Transcript The DRAFT COMMON FRAME OF REFERENCE AND ARBITRATION
The DRAFT COMMON FRAME OF REFERENCE AND ARBITRATION
By Prof. Tibor Tajti (Thaythy) ©
CAVEAT
The lecturer and the author of these slides was involved in the drafting of the Draft Common Frame of Reference by any means so far NOT
The presentation is thus based on the reflections of
professor and scholar a – and earlier for about ten years a corporate counsel –
primarily interested in international and comparative law, reform of law and the interplay between law and economy
Up to this point in time the only indirect connection to the DCFR is the invitation to critically assess the consumer protection aspects of the CESL to be held in Brussels on 5 th December 2012 (EPP Public Hearing on CESL)
“That is a text serving as a source of inspiration for law making and law teaching at all levels.”
Christian von Bar
, A Common Frame of Reference for European Private Law - Academic Efforts and Political Realities, Electronic Journal of Comparative Law, at 1 (<
www.ejcl.org/121/art121-27.pdf
>).
“We,
the academic teams that in 2005 contracted with the European Commission to deliver […] the Academic Common Frame of Reference, hope to bring about a framework set of annotated rules
and national
legislators
courts, including arbitral tribunals drafted with a view to allowing to which the European and the European and national , can refer to when in search for a commonly acceptable solution to a given problem. This ‘Common Frame of Reference’ is also
parties to a contract, whether cross-border or purely domestic, to incorporate its contents into their agreement
.” Christian von Bar, A Common Frame of Reference for European Private Law – Academic Efforts and Political Realities, 23 Tul. Eur. & Civ. L.F. 37 (2008).
2003:
EU Action Plan – for a more coherent contract law 2007: first publications of the cooperating Groups Von Bar group ( 2005) : focus on what is common Acquis group ( 2002 Prof. Ajani) : focus exclusively on the law of the EU - the so-called Principles of European Contract Law were also integrated (i.e., integration of the work of the (Lando Commission)
2009:
Outline edition
becomes publicly available
2010:
annotated text - COMMENTS
(i.e., commentary with examples from national laws of EU Member States) – six volumes (publisher: Oxford University Press)
COORDINATORS
Christian von Bar (Osnabrück) Guido Alpa (Italy) Hugh Beale (UK, Warwick) Eric Clive (Edinburgh) Maurits Barendrecht (Tilburg) Ulrich Drobnig (Hamburg) Ole Lando (Denmark) Verica Trstenjak (Maribor) Lajos Vekas (Budapest) etc.
FROM POST-SOCIALIST CEE COUNTRIES
Lubos Tichy (Czech Rep.) Paul Varul (Estonia) Christain Takoff (Bulgaria)
Valentinas Mikelenas (Lithuania)
Monika Jurčova (Slovakia) Mircea-Dan Bob (Cluj, Romania) Etc.
REALITY WHAT WOULD BE NEEDED (WISHES)
“whilst it seems that
European contract law initiative
October 2004 ( Annual Progress Report
the
as described in the Commission communication of 11 COM(2004)0651 ) and reported on in the Commission's First ( COM(2005)0456 )
level should be seen primarily as an exercise in better law-making at EU
, it is by no means clear
what it will lead to in terms of practical outcomes
what legal basis any binding instrument or instruments will be adopted […]” or on
The European Parliament “…
reiterates its conviction,
expressed in its resolutions of 26 May 1989, 6 May 1994, 15 November 2001 and 2 September 2003
,
civil law
[…].
”
that a uniform internal market cannot be fully functional without further steps towards the harmonisation of
MAURO BUSSANI:
“The defense of the status quo [that the time … is not ripe to enact whatever Restatement or Civil Code] …
fits perfectly with the need of the professional elite to keep the leadership over national and transnational legal affairs
… ” Mauro Bussani, the Driving Forces behind a European Civil Code, Zbornik Prav. Fak. Sveuč. Rij. Suppl. Br. 3, xx-xx, at 11.
on GREEN PAPER FROM THE COMMISSION policy options for progress towards a European Contract Law for consumers and businesses
(Brussels, 1.7.2010, COM(2010)348 final)
Option 1:
“
mere” publication
of the DCFR (for legislators , teachers and private parties) Option 2: an “ States to national laws
Option 7: official toolbox for legislator
that could be chosen by parties (“
European Civil Code
” Option 3: EU Commission recommendation to Member
incorporate the DCFR into national laws
Option 4: DCFR as an alternative system to national laws
optional instrument
Option 6: EU Regulation with uniform rules replacing ”) Option 5: EU Directive with minimum common standards
While the fate of the DCFR is questionable, the EU is about to bless the CESL Optional instrument for cross-border sales contracts (movables and digital content – as well as related services) Heavily consumer protective Register for cases on CESL & review of application (after 4 years, MSs will provide info – after 5 years, the EU Commission will do that to Parliament)
5 th of Dec. 2012, Brussels
CESL – A Balanced Proposal between Consumers and Traders? – EPP Group Public Hearing:
A document made by western-European academic elite (with
simbolic contribution of experts from smaller countries – see the order and the quantity of text in the comments)
Primarily theoretically-based rather than based on input coming from the side of industries and practicing lawyers Incomplete (e.g., inheritance and family law or real estate property law are not covered) Non-mandatory source of law
(i.e., “soft law”)
Monistic
(i.e., the rules equally apply to merchants and non merchants – though separate consumer protection rules have been added – primarily the law from EU consumer directives)
The text integrates the work of three academic groups (Lando Commission, Acquis Group and the Study Group) what often affects the quality and consistency of the DCFR
Book I :
General provisions Book II: Contracts and other juridical acts
Book III :
Obligations and corresponding rights Book IV: Specific contracts and the rights and obligations arising from them
Book V :
Benevolent intervention in another’s affairs Book VI: Non-contractual liability arising out of damage caused to another
Book VII :
Unjustified enrichment Book VIII: Acquisition and loss of ownership of goods
Book IX :
Proprietary security rights in movables assets Book X: Trust
Appendix: definictions and index of topics
Arbitrability – business interests – corollary risks – potential for abuses
IS THE DCFR FITTING THE INTERESTS OF MAJOR ARBITRAL CENTERS ?
- Or, to what extent matters substantive law in choosing the
place of arbitration?
WHEN AND WHY IS THE DCFR SUITABLE – OR ILL SUITED – TO SERVE AS LEX ARBITRI?
- Or, how is the DCFR finding the middle-ground (e.g., culpa in contrahendo)
GOING BEYOND THE DCFR: ABUSES
- What can we learn from the experiences of non-Europeans in trying to find the answer to which fields of DCFR are arbitrable and which are not?
- The unhappy US experiences with arbitrating franchise and private debt collection-related disputes.
Is it in the interest of English, Swiss or other arbitral centers to pay attention to the DCFR?
LONDON
According to estimates London handles annually international arbitrations with a combined value of
USD 40 to 50 billion
Lord Ashborne
in the debate on the
1979 English Arbitration Act:
“new arbitration might attract to England as much
as £ 500 million per year
… in the form of fees for arbitrators, barristers, solicitors, and expert witnesses.
”
TORONTO Charles Rives Associates (2012): Arbitration in Toronto: An Economic Study, at 3:
“we estimate the total impact of arbitration on the economy of the City of Toronto to be $256.3 million in 2012, growing to $273,3 million in 2013.
”
Claim 1:
Making the weak points of the others visible is a weapon in the global competition of established and less established arbitral centers Switzerland:
a/ setting aside only by the Swiss Federal Tribunal (awards appr. confirmed in 93% of cases) – limited confidentiality b/ Geneva : French style – Zurich : German legal thinking
France:
the ‘group of companies’ doctrine (not in Switz.) & language
England: a/
Often English lawyers must be consulted to understand the law b/ Less predictable as court cases are not based on a single opinion of the court but of the various individual opinions of the judges (same conclusion but different reasoning)
United States: a/
arbitral law is a mixture of federal and State stutory and case law (State where the arbitration’s seat is) b/ In some States, foreign lawyer might even be charged for unauthorized practice of law.
Claim 2:
Substantive law plays a role in promoting of a jurisdiction as an international arbitration center
“The selection of the place of arbitration has impact on the pool of arbitrators, the parties’ choice of law, procedural law and enforceability of the award.”
Wilske & Fox: at 384.
“[The] chairperson might have a strong tendency to follow his or her local practice and – in situations where the parties have not made a clear choice of law – even
convince his or her co-arbitrators that the substantive law of the place of arbitration is applicable for the dispute
.”
Id. at 385.
ENGLAND
-
2007
Law Society campaign
Booklet:
Exporting Excellence – A Guide to Legal Services
Press release
: “The brochure includes the promotion of draft clauses for insertion in to commercial contracts at the contract agreement stage to recognise the application of English law to that contract..”
GERMANY
2008:
German counter-campaign “
Codification
enables swift and straightforward access to law. […]. Codification provides legal certainty, as legislation contains general principles and guidelines, and defines the terminology used. […]. [N]ot only are contracts under German law more concise, they are also
more cost effective and reliable than contractual agreements under English or US law
.”
If substantive law matters (is one of the factors) in choosing the international arbitral center – Could jurisdictions aspiring to become arbitral centers benefit from offering expertise in DCFR? The DCFR, a soft law (i.e., optional) instrument that manages – in certain fields – to find the middle-ground between conflicting, or substantially differing, national laws?
The DCFR as lex mercatoria or rules applicable to the substance
THE DCFR AND THE INDUSTRY
The DCFR is an
EU – soft – law instrument
in the context of ADR: that may be exploited
a/
as
lex mercatoria
or
rules applicable to the substance b/ as a tool to find or understand national private laws
The DCFR is a
pan-European instrument,
which with its corollary documents present so far unimaginable vistas (though risks as well): a/
teaching law
b/ for
researching, comparing and thus applying various European national laws
– and better understanding one’s own law The DCFR may (?)
breake the monopoly of the few major western European jurisdictions also in the context of ADR
- arbitral law is procedural but substantive law is a sine qua non - it is always the local lawyers that known local substantive & procedural law the best and profit from that
“The This
conventional method of ascertaining the law applicable to the merits of a dispute
the proper law is
modern international trade
modern law of merchant. [...].
modern law merchant
is to select a national system of law [...]. The law so chosen is then regarded as the proper law of the contract. It is sometimes suggested, however, that this search for
out of touch with the realities of
; and that what is needed is not a particular national system of law, but a goes under various descriptions, including 'transnational law', 'the international law of contracts,' ' international lex mercatoria' and 'international trade law.”
LEX MERCATORIA IN GENERAL
Problem 1:
determining the content of law
E.g., if the meaning of a trade usage is unknown to arbitrators, the content might be proven (question: how? With what?)
Problem 2:
confliuct with public policy rules of a national law (ordre public) -
DCFR AS LEX MERCATORIA
Problem 1:
The DCFR is exact and hence easier to determine content
Problem 2:
As there is
no closed list of what qualifies as public policy
, conflict can never be excluded
Yet the risk is much smaller
as the DCFR took into account what is normally in Europe in conflict with public policy
Moot court competition on the DCFR organized under the auspices of the Warsaw Arbitral Tribunal attached to the Polish Chamber of Commerce (8 th March 2012 http://sakig.pl/en/news/events/draft-common-frame-of-reference-warsaw-international arbitration-moot-at-the-court-of-arbitration-at-the-pcc > ) < ------------------------------------------------------------------------------------- “The Court of Arbitration at the Polish Chamber of Commerce together with the
European Legal Studies Institute is pleased to invite all interested students and their professors to join the International Arbitration Moot in Warsaw a competition touching on problems concerning the Draft Common Frame of Reference (DCFR) and procedural issues in arbitration . The Moot is intended to
popularize and disseminate knowledge regarding the legal texts of the Draft Common Frame of Reference
in international arbitration.”
prepared by the Study Group on a European Civil Code and the Research Group on EC Private Law (Acquis Group), and to promote the use of international commercial arbitration to resolve international commercial disputes in accordance with the DCFR. The competition will promote knowledge of the process of European Private Law unification, and show the vital importance of the DCFR as a complete set of rules which will significantly facilitate the settlement of disputes, especially
Are they equally appropriate to serve as the lex mercatoria in arbitration?
SALES: 45 sections (plus a number of section from general chapters)
a.
b.
FRANCHISE:
Sections
common to
commercial agency, franchise and distributorship – which apply only is not provided otherwise by contract: 13 section (plus 2 on the relationship of the chapters on these three contract types) Sections
specifically on franchise
:
14 sections
SECURED TRANSACTIONS LAW: 122 sections
(though: 12 on registration and 28 on enforcement of security interests – additionally the procedural law of Member States regulates court enforcement of these)
SALES
• Traditional nominated contract •
Stable law
• Differences among jurisdictions the smallest • Main legal problems are known
FRANCHISE SECURED TRANSACTIONS
•
New type of contract
•
Hybrid
•
Innominate (often)
•
Often not regulated
•
Variations though basic forms are known
• Legal dilemmas exist •
A new SYSTEM promoted (also) by the DCFR
•
A system of various contracts (not a single type)
•
Crucial differences exist among European laws
•
Some of the differences may qualify as ‘public policy’ (ordre public)
SALES
A
compromise among differing European systems similar to the CISG
Most of the rules are
default
rules
THE LEAST DILEMMAS ON WHETHER ARBITRABLE
FRANCHISE
Offers a comprehensive law on franchise for Europe SECURED TRANSACTIONS
“
The goal of harminising proprietary security in novable assets in Europe
”
THE LAW IS VERY FLUID, LITTLE IS KNOWN ON ARBITRATION OF FRANCHISE DISPUTES Crucial novelties & huge differences on national level MOST DILEMMAS ON ARBITRABILITY
Black’s Law Dictionary
“
The principle that parties must act in good faith during preliminary contract negotiations
.”
GERMAN LAW
“… contracting parties are under a duty, classified as contractual,
to deal in good faith with each other during
the negotiation stage,
or else face liability
, customarily to the extent of the wronged party’s reliance.”
ENGLISH & US LAW
a/ Generally accepted view: common law does
not
have a counterpart b/
Kessler & Fine
: “… the
doctrines of negligence, estoppel, and implied contract, among others, have … served many of the doctrinal functions of culpa in contrahendo.”
“In contrast [to Europe], the [U.S.]
Uniform Commercial Code
mandates good faith only during the performance and enforcement of contracts. Good faith under the civil law system means more than not breaking off negotiations in bad faith. […].”
Larry A. Dimatteo, The Law of International Business Transactions (Thomson/West, 2003).
“[Part E] of Book IV apply primarily to contracts for the establishment and regulation of a
commercial agency, franchise or distributorship.
many characteristics in common , especially their economic function – These contracts have the establishment and regulation of a marketing relationship
.” DCFR Comments, vol. 3, Point A of the comment to section IV.E. – 1:101: Contracts covered, at 2281.
1
UNIFORMITY
1. Transfer of IP & know-how (business package) 2. Training, assistance and advising
1. Payment of royalty & fees 2. Duty to strictly follow instructions
ASYMMETRY
F R A N C H I S E E
UNREGULATED
EU:: some franchises are caught by competition law Pronuptia case1986:
division of territory problematic
–
Most of national laws have nothing specifically on franchise DCFR: Chapter 4 – nominated contract
REGULATED Italy: Law No.129/2004 Spain: s. 62 Retail Trade Act and a special law France: Loi Doubin (1989) & Decree No. 91-337.
2006: Belgium 2006: Sweden Romania: Decree No. 52-1997 (amended by 79-1998) plus the new Civil Code of 2011 Ukraine: defined in two codes (2003) but the act on registration of franchise not passed yet
How is the Weaker Party (Franchisee) Protected in Europe?
Through Regulation
- Mandatory norms Lists on what to
disclose US: a. Agency oversight (FTC) b. Some franchise systems: SEC In Europe:
Belgium, France, Italy, Romania, Spain and Sweden.
Industrial Standards
Code of Ethics - voluntary
disclosure and fair dealing
- Austria, Lithuania, Germany and Portugal
(good faith law systems)
Private law remedies
-
Two variants:
a. Countries in which it is a
nominated contract
(Lithuania) b.
Not nominated : where general rules may be exploited
(Hungary, Poland, ex-YU)
More than 500 businesses claim to be a franchise systems on the website of the Hungarian Franchise Association e.g., “ FORNETI” – autochtonous Hungarian franchise system (frozen pastry products)
Yet franchise is not regulated in Hungary (allegedly to vague & hybrid transaction)
most similar contracts; concretely to:
1. sales (“adásvétel”) or 2. agency (“megbízási szerződés”) or 4. licencing contract. – the drafters of the new Civil Code decided not to make a nominated contracts out of it
- as a result, courts have to apply by analogy to provisions on
3. enterprise contract (“vállalkozási szerződés”) or
RESULT
: UNPREDICTABILITY AS TO THE RIGHTS AND OBLIGATIONS OF THE PARTIES
-
Problem of determining the legal nature of franchise:
Unwritten rule is that in case of non-nominated contracts that law should be applied the elements of which DOMINATE in the given franchise contract (
Discretion or subjectivity?
) E.g., the obligaitons of the franchisee are not the same depending on the rules of which nominated contract are applied by analogy: a/ If the rules on
agency
are applied: - acting with
RESULT
due diligence
must be achieved is requested but
NO PARTICULAR
b/ If the rules on
entrepreneurship contracts
are applied
:
- due diligence is INSUFFICIENT –
achieved some concrete result must be
(e.g., gathering of a predefined number of clients)
Is this Case from Poland Instructive to the Entire CEE?
(Court of Appeals, Katowice, 1998)
Is asymmetry a natural corrolary (sine qua non) of franchise contracts?
A. If not: how to determine which contract is voidable? Which clauses to take into account in determining that?
E.g., given that normally franchisors draft the contract – is the mandatory arbitration clause automatically void? Or, the abuse must be proven?
B. If YES: 1.
Can the DCFR model taken as the European model of franchise asymmetry?
Especially as most European countries has no franchise regulation.
2.
What to do with clauses that were dictated by the franchisor but are not listed in the DCFR? Are they per se void?
E.g., the DCFR does not contain a clause on arbitration of franchise disputes.
DCFR
Audit and inspection limited by reasonableness
(Comments: in reasonable time of the
day and with reasonable
frequency)
Nothing on mandatory insurance
Nothing on the franchisee’s duty to pay all
taxes
and other encumbrances
Nothing on the prohibition of the transfer of the contract Nothing on arbitration
Art
2:302 – equal right to termination the contract
GLICKMAN MODEL CONTRACT
No such limitation on audit and inspection Franchisee must pay such insurance and to indicate the franchisor as the beneficiary Franchisee must pay all taxes without delay – if breached: franchisor has the right to terminate Prohibition of contract transfer: standard Arbitration: standard
Franchisor has bigger termination rights
STRATEGIC ADVANTAGES
a.
b.
Financially stronger Bigger expertise Dictates the tempo:
Entry fee: $ 10,000 Only duty to disclose on risks (duty to deliver the manual 14 days before)
Drafts all legal acts Dictates applicable law, place of arbitration or court procedure
a.
b.
c.
d.
STRONGER CONTRACTUAL POSITION
Right to dictate the terms of the IP license
Right to audit
Right to monitor the operations of the franchisee
More favorable rights for termination
Franchisee wanted to terminate because his outlet was non profitable ; a.
b.
His arguments
: The contract was asymmetric – to wit, the outlet bankrupted because everything was dictated by the franchisor Franchise contracts as asymmetric contracts are contrary to the principle of freedom of contract and good faith. -
First instance: for the franchisee Appeal cour
t: for the franchisor as the first instance decision was based on “from the past inherinted conceptions of what is moral and fair in business life.”
Are the unhappy experiences with arbitrating franchise disputes from the US instructive to Europeans?
US Experiences
2007 Bill
: Arbitration Fairness Act 1. disputes with consumers 2. employment disputes, and 3. The bill wanted to PROHIBIT arbitration of:
franchise disputes
.
Reason:
arbitrate these categories of parties have no real possibility of freely deciding on whether to
GENERAL QUESTIONS
What is the legal nature of franchise and is that of relevance in deciding? Is the DCFR’s system a properly balanced system or rather a too franchisee tilted one? Is asymmetry a sine qua non of franchise contracts? If yes, what level of asymmetry should be accepted?
“Rules on the substantive aspects of security in movables would be toothless , or would fail to achieve the goal of harmonising proprietary security in movable assets in Europe, if they left enforcement of those rights entirely to the – diverging – procedural laws and rules of the Member States.”
DCFR Comments to Article IX.- 7:101: Secured Creditor’s Rights after Default, at 5613.
Philip R Wood
,
Law and Practice of International Finance
(Sweet & Maxwell, Thomson, 2008, University Edition), point 32 28. “Unlike ordinary commercial contracts,
bank loan agreements arbitration is almost never used in financial contracts, especially
or bond issues.
The main objections are
principles of law ”
: having nothing to arbitrate; very limited appeals; time and delays involved in setting up the arbitration tribunal; not necessarily less expensive; looser procedures, and sometimes decisions are made on the merits otherwise than in accordance with the strict
BANKS
Philip R Wood is right that banks are hesitant to resort to ADR
BUT
in CEE disputes of banks and consumers IS being directed to arbitration and mediation
Hungary
: there is a PANEL FOR MEDIATION attached to the Agency on Financial Supervision (FSA – Pszaf)
NON-BANKING FINANCIAL ORGANIZATIONS
Contracts with RETAINED OWNERSHIP
a. consignment b. leasing (operational and financial) c. sales contracts (esp. cross border ) of suppliers Factoring Pawnshops Pledging investment property controlled by brokers
“It appears that in many European countries there is an increasing movement seeking an alternative to the traditional method of enforcing security rights because of [the] delays, costs and often disappointing results [of enforcement through courts] ...” Von Bar i Eric Clive, Komentar Nacrta (Oxford, 2010), tom šesti, strana 5614.
See, e.g., Alabama Title Loans, Inc. v. White, 80 So.3d 887(Ala. 2011). The clause in a car loan agreement provided that the arbitration clause (agreement) “
shall survive the repayment of all amounts owed
” and that it extended to all claims, including tort claims, that “
relate[d] to this Agreement or the Vehicle
loan had already been paid.
; ” (i.e., not only those arising directly from the loan agreement). Based on such formulation of the arbitration clause, the court ordered arbitration of the debtor’s claims against the repossession agency that had repossessed after the
See the FTC document and Arbitration (2010); Repairing a Broken System: Protecting Consumers in Debt Collection Litigation ( http://www.ftc.gov/os/2010/07/debtcollectionreport.pdf> ; The document concludes that
“[…] the current [US] system for resolving consumer debts is broken, […] because consumers are not adequately protected in either debt collection litigation or arbitration
.” Id., Executive Summary, at i.
WHAT ALREADY IS EVIDENT
Presence of private collection industries Growing number of countries regulates them Indirect evidences on abuses
NO EVIDENCE ON …
Whether arbitration is resorted to? Yet private collection agencies – often ‘
factoring
’ companies – qualify as financial organizations, hence, should resort to mediation panels (e.g., Hungary)