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Arbitration Clauses as Alternative Mechanisms for the Settlement of Conflicts Involving International Syndicate Loan Agreements and Restructuring Agreements

Published online by Cambridge University Press:  21 May 2009

Carsten Thomas Ebenroth  and
Ulrich Parche
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Extract

The aim of all debt restructuring programmes covered by the term menu approaches was the return of deeply indebted developing countries to the financial markets by means of a debt reduction policy substantially in conformity with market principles. At the same time, the provision of the new credits needed in order to finance the structural adjustment was to be ensured by a differentiation in the classes of creditors, as can be seen in the trend towards securitization of claims. However, the Mexico Agreement concluded at the beginning of February 1990 revealed the lack of interest of most commercial banks in supplying new credits. This was only to be expected, in view of the heavy losses of the commercial banks on credits to ailing Third World countries. Evidently, the creditor banks will only be willing to become involved in fresh money commitments if they are granted preferential payment from the foreign exchange earnings secured by the transactions or if they are offered a privileged position in the innovative arrangement of corporate finance products. This is the case, for example, in regard to participation in debt-equity programmes, debt-for-bond swaps or financing on the capital market.

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Articles
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Netherlands International Law Review , Volume 38 , Issue 1 , May 1991 , pp. 1 - 26
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Copyright © T.M.C. Asser Press 1991

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References

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3. For example, participation in income from oil in return for the provision of new credits to guarantee oil production, perhaps for the purchase of spare parts.

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27. Leavy, J., ‘Colombian Supreme Court Saves Foreign Loans’, Int. Fin. LR (02 1987) p. 47Google Scholar.

28. The possibilty that the debtor State may interfere in contractual relations in spite of governing law clauses is dealt with in section 3 infra.

29. Art. VIII(2)(b) runs as follows: ‘Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member’; cf., Horn, loc. cit. n. 7, pp. 409, 418; most recently, I. Seidl-Hohenveldem, ‘Article VIII Section 2(b) of the IMF Articles of Agreement and Public Policy’, 23IL (1989) pp. 957–962; Sandrock, O., ‘Are Disputes over the Application of Article Vm Section 2(b) of the IMF Treaty Arbitrable?’, 23 IL (1989) pp. 950–993Google Scholar; Ebenroth, C. T., Code of Conduct(1987) p. 902Google Scholar; Ebenroth, C. T., Banking on the Act of State(1985) pp. 68–72Google Scholar; Ebke, W., ‘Article VIII Section 2(b), International Monetary Cooperation, and the Courts’, 23 IL (1989) pp. 677–710 with further referencesGoogle Scholar.

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31. Bothe, et al. , op. cit. n. 16, pp. 62–63Google Scholar.

32. Most recently, OLG München, 25.1.1989, No. 15 U 4410/87, WM 1989, p. 1282; OLG Düsseldorf, 28.9.1989, No. 6 U 258/288, WM 1989, p. 1842; further references in Ebke, , loc. cit. n. 29, p. 686 et seq.Google Scholar; Ebenroth, , Banking, op. cit. n. 29, pp. 68–72Google Scholar.

33. On this point see Bosch, , loc. cit. n. 9, p. 141Google Scholar.

34. Wood, op. cit. n. 16, section 3.01(2)(b).

35. Bosch, , loc.cit.n.9, p. 135Google Scholar; Ryan, R., ‘Defaults and Remedies under International Bank Loan Agreements with Foreign Borrowers’, University of Illinois LR (1982) pp. 89, 111Google Scholar.

36. Bothe et al., op. cit. n 16. This would in any case be possible for creditors in the Federal Republic of Germany in accordance with section 23 ZPO.

37. Wood, op. cit. n. 16, section 3.08(1).

38. The following is an example from a recent contract:

32. Jursdiction

32.1 Submission

(a) For the benefit of the Agent, the Arranger, each Manager and each Bank, all the parties irrevocably agree that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that accordingly any suit, action or proceedings (together in this Clause referred to as ‘Proceedings’ (arising out of or in connection with this Agreement) may be brought in such courts.

(b) The Borrower irrevocably waives any objection which it may have now or hereafter to the laying of the venue of any Proceedings in any such court as it is referred to in this Clause and any claim that any such Proceedings have been brought in an inconvenient forum and further irrevocably agrees that a judgement in any Proceedings brought in the English courts shall be conclusive and binding upon the Borrower and may be enforced in the courts of any other jurisdiction in accordance with the applicable laws of that jurisdiction.

(c) Nothing contained in this clause 32 shall limit the right of the Agent, the Arranger, any Manager or any Bank to take Proceedings against the Borrower in any other court of competent jurisdiction including, without limitation, the courts of Denmark which have jurisdiction by reason of the Borrower's domicile of residence, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not.

32.2 Process Agent

The Borrower hereby irrevocably and unconditionally:

(a) Appoints The Law Debenture Trust Corporation p.l.c., currently of Princes House, 95, Gresham Street, London EC2V 7LY to receive, for and on its behalf, service or process in England in any Proceedings with respect to this Agreement;

(b) agrees to maintain in England a duly appointed process agent notified to the Agent, for the purposes of paragraph (a) above;

(c) agrees that failure by any such process agent to give notice of such process to it shall not impair the validity of such service or of any judgement based thereon;

(d) consents to the service of process out of any of the said courts in any such proceedings by the airmailing of copies, postage prepaid, to it at its address for the time being applying for the purposes of Clause 24; and

(e) agrees that nothing herein shall affect the right to serve process in any other manner permitted by law

39. Section 12.08 of the Combined Old New Money Agreement of 1990 with Mexico; section 13.08 of the Combined Multi-Year Restructure Agreement of 1990 with Mexico; section 12.06 of the Bond Subscription Agreement of 1990 with the Philippines.

40. 304U.S.64 (1938).

41. Ebenroth, and Tzeschlock, , loc. cit. n. 15, pp. 197Google Scholar, 201; Jayme, E. and Nicolaus, H., ‘RechtswahlundGerichtsstandklauseln – Gesetzesnovelle in New York’, IPRaX(1987)p. 131 et seq.Google Scholar; on jurisdiction agreements in the USA in general, see Rahmann, D., Ausschluβ staatlicher Gerichtszuständigkeit(1984)Google Scholar.

42. Samtleben, J., ‘Cláausulas de jurisdictióon y legislation aplicable en los contratos de endeudamiento externo de los Estados latinoamericanos’, VRÜ (1988) pp. 21, 311 with further referencesGoogle Scholar.

43. Section 11.08 of the Commercial Bank Cofinancing Agreement of 1988 with Brazil; for details see below, at section 4.

44. Section 7.03 of the New Money Bond Subscription Agreement of 1988 with Brazil; section 12.08 of the New Money Trade Deposit Facility of 1988 with Brazil; section 12.08 of the Parallel Financing Agreement of 1988 with Brazil.

45. Section 7.02 of the Brazil Investment Bond Exchange Agreement of 1988 with Brazil.

46. Ebenroth, and Tzeschlock, , loc. cit. n. 15, pp. 197, 203Google Scholar.

47. Semkow, , loc. cit. a 18, pp. 869, 908Google Scholar.

48. References in Ebenroth, and Tzeschlock, , loc. cit. n. 15, pp. 197, 203Google Scholar, and by the same authors, ‘Bankensanierung durch die Bank of England und die “Commercial Exception” nach dem US Foreign Sovereign Immunity Act 1976’, ZIP (1988) p. 808; Ebenroth, , Banking, op. cit. n. 29, p. 17 et seqGoogle Scholar.

49. Ebenroth, and Tzeschlock, , loc. cit. n. 48, pp. 808, 809Google Scholar.

50. Semkow, , loc. cit. n. 18, pp. 869, 908Google Scholar.

51. Berger, G., ‘Internationale Schiedsgerichtbarkeitund Staaterummunität’, RIW(1989)pp.956, 957Google Scholar.

52. According to Dineen, R.E., ‘The Brady Plan: The Siren Song of Debt Forgiveness?’, Int. Fin. LR (11 1989) pp. 22, 23Google Scholar

53. The following is an example from a recent agreement:

Where a receiving Bank has recovered an excess amount as a consequence of dissatisfaction of enforcement of a judgement obtained in any legal action or proceedings to which it is a party, clause 28.1 [sharing clause, Anmerkung des Verfassers]shall not apply so as to benefit any other Bank which (being entitled to do so) did not join with the receiving Bank in such action or proceedings unless the receiving Bank did not give prior notice of its involvement in such action or proceedings to the Agent for disclosure to the other Banks.’

54. ‘Rechtsschritte gegen den Problemschuldner Peru’, Neue Züricher Zeitung(International Edition) (6 March 1990) at p. 13.

55. The relief achieved by the restructuring of the Mexican debt is calculated for die 1990s at approximately US$3 billion.

56. 733F.2d23(2d Cir. 1984).

57. 566 F. Supp. 1440 (S.D.N.Y. 1983).

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62. Braker v. Bancomer, 762 F. 2d 222 (2d Cir. 1985); Callejo v. Bancomer, 764 F. 2d 1101 (5th Cir. 1985); on these cases see Ebenroth, and Tzeschlock, , loc. cit. n. 15, p. 205Google Scholar, and Gruson, , loc. cit. n. 16, p. 546; Grass v. Credito Mexicano, 797 F. 2d 220 (5th Cir. 1986)Google Scholar.

63. 792 F. 2d 587 (6th Cir. 1986).

64. Certificates of Deposit.

65. 792 F. 2d 587, 593.

66. 807 F. 2d 820 (9th Cir. 1987).

67. 764 F. 2d 1101 (5th Cir. 1985).

68. 807 F. 2d 826, 827 with reference back to Marine Bank v. Weaver, 455 U.S. 551, 102 S. Ct. 1220, 71L. Ed. 2d, 409 (1982) and Wolf v. Banco National de Mexico SA., 739 F. 2d 1458 (9th Cir. 1984) cert, denied 469 U.S. 1104, 105 S. Ct. 784, 83 L. Ed. 2d 778 (1985).

69. 807 F. 2d 820, 828 (9th Cir. 1987).

70. 22 USC section 2370(e)(2): ‘No court in the United States shall decline on the grounds of the Federal Act of State doctrine to make a determination on the merits giving effect to the principles of international law in a case in which a claim of title or other rights to property is asserted by any party.… based upon (or traced through) a confiscation or other taking.… by an act of state in violence of the principles of international law, including the principles of compensation.…’

71. 807 F. 2d 820, 832 (9th Cir. 1987).

72. 700 F.Supp. 114(S.D.N.Y. 1988).

73. 700 F. Supp. 114, 122 (S.D.N.Y. 1988).

74. Decision of 17 January 1990, 110 S. Ct. 701, 107 L.Ed.2d 816; see also M. Pethke, in 22 Van. J. Trans. L. (1989) p. 1231; cf., the comment by R.S. Rendell, ‘Act of State Doctrine’, Int. Fin. LR (March 1990) p. 39; preliminary decision: 847 F. 2d 1052 (3rd Cir. 1988), cert, granted 109 S. Ct. 3213 (1989).

75. This is already remarked upon in Delaume, G., ‘Choice of Law and Foreign Clauses in Eurobonds’, 11 Col. J. of Trans. L. (1972); pp. 240, 251Google Scholar; Slater, , loc. cit. a 8, pp. 173, 187Google Scholar.

76. Cates, and Isern-Feliu, , loc. cit. n. 19, pp. 28Google Scholar, 34; Samtleben, , loc. cit. a 42, pp. 21, 305, 325 (1988)Google Scholar; Hinsch, and Horn, , op. cit. n. 6, p. 154Google Scholar.

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78. Bosch, , loc. cit. a 9, p. 136 with further referencesGoogle Scholar; Ryan, , loc. cit. n. 35, pp. 88, 128 et seqGoogle Scholar.

79. Slater, , loc. cit. n. 8, pp. 173, 197Google Scholar

80. Bosch, , loc. cit. n. 9, p. 136Google Scholar; this is also suggested by K. Venkatachari, ‘The Eurocurrency Loan: Role and Content of the Contract’, in Kalderéen, L. and Siddiqi, Q.S., eds., Sovereign Borrowers: Guidelines on Legal Negotiations with Commercial Lenders (1984) pp. 73, 113Google Scholar.

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82. Schlosser, P., Das Recht der interationalenprivaten Schiedsgerichtsbarkeit, 2nd edn. (1989) p. 403 et seqGoogle Scholar.

83. Wood, op. cit. n. 16, section 3.04(1).

84. Wood, op. cit. n. 16, section 3.04(1).

85. Loan Contract of the Central Bank of Uruguay and the Inter-American Development Bank of 29 March 1984. Reference in Holz, E. and Samtleben, J., ‘Schiedsgerichtbarkeit in Uruguay’, RIW (1988) pp. 107, 109 n. 47Google Scholar.

86. Wood, op. cit. n. 16, section 3.04 (2).

87. Wood, P., ‘Selected Aspects of International Loan Documentation and Rescheduling’, in Kalderén and Siddiqi, op. cit. n. 80, pp. 123, 128Google Scholar.

88. Clare, A., ‘Enforcement of the Arbitration Clause in Brazilian Loan Agreements’, Int. Fin. LR (11 1982) p. 18Google Scholar; Samtleben, , loc. cit. n. 42, pp. 21, 311; cf., also the resolution of the Institut de Droit International of September 1989 on the topic of ‘Arbitral Jurisdiction between States and Foreign Enterprises’, which proclaims a kind of ‘transnational arbitral jurisdiction’. Report by F.Rigaux, in 54 RabelsZ(1990) p. 139 et seq.; the resolution is printed in 54 RabelsZ(1990) p. 159 et seqGoogle Scholar.

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90. Section 12.08 of the New Money Trade Deposit Facility of 28 September 1988 with the Central Bank of Brazil and the Brazilian State as guarantor on the debtor side. This is reproduced as an example in the appendix at the end of this article.

91. Samtleben, , loc.cit. n. 88, pp. 769, 774Google Scholar.

92. Samtleben, , loc. cit. n. 88, pp. 769, 774 with further referencesGoogle Scholar; Ebenroth, , Code, op. cit. n. 29, p. 918 et seqGoogle Scholar.

93. See Larsen, G., ‘Enforcement of Foreign Judgements in Latin America: Trends and Individual Differences’, 17 Texas ILJ (1982) p. 213 et seqGoogle Scholar.

94. On this point see the periodical reviews by Samtleben, J., ‘Schiedsklauseln in Peru und Venezuela’, RIW (1987) p. 20 et seq.; ‘Schiedsklauseln in den Andenpaktstaaten’, RIW (1984) pp. 60 et seq. (Part I), 860 et seq. (Part IT), ‘Handelsschiedsgerichtsbarkeit in Lateinamerika’, WM (1989) p. 769 et seq. with further referencesGoogle Scholar.

95. On this point see H.A.G. Naóon, ‘Argentinien nach der Ratifizierung des New Yorker Abkommens über die Anerkennung und Vollstreckung von ausländischen Schiedssprüchen von 1958’, in Glossner, O., ed, Jahrbuch für die Praxis der Schiedsgericfttsbarkeit, Vol. 2 (1988) p. 1989Google Scholar.

96. A review is provided by Sandrock, O., ‘Gerichts-oder Schiedsklauseln in Verträgen zwischen US-amerikanischen und deutschen Unternehmen: Was ist zu empfehlen?’, in Festschrift für Stiefel (1987) pp. 625, 642Google Scholar. The legal judgements are summarized with commentaries in the Restatement (Third) of the Foreign Relations Law of the United States (1987); on this point see Ebke, W. and Parker, M., ‘Foreign Country Money — Judgements and Arbitral Awards and the Restatement (Third) of the Foreign Relations Laws of the United States’, 24 IL(1990) p. 21Google Scholar.

97. For details see Section 4.3 infra.

98. New Money Bond Subscription Agreement of 22 September 1988 with Brazil.

99. 417 U.S. 506 (1974); on this case, see Barris, C., Die Internationale Handelsschiedsgerichtsbarkeit in den USA (1987) p. 46, with further referencesGoogle Scholar.

100. The court had decided that a contractual regulation which fixes the form and governing law in advance eliminates the danger that a controversy might be brought before a forum which is hostile to one of the parties or not familiar with the subject-matter.

101. 9 USCA section 15, introduced as Section I by Public Law 100–669.

102. Libyan American Oil Company v. People's Libyan Arab Jamahirya, 482 F. Supp. 1175 (1980 D.D.C.); Branson, D. and Wallace, R., ‘Neuere Entwicklungen auf dem Gebiet der Schiedsgerichtsbarkeit in den USA’, in Glossner, , ed., op. cit. n. 95, pp. 268, 270Google Scholar.

103. 28 USCA section 1605 Note 4.

104. Berger, K.P., ‘Internationale Schiedsgerichtsbarkeit und Staatsimmunität, RIW (1989) pp.956, 957, with further referencesGoogle Scholar.

105. The question will be dealt with in a separate article. The present account of arbitral jurisdiction in the USA is necessarily superficial, as it is impossible in the space availabe to do justice to the abundance of literature and legal judgements.

106. Occasionally in the past a syndicated Eurocredit has been classified as a ‘joint venture’: Créedit Francçais International S.A. v. Sociedad Financiera de Comerco, 490 NYS 670 (Sup. Ct. N.Y. 1985). This view is rejected in Buchheit, L., ‘Is Syndicated Lending a Joint Venture?’, Int. Fin. LR (08 1985) pp. 12–14Google Scholar; Buchheit, L. and Reisner, R., ‘The Effect of the Sovereign Debt Restructuring Process on Inter-Creditor Relationships’, in University of Illinois LR (1988) pp. 493, 503; Penn, op. cit. n. 20, section 7.34, 7.35Google Scholar.

107. See, for example, Schwab, K.H. and Walter, G., Schiedsgerichtsbarkeit, 4th edn. (1990) p. 374Google Scholar.

108. Schlosser, , op. cit. n. 82, p. 229Google Scholar.

109. Schlosser, , op. cit. n. 82, pp. 420, 421Google Scholar.

110. 84 Stat. 692 (1970 Amendment).

111. Borris, , op. cit.n. 99, p. 32Google Scholar.

112. Section 202 Agreement or award falling under the Convention

‘An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this tide, falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of die United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages or performs enforcement abroad, or has some other reasonable relation with one or mare foreign states. For the purpose of this section a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States’; on this point see Berg, A. J. van den, ‘When is an Arbitral Award Non-Domestic under the New York Convention of 1958?’, 6 Pace LR (1985) p. 25Google Scholar.

113. In as far as enforcement in the USA is requested.

114. Borris, , op. cit. n. 99, p. 64Google Scholar.

115. Goodwin v. Elkins and Co., 730 F. 2d 99, cert, denied 105 S. Ct. 118, 469 US 831, 83 L. Ed.2d61.

116. Cohen v. Wedbush, 841 F. 2d 282 (9th Cir. 1988), Southland Corp. v. Keating, 104 S. Ct. 852.465USl.79L.Ed.2d 1.

117. Borris, , op. cit. n. 99, pp. 69, 70 with further referencesGoogle Scholar.

118. See, for example, Hay, P., Einführung in das amerikanische Recht(1987) p. 27Google Scholar.

119. Mahson v. Prudential Bache Securities, 654 F: Supp. 101 (W.D.N.C. 1987).

120. Wilko v. Swan, 346 U.S. 427 (1953).

121. American Safety Equipment Corp. v. J.P.Maguire, 391 F. 2d 821 (2nd Cir. 1968).

122. Scherk v. Alberto Culver Co., 417 US 506 (1971); on this point see, for example, Dietrich, H., ‘Internationale Schiedsvereinbarungen vor amerikanischen Gerichten’, 40 RabelZ (1976) p. 1 et seqGoogle Scholar.

123. Mitsubishi Motors v. Soler Chrysler Plymouth, 473 US 614 (1985); for a detailed treatment see Stille, A., Die Schiedsfahigkeit internationaler Kartellrechtsstreitigkeiten im Recht der USA, Dissertation (1989) p. 102 et seq.Google Scholar; O'Neil, P.D., ‘Recent Developments in International Commercial Arbitration: an American Perspective’, 4 Journal of Int. Arb. (1987) p. 8 et seqGoogle Scholar.

124. 482 US 220 (1987).

125. Securities Industry Association et al. v. Michael J. Connolly, US First Circuit Court of Appeals of 31 August 1989, printed in the International Arbitration Report(September 1989) p. 3, with reference to Rodriguez de Quijas v. Shearson and American Express Inc., 1019 S. Ct. at 1920; GKG Caribe v. Microage, U.S. District Court of Puerto Rico of 15 November 1989, printed in International Arbitration Report(December 1989) Sec. C.

126. See Borris, , op. cit. n. 99, p. 143Google Scholar.

127. ‘US Supreme Court Wants Comment on Mass. Arbitral Law’, International Arbitration Report (January 1990) p. 7.