Schneider v. The Kingdom of Thailand Docket No. 11-1458-cv (2d Cir. Aug. 8, 2012)

This case concerns a bilateral investment treaty dispute regarding a tollway project in Thailand that arose between Werner Schneider (acting as insolvency administrator for Walter Bau AG) (“Bau”) and the Kingdom of Thailand (“Thailand”). 

Bau was awarded €30,000,000 by an arbitral tribunal in view of Thailand’s unlawful interference in the tollway project, contrary to an investment treaty made between Germany and Thailand in 2002.  Thailand challenged the arbitral tribunal’s jurisdiction on the basis that the tollway project was not an “approved investment” within the scope of the German-Thai investment treaty.  The arbitration panel concluded that it had jurisdiction over the dispute because the dispute concerned an “approved investment” within the meaning of Article 8 of the 2002 Treaty.  Bau petitioned the district court for the Southern District of New York to confirm the award and Thailand moved to dismiss on the grounds that the arbitration panel did not properly have jurisdiction when issuing its award. 

The district court found that the question of whether Bau had made an “approved investment” related to the scope of the agreement to arbitrate, rather than its formation, and so should be subject to deferential review on appeal rather that a de novo review.  Applying that deferential standard, the district court confirmed the arbitration award.  The Government of Thailand appealed.

On appeal, the Second Circuit addressed the issue of whether the district court had been required to make an independent determination on arbitrability and so consider de novo if Bau had made an “approved investment” in order to determine whether the dispute was arbitrable under the German-Thai investment treaty.  The Second Circuit held that the district court had employed the an incorrect analysis to determine which standard of review to apply to the arbitrators’ determination of their own jurisdiction.  Contrary to the district court’s holding, whether or not a district court should provide an independent review of the arbitrability issue does not turn on whether it is a question of the scope or formation of the arbitration agreement.  Rather, the issue is whether there is “clear and unmistakable evidence” of the parties’ intent to commit the question of arbitrability to arbitration. 

The Second Circuit nonetheless found that there was clear and unmistakable evidence that the parties had agreed to submit the question of arbitrability to the arbitrators and so Thailand was not entitled to independent court adjudication of whether the tollway project qualified as an “approved investment” under the German-Thai investment treaty.  Specifically, the Second Circuit noted that the parties had agreed that the proceedings would be subject to the UNCITRAL Rules, which provide at Article 21 that the arbitral tribunal shall have power to rule on objections to its jurisdiction.  The parties’ representatives had also signed terms of reference stating that the arbitral tribunal was empowered to consider objections to jurisdiction.  The Second Circuit determined that incorporation of the UNCITRAL Rules and the broadly similar provision in the terms of reference served as clear and unmistakable evidence of the parties’ intent to delegate determination of arbitrability to the arbitral tribunal.