An Interplay between customary law norm and Model Law on Cross Border Insolvency
The New York Convention has been a successful instrument towards harmonisation of standards for assessing enforceability of awards and referring parties to arbitration. However, jurisdictional deviations have been in place, alongside modified universalism. Opinions have tilted towards a customary law norm to be developed in the comparatively recent Model Law on Cross Border Insolvency to achieve homogeneity in practices across nations specifically the ancillary jurisdictions.
Article II of New York Convention reads as follows;
- “Each Contracting State shall recognise an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.
- The term ‘agreement in writing’ shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.
- The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”
NYC was intended to promote arbitration as a forum for settlement of international disputes. Therefore, the drafters of convention made sure that once arbitration is agreed as form of dispute resolution, it cannot be reverted to establish a pro arbitration regime. Unless proven that the arbitration agreement is null and void, the parties who agreed to arbitration have to resort to it. To ensure the sustainability of an arbitration agreement, it is made to sign separately, hence shielding it from the fate of general agreement. The “principle of severability” protects the legitimacy and structure of arbitration agreement, keeping it separate from the main agreement in such a way that if the main agreement is rendered null and void, the arbitration agreement still is valid.
Article II states that the contracting states need to have a written agreement along with clearly stated parameter for what falls under the agreement in writing for disposal of the issue that arises. Furthers sub-clause (3) is promotive of parties to refer to arbitration and compels courts to refer the parties to the chosen forum. It limits the scope of discretion of courts and binds them to the obligation of sending the parties to arbitration if signed, even when the other party wishes against it, hereby setting a procedural requirement. After reaching to the forum comes the reward. Article V(1)(a) and Article V(1)(c) of NYC defines recognition and awards. The worldwide delegations to UNCITRAL believe that a universalist insolvency system, rather than one based on territorial principles, is the best way to safeguard value for multinational corporations. Nations however could not readily accept universalism such as where “the extraterritorial main process, also known as the debtor’s Center of Main Interests (COMI), takes over bankruptcy jurisdiction from sovereigns”. This served as a birthstone of modified universalism which mean that the debtors recognise the COMI post which the court asserts jurisdiction over al assets and claims it global.
Though COMI uses insolvency laws and conflict principles to solve its cases, yet despite international recognition and acceptance, bears the brunt of scrutiny at the hands of jurisdictional blocks at hands of Gibbs principle which demonstrates that a rule from a bygone era can threaten growth. Jurisdictional deviation still pertains despite modified universalism. Though been attacked multiple times via model law or common law by Teare J in Bakrie, it has managed to survive and has immunised itself beyond the capacity of harm. Cross-border insolvency system has developed certain gaps which are to be filled via making it suitable for available framework derived from the customary international law. From a merely broad approach, it lifts modified universalism to a more substantive approach, that may be applied more concretely ‘across legal systems in the context of international insolvencies, alongside the application of written instruments when such instruments exist’.
CIL is based on the established fundamentals determining of customs in general based on the conformity of actions and practices with international law forcing modified universalism to be rather flexible like CIL which adjusts to any practice widely accepted and recognised. CIL is a “debiasing” approach that does not need all participants to take active action, such as signing a treaty or enacting model laws, because it functions as an opt-out norm as it aims at overcoming loss aversion and status quo like biases. CILs can eradicate divide and create uniformity equalising the treatment of foreign proceedings, removal of obsolete notion of comity and reciprocity in countries such as south Africa which despite adoption of Model Law does not amend its provisions accordingly and countries like China where the proceedings exist by the virtue of international treaties.
What cover the gap is the formation of sui generis which is achieved by the avoided conflicts with international norms while normalising the overriding of conflicting laws in the civil law countries for better public policy. If cases where cross-border insolvency fails at answering satisfactorily, similar to Rubin case, then we can resort to modified universalism as a customary law. This serves as a great medium for unification of public and private international law.
- Article II of New York Convention
- Varoon Sachdev, Choice of Law in Insolvency Proceedings: How English Courts’ Continued Reliance on the Gibbs Principle Threatens Universalism, WHITE & CASE (2019), at pg. 4.
- IRIT MEVORACH, MODIFIED UNIVERSALISM AS CUSTOMARY INTERNATIONAL LAW, 96 TEX. L. REV. pg. 1405 (2018).
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