The International Journal of Public and Private Arbitration
Full Contents List
- Introduction
- Regional Overviews
- Country Overviews
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The European & Middle Eastern Arbitration Review 2008
Section 2: Country Overviews
With its many international organisations promoting public international law,
such as the Permanent Court of Arbitration (PCA), the International Court of
Justice, the Iran-US Claims Tribunal and the International Criminal Tribunal
for the former Yugoslavia, one almost forgets that the Netherlands also offers
a seat to numerous international commercial arbitrations. Many large Dutch corporations
with their corporate headquarters in the Netherlands use arbitration clauses
with a seat of arbitration in the Netherlands. In addition, because of its beneficial
tax regime the Netherlands is host to many holding companies of essentially
foreign or international conglomerates, which often opt for arbitration there.
Interestingly, the Peace Palace in The Hague is regularly chosen as the venue
for hearings in international arbitrations. The Peace Palace is also home to
the PCA, whose secretary-general has a unique position under the UNCITRAL Arbitration
Rules.
Book 4 of the Dutch Code of Civil Procedure (DCCP) contains the Dutch Arbitration
Act. It applies if the seat of arbitration is in the Netherlands. It is mostly
regulatory law, with some mandatory provisions. The Arbitration Act contains
fairly regular provisions on the arbitration agreement (which must be evidenced
in writing), the appointment of arbitrators, disclosure and challenge of arbitrators,
procedure, witness and expert hearings, joinder and consolidation, Kompetenz–Kompetenz,
the content of the award, correction and addition of the award, recognition
and enforcement (the Netherlands is party to the New York Convention).
International arbitrations (ie, with one or more foreign parties involved) with
their seat of arbitration in the Netherlands are by and large conducted under
the arbitration rules of either the ICC, UNCITRAL or the Netherlands Arbitration
Institute (NAI). The NAI is a not-for-profit organisation with its headquarters
in Rotterdam. One of the salient features of the NAI Arbitration Rules is the
extensive section on summary arbitral proceedings (NAI Arbitration Rules, section
4A). It allows parties who have opted for NAI arbitration to obtain interim
relief in a relatively fast procedure (even if arbitration on the merits has
not yet been instigated). For construction disputes, the Board of Arbitration
for the Construction Industry is often chosen as the preferred arbitration institute.1
As for the general arbitration climate, the Dutch government has consistently
expressed support for arbitration. Also, the Supreme Court has time and again
held that the courts should act with restraint in setting aside arbitral awards.
It has held that setting aside proceedings may not be used as an appeal in disguise;
the public interest in the effectiveness of arbitration requires that a court
only sets aside in clear-cut cases.2 That is not to say that there is no obstacle
in the arbitrators’ way. Recent case law has drawn the line more clearly;
we will discuss five important developments.
Arbitrability of corporate resolutions: Supreme Court closes the door
Parties are not permitted to arbitrate about legal consequences of which they
cannot freely dispose.3 It has long been unclear to what extent arbitration
about corporate resolutions was possible. In December 2006 the Supreme Court
provided some clarity.4
The case originated in the Dutch Antilles and was decided under the old Code
of Civil Procedure of the Dutch Antilles as it was in force until 1 August 2005
(on which date the Dutch Antilles codified – without alteration –
the English language version of the UNCITRAL Model Law). Since the old code
of the Dutch Antillescontains the same provision on arbitrability as the Dutch
Code of Civil Procedure, the December 2006 judgment of the Supreme Court also
applies to current Dutch law.
At issue was the arbitrability of the validity of shareholders’ resolutions
on the appointment and dismissal of corporate directors and the validity of
decisions taken by a corporate director. The Supreme Court held that these issues
could not be subject to arbitration. Its reasoning was twofold. First, the annulment
of a decision by corporate entities is not at the free disposal of the parties
for reasons of legal certainty and in view of the often far-reaching consequences
for the legal entity and third parties. Second, a judgment voiding the decision
of a legal entity must by its nature apply erga omnes (against all) and not
just to those requesting annulment. This erga omnes effect requires the involvement
of the courts. This is true for all corporate decisions, regardless whether
they only have effect internally, or also in regard to third parties.
The Supreme Court’s decision has been much criticised. The severity of
the consequences should not be a decisive criterion, critics say, as many arbitrable
matters can lead to far-reaching consequences. Besides, it is difficult to see
why the dismissal of a corporate director has such far-reaching consequences
that it cannot be arbitrable. Also, there is limited need for an erga omnes
effect, because Dutch substantive law protects the rights of third parties who
have contracted with corporate entities acting without sufficient internal authority.
Be that as it may, the Supreme Court clearly provides a general rule that prohibits
arbitration of the validity of any decision of a corporate entity or of its
corporate bodies.
Award must contain reasons, but setting aside for lack of reasons only in exceptional cases
The Dutch Code of Civil Procedure provides that an award can be set aside if
it does not contain reasons. The Supreme Court has since long held that an arbitral
award can only be set aside based on this ground, if it contains no reasons,
not if the reasons given are unsound. Courts are not permitted to review an
arbitral award on the merits, when deciding whether to vacate an award.5 However,
in the 2004 Nannini case, the Supreme Court complicated this ground for setting
aside by ruling that an award, which contains reasons, but in which no convincing
explanation (steekhoudende verklaring) for the decision can be ascertained,
must be equated with an award that does not contain reasons.6 This criterion
has lead to considerable debate in arbitration practice, since it remained unclear
what was meant by a ‘convincing explanation’. As it could arguably
mean that the standards for the reasoning of the award were raised, requiring
the reasoning to be convincing, this ground for setting aside became more frequently
used. Various practitioners and scholars feared that this would make the Netherlands
less attractive as a place for arbitration, as it would open the door for reviewing
the merits of the case by the courts.
In December 2006, however, the Supreme Court ruled that the Nannini criterion
must be applied with restraint and that the court must only apply it in clear-cut
cases. The court may set aside only if the award contains no reasons or if it
is so deficiently reasoned that it must be equated with an award without reasons.7
If he reasoning of the tribunal is based on an incorrect application of substantive
law, the award cannot be set aside for that reason, because this does not mean
that the award contains no convincing explanation for the decision.8 The Supreme
Court’s further guidance makes clear again that arbitral awards can be
challenged in exceptional cases only.
Influence of European law on review of arbitral awards: consumer protection
An award may be set aside if its contents violate public policy.9 Since the
Eco Swiss judgment of the European Court of Justice (ECJ),10 which emanated
from questions asked by the Dutch Supreme Court, it is clear that an award violates
public policy (inter alia) if it is contrary to mandatory EU law of such fundamental
nature that its application must not be impeded by procedural restraints. EU
competition law qualifies as such. In its judgment of 26 October 2006 (Mostaza
Claro),11 the ECJ effectively determined that a violation of Directive 93/13/EEC
(unfair terms in consumer contracts) also amounts to a violation of public policy.
From the Océano12 and Cofidis13 cases it was already clear that a court
must determine ex officio whether a provision in a contract with a consumer
is ‘unfair’ as meant in the Directive. In Mostaza Claro, the ECJ
ruled that Directive 93/13/EEC
must be interpreted as meaning that a national court seized of an action for
annulment of an arbitration award must determine whether the arbitration agreement
is void and annul that award where that agreement contains an unfair term, even
though the consumer has not pleaded that invalidity in the course of the arbitration
proceedings, but only in that of the action for annulment.
The Mostaza Claro judgment means that the Dutch Arbitration Act must be amended.
It currently provides that a plea as to the lack of a valid arbitration agreement
can only be made in the arbitration proceedings prior to any defences on the
merits.14
The Dutch government intends to enact legislation providing that arbitration
clauses in general conditions with consumers are in any case deemed ‘unfair’
within the meaning of the Directive. There is widespread support for this legislation.
It would provide more extensive consumer protection than the ECJ requires: arbitration
clauses would always be considered ‘unfair’. The proposed legislation
does not yet contain the requirement that the courts appraise the validity of
the arbitration clauses in consumer cases ex officio.
Audiatur et altera pars: strict application
An award may also be set aside if the manner in which it was made violates
public policy. This typically involves violations of fundamental principles
of due process and fair trial. In particular the right to be heard has generated
quite some case-law in setting aside proceedings. It is standard case law that
this fundamental right must in principle be applied just as strictly as it is
applied in regular court proceedings.15 It also means for instance that a party
preserves his due process rights unless he has unambiguously waived his right
to be heard.16 The tribunal may only decide on the basis of evidence which has
been made available to the parties and which the parties have been given sufficient
opportunity to respond to.17
In a recent judgment the Supreme Court has reiterated the stringent application
of the principle of audiatur et altera pars. The court held that the restraint
courts must observe in setting aside proceedings applies also in cases where
a violation of principles of due process is alleged, but does not apply to violations
of the fundamental right to be heard.18 The judgment involved a case where the
tribunal had based its decision primarily on the statement of a witness. One
of the parties had taken this person to a hearing, without having offered to
hear him as a witness. The other party objected to his presence at the hearing;
the tribunal granted that objection. However, the tribunal thereafter considered
it relevant to hear this person as a witness, even though no witness testimony
was offered or ordered. The other party was given the opportunity to ask questions
to the witness and had not asked to hear witnesses of its own or to respond
to his statement. Nevertheless, the court ruled that the tribunal should have
stated the purpose of the hearing and should have actively offered the other
party the opportunity to contest the statement of the witness and to hear witnesses
of its own.
Challenging arbitrators: Supreme Court sets standards for arbitrators’ investigation of evidence
An arbitrator can be challenged if justifiable doubts exist as to his impartiality
or independence. It is standard case law that outward appearance of partiality
may also be taken into account.19
On 27 June 2007 the Supreme Court rendered an important judgment in regard to
the grounds for challenging arbitrators in a case brought to it by the Advocate-General
in the interest of precedence.20
The case involved a dispute between a disability insurer and an insured client.
The insured applied for payment under his disability insurance. The insurer
denied coverage, contesting the alleged disability of the insured. The insurance
policy contained an arbitration clause opting for arbitration in accordance
with NAI Arbitration Rules. In accordance with its Rules, the NAI appointed
three arbitrators, two of which were doctors. These doctors conducted a medical
investigation of the insured. After being examined the insured doubted the impartiality
of these doctors and challenged them – first through the challenge procedure
of the NAI and, after the request for challenge was denied, in a request to
the Amsterdam Court. The court granted the challenge. It reasoned that if an
arbitrator himself conducts an investigation of the facts (in this case, the
body of the insured), he may later have to weigh his own conclusion against
those of an expert appointed by a party contesting the validity of the arbitrator’s
findings. Such party may justifiably doubt that the arbitrator will be impartial
towards the conclusions of the party appointed expert and not favour his own
conclusions.
In his petition to the Supreme Court the Advocate-General argued that an arbitrator
appointed in view of his specific expertise should not be limited to merely
weighing the parties’ evidence and be prohibited from conducting his own
investigation.
The Supreme Court held that the rules of impartiality and independence, as equally
applying to judges and arbitrators, dictate that an arbitrator cannot gather
evidence himself outside the parties. It confirmed the ruling of the Amsterdam
Court in that regard. The Supreme Court ruled that arbitrators should in principle
restrict themselves to appraisal of evidence. They may use their specific expertise,
but if this would require them to conduct their own investigation, they may
only do so if the parties have given them explicit permission to base their
judgement on their own findings. When conducting such investigation arbitrators
should have due regard for their impartiality, the equality of parties and principles
of due process, unless (and to the extent that) parties have explicitly waived
these. Also in those cases, however, arbitrators must make sure to fully respect
the principle of audiatur et altera pars and make arrangements with the parties
to ensure this (including the real possibility to contest the arbitrators’
findings), unless the parties have explicitly agreed that the arbitrators’
findings based on their own investigation are in any event binding.
The Supreme Court’s judgment is particularly important for cases where
arbitrators are selected and appointed for their expertise (eg, engineers, financial
experts, medical professionals, business people). Usually the premise is that
these arbitrators are appointed to apply their expertise in some way. The Supreme
Court’s ruling shows they are at liberty to do so, as long as they appraise
the evidence presented by the parties. Investigation by the arbitrators, in
particular if it amounts to new evidence, may only be conducted with explicit
approval of the parties. As there is not always a sharp distinction between
investigation and appraisal of evidence, parties and arbitrators are well advised
to make explicit arrangements in case of doubt. This judgment is also relevant
in cases where arbitrators are not appointed for reasons of their specific expertise.
For instance, in the absence of an explicit agreement with the parties, an arbitrator
retrieving information from the internet, which appears to occur more than once,
risks being challenged, even when he subsequently provides the parties the opportunity
to be heard. The Supreme Court’s ruling, albeit stringent on certain aspects
of the manner in which arbitrators can conduct an arbitration, can be welcomed
for providing guidelines to arbitrators and parties alike.
* * *
The Netherlands as place of arbitration is generally arbitration-friendly. Arbitrators will not find much in their way as long as they respect the fundamental right to be heard in its full force. Also there is a tendency to prohibit or control arbitration in certain specific areas (eg, corporate resolutions, consumer cases, public procurement). In any event, in the past year the boundaries between what is and what is not possible in arbitration were more clearly drawn. From a perspective of legal certainty and therefore also for parties choosing for arbitration in the Netherlands, this is to be welcomed.
Notes
1 Traditionally the Board of Arbitration also dealt with public
procurement cases. The government has proposed an act which prohibits arbitration
in public procurement matters (Public Procument Law, proposal no. 30501). The
main concern of the government seems to be that arbitral tribunals are not permitted
to refer to the European Court of Justice for questions on the interpretation
of EU law. The act is approved by parliament and currently pending in the senate.
2 See, eg, HR 17 January 2003, NJ 2004, 384 (IMS/Ministry of
Defence); HR 9 January 2004, NJ 2005, 190 (Nannini/SFT).
3 Article 1020(3) DCCP.
4 HR 10 November 2006, RvdW 2006, 1055 (Groenselect).
5 HR 25 February 2000, NJ 2000, 508 (Benetton III).
6 HR 9 January 2004, NJ 2005, 190 (Nannini/SFT).
7 HR 22 December 2006, RvdW 2007, 17 (Kers/Rijpma).
8 HR 22 December 2006, RvdW 2007, 17 (Kers/Rijpma), paragraph
3.5.
9 DCCP, article 1065(1)(c).
10 ECJ 1 June 1999, C-126/97 (Eco Swiss/Benetton), ECR I-3055.
11 ECJ 26 October 2006, C-168/05 (Mostaza Claro/Centro Móvil).
12 ECJ 27 June 2000, C-240/98–C-244/98 (Océano
Grupo Editorial en Salvat Editores), ECR I-4941.
13 ECJ 21 November 2002, C-473/00 (Cofidis), ECR I-10875.
14 DCCP, article 1052(2).
15 HR 27 March 1987, NJ 1988, 130 (Pensioenfonds/Geerlings).
16 HR 18 June 1993, NJ 1994, 449 (Van der Lely/VDH)
17 HR 27 March 1987, NJ 1988, 130 (Pensioenfonds/Geerlings)
18 HR 25 May 2007, NJ 2007, 294 (Spaanderman/Anova).
19 HR 18 February 1994, NJ 1994, 765.
20 HR 29 June 2007, RvdW 2007, 630.
De Brauw Blackstone Westbroek
De Brauw Blackstone Westbroek
N.V.
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