ALTERNATIVE DISPUTE RESOLUTION 2012

1. METHODS OF ALTERNATIVE DISPUTE RESOLUTION IN CENTRAL AND EASTERN EUROPE ALTERNATIVE DISPUTE RESOLUTION 2012 Prof. Dr. Alexander J. Bělohlávek Lawoffices Bělohlávek Jana Zajíce 32, CZ – 170 00 PRAGUE 7 CzechRepublic Tel.: +420 / 233 379 834, 224 313 407 Fax: +420 / 226 013 640, 220 571 149 eMail: office@ablegal.cz November 23, 2012 Vilnius

2. Law applicable to the subject matter of the dispute and approaches to the determination of the conflict-of-laws status of lexcausaein arbitration International dimension in arbitration and its influence on the substantive law applicable to the merits of the dispute • Governing law in connectionwithinternational arbitration • “What was and was not said; what was and was not promised; what was and was not done.” • Trade usages: • AA ICC Case No. 3380, • AA ICC Case No. 1434 of 1975, • AA ICC Case No. 3460 of 1980. • Transnational rules or the rules of lexmercatoria • Transnational doctrine andlegalvacuum • Provisions regulating the procedures for determining applicable law ALTERNATIVE DISPUTE RESOLUTION 2012 November 23, 2012 Vilnius

3. Law applicable to the subject matter of the dispute and approaches to the determination of the conflict-of-laws status of lexcausaein arbitration Choice of law and attempts at transnationalization of the law applicable to the subject matter of the dispute • Rules of permanent arbitral institutions allow the parties to freely choose not only the procedural provisions applicable to the proceedings, but also applicable substantive law. • Delocalization,anationalityanddenationalization • Contractual autonomy anditselevation to the status of a specific normative systém: • Article 21 of the ICC Rules, • Article 22(3) of the LCIA Rules, • Article 22 of the SCC Rules. • RefusalofUNIDROIT Principles as concerns the interpretation of the law of national origin ALTERNATIVE DISPUTE RESOLUTION 2012 November 23, 2012 Vilnius

4. Law applicable to the subject matter of the dispute and approaches to the determination of the conflict-of-laws status of lexcausaein arbitration Application of the conflict-of-laws rules and the conflict-of-laws method by arbitral tribunals • “Conflict-of-laws autonomy” • Article 28(2) of the UNCITRAL Model Law (cit.): “Failing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.” • Determinationofapplicable substantive law • application of the cumulative method • all conflict-of-laws rules of all legal systems connected with the dispute • determination of applicable law pursuant to thegeneral principles of the conflict of laws (private international law) • criteria as characteristic performance; standards contained in international treaties, such as the Rome Convention or the Hague Convention on the Law Applicable to International Sales of Goods (1955) in respect of purchase contracts, etc. • determinationof applicable law directly (voiedirecte), i.e. without the help of the conflict-of-laws method ALTERNATIVE DISPUTE RESOLUTION 2012 November 23, 2012 Vilnius

5. Law applicable to the subject matter of the dispute and approaches to the determination of the conflict-of-laws status of lexcausaein arbitration Connecting factors used by arbitrators in international practice • Irrespective of the method used by arbitrators to determine applicable law, they usually attempt to find the center of gravity of the facts of the caseor the closest connection to the facts of the case to a particular legal system or another system of substantive rules. • Methods employed in the determination of the closest connection to the contractual relationship: • habitual residence or place of business of the party that provides characteristic performance, • place of characteristic performance (this solution is not based on the habitual residence of the party providing such performance, but on the place of performance). • Prevailing practice does not take into consideration the following connecting factors: • place of negotiation or conclusion of the contract, • language of the contract, • nationality of the arbitrators, • seat of arbitration, • potential place of enforcement of the arbitral award. • The strategy of pleading invalidity of the contract • escape clauses • unacceptable conflict-of-lawssolution • ICC case no. 9473 ALTERNATIVE DISPUTE RESOLUTION 2012 November 23, 2012 Vilnius

6. Law applicable to the subject matter of the dispute and approaches to the determination of the conflict-of-laws status of lexcausaein arbitration Subjective evaluation factors for the determination of applicable substantive law • Whereas subjective evaluation factors have only limited relevance for the determination of the conflict-of-laws connection in court proceedings, for instance under • Rome Convetionor • Rome I Regulation, arbitrators often take these subjective aspects into serious consideration. • These aspects should never result in the definition of a hypothetical choice of law. • Isa contractthe “main law” in contractual relationships? • ILA Recommendation – International Law Association Resolution No 6/2008 of 21 August 2008 concerning the ILA Recommendations on ascertaining the contents of the applicable law in international commercial arbitration. ALTERNATIVE DISPUTE RESOLUTION 2012 November 23, 2012 Vilnius

7. Applicable law and trade usages • Broad possibilities to apply trade usages within the domain of international arbitration (for instance Article VII(1) of the European Convention on International Commercial Arbitration (1961) explicitly obliges the arbitrators to take account of trade usages). • The supranational or transnational law of international trade (the rules of ”lex mercatoria„) ALTERNATIVE DISPUTE RESOLUTION 2012 November 23, 2012 Vilnius

8. Application of EU law in arbitration Connection between EU law and arbitration • A number of EU Member States consider arbitration proceedings to be suigeneris, subject to highly internationalized practice (they especially emphasize that the issues of recognition and enforcement of foreign arbitral awards are sufficiently covered by the New York Convention (1958)). • Relationship between the decision making of arbitrators and the Court of Justice of the European Union (CJ EU / ECJ) • May the arbitral tribunals or arbitratorsaddress the CJ EU with a request to resolve the issue of compatibility among the preliminary issues? (according to theArticle 208 of the Treaty on the Functioning of the European Union (TFEU)) • Case No. 102/81 in Nordsee Deutsche Hochseefischerei v. ReedereiMondHochseefischerei et al • An arbitrator or an arbitral tribunal, as a private entity, is not obliged or entitled to ask the Court of Justice of the European Communities for a ruling on compatibility with European law. ALTERNATIVE DISPUTE RESOLUTION 2012 November 23, 2012 Vilnius

9. Application of EU law in arbitration Connection between EU law and arbitration • Section 602 of the ZPO [Austria] • An arbitral tribunal, an arbitrator authorized by the arbitral tribunal or a party with the consent of the arbitral tribunal may propose that the court perform an act which does not fall within the jurisdiction of the arbitral tribunal. The supportive function of the court may also be exercised by the court requesting a foreign court or authority to perform such act… • ECJ Ruling C-126/97 (Eco Swiss China Time Ltd. v. Benetton International N.V.) • Resolved by The Netherlands Institute of Arbitration (NAI) • The arbitral panel ordered Benetton to pay compensation for losses • Benetton requested annulment of the arbitral award in a court located in the territory where the award was made (the Netherlands) and pleaded, inter alia, invalidity of the licensing agreement on grounds of a breach of Article 81 of the TEC. • The Court of Cassation referred to the ECJ which held that national courts seized with a motion to annul an arbitral award must allow the motion if the respective award is considered to be contrary to Article 81 of the TEC. • The ECJ therefore indirectly held that arbitrators in arbitral proceedings must also have regard to Community [EU] public policy. ALTERNATIVE DISPUTE RESOLUTION 2012 November 23, 2012 Vilnius

10. Application of EU law in arbitration Arbitration and the Rome I Regulation from the perspective of EU law • Rome I Regulation - from the perspective of EU law, the most important contemporary instrument for the determination of law applicable to contractual obligations, i.e. the domain of arbitration. • Rome I Regulation lacks a provision analogous to Recital (8) of the Preamble to the Rome II Regulation, which reads as follows (cit.:) “This Regulation should apply irrespective of the nature of the court or tribunal seised.”Thisdoes not mean, however, that the Rome I Regulation should not apply in arbitration. • The absence of a declaration is only a natural manifestation of the fact that the formulations in the Rome I Regulation (not the concept of the Rome I Regulation) are a compromise. • Allianz SpAet GeneraliAssicurazioniGeneraliSpA v. West Tankers Inc. • The ECJruled that the anti-suitinjunctiounder common law was incompatible with the Brussels I Regulationandheld that Community [EU] law must also be observed with respect to arbitration. ALTERNATIVE DISPUTE RESOLUTION 2012 November 23, 2012 Vilnius

11. Decision making ex aequo et bono Exception to the application of substantive rules in arbitration • The possibility to resolve disputes ex aequo et bono must not exceed the framework of the principles enshrined in the legal system and the social structure in the seat of arbitration, i.e. it must not transgress the limits of public policy. • The parties may authorize the arbitrators to decideex aequo et bono: • directly in the arbitration agreement (arbitration clause) or • the parties may enter into such an agreement at any moment in the course of the arbitral proceedings until the arbitrators issue their arbitral award. • Decision making ex aequo et bono applies only to substantive law. • Decision making ex aequo et bonocannot be confused with conciliation (for instance, mediation-type conciliation). ALTERNATIVE DISPUTE RESOLUTION 2012 November 23, 2012 Vilnius

12. Decision making ex aequo et bono Distinguishing decision making following the principles of equity from the amiable compositeurprocedure • The practical approach to decision making ex aequo et bono in individual states exhibits major differences. There are two concepts: • the possibility to decide as amiable compositeur (this procedure is regulated under applicable lexarbitri only very rarely)or • decision making following the principles of equity (ex aequo et bono). • However, arbitrators are obliged to resolve the “merits” of the dispute “authoritatively”. • The liability is assumed by the parties who can determine and influence, by formulating the authorization granted to the arbitrators, the limits of the arbitrators’ decision making and thereby define the scope for the decision making following the principles of equity. • Decision making following the principles of equity therefore appears especially suitable in the case of • supplying technological devicesor • performing construction work. ALTERNATIVE DISPUTE RESOLUTION 2012 November 23, 2012 Vilnius

13. Thankyouforyourattention. • Alexander J. Bělohlávek • professordr.iur. et Mgr., MB (oec), dr. h.c. • Attorney-at-law (Prague / Czech Republic, branch office N.J. / USA) • professor on the Dept. of Law, Faculty of Economics, VŠB Technical University Ostrava (Czech Republic) • professor on the Dept. of International and European Law, Faculty of Law, Masaryk University Brno (Czech Republic) • President of the World Jurist Association – WJA (Washington D.C. / USA) • Member of the ICC International Court of Arbitration (Paris / France) • Arbitrator with permanent arbitral institutions: VIAC – Vienna (Austria), Arb. Court with Economy and Agrarian Chamber – Prague (Czech Republic), Commodity Court of Arbitration – Prague (Czech Republic), Chamber of Commerce and Industry of the City of Moscow (Russia), Chambers of Commerce and Industry in Kyiv (Ukraine), Chissinau (Moldova), Vilnius (Lithuania), Almaty (Kazakhstan) • Arbitration pursuant to UNCITRAL • Member of ArbAut (Austria), ASA (Switzerland), DIS (Germany), ASIL, IBA, ILA (headquarters branch London), Law Society of England and Wales (associated) etc. Lawoffices Bělohlávek Jana Zajíce 32, CZ – 170 00 Prague 7, CzechRepublic eMail: office@ablegal.cz