What does it mean when a party "was otherwise unable to present his case"?

Article V.1(b) of the New York Convention sets a two pronged test based on procedural rights for when a court may refuse to enforce an arbitration award against a party. The first prong test whether a party was given notice of appointment of the arbitrator and the arbitral process and the second prong is the phrase “was otherwise unable to present his case” (“Phrase”) incorporating basic notion of procedural fairness.[1]

UK and Australia

In the UK, the Phrase is incorporated into language in subsections 103(1) and 103(2)(c) of the Arbitration Act, 1996 (the “Act”). Colman J in Minmetals said:[2]

Article V of the Convention protects the requirements of natural justice reflected in the audi alterem partem rule. Therefore where the tribunal is procedurally entitled to conduct its own investigations into the facts, the effect of this provision will be to avoid enforcement of an award based on findings of fact derived from such investigations if the enforcee has not been given any reasonable opportunity to present its case in relation to the results of such investigations.

In Uganda Telecom, the court, interpreting similar Australian legislative language, supported enforcement against such a defence, found that a party had actually received notice and had the opportunity to present its case, but simply chose not to do so.[3]

In Kanoria, the award against a party was not enforced because that party was unable on account of sickness to present his case.^[4]  In Dallah (and developing Dardana) the court said that once a defence to enforcement under the Convention is made, the court is constrained to not enforce the award retaining no further discretion to enforce an award with no further consideration of whether the procedural irregularity materially affected the final award. ^[5]

In the British Virgin Islands, the Court of Appeal surveyed the attitudes of courts in reviewing Convention defences.^[6] It identified two broad streams of jurisprudence, 1) Southeast Asian cases where courts retain discretion to enforce even if a Convention defence is made, as long as there is no material impact on the final award, and 2) English cases where the courts stop the analysis when the defence is made, with no further review.

South East Asia

In a Singapore case, the court quotes another leading case, Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd., saying that “even if there had been a breach of the rules of natural justice, there had to be a causal nexus between the breach and the award made.”[7]

United States

In Generica, the court, after describing the basic components of due process, said:^[8]

parties that have chosen to remedy their disputes through arbitration rather than litigation should not expect the same procedures they would find in the judicial arena.

The court ruled that although a party was not allowed to cross-examine a witness, that witness was not the only possible source of evidence of that party’s assertion, and that the arbitrator was justified in not finding that the particular witness’s testimony was “central to the liability issue.”^[9] In Fitzroy, the court said demonstrating the inability to present one’s case requires convincingly showing that it “affected the outcome of the proceedings” and that merely failing to appear, without good excuse, will not satisfy the test.[10]

Thus, a party resisting award enforcement on the basis of the inability to present its case will face slightly differing burdens depending on the jurisdiction of enforcement. Unlike in the UK, in pro-enforcement jurisdictions in Asia and the US, the resisting party may be required to additionally prove that the lack of due process materially impacted the final award.

---

[1] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), 10 June, 1958, 330 UNTS 4739 (entered into force on 7 June 1959) [Convention]

[2] Minmetals Germany Gmbh v Ferco Steel Ltd, [1999] 1 All E.R. (Comm.) 315; [1999] C.L.C. 647 [Minmetals]at 657

[3] Uganda Telecom Limited v. Hi-Tech Telecom Pty Ltd., Federal Court of Australia, NSD 171 of 2010, 22 February 2011 [Uganda Telecom]

^[4]  Ajay Kanoria
, Esols Worldwide Limited, Indekka Software Pvt Limited v. 
Tony Francis Guinness, [2006] EWCA Civ 222. [Kanoria]

^[5] Yukos Oil Company V. Dardana Limited, [2002] EWCA Civ 543 [Dardana], an earlier case where the court in its analysis appears to better reflect the pro-enforcement bias of the text of the Convention, and yet opened the door to the later cases by inferring that the word “may” in section 103(2) is an indication of revived remedies for parties resisting enforcement under Article V.1(b). Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46 [Dallah] at para 67. As with Kanoria, the English court appears to be reviewing a foreign law decision on the merits, See para 140 for a concession that the tribunal’s analysis of the law was in consonance with French law. Paras 132 to 142 are a wholesale re-examination of the facts.

[6] British Virgin Islands No. 3, Pacific China Holdings Ltd v. Grand Pacific Holdings Limited, Court of Appeal, Territory of the Virgin Islands, 20 September 2010, in Albert Jan van den Berg (ed), Yearbook Commercial Arbitration 2011 - Volume XXXVI, Yearbook Commercial Arbitration, Volume XXXVI (Kluwer Law International 2011) pp. 262 – 265.

[7]  Dongwoo Mann+Hummel Co Ltd v Mann+Hummel GmbH [2008] SGHC 67 at 126

^[8] Generica Limited, Plaintiff-appellee, v. Pharmaceutical Basics, Inc., United States Court of Appeals, Seventh Circuit.125 F.3d 1123[Generica] at para 33.

^[9] Ibid at para 38.

[10]  Fitzroy Engineering Ltd. v. Flame Engineering Ltd., No. 94-C- 2029, 1994 U.S. Dist. LEXIS 17781 at para 14.

A small step away from judicial intervention (India)

Recently, on 10 May, 2013, the Supreme Court of India decided a case ( ANTRIX CORP. LTD. Vs. DEVAS MULTIMEDIA P. LTD.) that appears to have bolstered the viability of international commercial arbitration in India (there have been other similar recent decisions in the last few years.)

The facts were:

Antrix, an Indian government owned entity and Devas Multimedia entered into a contract which contained an arbitration clause that said that in the event of a dispute, the parties will arbitrate their dispute using either the UNCITRAL or the ICC Rules (bad drafting.)

When Devas referred a contractual dispute to the ICC, Antrix, the government entity, possibly attempting to delay proceedings, attempted to constute a separate tribunal under the UNCITRAL rules after not replying to the ICC efforts at constituting a tribunal, thereby creating a dispute as to the identity fo the arbitrators. Then they asserted that the governing law of the agreement and the arbitration was Indian law (quoting Dicey, no less) and that under section 11 of the Arbitration and Conciliation Act, 1996 (the "Act") if the parties do not agree on the choice of arbitrators or do not follow the agreed upon procedure then one party could petition  the Chief Justice of the Supreme Court of India to supervise the process.

The reasoning was very suspect. Antrix maintained that the choice of rules should have been made after the constitution of the tribunal and that the unilateral reference to an ICC tribunal (as opposed to the UNCITRAL tribunal) violated the arbitration agreement. This line of reasoning is strange, since it is unclear exactly how one is to constitute a tribunal if one does not choose the institutional rules under which it is to be constituted. A chicken and egg situation.

Actually, it appears from the facts that Antrix was attempting to negotiate the dispute, within a commercial context where they had more more power, and avoid neutral third party arbitration. When Devas insisted on referring the matter to arbitration udner the ICC rules, they hurriedly made a separate reference to the UNCITRAL rules, and then attempted to muddy the water further by trying to involve the Indian judiciary claiming a bona fide dispute as to constitution of the tribunal and its jurisdiction. Antrix's counsel alleged to the court that the reference to the ICC tribunal was an attempt to usurp the juridiction of the Supreme Court under the Act (eye roll!)

It appears that the Supreme Court decided not to get involved and on a technicality stepped away from the issue by saying once a tribunal is constituted, section 11 of the Act does not give the Chief Justice the power to constitute another tribunal that will supercede the first.

The Indian (and Pakistani) judiciary has a fairly spotty and specious record in the way judges, to jealously guard their juridiction, have "re-interpreted" the language in arbitration legislation (that in terms of drafting, is actually very similar to that of other countries.)

This is a welcome shift for parties hoping to use arbitration to avoid the delays of the Indian judicial system. The author hopes the trend continues.


The arbitration clause in the agreement between the parties is:

 Article 20   Arbitration

a     In the event of there bring any dispute or difference between the Parties hereto as to any clause or provision of this Agreement or as to the interpretation thereof or as to any account or valuation or as to the rights, liabilities, acts, omissions of any Party hereto arising under or by virtue of these presents or otherwise in any way relating to this Agreement such dispute or difference shall be referred to the senior management of both Parties to resolve within three (3) weeks failing which it will be referred to an Arbiter Tribunal comprising of three arbitrators, one to be appointed by each party (i.e. DEVAS and ANTRIX) and the arbitrators so appointed will appoint the third arbitrator.
b.    The seat of Arbitration shall be at NEW DELI in India.
c.    The Arbitration proceedings shall be held in accordance with the rules and procedures of the ICC (International Chamber of Commerce) or UNCITRAL.
d.    The Arbitration Tribunal shall reach and render a decision or award in writing (concurred in by a majority of the members of the Arbital Tribunal with respect to the appropriate award to be rendered or remedy to be granted pursuant to the dispute, (including the amount that any indemnifying Party is required to pay to the indemnified Party in respect of a claim filed by the indemnified Party).
e.     To the extent practicable all decisions of the board of Arbitration shall be rendered no more than 30 (thirty) days following commencement of proceedings with respect thereto. The Arbital Tribunal shall realize its decision on award into writing and cause the same to be delivered to the Parties.
f.     Any decision or award made by the board of Arbitration shall be final, binding and conclusive on the Parties and entitleo to be enforced to the fullest extent permitted by Laws and entered in any court of competent jurisdiction.
g.    Each Party' to any Arbitration shall bear its owr costs or expenses in relation thereto, including but not limited to such Party's attorneys' fees, if any, and the expenses and fees of the member of the Arbital Tribunal appointed by such party, provided, however that the expenses and fees of the third member of the Arbital Tribunal and any other expenses of the
Arbital Tribunal not capable of being attributed to any one member shall be borne in equal parts by the Parties.


Section 11 of the Act is as below:

11. Appointment of arbitrators

(1) A person of any nationality may be an arbitrator, unless otherwise agreed the parties.

(2) Subject to sub-section (6) the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.

(3) Failing any agreement referred to in sub-section (2), in a arbitration with three arbitrator, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.

(4) If the appointment procedure in sub-section (3) applies and-

(a) a party fails to appoint an arbitrator within thirty days from the receipt or a request to do so from the other party; or

(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment,

the appointment shall be made, upon request to a party, by the Chief Justice or any person or institution designated by him.

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.

(6) Where, under an appointment procedure agreed upon by the parties-

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,

a party may request the Chief Justice or any person or institution designated by him to take a necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justice or the person or institution designated by him is final.

(8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to-

(a) any qualifications required of the arbitrator by the agreement of the parties; and

(b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

(9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

(10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6) to him.

(11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request.

(12)(a) Where the matters referred to in sub-section (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration, the reference to "Chief Justice" in those sub-sections shall be construed as a reference to the "Chief Justice of India".

(b) Where the matters referred to in sub-section (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to "Chief Justice" in those sub-sections shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal civil court referred to in clause (e) of sub-section (1) of section 2 is situate and, where the High Court itself is the court referred to in that clause, to the Chief Justice of that High Court.

Brevity in Arbitration Clauses

Every time I review the arbitration clauses in our template agreements, I wonder about the most succint, least ambiguous ,way in which I can draft the arbitration clause.

The standard arbitration provided by the AAA is

Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

Ken Adams revision (from his blog at http://www.adamsdrafting.com/my-version-of-the-aaa-standard-arbitration-clause/)

As the exclusive means of resolving through adversarial dispute resolution any disputes arising out of this agreement or [describe the subject matter of the contract], a party may demand that any such dispute be resolved by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules, and each party hereby consents to any such disputes being so resolved. Judgment on the award rendered in any such arbitration may be entered in any court having jurisdiction.

My revision

Any legal dispute arising from this contract shall be settled by binding arbitration, in the English language, under the Commercial Arbitration Rules of the American Arbitration Association.  The seat of the arbitration shall be the city of Chicago, Illinois.


Why so succint?

We need concise, clear language. We are codifying an agreement between people that need to be understood very easily in the event of a dispute.  When drafting, there are two (among other) competing concepts.

The agreement must

a) faithfully record the nature of the agreement
and
b) must be clear enough so that when the parties return to the record, the parties and the adjudicatory body (court, judge, tribunal) can easily understand the agreement.

In the measurable matters of money, commerce, and dispute resolution, 'b)' is as or more important than 'a)'.

(we could do a Velasquez's "The Surrender at Breda" to really get to the sense of every agreement but I'm pretty crap at drawing and painting so I'll stick to short, baby food, contract language)

So now on to the parts of the clause:

"any legal dispute"

- it is important to refer to all legal disputes between the parties including all claims in tort or any other concept of law. This is to prevent a party trying to get out of arbitration from claiming that this is not a contract issue. (There is the issue of whether the dispute is of a "commercial" nature under the New York Convention but that's a whole other ball of wax.)
- This is also to clearly state that this is the only dispute resolution mechanism. There is no need to use words like "exclusively" as both the New York Convention and Federal Arbitration Act are clear that courts should stay their proceedings in favour of arbitration (if the clause is clear and unambiguous, and the subject matter is arbitrable.)

"arising from"

- I was in two minds on "arising from"and "related to" and rejected "related to" because a dispute may predate the agreement but may be related to it. The arbitration clause covers this agreement not all agreements in eternity between the parties. And "arising from" is a vast scope of disputes.

"binding"

- It is important to state that the process is binding. Parties will do anything to weasel out of an agreement (everything is fair in war and business.)

It is important to avoid words like "may demand" when you are not referring to the granting of some right from one party to another (Party A may attempt to file suit in Burkina Faso against Party B but that right is not B's to give so why mention it in the agreement between them?) No need to say the award is binding or that each party consents. If you say "the Parties agree to binding arbitration," no need for flowery prose on submissions, demands, and consents. Of course, this means the lawyers don't get to interpret and reinterpret the new words.

(and so I remember Shakespeare's Henry VI's view of lawyers.)

In my version, I mention the language and place of arbitration. That is very important in terms of cost and procedural implications. I don't mention the procedural law of the arbitration (the lex arbitri.)It usually follows the place of arbitration and is liable to become another bone of contention with opposing counsel in a negotiation.

You could think round and round about you decision about which procedural law you pick the implication of this or that procedural law but remember- first you have to come to the best decision on a different procedural law for the arbitration, then you have to negotiate it with the other side, and they will wonder why and push back at you and both sides will get bogged down unnecessarily. Instead of all that effort, you could just pick a reasonable, neutral, generally acceptable, place of arbitration, and let the procedural law follow the seat.


Finally, superfluous elements in AAA and Adams clauses:

Adversarial dispute resolution:

       - completely superfluous. If we say binding arbitration, we clearly do not mean "consensual mediation." This is not a mediation-arbitration clause. (Fewer words ---> better!)

Judgement on the award may be entered:

       - entering of awards in courts is regulated by the appropriate statute law, convention and the jurisdiction of the courts. Consenting to the exercise of rights that one cannot prevent the exercise of, is like saying, "Party A may obey the laws of Physics or attempt to fly to Krypton, and Party B consents to the same." If a judgement needs to hang on a particular fact, a judge will find one. There is no need for introducing language asserting jurisdiction one does not have.

Interim Arbitral Awards

I was faced with counsel on the other side that agreed to our choice of NY law in a contract but objected to our arbitration clause in the following manner:

"We have a policy against using arbitration, since it is expensive and doesn’t provide for injunctive relief."

This response shocked me because this was experienced legal counsel from a very large company saying this.

Their opinion on cost irritated me because the arbitration clause we had proposed referred to an institution which would appoint one arbitrator and use simplified procedural rules for small disputes (some institutions will, if the parties specify, even have documents-only procedures to keep costs low and procedures as short lived as possible.)

But the whole notion that injunctive relief is not available under arbitration got me thinking.

What is injunctive relief after all?

Injunctive relief is generally an interim order against a party acting in a certain manner while a dispute is ongoing and unsettled.  It prevents a party from "creating facts on the ground" or doing things that might make the court's final decision irrelevant (for example by taking all of its assets out of the country meaning a damages award has no money to draw on, or by irreparably damaging a company's reputation or leaking its confidential information, so that what ever the court orders, it will never be able to undo the damage)

Enabling legislation in various jurisdictions clearly states that arbitral tribunals can make interim orders that will be enforceable by state courts.

Essentially, an arbitration tribunal can make an interim order that is exactly like an injunction provided by a court, for the exact same reasons court would do so, and the under the relevant law, the court would enforce such an order.

For example, see the following sections in Portugal's arbitration law:


Article 21
Conditions for granting interim measures

1  - Interim measures requested under sub-paragraph a), b) and c) of paragraph 2 of article 20 is granted by the arbitral tribunal on the condition that:
a)
There is a serious probability that the requesting party will succeed on the merits of his claim and the fear that his rights will be harmed is sufficiently demonstrated; and
b)
The harm resulting from the interim measure to the party against whom the measure is directed, does not substantially outweigh the damage the requesting party wishes to avoid by the measure.

2 - The determination of the arbitral tribunal on the possibility as referred to in sub-paragraph a) of paragraph 1 of this article shall not affect the freedom of decision of the arbitral tribunal in making any subsequent determination on any matter.

3  - With regard to the interim measure request as made under sub-paragraph d) of paragraph 2 of article 20, the conditions set out in sub-paragraph a) and b) of paragraph 1of this article shall apply only to the extent the arbitral tribunal considers appropriate.

Article 27

Recognition or enforcement

1  - An interim measure issued by an arbitral tribunal shall be binding on the parties and, unless otherwise provided by the arbitral tribunal, shall be enforced upon application to the competent state court, irrespective of the circumstance of the arbitration in which it was issued taking place abroad, without prejudice to the provisions of article 28.

2  - The party who is seeking or has obtained recognition or enforcement of an interim measure shall promptly inform the state court of any termination, suspension or modification of that interim measure by the arbitral tribunal that has granted it.

3  - The state court where recognition or enforcement of the measure is sought may, if it considers it proper, order the requesting party to provide appropriate security, if the arbitral tribunal has not already made a determination with respect to security or if such a decision is necessary to protect the rights of third parties.

4  - The decision of the arbitral tribunal on the granting of a preliminary order or interim measure, and the judgement of the state court deciding on the recognition or enforcement of an interim measure of an arbitral tribunal, are not subject to appeal.


To go even further, in Switzerland, in a case in 2010,  a court said that interim measures of this kind by arbitral tribunals can both be more wide ranging that courts may provide, but also that enforcement of such interim measures may only be set aside in very limited circumstances.

In the US, in PACIFIC REINSURANCE MANAGEMENT CORP. et al v. OHIO REINSURANCE CORP. et al., 935 F. 2d 1019, the court said (para 14):

"Temporary equitable relief in arbitration may be essential to preserve assets or enforce performance which, if not preserved or enforced, may render a final award meaningless.1 However, if temporary equitable relief is to have any meaning, the relief must be enforceable at the time it is granted, not after an arbitrator's final decision on the merits."

Now, because of the silence of the Federal Arbitration Act on the issue in the US, there is some uncertainty about provisional or interim awards. But as a counter to that, one can say that a) there are state laws that fill the gap, such as section 7502(c) of the New York Civil Practice Law and Rules, which allow state courts to entertain requests for enforcement of such interim orders and b) that even when the courts narrow their deference to interim awards, they will simply apply the high bar they will apply in granting injunctive relief.

[It is also a question of semantics. In addition to measures that preserve the ability of the tribunal to decide the overall dispute, some courts will enforce interim measures or awards if they are "final", for example, if they completely settle discrete topics within the overall dispute]

So the appropriate position is that not that injunctive relief or similar measures becomes unavailable in arbitration, it is that arbitration will, at worst, provide as high a hurdle for such measures as courts. In any case, should you wish to obtain injunctive relief, a court will entertain such appeals.

An US court is not likely to simultaneously refuse injunctive relief in its own power to parties AND refuse to recognise and enforce injunctive relief type interim arbitral orders. There is no general policy against injunctive (just a high bar.)

In any case, to return to the question that started my examination of the issue, the other side agreed to NY law in any case so their position was probably ill-founded in any case.

To return to the rest of the world, in Saudi Arabia's law, Sweden's law, basically any country that has used the UNCITRAL Model Law On International Commercial Arbitration  ( as the basis for its arbitration legislation), the situation is clear - interim awards are ok and enforceable. the international trend is in favour of enforcing interim awards.

And one further final blow- one can still draft the arbitration clause to allow for/carve out certain types of injunctive relief in the event that interim orders are not recognised in a particular jurisdiction.

All this to say, among the many reasons one can bring up to hide one's discomfiture or ignorance of arbitration as an alternative dispute resolution mechanism, "arbitration does not provide for injunctive relief" is not a good one.

When is an arbitration "null and void, inoperative and incapable of being performed"?

The phrase “null and void, inoperative and incapable of being performed” (the “Phrase”) is contained in Article II.3 of the Convention On The Recognition and enforcement of Foreign Arbitral Awards a.k.a the New York Convention (“Convention.”)

If two parties, A & B, A located in Albania, and B located in Burkina Faso have an arbitration agreement in places (most often because of an arbitration clause in an commercial agreement between them) and a dispute arises between them, party A may start legal proceedings  in a national court in Albania where it feels it has "home-court advantage" At that point, the B may approach the court in Albania showing evidence of the arbitration agreement and seek a stay on the legal proceedings so as to allow arbitration to proceed. 

Article II.3 of the Convention specifies that a national court of a state that is a party to the Convention, has a positive obligation to stay its proceedings, and direct the parties towards arbitration unless it finds that the arbitration agreement is  “null and void, inoperative and incapable of being performed.” 

      When is the test applied?

A court applies the test only after it determines that the arbitration agreement exists (the clause is not constructed in a problematic and covers the dispute between A and B.) In an UK case,  Claxton Engineering Services Ltd v TXM Olaj-Es Gazkutato Kft ("Claxton"), the court refused to apply the same test ( included verbatim in the UK's Arbitration Act 1996) because it determined the arbitration agreement didn't exist. In an Indian case, Gas Authority Of India Ltd. vs Spie Capag, S.A. And Others ("Gail"), the Delhi high Court considered the Phrase as it was reproduced in section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961. In Gail, the appropriate point of application of the Phrase was determined to be before arbitration proceedings commence or during the arbitration proceedings.

      Who bear the burden of proof before the court

In an UK case, JSC BTA Bank v Mukhtar Ablyazov, Ildar Gayarevich Khazhaev, CJSC Tekhinvest, Konvis LLC, Paladioexport LLC, Citybestplus LLC, Colligate Investments Limited, ("JSC"), the court said that the burden of proof of showing that the agreement satisfies the test is on the party resisting such the stay of court proceedings, in our example A party A in Albania needs to convince the Albanian court that it shouldn't stay proceedins because the arbitration agreement between party A  and party B is "null and void, inoperative and incapable of being performed." [in the Gail case, for some reason, in spite of the clear language in the Indian statute, the court reversed the burden of proof on to the party arguing for arbitration, but this is very much against the prevalent trend.]

      Meaning of the phrase 

Often it is easier to know what something is not rather than what it is and you will see that in this blog entry. According to Lew in "Comparative International Commercial Arbitration": “null and void” is “where the arbitration agreement is affected by some validity right from the beginning”, “inoperative” is where the arbitration agreement ceases to have effect at some point, and “incapable of being performed” is where the arbitration cannot be set in motion.

      The entire phrase

In Bautista v. Star Cruises, ("Bautista"), an US Court of Appeal commented, the Phrase is only applicable to arbitration agreements where there is fraud, mistake, duress and waiver, and that the meaning of the words will be narrowed  to interpretations as may be shared across many international jurisdictions.

      The components

            Null and void

In Seidel v. TELUS Communications Inc., the Supreme Court of Canada held an arbitration agreement to be null and void where it attempted to waive a person’s statutory right (especially when the statute in question clearly stated as void any agreement attempting to do so.) Therefore when legislation says a right may not waived by contract, the court says that an arbitration on that issues is"null and void" (the court appears to have mixed up public policy criteria applicable at the enforcement stage in to the early arbitration referral stage but that is worthy of a separate article. 

            Inoperative

In a case in Alberta, Canada, Kaverit Steel and Crane Ltd. v. Kone Corporation ("Kaverit"), the Court of Appeal said if a dispute is between a number of parties and only two of them are parties to an arbitration agreement, inconvenience, splitting of a dispute between forums, or overlapping litigation, cannot be a valid criterion for assessing whether an arbitration is “inoperative.” 

            Incapable of being performed

In Travelport Global Distribution Systems  B.V.  v.  Bellview Airlines Limited, the United States District Court ruled that an arbitration agreement was not “incapable of being performed,” even though an arbitration clause referred to a non-existent governing institution and said that the party "may" use arbitration (i.e. the language indicated that arbitration was not a mandatory dispute resolution mechanism.) In Pacszy v Haendler & Natermann GmbH ("Pacszy"), the English Court of Appeal said the phrase “incapable of being performed” doesn't apply just because a party is unable to take part in or to attend proceedings. Going in the other direction, it appears that German courts take the pecuniary inability of one party to participate in an arbitration proceeding as rendering the agreement to be incapable of being performed. In a famous set of US cases, an arbitration clause was seen as unenforceable because of the agreement between and Iranian and US entity specified Iran as the seat of arbitration.

            The arbitration agreement versus the main agreement (the "Separability" doctrine)

Courts in various countries have formulated the "Separability" doctrine that separates the arbitration clause from the rest of the agreement as it had been entered into between parties A and B entirely separate from the main agreement (which is important otherwise a party could just attack the main agreement neutralising the arbitration clause it finds inconvenient.)  In an UK case, El Nasharty v J Sainsbury Plc, an English court stated that when a party is seeking to establish that an arbitration agreement is null and void, inoperative, or incapable of being performed, on account of duress, the party must establish it specifically for the arbitration (clause) agreement itself rather than of the main agreement .  The same reasoning was used by the Alberta Court in Kaverit, where the judge said that the arbitration clause will not be inoperative just because the main agreement that contained it is terminated.

            Degree of Review

Finally, the depth of review that courts conduct when they assess whether a request for a stay meets the conditions set out in the Phrase in the ARticle II(3) of the Convention. The arbitration friendly French civil code allows only a prima facie review. The Swiss courts will undertake a limited review for arbitrations conducted in Switzerland.  The UK and Canadian courts, including in the cases examined here, may conduct an in-depth examination of the validity of an arbitration agreement. 

            Conclusion

The phrase “null and void, inoperative and incapable of being performed” embodies certain conditions under which the arbitration process may be attached or delayed. It affords courts to grab jurisdiction from the arbitration process (for good or bad reasons) and parties to delay the arbitration process by engaging courts in this analysis. However, generally across the board, barring some exceptional situations, courts adopt a fairly narrow approach to its interpretation.