Ard6n.

The lecture was established by the School of lnternationalArbitration at

Queen Mary University of London in 1986 and has been sponsored by
Freshfields for 29 years. The school's director Loukas Mlstells described Lord
Mance's lecture as "thoughtful, insightful and dense," including a "bold and
strong defence of the jurisprudence of English courts".

"lts message that there should be closer co-ordination between courts and
that delocalisation and autonomy theories should be abandoned will attract a
great deal of further discussion," he said.

http:l/globalarbitrationreview.com/newslarticlel3A332llard-mance-chall... 24lIll20l5
Lord Mance challenges "transnational" theory in Freshfields lecture - N... Page 8 of 8

The school's founder and head, Jut¡an Lew Qc, also praised his former pupil
master's "clear statement of the traditional, English law approach and robust
criticism of the autonomous approach," while making it clear that he
disagreed.

"ln international arbitration, parties opt out of nationaljurisdictions and expect

national courts to uphold the arbitration agreement and enforce the award
without interference in substantive issues and in accordance with the New
York Convention," he said.

Emmanuer calterd was not at the lecture but, after reading this report, said he
was delighted that a figure "as eminent" as Lord Mance, for whom he has "a
great deal of friendship and respect," is part of this debate, albeit on the
opposite side.

"Visions are never wrong, they can be inoperative or internally inconsistent,"

he said. "Lord Mance will be surprised that we actually agree on a number of
points."

Gaillard also invited Lord Mance to join him in a "public debate" of their "true
disagreements", suggesting that to boil the controversy down to a clash
between French and English views "does not do justice to the global nature
of international arbitration".

Lord Mance's lecture has yet to be published.

Last yea/s FreshÍ¡etds Arbítntion Lecture was by EM!:ç4!!\ùßL on the soc¡oloov of arb¡trat¡on. Bryant

Garth's recent response is reported here.

Comments (1)

Surely rhe big¡¡esf flaw in tltc tmnsnational rpprorch is the selective publicttion of awarrls. Ilorv c{n thc P¿rtíes
procee¿ on r level playing field ifthey rnd the tribunal arr each ¡rvare of differe¡rt conffde¡rrial tlecisions rvhich, rightly
or wongly, they may each regard ac evidencingu'ídely accepted principles?'Ihe essence of the development ofthe
cornnon lav systen antl the eslrblishrnent of { systen ofprccedent, i,e. larv through developtnents ofcase l¿rw, rv¡s
rhe widespread publicarion ofvirtrrally all courr decisions with their full facts togetlÌer witlì the argumenls, &ìd their
equal avuilabiliry to all lanlers. I'hat is fär fi-o¡n the case in internation¡l [t{]itr&tion at Present' lndeed the tendancy is
torvi¡rds arbitrutio¡r iìwalds that colÌttin no ¡¡euuínc reasoniug at tll, urcl in those cascs, I suppose publicrrtion is
iryeleirtrt, Â rnnsnational approach is dependant on €iood (or at least visible) reasonittg and rviclespread prrblicttion'
untiì those îhings are achievcd, a lransnetional ûpprorìch is a l'antasy, rnd perhrrps a dangcrorts one.

BEN KNOWLES - 2411'1115 A"l 07t42

copyright @ 2015 Law Business Research Ltd. All r¡ghls roserved. I http://www.lbresearch.com

87 Lancåster Road, London, W1 1 I OQ, UK I Tel: +44 207 908 1 1 88 / S¿'11 +44 207 229 6910
http://www.globalarbitrationreview.com I editorial@globalarbilrationrev¡ew.com

http:llglobalarbitrationreview.com/new slarticlel34332llord-mance-chall... 24llll20l5