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U.S. Submission on Place of Arbitration


March 19, 2001

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In the Arbitration under Chapter Eleven
of the North American Free Trade Agreement
and the ICSID Arbitration (Additional Facility) Rules
between

 

 

ADF Group Inc.,

Claimant/Investor,

-and-

United States of America,

Respondent/Party.

 

 

 

 

 

Case No. ARB(AF)/00/1

 

Submission on

Place of Arbitration of

Respondent United States of America

 

 

Mark A. Clodfelter

Assistant Legal Adviser for International

Barton Legum

Chief, NAFTA Arbitration Division, Office

Andrea J. Menaker

Laura A. Svat

Attorney-Advisers, Office of International

United States Department of State

Washington, D.C. 20520

March 19, 2001

Contents

 

I. The Location of the Subject-Matter

in Dispute Is Washington

II. The Laws on Arbitral Procedure of the

United States and Quebec Are Equally Suitable

III. Convenience Favors Washington over Montreal

IV. Washington Is a Less Costly Venue than Montreal

V. Both Canada and the United States Are

Parties to the New York Convention

VI. There Is No Bar to Selecting Washington as the

Place of Arbitration in a Chapter Eleven Case

against the United States

Conclusion

In the Arbitration under Chapter Eleven

of the North American Free Trade Agreement

and the ICSID Arbitration (Additional Facility) Rules

between

 

ADF Group Inc.,

Claimant/Investor,

-and-

United States of America,

Respondent/Party.

 

 

 

 

 

Case No. ARB(AF)/00/1

As contemplated by Item 12 of the Minutes of the First Session of the Tribunal, Respondent United States of America respectfully makes this submission on the proper place of this arbitration under Article 1130 of the North American Free Trade Agreement ("NAFTA") and Chapter IV of the ICSID Arbitration (Additional Facility) Rules. For the reasons set forth below, the Tribunal should select Washington, D.C. as the place of arbitration.

The NAFTA provides in pertinent part that, unless the disputing parties have agreed otherwise, the "Tribunal shall hold [the] arbitration in the territory of a Party that is a party to the New York Convention, selected in accordance with: (a) the ICSID Additional Facility Rules if the arbitration is under those Rules . . . ." NAFTA art. 1130. Here, the disputing parties agree only that for reasons of cost and convenience the place of arbitration shall not be in the territory of the United Mexican States. Accord ADF Submission at 3 14. The Tribunal therefore must select, in accordance with the ICSID Additional Facility Rules, a place of arbitration in either the United States or Canada.

Contrary to the contention of Claimant ADF Group Inc. ("ADF"), three of the five factors relevant to selecting the place of arbitration favor Washington, D.C. over Montreal, Quebec, while the remaining two factors are neutral. None favor Montreal. First, the subject of this dispute, which centers on a highway construction project just south of Washington and related federally-funded procurement by the Commonwealth of Virginia, clearly points to Washington as the place of arbitration. Second, the suitability of the law on arbitration is a neutral factor: as each of the NAFTA tribunals to address the question has found, the laws of Canada and the United States are equally suitable for arbitrations such as these. Third, ICSID is able to support proceedings at its Centre in Washington, D.C. for a fraction of the cost required to conduct such proceedings at a commercial venue in Montreal. Fourth, as another NAFTA tribunal has found, the nature of governmental decision-making renders Washington materially less inconvenient for ADF than Montreal would be for the United States. Finally, the remaining factor concerning enforcement is neutral, as both Canada and the United States are parties to the New York Convention.

Argument

In this case, Article 21(1) of the ICSID Arbitration (Additional Facility) Rules governs the Tribunal�s determination of the place of arbitration. This provision, however, provides little practical guidance for choosing the place of arbitration. See ICSID Arbitration (Additional Facility) Rules art. 21(1) ("Subject to Article 20 of these Rules the place of arbitration shall be determined by the Arbitral Tribunal after consultation with the parties and the Secretariat.").

The United States therefore agrees with ADF and the principal NAFTA decisions on the subject that paragraph 22 of the UNCITRAL Notes on Organizing Arbitral Proceedings (the "UNCITRAL Notes") sets forth relevant factors for the Tribunal to consider in selecting the place of arbitration. As demonstrated below, siting the arbitration in Washington, D.C. over Montreal is compelled by the factual and legal criteria that the UNCITRAL Notes identify as "[a]mong the more prominent factors" relevant to determining place of arbitration:

(a)

suitability of the law on arbitral procedure of the place of arbitration; (b) whether there is a multilateral or bilateral treaty on enforcement of arbitral awards between the State where the arbitration takes place and the State or States where the award may have to be enforced; (c) convenience of the parties and the arbitrators, including travel distances; (d) availability and cost of support services needed; and (e) location of the subject-matter in dispute and proximity of evidence.

UNCITRAL Notes 22.

I. The Location of the Subject-Matter in Dispute Is Washington

The "location of the subject-matter in dispute and proximity of evidence" clearly point to the United States and Washington, D.C. as the place of arbitration. The physical facts of this case focus on a construction project designed to expand the so-called "Springfield Interchange," one of the busiest highway intersections in the Washington metropolitan area. The legal facts center on a procurement contract between the Virginia Department of Transportation and a Virginia-based general contractor, a supply contract between that contractor and ADF, the federal sources of funding for the Virginia procurement contract, and the conditions attached to that federal funding. By far, the great majority of relevant events took place in either the Washington metropolitan area or nearby Richmond, Virginia. Indeed, within the section of ADF�s Notice of Arbitration entitled "Nature of the Claim," only one of twenty-five paragraphs describes an event that took place in Canada � and that paragraph merely recites that ADF was incorporated there. Thus, there can be no doubt that the subject-matter of this arbitration, as well as the bulk of the evidence, is located in the United States within a short distance of Washington, D.C.

The Ethyl Decision illustrates the application of this factor in analogous circumstances. The tribunal in Ethyl was asked to decide whether Toronto, Ottawa or New York City should be designated as the place of arbitration. Given that the claimant alleged a Canadian federal statute violated Chapter Eleven, the Ethyl tribunal found that "Canada indisputably [was] the location of the subject-matter in dispute." Ethyl Decision at 10. Moreover, having found largely inconclusive results upon examining the other UNCITRAL factors, the Ethyl tribunal concluded that the location of the subject-matter "finally turns the Tribunal definitely to selection of a place of arbitration in Canada." Id. at 8.

The Methanex tribunal similarly found the subject-matter of the dispute to be centered in the jurisdiction that adopted and maintained the measures at issue. Like that of ADF, the "effective claim [in Methanex] is based on alleged actions in the USA affecting a US enterprise." Methanex Decision at 13 � 33. The Methanex tribunal similarly found this factor to favor Washington, D.C. over Toronto, the proposed alternate forum. Id.

ADF offers no real argument on this point. Instead, it attempts to play down the importance of the Tribunal�s determination by suggesting � erroneously � that choice of the place of arbitration under the Arbitration (Additional Facility) Rules establishes only the legal seat of the arbitration and not the physical location of the hearings. Under the Arbitration (Additional Facility) Rules, however, the Tribunal is to determine a place of arbitration that is both the legal seat and the presumptive location of physical hearings. As Article 20 makes clear, Chapter IV of the Rules governs where the "[a]rbitration proceedings shall be held." (Emphasis supplied.)

Moreover, Article 21 of the Arbitration (Additional Facility) Rules does not grant the Tribunal discretion to hold hearings outside the place of arbitration. Rather, unlike the provision of the UNCITRAL Arbitration Rules that ADF relies upon, Article 21 only grants the Tribunal authority to meet elsewhere for the limited purpose of inspecting goods, other property or documents. Compare UNCITRAL Arbitration Rules art. 16(2) (tribunal "may hear witnesses and hold meetings for consultation among its members at any place it deems appropriate") (emphasis supplied) (reproduced at Tab 8 to ADF Submission) with ICSID Arbitration (Additional Facility) Rules art. 21(2) (tribunal "may meet at any place it deems appropriate for the inspection of goods, other property or documents") (emphasis supplied).

It follows that the determination of the place of arbitration under the Arbitration (Additional Facility) Rules presumptively determines the physical place of the hearings. And, as discussed below, the place of arbitration also determines the municipal jurisdiction in which the parties may seek review of an award. Considerations pertinent to the place of the hearings � such as the proximity of evidence, cost and convenience � therefore are of significance to the issue before the Tribunal. Those considerations, as illustrated above and further below, should "turn[] the Tribunal definitely to a selection of a place of arbitration" in the United States. Ethyl Decision at 8.

II. The Laws on Arbitral Procedure of the United States and Quebec Are Equally Suitable

Unlike investor-State cases brought under the ICSID Convention On The Settlement Of Investment Disputes Between States And Nationals Of Other States ("ICSID Convention"), arbitral proceedings governed by the ICSID Additional Facility are subject to applicable national laws on arbitral procedure:

[T]he provisions of the Convention are not applicable to Additional Facility proceedings. With respect to arbitration proceedings this means, e.g., that awards, unlike awards rendered pursuant to the Convention, are not insulated from national law and that their recognition and enforcement will be governed by the law of the forum, including applicable International Conventions.

Rules Governing The Additional Facility For The Administration Of Proceedings By The Secretariat Of The International Centre For Settlement Of Investment Disputes, art. 3, cmt. (U.S. Appendix, Exhibit 2). Thus, a party�s attempt to seek judicial review of an award in an Additional Facility case would, absent agreement between the parties on a different law, be subject to the law of the place of arbitration.

ADF erroneously contends that the arbitration law of Quebec is suitable while that of the United States is not. To the contrary, "the two potential places of arbitration [in Canada and the US] may be considered equally suitable in terms of the law on arbitral procedure and enforcement," as the tribunals in Methanex and Ethyl correctly concluded. Methanex Decision at 10 � 26; accord Ethyl Decision at 5 ("As to criterion (a) of the Notes � �suitability of the law on arbitral procedure� � the Tribunal concludes that all proposed fora [in Canada and the US] are all equally suitable."). Indeed, for the reasons that follow, the United States� law of arbitral procedure is eminently suitable.

First

that concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties� agreement, even assuming that a contrary result would be forthcoming in a domestic context.

Id.

Indeed, ADF�s assertion that the law on arbitral procedure is more suitable in Canada than the United States is difficult to reconcile with the United States� long-standing status as a center of international commercial arbitration. Far more such arbitrations are held in the United States than in Canada. In contrast, the Model Law adopted by Quebec is generally considered to be "used by countries which have little tradition in the field of international commercial arbitration." These facts suggest that many international practitioners do not agree with ADF�s contention that United States law is not as suitable as Canadian law.

Second

Thus, Chapter 2 of the FAA implements the New York Convention with respect to arbitration agreements and awards falling under the Convention. See 9 U.S.C. � 201 (New York Convention "shall be enforced in United States courts in accordance with this chapter"). Section 202 defines agreements and awards falling under the Convention as those "arising out of a legal relationship, whether contractual or not, which is considered as commercial . . . ," subject to certain exceptions for relationships entirely between U.S. citizens not relevant here. NAFTA Article 1136(7) specifically provides that a Chapter Eleven claim "shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention . . . ." It is thus not debatable that a Chapter Eleven award must be considered "commercial" for purposes of the New York Convention and therefore Chapter 2 of the FAA.

Section 208, entitled "Chapter 1; residual application," provides that "Chapter 1 [of the FAA] applies to actions and proceedings brought under [Chapter 2] to the extent that that chapter is not in conflict with this chapter or the Convention as ratified by the United States." Consistent with this provision, United States courts have held that the standards for setting aside an award contained in Chapter 1 of the FAA also apply to awards falling under the New York Convention and Chapter 2 of the FAA. See Alghanim & Sons v. Toys "R" Us, Inc., 126 F.3d 15 (2d. Cir. 1997), cert. denied, 118 S. Ct. 1042, 140 L. Ed. 2d 107 (1998) (upholding district court�s authority to apply Section 10 of Chapter 1, 9 U.S.C. � 10, to set-aside a New York Convention award). Accordingly, Chapter 1 of the FAA is applicable to a review of a Chapter Eleven case.

In this regard, ADF fundamentally misconstrues the United States� comments in the Methanex arbitration. ADF Submission at 14 � 72-73, 17 86. Rather than taking the sweeping position that, for all purposes, Chapter Eleven arbitrations are not "commercial," the United States in the Methanex case questioned the applicability of Section 2(2) of the Ontario International Commercial Arbitration Act (which applies the UNCITRAL Model Law only to international commercial arbitration agreements and awards) to review of Chapter Eleven awards. We suggested merely that, because Article 1136(7) of the NAFTA deems Chapter Eleven claims to be commercial for purposes of the New York and Inter-American Conventions only:

[i]t is unclear that this provision can be construed to deem Chapter 11 claims as commercial in contexts other than the two conventions specifically identified, and it is far from clear that the claims here could be considered "commercial" for other purposes.

Submission of Respondent United States of America for the Second Procedural Hearing in Methanex (Sept. 1, 2000) at 9-10 (emphasis added) (U.S. Appendix, Exhibit 15). Chapter 2 of the FAA, by contrast, presents precisely the context in which NAFTA Article 1136(7) mandates that Chapter Eleven claims must be deemed commercial. ADF�s contention that U.S. law on arbitral procedure is unclear thus cannot withstand scrutiny.

On balance, the laws on arbitral procedure applicable in Washington, D.C. are at least as suitable as those applicable in Montreal. As the Ethyl tribunal held in comparing Canadian and United States arbitral law in a similar context:

As to criterion (a) of the Notes � "suitability of the law on arbitral procedure" � the Tribunal concludes that all proposed fora are all equally suitable. It appears undisputed that Canada�s Commercial Arbitration Act is based on the UNCITRAL Model Law on International Commercial Arbitration and by its terms would apply to this arbitration under NAFTA Chapter 11. It appears to be equally undisputed that the relevant laws of the United States, and, to the extent relevant, the State of New York, are no less suitable. The fact that the laws applicable to this arbitration, were it situated in New York City, have been in place longer than Canada�s Commercial Arbitration Act, and therefore are judicially more elaborated, does not, in the view of the Tribunal, significantly affect their comparative suitability.

Ethyl Decision

III. Convenience Favors Washington Over Montreal

Holding the arbitration in Washington, D.C., an easily accessible, central location, would be substantially less inconvenient than Montreal.

With respect to the arbitrators� convenience, Washington, D.C. and Montreal are each home to only one arbitrator and, thus, are equally inconvenient for the other two. Likewise, one of the parties (and their legal counsel) must travel whether Washington, D.C. or Quebec is the place of arbitration.

The realities of governmental decision-making, however, strongly favor Washington over Quebec in this regard. Numerous federal agencies, representing various aspects of the United States Government�s expertise and policymaking responsibilities, are substantively involved in this arbitration. This is so because (i) ADF challenges measures that are part of a long-standing and complex system of federally-funded state government procurement and regulation; (ii) ADF claims almost $100 million dollars in damages; and (iii) this is one of only four NAFTA Chapter Eleven arbitrations in which the United States is a respondent. Decision-making regarding the United States� positions in this arbitration � as well as how those positions are argued � involves multiple levels of officials within each of the many involved agencies.

Consequently, because only a few of the government officials involved in this arbitration would likely be able to attend proceedings in Quebec given the cost and conflicting demands on their time, designating Quebec as the place of arbitration would significantly hinder the United States� ability to present its case in this matter. If Washington, D.C. were designated as the place of arbitration, travel would not be required for any officials of the numerous federal agencies involved in this arbitration. In contrast, if Quebec were the place of arbitration, all of the United States participants in this arbitration would be required to travel; and any officials of ADF�s investment in Florida would still be required to travel much farther than Washington, D.C. On balance, therefore, Washington is a more convenient venue than Quebec.

Finally, neither the Methanex nor the Ethyl tribunal accepted the position ADF takes here, i.e., that this factor should be discounted in its determination of the legal place of arbitration. See ADF Submission at 21 � 118. The Methanex tribunal, in particular, recognized the convenience of Washington, D.C. "given the manifest involvement of different US governmental departments in the conduct of this arbitration." Methanex Decision at � 29. See also Ethyl Decision at 6-7. In the end, Washington is a less inconvenient venue than Quebec.

IV. Washington Is a Less Costly Venue Than Montreal

Although the United States agrees that there is no material difference between the availability of support services in Washington, D.C. and Quebec, the cost of such services would be significantly less in Washington. Even assuming ADF is correct that, on average, costs are higher in Washington, D.C. than they are in Montreal (ADF Submission at 19 � 97), ADF brought this case under ICSID�s Additional Facility, the services of which are significantly less expensive and more easily obtained at ICSID�s headquarters in Washington, D.C. than in Montreal. In fact, the parties in this case have already paid ICSID to make available their top-of-the-line arbitration facilities for a fraction of the going rate of facilities available in Montreal. Thus, consideration of the UNCITRAL Notes criterion dealing with the "availability and cost of support services needed" decidedly favors Washington.

We note too the potential applicability of the seven-percent Canadian Goods and Services Tax ("GST") to this arbitration if sited in Canada. Although counsel for the United States does not purport to be expert in Canadian tax law, our experience in other cases suggests that siting this arbitration in Quebec could subject the fees of at least one of the arbitrators to these taxes and, therefore, increase the cost of this arbitration. See Methanex Decision at � 10. By contrast, no tax on services is payable under the laws applicable in Washington, D.C.

V. Both Canada and the United States Are Parties to the New York Convention

It is common ground between the disputing parties that, with respect to enforcement of a Chapter Eleven award, there is little distinction between the United States and Canada, or between Washington, D.C. and Quebec. See ADF Submission at 9 51, 11 58. Indeed, because both the United States and Canada are parties to the New York Convention, and because NAFTA art. 1136(7) ensures that a Chapter Eleven award will be considered "commercial" for purposes of Article I of the New York Convention, an award in this case would be equally enforceable in the United States and Canada, regardless of any difference in the terms of accession under Article I.

As we have shown above, United States courts would recognize a Chapter Eleven award as falling under the New York Convention. Consequently, and in light of ADF�s own admissions (ADF Submission at 51, 58), the suggestion that this factor "clearly favors the selection of the Province of Quebec as the seat of arbitration" (id. at � 91) must be rejected. Instead, this factor "would appear not to be relevant here, given that all potential places of arbitration are in States Parties to the New York Convention." Ethyl Decision at 3 n.3; see also Methanex Decision at 10 � 26 ("As regards Factors A and B, the Tribunal accepts that there is little to choose between Toronto and Washington DC . . . .").

VI. There Is No Bar to Selecting Washington as the Place of Arbitration in a Chapter Eleven Case Against the United States

ADF urges, without support, the Tribunal to presume that the legal place of arbitration should not be sited in the territory of the United States, because "the very purpose of such arbitration is to take the dispute outside of the host�s State domestic legal system in order to protect the investor." ADF Submission at 20 � 109. Although there may well be cases where perceived neutrality could be considered an appropriate factor in determining place of arbitration, this is not such a case for several reasons.

First

Second

Third

Fourth

Finally

Conclusion

For the reasons set forth above, the United States respectfully submits that the Tribunal should designate Washington, D.C. as the place of arbitration pursuant to NAFTA Article 1130(a) and Article 21(1) of the Arbitration (Additional Facility) Rules.

Respectfully submitted,

 

 

 

Mark A. Clodfelter

Assistant Legal Adviser for International

Barton Legum

Chief, NAFTA Arbitration Division, Office

Andrea J. Menaker

Laura A. Svat

Attorney-Advisers, Office of International

United States Department of State

Washington, D.C. 20520

Claims and Investment Disputes

of International Claims and Investment

Disputes

Claims and Investment Disputes

March 19, 2001

, to the extent that the Tribunal were to consider neutrality as a factor, it would simply do so as a tie-breaking factor when the other five UNCITRAL factors do not clearly favor one proposed city versus another. For example, in Ethyl, where the measure at issue was a Canadian federal action, the tribunal only considered neutrality to choose between two Canadian cities it found to be "no more, and no less, appropriate" than the other "when measured by the other applicable criteria." Ethyl Decision at 10. Thus, as applied to the facts here, neutrality does not counterbalance the UNCITRAL Notes criteria strongly favoring Washington, D.C. over Montreal as the place of arbitration.
, any concern of neutrality could be addressed by holding the hearings in this case at ICSID�s World Bank headquarters. ICSID�s facilities are by definition neutral; the Bank is an international organization under the control of no one government. Indeed, ICSID exists specifically to facilitate the settlement of disputes between investors and governments on a non-partisan basis. See Methanex Decision at 15 � 39 ("[T]he requirements of perceived neutrality in this case will be satisfied by holding such hearings in Washington DC as the seat of the World Bank, as distinct from the seat of the USA�s federal government.").
, perceived neutrality is at best a secondary factor in determining the place of arbitration. As noted in Ethyl, UNCITRAL eliminated "perception of a place as being neutral" from an earlier draft of the "Notes as being �unclear, potentially confusing,�" and identified this only as an issue that a tribunal "�might wish to discuss . . . with the parties.�" Id. at 3 n.4 (quoting Report to the United Nations Commission on International Trade Law on the work at its twenty-eighth session (Vienna, 2-26 May 1995), U.N. Doc. A/50/17 � 337, reprinted in XXVI UNCITRAL Y.B. (1995)).
, a presumption against Washington, D.C. in this case would conflict with the plain terms of the NAFTA, which explicitly allow the legal place of arbitration to be within the territory of the respondent Party. Again, the Methanex tribunal agreed (Methanex Decision at 14 � 36), as did the Ethyl tribunal, specifically noting that Washington, D.C. in particular was an eminently appropriate venue: "In any event, NAFTA�s Chapter 11 clearly contemplates the possibility of disputes under it against any NAFTA Party being arbitrated in Washington, DC . . . ." Ethyl Decision at 4 (emphasis supplied).
, the disputing parties� agreement to exclude a venue within the territory of Mexico precludes neutrality in this case. As the Methanex tribunal noted, where the parties have "limited the choice of place of arbitration . . . to one or the other�s state, a neutral national venue is simply not possible." Methanex Decision at � 36 (emphasis supplied); see also Ethyl Decision at 9-10 (noting that the NAFTA Parties contemplated a sovereign party defending itself within its own jurisdiction). Thus, it stands to reason that the tribunal in the case styled Marvin Roy Feldman Karpa v. United Mexican States was able to select a neutral city (Vancouver) for the simple reason that the disputing parties had agreed to allow a Canadian venue. See Tab 24 to ADF Submission.
at 5-6.
, there is no foundation for the centerpiece of ADF�s argument on suitability � that the familiar provisions of the United States Arbitration Act, 9 U.S.C. �� 1 et seq. (the "Federal Arbitration Act" or "FAA") (reproduced at Tab 15 to ADF Submission), do not apply because this is not a "commercial" arbitration. See, e.g., ADF Submission at 52, 72, 86. ADF overlooks the fact that the FAA chapters that implement the New York and Inter-American Conventions clearly encompass proceedings under NAFTA Chapter Eleven, and that those same chapters provide for residual application of the principal chapter of the FAA.
at 629.
, the United States� commitment to facilitating international arbitration is beyond question. The United States Supreme Court recognizes an "emphatic federal policy in favor of arbitral dispute resolution." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985) (U.S. Appendix, Exhibit 5). That Court has concluded:

Submission on

Place of Arbitration of

Respondent United States of America

Argument

Claims and Investment Disputes

of International Claims and Investment

Disputes

Claims and Investment Disputes



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